§1231 — Property used in the trade or business and involuntary conversions

Therefore, Ouderkirk, like Reese, is distinguishable from this case, where the issue is whether assets undeniably used in a trade or business were used in a trade or business conducted by Dover UK.

Thus, we are skeptical that under Merrill the David Berwind Trust’s holding period under section 1231 of the Internal Revenue Code of 1954 would have extended until the settlement agreement finally evinced the trust’s “intent” to divest itself of the stock.

Duffy's testimony concerning petitioners' rental ofthe Gearhart property to family and acquaintances.7 We need not decide whether petitioners' occasional rentals ofthe Gearhart propertyto family and acquaintances are sufficient to establish a trade or business.

Thus it is unclear whether, after 2001, the ownership of these entities was the same as it was at the end of 2001, when Mary Penland owned 100 'percent of the shares of Penco, Penco owned Woodruff as a sole proprietorship, and Penco did not own Sweet Water.

Generally, section 1231 applies to the sale or exchange of property held for more than one year that is used in a trade or business subject to the allowance of depreciation under section 167.

- 14 - [*14] We hold that petitioners received unreported nonpassive income from Ghada as will be determined under Rule 155, taking into consideration: (1) respondent's concession as to Ghada's section 1231 gain for 2012, (2) petitioners' concession as to Ghada's income from lottery commissions for 2011, and (3) our ho

Accordingly, we hold that the plain meaning ofthe statute must govern here.

We hold that he did to the extent provided herein; (2) whether petitioner received income in the form ofcancellation of indebtedness in 2009.

Accordingly, we hold that petitioners must recognize gain with respect to the business percentage of the sale of the easement, treating the property as section 1231 property.

We hold that there was not a loss realization event with respect to the zoning laws.

Loss From AHP Petitioner husband's 2013 Schedule K-1, Shareholder's Share ofIncome, Deductions, Credits, etc., from AHP reported a section 1231 loss of$747,010.

467 (1987), that section 1231 capital gain treatment was applicable to a rental property subsequently sold to liquidate the investment.

467 (1987), that section 1231 capital gain treatment was applicable to a rental property subsequently sold to liquidate the investment.

ted that “[t]he incidental use of this 7,700-acre tract in connection with * * * [the] cutting of scattered timber did not convert the tract from investment property to real property used in the [partnership’s] sawmill business within the meaning of section 1231.” Id. In Ouderkirk, as in Reese v. Commissioner, supra, the issue was whether the property in question had a business connection sufficient to require its exclusion from the definition of a capital asset (in Ouderkirk, as property used i

Since petitioners’ investment property meets these criteria, the property is section 1231 property.

of the Lamont gas plant as ordinary patronage income. In the subject notice of deficiency, respondent reclassifies the portion of the gain representing the amount realized in excess of cost basis, viz $12,852,544, as nonpatronage capital gain under section 1231. Respondent does not take issue with petitioner's treatment of the portion of the gain equal to depreciation recapture under section 1245, $3,287,803, or the portion of the gain equal to the amount of straight-line depreciation on section

Abbene never transferred - 12 - ownership of those assets to the corporation.13 On its 1991 Form 1120S, Blue Ribbon also reported a section 1231 loss on the destruction of Mr.

I]eld, further, because LLC held B primarily for sale to customers in the ordinary course ofbusiness, the gain recognized from the sale ofB was not "section 1231 gain", as defined by I.R.C.

With some exceptions that are inapplicable here, the term "propertyused in a trade or business" includes property that is: (1) used in a trade or business; (2) subject to the allowance for depreciation; and (3) held for more than one year. Sec. 1231(b)(1). Ifthe losses from the sale of property used in a trade or business exceed the gain

Because this was a sale of qualified section 1231 property and petitioners had no other section 1231 propert y dispositions, the gain is taxed at 2005 capital gain rates .12 See sec .

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Section 1231 mandates capital gain treatment for certain gains and losses recognized on the sale of property used by the taxpayer in a trade or business, even if the property was not otherwise a capital asset, but provides that property used in the trade or business excludes, among other things, property held by the taxpayer primarily for sale to c

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

ad debt deduction for 1994 (with - 2 - a resultant net operating loss carryforward to 1995 of $71,143) for loans made to her son's business; and, (2) whether a substantial portion (67 percent) of the income derived by petitioner during 1994 and 1995 from the sale of the family business should be characterized as long-term capital gain pursuant to section 1231.1 Some of the facts have been stipulated and are so found.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

Petitioners offered no evidence concerning the 1990 section 1231 gain adjustment respondent determined against Management from its sale of certain other assets.

