Bolker v. Commissioner

Joseph Bolker (the plaintiff) was the sole shareholder of Crosby Corporation which owned a property called Montebello. The plaintiff anticipated that business circumstances would make it desirable for him to take personal ownership of Montebello and develop it. The plaintiff facilitated Crosby’s liquidation and transfer of Montebello to himself. Prior to Crosby’s liquidation and the plaintiff’s acquisition of Montebello, the plaintiff encountered financial difficulties and exchanged Montebello for other property as a result. The plaintiff formed Parlex, a corporation, to assist with the property exchange. After Montebello was transferred to the plaintiff from Crosby, Parlex contracted with a bank to exchange Montebello for the bank’s real estate. The property exchange took place three months later, and the plaintiff took title to the bank’s real estate. The plaintiff did not report any gain from the property exchange as taxable income under the nonrecognition provision of §1031(a) of the federal tax code. The commissioner of internal revenue (the defendant) determined that the property exchange was not eligible for nonrecognition, and issued notices of deficiency against the plaintiff.

The plaintiff petitioned the tax court for a redetermination, and the tax court ruled in favor of the plaintiff. The commissioner then appealed to the United States Court of Appeals for the Ninth Circuit.