Internal Revenue Service (IRS)
Revenue Ruling (Rev. Rul.)
26 USC § 1033
Released: 1972

Condemnation of Real Property Held for Productive Use in Trade or Business or for Investment

The acquisition of an interest in overriding oil and gas royalties with proceeds from the sale of unimproved real estate under threat of condemnation is a replacement with “like-kind” property qualifying for nonrecognition of gain under section 1033 of the Code.

In 1965, the taxpayer acquired as an investment unimproved real estate. In 1970, the property was sold at a gain to a governmental authority under threat of condemnation. The amount received for the property was immediately reinvested in interests in overriding oil and gas royalties, subject to depletion allowances.

Held, the overriding oil and gas royalties are interests in real property. Revenue Ruling 55-526, C.B. 1955-2, 574, and Revenue Ruling 68-226, C.B. 1968-1, 362. Accordingly, there was a replacement with “like-kind” property under section 1033(g) of the Internal Revenue Code of 1954. If all of the other requirements of section 1033(a) of the Code are satisfied, the gain qualifies for nonrecognition under section 1033 of the Code.