Rees Blow Pipe Manufacturing Company v. Commissioner of Internal Revenue, Commissioner of Internal Revenue v. Rees Blow Pipe Manufacturing Company

Rees Blow Pipe Manufacturing Company and the Commissioner of Internal Revenue both petition for review of a decision of the Tax Court of the United States, reported at 41 T.C. 598 .

Rees Blow is in the business of manufacturing heating and air-conditioning equipment and incinerators and, insofar as the record indicates, is not in the business of buying, selling or exchanging real property.

In 1954 the company decided to expand its facilities. In a three-way transaction it acquired land in Berkeley, California from Stauffer Chemical Company in exchange for its shop premises in San Francisco, which was acquired by San-fran Company. In its income tax return for 1954, Rees Blow treated the transaction as nontaxable. Upon the land so acquired Rees Blow erected its new shop building which has since been sold.

In 1955 Sanfran brought suit against Rees Blow in the courts of the State of California, to recover its out-of-pocket loss resulting from the wilful or negligent concealment of a certain defect which made the building unusable as a garage. Sanfran secured judgment for twenty thousand dollars damages, which was affirmed by the District Court of Appeal, First District. Sanfran…