- 11 - otherwise. Section 1231(a) governs the characterization of gains and losses from sales, exchanges, and involuntary conversions of real and depreciable property used in a trade or business and permits a taxpayer, in certain circumstances, to characterize recognized losses incurred from such transactions or occurrences as an ordinary loss rather than a capital loss subject to the limitations on deductibility under section 165(f). For purposes of section 165(a), a loss must be evidenced by a closed and completed transaction and fixed by an identifiable event. Sec. 1.165-1(b), Income Tax Regs. The mere diminution in value of property is not sufficient to establish a loss for purposes of section 165(a). United States v. White Dental Manufacturing Co., 274 U.S. 398 (1927). To deduct a decrease in value of property, there must be some event that fixes the fact of the loss and the amount thereof. Petitioner contends that an involuntary conversion of property is an identifiable event that gives rise to a section 165 loss deduction. Petitioner contends that an involuntary conversion of property occurs when a "taxpayer's property, through some outside force or agency beyond his control, is no longer useful or available to him for his [purposes]" quoting C.G. Willis, Inc. v. Commissioner, 41 T.C. 468, 476 (1964), affd. 342 F.2d 996 (3d Cir. 1965), which involved nonrecognition of gain upon an involuntary conversion under section 1033. Petitioner also quotes a similar definitionPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011