                              147 T.C. No. 8



                     UNITED STATES TAX COURT



CRI-LESLIE, LLC, DONALD W. WALLACE, TAX MATTERS PARTNER,
                         Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



  Docket No. 1454-14.                           Filed September 7, 2016.



         P, the tax matters partner for a limited liability company treated
  as a TEFRA partnership for Federal income tax purposes, asserts that
  the partnership is entitled to capital gain treatment under I.R.C. sec.
  1234A for its right to retain forfeited deposits of $9,700,000 from a
  canceled sale of real property used in its trade or business in the 2008
  tax year. The real property was not a “capital asset” as defined in
  I.R.C. sec. 1221(a) but was I.R.C. sec. 1231 property.

         Held: The partnership is not entitled to capital gain treatment
  on the forfeited deposit. I.R.C. sec. 1234A applies only to capital
  assets, not to I.R.C. sec. 1231 property.
                                       -2-

      Leslie Joel Barnett, David L. Koche, Micah G. Fogarty, and Christopher R.

Dingman, for petitioner.

      Timothy A. Sloane, Andrew Michael Tiktin, and Lauren Epstein, for

respondent.



                                    OPINION


      LARO, Judge: This case is a partnership-level proceeding subject to the

unified audit and litigation procedures of the Tax Equity and Fiscal Responsibility

Act of 1982 (TEFRA), Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648. Petitioner,

Donald W. Wallace, the tax matters partner (TMP), asserts that respondent’s

notice of final partnership administrative adjustment (FPAA) issued to CRI-Leslie,

LLC (CRI-Leslie), for the 2008 tax year improperly recharacterized an item of

capital gain as ordinary income. Respondent determined an adjustment to CRI-

Leslie’s Federal income tax return by increasing its ordinary income by

$9,700,000 and decreasing net long-term capital gain by the same amount.1 This




      1
       In the FPAA respondent had made a further adjustment by increasing CRI-
Leslie’s net earnings from self-employment by $9,700,000. However, respondent
has since conceded this adjustment, and we do not address it here.
                                         -3-

case upon joint motion of the parties was submitted fully stipulated for decision

without trial. See Rule 122.2

      The issue before us, which is one of first impression, is whether CRI-Leslie

is entitled to capital gain treatment under section 1234A for its right to retain

forfeited deposits of $9,700,000 from a canceled sale of real property used in its

trade or business in the 2008 tax year. We hold that it is not.

                                     Background

I.    Overview

      Upon the parties’ joint motion, the case is deemed fully stipulated under

Rule 122. The stipulations of fact and the facts drawn from stipulated exhibits are

incorporated herein. Petitioner is the TMP of CRI-Leslie. This case is appealable

to the Court of Appeals for the Eleventh Circuit absent stipulation of the parties to

the contrary.

II.   CRI-Leslie

      CRI-Leslie was a Florida limited liability company during the 2008 tax year.

For Federal income tax purposes, it was a TEFRA partnership. Its principal place




      2
       Unless otherwise indicated, section references are to the Internal Revenue
Code (Code) in effect for the year in issue. Rule references are to the Tax Court
Rules of Practice and Procedure.
                                         -4-

of business was in Florida at the time the petition in this case was filed, and it has

been on the accrual method of accounting at all relevant times.

       During 2008 CRI-Causeway, LLC, a Florida limited liability company

(CRI-Causeway), and Leslie Hawk, LLC, owned 100% of the capital, profits, and

loss interests in CRI-Leslie. Capital Realty Investors, LLC, a Florida limited

liability company (Capital Realty), owned 100% of CRI-Causeway and treated

CRI-Causeway as a disregarded entity for Federal income tax purposes. Donald

W. Wallace and Ben Wacksman each owned a 50% capital, profits, and loss

interest in Capital Realty.

