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 order to determine whether gains exceed losses, it is necessary to aggregate recognized gains (in excess of recaptured accelerated depreciation) and losses in the year on all IRC Section 1231 property
. Nondeductible losses and nonrecognized gains are not included: for example, losses not deductible because they involve transactions between related parties (see Q 7523), gains not recognized because they involve exchanges of like-kind property (see Q 7526), or unreported gain on an installment sale (see Q 7512).
Section 1231 property
and properties subject to potential Section 1245 or 1250 recapture are reported on Form 4797.
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).
Such property, if held for the long-term holding period before being sold, is called "Section 1231 Property
." A loss from the sale of real estate that is Section 1231 property
is totaled with all other losses and gains from the sale of Section 1231 property
recognized during the year.
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.