of the taxable year in which it is cut. Gain or loss under section 631(a) is measured by the difference between the fair market value of the cut timber and its adjusted basis - 42 - for depletion,25 and is characterized as a sale or exchange under section 1231. The fair market value of the cut timber then becomes the new basis of the timber (new basis) for all purposes in the hands of the taxpayer. If the cut timber is then sold, ordinary gain or loss is calculated as the difference between the

Increased Section 1231 Loss From May 1988 through February 1991, Four A mined coal which it sold to Appolo.

claimed in their 1993 Schedule C with respect to petitioner's automobile repair activity, and we reject petition- ers' contention that they are entitled to deduct the net loss that they claimed in their 1993 amended Schedule C.5 Petitioners' Claimed Section 1231 Loss Petitioners contend that they are entitled to an ordinary loss deduction under section 1231 for 1993 for the loss that they realized on the sale of petitioner's Ferrari.

Increased Section 1231 Loss From May 1988 through February 1991, Four A mined coal which it sold to Appolo.

To characterize the loss as ordinary under section 1231, petitioner, at very least, would have to show that land use regulations constitute an involuntary conversion.

om Ranches to the partnerships; promissory notes from them to Ranches; and bills of sale from them to Ranches. - 5 - The partnerships reported income recognized on the transfer of cattle to Ranches in payment of principal and interest as gain under section 1231. Respondent adjusted this item to zero on the final partnership administrative adjustments issued to each partnership. Pursuant to the settlement agreement, the numbers of cattle subject to depreciation by the partnerships for the taxable

partnerships; promissory notes from the partnerships to Ranches; and bills of sale from the partnerships to Ranches. The partnerships reported income recognized on the transfer of cattle to Ranches in payment of principal and interest as gain under section 1231. Respondent adjusted this item to zero on the final partnership administrative adjustments issued to each partnership. Pursuant to the agreement, the numbers of cattle subject to depreciation by the partnerships for the taxable years in i

om Ranches to the partnerships; promissory notes from them to Ranches; and bills of sale from them to Ranches. - 5 - The partnerships reported income recognized on the transfer of cattle to Ranches in payment of principal and interest as gain under section 1231. Respondent adjusted this item to zero on the final partnership administrative adjustments issued to each partnership. Pursuant to the settlement agreement, the numbers of cattle subject to depreciation by the partnerships for the taxable

om Ranches to the partnerships; promissory notes from them to Ranches; and bills of sale from them to Ranches. - 5 - The partnerships reported income recognized on the transfer of cattle to Ranches in payment of principal and interest as gain under section 1231. Respondent adjusted this item to zero on the final partnership administrative adjustments issued to each partnership. Pursuant to the settlement agreement, the numbers of cattle subject to depreciation by the partnerships for the taxable

partnerships; promissory notes from the partnerships to Ranches; and bills of sale from the partnerships to Ranches. The partnerships reported income recognized on the transfer of cattle to Ranches in payment of principal and interest as gain under section 1231. Respondent adjusted this item to zero on the final partnership administrative adjustments issued to each partnership. Pursuant to the agreement, the numbers of cattle subject to depreciation by the partnerships for the taxable years in i

99-514, § 1231(e)(1), 100 Stat. 2085, 2562–63. Specifically, Congress added the commensurate with income standard to section 482 “to ensure that income follows economic activity.” Altera Corp. & Subs. v. Commissioner, 926 F.3d at 1077 (citing H.R. Rep. No. 99-841 (Vol. II), at II-637 (1986) (Conf. Rep.), reprinted in 1986 U.S.C.C.A.N. 4075, 4725). Through

On its Form 4797, JM Assets reported $403,672 of section 1231 gain from installment sales and $732,566 of section 1231 gain from like-kind exchanges.

Loop reported the following items of income, gain, or loss on Schedules K–1 issued to petitioner husband for 1997–2002: Interest, Section 1231 & Intangible Rental and Ordinary Year Royalties, & Capital Drilling Costs Other Income Dividends Gain/(Loss) & Depletion Expenses 1997 ($244,669) $3,172 — ($64,563) ($22,934) 1998 (1,594,064) 34,054 — (157,973) (163,289) 1999 (901,509) 43,323 $1,516,518 — (392,828) 2000 7,626 60,495 221 (52,352) (122,202) 2001 (1,784,062) 83,614 (2,869

As the members of CCC&B, Chet and Cindy reported the intellectual property sale proceeds as section 1231 gain on their 2009 Form 1040.

5 [*5] Expense Amount Accounting $600 Auto and Truck 4,242 Bank Charges 369 Dues and Subscriptions 797 Miscellaneous 825 Office Expense 180 Outside Service 12,052 Postage 189 Supplies 385 Telephone 6,808 Travel 9,125 Home Office Rent 5,315 For taxable year 2012, Getify also reported an ordinary loss of $6,360 and a section 1231 loss of $19,701, both of which were associated with its alleged partnership interest in Co-Working.

