Affirming a Tax Court decision, the Eighth Circuit held that a taxpayer who repossessed his former principal residence after the buyer defaulted had to recognize gain equal to the excess of the cash received over the previously
recognized gain. According to the court, the taxpayer could not use an exception to the gain recognition rule because he did not resell the property within the one-year period prescribed in the exception.
704(c)(1)(B) rules, the distributee member's basis in the distributed property is the LLC's basis in the property immediately before the distribution increased by any gain recognized by the contributing member or decreased by any loss recognized by the contributing membet The contributing member's basis in his or her LLC interest is also increased or decreased to reflect the
recognized gain or loss (Regs.
This will result in a lowering of the basis in the replacement property so when that property is sold, the taxpayer will have to pay taxes on the
recognized gain that reflects profits realized on both the first and second properties.
[sections] 1.865-2(b)(2), loss recognized on the disposition of an 80-percent owned foreign affiliate will reduce foreign-source passive income if, within the past five years, the seller (or a consolidated group member)
recognized gain on the disposition of a foreign affiliate that was sourced under section 865(f).
1038(b) requires the recognition of gain equal to the amount of cash and fair market value of other property received, minus the amount of previously
recognized gain. The amount of
recognized gain is limited to the property's selling price minus its adjusted basis, less any previously
recognized gain and repossession costs.
Since the corporation must compute its gains and losses on an asset-by-asset basis, H would have a
recognized gain of $25,000 from the land and an unrecognized loss of $20,000 from the I stock, if those assets were transferred to redeem E's shares.
A transaction is subject to the existing temporary regulations under section 367(b) if it (i) involves an exchange under section 332, 351, 354, 355, 356, or 361 with respect to which foreign corporate status is relevant to the determination of
recognized gain, and (ii) does not involve a property transfer "described in section 367(a)." (26) The existing regulations under section 367(b) imposed both procedural and substantive requirements.
The former would be triggered, for example, if X redeemed all of A's remaining shares; the latter would be triggered, for example, if A sold the remaining 50 shares to an unrelated third party for a $30
recognized gain. Both of these events would allow A to recognize a $30 capital loss.
However, a consistency rule would require a loss recognized on the sale of an 80%-owned foreign affiliate to reduce foreign source passive income if, within the past five years, the seller had
recognized gain on the sale of a foreign affiliate sourced under the foreign affiliate stock rule.
Although the securities the outside investors receive will be deemed boot, they will not recognize any gain on the transaction, because
recognized gain is limited to the lesser of boot received or gain realized.
If H later sells or exchanges the new machine, he will have to report, at a minimum, the first $1,000 of
recognized gain as ordinary income.
The recapture provisions generally do not determine the realized or
recognized gain or loss on an asset's disposal; rather, they determine only the tax character of any gain.
