94 T.C. 360">*360 Respondent determined deficiencies of $ 11,516.14 and $ 1,167,201.841990 U.S. Tax Ct. LEXIS 22">*23 in petitioner's Federal income taxes for the fiscal years ended October 31, 1984 and 1985, respectively. The sole issue for decision is whether section 453(e) applies to certain sales of real property by petitioner.

Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

94 T.C. 360">*361 FINDINGS OF FACT

Some of the facts have been stipulated, and the facts set forth in the stipulation are incorporated in our findings by this reference. Tecumseh Corrugated Box Co. (petitioner) was a corporation with its principal place of business in Tecumseh, Michigan, at the time it filed its petition. Petitioner was incorporated on January 25, 1963, uses the accrual method of accounting, and reports its income on the basis of a fiscal year ending October 31.

Since its incorporation, petitioner has been engaged in the manufacturing and selling of corrugated containers. Between 1972 and 1985, petitioner conducted paper milling and box manufacturing operations at its Jaite Mill plant located near Cleveland, Ohio. The paper mill manufactured cardboard1990 U.S. Tax Ct. LEXIS 22">*24 from pulp and other raw materials. This cardboard was sold to petitioner's other divisions and to other box fabricators. The box operation produced boxes for sale.

The paper mill, which was constructed in 1905, was the anchor of the Jaite Mill Historic District. This mill, which originally produced paper sacks from rags and rope, recycled cardboard boxes into high quality kraft paper. Petitioner's other divisions molded the paper and used it for the middle layer of the corrugated cardboard boxes that it manufactured.

In 1979, the machinery and equipment comprising the Jaite Mill plant were entered in the National Register of Historic Places by the Heritage Conservation and Recreation Service, U.S. Department of the Interior. None of petitioner's box plant equipment had any historical significance.

Petitioner's stockholders during the years in issue were as follows:

1990 U.S. Tax Ct. LEXIS 22">*25 94 T.C. 360">*362 On December 27, 1974, Congress enacted Public Law 93-555 (the act), which formally established the Cuyahoga Valley National Recreation Area (Cuyahoga). Act of December 27, 1974, Pub. L. 93-555, 88 Stat. 1784, 16 U.S.C. sec. 460ff. The act provided that the land necessary to create Cuyahoga would be acquired "by donation, purchase with donated or appropriated funds, exchange, or transfer" within 6 years from the date of enactment. In 1974, the Federal Government also developed a program to acquire properties in and near Cuyahoga. Petitioner's Jaite Mill plant, including the box plant and certain other properties, was located within the boundaries of Cuyahoga.

Congress appropriated $ 34,500,000 for the acquisition of lands within Cuyahoga and later increased the appropriation to $ 70,100,000. The funds that were appropriated by Congress were not designated to be used to purchase specific property. Rather, the Secretary of the Interior established an acquisition plan that indicated the order in which property would be acquired with the funds appropriated.

The U.S. Government has the power to condemn property. The act, however, did1990 U.S. Tax Ct. LEXIS 22">*26 not give the Department of the Interior authority to condemn property. In order for property to be condemned for Cuyahoga, congressional approval was necessary.

The methods available to the Government for acquisition of property include: (1) Legislative taking, where title to property transfers to the Government the moment legislation is signed; (2) negotiation, where the landowner and the acquiring agency arrive at a mutually agreeable price without litigation; (3) declaration of taking, where the Government, after reaching an impasse with the landowner, deposits with the court the funds determined to be the just compensation for the property to be acquired; and (4) complaint in condemnation, where the Government, after reaching an impasse with the landowner, files a complaint in a U.S. District Court and a jury determines the just compensation for the property.

Petitioner was aware of the act and, at various meetings of its board of directors, discussed the possibility that its property would be condemned. As early as May 1974, petitioner was aware of the possibility that the Jaite Mill 94 T.C. 360">*363 and Cleveland box plants and surrounding property would be acquired by the National1990 U.S. Tax Ct. LEXIS 22">*27 Park Service for Cuyahoga. In May 1974, petitioner retained Ernest Genovese (Genovese), a local attorney, to advise petitioner regarding the possible acquisition of real estate by the National Park Service.