       CRI-Leslie had filed a Form 1065, U.S. Return of Partnership Income, for

the taxable year ended December 31, 2008. On November 20, 2013, respondent

mailed the FPAA for the 2008 tax year to the partners of CRI-Leslie, including

indirect partner Donald W. Wallace.3

III.   The Radisson Bay Harbor Hotel

       On February 25, 2005, CRI-Leslie acquired for $13.8 million the Radisson

Bay Harbor Hotel in Tampa, Florida. The property consisted of both land and




       3
      Although Wallace was never a direct member of CRI-Leslie, this Court has
appointed him CRI-Leslie’s TMP under Rule 250 for purposes of this case.
                                        -5-

improvements thereon. The improvements included the hotel, Crabby Bill’s

Restaurant, a swimming pool, a parking lot, and landscaping.

      After purchasing the property CRI-Leslie hired a third party to manage the

operations of the hotel and restaurant on the property.

      On July 10, 2006, CRI-Leslie entered into an agreement of purchase and

sale with RPS, LLC. Under this agreement, CRI-Leslie agreed to sell the property

to RPS, LLC, for $39 million. The agreement was revised and amended several

times over the next two years, including an increase in the property’s purchase

price to $39.2 million. RPS, LLC, did not close the purchase of the property from

CRI-Leslie, and the agreement terminated in 2008 by its terms.

      CRI-Leslie claimed deductions under section 162 on its 2008 partnership

return for expenses related to the operation of the hotel. CRI-Leslie also claimed a

deduction for depreciation under section 167 with respect to the hotel on its 2008

partnership return.

IV.   Forfeited Deposits

      CRI-Leslie received $9,700,000 of deposits from RPS, LLC, in connection

with the agreement. These deposits would have been applied to the property’s

purchase price if the sale had closed. RPS, LLC, defaulted on the agreement in
                                         -6-

2008 and forfeited the total sum of deposits equal to $9,700,000 paid to CRI-

Leslie in that year.

      CRI-Leslie reported the $9,700,000 of deposits as net long-term capital gain

on Schedule K, line 9a, Partner’s Distributive Share Items, of its 2008 partnership

income tax return. The parties have stipulated that this amount is includible in

CRI-Leslie’s income for taxable year 2008. The parties have further stipulated

that from the date that CRI-Leslie acquired the property in 2005 and through

December 31, 2008, the property was real property used in CRI-Leslie’s hotel and

restaurant business within the meaning of section 1221(a)(2). The parties have

also stipulated that the property constitutes “property used in a trade or business”,

as defined by section 1231(b)(1), of CRI-Leslie for the 2008 tax year.4 And the

parties stipulate that had CRI-Leslie sold the property in 2008 pursuant to the

agreement’s terms, the gain from the sale would have resulted in net section 1231

gain reportable by CRI-Leslie on Schedule K of its 2008 income tax return.




      4
       Respondent, however, does not stipulate that the $9,700,000 forfeited
deposit is sec. 1231 gain.
                                         -7-

                                      Discussion

I.    Overview

      The Code generally provides for more favorable tax rates on “net capital

gain” than it does on ordinary income. See sec. 1(h). Net capital gain is “the

excess of the net long-term capital gain for the taxable year over the net short-term

capital loss for such year.” Sec. 1222(11). Long-term capital gain, in turn, is

“gain from the sale or exchange of a capital asset held for more than 1 year”. Sec.

1222(3). Section 1221(a) defines capital assets generally. Under section

1221(a)(2) specifically, a capital asset is “property held by the taxpayer (whether

or not connected with his trade or business), but does not include * * * property,

used in his trade or business, of a character which is subject to the allowance for

depreciation provided in section 167, or real property used in his trade or

business”.

      In a given tax year, if there is net gain from the sale or exchange of

depreciable property--or real property--used in a trade or business and held for

more than one year, see sec. 1231(b)(1), the Code provides that such gain “shall be

treated as long-term capital gains”, sec. 1231(a)(1). On the other hand, if there is a

net loss from this type of property, that loss is treated as an ordinary loss. Sec.