10 In general, the character of partnership property as a capital asset, a section 1231 asset, or inventory is a partnership item.

rty of the partnership of the kind described in section 1221(a)(1), (2) any other property of the partnership which, on sale or exchange by the partnership, would be considered property other than a capital asset and other than property described in section 1231, and (3) any other property held by the partnership which, if held by the selling or distributee partner, would be considered property of the type described in paragraph (1) or (2).

On June 11, 2020, the parties filed a Stipulation of Settled Issues resolving the issue concerning the allocation of Hoops’ net section 1231 gain among its partners for tax year 2012.

ation interest. On its partnership tax return for 2014, WTS claimed an I.R.C. § 163(a) deduction for its payment of the appreciation interest to PLI and reported a net loss in excess of $1 million on the commercial rental property. WTS reported net I.R.C. § 1231 gain of $2.6 million. Ps reported their distributive shares of income and loss of WTS on their individual income tax returns for 2014. R sent statutory notices of deficiency to Ps, determining that Ps’ incomes should each be increased by

During 2013 Cadillac sold commercial real property for $4 million, generat- ing a net section 1231 gain of $3,203,916.

On its Forms 1065 for 2014-2017 Bluestone reported, on line 22, ordinary business losses as follows: Year Income/loss 2014 ($976,657) 2015 (710,327) 2016 (480,851) 2017 (992,868) Total (3,160,703) “Ordinary business losses,” as reported on line 22, do not include section 1231 gains or losses, i.e., gains or losses from the sale or exchange of assets used in the taxpayer’s trade or business.

On its Forms 1065 for 2014-2017 Bluestone reported, on line 22, ordinary business losses as follows: Year Income/loss 2014 ($976,657) 2015 (710,327) 2016 (480,851) 2017 (992,868) Total (3,160,703) “Ordinary business losses,” as reported on line 22, do not include section 1231 gains or losses, i.e., gains or losses from the sale or exchange of assets used in the taxpayer’s trade or business.

Each Letter 4735 explained that "[t]he adjustment is due to your inconsis- tent treatment ofa partnership item related to the section 1231 gain reported by a partnership in which you have an indirect ownership." Each letter informed peti- tioner that, ifit wished to dispute the computational adjustments, it would need to pay the resulting liabilities and file a claim for refund.

ire that, "in the case of any transfer (or license) ofintangible property * * * , the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible." Tax Reform Act of 1986, Pub. L. No. 99-514, sec. 1231(e)(1), 100 Stat. at 2562-2563. Congress recognized that this legislation left unresolved many difficult and important issues. See H.R. Conf. Rept. No. 99-841, at II-638 (1986), 1986 U.S.C.C.A.N. 4075, 4726. It therefore directed the IRS to g

re their 2012 dispositions ofthese properties resulted in an NOL of $308,893. Gains and losses from the disposition ofdepreciable real property used in a trade or business are not treated as capital gain or loss, except to the extent provided for in section 1231. Sec. 1221(a)(2); sec. 1.1221-1(b), Income Tax Regs. Respondent in his answering briefconceded that the Idaho property was business property in 2010 and 2011 and did not dispute whether the Arizona property was business property. But res

Aggregation Generally, transactions will be aggregated only when they involve related products or services as defined in section 1.6038A-3(c)(7)(vii), Income Tax Regs.

Thus their 2009 tax return should reflect a section 1231 loss in the amount of".¹° By fax dated December 5, 2012, Mr.

1231(e)(1), 100 Stat. at 2562. The House report that accompanied the House version ofthe 1986 amendment to section 482 states, in relevant part, as follows: Many observers have questioned the effectiveness ofthe "arm's length" approach ofthe regulations under section 482. A recurrent problem is the absence ofcomparable arm's length - 10 - tra

- 23 - [*23] Between 1999 and 2009 (the latter six years are at issue),7 SMF continued to burn through millions ofdollars: Ordinary Section 1231 LT capital Capital Shareholder Item income (loss) gain (loss) gain (loss) contributions loans (distribution) (repayments) 1999 ($1,172,178) $2,693 -0- $1,014,000 -0- 2000 (1,488,829) -0- -0- 1,381,917 $28,309 2001 (1,764,339) -0- -0- 1,375,805 30,590 2002 (1,694,623) 489,763 -0- 777,295 134,824 2003 (1,249,346) -0- -0- 253,117 443,614

