                        T.C. Memo. 1997-304



                      UNITED STATES TAX COURT



   WILLIAM T. SHIPES, JR. AND KATHY D. SHIPES, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18409-95.                       Filed July 1, 1997.



     William T Shipes, Jr., & Kathy D. Shipes, pro sese.

     Monica J. Howland, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WRIGHT, Judge:   Respondent determined a deficiency of

$39,393 in petitioners' Federal income tax for taxable year 1991.

We must decide whether section 10331 permits the use of multiple

     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
                                                   (continued...)
                                - 2 -

replacement periods in connection with a single condemnation of

property.   If we decide that section 1033 permits the use of

multiple replacement periods, we must then decide whether

petitioners replaced converted property with qualified

replacement property.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein.    At the time the petition was filed in this

case, petitioners resided in the State of Florida.     Petitioners

are husband and wife and filed a joint Federal income tax return

for taxable year 1991.

     Petitioner-husband (Mr. Shipes) is a nurseryman by

occupation.   Sometime during the late 1970's and early 1980's, he

purchased 10 acres of real estate located in Orange County,

Florida, and began a business thereon in which he grew and sold

various types of plants and trees.      In 1984, Mr. Shipes began a

citrus nursery (the Nursery) on the above-mentioned land.       The

Nursery produced and sold citrus seedlings.     The Nursery's

seedlings were never part of the above-mentioned real estate.

     On October 25, 1985, as part of an eradication project (the

Eradication Project) with the U.S. Department of Agriculture

(USDA), the State of Florida Department of Agriculture (SFDA)

     1
      (...continued)
Procedure.
                               - 3 -

destroyed Mr. Shipes' entire nursery stock because it was

suspected that such stock was infected with a bacterial disease

known as citrus canker.   As a result of this condemnation, Mr.

Shipes received $8,661 (the conversion proceeds) on July 28,

1986.2

     Petitioners reported the $8,661 in conversion proceeds on

their 1986 Federal income tax return.    They did not, however,

make an election on that return in accordance with section 1033

to defer the gain realized with respect to the conversion

proceeds.

     Sometime after July 28, 1986, an entity named Mid-Florida

Growers, Inc. (MFGI) initiated a lawsuit against SFDA in which it

sought additional compensation for the loss it incurred as a

result of the Eradication Project.     That lawsuit was selected as

the test case for nursery owners affected by the Eradication

Project and was ultimately decided in MFGI's favor by Florida's

Supreme Court.   See Department of Agric. & Consumer Servs. v.

Mid-Florida Growers, Inc., 521 So. 2d 101 (Fla. 1988).     The State

of Florida subsequently established an administrative process by

which nursery owners affected by the Eradication Project could

file claims for additional compensation.    Such claims were to be

filed with the Office of Citrus Canker Claims (the OCCC).    Mr.

Shipes filed a claim with the OCCC and received $197,512.08 (the

     2
       Specifically, the USDA paid Mr. Shipes $6,252, and the
SFDA paid him $2,109.
                              - 4 -

OCCC award) on February 18, 1991, as additional compensation for

the destruction of his nursery stock.   Of this amount, $81,100.28

was interest and $10,757.73 was reimbursement of legal fees paid.

Petitioners included the portion of the OCCC award that

constituted interest and reimbursement of legal fees on their

1991 Federal income tax return, but they did not report the

remaining $105,654.07 (the additional conversion proceeds).

Instead, petitioners attached a statement to their 1991 return

which purports to make an election under section 1033 to defer

recognition of the gain realized on the receipt of the additional

conversion proceeds.

     On January 28, 1993, petitioners purchased real estate for

$110,000 from Mr. Shipes' mother.

     Respondent determined that the additional conversion

proceeds do not qualify for nonrecognition under section 1033.    A

notice of deficiency was issued on June 23, 1995.

                             OPINION

     As a general rule, gain realized from the sale or other

disposition of property must be recognized.   Sec. 1001(c).

Section 1033 provides an exception to this general rule and

allows for nonrecognition of gain realized from certain

involuntary conversions of property if an appropriate election is

made and, during a specified replacement period and for purposes

of replacing the converted property, a taxpayer desiring to defer

recognition of such gain purchases other property similar or
                                  - 5 -

related in service or use to the converted property.     Sec.

1033(a)(2)(A).   Under section 1033(a)(2)(A), gain will be

recognized only to the extent that the amount realized from the

conversion exceeds the cost of the replacement property.     Among

other things, an involuntary conversion results when property is

condemned by the government.   Sec. 1033(a).

     In general, the replacement period under section 1033 begins

on the date of the disposition of the converted property, or if

earlier, on the date when requisition or condemnation is

threatened, and ends 2 years after the close of the first taxable

year during which any part of the gain from the conversion is

realized.   Sec. 1033(a)(2)(B).    The ending date of the

replacement period may be extended if the taxpayer timely files

an application with the Commissioner.     Section 1033(a)(2)(B)(ii).

