## Facts

- Parker, successor to a partnership, acquired beneficial control of four foreclosed apartment properties (1933–1936) through arrangements with two banks using a straw titleholder.
- For each property, the bank deeded to a straw man; the straw gave the bank a note secured by a first mortgage, gave Parker second mortgages and powers of attorney to operate, and delivered unrecorded deeds to Parker.
- Parker reported rental income and claimed ownership deductions, including depreciation, for the years he operated the properties.
- By 1945, the first mortgages were in default; by agreement, the banks took back the properties via quitclaim deeds from the straw, and Parker’s second mortgages were discharged of record.
- Parker’s 1945 return treated the reconveyances as sales at prices equal to the face amounts of the first mortgages, and he reported long-term capital gain.
- The first mortgages totaled $273,000 when Parker acquired the properties; he paid $13,989.38 on them and claimed $45,280.48 in depreciation.
- Using depreciation-adjusted basis, Parker computed gain of $31,291.10 and paid tax on 50% of that amount under the long-term capital gain provisions.
- Parker later sought a refund, arguing the 1945 reconveyances yielded no “amount realized” because he received no cash or property.

## Issues

1. Whether reconveyance of mortgaged real estate to the mortgagees, with discharge of the taxpayer’s related interests, is a “sale or other disposition” producing an “amount realized” under Internal Revenue Code §§ 111 and 113.
2. Whether relief from liabilities associated with the property may be treated as part of the “amount realized” even if the taxpayer receives no cash.
3. Whether a taxpayer who previously claimed depreciation and other ownership benefits may deny taxable gain on later disposition by characterizing the transaction as producing no realization.

## Decision

- The First Circuit affirmed judgment for the Collector and denied the refund.
- The court held that Parker realized taxable gain upon the 1945 disposition.
- The reconveyance and related discharge of interests constituted a taxable “disposition” with an “amount realized” not limited to cash received.
- Parker’s adjusted basis had to reflect depreciation previously claimed, yielding a positive gain subject to long-term capital gain treatment.

## Legal Principles

- Gain from a “sale or other disposition of property” equals the excess of the “amount realized” over the depreciation-adjusted basis under Internal Revenue Code §§ 111 and 113.
- The “amount realized” may include economic benefits from a disposition, including relief from liabilities tied to the property, and is not confined to cash or property paid over at closing.
- A taxpayer who has consistently treated himself as the owner for tax purposes (including claiming depreciation) must compute disposition gain using the resulting adjusted basis.

## Conclusion

The court held that the 1945 reconveyance of the mortgaged apartment properties to the banks, coupled with discharge of related interests and a basis reduced by prior depreciation, produced a taxable long-term capital gain, so Parker was not entitled to a refund.


Parker v. Delaney, 186 F.2d 455 (1st Cir. 1950)