## Facts

- Dollie H. Click and her husband bought approximately 161.25 acres of Virginia farmland in 1964 for $110,000 to hold for investment; after later family conveyances, Click retained about 155.085 acres (parcel A).
- In 1974, Click transferred parcel A and, in return, received cash, a promissory note, and two residential properties.
- Click encouraged her adult children and their spouses to locate houses that could serve as “swap” properties; the children selected the two residences they wanted.
- The children moved into the residences and treated them as their homes soon after acquisition; they paid insurance and property taxes and made personalized improvements.
- About seven months after acquiring the residences, Click gifted each residence to the respective child and spouse.
- On her 1974 return, Click reported no gain on the farmland disposition, claiming nonrecognition under I.R.C. § 1031.
- The IRS determined the exchange did not qualify under § 1031 because the residences were not held by Click for investment or productive use in a trade or business.

## Issues

1. Whether Click’s acquisition of two residences as part of an exchange for investment farmland qualified for nonrecognition under I.R.C. § 1031 when the residences were promptly transferred to her children.
2. If § 1031 applied, whether the receipt of cash, a promissory note, and the two residences should be treated as separate transactions for installment-method reporting under I.R.C. § 453.

## Decision

- The Tax Court held that § 1031 nonrecognition did not apply because Click did not acquire and hold the residences for investment or business use.
- The gain on the farmland disposition was taxable, and the deficiency was sustained subject to computation under Tax Court Rule 155.
- Because § 1031 did not apply, the § 453 installment-method issue was not reached as a determinative matter.

## Legal Principles

- For § 1031 to apply, the taxpayer must intend, at the time of the exchange, to hold the replacement property for investment or for productive use in a trade or business.
- Replacement property acquired primarily to facilitate a personal transfer (such as a planned gift to family members) is not “held for investment” within the meaning of § 1031.
- The Tax Court evaluates economic reality over formal title and labels; short holding periods and prearranged donative objectives may evidence lack of qualifying investment intent.

## Conclusion

The Tax Court denied § 1031 nonrecognition because Click’s conduct showed the replacement residences were obtained chiefly to be transferred to her children rather than to be held as investment property, requiring recognition of gain on the farmland disposition.


Click v. Commissioner, 78 T.C. 225 (1982)