1231(a)(2).
                                         -8-

      The Code also addresses the treatment of gain and loss from the sale or

exchange of options. Thus, in the case of a purchaser of an option, section

1234(a)(1) provides:

      Gain or loss attributable to the sale or exchange of, or loss
      attributable to failure to exercise, an option to buy or sell property
      shall be considered gain or loss from the sale or exchange of property
      which has the same character as the property to which the option
      relates has in the hands of the taxpayer (or would have in the hands of
      the taxpayer if acquired by him).

Section 1234B(a)(1) provides for similar treatment for gains or losses from

securities futures contracts. For a grantor of an option, “gain or loss from any

closing transaction with respect to, and gain on lapse of, an option in property

shall be treated as a gain or loss from the sale or exchange of a capital asset held

not more than 1 year.” Sec. 1234(b)(1).

      There is a separate Code section covering gains or losses from terminations

of certain contractual rights:

      SEC. 1234A. GAINS OR LOSSES FROM CERTAIN TERMINA-
                  TIONS.

            Gain or loss attributable to the cancellation, lapse, expiration,
      or other termination of--

                   (1) a right or obligation (other than a securities futures
             contract, as defined in section 1234B) with respect to property
             which is (or on acquisition would be) a capital asset in the
             hands of the taxpayer, or
                                          -9-

                   (2) a section 1256 contract (as defined in section 1256)
             not described in paragraph (1) which is a capital asset in the
             hands of the taxpayer,

      shall be treated as gain or loss from the sale of a capital asset. The
      preceding sentence shall not apply to the retirement of any debt
      instrument (whether or not through a trust or other participation
      arrangement).

The Internal Revenue Service has not promulgated any final regulations under

section 1234A. However, under proposed regulations, any gain or loss from

termination payments under notional principal contracts and settlements of

obligations under bullet swaps and forward contracts is treated as gain or loss from

a termination of the notional principal contract, bullet swaps, or forward contract,

respectively. Sec. 1.1234A-1, Proposed Income Tax Regs., 69 Fed. Reg. 8898

(Feb. 26, 2004).

      There is no question that section 1234A extends to rights or obligations

relating to property that is described in section 1221(a)--that is, to capital assets.

However, as noted above, section 1221(a)(2) excludes depreciable property used

in the taxpayer’s trade or business as well as real property used in his trade or

business.

      The parties have stipulated that the property at issue is real property used in

CRI-Leslie’s hotel and restaurant business, meaning that it falls within section
                                        - 10 -

1221(a)(2) and is therefore precluded from classification as a capital asset under

section 1221(a). The parties have further stipulated that the property is properly

classified under section 1231(b)(1) as “property used in the trade or business” of

CRI-Leslie. Had CRI-Leslie sold the property in 2008, the gain from the sale

would have resulted in section 1231 gain, which would be “treated as long-term

capital gains” under section 1231(a)(1). We see no reason to challenge the

parties’ stipulations.

      The sole issue still in dispute is whether “capital asset” as used in section

1234A extends to property described in section 1231.

II.   The Parties’ Arguments

      A.     Petitioner’s Argument

      Petitioner concedes that the Radisson Bay Harbor Hotel is property

described in section 1231 (that is, section 1231 property). However, petitioner

goes on to make a novel argument that no court to date has yet squarely addressed:

that Congress clearly intended for section 1234A to apply not only to payments

received from contract terminations relating to capital assets but also to payments

from terminations relating to section 1231 property.

      Petitioner points out the unusual status of property subject to section 1231,

including the fact that some commentators have referred to this property as “quasi-
                                        - 11 -

capital assets”. See, e.g., Boris I. Bittker & Lawrence Lokken, Federal Taxation

of Income, Estates and Gifts, para. 50.1, at 50-2 (3d ed. 2000). Had CRI-Leslie

sold the property in 2008, the resulting gain indeed would have been taxed at the

same rate as long-term capital gain.

