April 25, 1986 SMALL BUSINESS AND GENERAL DIVISION P.K. Tang 957-2103
RE: IT-264R - Part Disposition
This is in reply to your memo of February 18, 1986 to our Specialized Audit Division concerning theproper interpretation of the term "the whole property" as used in paragraph 2 of the IT-264R , as amended by Special Release. Your concern is whether that term refers to, in your case,
a) the whole property owned by a taxpayer which could encompass anywhere from k of a section of land to 4-5 sections, or
b) the whole property, usually the % section on which the easement, right of way or damage has been granted.
It is our view that the reference to "the whole property" in paragraph of IT-264R is to the whole of the particular property of which part has been disposed. That is, it is not a reference to all of the properties of the taxpayer but to all of one property.
With specific reference to the example described in your memo, when a taxpayer owns land acquired as follows:
in 1972 SW 1/4 23-10-5-4 for $9,000 in 1975 SE 1/4 23-10-5-4 for $15,000 in 1982 NW 1/4 24-10-5-4 for $45,000
Total cost $69,000
and received $12,000 as compensation in 1984 for the "establishment of an oil well head" on 5 1/2 acres of the 160 acres NW/ 24-10-5-4 parcel, it is our view that the 20% requirement described in subparagraphs 2(a) and (b) of the IT must be calculated with reference to the area and the adjusted cost base of that parcel. The fact that the taxpayer also owns other parcels is irrelevant. Since the amount of the compensation received ($12,000) is more than 20% of the amount of the adjusted cost base of the parcel ($45,000) the rules provided in paragraphs 2 of IT-264R would not apply. The taxpayer hence must calculate his gain according to the provisions of section 43 of the Act.
Our discussion above was based on the premise that the disposition as a result of "the establishment of an oil well head" constitutes "a granting of aAeasement or a public right of way". In some situations, depending on the facts, the payment may represent a lease from the owner of the land for certain surface rights, or compensation for property injuriously affected, damaged or destroyed. Under such circumstances the receipt must be treated differently. These are discussed in IT-200 .
We trust the above will be of assistance to you.
ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR
D.B. MORPHY
Chief Services, Public Utilities and Exempt Corporation Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch