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overstated basis, in contrast to the omission of sales
proceeds, provides something for the Service to
check.4/ However, in Colony, Inc., the Supreme Court
had before it a case of a sale of goods or services, as
the taxpayer’s principal business was the development
and sale of lots in a subdivision. See Colony, Inc. v.
Commissioner, 26 T.C. 30, 31 (1956), aff’d, 244 F.2d 75
(6th Cir. 1957), rev’d, 357 U.S. 28 (1958). In cases
not concerning a sale of goods or services, Colony,
Inc.’s approach would conflict with I.R.C. sec.
6501(e)(1)(A). See CC&F Western Operations L.P., 273
F.3d at 406, in which the First Circuit questions
whether Colony’s main holding carries over from the
1939 Internal Revenue Code for land sales in general
(“Gross income on land sales is normally computed as
net gain after subtracting basis. 26 U.S.C. secs.
61(a)(3), 1001(a); 26 C.F.R. sec. 1.61-6 (2001).”).
Accordingly, respondent maintains that Colony,
Inc. does not provide any authority for treating gross
receipt as gross income for the sale of land or other
property; rather, under the current I.R.C., that
treatment depends on whether the property sold is a
good or service. The sale of business property
reported on Form 4797 is not the sale of a good or
service; rather it is the sale of an item that is used
by a business to sell goods or services.
__________________________
4 Petitioner notes that although the Supreme Court
applied the 1939 I.R.C., it stated “that the conclusion
is in harmony with the unambiguous language of sec.
6501(e)(1)(A).” Colony, Inc., 357 U.S. at 37. The
Supreme Court did not purport to explain how an
interpretation under the I.R.C. 1954 should incorporate
its analysis. It appears that this observation was
only made because each party had looked to the I.R.C.
1954 Code for support as indicated by the following
phrase which prefaces the observation: “And without
doing more than noting the speculative debate between
the parties as to whether Congress manifested an
intention to clarify or to change the 1939 Code,
* * *.” Colony, Inc., 357 U.S. at 37.
We are unpersuaded by respondent’s attempt to distinguish
and diminish the Supreme Court’s holding in Colony, Inc. v.
Commissioner, 357 U.S. 28 (1958). We do not believe that either
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