§1239 — Gain from sale of depreciable property between certain related taxpayers
35 cases·6 followed·6 distinguished·1 questioned·2 criticized·20 cited—17% support
Statute Text — 26 U.S.C. §1239
In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, of a character which is subject to the allowance for depreciation provided in section 167.
For purposes of subsection (a), the term “related persons” means—
a person and all entities which are controlled entities with respect to such person,
a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary’s interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i)), and
except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.
For purposes of this section, the term “controlled entity” means, with respect to any person—
a corporation more than 50 percent of the value of the outstanding stock of which is owned (directly or indirectly) by or for such person,
a partnership more than 50 percent of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person, and
any entity which is a related person to such person under paragraph (3), (10), (11), or (12) of section 267(b).
For purposes of this section, ownership shall be determined in accordance with rules similar to the rules under section 267(c) (other than paragraph (3) thereof).
For purposes of subsection (a), the term “related person” also includes—
an employer and any person related to the employer (within the meaning of subsection (b)), and
a welfare benefit fund (within the meaning of section 419(e)) which is controlled directly or indirectly by persons referred to in paragraph (1).
For purposes of this section, a patent application shall be treated as property which, in the hands of the transferee, is of a character which is subject to the allowance for depreciation provided in section 167.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.1239-1 Gain from sale or exchange of depreciable property between certain related taxpayers after October 4, 1976
- Treas. Reg. §Treas. Reg. §1.1239-1(a) In general.
- Treas. Reg. §Treas. Reg. §1.1239-1(b) Related persons.
- Treas. Reg. §Treas. Reg. §1.1239-1(c) Rules of construction—(1) Husband and wife.
- Treas. Reg. §Treas. Reg. §1.1239-1(i) §1.1239-1(i)
- Treas. Reg. §Treas. Reg. §1.1239-2 Gain from sale or exchange of depreciable property between certain related taxpayers on or before October 4, 1976
35 Citing Cases
1239, which eliminates capital gain treatment under other provisions of the Code, see, e.g., secs. 1221, 1231, in transactions involving related parties. Respondent instead argues that the amounts Dr. Filler received are taxable as ordinary income because sec. 1235 does not apply and the incorporation agreement described Dr.
Section 1239, Generally Section 1239 requires ordinary income treatment ofthe gain recognized from the sale or exchange ofproperty, directly or indirectly, between related persons, ifthe property in the hands ofthe transferee is "ofa character which is subject to the allowance for depreciation provided in section 167." According to the House r
127, 132 (1964) (stating that: "Petitioner's rights with respect to the stock * * * were so complete that they were tantamount to ownership by petitioner for the purposes ofsection 1239."), rev'd, 361 F.2d 927, 929 (10th Cir.
127, 132 (1964) (“Petitioner’s rights with respect to the stock * * * were so complete that they were tantamount to ownership by petitioner for the purposes of section 1239.”), rev’d, 361 F.2d 927, 929 (10th Cir.
Other Provisions of .the Code Besides sections 174(c) and 41(b)(2)(C), several other Code sections use the phrase "of a character subject to the allowance for depreciation" or its slight variation .21 Although none of these sections defines the phrase, we find the language of some other Code sections, in particular section 1239, instructive as to the meaning of the phrase in sections 174 (c) and 41 (b) .(2) (C) .
Although none of these sections defines the phrase, we find the language of some other Code sections, in particular section 1239, instructive as to the meaning of the phrase in sections 174(c) and 41(b)(2)(C).