- 10 - In addition, respondent argues that petitioners’ incorrect method of accounting resulted in inflated losses in prior years such that the net operating loss carryovers to the years at issue should be reduced accordingly. II. Method of Accounting and Recognition of Gain A. Existence of Gain--Completed Sale As a general rule, the Internal Revenue Code imposes a Federal tax on the taxable income of every individual. See sec. 1. Section 61(a) specifies that gross income for purposes of calculating such taxable income means “all income from whatever source derived”. Expressly encompassed within this broad pronouncement are “Gains derived from dealings in property”. Sec. 61(a)(3). Section 1001(a) then defines such gains as the amount realized “from the sale or other disposition of property”, less the adjusted basis. Accordingly, section 1001(a) indicates that gross income within the meaning of section 61(a) does not arise until property is considered sold or otherwise disposed of for Federal tax purposes. Case law then sets forth the standard for determining when a sale is complete for tax purposes. With respect to real property, a sale and transfer of ownership is complete upon the earlier of the passage of legal title or the practical assumption of the benefits and burdens of ownership. See Major Realty Corp. & Subs. v. Commissioner, 749 F.2d 1483, 1486 (11th Cir. 1985),Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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