CHAPTER 543

An Act to amend the Code of Virginia by adding a section numbered
58-85.2, prescribing the basis upon which gains shall be recognized
upon the compulsory or involuntary conversion of property. rH 580]

Approved April 2, 1952

Be it enacted by the General Assembly of Virginia:

1. That the Code of Virginia be amended by adding a section numbered
58-85.2, as follows:

§ 58-85.2. Involuntary Conversion.—(a) Extent to Which Gain
Recognized. —If property (as a result of its destruction, in whole or in part,
theft, seizure, or requisition or condemnation or threat or imminence
thereof ) is compulsorily or involuntarily converted:

(1) Conversion into Similar Property.—Into property similar or re-
lated in service or use to the property so converted, and the disposition
of the converted property occurred on or after January 1, 1952, no gain
shall be recognized. For the purposes of this paragraph and paragraph
(2), the term “disposition of the converted property” means the destruc-
tion, theft, seizure, requisition, or condemnation of the converted property,
or the sale or exchange of such property under threat or imminence of
requisition or condemnation.

(2) Conversion into Money or Dissimilar Property.—Into money or
into property not similar or related in service or use to the property so
converted, and the disposition of the converted property occurred on or
after January 1, 1952, the gain (if any) shall be recognized except to the
extent hereinafter provided in this paragraph:

A) Nonrecognition of Gain.—If the taxpayer during the period
specified in subparagraph (B), for the purpose of replacing the property
so converted, purchases other property similar or related in service or
use to the property so converted, or purchases stock in the acquisition of
control of a corporation owning such other property, at the election of
the taxpayer the gain shall be recognized only to the extent that the
amount realized upon such conversion (regardless of whether such amount
is received in one or more taxable years) exceeds the cost of such other
property or such stock. Such election shall be made at such time and
in such manner as the Department of Taxation may by regulations pre-
scribe. For the purposes of this paragraph, no property or stock ac-
quired before the disposition of the converted property shall be considered
to have been acquired for the purpose of replacing such converted prop-
erty unless held by the taxpayer on the date of such disposition. .

(B) Period Within Which Property Must Be Replaced.—The period
referred to in subparagraph (A) shall be the period beginning with the
date of the disposition of the converted property or the earliest date of
the threat or imminence of requisition or condemnation of the converted
property, whichever is earlier, and ending:

(i) one year after the close of the first taxable year in which any
part of the gain upon conversion is realized, or

(ii) Subject to such terms and conditions as may be specified by the
Department of Taxation, at the close of such later date as the Depart-
ment may designate upon application by the taxpayer. Such application
shall be made at such time and in such manner as the Department may
by regulations prescribe.

(C) Time for Assessment of Deficiency Attributable to Gain Upon
Conversion.—If a taxpayer has made the election provided in subparagraph
(A), then the period for the assessment of any deficiency, for any taxable
year in which any part of the gain upon such conversion is realized,
attributable to such gain shall not expire prior to December thirty-one
of the fourth year after the year in which the Department of Taxation is
notified by the taxpayer (in such manner as the Department may by regu-
lations prescribe) of the replacement of the converted property or of an
intention not to replace.

(D) Time for Assessment of Other Deficiencies Attributable to Elec-
tion.—If the election provided in subparagraph (A) is made by the tax-
payer and such other property or such stock was purchased prior to the
beginning of the last taxable year in which any part of the gain upon
such conversion is realized, any deficiency, to the extent resulting from
such election, for any taxable year ending before such last taxable year
may be assessed at any time before the expiration of the period within
which a deficiency for such last taxable year may be assessed.

(b) Basis of Property Acquired or Purchased Upon Conversion.—
Where property is acquired as the result of a compulsory or involun-
tary conversion described in paragraph (1) of subsection (a), the basis
of such property shall be the same as in the case of the property so con-
verted, described in the amount of loss to the taxpayer recognized upon
such conversion. In the case of property purchased by the taxpayer which
results, under the provisions of paragraph (2) of subsection (a), in the
nonrecognition of any part of the gain realized as the result of a com-
pulsory or involuntary conversion, the basis of such property shall be the
cost thereof decreased in the amount of the gain not so recognized; and if
the property purchased consists of more than one piece of property, the
basis determined under this sentence shall be allocated to the purchased
properties in proportion to their respective costs.

(c) Definition of Control.—As used in this section, the term “control’
means the ownership of stock possessing at least eighty per centum of
the total combined voting power of all classes of stock entitled to vote and
at least eighty per centum of the total number of shares of all other
classes of stock of the corporation.

(d) Applicable to Taxpayer’s Residence.—This section shall apply in
the case of property used by the taxpayer as his principal residence, if
the destruction, theft, seizure, requisition, or condemnation of the resi-
dence, or the sale or exchange of such residence under threat or imminence
thereof, occurred on or after January 1, 1952.