(Accounting ) - Research Paper Example

Accounting research paper [Insert al affiliation] THE FACTS Tim is one of the prominent brokers who specialize in commercial real estate. He transacts on behalf of his clients alongside maintaining his portfolio property. Having specialized in real estate, he buys unimproved land and sale to others with an option of holding it as an investment. In early 2011, Al and Irene approached Tim concerning the piece of land (Moore farm) that was bought some time back at $600000. Tim was unaware that the land was located in a geological flaw.

Due to the knowledge, skills and expertise of Irene, who is an architect and Al who is a building contractor, they opted to mitigate the risk by use of their technology.They evaluated the Moore farm and ascertained a cost of $450,000 which is equivalent to the fair market value of an estate with geological flaw. The intention of the expertise was to organize the corporation to invest in building where each party will receive a just and equitable stock pursuant to the services or property contributed.

Tim joined the joint venture after lawful consultation with his tax advisor where he opted to transfer the land for the sale instead of receiving the stock with a note of $450,000 bearing an interest after five years.ISSUECan Tim recognize any capital gain from the transaction as a broker and why did he decline receiving stock and opted for the sale? DECISIONHe did not succeed to recognize any gain from the sale of the Moore land to the corporation instead of stock and regulations regarding the stock transactions were not clear.

REASONINGTim recognized a gain on the sale of land instead of a stock of $450,000. The gain of this interest is taxable pursuant to the internal revenue code. Concord Instruments Corporation, 67 TCM 3036, T.C. Memo. 1994-248, a related fact pattern, upheld that the oral instructions to the broker to sell the stock at a very high cost comprised of enough identification of the shares. Reg. § 1.107-1(c)(3) articulates that stock can only be identified fully when (1) a particular stock to be sold is identified by the taxpayer and (2) the broker in written form confirms the instructions of the taxpayer within a period deemed reasonable.

The IRS’s position in concord case was that no written confirmation of the instructions of the taxpayer was provided as per regulation demands. It is, therefore, lawful that the gain amount to be recognized should follow the FIFO basis in determination of the cost incurred to the shares sold.The taxpayer had an obligation to admit the argument of the taxpayer. It was concluded that the regulations in action currently do not make the provision of exclusive ways of identifying the stock that is sold.

The taxpayer was allowed by the court to use the specific identification method. In a similar case, The Internal Revenue Code Reg. section 1.1031(a)-I(c), the ruling involved the property of the same kind but it was not clear of the significant facts. Section 1245 provides that the realized gain is only recognized to the degree of depreciation previously taken with for transfer purpose. Therefore, the farm having a geological flaw it depreciation was approximately $150,000 and it fair for Tim to be paid $450,000 relevant to the market price.

ReferencesConcord Instruments Corporation, 67 TCM 3036, T.C. Memo. 1994-248The Internal Revenue Code Reg. section 1.1031(a)-I(c)Attachment 1 Concord Instruments Corporation, 67 TCM 3036, T.C. Memo. 1994-248The ruling of the above caseAttachment 2 The Internal Revenue Code Reg. section 1.1031(a)-I(c).