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support respondent’s argument that the realization of
appreciation is always unrelated to the activities of a
cooperative.
Indeed, contrary to respondent’s argument,
respondent’s own rulings suggest that appreciation in the
value of an asset can be taken into account as patronage
income. As mentioned above, in Rev. Rul. 74-24, supra, and
Rev. Rul. 71-439, supra, the Commissioner ruled that the
capital gain recognized pursuant to an election under
section 631(a) is patronage income. In those rulings “the
gain * * * represents the unrealized appreciation in value
of timber cut during the year.” Rev. Rul. 74-24, supra at
244; Rev. Rul. 71-439, supra at 322. Furthermore, under
respondent’s own position, section 1231 gains attributable
to appreciation in the value of the asset will be treated
as patronage income, if there is a net section 1231 loss
for the taxable year.
According to respondent, it is also proper to classify
section 1231 losses as from patronage sources. Respondent
argues as follows:
The same rationale applies to section 1231 losses
and results in such losses being quite properly
classified as patronage-sourced losses unless
demonstrated otherwise. Section 1231 losses
occur when the amount realized upon disposition
of an asset is less than its basis as adjusted
to reflect appreciation or other cost recovery
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