an exchange of one for the other is not an exchange of like property within *** [the meaning of the predecessor statute to section 1031]. [Id. at 197.]

Petitioners argue that Oregon Lumber Co. v. Commissioner, supra, is distinguishable because under Georgia State law, both sets of property involved in petitioner's exchange constituted realty. Furthermore, petitioners argue, the abovequoted statements from Oregon Lumber are dicta and thus not controlling. We agree with petitioners that under Georgia State law, the prevailing view appears to be that a conveyance of standing timber, to be severed by the buyer, generally constitutes a transfer of real property. See Smith v. Alexander & Bland, 148 S.E. 98 (Ga. 1929); McLendon Bros. v. Finch, 58 S.E. 690, 691-692 (Ga. 1909); McRae v. Stillwell, 36 S.E. 604 (Ga. 1900); Chavers v. Kent Diversified Prods., Inc., 389 S.E.2d 261, 262-263 (Ga. Ct. App. 1989).8

In arguing that the properties are of like kind, petitioners rely in part on Commissioner v. Crichton, 122 F.2d 181 (5th Cir. 1941), which held that an undivided fractional interest in mineral rights on unimproved country land was of like kind to undivided interests in improved city lots. Petitioners cite Crichton for the proposition that section 1031 is to be lib

8 Some Georgia case law arguably supports respondent's contention that the property petitioner relinquished constituted personalty. In Johnson v. Truitt, 50 S.E. 135, 136 (Ga. 1905), the contractual right of a purchaser to cut standing timber within 12 months was referred to as "merely a license to cut and remove the timber for the purposes stated, during the time fixed in the contract." See also Graham v. West, 55 S.E. 931 (Ga. 1906) (sale of standing timber where the growing trees are to remain in the soil for a fixed time or indefinitely concerns an interest in the land, but if the trees are to be immediately severed and carried away, the sale is of personal property). In North Ga. Co. v. Bebee, 57 S.E. 873, 874 (Ga. 1907), the Georgia Supreme Court cited Johnson v. Truitt, supra, with approval for the proposition that "the owner of the land may convey a right to cut and remove timber within a specified time, in which case the absolute title to the timber described does not pass to the purchaser, but only a license to use it for the purpose stated, during the period specified in the contract." To the same effect, see also Seabolt v. Christian, 60 S.E.2d 540, 543 (Ga. Ct. App. 1950); Pope v. Barnett, 163 S.E. 517, 518 (Ga. Ct. App. 1932).

In Camp v. Horton, 63 S.E. 351, 353 (Ga. 1909), the Georgia Supreme Court reviewed other Georgia precedents to contrary effect and concluded that the above-quoted language from Johnson v. Truitt, supra, was "not essential to the decision of the case or the correctness of the judgment". See also Chavers v. Kent Diversified Prods., Inc., 389 S.E.2d 261, 263 (Ga. Ct. App. 1989) (dicta in Johnson v. Truitt, supra, is not controlling).

un

In short, on the issue of whether an agreement for the sale of growing trees is a contract for the sale of an interest in land, Georgia State law is less than a seamless web of jurisprudence. In this regard, Georgia State law is not unique. With regard to this legal issue, among the various States "There is considerable difference of opinion, often in the same jurisdiction, * doubtedly due to diverse theories of the courts with respect to the exact nature of standing trees." Davis, Annotation, Sale or Contract for Sale of Standing Timber as Within Provisions of Statute of Frauds Respecting Sale or Contract of Sale of Real Property, 7 A.L.R.2d 517, 518 (1949).

erally construed to effect legislative intent and that the only distinction that would justify disqualification must be "the broad one between classes and characters of properties, for instance, between real and personal property." Id. at 182; see also sec. 1.1031(a)-1, Income Tax Regs.9 Petitioners argue that under Crichton, "the conveyance of an entire interest in a delineated natural resource treated as real property under state law constitutes like kind property *** when exchanged for other real property interests." In support of their position, petitioners also cite Rev. Rul. 68-331, 19681 C.B. 352 (leasehold interest in a producing oil lease is like kind to an improved ranch), and Rev. Rul. 55-749, 1955-2 C.B. 295 (perpetual water rights are like kind to land).