In 1975, petitioner was contacted by William Birdsell (Birdsell), park superintendent of Cuyahoga, who advised petitioner of the Government's plan to acquire properties owned by petitioner in and around Cuyahoga, including the Jaite Mill and Cleveland box plants. Petitioner was also advised by the Army Corps of Engineers that the plan projected acquisition of the Jaite Mill and Cleveland box plants for 1980, the last year of acquisition.

The National Park Service established a priority list with respect to the order in which properties would be acquired. Petitioner knew that its properties were assigned a low priority in connection with the acquisition plan. Petitioner was also aware that acquisition of its properties was dependent upon congressional appropriations and that delays due to lack of funding could occur.

Petitioner was anxious to sell its Jaite Mill and Cleveland box plants. As early as 1975, petitioner looked for prospective purchasers for the Jaite Mill plant, 1990 U.S. Tax Ct. LEXIS 22">*28 but those contacted were not interested.

Beginning in 1975, Genovese attempted to get the National Park Service to acquire petitioner's properties earlier than scheduled. In July 1976, Genovese contacted U.S. Congressman John F. Seiberling for assistance. Congressman Seiberling reviewed the reasons given by the National Park Service for late acquisition of petitioner's properties and concurred with its position.

By letter dated December 15, 1977, Genovese attempted to persuade the National Park Service to provide for an early acquisition of petitioner's properties. Section 2(g) of the act provides that:

In exercising his authority to acquire property under this Act, the Secretary shall give prompt and careful consideration to any offer made by an individual owning property within the recreation area to sell such property, if such individual notifies the Secretary that the continued ownership of such property is causing, or would result in, undue hardship. [Pub. L. 93-555, 88 Stat. 1786.]

94 T.C. 360">*364 In January 1978, appraisers and land acquisition officers for the National Park Service made a preliminary inspection of petitioner's property prior to requesting bids for an appraisal. 1990 U.S. Tax Ct. LEXIS 22">*29 The appraisal was never ordered.

In March 1978, petitioner purchased land in Twinsburg, Ohio, with the intent of constructing a new building to replace the Cleveland box plant that was to be acquired by the National Park Service. During March, April, and May 1978, Genovese, on behalf of petitioner, vigorously attempted to get the National Park Service to acquire its properties as soon as possible.

In early 1978, petitioner retained counsel for a review and determination of the potential tax effects of the sale of its properties to the Federal Government. Specifically, petitioner requested advice on whether it could defer realizing income for Federal income tax purposes from the receipt of the proceeds from the sale of its properties. Petitioner's tax counsel suggested that petitioner obtain a private letter ruling for a determination of the possibility of electing to defer the realization of gain pursuant to section 1033. Petitioner did not pursue this advice.

By letter dated June 26, 1978, Birdsell advised Genovese that: "As discussed with you previously, our plans have not changed; when acquisition of this property will occur has not been finalized. However, it is unlikely1990 U.S. Tax Ct. LEXIS 22">*30 that acquisition will take place before late in fiscal year 1980 (fiscal year 1980 begins October 1, 1979)."

In early 1979, the National Park Service developed a proposal to divide petitioner's properties into five parcels. Pursuant to this proposal, the National Park Service would purchase the four small, unimproved parcels but not the more expensive parcel containing the Jaite Mill and Cleveland box plants. Petitioner objected to the acquisition of anything other than the entire property and declined the National Park Service's proposal in 1979 and again in 1981. By July 1979, petitioner was aware that its properties were not scheduled to be purchased in 1980. By April 1980, petitioner was aware that the Government had halted all purchases of property for Cuyahoga because of lack of funds.

94 T.C. 360">*365 In a letter to Genovese dated November 7, 1979, James J. Robideau (Robideau), petitioner's president, explained that petitioner was having serious labor problems due to the uncertainty of acquisition by the National Park Service. These labor problems included high employee turnover, defective products, serious absenteeism, and unfavorable contract terms. Robideau also noted that1990 U.S. Tax Ct. LEXIS 22">*31 regular, longstanding customers were beginning to turn elsewhere because of this uncertainty.

