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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
Vista.
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