126 F. Supp. 184 (Ct. Cl. 1954)
Philadelphia Park Amusement Co. v.
In a taxable, arm's-length exchange of dissimilar properties, what is the proper measure of the tax basis of the property received—particularly where neither asset's fair market value is easily ascertainable—and may that basis be used to amortize an intangible with a determinable useful life?
For property acquired in a taxable exchange, the basis is its cost, which is the fair market value of the property received at the time of the exchange. If the fair market value of the property received cannot be reasonably ascertained, the fair market value of the property given up may be used as a proxy, because in an arm's-length exchange the two are presumptively equal. A basis must be determined; property is not treated as having no basis merely because valuation is difficult. Where the property received is an intangible with a limited, determinable life, that basis is amortizable ratably over its remaining term. See 1939 Code § 113(a) (now IRC § 1012) (basis equals cost) and the general principles later reflected in Treas. Reg. § 1.1012-1.
The basis of the franchise extension received in the exchange is its fair market value at the time of the exchange; if that value cannot be directly determined, the fair market value of the bridge transferred may be used because, in an arm's-length exchange, the two values are equal. The court rejected the government's contention that the franchise extension had no ascertainable value and remanded for a factual determination of fair market value so that the taxpayer's amortization deductions over the ten-year term could be properly computed.
Philadelphia Park is the classic authority for determining basis in property-for-property exchanges. It teaches that: (1) basis is anchored in fair market value at the time of exchange; (2) courts may select the more ascertainable side of the trade to fix value; (3) property is not deprived of a basis due to valuation difficulty; and (4) limited-life intangibles acquired in exchange are amortizable based on that basis. The case constrains the open transaction doctrine to genuine impossibility scenarios and undergirds modern rules in IRC § 1012 and related regulations. For law students, it frames how tax law resolves real-world valuation uncertainty and connects basis, realization, and cost recovery.