On the other hand, not every exchange of real property interests meets the section 1031 like-kind requirement. See Koch v. Commissioner, 71 T.C. 54, 65 (1978) (holding that real estate subject to a long-term lease is like kind to real estate not so encumbered). 10 For instance, carved-out oil payments, although characterized as real property under State law, are not like kind to a fee interest in real estate. See Fleming v. Commissioner, 24 T.C. 818, 823–824 (1955), revd. 241 F.2d 87 (5th Cir. 1957), revd. sub nom. Commissioner v. P.G. Lake, Inc., 356 U.S. 260 (1958); see also Clemente, Inc. v. Commissioner, T.C. Memo. 1985-367 (8-acre parcel of land was not like kind to gravel extraction rights in another parcel of land). In addition, for purposes of section 1031, a shortterm leasehold of real property is not equivalent to a fee interest. See Capri, Inc. v. Commissioner, 65 T.C. 162, 181– 182 (1975); May Dept. Stores Co. v. Commissioner, 16 T.C.

9 In pertinent part, sec. 1.1031(a)–1, Income Tax Regs., provides as follows:

(b) Definition of "like kind." As used in section 1031(a), the words "like kind" have reference to the nature or character of the property and not to its grade or quality. One kind or class of property may not, under that section, be exchanged for property of a different kind or class. The fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class. Unproductive real estate held by one other than a dealer for future use or future realization of the increment in value is held for investment and not primarily for sale. * * *

(c) Examples of exchanges of property of a "like kind." No gain or loss is recognized if * (2) a taxpayer who is not a dealer in real estate exchanges city real estate for a ranch or farm, or exchanges a leasehold of a fee with 30 years or more to run for real estate, or exchanges improved real estate for unimproved real estate * * *

10 In Koch v. Commissioner, 71 T.C. 54, 65 (1978), this Court stated that sec. 1031 requires a comparison of all factors bearing upon the “nature and character" of the exchanged properties as opposed to their "grade or quality." These factors include "the respective interests in the physical properties, the nature of the title conveyed, the rights of the parties, [and] the duration of the interests". Id.

547, 556 (1951); Standard Envelope Manufacturing Co. v. Commissioner, 15 T.C. 41, 48 (1950).11

Because of the posture of this case, it is unnecessary, and we do not undertake, to resolve the legal issue whether the like-kind requirement was satisfied. It suffices to find, as we do, that petitioner had a bona fide intent that the subject transaction would meet the like-kind exchange requirement, taking into account that it constituted an exchange of realty for realty.

Other relevant factors indicating that petitioner had, at the beginning of the exchange period, a bona fide intent that like-kind property would be acquired before the end of the 180-day exchange period include: (1) The agreement that petitioner and Rayonier entered into on November 29, 1994, expressly made the transaction conditioned on "reasonable cooperation and a tax free exchange qualifying under Section 1031"; (2) petitioner used a qualified escrow account and a proper escrow agent as required by section 1.1031(k)-1(g)(3), Income Tax Regs.; (3) petitioner identified and received the replacement properties within the 45-day and 180-day periods as required by section 1031(a)(3); (4) petitioner testified credibly that he intended to have a like-kind exchange; and (5) in planning the transaction, petitioner relied on advice from a well-known timber taxation expert and from his longtime accountant. Moreover, as previously mentioned, respondent has determined no negligence or accuracy-related penalty in regard to the subject transaction.

F. Conclusion

In light of all the facts and circumstances, we conclude and hold that petitioners have satisfied the bona fide intent test and that under section 1.1031(k)-1(j), Income Tax Regs., petitioners had no actual or constructive receipt of property in 1994 for purposes of applying the installment sale provisions of section 453. We conclude and hold that petitioners recognized no gain from the subject transaction in 1994 and that respondent's determination was in error.

