- 8 - the amount of $2,087,500 on its 1993 S corporation income tax return. OPINION In the instant case, we must decide whether, during 1988, Sainte Claire constructively received the principal amount of the 1968 note or, alternatively, whether St. Claire disposed of that installment obligation within the meaning of section 453B. If we conclude that either of those events occurred, Sainte Claire would be required to recognize in its 1988 taxable year the gain realized on the sale of the Arboga and Gridley ranches, $2,087,500, which was also the principal amount of the 1968 note. Petitioners do not dispute that, in the event gain from the sale of the ranches must be recognized in Sainte Claire's 1988 taxable year, the provisions of section 1374, as applicable to Sainte Claire, are met with respect to that gain and that tax on that gain would be payable by Sainte Claire.5 5 Because Sainte Claire made its election to be an S corporation on Dec. 29, 1986, it is, in general, subject to taxation on its net capital gain pursuant to the provisions of sec. 1374 as it existed prior to the amendments made by sec. 632 of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2275- 2277. Tax Reform Act of 1986, Pub. L. 99-514, sec. 633(b), 100 Stat. 2277 (providing for effective date of change). Sec. 1374(a), prior to amendment, provided that, if for a taxable year of an S corporation, its net capital gain exceeded $25,000 and 50 percent of its taxable income, and the S corporation's taxable income for the year exceeded $25,000, a tax was imposed on the income of the corporation. Pursuant to sec. 1374(c)(1), prior to amendment, the tax was not imposed for an S corporation's taxable year where its election to be treated as an S corporation had been in effect for the 3 immediately preceding taxable years. (continued...)Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
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