In December 1980, the Environmental Protection Agency (EPA) cited petitioner for violations with respect to its oil-fired boiler system and waste water treatment facilities at the Jaite Mill plant. Petitioner installed new gas-fired boilers in response to the EPA's actions. To settle the matter with EPA, petitioner signed a consent decree and paid a $ 4,500 fine.

By September 1981, the uncertainty of the acquisition was impeding petitioner's ability to negotiate contracts of any duration with regular and potential customers. Due to these circumstances, petitioner intended to claim hardship in an attempt to expedite the acquisition of its property by the National Park Service. In a letter dated November 4, 1981, the National Park Service confirmed its agreement to an acquisition strategy for petitioner's properties. Pursuant to this strategy, the Government intended to subdivide petitioner's property into five parcels and to purchase the four unimproved parcels "on a one-per-year" basis "as soon as funds are available and the required surveys and appraisals are completed." Acquisition1990 U.S. Tax Ct. LEXIS 22">*32 of the fifth parcel, which included the mill and associated structures, would be "postponed until appropriations for that purpose are available." The property was to be divided in order to facilitate Government acquisition of the smaller, less expensive parcels.

By letter dated July 20, 1982, petitioner was advised that the National Park Service was ordering appraisals of the four small, unimproved parcels. These appraisals were in fact ordered. Because of continued economic problems during 1982, petitioner weighed the possibility of continuing the operations at the Jaite Mill facilities versus the cost of shutting down the paper mill and box plant.

94 T.C. 360">*366 In early 1983, petitioner began negotiating with the National Park Service with respect to the piecemeal acquisition strategy. By March 16, 1983, petitioner and the National Park Service had agreed that the four small parcels would be purchased in 1983. On the same date, petitioner and the National Park Service reached an agreement in principle that the remaining parcel containing the paper mill and box plant would be purchased in 1984, if funds were available.

In May 1983, petitioner began soliciting preliminary figures 1990 U.S. Tax Ct. LEXIS 22">*33 for construction of a replacement facility for the box plant on property already owned by petitioner in Twinsburg, Ohio. Also in May 1983, petitioner ordered an appraisal of the four small parcels by S.M. Dix & Associates, Inc. (Dix). In July 1983, National Park Service personnel toured the paper mill and box plant in preparation for the acquisition.

Prior to September 1, 1983, the National Park Service offered to purchase the four small parcels for a total price of $ 219,500. Despite Genovese's recommendation to accept this offer, petitioner rejected the offer and made no counter offer. Petitioner, however, took action intended to force immediate condemnation of its properties.

In an attempt to force the United States to acquire all the parcels, including the Jaite Mill and Cleveland box plants, petitioner executed a topsoil removal agreement with a commercial topsoil marketing company. Removal of topsoil would have required clear-cutting trees and other vegetation, causing extensive damage to the land. The act prohibits removal of topsoil and cutting of timber to the detriment of the land.

On September 15, 1983, the National Park Service petitioned Congress to authorize a declaration1990 U.S. Tax Ct. LEXIS 22">*34 of taking of the four small, unimproved parcels to prevent removal of the topsoil and timber. Congress, however, denied the National Park Service the authority to file the requested declaration of taking.

Prior to September 17, 1983, petitioner was visited by an EPA inspector and received another citation regarding the paper mill operation. On September 17, 1983, Genovese met with Congressman Seiberling and representatives of the 94 T.C. 360">*367 National Park Service. The results of this meeting were reported to petitioner's board of directors on September 21, 1983, and recorded in the corporate minutes as follows:

(a.) The Chairman and the Appropriation committee will introduce a special bill for the purchase of the property, stressing the fact they needed to buy the land first.

