                        T.C. Memo. 1997-109



                     UNITED STATES TAX COURT



                  TERRY D. SMITH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 843-95.                         Filed March 3, 1997.



   Richard E. Marsh, Jr., for petitioner.

   James E. Gray and Paul G. Topolka, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


   COLVIN, Judge:   Respondent determined a deficiency of $33,242

in petitioner's Federal income tax for 1990.

   The issue for decision is whether petitioner may defer

recognition of gain realized on the sale of two properties

pursuant to section 1031(a).   We hold that he may not because he
                               - 2 -

failed to establish that he identified replacement property

within 45 days after he transferred the relinquished properties.

   Unless otherwise indicated, section references are to the

Internal Revenue Code as in effect for the year in issue.    Rule

references are to the Tax Court Rules of Practice and Procedure.

                         FINDINGS OF FACT

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

A. Petitioner

   Petitioner lived in Charlotte, North Carolina, when he filed

the petition in this case.   Petitioner has been a practicing

certified public accountant since 1969.     Among his clients are a

large number of individuals and small to medium-sized businesses.

   In 1989, petitioner and David E. Parrish (Parrish) owned

properties at 4938 Monroe Road, Charlotte, North Carolina (the

Monroe Road property), and at 1900 East Seventh Street,

Charlotte, North Carolina (the Seventh Street property).

B. Petitioner's Sale of the Properties

   1.     The Monroe Road Property

   In December 1989, petitioner contracted to sell his interest

in the Monroe Road property to Mr. and Mrs. Thomas Hauch and Mr.

and Mrs. Everett Wohlbruck (the Hauchs and the Wohlbrucks).

Petitioner sent a letter dated December 15, 1989, to the Hauchs'

and Wohlbrucks' attorney, Charles O. Dubose (Dubose).    Dubose was

an attorney at the law firm of Kennedy, Covington, Lobdell, &

Hickman (KCLH).   The letter included the following statement:
                                - 3 -

   This is to confirm our conversation today regarding Monroe
   property as a tax free exchange for my one-half interest
   in the property. Although I have not yet identified the
   replacement property, I do intend to perfect an exchange.

   Petitioner transferred his one-half interest in the Monroe

Road property to the Hauchs and Wohlbrucks on February 5, 1990.

The contract of sale did not specify any replacement property.

   KCLH sent an internal memo to Randall W. Lee at KCLH's

Southpark Office, which included the following statement:

   With respect to Mr. Smith's one half undivided interest in
   the Monroe Road property, he intends to effect a tax free
   exchange and, therefore, wants us to hold his portion of
   the net proceeds from the sale in escrow pending further
   instructions relative to the tax free exchange.

   2.       The Seventh Street Property

   On January 9, 1990, petitioner and Parrish contracted to sell

the Seventh Street property to Donald P. McCurdy (McCurdy).

Paragraph 6(a) of the contract of sale stated as follows:

   Sellers intend for this transaction to qualify under the
   tax-free exchange provisions of the IRS Code and buyer
   agrees to execute any related documents required to do so.

   The contract of sale did not identify any replacement

property.    Petitioner transferred his interest in the Seventh

Street property to McCurdy on February 14, 1990.      Kenneth F.

Essex (Essex) was McCurdy's attorney for the closing of the

Seventh Street property transaction.      Essex's law firm was Essex,

Richards, Morris, & Jordan, P.A.    Essex was also petitioner's

escrow agent for petitioner's portion of the proceeds from the

sale of the Seventh Street property.      The record does not show
                                - 4 -

whether the escrow agreement between petitioner and Essex was

oral or written.

   3. Handling of the Proceeds From the Sale of Both Properties

   In a letter dated March 2, 1990, Essex confirmed that he

invested petitioner's share of the proceeds from the Seventh

Street property ($30,072) in a certificate of deposit with the

Bank of Mecklenburg.    Around March 20, 1990, KCLH transferred the

proceeds from the sale of petitioner's interest in the Monroe

Road property ($9,882), by check drawn on KCLH's trust account to

Essex's law firm.   Essex added those proceeds to the certificate

of deposit with the Bank of Mecklenburg.

