- 7 -
corresponding realization of gain. They contend, however, that
because they rescinded the January 3 sale to the extent of 96,600
shares, they need not recognize the gain on those 96,600 shares
at this time. Alternatively, they argue that the sale of the
stock to the extent of 96,600 shares by Merrill Lynch was an
involuntary conversion pursuant to section 1033 which enables
them to claim nonrecognition treatment.
1. Rescission
Rev. Rul. 80-58, 1980-1 C.B. 181 discusses two situations
involving the income tax consequences of a reconveyance to a
taxpayer of property previously sold by that taxpayer. In the
first situation, A sold B a tract of land in 1978. The contract
required A to accept the land back if B was unable to obtain
business zoning within 9 months after the sale. Later that year,
when B failed to get the zoning, he returned the land to A, and A
returned the sales price. In the second situation, the facts are
the same except that the period within which B could reconvey the
property to A was 1 year and the reconveyance occurred in 1979.
Id. at 181.
Rev. Rul. 80-58, supra, defines rescission as "the
abrogation, canceling, or voiding of a contract that has the
effect of releasing the contracting parties from further
obligations to each other and restoring the parties to the
relative positions that they would have occupied had no contract
been made. A rescission may be effected by mutual agreement of
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