(b.) That the agreement will be in writing and the Park Authority would do the following:

(1) Will provide [petitioner] with a time table (approximately 6 months)

(2) Put in motion a request to receive appraisals (30 days)

(3) An additional 30 days to pick the appraisal

(4) 120 days to get all the numbers together

(5) 30 days to make recommendation to Congress

(6) They would write the EPA and inform them that1990 U.S. Tax Ct. LEXIS 22">*35 they are going to buy the land within sixty (60) days, providing [petitioner] agreed to sell the land right now.

On September 22, 1983, petitioner agreed to sell to the U.S. Department of the Interior the four small, unimproved parcels of land for a total price of $ 235,375. On the advice of Genovese, petitioner considered the sale an involuntary conversion. As of November 22, 1983, petitioner considered that the four small, unimproved parcels had been sold to the Government, although payment had not yet been received. As of that date, petitioner also anticipated that its remaining property would be sold by June 1984.

Petitioner's labor problems were caused by employee uncertainty over the purchase of the plant by the National Park Service. Due to these continuing labor problems, petitioner consulted with Donald Lansky (Lansky), labor counsel, on potential methods to circumvent or eliminate the labor union and its collective bargaining agreement. In a memorandum from Lansky dated January 19, 1984, petitioner received advice concerning the basic principles of successorship and alter ego employers to be considered in evaluating the risks and methods of structuring the sale of a1990 U.S. Tax Ct. LEXIS 22">*36 family business. The memorandum noted that:

Normally, where assets are purchased, the issue is whether the buyer is a "successor employer" who is obligated to bargain with the seller's union(s). * * * The determination of the successorship issue is based on whether the identity of the employing enterprise remains intact. The result of being a successor is that the buyer is then required to recognize 94 T.C. 360">*368 and bargain with the union that had represented the predecessor's employees. * * *

* * * *

The NLRB will find alter ego status "where the two enterprises 'have substantially identical' management, business purpose, operation, equipment, customers and supervision, as well as ownership." * * *

The threshold question to be determined in alter ego cases is whether there is common ownership or control. In this respect, the existence of a family relationship between the new and old owners has been considered by the NLRB as an important factor in finding common ownership and in denying the existence of an arm's length transaction on the sale. * * *

* * * *

To avoid the risks of being considered an alter ego, it is, therefore, imperative to maximize the differences between 1990 U.S. Tax Ct. LEXIS 22">*37 the old and new entities. In this respect, it may be helpful to have a complete cessation of operations of the existing company before the new entity is established to take over. Even here, however, where this is a mask for avoiding labor law obligations, the NLRB will not treat the transaction as being at "arm's length."

Despite this advice, petitioner did not restructure its operations with new lines of production, injection of capital and equipment, and changes in management or supervision. Petitioner was subsequently advised by different labor counsel that it could not avoid or eliminate the collective bargaining unit by structuring a sale of its property to another related entity.

By letter dated February 8, 1984, the National Park Service advised petitioner that it had advertised for the services of an appraiser to appraise petitioner's remaining property. The advertisement projected awarding the contract for appraisal by April 1, 1984, with a 120-day delivery schedule. At that time, the parties understood that a written appraisal would be delivered in August 1984.

Petitioner transferred the four small, unimproved parcels of land to the United States by warranty deed dated1990 U.S. Tax Ct. LEXIS 22">*38 February 17, 1984, as follows:

94 T.C. 360">*369 After the February 1984 sale, petitioner owned Tract No. 107-117 containing 59.59 acres of land. Prior to September 1983, Tract Nos. 107-110, 107-111, 107-114, 107-116, and 107-117 were all one large parcel of land owned by petitioner. The five tracts were interdependent, and the Government intended to acquire all of them.

By letter dated March 16, 1984, the EPA gave petitioner an extension allowing it to operate the Jaite Mill plant until September 15, 1984, without curing its waste water violations. Subsequently, the EPA agreed to allow petitioner to operate the paper mill until November 15, 1984. Petitioner agreed to close permanently its paper mill operations at that time unless all its pollution problems were corrected. The EPA's extension was based on the EPA's understanding that the National Park Service would deliver an appraisal of petitioner's property by September 1, 1984, and would complete the purchase of petitioner's property no later than January 1, 1985.

