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The difficulty in determining a fair market value by which
to ascertain an amount realized in the absence of a realization
event was another major reason why Congress enacted section 1038.
S. Rept. 1361, supra, 1964-2 C.B. at 831. That valuation
difficulty is present in this case: Although the parties have
stipulated, based on petitioner’s expert’s opinion, a fair market
value of $465,000 at reacquisition, the record also contains a
1989 appraisal of the same property in the same condition for
$2,300,000.
We discuss the third and fourth factors in light of
petitioner’s further argument that applying section 1038 to this
case would be unconstitutional because petitioner did not realize
any gain in connection with the sale and subsequent reacquisition
of the 225-235 Boston Avenue property and should therefore not be
taxed on any gain nor denied a claim for a loss at the time of
reacquisition. To support his argument, petitioner also claims
that the fair market value of the property at the time of
reacquisition governs whether any gain was realized on the
transactions at issue.7
7 Petitioner argues that he should not be taxed if the value
of the property he received back and the amount of cash and other
property he received in connection with the initial sale are less
than his presale basis in the property. The amount that
petitioner received ($719,480) plus the fair market value of the
property at acquisition ($465,000) is slightly less ($1,184,480)
than the adjusted presale basis in the property ($1,187,465)
claimed on his 1988 income tax return for the year of the sale.
(continued...)
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