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Petitioner’s arguments misconstrue both the intent and
operation of section 1038. As discussed supra, Congress enacted
section 1038 to obviate the difficulties, in the absence of an
identifiable sale or other exchange at the time of reacquisition,
of ascertaining the fair market value of the property and
objectively determining whether gain or loss was actually
realized. See S. Rept. 1361, supra, 1964-2 C.B. at 831.
To that end, section 1038(a) expressly disallows any
recognition of gain or loss in connection with the reacquisition
itself. Section 1038(b) requires only that the seller recognize
and report as gain that amount of any cash or other property that
was received by the seller on the original sale and whose
recognition was deferred under section 453. Such recognition
rectifies the imbalance created by the section 453 deferral,
which Congress allowed in order to sidestep “the seemingly
elementary issue of when the ‘amount realized’ by the seller
includes the value of the buyer’s obligations to make the future
payments”. Bittker & McMahon, Federal Income Taxation of
7(...continued)
For at least two reasons, this argument cannot prevail.
First, the relevant realization event for measuring gain is the
initial sale, not the subsequent reacquisition. Second, both the
legislative history and the regulations specifically state that
the fair market value of the property at the time of
reacquisition is immaterial. See S. Rept. 1361, 88th Cong., 2d
Sess. (1964), 1964-2 C.B. 828, 831; sec. 1.1038-1(a), Income Tax
Regs. Moreover, we are not satisfied that petitioner has proved
the presale basis claimed on the 1988 return.
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