C. Petitioner's Purchase of the East Boulevard Property

   On February 27, 1990, H.P. Smith (Smith), a real estate

broker with MECA properties, took petitioner to tour property at

910 East Boulevard, Charlotte, North Carolina (the East Boulevard

property), and gave him some preliminary information about the

building.   The East Boulevard property was well-located for

petitioner's accounting practice.   East Boulevard was one of two

streets in Charlotte on which petitioner was considering buying

replacement property.   It appeared that the property could

possibly be suitable for petitioner, but there were several

points that had to be resolved.   First, the East Boulevard

property needed to be substantially rehabilitated to make it

usable.   Second, petitioner thought the sellers' price was too

high.   Third, petitioner wanted to structure the financing with a
                                - 5 -

high debt-to-value ratio.    In order to buy the property,

petitioner wanted to obtain some seller financing.    Fourth,

petitioner could not decide if the property was acceptable

without the approval of Frederick R. Black (Black), his new

partner.    Black saw the East Boulevard property in early March

1990.   Petitioner did not look at any properties after February

27, 1990; he was extremely busy because of the tax season.

   Smith intended to talk to petitioner on March 26 about making

an offer on the East Boulevard property, but it is unknown

whether he did so.    Petitioner and Black did not make an offer to

buy the property until May 14, 1990.

   On May 25, 1990, petitioner and Black, as SB Properties, a

North Carolina general partnership, contracted with Harold H. and

Loretta K. Brown (Mr. and Mrs. Brown) to buy the East Boulevard

property.    Paragraph (2) of Addendum "A" of the Offer to Purchase

and Contract states as follows:

   Exchange Provision. Buyer may wish to qualify this
   transaction under Section 1031 of the Internal Revenue
   Code; therefore, Buyer shall have the right to cause
   Seller to accept suitable property in exchange for all or
   part of Seller's property hereunder; provided that,
   property exchanged to Seller shall be subject to immediate
   purchase by a third party, and provided further that the
   cost to Seller of accepting the exchange property and
   transferring it to a third party shall be reimbursed to
   Seller by Buyer, and provided that the terms and
   conditions of such exchange shall in no event be more
   onerous and burdensome to Seller.

   On June 19, 1990, Mr. and Mrs. Brown transferred the East

Boulevard property to petitioner and Black as tenants in common.
                                 - 6 -

Petitioner's share of the cash portion of the purchase price was

$16,000.    Of that amount, petitioner paid $2,500 as earnest money

when the contract was signed.    Also on June 19, 1990, Essex

redeemed the certificate of deposit, and thereafter disbursed

$20,843 to petitioner and bought two certificates of deposit for

$10,000 each.    Petitioner deposited the $20,843 he received in

his account with United Carolina Bank.    Petitioner used the two

certificates of deposit as partial collateral for a $50,000 loan

to renovate the East Boulevard property.

D.   Petitioner's 1990 Tax Return

     On the Form 8824, Like-Kind Exchanges, attached to

petitioner's 1990 income tax return, petitioner reported that he

transferred property as part of a like-kind exchange on February

21, 1990.   In fact, petitioner transferred his interests in the

Monroe Road and Seventh Street properties on February 5 and

February 14, 1990, respectively.    Also on that Form 8824,

petitioner reported that he identified replacement property on

April 1, 1990.    April 1, 1990, is the 46th day after February 14,

1990, and the 55th day after February 5, 1990, the dates that

petitioner transferred his interests in the Seventh Street and

Monroe Road properties, respectively.

                                OPINION

A.   Background and Contentions of the Parties

     The issue for decision is whether petitioner may defer the

gains realized on the sale of the Monroe Road and Seventh Street
                                  - 7 -

properties pursuant to section 1031(a).     Generally, a taxpayer

must recognize gain or loss on the sale of real property.     Sec.

1001(c).   However, section 1031(a) provides for the deferral of

gain or loss when there is an exchange of like-kind business or

investment properties, as distinguished from a cash sale of

property by the taxpayer and a reinvestment of the proceeds in

other property.    Barker v. Commissioner, 74 T.C. 555, 561 (1980).

     Petitioner contends that his sale of the Monroe Road and

Seventh Street properties and subsequent purchase of the East

Boulevard property qualifies as a nontaxable exchange under

section 1031(a).   Respondent contends that those transactions do

not qualify because (1) petitioner did not identify the

replacement property within 45 days of the sale of the

relinquished properties; (2) petitioner received the proceeds

from the sale of the relinquished properties; and (3) the sales

and purchase were not an "exchange" as required by section

1031(a).   Respondent's determinations are presumed correct, and

petitioner bears the burden of proof.      Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).      Petitioner must rebut all

three of respondent's arguments to qualify under section 1031(a).

B.   Identification Requirement

     Section 1031(a)(3)(A) requires replacement property to be

identified within 45 days after the date the taxpayer transfers
                                - 8 -

the property relinquished in the exchange.1   The parties dispute

whether petitioner identified the East Boulevard property within

45 days after he transferred the Monroe Road and Seventh Street

properties.    Petitioner contends that he orally identified the

East Boulevard property within 45 days after he transferred the

relinquished properties and points out that he saw no other

property after he saw the East Boulevard property on February 27,

1990.    Respondent argues (1) that an oral identification is not

sufficient under section 1031(a)(3)(A), and (2) that even if an

oral identification is sufficient, petitioner failed to identify

replacement property, orally or otherwise, within 45 days.