Petitioner1990 U.S. Tax Ct. LEXIS 22">*39 retained Dix to provide an appraisal of its remaining property for sale to the Government. On May 22, 1984, appraisers from Dix conducted an inspection of petitioner's real and personal property within Cuyahoga. On July 13, 1984, the appraiser obtained by the United States, Keystone Appraisal Co. (Keystone), also inspected petitioner's Cuyahoga property. The appraisers from Keystone were accompanied by representatives of petitioner during their inspection of petitioner's property.

On May 31, 1984, petitioner entered into a land contract (the first disposition) to sell its remaining properties within Cuyahoga, including buildings, machinery, equipment, and trade fixtures, to the James J. Robideau Irrevocable Trust Number One and the James J. Robideau Irrevocable Trust Number Two (the trusts). As of May 31, 1984, petitioner did not have a written appraisal of its property. Under the terms of the contract, petitioner as seller and the trusts as purchaser agreed:

(k) That the full consideration for the sale of the land to the Purchaser shall be the price at which the property is finally acquired by the United States Department of the Interior, National Park Services, Cuyahoga Valley1990 U.S. Tax Ct. LEXIS 22">*40 National Recreation Area, of which the sum of Ten Thousand Dollars ($ 10,000) will be paid to the Seller at the time that such price is 94 T.C. 360">*370 so determined. The balance of such purchase price shall be paid to the Seller with interest thereon from the date hereof at the rate of nine percent (9%) per annum while Purchaser is not in default, and at the rate of nine percent (9%) per annum during the period of any default in payment. Such additional purchase price shall be paid over a period of fifteen (15) years, in equal annual installments including interest at the aforesaid rate of nine percent (9%) per annum, commencing on the anniversary date hereof and annually thereafter until paid in full; such payments to be applied first upon interest and then the balance on principal. Provided, however, the Purchaser shall have the right to prepay all or any part of the unpaid principal balance with accrued interest at any time without penalty.

* * * *

(n) In the event that there arises any Federal and/or State income tax liability to the seller due to any subsequent disposition of the subject property by the Purchaser, Purchaser agree [sic] to make, in addition to any other required1990 U.S. Tax Ct. LEXIS 22">*41 payments, a payment to Seller sufficient to cover said tax liability, and any interest and penalty thereon. Payment shall be made by Purchaser within the time limit specified by the appropriate taxing authority for payment of any such tax liability of the Seller.

(o) In addition to the land described in Paragraph 1, the herein contemplated sale shall include all machinery, equipment and trade fixtures located in, on, attached or appurtenant to the said land, buildings and improvements thereto, and all of the oil, gas and other minerals, and the constituents thereof, owned by the Seller in and under the said land, or wheresoever located * * *

Contemporaneously with execution of the land contract on May 31, 1984, the Trusts executed an assignment of the land contract to the J.M.J. Development Co. (the partnership) for "the full consideration of One Dollar ($ 1.00) and no other consideration." The partnership, as assignee, agreed to assume and to pay the indebtedness under the land contract. Also on May 31, 1984, the partnership filed for recording a memorandum of land contract with the Summit County, Ohio, Registrar of Deeds.

The partnership was formed June 5, 1980, effective as1990 U.S. Tax Ct. LEXIS 22">*42 of November 30, 1979, by the J.J. Robideau Irrevocable Trust Number One and the James J. Robideau Irrevocable Trust Number Two. The James J. Robideau Irrevocable Trust Number One owned an 80-percent interest in the capital of the partnership, and the James J. Robideau Irrevocable Trust Number Two owned a 20-percent interest in the capital of the partnership. (The parties have stipulated that 94 T.C. 360">*371 petitioner, James J. Robideau Irrevocable Trust Number One, James J. Robideau Irrevocable Trust Number Two, and J.M.J. Development Co. are "related persons" within the meaning of sections 453(e)(1) and (f)(1).)

By lease dated June 28, 1982, the partnership held oil and gas rights under the Jaite Mill and Cleveland box plants and surrounding property. The partnership agreement provides that distributions to the partners of net operating profits of the partnership shall be made at such times as the partners shall reasonably agree.