     The principal issue in this case is whether section 1033

permits the use of multiple replacement periods in connection

with a single condemnation of property by the government.       The

parties agree that any replacement period involved in this case

began in October 1985.   Petitioners argue, however, that this

case requires the use of two replacement periods because

conversion proceeds were received on two different dates.

Specifically, petitioners maintain that the first replacement

period ended on December 31, 1988, and pertained to the portion

of the conversion proceeds that Mr. Shipes received on July 28,

1986.   The second replacement period, according to petitioners,
                               - 6 -

ended on December 31, 1993, and pertained to the additional

conversion proceeds that Mr. Shipes received on February 18,

1991.

     Respondent disagrees with petitioners' multiple replacement

period argument and maintains that section 1033 only authorizes

the use of a single replacement period, a period that, in this

case, ended on December 31, 1988.   We agree with respondent.

     Nothing in the Code or the regulations authorizes the use of

multiple replacement periods as maintained by petitioners.

Similarly, the case law precludes the use of multiple replacement

periods as well.   Two of the three cases cited by petitioners do

not involve the application of section 1033 and lend no support

to our analysis of the instant case.3   The final case cited by

petitioners, Conlorez Corp. v. Commissioner, 51 T.C. 467 (1968),

is inconsistent with their argument.4

     3
      Neither Patrick McGuirl, Inc. v. Commissioner, 74 F.2d 729
(2d Cir. 1935), nor Covered Wagon, Inc. v. Commissioner, 369 F.2d
629 (8th Cir. 1966) involves sec. 1033. Therefore, neither
supports petitioners' argument.
     4
      The facts of the instant case are indistinguishable from
the facts of Conlorez Corp. v. Commissioner, 51 T.C. 467 (1968).
The taxpayer in the Conlorez case had property that was condemned
by the government. Shortly thereafter, the government paid the
taxpayer an amount that exceeded that taxpayer's basis in the
condemned property. Sometime later, more than 2 years following
the close of the taxable year during which the government paid
the taxpayer the above-mentioned amount, a court awarded the
taxpayer an additional amount which the taxpayer subsequently
used to replace the condemned property. This Court held that,
because the taxpayer realized gain in the taxable year that it
received the first payment, and because the purported replacement
                                                   (continued...)
                               - 7 -

     Section 1033(a)(2)(B) clearly states the law as follows:

     The * * * [replacement period] shall be the period
     beginning with the date of the disposition of the
     converted property, or the earliest date of the threat
     or imminence of requisition or condemnation of the
     converted property, whichever is the earlier, and
     ending --

                (i) 2 years after the close of the
                first taxable year in which any
                part of the gain upon the
                conversion is realized, or

                (ii) subject to such terms and
                conditions as may be specified by
                the Secretary, at the close of such
                later date as the Secretary may
                designate on application by the
                taxpayer. Such application shall be
                made at such time and in such
                manner as the Secretary may by
                regulations prescribe. [Emphasis added.]

It is clear from the text of the statute above that in the

absence of an extension by the IRS, the opportunity for deferral

is lost when the replacement period runs beyond 2 years after the

close of the first taxable year during which conversion gain is

realized.   See Stewart & Co. v. Commissioner, 57 T.C. 122 (1971);

Feinberg v. Commissioner, 45 T.C. 635 (1966), affd. 377 F.2d 21

(8th Cir. 1967); see also Conlorez Corp. v. Commissioner, supra.

It is irrelevant that a taxpayer may receive a portion of his or

her condemnation award long after the replacement period has


     4
      (...continued)
property was not purchased within 2 years following the close of
that taxable year, and because the taxpayer did not apply for an
extension of time to replace the condemned property, the taxpayer
did not qualify for nonrecognition of gain under sec. 1033.
                                - 8 -

expired.   The taxpayer has the responsibility to take precautions

necessary to prevent loss of the deferral option by requesting an

extension as provided in section 1033(a)(2)(B)(ii).

     In the instant case, Mr. Shipes first received conversion

gain in 1986.   He subsequently received additional conversion

gain in 1991.   Because petitioners did not apply to extend the

end date of the replacement period, the replacement period ended

on December 31, 1988.   Sec. 1033(a)(2)(B).     It follows that the

additional conversion proceeds were received 2 years and 49 days

after the end of the replacement period.      Accordingly,

petitioners are not entitled to defer recognition of the gain

realized from the additional conversion proceeds.5

     To reflect to foregoing,

                                             Decision will be

                                        entered for respondent.




     5
      Having found for respondent on the issue of the length of
the replacement period, we do not discuss whether the property
petitioners purchased in 1993 qualifies as replacement property
for purposes of sec. 1033.
