The Tax Court rejected the taxpayer's argument and was "unable to find anything in the legislative history of section 1234A to support [the taxpayer's] assertion that Congress intended to include
section 1231 property within its ambit." The Court concluded that the meaning of capital asset in Sec.
In Bakersfield, the IRS sent an FPAA in October 2005, determining that Bakersfield had overstated its basis in gas reserves sold in 1998 by the reported basis of $16,515,194, which the IRS adjusted to $0.The gas reserves were IRC
section 1231 property. The IRS claimed the reported basis resulted from a sham transaction, and the six-year statute of limitations applied under IRC section 6501(e)(1)(A).
For example, a taxpayer recognized an ordinary loss from selling IRC
section 1231 property. Three years later he received a settlement from a related antitrust action.
The tax treatment of property in this classification is based on Section 1231 of the Internal Revenue Code, thus it is often referred to as "
Section 1231 property." Real estate held for rental purposes (e.g., apartment buildings, office buildings, shopping centers, etc.) qualifies as
Section 1231 property.
Where there exists a conflict of attributes, and both S and B have gain from the same property, their attributes are determined on a separate entity basis to the extent not inconsistent with the purposes of the intercompany transaction rules.(19) If S and B were divisions of a single corporation, however, the corporation could convert what would ordinarily be inventory to
section 1231 property used in its own trade or business (e.g., computers used in IBM offices).
* Qualifying community business property--essentially, tangible
section 1231 property used in the RC by a qualified RC business.
Although this proposal would be consistent with the treatment accorded
section 1231 property in general, we realize that the proposal perpetuates asymmetrical tax treatment--albeit one that shifts the balance in favor of the taxpayer and away from the current formulation of the character rules.
Note:
Section 1231 property includes depreciable or real property used in a business or in the production of income, primarily equipment and machinery, buildings and land.
Adjusted Fair Market Assets Basis Value Cash $45,000 $45,000 Land 1 50,000 500,000 Land 2 250,000 100,000 Equipment 60,000 120,000 Total Assets $405,000 $765,000 S's $120,000 optional basis adjustment is now allocated on a pro rata basis to the two parcels of land and the equipment, all of which are
section 1231 property. Nothing is allocated to the only item in the other property classification, cash, because it has not appreciated or depreciated in value.