Pursuant to a lease dated May 31, 1984, the partnership leased the property, machinery, and equipment back to petitioner. On its U.S. partnership return of income, the partnership reported gross rental income of $ 121,855 and $ 614,463 for 1984 and 1985, 1990 U.S. Tax Ct. LEXIS 22">*43 respectively.

By letter dated September 20, 1984, Genovese again attempted to persuade Congressman Seiberling that petitioner was suffering a severe hardship due to the delay by the National Park Service in acquiring the property. Genovese referred to petitioner as the owner of the property; the partnership was not mentioned.

Genovese represented both petitioner and the partnership in connection with the sale of the property. By letter dated November 13, 1984, Genovese, on behalf of petitioner, advised the National Park Service that "my client, Tecumseh Corrugated Box Company, is prepared to sell all of its assets * * * for the sum of $ 4,500,000.00, payable $ 2,000,000.00 this year, and the balance of $ 2,500,000.00 when the funds are available for said acquisition." Sale of the property to the National Park Service was approved by Robideau, as petitioner's president, and by petitioner's board of directors.

By letter dated November 27, 1984, J.W. Blanton, Jr. (Blanton), land resource officer, Cuyahoga Valley Land Acquisition Office, National Park Service, notified Genovese that petitioner's offer was acceptable subject to an approved appraisal of not less than $ 4,500,000. Blanton1990 U.S. Tax Ct. LEXIS 22">*44 also enclosed a corporate offer to sell real property requiring the signatures of all principals, including corporate officers of petitioner and the partnership. The National Park Service94 T.C. 360">*372 also required a corporate resolution by petitioner authorizing its officers to sell the property to the United States.

As of December 5, 1984, petitioner considered that the remaining parcel of improved real estate had been sold to the Federal Government. (The parties consistently refer to the sale as "the December 1984 sale," although title did not pass until January 1985.) By corporate warranty deed dated January 16, 1985, petitioner and the partnership, as grantors, transferred title to the property to the United States (the second disposition) for the total sum of $ 4,500,000, payable $ 2 million at closing and $ 2,500,000 on or before December 1, 1985.

After acquisition of the property by the United States, the paper mill operation was discontinued and only the box plant was continued. By December 1984, petitioner was operating its box plant in new quarters. Approximately $ 1,460,000 was expended to construct a building to replace the operations performed at the box manufacturing1990 U.S. Tax Ct. LEXIS 22">*45 business. The employees of the box plant continued the same union representation.

At the time of the first disposition of the property on May 31, 1984, petitioner recorded the sale of the property as a land contract receivable of $ 2 million from the partnership. Subsequently, an adjusting journal entry was recorded on petitioner's books and records for the fiscal year ended October 31, 1984, to reflect an additional land contract receivable from the partnership. On its U.S. corporation income tax return for the fiscal year ended October 31, 1984, petitioner elected to report gain on the sale of its property to the trusts on the installment method. On its 1984 income tax return, petitioner also reported principal payments of $ 64,188 received from the partnership.

In the notes to its financial statements for the fiscal year ended October 31, 1984, petitioner disclosed the land contract and lease as follows:

NOTE 6: RELATED PARTY TRANSACTIONS

The Company is leasing or renting trailers, automobiles, computer equipment, and a maintenance facility from a corporation owned and operated by the immediate family of the President and major stockholder of the Company. The current monthly1990 U.S. Tax Ct. LEXIS 22">*46 charge under these arrangements 94 T.C. 360">*373 is $ 19,279. The total payments to this related party during the year amounted to $ 218,795. These leasing arrangements are classified as operating leases.

The Company has two land contracts receivable from a partnership whose partners are irrevocable trusts created for the benefit of the children of the President of the Company. The land contracts receivable are payable over the next six to fifteen years with interest at six to eleven percent per annum.

