Rev. Rul. 69-303

Advice has been requested whether the transaction described below is an involuntary conversion as a result of "threat or imminence" of condemnation within the meaning of the provisions of section 1033 of the Internal Revenue Code of 1954.

The taxpayer owned 100 acres of unimproved land. In 1967, the taxpayer was formally advised by a representative of the United States Department of the Interior Fish and Wildlife Service that it had decided to acquire his property and that, although it did not currently have funds with which to do so, such funds had been requested and were expected to be available in 1969, at which time his property would be acquired by condemnation if a voluntary sale could not be arranged.

The representative of the Fish and Wildlife Service also advised the taxpayer that it had reached an understanding with a private nonprofit membership organization that the organization would attempt to purchase the taxpayer's property and hold it until the Fish and Wildlife Service obtained the funds to purchase it. The primary purpose of the organization is to acquire land for the protection of natural areas. As part of its program, the organization acquires land in which Federal and state governmental agencies are interested for conservation purposes but which these agencies do not currently have the funds to purchase. In such cases, the organization will sell the land to the agency when the agency obtains the funds to purchase it for the price paid for the land by the organization plus costs incurred by the organization in purchasing the land. In 1968, the organization purchased the taxpayer's land pursuant to a resolution to resell the land to the Fish and Wildlife Service when the necessary funds were obtained by that agency.

Where property is involuntarily converted as a result of threat or imminence of condemnation, section 1033(a) of the Code provides for the nonrecognition of gain, at the election of the taxpayer and if certain replacement requirements are met.

Revenue Ruling 63-221, C.B. 1963-2, 332, states that for purposes of section 1033(a) of the Code, a threat or imminence of condemnation is generally considered to exist when a property owner is informed, either orally or in writing, by a representative of a governmental body or by a public official authorized to acquire property for public use, that such body or official has decided to acquire the property and the property owner has reasonable grounds to believe, from the information conveyed to him by such representative or official, that the necessary steps to condemn the property will be instituted if a voluntary sale is not arranged.

Under the facts stated, a threat or imminence of condemnation existed with regard to the taxpayer's property under the principles of Revenue Ruling 63-221. Furthermore, while the property was not sold to the governmental body having the authority to condemn the property if necessary, it was sold under circumstances where the purchaser was acting in cooperation with such governmental body for the purpose of acquiring the property for public use. Compare S.H. Kress & Co. v. Commissioner, 40 T.C. 142 (1963), acquiescence, C.B. 1965-2, 5, which held that property sold by a taxpayer to a private third party at the direction of a municipality which had the authority to condemn and acquire the property and would have done so if the sale had not been made as it directed was involuntarily converted for purposes of section 1033 of the Code.

Accordingly, the sale by the taxpayer in the instant case of his property to the nonprofit organization is an involuntary conversion of such property as a result of threat or imminence of condemnation within the meaning of section 1033(a) of the Code.