- 23 - [*23] Between 1999 and 2009 (the latter six years are at issue),7 SMF continued to burn through millions ofdollars: Ordinary Section 1231 LT capital Capital Shareholder Item income (loss) gain (loss) gain (loss) contributions loans (distribution) (repayments) 1999 ($1,172,178) $2,693 -0- $1,014,000 -0- 2000 (1,488,829) -0- -0- 1,381,917 $28,309 2001 (1,764,339) -0- -0- 1,375,805 30,590 2002 (1,694,623) 489,763 -0- 777,295 134,824 2003 (1,249,346) -0- -0- 253,117 443,614

- 23 - [*23] Between 1999 and 2009 (the latter six years are at issue),7 SMF continued to burn through millions ofdollars: Ordinary Section 1231 LT capital Capital Shareholder Item income (loss) gain (loss) gain (loss) contributions loans (distribution) (repayments) 1999 ($1,172,178) $2,693 -0- $1,014,000 -0- 2000 (1,488,829) -0- -0- 1,381,917 $28,309 2001 (1,764,339) -0- -0- 1,375,805 30,590 2002 (1,694,623) 489,763 -0- 777,295 134,824 2003 (1,249,346) -0- -0- 253,117 443,614

1231(e)(1), 100 Stat. at 2562. The House report that accompanied the House version ofthe 1986 amendment to section 482 states, in relevant part, as follows: Many observers have questioned the effectiveness ofthe "arm's length" approach ofthe regulations under section 482. A recurrent problem is the absence ofcomparable arm's length - 10 - tra

Investments' 2003 Form 4797, that company reported "Section 1231 gain or (loss) from like-kind exchanges" of$139,390.

1231) other than sec. 1235. 3¹In determining whether a transfer ofall substantial rights to a patenthas occurred, the language ofthe transfer agreement is not controlling. Sec. 1.1235- 2(b)(1), Income Tax Regs. Instead, the entire agreement and the form ofthe (continued...) - 23 - Finally, under section 1235(d), transfers between related pers

1231) other than sec. 1235. In determining whether a transfer of all substantial rights to a patent has occurred, the language of the transfer agreement is not controlling. Sec. 1.1235-2(b)(l), Income Tax Regs. Instead, the entire agreement and the form of the transaction must be examined to see if all substantial rights were transferred. See

ss license as a capital asset); Rev. Rul. 66-58, 1966-1 C.B. 186 (treating a cotton acreage allotments as capital assets). Sec. 197 as contended by regulations may have the effect of characterizing certain intangibles used in a trade or business as sec. 1231 assets. Sec. 197(f) (7); sec. 1.197- 2(g) (8), Income Tax Regs. "All "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion" are income. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). Some

Income, Deductions, Credits, etc., which reported Mr. Olmstead's share of current year income, deductions, credits, and-other items as follows: Iteml Amount Ordinary business income $62,763 Interest income 7,196 Net long-term capital gain 1,231 Net sec. 1231 loss 329 Sec. 179 deduction 497 Other deductions 107 1The Schedule K-1 also reported alternative minimum tax items and items affecting Mr. Olmstead's basis. Petitioners did.not r.eport anyzof the foregoing items on their 2007 joint Federal

y for 2000, and $3,395,214 for 2001. 2Petitioners concede that the amortization period for the license acquired as part of the Michigan 2 acquisition should be 15 years and that the Schedule M-1 adjustment should be disallowed. Respondent concedes a sec. 1231 adjustment and all penalties set forth in the deficiency notice. Respondent also concedes that petitioners are entitled to recapture for 1998 $3,548,365 of losses Alpine claimed in earlier years. - 3 - price to depreciable equipment when th

y for 2000, and $3,395,214 for 2001. Petitioners concede that the amortization period for the license acquired as part of the Michigan 2 acquisition should be 15 years and that the Schedule M-l adjustment should be disallowed. Respondent concedes a sec. 1231 adjustment and all penalties set forth in the deficiency notice. Respondent also concedes that petitioners are entitled to recapture for 1998 $3,548,365 of losses Alpine claimed in earlier years. All section references are to the Internal Re

ss license as a capital asset); Rev. Rul. 66-58, 1966-1 C.B. 186 (treating a cotton acreage allotments as capital assets). Sec. 197 as contended by regulations may have the effect of characterizing certain intangibles used in a trade or business as sec. 1231 assets. Sec. 197(f)(7); sec. 1.197 — 2(g)(8), Income Tax Regs. All “accessions to wealth, clearly realized, and over which the taxpayers have complete dominion” are income. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). Some c

In that return, C&F reported the following with respect to the IBP payment : (1) $2,936,936 as "Net'section 1231 gain (loss)" and (2) $1,047,279 as "Net gain (loss) from Form 4797, Part II, line 18" .

