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C. Coordination of Section 1031 Regulations and Section 453
The section 1031 regulations state: “Except as otherwise
provided, the amount of gain or loss recognized * * * in a
deferred exchange is determined by applying the rules of section
1031 and the regulations thereunder.” Sec. 1.1031(k)-1(j)(1),
Income Tax Regs. The section 1031 regulations contain special
rules for coordinating the determination of gain or loss under
section 1031 and under section 453, which generally requires,
subject to a host of qualifications not in issue here, that where
4(...continued)
ground that the taxpayers had raised the issue for the first time
on brief. The Court cited Seligman v. Commissioner, 84 T.C. 191
(1985), affd. 796 F.2d 116 (5th Cir. 1986), and Markwardt v.
Commissioner, 64 T.C. 989 (1975). As germane here, each of these
cases stands for the general proposition that this Court will not
consider issues first raised in the parties’ briefs where
prejudice and surprise are found to exist. Accordingly, we infer
that the Court in Chase concluded that a holding for the
taxpayers on their alternative argument would prejudice the
Commissioner.
In any event, the Court in Chase concluded that the
taxpayers were the wrong parties to claim the election under
former sec. 453. The election could be made only by the
partnership in which they were partners. By contrast, as
applicable to the years in issue here, the provisions of sec. 453
are not elective but rather are generally mandatory; the taxpayer
must elect out to avoid reporting gain or loss on the installment
method. See sec. 453(d). Moreover, the sec. 1031 regulations
applicable to the year in issue in Chase v. Commissioner, supra,
unlike the sec. 1031 regulations applicable here, contained no
explicit coordination with the installment sale provisions of
sec. 453. Accordingly, the taxpayers’ alternative argument in
Chase, unlike petitioners’ alternative argument here, did not
necessarily appeal to the correct application of the law
pertaining to sec. 1031 but instead was predicated on other
elective statutory provisions invoked for the first time on
brief.
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