Clifton Investment Co. v. Commissioner

Clifton Investment (plaintiff), which rented out a downtown office building to commercial tenants, sold the building to the city under threat of eminent domain and used the proceeds to buy majority stock in a company that ran a hotel. Clifton sought to avoid recognizing the sale gain under a tax provision requiring the replacement property be "similar or related in service or use," arguing both properties were simply held to produce rental income; the Commissioner (defendant) disagreed, and the Tax Court, applying a strict "functionality" (end-use) test, agreed with the Commissioner.