Teruya Brothers, Ltd. & Subsidiaries - Page 18

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          had it sold Ocean Vista directly to the Association for cash.13             
          Although Times recognized a gain in the Ocean Vista transaction             
          that slightly exceeded Teruya’s gain deferral, it appears that              
          Times paid a much smaller tax price for that gain recognition               
          than Teruya would have paid if it had recognized gain in a direct           
          sale of Ocean Vista.  On its corporate income tax return for                
          taxable year ending March 31, 1996, Teruya reported taxable                 
          income of $2,060,806.  Consequently, if Teruya had made a direct            
          sale of Ocean Vista, the gain recognized on that sale presumably            
          would have been taxable at a 34-percent corporate income tax                
          rate.  See sec. 11(b)(1)(C).  By comparison, on its Form 1120 for           
          its taxable year ending April 25, 1996, Times reported a net                
          operating loss (NOL) of $1,043,829.  Thus, although Times                   
          recognized a considerable gain on the Ocean Vista transaction,              
          because of offsetting expenses, it did not incur tax on that                
          gain.  Instead, the only tax consequences of Times’s gain                   
          recognition were reductions of its NOL for its taxable year                 
          ending April 25, 1996, and of its NOL carryovers for subsequent             
          taxable years.                                                              

               13 The $1,345,169 figure includes approximately $30,061 in             
          claimed selling expenses that Teruya deducted in computing its              
          sec. 1031(a) deferral.  Petitioner assumes that Teruya would have           
          incurred these same selling expenses in a direct sale of Ocean              

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