## Facts

- Anne and Mabel Demirjian each owned 50% of a corporation whose principal asset was a Newark, New Jersey office building.
- After the corporation dissolved in 1960, the building was deeded to “Anne Demirjian and Mabel Demirjian, partners trading as Kin-Bro Real Estate Company,” and the sisters filed a trade-name certificate for that business.
- In 1962, the building was taken through condemnation and conveyed to the Newark Housing Authority; the deed again identified the grantors as partners trading as Kin-Bro.
- Net condemnation proceeds were distributed to Anne and Mabel in roughly equal shares.
- Each sister purchased replacement real estate individually (in her own name), seeking nonrecognition of gain under I.R.C. § 1033.
- Neither sister reported the condemnation gain on the 1962 return; amended returns later treated gain as deferred/reduced by replacement costs.
- The Commissioner asserted that the building was partnership property and that § 1033 deferral required a partnership-level election and partnership acquisition of replacement property; deficiencies were determined for 1962.
- The Tax Court sustained the deficiencies, and the taxpayers petitioned for review.

## Issues

1. Whether the condemned building was owned by Kin-Bro as a partnership asset rather than by the sisters as tenants in common.
2. If the property was a partnership asset, whether I.R.C. § 703 required the § 1033 election and replacement purchase to be made by the partnership, not the individual partners.
3. Whether the government was estopped from denying § 1033 treatment based on IRS conduct, including an extension of the replacement period granted to one partner.

## Decision

- The Third Circuit affirmed the Tax Court.
- The court held the record supported treating Kin-Bro as a partnership and the building as a partnership asset.
- Because § 703 requires partnership taxable income (and related elections) to be determined at the partnership level, the § 1033 election and qualifying replacement had to be made by the partnership.
- Replacement properties bought individually by the partners did not satisfy § 1033 for a partnership-level involuntary conversion.
- The court rejected estoppel, finding no basis to prevent enforcement of the statutory requirements.

## Legal Principles

- For property owned by a partnership, Subchapter K generally requires income computation and elections to be made at the partnership level under I.R.C. § 703.
- When partnership property is involuntarily converted, the partnership is the relevant “taxpayer” for § 1033 purposes; qualifying replacement property must be acquired by the partnership.
- Partners cannot obtain § 1033 nonrecognition for partnership gain by purchasing replacement property in their individual capacities.
- Estoppel against the government is not available absent circumstances sufficient to override statutory requirements; administrative actions such as time extensions do not validate an otherwise improper taxpayer-level election.

## Conclusion

The court upheld deficiencies arising from a condemnation of partnership property, ruling that § 1033 deferral was unavailable because the partners, rather than the partnership, acquired the replacement property and made the nonrecognition attempt, and the government was not estopped from applying the statute.


Demirjian v. Commissioner, 457 F.2d 1 (3d Cir. 1972)