## Facts

- Bloomington Coca-Cola Bottling Co. acquired a bottling plant in 1930 for $36,000, allocating $5,500 to land and $30,500 to buildings.
- By 1938, the plant was inadequate; the company decided to build a new plant and dispose of the old one.
- The company contracted with a contractor to construct a new plant for $72,500, with the contractor providing all materials and labor.
- The contractor received $64,500 in cash and accepted the old plant (land and buildings) at a stated value of $8,000; the old plant was conveyed to the contractor.
- On its 1939 return, the company reported the disposition as a sale at a loss, allocating the $8,000 “sales price” between land and building and claiming a loss.
- The Commissioner and the Tax Court treated the transaction as a taxable sale of real estate with loss recognized under § 112(a), affecting the computation of the taxpayer’s excess profits tax credit.
- On appeal, the taxpayer accepted the Tax Court’s factual findings but argued the Tax Court misapplied the law by failing to treat the transaction as a nonrecognition exchange under § 112(b)(1).

## Issues

1. Whether the transfer of the old plant plus cash to a contractor in connection with construction of a new plant constituted a nonrecognition like-kind exchange under § 112(b)(1).
2. Whether the cash component required characterization of the disposition of the old plant as a taxable sale with a recognizable loss under § 112(a).

## Decision

- The Seventh Circuit reversed the Tax Court.
- The court held the transaction qualified as an exchange within § 112(b)(1), not a taxable sale.
- The court concluded that cash paid to equalize values did not disqualify the transaction from exchange treatment.
- Because the transaction was a nonrecognition exchange, the loss on the old plant was not currently recognizable for the excess profits tax credit computation.

## Legal Principles

- For § 112(b)(1), an integrated transaction in which a taxpayer transfers business real estate as part of the consideration for receiving replacement business real estate may be treated as an exchange rather than a sale.
- The presence of cash paid to adjust differences in value between properties does not, by itself, convert an otherwise like-kind exchange into a taxable sale; the cash may be treated as payment for the excess value of the property received.
- A taxpayer’s initial reporting characterization does not control if the legal classification under the statute is different on the established facts.

## Conclusion

The court treated the contractor arrangement as a like-kind exchange of business real estate with cash paid to equalize value, so § 112(b)(1) applied and the taxpayer could not currently recognize a loss on the disposition of its old plant.


Bloomington Coca-Cola Bottling Co. v. Commissioner, 189 F.2d 14 (7th Cir. 1951)