CITE AS:  Commissioner v. Crichton, KTC 1941-33 (5th Cir. 1941)


UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT


COMMISSIONER OF INTERNAL REVENUE, Petitioner v. KATE J. CRICHTON,
  Respondent.

Docket: 9800                                      Filed: August 9, 1941


	Before FOSTER, HUTCHESON, and HOLMES, Circuit Judges.


	HUTCHESON, Circuit Judge.

	In 1936, respondent and her three children, owning, in undivided 
interests, a tract of unimproved country land and an improved city lot, 
effected an exchange of interests. Her children transferred to respondent 
their undivided interest in the city lot. Respondent transferred to her 
children, as of equal value, an undivided 3/12 interest in the "oil, gas 
and other minerals, in, on and under, and that may be produced from" the 
country land. The 1/2 interest conveyed to respondent had a value of 
$15,357.77. The interest respondent transferred to her children had a cost 
basis of zero.

	Respondent treating the exchange as one of property for property of 
like kind and therefore nontaxable under Section 112(b)(1), <> 
Revenue Act of 1936, did not report any profit therefrom. The 
commissioner, of the opinion that the exchange resulted in a capital gain 
of $15,357.71, under Section 117, Revenue Act of 1936, determined a 
deficiency of $628.66 accordingly.

	The Board <> of the opinion that the exchange was "solely in 
kind", disagreed with the commissioner and on redetermination fixed the 
deficiency at $86.46. The commissioner is here insisting that the Board 
has wrongfully decided the question. We do not think so. We agree with the 
Board that whatever difficulty there might have been, if the statute stood 
alone, in determining the meaning of the very general words it uses, as 
applied to the facts of this case, that difficulty vanishes in the light 
of Treasury Regulation 94, <> if that regulation is valid, and 
we think it quite clear that it is. As was the case with regard to the 
statute considered in Helvering v. Reynolds Tobacco Co., 306 U.S. 110, 
113, so here, the section "is so general in its terms as to render an 
interpretative regulation appropriate."

	As was the case there, so here, "the administrative construction 
embodied in the regulation has [for many years], been uniform with respect 
to each of the revenue acts, as evidenced by Treasury rulings and 
regulations, and decisions of the Board of Tax Appeals."

	The commissioner concedes, as he must, that under Louisiana law, 
mineral rights are interests not in personal but in real property, and 
that the rights exchanged were real rights. In the light therefore of the 
rule the regulation lays down, of the examples given in the illustrations 
it puts forth, and of the construction which, under its interpretation, 
the statute has been given throughout this long period, it will not do for 
him to now marshal or parade the supposed dissimilarities in grade or 
quality, the unlikenesses, in attributes, appearance and capacities, 
between undivided real interests in a respectively small town hotel, and 
mineral properties. For the regulation and the interpretation under it, 
leave in no doubt that no gain or loss is realized by one, other than a 
dealer, from an exchange of real estate for other real estate, and that 
the distinction intended and made by the statute is the broad one between 
classes and characters of properties, for instance, between real and 
personal property. It was not intended to draw any distinction between 
parcels of real property however dissimilar they may be in location, in 
attributes and in capacities for profitable use.

	The order of the Board was right. It is affirmed.


<>

	1/ "Section 112. Recognition of Gain or Loss. (b) Exchanges solely in 
kind. (1) Property held for productive use or investment. No gain or loss 
shall be recognized if property held for productive use in trade or 
business or for investment (not including stock in trade or other property 
held primarily for sale, nor stocks, bonds, notes, choses in action, 
certificates of trust or beneficial interests, or other securities or 
evidences of indebtedness or interest) is exchanged solely for property of 
a like kind to be held either for productive use in trade or business or 
for investment."

	2/ 42 B.T.A. 490.

	3/ "Art. 112(b)(1)-1. Property held for productive use in trade or 
business or for investment. -- As used in section 112(b)(1), the words 
'like kind' have reference to the nature or character of the property and 
not to its grade or quality. One kind or class of property may not, under 
this paragraph, be exchanged for property of a different kind or class. 
The fact that any real estate involved is improved or unimproved is not 
material, for such fact relates only to the grade or quality of the 
property and not to its kind or class. Unproductive real estate held by 
one other than a dealer for future use or future realization of the 
increment in value is held for investment and not primarily for sale.

	"No gain or loss is recognized if (1) a taxpayer exchanges property 
held for productive use in his trade or business, together with cash, for 
other property of like kind for the same use, such as a truck for a new 
truck or a passenger automobile to be used for like purpose, or (2) a 
taxpayer who is not a dealer in real estate exchanges city real estate for 
a ranch or farm, or a leasehold of a fee with 30 years or more to run for 
real estate, or improved real estate for unimproved real estate, or (3) a 
taxpayer exchanges investment property and cash for investment property."

<>