* * * *

NOTE 9: EXTRAORDINARY ITEM

The Company sold its Jaite facility and equipment on May 31, 1984 to a partnership whose partners are irrevocable trusts as discussed in note 6. The total selling price of $ 4,050,000 [sic] is contingent upon the subsequent sale of the property by the partnership to the United States Department of the Interior. The amount has been reported as an extraordinary item since it is of an unusual nature and is not expected to occur again. The amount has been reported at the net of the applicable income taxes of $ 1,433,604.

The partnership received payments from the United States in the amounts of $ 2 million and $ 2,500,000 on January 18, 1985, and 1990 U.S. Tax Ct. LEXIS 22">*47 May 3, 1985, respectively. On its 1985 Federal income tax return, the partnership reported a sale of the property on January 16, 1985, and reported gain of $ 251,667. The amount of gain reported by the partnership was equal to the depreciation on the property, machinery, and equipment claimed from May 31, 1984, through January 16, 1985.

On its 1985 income tax return, petitioner reported principal payments of $ 138,884 received from the partnership. Also on its 1985 income tax return, petitioner reported a net long-term capital loss of $ 14,950. Petitioner elected to carryback the net capital loss to its fiscal year ended October 31, 1984, and claimed a $ 4,186 decrease in tax.

In the notes to its financial statements for the fiscal year ended October 31, 1985, petitioner disclosed the sale of its Cuyahoga property as follows:

NOTE 9: EXTRAORDINARY ITEM -- DISCONTINUED OPERATIONS

In December of 1984 the Jaite Mill was sold to the National Park Service and at that time all paper mill operations ceased. The Jaite Mill Division had been a part of the corporation for seventeen years. The loss of $ 46,246 reflects the operations loss for approximately one and one half 94 T.C. 360">*374 1990 U.S. Tax Ct. LEXIS 22">*48 months of this current fiscal year plus expenses connected with closing the operation.

Subject to the availability of funds, the National Park Service is supposed to acquire every piece of land designated for Cuyahoga. At the date of trial of this case in June 1989, however, there were numerous parcels of land within Cuyahoga that still had not been acquired by the National Park Service.

ULTIMATE FINDINGS OF FACT

No Government representatives from Congress, the Department of the Interior, or the National Park Service threatened to condemn petitioner's property. Robideau, petitioner's president, did not believe that the Government would condemn the property. Blanton, a National Park Service acquisition officer, did not believe that condemnation was likely if petitioner refused to sell the property to the Government. Accordingly, the sale of the Jaite Mill and Cleveland box plants and surrounding property in December 1984 was voluntary and was not made under the threat or imminence of condemnation.

OPINION

The general rule is that the entire amount of gain from the sale or other disposition of property is taxed in the year of sale. Sec. 451(a). This gain is computed as the excess1990 U.S. Tax Ct. LEXIS 22">*49 of the amount realized over the adjusted basis of the property. Sec. 1001(a).

In certain circumstances, however, section 453 provides for the reporting of income on the installment basis. The purpose of section 453 is to provide relief for the taxpayer by matching the payment of tax to the actual receipt of the sales price, thus eliminating the hardship resulting when tax must be paid on sums not yet received by the taxpayer. Commissioner v. South Texas Lumber Co., 333 U.S. 496">333 U.S. 496, 333 U.S. 496">503 (1948).

In the statutory notice of deficiency, respondent determined "that the sale of the Jaite Mill and Cleveland Box Division to [the Trusts] * * * was a sham, without economic reality and not a bona fide transaction." Respondent also 94 T.C. 360">*375 determined that the receipt of the sales proceeds by the partnership from the Federal Government "resulted in a second disposition by a related party under the provisions of Section 453." Petitioner contends, however, that section 453(e)(1), modifying the installment method in the case of a second disposition by a related party, does not apply because of the exceptions provided by sections 453(e)(6) and (7).

Section 453(a) provides1990 U.S. Tax Ct. LEXIS 22">*50 the general rule that "income from an installment sale shall be taken into account for purposes of this title under the installment method." Section 453(e), however, provides a special rule in the cases of second dispositions of the property by related persons as follows:

SEC. 453(e). Second Dispositions By Related Persons. --

(1) In General. -- If --