The return reported adjusted gross income of $310,692 and a tax liability of $536,739 (the amount listed as a net section 1231 gain on the Schedule K-i from V&M Management) .

Respondent did not remove certain section 1231 gain for 1995 that petitioners claim was related to the Hoyt investment and should have been removed .

section 1231 of $23,683 . Petitioner failed to report his distributive share of partnership income from Harbor Light . 4 - II . TP Brennan Real Estate, Inc . On July . 11, 1985, TP Brennan Real Estate, Inc . (TP° Brennan), was incorporated in New Jersey . TP Brennan was engaged in the business of real '1estate sales and rentals throughout the year

In that return, C&F reported the following with respect to the IBP payment : (1) $2,936,936 as "Net'section 1231 gain (loss)" and (2) $1,047,279 as "Net gain (loss) from Form 4797, Part II, line 18" .

In that return, C&F reported the following with respect to the IBP payment : (1) $2,936,936 as "Net'section 1231 gain (loss)" and (2) $1,047,279 as "Net gain (loss) from Form 4797, Part II, line 18" .

In that return, C&F reported the following with respect to the IBP payment : (1) $2,936,936 as "Net'section 1231 gain (loss)" and (2) $1,047,279 as "Net gain (loss) from Form 4797, Part II, line 18" .

Petitioner claimed on his 1990 Form 1040 ordinary losses (other section 1231 losses) and partnership losses (nonpassive losses) from Fleet Street Associates and a short-term capital loss from the entity Butcher & Singer/Keystone Venture I Ltd .

1231 gain of $5,390,383, portfolio (interest) income of $ 381,998, and trade or business income of $2,266,296 . * * * . Therefore, the amount of gross income omitted by * * * [BEP] which was properly includible therein ( i .e . $16,515,194 ) exceeded 12 - the amount of income stated in the return (i.e . $8,038,677 ) by 205 percent . Responden

Item As Reported As Determined Farm income -0- -0- Depreciation expense $555,199 -0- Board expenses 1,983,470 -0- Loss to drought 237,325 -0- Interest expense -0- -0- Net self-employment income (2,750,837) -0- Other deductions 14,578 -0- Gain under section 1231 11,686 -0- Guaranteed payments -0- -0- Respondent determined initially that these decisions increased petitioner’s 1989 and 1991 income by $32,225 and $100,241, respectively.

ns 734(b) and 743(b). The FPAA in this case was sent October 4, 2005. The notice adjusted BEP’s ordinary income as follows: a. Portfolio income (loss) interest (1) Adjustment $0 (2) As reported 381,998 (3) Corrected 381,998 b. Net gain (loss) under sec. 1231 not casualty/theft (1) Adjustment 16,515,194 (2) As reported 5,390,383 (3) Corrected 21,905,577 The adjustment was explained as follows: Bakersfield Energy Partners, LP has failed to establish that it had a basis greater than $0 in the gas r

residence that was purportedly rented to decedent. Funny Hats also reported for 1997 through 2000 that it had received interest income of $529, $177, $73, and $580, respectively. Funny Hats also reported for 2000 that it had realized a $51,418 “net section 1231 gain”. 7 Funny Hats also filed a 1993 Form 1065 that did not report any income or expense. The 1993 Form 1065 reported that the residence was an asset of Funny Hats and that the principal business activity of Funny Hats was “inactive”. -

-- Ordinary loss from business activities (18,515) -– 1989 Capital contributed during year -- -- Withdrawals and distributions -– -- Ordinary loss from business activities (26,497) -– 1990 Capital contributed during year -- ($95,640) Net gain under section 1231 708 2,105 Withdrawals and distributions -– -- Ordinary loss from business activities (32,301) (96,097) 1991 Capital contributed during year -- -- Cancellation of indebtedness income 81,119 373,755 Withdrawals and distributions -– -- Ordi

ddress herein. 2All section references are to the Internal Revenue Code in effect for the years at issue. All Rule references are to the Tax Court Rules of Practice and Procedure. 3As discussed below, petitioners had both ordinary passive losses and sec. 1231 passive losses. For convenience, we shall sometimes refer collectively to petitioners’ ordinary passive losses and sec. 1231 passive losses as petitioners’ passive losses. - 3 - In 1980, Mr. Ramsburg suggested to Mr. Stottlemeyer that they

sed that a sale of the Feadship before completion of the restoration work and without establishing a yacht chartering operation for the Feadship would preclude treatment by petitioner of any loss on the sale of the Feadship as an ordinary loss under section 1231. In November of 1992, petitioners and Angus settled the above-referenced lawsuit pursuant to which petitioner agreed to pay Angus an additional $480,000 -- $300,000 in cash and a $180,000 promissory note with principal and interest due i

a Decision, under, respectively, Rules 161 and 162, Tax Court Rules of Practice and Procedure, Ps challenge the Court’s factual and legal conclusions in Lowry v. Commissioner, T.C. Memo. 2003-225. There, this Court decided that a conceded gain under sec. 1231, I.R.C., was realized in 1994, and not in 1993, as contended by Ps. Held: Ps have failed to point to any substantial errors of fact or law or to present any newly discovered evidence that could not have been introduced previously even if Ps