   We are not convinced that petitioner identified the East

Boulevard property within 45 days after February 5 or 14; i.e.,

by March 22 or 31.    This conclusion is supported by petitioner's

1990 tax return.    Petitioner reported on his 1990 tax return that

he identified the replacement property on April 1, 1990.    April

1, 1990, is the 55th day after petitioner sold the Monroe Road

property and the 46th day after he sold the Seventh Street

property.    Statements in a tax return are admissions and will not

be overcome without cogent evidence that they are wrong.     Waring

     1
      In May 1990, the Secretary proposed a regulation requiring
written identification of replacement property. Sec. 1.1031(a)-
3(c), Proposed Income Tax Regs., 55 Fed. Reg. 20283 (May 16,
1990). This section was adopted in 1991 as sec. 1.1031(k)-1(c),
Income Tax Regs., by T.D. 8346, 1991-C.B. 150, 156. The
regulation applies to transfers of property made on or after June
10, 1991. At the time of the transactions in issue no
regulations were in effect.
                               - 9 -

v. Commissioner, 412 F.2d 800, 801 (3d Cir. 1969), affg. per

curiam T.C. Memo. 1968-126; Estate of Hall v. Commissioner, 92

T.C. 312, 337-338 (1989); Lare v. Commissioner, 62 T.C. 739, 750

(1974) ("Statements made in a tax return signed by a taxpayer may

be treated as admissions."), affd. without published opinion 521

F.2d 1399 (3d Cir. 1975); Rankin v. Commissioner, T.C. Memo.

1996-350; Sirrine Bldg. No. 1 v. Commissioner, T.C. Memo. 1995-

185 ("As statements of a party opponent, the returns are

admissions under rule 801(d)(2) of the Federal Rules of

Evidence."); Estate of Ford v. Commissioner, T.C. Memo. 1993-580,

affd. 53 F.3d 924 (8th Cir. 1995); Mooneyham v. Commissioner,

T.C. Memo. 1991-178; Estate of McGill v. Commissioner, T.C. Memo.

1984-292; Estate of Kreis v. Commissioner, T.C. Memo. 1954-139,

affd. 227 F.2d 753 (6th Cir. 1955); see United States v. Dinnel,

428 F. Supp. 205, 208 (D. Ariz. 1977) ("Statements made in an

income tax return constitute admissions."), affd. without

published opinion 568 F.2d 779 (9th Cir. 1978); Kaltreider v.

Commissioner, 28 T.C. 121 (1957), affd. 255 F.2d 833 (3d Cir.

1958).   There is no cogent or persuasive evidence that petitioner

identified the replacement property before April 1, 1990.   When

petitioner saw the East Boulevard property on February 27, 1990,

he liked the location, but he thought the price was too high, he

had specific requirements for financing terms, he knew he would

need to make (and arrange financing for) extensive renovations,
                               - 10 -

and Black had not yet approved the property.   According to

petitioner, Black gave his approval in early March.

     Petitioner testified that he instructed Smith on February 27,

1990, that "we would like to pursue" the purchase of that

building, but Smith did not corroborate that or act in the

following weeks as if he had been instructed to arrange the

purchase.   Petitioner did not begin to negotiate the price with

the sellers until May.   There is no evidence that his concerns

(other than approval by Black) were satisfied before May.     We

give more weight to his statement on his 1990 tax return that he

identified the property as replacement property on April 1, than

to his trial testimony that he identified it earlier.

     We conclude that petitioner has not shown that he identified

the East Boulevard property as replacement property within the

time required by section 1031(a)(3)(A); i.e., by late March,

1990.   Petitioner may not defer recognition of the gains realized

from the sale of the Monroe Road or Seventh Street properties

under section 1031(a)(1) because he did not identify replacement

property within 45 days after the date he relinquished either

property.   Sec. 1031(a)(3)(A).

C.    Respondent's Other Contentions

     Because we find that petitioner did not identify replacement

property on or before March 30, 1990, we need not decide

respondent's contention that an oral identification does not meet

the identification requirement under section 1031(a)(3)(A).
                             - 11 -

   Similarly, we need not decide respondent's contentions that

petitioner's sale of the Monroe Road and Seventh Street

properties is ineligible for like-kind exchange treatment under

section 1031(a) because petitioner constructively received the

proceeds from the sale of each of those properties and that the

sales and purchase were not an exchange as required by section

1031(a).


                                   Decision will be entered for

                              respondent.
