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Petitioner reported the entire gain from the sale of the
Lamont gas plant as ordinary patronage income.
In the subject notice of deficiency, respondent
reclassifies the portion of the gain representing the
amount realized in excess of cost basis, viz $12,852,544,
as nonpatronage capital gain under section 1231.
Respondent does not take issue with petitioner's treatment
of the portion of the gain equal to depreciation recapture
under section 1245, $3,287,803, or the portion of the gain
equal to the amount of straight-line depreciation on
section 1250 property, $81,328. The notice of deficiency
describes this adjustment as follows:
The section 1231 gain realized on the sale of
the Lamont, Oklahoma, gas plant must be
recognized as non-patronage capital gain and may
not be offset by patronage losses. Accordingly,
your non-patronage capital gains are increased
by $12,852,544; the patronage ordinary income
you reported is decreased by $(11,640,781); and
the non-patronage ordinary income you reported
is decreased by $(1,211,763), in your fiscal
year ending August 31, 1984.
Soybean Processing Facilities
Prior to August 1983, petitioner owned and operated
three soybean processing facilities. These facilities
were located in Sergeant Bluff, Iowa, St. Joseph,
Missouri, and Van Buren, Arkansas, and are collectively
referred to herein as the soybean facilities. Petitioner
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