      Petitioner contends that Congress enacted section 1234A to “ensure that

taxpayers received the same tax characterization of gain or loss whether the

property is sold or the contract to which the property is subject is terminated.”

Under this reasoning, it is inconsistent to treat termination payments on a contract

as ordinary income where a sale of the underlying property would have been taxed

at capital gain rates. Petitioner searches within the legislative history of section

1234A to distill a congressional purpose to tax similar economic transactions

similarly. See, e.g., S. Rept. No. 105-33, at 134 (1997), 1997-4 C.B. (Vol. 2)

1067, 1214 (“In general, the Committee believes that present law is deficient since

it (1) taxes similar economic transactions differently, (2) effectively provides

some, but not all, taxpayers with an election, and (3) its lack of certainty makes the

tax laws unnecessarily difficult to administer.”).

      Petitioner concludes that there is an inherent ambiguity in the apparent

meaning of section 1234A and urges us to consider congressional intent. See

United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989) (“The plain
                                         - 12 -

meaning of legislation should be conclusive, except in the ‘rare cases [in which]

the literal application of a statute will produce a result demonstrably at odds with

the intentions of its drafters.’ * * * In such cases, the intention of the drafters,

rather than the strict language, controls.” (alteration in original) (quoting Griffin v.

Oceanic Contractors, Inc., 458 U.S. 564, 571 (1982)). Even if the statute is

unambiguous, petitioner contends that the legislative history is clearly contrary to

the statute’s plain meaning. Petitioner would have us hold that a “clear and

unambiguous expression of legislative purpose” to include section 1231 property

within the ambit of section 1234A overrides the “plain meaning” of section 1234A

as extending to capital assets only.

      B.     Respondent’s Argument

      Respondent urges us to interpret section 1234A narrowly and look no

further than the statute’s plain and unambiguous wording. According to

respondent, section 1234A expressly references a “capital asset in the hands of the

taxpayer.” Since the Radisson Bay Harbor Hotel was section 1231 property, it by

definition was not a capital asset as defined in section 1221 and thus cannot fall

under section 1234A.

      Respondent points to caselaw requiring Federal courts to give effect to

congressional intent that is made clear in a statute. See Miller v. French, 530 U.S.
                                         - 13 -

327, 336-340 (2000). And congressional intent is to be discerned primarily from

the statutory text. See CTS Corp. v. Waldburger, 573 U.S. ___, ___, 134 S. Ct.

2175, 2185 (2014).

      Respondent further notes that by the time Congress enacted section 1234A

in 1981, the separate definitions of “capital asset” and “property used in the

taxpayer’s trade or business” were already firmly established in the Code. Since

Congress presumably enacts legislation with knowledge of the law, “a newly-

enacted statute is presumed to be harmonious with existing law and judicial

concepts.” Garcia v. Dep’t of Homeland Sec., 437 F.3d 1322, 1336 (Fed. Cir.

2006) (citing Cannon v. Univ. of Chi., 441 U.S. 677, 696-698 (1979)). Indeed,

had Congress intended to include section 1231 property within the scope of

section 1234A, it might have used wording similar to that in section 1234(a)(1):

“Gain or loss attributable to the sale or exchange of, or loss attributable to failure

to exercise, an option to buy or sell property shall be considered gain or loss from

the sale or exchange of property which has the same character as the property to

which the option relates has in the hands of the taxpayer (or would have in the

hands of the taxpayer if acquired by him).” Since Congress wrote section 1234A

to apply only to gain or loss from a termination of rights or obligations relating to
                                        - 14 -

property that is a capital asset, respondent concludes that the statute should be read

narrowly to the exclusion of property described in section 1231.

