Inaja Land Co. v. Commissioner
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| Inaja Land Co. v. Commissioner[where?] | |
|---|---|
 | |
| Court | United States Tax Court |
| Full case name | Inaja Land Company, Ltd. v. Commissioner of Internal Revenue |
| Decided | October 21, 1947 |
| Citation | 9 T.C. 727 |
| Court membership | |
| Judge sitting | James Russell Leech |
| Case opinions | |
| Decision by | Leech |
| Laws applied | |
| Internal Revenue Code | |
Inaja Land Co., Ltd. v. Commissioner, 9 T.C. 727 (1947)[1] was a United States income tax case which discussed whether, and how much, basis the taxpayer could recover to offset a gain from compensation from the government for an easement on his land. HELD:
- 1. The $50,000 that petitioner received from the City -- for a right of way and an easement on taxpayer's land, and releasing the city from all claims and demands, etc. -- was lost (present) capital rather than lost (future) profits; i.e. it should be chargeable to the capital account for land, rather than treated as taxable income under I.R.C. § 22(a) [today § 61(a)].[2]
- 2. Since, under the circumstances, it was practically impossible to allocate a basis to the easements granted, entirety of the net amount received will be recovered from that basis.
In 1928, the taxpayer paid $61,000 for 1,236 acres (5.00 km2) of land on the Owens River.[1] In 1934, the City[clarification needed] diverted polluted waters upstream from the taxpayer's property, adversely affecting the fishing on the taxpayer's property and causing flooding and erosion. The city settled with the taxpayer for $50,000; net of legal fees, taxpayer's gain was $49,000.[citation needed]
Issues
Does the $49,000 constitute taxable income under Section 61(a),[2] or is it chargeable to the taxpayer's capital account? If the latter, how much basis should be recovered?