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Helvering v.


Bruun leased some property to a tenant. When the lease expired, Brunn
repossessed the property.
o While the tenant was in possession of the property, they knocked down an
old building and built a new building on the property. Bruun kept the new
building at the end of the lease.
The new building was assessed to be worth $51k more than the
old one.
The IRS stepped in and said that Bruun realized a taxable gain.
o Bruun argued that no income had been realized yet because the property
was not yet sold (so that it would be converted to cash income, i.e.
o The IRS argued that Bruun received a gain and needed to pay taxes on it

Is the increase in value of the new building a taxable gain? YES.

It was not necessary to the recognition of gain that the improvements be severable
from the land.
The gain realized from the new building is a result of a business transaction (the
lease agreement), which already translates into income.
The medium of exchange of the transactionwhether in the form of cash or
propertyis immaterial as far as the realization occurred. (In other words, as
long as there is an increase in value, there is a gain. Kahit na hindi through
money na-realize yung gain.)