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Petitioner argues that it should be allowed a net operating
loss carryforward from 1983 of $706,522. Respondent argues that
petitioner has no loss for 1983 because: (1) the $1,427,297 loss
reported on the sale of the hospital was a capital loss, the
deduction of which is limited to capital gain under section
1211(a), or zero in this case, and (2) the $354,580 FPCF expense
is not deductible. In the alternative, if any loss is allowable
on the hospital sale, respondent points out certain discrepancies
between the amounts used to calculate the loss on the sale as
reported on the return and those on petitioner's earlier
financial statements. Petitioner's response to respondent's
capital loss limitation argument is that the assets of the
hospital must be analyzed separately to determine their nature as
capital or ordinary items. Having made that analysis, petitioner
then allocates the sales price among those assets in order to
measure the extent of its deductible loss. Petitioner recognizes
that capital losses can only be carried forward against capital
gains. See sec. 1212(a)(1). As a result, petitioner will not
benefit from any portion of its claimed loss which is a capital
loss because it had no capital gains during the taxable years
before us.
The sale of a business involves the sale of its assets. The
nature of its assets determines the nature of the gain or loss.
The purchase price must be allocated among the assets sold based
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