Tax Court Denies Like-Kind Exchange Treatment to Vacation Homes Not Held for Investment Purposes

The Tax Court yesterday, in Moore v. Commissioner, T.C. Memo. 2007-134 (5/30/07), held that a married couple's exchange of vacation homes did not qualify for like-kind exchange treatment because the homes were not held for investment purposes as required by § 1031(a):

As a preliminary matter, we accept as a fact that petitioners hoped that both the Clark Hill and Lake Lanier properties would appreciate. However, the mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence. See Jasionowski v. Commissioner, 66 T.C. 312, 323 (1976). ... Moreover, a taxpayer cannot escape the residential status of property merely by moving out. [See] Newcombe v. Commissioner, 54 T.C. 1298, 1302 (1970). ...

This Court has frequently applied the reasoning of one or both of Jasionowski and Newcombe in rejecting taxpayer arguments that because a second or vacation home was held for appreciation (i.e., investment) the taxpayer was entitled to a deduction, under § 212(2), for expenses incurred to maintain or improve the property. ...  [T]he holding of a primary or secondary (e.g., vacation) residence motivated in part by an expectation that the property will appreciate in value is insufficient to justify the classification of that property as property "held for investment" under § 212(2) and, by analogy, § 1031. ...

[T]he evidence overwhelmingly demonstrates that petitioners' primary purpose in acquiring and holding both the Clark Hill and Lake Lanier properties was to enjoy the use of those properties as vacation homes; i.e., as secondary, personal residences.

The Tax Court also rejected the taxpayer's motion to reject the Government's post-trial brief in the case.  Although the brief was filed one day outside of the 60-day period prescribed by Rule 151(b), the Tax Court rejected the motion because the Court had erred in setting the due date of the brief.  For the court's discussion of this issue, see below the fold. 

On the basis of Rule 151(b), Time for Filing Briefs, petitioners argue that we must disregard respondent's opening brief because respondent filed that brief 1 day late and did not move before the due date for an extension of time to file. Petitioners also argue that, because respondent "failed to file" an opening brief and did not seek leave of the Court to file a reply brief, he is not permitted to file a reply brief. See Rule 151(b).

Petitioners argue that respondent should have filed his opening brief no later than August 15, 2005, the last day of the 60-day period allotted by the Court for such filings at the conclusion of the trial on June 15, 2005, even though the trial transcript furnished to the parties records both the trial clerk and the Court as stating that due date to be August 16, 2005, the date upon which respondent's opening brief was actually filed.

Because the Court identified a due date one day after the close of the 60-day period allocated by the Court for the filing of opening briefs, the Court must accept some responsibility for the tardiness, if any, in respondent's filing of his opening brief. Moreover, 1 day is negligible, and we do not believe that it prejudiced petitioners in preparing their answering brief. In fact, petitioners do not allege that they were so prejudiced; they allege only that we "must strike and disregard" respondent's brief pursuant to Rule 151. Under the circumstances, we find it inappropriate to disregard or strike respondent's opening (or reply) brief, and we decline to do so.

Interestingly, the Tax Court does not quote the language in Rule 151(b) imediately prior to the 45-day deadline:  "The following times for filing briefs shall prevail in the absence of any different direction by the presiding Judge."