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On its Federal income tax return for the year ending
August 31, 1983, petitioner reported a gain of $13,791,615
from the sale of its soybean facilities to Boone Valley.
This gain was composed of the following components:
Amount realized in excess of cost basis$501,903
Sec. 1245 recapture 9,963,255
Straight-line depreciation
on sec. 1250 property 3,326,457
Total reported gain 13,791,615
Petitioner reported $3,828,360 of the gain as patronage
capital gain under section 1231. This amount consists
of the portion of the gain equal to the amount realized
in excess of the cost basis ($501,903) and the portion
representing the straight-line depreciation taken on
section 1250 property ($3,326,457). Petitioner reported
the portion of the gain representing section 1245
recapture ($9,963,255) as ordinary patronage income.
In the subject notice of deficiency, respondent
reclassifies the portion of gain representing the amount
realized in excess of cost basis, $501,903, as
nonpatronage capital gain. Respondent does not adjust
petitioner's treatment of the portion of the gain
representing section 1245 recapture, $9,963,255 (treated
as ordinary patronage income), or petitioner's treatment
of the portion of the gain representing straight-line
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