T.C. Memo. 1998-107

UNITED STATES TAX COURT

DAVID A. AND MARILYN P. KNIGHT, Petitioners v. 

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16522-96. Filed March 16, 1998.

David A. and Marilyn P. Knight, pro sese.

John J. Lancaster, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION 

JACOBS, Judge: Respondent determined a $27,412 deficiency in

petitioners' 1993 Federal income tax. The sole issue for decision

is whether petitioners may defer recognition of gain realized on

the sale of two residential rental properties pursuant to section

1031(a). 

Unless otherwise indicated, all section references are to the
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Internal Revenue Code in effect for the taxable year in issue. 

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The

stipulations of facts and the attached exhibits are incorporated

herein by this reference. Petitioners resided in Franklin,

Tennessee, at the time they filed their petition and amended

petition. At all relevant times, petitioners were realtors. 

Before the year under consideration, petitioners resided in

Milwaukee, Wisconsin. There, they owned two residential rental

properties: 3460 North 99th Street (99th Street property) and 7643

West Center Street (West Center Street property). Petitioners had

purchased the 99th Street property for $126,000 in July 1991 and

the West Center Street property for $118,500 in 1986. 

In 1993, petitioners moved to Franklin, Tennessee. They

decided to dispose of these two residential rental properties by

exchanging them for like-kind property pursuant to section 1031.

Accordingly, petitioners entered into two accommodation agreements

with Heritage Title Services, Inc. (accommodation agreements),

pursuant to which they agreed to sell the two residential rental

properties and purchase other qualifying like-kind property in

Tennessee as part of a tax-free exchange. The accommodation

agreements required petitioners to identify replacement properties

within 45 days after the date of the closing on the two rental

properties and to receive the qualifying like-kind property within

180 days after the date of the closing on the two rental
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properties. 

On February 17, 1993, petitioners sold their 99th Street

property for $135,000. On February 19, 1993, they sold the West

Center Street property for $136,000. 

On April 2, 1993, petitioners identified the following three

potential replacement properties: (1) A 100- by 300-foot parcel in

Franklin, Tennessee; (2) 2902 Campbellsville Pike, Columbia,

Tennessee (Campbellsville Pike property); and (3) 2711 Murfreesboro

Road, Antioch, Tennessee (Murfreesboro Road property). 

Petitioners immediately began negotiations to acquire the 100-

by 300-foot parcel in Franklin, Tennessee, but these negotiations

ended without an agreement. Then, petitioners attempted to acquire

the Campbellsville Pike property. An agreement to purchase that

property was reached, but on August 16, 1993, the sellers of the

property canceled the sale. 

On December 23, 1993, petitioners purchased the Murfreesboro

Road property for $321,750. The acquisition of the property was

more than 180 days from the respective dates the 99th Street and

West Center Street properties were sold. 

Federal Income Tax Returns

On Forms 8824, Like-Kind Exchanges, attached to their 1993

Federal income tax and amended returns, petitioners elected to

defer the gain realized on the sale of their two residential rental

properties. 
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Notice of Deficiency

In the notice of deficiency, respondent determined that

petitioners' like-kind exchange of properties in Wisconsin for

property in Tennessee did not qualify as a section 1031 nontaxable

exchange because the statutory time requirement for completion of

the exchange was not met. Accordingly, respondent determined that

petitioners had ordinary income of $16,266 and capital gain of

$82,288 for 1993 arising from this exchange. 

OPINION

Petitioners contend that although they attempted to adhere to

the section 1031 requirements, an event beyond their control (i.e.,

the seller of one of the replacement properties--Campbellsville

Pike property--canceled the sale 1 day prior to the date set for

closing) prevented them from receiving the replacement property

within the prescribed 180-day period for receiving like-kind

property. Respondent argues that because petitioners received the

replacement property beyond the prescribed 180-day period,

petitioners' exchange does not qualify for the like-kind treatment;

and, as a consequence, petitioners must recognize as income the

gain attributable to the sale of the 99th Street and West Center

Street properties. 

Section 1001 generally requires recognition of the entire

amount of gain or loss on the sale or exchange of property.