11 Notably, this characterization of short-term leasehold interests derives not from any particular State law but from negative implication of longstanding Treasury regulations which provide that an exchange of a 30-year lease for a fee interest qualifies as a like-kind exchange under sec. 1031. See sec. 1.1031(a)-1(c), Income Tax Regs.

In light of this holding, it is unnecessary to decide the issue of whether the subject transaction qualifies as a likekind exchange within the meaning of section 1031.

To reflect the foregoing and the parties' concessions,

Decision will be entered under Rule 155.

CHRYSLER CORPORATION, F.K.A. CHRYSLER HOLDING CORPORATION, AS SUCCESSOR BY MERGER TO CHRYSLER MOTORS CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 22148-97.

Filed June 29, 2001.

P's 1980, 1981, and 1982 Federal income tax returns claimed deductions for foreign tax liabilities which had accrued during those years. On July 24, 1995, P amended those returns to elect foreign tax credits in lieu of the deductions and amended its 1985 return to claim a refund from a carryover of the foreign taxes to 1985. R disallowed the claim, determining in relevant part that P's change of the deductions to credits was untimely under sec. 901(a), I.R.C. Held: P's election to credit the foreign taxes was untimely under sec. 901(a), I.R.C. The period specified therein commenced on the due dates of the returns for 1980, 1981, and 1982, the years for which P elected the foreign tax credit.

James P. Fuller, Ronald B. Schrotenboer, Kenneth B. Clark, William F. Colgin, and Barton W.S. Bassett, for petitioner.

Jeffrey L. Bassin, Nancy B. Herbert, and Bethany A. Ingwalson, for respondent.

OPINION

LARO, Judge: Respondent moves the Court for partial summary judgment. See Rule 121. Respondent determined deficiencies of $593,967, $13,064,705, and $36,102,409 in petitioner's Federal income taxes for 1983, 1984, and 1985, respectively. The deficiencies are attributable partially to respondent's determination that petitioner could not in 1995 amend its 1985 tax return to claim for that year a carryover of foreign tax credits which accrued in 1980, 1981, and 1982.

We decide for the first time whether petitioner timely elected under section 901(a) to credit (rather than deduct) its 1980, 1981, and 1982 foreign taxes.1 We hold it did not. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure.

Background

All facts were stipulated. The parties' stipulation of facts and the exhibits submitted therewith are incorporated herein by this reference. The stipulated facts are found accordingly. Petitioner's principal place of business was in Auburn Hills, Michigan, when the petition was filed. Petitioner is an accrual basis taxpayer that reports its income and expenses on the basis of the calendar year.

Petitioner timely filed its 1980 through 1985 Federal income tax returns on or about September 15 of the appropriate years. Petitioner deducted on its 1980 through 1983 returns its foreign taxes that accrued during those years. Petitioner claimed as a credit on its 1984 and 1985 returns its foreign taxes that accrued during those years. Petitioner reported the information shown in appendix A on its 1980 through 1985 returns, as originally filed.

On July 24, 1995, petitioner amended its 1980 through 1985 returns. On that date, the period of limitation for assessment, credit, or refund was closed for 1980, 1981, and 1982 and open for 1983, 1984, and 1985. On each of the 1980 through 1983 amended returns, petitioner claimed a credit for its accrued foreign taxes, rather than the deduction it had reported originally. Petitioner's 1980 through 1985 amended returns disclose the information summarized in appendix B.

On its original 1980 return, petitioner included $17,945,227 of section 78 gross-up income and claimed a deduction in the same amount. Petitioner also deducted $16,610,858 as direct foreign taxes paid, for a total deduction of $34,556,085. The 1980 amended return eliminated the foreign tax deduction, claiming in its place creditable foreign taxes (in the amount of the original deduction) resulting from

1 The parties also dispute whether petitioner timely claimed a refund under sec. 6511(d)(3)(A). On the basis of our holding on the issue before us, we need not decide that dispute.