- 8 - 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 contractPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
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