- 15 -
circumstances surrounding the related transaction in
the earlier year, because of the relationship between
the transactions, and it is immaterial whether such a
result favors the taxpayer or the Government.
Bresler v. Commissioner, 65 T.C. 182, 186-187 (1975). In
Bresler, the taxpayers sold their small business corporation’s
section 1231 property at a significant loss in 1964. The
taxpayers reported their share of the loss on their own returns
as a net operating loss that reduced their ordinary income. In
the same year, they commenced a lawsuit against a competitor for
alleged antitrust violations, claiming damages that included the
full amount of their loss from the sale of assets. In 1967, the
case was settled. On the 1967 income tax return, the taxpayers
claimed that the majority of the settlement proceeds was to
reimburse them for the loss they realized upon the sale of their
corporation’s assets and that those proceeds were taxable as
capital gain and not as ordinary income. The Commissioner
maintained that the proceeds should be treated as ordinary
income. The Tax Court, agreeing with the Commissioner and
treating the proceeds as ordinary income, stated:
If * * * [taxpayers’ corporation] had received the
antitrust settlement in * * * [1964], any portion
representing compensation for the loss on the sale of
its section 1231 property would have merely reduced its
ordinary loss * * *. Arrowsmith requires that the gain
realized in 1967 be treated in the same manner as if it
had been received in 1964.
Since the gain, if received in 1964, would have
resulted in an increase in ordinary income, it is not
transformed into capital gain by a mere delay in
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011