Analyze all or a portion of Inaja Land Company, Ltd. v. Commissioner, using the Issue, Rule, Application, and Conclusion methodology in your comments below. Remember to “Blue Book” where appropriate.
Inaja Land Company, Ltd. v. Commissioner, 9 TC 727 – Tax Court 1947
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Facts: City paid taxpayer $50M for an easement to divert water onto taxpayer’s property. It could not be determined how much of the taxpayer’s land would be flooded and what damages would result.
Issue: Is the $50M taxable income?
Rule: Internal Revenue Code Section 22 (a)
Application: It’s impossible to allocate basis to the part of the property covered by the easement.
Conclusion: The money received is not income, but reduces the landowner’s basis in the property by that amount.