''Fairfield Plaza, Inc. v. Commissioner'', 39 T.C. 706 (1963) was a case before the United States Tax Court discussing timing alternatives in taxing the

return of capital Return of capital (ROC) refers to principal payments back to "capital owners" (shareholders, partners, unitholders) that exceed the growth (net income/taxable income) of a business or investment. It should not be confused with Rate of Return (ROR ...

Background

Facts

The taxpayer purchased a piece of land, divided it into two tracts, and made certain improvements. The taxpayer sold both of the tracts of land in different years and allocated his basis between the two tracts based upon area. The taxpayer also allocated certain amounts that had been placed into

escrow An escrow is a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacti ...

between the two tracts. The amounts in escrow were for improvements to the tract that was sold last.

Tax return

The

IRS The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...

determined that the taxpayer improperly allocated these allocations in its

tax return A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer. Taxation is one of ...

Issues

The taxpayer challenged the IRS's determination, claiming that the IRS erroneously determined the proper allocation of his basis between the two tracts of land and that the IRS erroneously allocated the amounts that were placed in escrow for improvements between the two tracts of land.

Opinion of the court

The court affirmed, finding that the allocation of basis was not proper within the meaning of Treas. Reg. § 1.61-6, reasoning that: *the relative values of the two tracts were different *the tract that was sold last was of a greater value *the taxpayer was not entitled to allocate the amounts placed into escrow between the two tracts of land. The court reasoned that the amounts in question were used for improvements to the tract that was sold last.

References

{{DEFAULTSORT:Fairfield Plaza, Inc. V. Commissioner United States Tax Court cases United States taxation and revenue case law 1963 in United States case law