Garbis S. Bezdjian and Maida M. Bezdjian v. Commissioner of Internal Revenue Service

The Bezdjians appeal the Tax Court’s judgment that they are liable for a tax deficiency of $37,594 for 1978. The sole issue in this case is whether a series of transactions entered into by the Bezdjians to effectuate the acquisition of a parcel of real property and the conveyance of another qualifies for nonrecognition treatment pursuant to section 1031 of the Internal Revenue Code (1978) (hereinafter “section 1031”). We hold that the transactions do not constitute a like-kind exchange under section 1031, and we affirm the Tax Court’s decision.

In 1978, the Bezdjians received from Shell Oil Company (“Shell”) an offer to sell a gas station (the “Broadway parcel”) that the Bezdjians operated under a lease. Shell refused to accept a rental property (the “El Camino property”) owned by the Bezdjians in exchange and, instead, insisted on a cash transaction. The Bezdjians consented and bought the Broadway parcel from Shell with the proceeds of a loan that was secured by a deed of trust on their residence and the El Camino property. About three weeks after the Broadway parcel was conveyed to the Bezdjians, they sold the El Camino property to the Leveys, who assumed a mortgage and paid…