They reported a $951 section 1231 gain from Shelter Associates III on their joint return for 1984.4 Petitioner and Mr.

me housing credits and never received Form 8609, Low-Income Housing Credit Allocation Certification, from 4V&M Management’s 1997 return was signed by the bankruptcy trustee on Sept. 1, 1998. 5The 1997 Schedule K-1 indicates that $1,794,602 was a net sec. 1231 gain and $293,952 was a net long-term capital gain. 6Respondent carried forward an interest expense deduction of $965,226 and a net operating loss of $433,167. Additionally, respondent allowed $4,150 as a standard deduction. - 5 - the State

T.C. Memo. 2003-225 UNITED STATES TAX COURT ROBERT K. AND DAWN E. LOWRY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 11579-00. Filed July 30, 2003. Ps realized a sec. 1231, I.R.C., gain when a partnership of which P husband was a 50-percent owner conveyed rental property to the holder of a security deed on the property in satisfaction of the loan obligation. Ps assert that the gain should be recognized in 1993, because the lender issued a Form 1099-A indicating that th

, acquired title to Mandela Apartments from the Secretary of Housing and Urban Development on Dec. 11, 1981. V&M Management’s 1997 return was signed by the bankruptcy trustee on Sept. 1,1998. The 1997 Schedule K-l indicates that $1,794,602 was a net sec. 1231 gain and $293,952 was a net long-term capital gain. Respondent carried forward an interest expense deduction of $965,226 and a net operating loss of $433,167. Additionally, respondent allowed $4,150 as a standard deduction. Except as indica

They reported a $951 section 1231 gain from Shelter Associates III on their joint return for 1984.

The original return also reported long-term capital gain of $5,304 from the partnerships and section 1231 gain of $76,070 from the S corporation.

ceived a Schedule K-1 from Finley Kumble for 1992, indicating that his distributive shares of Finley Kumble items were as follows: Distributive Partnership Item Share Ordinary income (loss) ($1,252) Interest 127 Net long-term capital gain (loss) (8) Sec. 1231 gain (loss) (10) Income from cancellation of debt 37,212 The Schedule K-1 indicated that Mr. Blonien had a 0.0170-percent interest in Finley Kumble’s profits and losses, and a 0.0345- percent interest in Finley Kumble’s capital. The Schedul

On its 1995 return, KRP reported a $494,576 gain on the sale of the gas stations, which it divided between ordinary gain ($212,903) and section 1231 gain ($281,673).

The Schedule K-1 listed petitioner’s distributive share of Quality’s ordinary income, interest income, and section 1231 gain for the 1996 taxable year as $40,697, $1,411, and $311, respectively.

1231 gain (loss) . (10) Income from cancellation of debt . 37,212 The Schedule K-l indicated that Mr. Blonien had a 0.0170-percent interest in Finley Kumble’s profits and losses, and a 0.0345-percent interest in Finley Kumble’s capital. The Schedule K-l also indicated that Mr. Blonien had a yearend negative capital account of $13,717. On Octob

ent determined that the - 5 - partnership surrendered the Fitch property to AAL in 1994 and that petitioners failed to report $774,982 on their 1994 return representing petitioner's distributive share of the gain recognized by the partnership under section 1231. Petitioners filed a petition contesting the notice of deficiency in which they contend that the surrender of the Fitch property occurred in 1993 and respondent erred in determining that the resultant cancellation of indebtedness income w

ears in issue, petitioner reported the sale of horses on part I of Form 4797, Gains and Losses From Sales or Exchanges of Assets in a Trade or Business and Involuntary Conversion. The instructions for Form 4797 for those years provide the following: Sec. 1231 transactions include “Sales or exchanges of cattle and horses, regardless of age, used in a trade or business by the taxpayer for draft, breeding, dairy, or sporting purposes and held for 24 months or more from acquisition date.” - 8 - The

n calculated with regard to the sale of the Longport (continued...) - 9 - gain is not subject to the section 1221 capital gain preference as a result of the application of section 1221(2), petitioner’s gain does receive preferential treatment under section 1231. But see sec. 1250. As a final matter, petitioner claims that he received the sales proceeds on account of the Longport property and certain personal property, such as appliances purchased for the rental unit. We find petitioner’s claim c

Petitioner incorrectly reported a section 1231 loss of $3,196,339 from the sale of the partnership interests.

