When the City of Fishers announced its plans to pursue a park on the waterfront of Geist Reservoir Tuesday, there was one sentence in the city’s news release that caught my eye.  As a mostly retired tax professional that does teach a continuing professional education class aimed at tax pros for Indiana University once a year, I noticed a tax angle to the situation.

The release discusses the offer made by the city to the  two owners, Irving Materials, Inc. and Marina Limited Partnership, to buy the land making way for the proposed park.  Then the release states the following:

“Condemnation of the land is possible if an agreement cannot be reached, considering the public usage.”

If a city publicly threatens to condemn land for public use, Section 1033 of the Internal Revenue Code kicks-in.  I won’t get tax wonkish about this.  Let’s just say that the sellers can postpone paying tax on the gain realized on the sale of the property, if sold under threat of condemnation.  The city doesn’t have to actually condemn the land, the mere public threat to do so means the owners can avoid paying tax on this sale, at least for now.

Technically, it is a “postponement” of paying tax on the gain.  But if, for example, Irving Materials buys another limestone quarry (there must be “like kind” replacement property purchased within a prescribed period of time to avoid the IRS for now) the tax benefit could be theirs.

The owners of this property have made no public comment on negotiations with the city to sell the land.  Now that the city news release has publicly stated the condemnation option, and the tax “postponement” under Section 1033 is possible, perhaps that will speed up the bargaining over the property sale.

We will see.