## Facts

- Kate J. Crichton and her three children co-owned (in undivided interests) unimproved country land and an improved city lot containing a hotel.
- In 1936, the parties completed an intrafamily exchange intended to be of equal value.
- The children conveyed to Crichton their undivided one-half interest in the improved city lot, valued at $15,357.77.
- Crichton conveyed to the children an undivided 3/12 interest in the oil, gas, and other minerals in and under the country land.
- Crichton’s cost basis in the transferred mineral interest was zero.
- Crichton reported no gain, treating the transaction as a nonrecognition like-kind exchange under § 112(b)(1) of the Revenue Act of 1936.
- The Commissioner determined the exchange produced a taxable capital gain of $15,357.71 and assessed a deficiency of $628.66.
- The Board of Tax Appeals held the exchange was solely in kind under § 112(b)(1) and reduced the deficiency to $86.46.
- The Commissioner sought review in the Fifth Circuit.

## Issues

1. Whether exchanging an undivided mineral interest in unimproved land for an undivided interest in an improved city lot is an exchange of “property of a like kind” under § 112(b)(1) of the Revenue Act of 1936.
2. Whether gain must be recognized when the taxpayer’s basis in the transferred mineral interest is zero but the real property received has substantial value.

## Decision

- The Fifth Circuit affirmed the Board of Tax Appeals.
- The court held that the mineral interest constituted an interest in real property and the exchange was real property for real property.
- The court concluded the transaction qualified as a like-kind exchange under § 112(b)(1), so no gain was recognized on the exchange.

## Legal Principles

- For § 112(b)(1), “like kind” in the real property context is construed broadly; dissimilarity in location, physical attributes, or profit-making potential does not preclude like-kind treatment when both sides are real property interests held for qualifying purposes.
- An undivided mineral interest in land is treated as an interest in real property for purposes of the like-kind exchange nonrecognition rule.
- Treasury regulations interpreting broadly phrased nonrecognition provisions may be given significant weight when they reflect long-standing, consistent administrative construction.

## Conclusion

The court held that an exchange of an undivided mineral interest in land for an undivided interest in improved city real estate is a like-kind exchange of real property under the Revenue Act of 1936, requiring nonrecognition of the gain attributable to the property received.


Commissioner v. Crichton, 122 F.2d 181 (5th Cir. 1941)