The $20,000 of installment sale income claimed in Form 6252 was then reported as “Section 1231 gain from in- stallment sales from Form 6252" in Form 4797, Sales of Business Property, which petitioners attached to their joint return and as “Gain from Form 4797" in Schedule D of that return.

ome; (4) whether petitioners were entitled to claim deductions for Schedule E losses for tax years 1992 through 1994 in connection with Phillip's S corporation used in his illegal activities; (5) whether Phillip was entitled to claim a deduction for section 1231 loss for tax year 1991 with respect to his interest in an unsuccessful partnership, and to carry over that loss to subsequent tax years as net operating losses; and (6) whether petitioners were entitled to claim certain Schedule C deduct

e issues for decision are: (1) whether P had sufficient basis with respect to an S corporation to permit him to deduct his pro rata share of that corporation's ordinary losses for the years in question; and (2) whether (A) the corporation suffered a sec. 1231, I.R.C., loss from the disposition of property in one of those years and (B) P had sufficient basis to permit him to deduct his pro rata share of that loss. 1. Held: P established that he had sufficient basis for all years; 2. Held, further

In Bresler, the taxpayers sold their small business corporation’s section 1231 property at a significant loss in 1964.

erty” used in the trade or business of the partnership's farming activity, and therefore as excluded from capital asset treatment under section 1221, gain realized on the sale of the water rights would, in any event, be treated as capital gain under section 1231. Neither party, however, pursues this possible treatment of the partnership's water rights as section 1231 “real property”. Thus, the only question before us is whether the partnership's water rights constitute “property” and capital ass

erty” used in the trade or business of the partnership’s farming activity, and therefore as excluded from capital asset treatment under section 1221, gain realized on the sale of the water rights would, in any event, be treated as capital gain under section 1231. Neither party, however, pursues this possible treatment of the partnership’s water rights as section 1231 “real property”. Thus, the only question before us is whether the partnership’s water rights constitute “property” and capital ass

wton -- -- -- -- -- -- Stanley Booker 6302-04 Cache Rd., Lawton 310.79 343.33 379.28 419.00 463.00 511.00 38th & Lee (lots), Lawton -- -- -- -- -- -- Total 20,546.42 59,739.59 9,508.23 10,364.34 11,279.00 12,851.00 Petitioner reported the aggregate installment sale income for each of the years in issue on Form 4797, Sales of Business Property, as "section 1231 gain from installment sales from Form 6252".

ined under § 1.1502-12) of each member of the group, computed without regard to any deduction under section 242; (2) Any consolidated capital gain net income (net capital gain for taxable years beginning before January 1, 1977); (3) Any consolidated section 1231 net loss; (4) Any consolidated charitable contributions deduction; (5) Any consolidated dividends received deduction (determined under § 1.1502-26 without regard to paragraph (a)(2) of that section); and (6) Any consolidated section 247

We rejected that argument because the earlier sale of the properties resulted in ordinary losses under section 1231, and thus under Arrowsmith v.

1990); see also sec.

MAI’s Form 1120S shows on its face that MAI had ordinary income of $522,091 (gross income less deductions) which petitioner reported on his return and a section 1231 loss of $651,626 and net loss from rental real estate of $3,152, which add up to the losses of $654,788.

1231(e)(1), 100 Stat. 2085, 2562-2563. The effect of the amendment to sec. 482 is that we may consider the actual profits realized by the transferee through its use of the intangible property. H. Rept. 99-426, 425 (1985), 1986-3 C.B. (Vol. 2) 425 ("The committee does not intend, however, that the inquiry as to the appropriate compensation for

1231(e)(1), 100 Stat. 2085, 2562-2563. The effect of the amendment to sec. 482 is that we may consider the actual profits realized by the transferee through its use of the intangible property. H. Rept. 99-426, 425 (1985), 1986-3 C.B. (Vol. 2) 425 ("The committee does not intend, however, that the inquiry as to the appropriate compensation for

Bach's allocable share of net gain under section 1231 was $147,717.

