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receipt. The subsequent gain is part and parcel of the
original loss transaction and cannot be segregated for
tax purposes. The gain in 1967 is merely an adjustment
of the prior sale price; it is not a new and
independent sale or exchange of section 1231 property.
The receipt of the payment in 1967 was merely the
completion of a prior transaction. Arrowsmith requires
us to treat both events as a unified transaction. * * *
[Id. at 187; citations omitted; emphasis supplied.]
Simply stated, the doctrine set forth in Arrowsmith v.
Commissioner, supra, is that the tax treatment of a transaction
occurring in 1 year may control the tax treatment afforded a
second transaction in a subsequent year where both transactions
are integrally related. This doctrine does not breach the
principle of the annual accounting period because no attempt is
made to reopen and readjust the treatment of the original
transaction. See id. at 8, 9. In order for Arrowsmith v.
Commissioner, supra, to apply, however, there must be a
relationship between two transactions which is sufficient to
require the conclusion that both transactions are parts of a
unified whole.
In Arrowsmith, the Supreme Court found such relationship in
part because the payment at issue would have been offset against
the capital gain had both transactions occurred in the same
year. Likewise in Bresler v. Commissioner, supra, a sufficient
relationship was found because the settlement proceeds paid in a
subsequent year would have been offset against the original loss
transaction had both events occurred in the same year.
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