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the sale as follows: (1) gross settlement proceeds of $212,861,
(2) settlement charges of $6,852, (3) legal costs of $2,907, and
(4) operating loss carryover of $11,912. From those figures,
petitioner calculates an amount realized of $191,189 ($191,189 =
$212,861 - $6,852 - $2,907 - $11,912). In calculating an amount
realized of $207,593 from the sale of the five units, respondent
argues that $210,500 is the correct figure for settlement
proceeds, subtracts legal costs of $2,907 ($207,593 = $210,500
- $2,907), and does not consider the $6,852 in settlement charges
claimed by petitioner. Only after calculations for the amount
realized and gain realized are complete (and the gain is included
as an item of gross income; see section 61(a)(3)), does
respondent subtract the operating loss carryover of $11,912 in
arriving at taxable income (see sections 161, 172). The
difference between the parties' figures for the amount realized,
thus, results from a disagreement over the correct amount of
settlement proceeds and charges to be considered in calculating
the amount realized, as well as the placement of the operating
loss carryover in the computations.
First, we agree with respondent that the operating loss
carryover should properly be considered, if at all, only in
determining taxable income and not in the separate, and
preceding, operation of determining gain realized. Compare
secs. 61(a)(3) and 1001 with secs. 161 and 172. Since the
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