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year would not be recaptured as ordinary income under
section 1250 and, accordingly, would be treated as
nonpatronage income, despite the fact that it is no
different than depreciation recaptured under section 1245.
Respondent argues that the gain realized in excess of
the portion recaptured as ordinary income under section
1245 or section 1250, is nonpatronage income, assuming that
there is a net section 1231 gain for the taxable year.
Respondent suggests that this portion of the gain is always
attributable to appreciation in the value of the section
1231 assets, “the invisible hand of the market place” and
can never be directly related to the activities of the
cooperative. Respondent cites Astoria Plywood Corp. v.
United States, 43 AFTR 2d 79-816, 79-1 USTC par. 9197 (D.
Or. 1979), as authority for that position. That case,
however, involved an entity that had operated for 16 years
as a for-profit corporation before becoming a cooperative.
The machinery that was sold had been used and fully
depreciated before the taxpayer became a cooperative and
it was sold in the same year the taxpayer became a
cooperative. In that case, there was no factual basis on
which to conclude that the income from the sale of the
machinery was related in any way to the cooperative
activities of the taxpayer. Thus, that case does not
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