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- 1031 Tax Deffered Exchange
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Bahr v. Dep't of Revenue; TC-MD 080525B Sep. 25, 2009 STEVEN H. BAHR AND LAUREEN R. BAHR, v. IN THE OREGON TAX COURT A trial was convened on February 12, 2009, in Salem, Oregon. Earl A. Doman, Certified Public Accountant, represented Plaintiffs. Laureen R. Bahr provided sworn testimony. Bruce McDonald, Tax Auditor, represented Defendant. At issue is whether four parcels of land qualify to Internal Revenue Code (IRC) Section 1031 deferred tax treatment for the 2005 tax year. Defendant made its adjustments based on the conclusion that properties were held for sale and not as a mere investment. The parties agree the sole issue is whether the $127,188 reported on Form 8824 qualifies for deferred tax treatment. I. STATEMENT OF FACTS The essential facts are not in dispute. Sometime prior to 1996, Plaintiffs were in an informal partnership with Rod and Loretta Lent (Lents). Ms. Lent is Laureen Bahr's sister. At that time, they owned a duplex together. In 1996, they exchanged the duplex for five acres of vacant land at 1090 Clearlake Road NE in Keizer, Oregon. The parties agree that, at this point in time, Plaintiffs were clearly considered "investors" in the property. In 2001 and 2002, the Lents built a personal residence at the back of the property. In March of 2004, the partnership submitted an application to the City of Keizer seeking permission to subdivide the property into 27 individual lots. At that time, Plaintiffs agreed "at the beginning that 22 lots were to be sold to Darrell Beam Construction." (Def's Position Paper at 1.) The application was approved and the subdivision site work was done later in 2004. That development work included placing roads, underground utilities, excavation, engineering, permits and other indirect costs. (Id.) The total spent on development was $524,038. (Id.) Following those improvements to the land, the first lots were sold on January 7, 2005. (Id.) Laureen R. Bahr testified at the trial. She stated that Darrell Beam Construction initially offered $60,000 per acre for the raw land in its entirety. He also offered to pay $58,000 per developed lot if it were instead divided by the partnership. That computed to a net gain of over $700,000 after the development costs were deducted. Plaintiffs were not actively involved in the development efforts. Ms. Bahr testified she was busy during this period attending nursing school; she testified she never viewed or inspected the project. Any business coordination was primarily handled by the Lents. She stated the land was improved "to increase the sale price of our investment." Plaintiffs, she said, "intended to make an investment for our retirement." Defendant admits the initial land holding was for investment purposes. The auditor maintains this intent changed after receiving the Beam offer and then subdividing into individual lots. That, he concluded, converted the investment aim to a business venture with a clear intent to liquidate the business holdings at a profit. (The rest of the file can be viewed by clicking on the link at the top of this page.) |
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