Alderson v. Commissioner

In May 1957, James and Clarissa Alderson (plaintiffs) negotiated to sell their property in Buena Park to Alloy Die Casting Company (Alloy), and Alloy deposited $17,205 in escrow towards the purchase. Although the Aldersons were willing to take a cash offer for the Buena Park property, their first choice was to exchange it for a like-kind property to use in trade or for investment. Shortly after the Aldersons and Alloy began negotiations, the Aldersons found a property in Salinas. The Aldersons decided that they wanted to exchange their Buena Park property for the Salinas property instead of making a cash sale. As a result, Alloy deposited additional funds needed in escrow to secure the Salinas property with the intentions of purchasing the Salinas property and exchanging it with the Aldersons for the Buena Park property. Further, the escrow instructions for the Salinas property stated that title could be given to Alloy if Alloy immediately recorded a deed from Alloy to the Aldersons. The exchange of properties was made shortly after, and all deeds were recorded on September 4, 1957. The Internal Revenue Commissioner (the commissioner) (defendant) assessed the Aldersons a deficiency on their federal income taxes, having determined that the transfer of the Buena Park property was a sale in which the Aldersons realized a long-term capital gain and not a nontaxable exchange of property. The Aldersons sought review of the commissioner’s determination from the United States Tax Court. The Tax Court agreed with the commissioner, finding that the transactions regarding the two properties did not meet the definition of an exchange under § 1031(a) of the Internal Revenue Code of 1954. The Aldersons appealed.