Gregory H. and Elizabeth A. Price - Page 12




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          under which the purchaser paid the partnership a cash downpayment           
          of $12,500 and gave the partnership a $187,500 promissory note.             
               On its 1989, 1990, and 1991 partnership Federal income tax             
          returns, the partnership claimed accelerated depreciation with              
          respect to the partnership’s tax basis in Store 5.                          
               On its 1991 partnership Federal income tax return, the                 
          partnership did not reflect the sale of Store 5.  Rather, the               
          sale of Store 5 was reflected only on petitioners’ 1991 joint               
          Federal income tax return as an installment sale with respect to            
          which a capital gain for 1991 of $298 was reported.                         
               On audit, respondent determined that the partnership’s total           
          $170,267 gain on the sale of Store 5 and the associated videos4             
          was attributable to depreciation recapture and was taxable to the           
          partnership for 1991 as ordinary income under section 453(i).               
               Under the installment sale provisions of section 453(i), it            
          is provided that on an installment sale, all income related                 
          thereto that would be treated as ordinary recapture income under            
          sections 1245 or 1250 if received in the year of the sale, must             
          be treated as ordinary income as if received in the year of the             
          sale.  See Murry v. Commissioner, T.C. Memo. 1993-471; 2 Mertens,           



          4    Respondent apparently computed the partnership’s $170,267              
          gain on the 1991 sale of Store 5 as follows:  $200,000 sales                
          price for Store 5 less partnership’s depreciated tax basis in               
          Store 5 and in the associated videos of $29,733 equals $170,267.            




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