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the parties, by one of the parties declaring a rescission of the
contract without the consent of the other if sufficient grounds
exist, or by applying to the court for a decree of rescission."
Id. at 181-182. When the annual accounting principle is taken
into account, however, it supersedes the rescission if the
rescission occurs in a different year. Id.
In situation one, the rescission occurred in the same
taxable year as the sale. As a result, the income tax
consequences of the original sale would be disregarded for
Federal income tax purposes. In situation two, the rescission
did not occur until the following year. At the end of the sale
year, A and B were not in the same positions they were in before
the sale. In consequence, only the events of the first year,
1978, are considered in determining A's and B's income tax
liabilities for 1978. "In both situations, the annual accounting
period principle requires the determination of income at the
close of the taxable year without regard to subsequent events."
Id. at 182.
Petitioners liken themselves to the taxpayers in situation
one above. In petitioners' case, the original sale took place on
January 3, 1989, when the 100,000 shares of WalMart stock were
sold. After unsuccessful negotiations with Merrill Lynch,
petitioner attempted to utilize the unilateral rescission clause
in Rev. Rul. 80-58, supra: "A rescission may be effected * * *
by one of the parties declaring a rescission of the contract
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