III.   Applicability of Section 1234A to Section 1231 Property

       A.    Plain Meaning of Section 1234A

       To determine whether section 1234A extends to section 1231 property, we

must first turn to the relevant statutory text, Barnhart v. Sigmon Coal Co., 534

U.S. 438, 450 (2002), which we interpret according to its plain meaning, Venture

Funding, Ltd. v. Commissioner, 110 T.C. 236, 241-242 (1998), aff’d without

published opinion, 198 F.3d 248 (6th Cir. 1999). We look beyond the plain

meaning of the words used in the statute only when their meaning is “inescapably

ambiguous”. Id. (quoting Garcia v. United States, 469 U.S. 70, 76 n.3 (1984)).

We therefore interpret a statute “with reference to the legislative history primarily

to learn the purpose of the statute and to resolve any ambiguity in the words

contained in the text.” Allen v. Commissioner, 118 T.C. 1, 7 (2002). Ultimately

“[o]ur task is to give effect to the will of Congress, and where its will has been

expressed in reasonably plain terms, ‘that language must ordinarily be regarded as

conclusive.’” Griffin, 458 U.S. at 570 (quoting Consumer Prod. Safety Comm’n

v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)).
                                        - 15 -

      Section 1234A applies to the termination of “a right or obligation * * * with

respect to property which is (or on acquisition would be) a capital asset in the

hands of the taxpayer”. The dispute in this case hinges on the meaning of “capital

asset”. As we delve into statutory interpretation, we are reminded of the

admonition in Brown v. Gardner, 513 U.S. 115, 118 (1994), that “[a]mbiguity is a

creature not of definitional possibilities but of statutory context[.]” Regardless of

the myriad ways in which the term “capital asset” may be understood in various

contexts,5 section 1234A is a provision of this country’s tax code. Therefore, we

look to the Code for the appropriate definition, and specifically to section 1221.

As we observed above, section 1221 defines “capital asset” as any property held

by a taxpayer unless specifically excluded. Sec. 1221(a). The exclusion relevant

here is the second one, removing from the definition of capital asset “property,

used in * * * [a taxpayer’s] trade or business, of a character which is subject to the

allowance for depreciation provided in section 167, or real property used in his

trade or business.” Sec. 1221(a)(2). Petitioner concedes that the hotel property

falls within this exclusion and so is not a capital asset as defined in section 1221.

      5
       For example, to the mind of a non-tax lawyer, a capital asset can be “[a]
long-term asset used in the operation of a business or used to produce goods or
services, such as equipment, land, or an industrial plant”, Black’s Law Dictionary
140 (10th ed. 2014) (first definition), a definition that taken at face value would
seem to include sec. 1231 property.
                                       - 16 -

      Notwithstanding the exclusion of depreciable property and real property

used in a trade or business from the definition of “capital asset”, section 1231 does

cover certain such property. Specifically, it extends to “property used in the trade

or business, of a character which is subject to the allowance for depreciation

provided in section 167, held for more than 1 year, and real property used in the

trade or business, held for more than 1 year”. Sec. 1231(b). The interplay

between sections 1221 and 1231 has been described well by Bittker and Lokken:

             Taken in combination, §§ 1221(a)(2) and 1231 have the
      following effects on depreciable property and real property used in a
      trade or business:

      1. By virtue of § 1221(a)(2), these items are not capital assets, with
      the result that a disposition produces ordinary income or ordinary
      loss, except as provided by § 1231.

      2. Under § 1231, if the asset has been held for more than one year, it
      usually produces capital gain if sales of such property during the year
      result in a net gain but ordinary loss if these sales yield a net loss.

Bittker & Lokken, supra, para. 47.3, at 47-29. The parties have stipulated that the

hotel property is indeed a section 1231 asset.

      Since section 1234A expressly refers to property that is “a capital asset in

the hands of the taxpayer” and no other type of property, and since property

described in section 1231 is excluded explicitly from the definition of “capital

asset” in section 1221, we must conclude that the plain meaning of “capital asset”
                                        - 17 -

as used in section 1234A does not extend to section 1231 property. We therefore

are not convinced by petitioner’s argument that the statute is inherently

ambiguous.

