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“incidental income derived from sources not directly
related to the marketing, purchasing, or service activities
of the cooperative association.”
In the event that the aggregate section 1231 gains
exceed losses for the taxable year, respondent’s position
is that the gain realized from the sale or exchange of each
section 1231 asset is automatically classified as
nonpatronage, except for the portion of the gain treated as
ordinary income under the recapture rules prescribed by
sections 1245. According to respondent, the portion of the
gain recaptured under section 1245 is considered patronage
income “because, in effect the taxpayer is merely
recapturing income that otherwise would have been available
for distribution as a patronage dividend.” Rev. Rul. 74-
84, 1974-1 C.B. 244. According to respondent, the same is
true with respect to the portion of the gain recaptured
under section 1250.
A logical inconsistency in respondent’s per se rule
arises in the case of recapture under section 1250. This
is due to the fact that, generally, section 1250 requires
recapture only of “additional depreciation” or depreciation
in excess of straight-line depreciation. Sec. 1250(b).
Under respondent’s position, the straight-line depreciation
taken on depreciable real property held for more than 1
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