As far as I'm aware, if the seller doesn't use his insurance proceeds but replaces the property within two years, the receipt of insurance proceeds isn't taxable. But more important, the insurance payout would normally just reduce the owner's basis, not be taxable unless the payout exceeded the property's basis.
The accountant for the seller is saying the insurance payout is definitely taxable in this situation. He is proposing that the seller agree to put the $1 million back into repairs of the property as a part of the sale transaction.
I don't see a problem with the accountant's approach, but is that really necessary? I wouldn't think so.
How wrong am I here?