      If one looks to the plain meaning of section 1234A, it is true that the

treatment of gains and losses from terminations of rights or obligations relating to

property will depend on whether that property is a capital asset or is described in

section 1231. Forfeited deposits from the termination of a contract to sell a hotel

are taxed at capital gain rates if the hotel is held as a passive investment. The

same forfeited deposits are taxed as ordinary income if the hotel is used in a trade

or business. But regardless of any potential intellectual inconsistency in this

disparate treatment, the plain meaning of section 1234A remains inescapable. We

do not see any ambiguity in the apparent meaning of the statute.

      While petitioner seeks to adduce the legislative history of section 1234A to

impeach the statute’s plain meaning, “where a statute is clear on its face, we

require unequivocal evidence of legislative purpose before construing the statute

so as to override the plain meaning of the words used therein.” Rath v.

Commissioner, 101 T.C. 196, 200-201 (1993) (citing Halpern v. Commissioner,

96 T.C. 895, 899 (1991), and Huntsberry v. Commissioner, 83 T.C. 742, 747-748

(1984)). We are unable find anything in the legislative history of section 1234A to
                                        - 18 -

support petitioner’s assertion that Congress intended to include section 1231

property within its ambit.6 We certainly find no evidence of a clear and

unambiguous expression of legislative purpose to do so. Indeed, we have not seen

any reference to the application of section 1234A to section 1231 property outside

of isolated mentions by some legal commentators.

      If Congress wished to extend section 1234A to section 1231 property, it has

had 35 years in which to amend the statute. Section 1234A applies to “property

which is (or on acquisition would be) a capital asset in the hands of the taxpayer”.

We find it telling that the statute does not read: “property which has the same

character as the property to which the * * * [right or obligation] relates has in the

hands of the taxpayer (or would have in the hands of the taxpayer if acquired by

      6
        The statute was originally enacted as part of the Economic Recovery Tax
Act of 1981, Pub. L. No. 97-34, sec. 507(a), 95 Stat. at 333, and was aimed at tax
straddles, which allowed taxpayers to effectively select the most favorable tax
treatment in disposing of capital assets by strategically canceling forward currency
or security contracts and thereby getting either ordinary losses or capital gains, S.
Rept. No. 97-144, at 170 (1981), 1981-2 C.B. 412, 480. The only substantive
amendment to sec. 1234A potentially relevant here was by the Taxpayer Relief
Act of 1997, Pub. L. No. 105-34, sec. 1003(a), 111 Stat. at 909-910, which
expanded the statute’s scope from certain types of personal property to all
property, including interests in real property and non-actively traded personal
property. This change was aimed at the same tax-straddle-type strategy, which by
that time was being applied to various property interests besides personal property
actively traded on established exchanges, to which sec. 1234A was limited when
originally enacted. See H.R. Rept. No. 105-148, at 453 (1997), 1997-4 C.B. (Vol.
1) 319, 775.
                                         - 19 -

him).” See sec. 1234(a); see also sec. 1234B(a). Had Congress intended to cover

section 1231 property under section 1234A, Congress could have, and likely

would have, used wording parallel to that in sections 1234 and 1234B. The clarity

of congressional purpose in restricting the reach of the statute to capital assets is

ineluctable. Accordingly, we hold that the plain meaning of the statute must

govern here.

      B.       Caselaw Interpreting Section 1234A

      We have found the plain meaning of section 1234A to exclude section 1231

property from the statute’s scope, with no contradictory interpretation suggested

by any legislative history. For the sake of thoroughness, however, we conclude

with an examination of the caselaw interpreting section 1234A.

      Section 1234A has not received extensive treatment in the caselaw. In past

cases, we have not even entertained the possibility that the statute would extend to

section 1231 property. See, e.g., Pilgrim’s Pride Corp. v. Commissioner, 141 T.C.

