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section 1374 for fiscal years 1996 and 1997 is a subchapter S
item that must be determined in a unified audit and litigation
procedure for an S corporation. Petitioner contends that the
built-in gains tax is not a subchapter S item. As discussed
below, we agree with respondent.
Section references are to the Internal Revenue Code, unless
otherwise indicated.
Background
Petitioner is a corporation the principal place of business
of which was in East Rutherford, New Jersey. Petitioner was
incorporated in 1929 and owns and operates the New York Giants, a
professional football franchise in the National Football League
(NFL).
In 1990, the NFL began exploring the possibility of
expansion and began considering various franchise applications.
Petitioner elected on March 1, 1993, to be treated as an S
corporation under section 1361(a)(1). Later in 1993, the NFL
awarded new franchises to Charlotte and Jacksonville. The
expansion agreements required the new franchises to pay expansion
payments (in six installments) to petitioner and the member teams
of the NFL.
Petitioner reported its share of the NFL expansion payments
as capital gains (not subject to the built-in gains tax imposed
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