Inaja Land Co. v. Commissioner
United States Tax Court
9 T.C. 727 (1947)
Inaja Land (plaintiff), which had paid $61,000 for land it operated as a private fishing club charging shareholder guest fees primarily to limit use rather than generate profit, accepted $50,000 from the City of Los Angeles (City) to settle a threatened lawsuit and grant an easement letting the City's tunnel divert foreign waters through Inaja's fishing stream, impairing its value as a fishing club. The Commissioner (defendant) issued a deficiency notice treating the $50,000 settlement as taxable income, and Inaja petitioned the Tax Court for review.
Whether, for federal tax purposes, proceeds from the sale of an easement reduce a taxpayer's basis in the underlying land rather than constituting taxable income.