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property. See Conners v. Commissioner, supra at 546-547
(reacquisition of real property governed by sec. 1038 even though
substantial improvements made). Under section 1038(b)(1),
petitioner must recognize and include in gross income the
previously excluded balance of the initial cash payment,
$383,288.
2. Disallowance of Loss Related to Reacquisition Governed
by Section 1038
Petitioner argues in the alternative that, as a matter of
law, he is entitled, under section 165, to claim a loss on the
reacquisition. Section 1038(a) forestalls a seller, incident to
a section 1038 reacquisition of real property, from claiming a
bad debt deduction under section 166 for the default in payment
of the purchase money mortgage debt secured by that property.
Rose v. Commissioner, T.C. Memo. 1987-19, affd. 855 F.2d 65 (2d
Cir. 1988). The language of section 1038(a), which states that
“no gain or loss shall result to the seller from such
reacquisition”, see also sec. 1.1038-1(a)(1), Income Tax Regs.,
also disallows other kinds of losses, including those that might
be claimed under section 165. Disallowing any loss claimed under
section 165 is consistent with the broader congressional intent
in enacting section 1038:
Your committee also believes that it is desirable to
have a uniform rule applicable in case of repossession
of real property, whether the initial sale was at a
gain or loss * * * it is desirable to have the same
rule applicable whether the value of the property after
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