## Facts

- Harry G. Masser operated an interstate trucking business.
- Masser purchased two parcels of real property located across the street from each other and used them together in his business.
- He improved the first parcel by constructing an office building and used that parcel for business operations, including loading and unloading.
- He used the second parcel primarily as a parking area for his trucks.
- Masser’s use of the two parcels was integrated; they functioned together as one operating arrangement for the trucking business.
- A governmental authority threatened to condemn the parking parcel, and Masser sold that parcel under the threat of condemnation.
- The parties agreed that the sale of the parking parcel was an involuntary conversion under § 112(f)(1) of the Internal Revenue Code of 1939 (the predecessor to I.R.C. § 1033).
- The improved parcel with the office building was not itself threatened with condemnation, but the loss of nearby parking would have forced Masser to obtain substitute parking about 1.5 miles away.
- Masser determined in good faith that separating office operations from truck parking would cause added labor costs, create safety and security risks, lead to delivery delays, and create traffic-management problems.
- As a result, Masser sold the improved parcel as well and intended to use the proceeds from both sales to acquire replacement property where office facilities and truck parking could again be kept close together.
- The Commissioner treated only the parking-parcel sale as qualifying under § 112(f) and determined a deficiency by treating gain from the improved-parcel sale as taxable.
- The Massers petitioned the United States Tax Court for redetermination.

## Issues

1. Whether the taxpayer’s sale of the noncondemned improved parcel, made after and because of a partial condemnation of related property, was part of the same “involuntary conversion” under § 112(f)(1).
2. Whether the condemned parcel and the noncondemned parcel constituted a single economic property unit such that the condemnation made continued use of the remaining parcel impractical for its prior business purpose.

## Decision

- The Tax Court held that the parking-parcel sale was an involuntary conversion under § 112(f)(1) (as conceded).
- The Tax Court further held that the sale of the improved parcel also qualified for involuntary-conversion treatment.
- The court concluded that the two parcels were used together as one economic unit in Masser’s trucking business and that the condemnation-related loss of the parking parcel made continued use of the improved parcel for its prior purpose impractical.
- Because the condemnation effectively compelled disposition of the improved parcel as a practical matter, the court treated the proceeds from that sale as within § 112(f), subject to the statute’s replacement-property requirements.

## Legal Principles

- A “conversion” under § 112(f)/§ 1033 can extend beyond the property directly condemned when the facts show that the condemned property and other property sold were parts of one economic property unit.
- When a partial condemnation so impairs the usefulness of the remaining property for its prior intended use that continued use is impractical or uneconomic, a subsequent sale of the remaining property may be treated as sufficiently compelled to qualify as involuntary.
- The inquiry is fact-driven and centers on the substantial economic relationship between the properties and the practical effect of the condemnation on the taxpayer’s continued operations.
- A sale need not be made directly to the condemning authority to fall within § 112(f) if the sale is made because the condemnation or its threat has materially disrupted the taxpayer’s ability to use the property as an integrated unit.

## Conclusion

*Masser* recognizes that involuntary-conversion treatment may apply to a taxpayer’s sale of noncondemned property when a partial condemnation breaks up a single, integrated economic unit and makes continued use of the remainder impractical; in that setting, the Tax Court treated the sale of the remaining property as part of the same involuntary conversion under § 112(f), allowing nonrecognition to the extent the proceeds were timely reinvested in qualifying replacement property.


Harry G. Masser v. Commissioner, 30 T.C. 741 (1958)