Section 1031(a)(1), however, provides for the nonrecognition of

such gain or loss on "the exchange of property held for productive
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use in a trade or business or for investment if such property is

exchanged solely for property of like kind which is to be held

either for productive use in a trade or business or for

investment." For transfers after July 18, 1984, section

1031(a)(3), enacted as part of the Deficit Reduction Act of 1984,

Pub. L. 98-369, sec. 77(a), 98 Stat. 494, 595, governs deferred

like-kind exchanges. 

Section 1031(a)(3)(A) requires deferred replacement property

to be identified within 45 days after the date the taxpayer

transfers the property relinquished in the exchange. The parties

agree that petitioners satisfy this requirement.

Section 1031(a)(3)(B) provides that the property received by

the taxpayer (the exchanged property) will not qualify for tax-free

treatment if the exchanged property is received after the earlier

of 180 days from the date the taxpayer transfers the property

relinquished in the exchange or "the due date (determined with

regard to extension) for the transferor's return of the tax imposed

by this chapter for the taxable year in which the transfer of the

relinquished property occurs". Petitioners admit that the transfer

of the replacement property (Murfreesboro Road property) to

petitioners occurred more than 180 days after they transferred

their interest in the two residential rental properties. Hence, it

is obvious that petitioners failed to satisfy the 180 day

requirement of section 1031(a)(3)(B)(i). See St. Laurent v.

Commissioner, T.C. Memo. 1996-150. (We note that section
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1031(a)(3)(B)(ii) does not apply herein because the due date for

petitioners' 1993 Federal income tax return was April 15, 1994,

which is later than the 180 day requirement.) Thus, the

Murfreesboro Road property is property which is not like-kind.

Petitioners assert they should not have to recognize gain on

the exchange because they made a good faith attempt to adhere to

the statute. In essence, petitioners request that the Court ignore

the plain language of the statute and essentially rewrite it to

achieve what would be an equitable result. See Hildebrand v.

Commissioner, 683 F.2d 57, 58-59 (3d Cir. 1982), affg. T.C. Memo.

1980-532. Although we are sympathetic to petitioners' plight, we

do not have jurisdiction to do as petitioners request. Regrettably

for petitioners, this Court is not a court of equity and does not

possess general equitable powers. Stovall v. Commissioner, 101

T.C. 140, 149-150 (1993) (citing Commissioner v. McCoy, 484 U.S. 3

(1987)); Woods v. Commissioner, 92 T.C. 776, 787 (1989). The

Internal Revenue Code, not general equitable principles, is the

mainspring of this Court's jurisdiction. Commissioner v. Gooch

Milling & Elevator Co., 320 U.S. 418, 422 (1943). 

Petitioners claim that Internal Revenue Service (IRS) should

take a more "citizen-friendly" position than respondent asserts

herein. Petitioners philosophize that if circumstances beyond

their control prevent them from purchasing replacement property

within the 180-day period, then the time for acquiring replacement

property pursuant to section 1031 should be the same as the time
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for acquiring replacement property where there is an involuntary

conversion; and thus, the 180-day period should be extended to 2

years. Petitioners read IRS Publication 544, Sales and Other

Dispositions of Assets, to support their philosophy. Although we

do not read IRS Publication 544 in the way petitioners do,

nonetheless, it is well settled that authoritative tax law is

contained in statutes, regulations, and judicial decisions and not

in informal publications. See Zimmerman v. Commissioner, 71 T.C.

367, 371 (1978), affd. without published opinion 614 F.2d 1294 (2d

Cir. 1979); Green v. Commissioner, 59 T.C. 456, 458 (1972).

Internal Revenue Service publications, like the one upon which

petitioners relied, are merely guides published by the IRS to aid

taxpayers. See Dixon v. United States, 381 U.S. 68, 73 (1965). 

Petitioners do not dispute respondent's computations as to the

amount of gain realized from the disposition of the two rental

properties in Wisconsin. Accordingly, respondent's computations

are sustained.

To reflect the foregoing,

Decision will be entered

for respondent.