CFO Services
-The 11th Circuit Court of Appeals, reversing the Tax Court,
determined the $5.75 million profit from the sale of a position in a real
estate development lawsuit was capital gain instead of ordinary income. The
11th Circuit looked to the type and nature of the underlying right or property
assigned or transferred in, determining the taxpayer did not have a future
right to income that he already earned, but that he sold his right to finish
the project and earn income. The court noted that selling a right to earn
future undetermined income, as opposed to selling a right to earned income, is
a critical feature of a capital asset. However, the 11th Circuit agreed with
the Tax Court's finding that legal fees, supported only with a letter from the
attorney indicating that certain fees were paid, were not deductible. In
addition, they upheld the Tax Court's denial of a deduction for $600,000 for
what was determined to be a substituted obligation for cancelled promissory
notes.
If you
would like more details about this decision or any other aspect of the new law,
please do not hesitate to call.
Amare
Berhie, Senior Tax Accountant
(651) 621-5777, (952) 583-9108, (612) 224-2476, (763)
269-5396
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