And if the seller falsely claims that the government made them sell, what should happen?
Make them pay ten times as much
["Mr. Miller and the city of Monrovia agreed upon the purchase price and a friendly condemnation."
Reached by The Associated Press Sunday, McKee said Miller had no comment on the Times story.
Monrovia officials acknowledged that early drafts of the sale included a so-called "friendly condemnation," which allows a buyer to claim a forced sale for tax reasons. But that phrase was stricken when the deal became final. ]
Sounds to me like the city agreed "in early drafts
to call it "condemned" -- which would mean a forced sale -- so Miller would get the tax break. That would have allowed the city to pay him a lower price. It was all part of the negotiated price of the property -- the city agreed to use its power or ED threat to benefit Miller's tax situation. That's no different than a city issuing tax-free muni bonds -- they pay lower interest because the purchaser of the bond won't have to pay taxes on that interest.
Then the city quietly removed the "friendly condemnation" phrase in the final deal ? Sounds like the city screwed him unless they raised the price accordingly. We can't know without knowing what the price was "with condemnation" and "without condemnation". $10M "with" and $13M "without" would result in the same after-tax compensation to Miller. So the city saved $3M in purchase price, Miller would walk away with the same $10M either way, and the IRS lost $3M in taxes.
This is the problem with the tax system now -- as long as you jump through all the hoops properly, you can take advantage of the system in ways not intended by the spirit of the tax laws. If all the income taxes, deductions, credits, etc. were tossed out in favor of a simple NRST like the FairTax, this kind of maneuvering wouldn't be necessary.