Cri-Leslie, LLC v. Commissioner of Internal Revenue, No. 16-17424 (11th Cir. 2018)
Annotate this CaseA taxpayer that contracts to sell property used in its trade or business is not entitled to treat as capital gain an advance deposit that it rightfully retains when its would-be buyer defaults and cancels the deal. In this partnership tax case, CRI-Leslie filed a petition for readjustment in the tax court, asserting that the Internal Revenue Code was meant to prescribe the same tax treatment for gains related to the disposition of "trade or business" property regardless of whether the property was successfully sold or the sale agreement was canceled. The Eleventh Circuit held that I.R.C. 1234A provides for capital-gains treatment of income resulting from canceled sales only where the underlying property constitutes a "capital asset," and I.R.C. 1221 defines "capital asset" in a way that all agree excludes the property at issue here. Therefore, CRI-Leslie was not entitled to treat its $9.7 million deposit as capital gain.
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