Kieselbach v. Commissioner

Background

A group of property owners in New York had their land taken by the City under a condemnation resolution that vested title on January 3, 1933. The city took possession then, but the state court’s final money award was not entered until March 31, 1937 and paid on May 12, 1937. The award totaled $73,246.57, made up of $58,000 as the value at the time of taking and $15,246.57 described as interest to compensate for the delay in payment. The owners reported the difference over their basis as a capital gain; the tax commissioner treated the delayed-payment portion as ordinary income.

Reasoning

The narrow question was whether the post-taking amount called "interest" was part of the sale price (capital gain) or ordinary income. The Court said the sale price was fixed when title passed in January 1933 and that the extra sum merely compensated the owners for not having the money earlier. The Court compared the payment to ordinary interest on money owed and explained that it replaced what the owners might have earned, so it counts as income under the general definition in the Revenue Act, not as a capital-gain sale price.

Real world impact

For property owners and their tax returns, amounts paid later to make up the value at the time of a taking should be reported as ordinary income, not as part of a capital gain. This decision resolves a narrow tax dispute about late condemnation payments and affirms the tax treatment in the Court of Appeals.