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OPINION
1. Application of Section 1038
The primary issue for decision is whether section 1038
governs petitioner’s reacquisition of the 225-235 Boston Avenue
property, requiring petitioners to report $383,288 as hitherto
unrecognized gain in taxable year 1990 under section 1038(b).
Congress added section 1038 to the Code to ensure that
certain reacquisitions of real property sold in installment sales
would not be treated as taxable exchanges by simple reference to
the fair market value of the reacquired property. Act of
September 2, 1964, Pub. L. 88-570, 78 Stat. 854. Section 1038(a)
provides that a reacquisition of real property governed by
section 1038 is one in which a sale of real property gave rise to
indebtedness in favor of the seller, the indebtedness was secured
by the real property sold, and the seller reacquired the real
property in full or partial satisfaction of the indebtedness;
except as provided in section 1038(b), no gain or loss results
from the reacquisition and no debt can be treated as having
become worthless or partially worthless for any such
reacquisition.4
4 Sec. 1038(a) provides:
If--
(1) a sale of real property gives rise to
indebtedness to the seller which is secured by the real
property sold, and
(continued...)
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