1231(e)(1), 100 Stat. 2085, 2562-2563. The effect of the amendment to sec. 482 is that we may consider the actual profits realized by the transferee through its use of the intangible property. H. Rept. 99-426, 425 (1985), 1986-3 C.B. (Vol. 2) 425 ("The committee does not intend, however, that the inquiry as to the appropriate compensation for

1231(e)(1), 100 Stat. 2085, 2562-2563. The effect of the amendment to sec. 482 is that we may consider the actual profits realized by the transferee through its use of the intangible property. H. Rept. 99-426, 425 (1985), 1986-3 C.B. (Vol. 2) 425 ("The committee does not intend, however, that the inquiry as to the appropriate compensation for

or other disposition of the concession. Since petitioner believed that Aminoil’s adjusted basis in the concession was zero, petitioner reported a gain of $55,147,935. Petitioner reported that gain as a long- term capital gain under the authority of section 1231. Respondent determined a deficiency in petitioner’s consolidated income tax liability for 1982 based, in part, on an adjustment treating the “level of inflation” adjustment not as an amount realized on the sale or disposition of property

1231(e)(1), 100 Stat. 2085, 2562-2563. The effect of the amendment to sec. 482 is that we may consider the actual profits realized by the transferee through its use of the intangible property. H. Rept. 99-426, 425 (1985), 1986-3 C.B. (Vol. 2) 425 ("The committee does not intend, however, that the inquiry as to the appropriate compensation for

RTA characterized the TTS loss as resulting from the disposition of section 1231 property and reported to each shareholder his or her (her) pro rata share of the TTS loss.

1231(e)(1), 100 Stat. 2085, 2562-2563. The effect of the amendment to sec. 482 is that we may consider the actual profits realized by the transferee through its use of the intangible property. H. Rept. 99-426, 425 (1985), 1986-3 C.B. (Vol. 2) 425 ("The committee does not intend, however, that the inquiry as to the appropriate compensation for

We rejected that argument because the earlier sale of the properties resulted in ordinary losses under section 1231, and thus under Arrowsmith v.

The computation of separate taxable income (or loss) under section 1.1502-12, Income Tax Regs., excludes certain items that are taken into account on a consolidated basis including: NOL’s, capital gains and losses, section 1231 gains and losses, charitable contributions, and the dividends received deduction.

MAl’s Form 1120S shows on its face that MAI had ordinary income of $522,091 (gross income less deductions) which petitioner reported on his return and a section 1231 loss of $651,626 and net loss from rental real estate of $3,152, which add up to the losses of $654,788.

Davis' distributive share of ordinary losses, net section 1231 gains, and income from discharge of indebtedness from Country Club for the year 1989 was: Net loss from rental real estate operations ($32,691) Net section 1231 gain 103,246 Income from discharge of indebtedness 240,598 Ms.

he contracts are actually resold.6 Concerning the issues in this case, legislation was enacted to prevent a sports team purchaser from allocating more than a fair market value portion of the purchase price to player contracts. 6 Player contracts are sec. 1231 property. Generally, the sale or exchange of player contracts results in capital gain treatment for the seller's income, subject to the aggregation requirements of sec. 1231. - 9 - In particular, it was thought that purchasers of sports fra

Petitioners have realized ordinary (because there has been no sale or exchange for purposes of section 1231) income to the extent that the net fair market value of the properties received exceeded their adjusted basis in the debt.

is opinion. The $72 million basis reflects adjustments made by the partnership that are not germane to this case to account for Bowlen’s acquisition costs and Adams’ share of partnership income prior to the sec. 708 termination. Player contracts are sec. 1231 property. Generally, the sale or exchange of player contracts results in capital gain treatment for the seller’s income, subject to the aggregation requirements of sec. 1231. It is noted that the $36 million basis for the player contracts w

Petitioners' Form 8082 showed a reduction to zero in the amount of the Pecaris reported section 1231 gain of $827,968 attributed to petitioner and provided the following explanation: "Traded up Real Estate Interests in Like-Kind Exchange." Petitioners' Form 8082 did not disclose that the $100,000 real estate brokerage commission used by Pecaris as an offset in computing its gain on 10(...continued) Buildings and other depreciable asse

sses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. The amendment to sec. 482 by 1986 Act sec. 1231(e)(1), 100 Stat 2562, regarding the transfer of intangible property does not affect the instant case. - 201 - placing controlled taxpayers on a parity with uncontrolled, unrelated taxpayers. Seagate Technology, Inc. & Consol. Subs. v. Commi

sses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. The amendment to sec. 482 by 1986 Act sec. 1231(e)(1), 100 Stat 2562, regarding the transfer of intangible property does not affect the instant case. - 201 - placing controlled taxpayers on a parity with uncontrolled, unrelated taxpayers. Seagate Technology, Inc. & Consol. Subs. v. Commi

First, petitioners claimed a section 1231 loss of $66,850 for Vosburg on their 1987 Schedule K-1.

To the extent that we find such losses deductible in 1979, the parties agree that the losses should be characterized as section 1231 losses.