533, 548 (2013) (“In our view Congress extended the application of section 1234A

to terminations of all rights and obligations with respect to property that is a

capital asset in the hands of the taxpayer or would be if acquired by the

taxpayer[.]”), rev’d, 779 F.3d 311 (5th Cir. 2015). Neither have other courts. See,

e.g., Alderson v. United States, 686 F.3d 791, 798 (9th Cir. 2012) (noting that
                                         - 20 -

section 1234A “applies only to such ‘[g]ain or loss ... with respect to property

which is a capital asset in the hands of the taxpayer” and finding that a right to a

“relator’s share was not a capital asset” (alteration in original)).

      A series of cases addresses whether section 1234A changed the law in 1981

on the characterization of certain transactions or merely removed doubt as to their

treatment. See Estate of Israel v. Commissioner, 108 T.C. 208, 224-25 (1997),

rev’d and remanded on unrelated issue, 159 F.3d 593 (D.C. Cir. 1998), and rev’d

and remanded sub nom. Wolff v. Commissioner, 148 F.3d 186 (2d Cir.); Vickers

v. Commissioner, 80 T.C. 394, 410-411 (1983); Stoller v. Commissioner, T.C.

Memo. 1990-659, 1990 WL 212864, at *16-*17, aff’d in part, rev’d in part, 994

F.2d 855 (D.C. Cir. 1993). These cases rule on the tax consequences of certain

transactions in tax years preceding 1981 and so do not inform our decision in this

matter.

      Our most thorough examination of section 1234A was in Pilgrim’s Pride

Corp. v. Commissioner, 141 T.C. at 541-551. In Pilgrim’s Pride we ruled on

whether a loss resulting from the abandonment of certain securities was ordinary

or capital. We reviewed the statute’s legislative history to determine whether

section 1234A applies to inherent property rights of ownership such as the right to

dispose of property, as well as to derivative contractual rights and obligations, and
                                         - 21 -

concluded that it does. Id. at 547-548. Although in Pilgrim’s Pride we dealt with

an issue different from that with which we deal here, our analysis of the statute’s

purpose remains unchanged: Congress originally enacted section 1234A to

combat “straddles and other transactions exploited by tax shelter promoters” and

in 1997 extended the statute’s application “to all types of property that are (or on

acquisition would be) capital assets in the hands of the taxpayer.” Id. at 546. The

Court of Appeals for the Fifth Circuit reversed our ultimate decision in Pilgrim’s

Pride and held that section 1234A applies to the abandonment of rights or

obligations with respect to capital assets but not to the abandonment of the assets

themselves. Pilgrim’s Pride Corp. v. Commissioner, 779 F.3d at 315. However,

the Court of Appeals did not dispute our interpretation of the legislative purpose

underlying the enactment of section 1234A. See id. at 314-315. The Court of

Appeals further reiterated the understanding, underlying the entire body of section

1234A jurisprudence, that “[b]y its plain terms, § 1234A(1) applies to the

termination of rights or obligations with respect to capital assets (e.g. derivative or

contractual rights to buy or sell capital assets).” Id. at 315.

IV.   Conclusion

      We have examined the plain meaning of section 1234A and relevant

caselaw. We find no support for petitioner’s argument that section 1234A extends
                                         - 22 -

to section 1231 property or that Congress intended that it do so. In effect,

petitioner has invited us to expand the statute’s scope by applying an interpretation

contrary to its plain meaning and the plain intent of Congress. Since “[i]t is

emphatically the province and duty of the judicial department to say what the law

is”, Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803), we cannot and will

not apply a contrary interpretation where the law is otherwise valid and clear. We

therefore decline petitioner’s invitation to extend section 1234A to section 1231

property and so defer to the will of Congress as manifested in the text of the

statute.

         We have considered all of the parties’ arguments, and to the extent not

discussed above, conclude that those arguments are irrelevant, moot, or without

merit.

         To reflect the foregoing,


                                                  Decision will be entered for

                                         respondent.
