Don’t Believe Everything IRS Examiner Tells You —Bankrate

A County Buys a Strip Mall Under Eminent Domain Process; at Issue is Whether Chairs and Tables Require Additional Tax  

A Bankrate Tax Talk column at Fox Business News Personal Finance site considers a rather unusual case of a strip mall’s sale:   

Dear Tax Talk,
Several years ago, my strip mall was “sold” to the county under the process of eminent domain for the purpose of widening a state road. When undergoing this process, I hired a lawyer who strictly deals with eminent domain proceedings. My CPA prepared the corporate tax return based on the sales contract, etc., for the strip mall, and now the Internal Revenue Service is questioning how it was reported.

The IRS claims that personal property such as a hood, chairs and tables that remained in the restaurant as well as outside signage, etc., is subject to sales proceeds, which need to be taxed. The IRS argues that this transaction is treated as a “sale of business.” Furthermore, they argue that since the IRS does not have a copy of the appraisal at hand, the assumption is that a certain dollar amount was allocated toward personal property.

This does not make any sense because the valuation and appraisal were done way before the last tenant moved out, so the county wouldn’t even know what personal property was left in the building. Also, the county obviously had no interest in the building since the plan was to tear the building down for the road widening. Nobody seems to have a copy of the appraisal other than maybe the lawyer. I have got to believe that there has to be a different tax treatment when a “sale” falls under eminent domain rules. Are forced sales under eminent domain subject to different tax rules?
— Sue

The Tax Talk advisor responds that since the county had no interest in the actual underlying business—the only thing of value to the state was the land—there is no fair market value of those items and therefore there should be no allocation of the proceeds to that property.  A good solution, advises Tax Talk, is to find a CPA to represent you to the IRS in this sort of situation.   Read the whole piece. 

Are Tables and Chairs Left in a Strip Mall Subject to Additional Tax?