The opinion
ARNOLD,
dissenting: The majority opinion taxes petitioner with $130,914.59 as income for 1930. This represents the difference between the entire award and the original cost basis of the portion taken. The difference between the award for the land taken and the *211 assessment levied against the remaining portion was less than the cost basis of the land taken.
To treat the assessment as added to the cost basis of the part remaining for future determination of gain or loss and the award, including that portion which paid the assessment, as taxable income in 1930 is, in my opinion, unwarranted and results in improperly taxing unrealized income. We are dealing here with a single tract of land over which an easement or right of way was acquired by the city of Los Angeles through the right of eminent domain.
We should not lose sight of 'the fact that petitioner was involuntarily divested of a part of the property. It was not a voluntary sale. While the assessment was levied against the part remaining it grew out of the award for the part taken and both the assessment and the award were inseparably merged into petitioner’s investment. To the extent the assessment was offset against the award, the receipt of the award and the payment of the assessment was one transaction, inseparable and indivisible, in fact simultaneous. Neither preceded the other in point of time and neither was separate and distinct from the other.
The Board has previously on two occasions held on a similar state of facts in line with the majority opinion here. Both cases were appealed to the Circuit Court of Appeals, one to the Second Circuit and one to the Ninth Circuit, and in both cases the Board was reversed. In one of these cases, Carrano v. Commissioner, 10 Fed. (2d) 319, the Second Circuit held that where a municipality paid the award by withholding the assessment from the award, the amount of the assessment should be immediately added to the original cost basis of the entire property and be treated as part of the original cost and the award applied in reduction of the cost basis in determining the gain or loss. Justice L. Hand, in that case, said:
* * * On the other hand, it appears to us that this payment should be treated as immediately added to the original “basis.” Although the assessment was not an added cost until paid, it became cost at the moment when it was set off against the award. Eeeeipt and payment were simultaneous; it is as false to say that the award was paid before it was expended, as that it was expended before it was paid.
* * * ⅜ * * ⅜
In this instance the “gain” in dispute could arise only on the hypothesis that so much of the award as paid the assessment was received before the assessment itself was paid. This was demonstrably not the ease; it was received at the same time. Thus it does not affirmatively appear to be taxable “gain” at all, and the taxpayer wins. Moreover, this is the direct and natural way to look at the transaction. The taxpayer has “gained” only what he has received above his cost; so far as his award has been cancelled by the assessment, it is not a “gain” at all, it is instantly absorbed by a new cost which arises and is paid without allowing him even a momentary possession of the “gain.”
*212 The other case referred to is Wolf v. Commissioner, 11 Fed. (2d) 455, cited with approval in the majority opinion as authority on another point. The Ninth Circuit refused to approve the Board’s conclusion on a similar state of facts, saying:
* * * However that may be, it is clear that the entire proceeding for the opening of a street is one proceeding and the result should be treated as an entirety. This was the view of the Supreme Court of California expressed in considering a somewhat similar situation under the same street opening act in the case of Spring Street v. City of Los Angeles, 170 Cal. 24 , wherein a parcel of land was awarded $20,000 and assessed $20,115.20 to pay for the property thus taken. This transaction was treated as a unit for the purpose of determining whether or not there had been an infringement of the constitutional rights of the owner of the land. * * *
The Board, in the recent case of Christian Ganahl Co., 34 B. T. A. 126, on which the majority opinion was based, adhered to its former decisions in the cases of Carrano v. Commissioner, supra and Wolf v. Commissioner, supra.
In my opinion the fairest and most equitable way to handle a situation of this kind is to add the assessment to the original cost basis of the entire tract, and apply the award in reduction of this new cost basis. The result of this will be fair to the Government and the taxpayer. The underlying purposes of the taxation of income is to tax realized gain rather than unrealized gain. Cf. Eisner v. Macomber, 252 U. S. 189 ; Safe Deposit & Trust Co. v. Miles, 259 U. S. 247 . The Board decisions above referred to tax as realized gain that which is not a realized gain. The court, in the Carrano and Wolf cases above referred to, by merging the assessment and the award in a readjusted new cost basis, recognizes tibia underlying principle of income taxation, and in my opinion should be followed in cases like the one here. No income escapes taxation. The Government will get the tax on the gain when it is definitely determined; the taxpayer will not pay on a theoretical gain but will pay on the gain actually realized. For this reason, I respectfully dissent.
Matthews and Leech agree with this dissent.