509 F.2d 1220 (2nd Cir. 1975), 209, Sirbo Holdings, Inc. v. C. I. R.

Docket Nº:209, Docket 74--1697.
Citation:509 F.2d 1220
Case Date:January 14, 1975
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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509 F.2d 1220 (2nd Cir. 1975)




No. 209, Docket 74--1697.

United States Court of Appeals, Second Circuit

January 14, 1975

Argued Dec. 16, 1974.

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James R. McGowan, Providence, R.I. (Lester H. Salter and Salter, McGowan, Arcaro & Swartz, Providence, R.I., of counsel), for appellant.

Ernest J. Brown, Dept. of Justice, Washington, D.C. (Scott P. Crampton, Asst. Atty. Gen., and Gilbert E. Andrews, Dept. of Justice, Washington, D.C., of counsel), for appellee.

Before FRIENDLY, TIMBERS and GURFEIN, Circuit Judges.

FRIENDLY, Circuit Judge:

When this case was here before, 476 F.2d 981 (2 Cir. 1973), 1 on appeal from an earlier decision of Judge Quealy, Sirbo Holdings, Inc., 57 T.C. 530 (1972), we vacated the judgment and remanded the cause to the Tax Court for reconsideration. We were disturbed at the Tax Court's refusal to treat the payment of $125,000 received by petitioner Sirbo Holdings, Inc. (Sirbo), from its tenant Columbia Broadcasting System, Inc. (CBS), in satisfaction of the latter's obligation to restore, or indemnify Sirbo for the costs of restoring, the leased premises to their pre-lease condition as a long-term capital gain from the sale or exchange of property used in the landlord's trade or business, I.R.C. § 1231, when, in what appeared to be a considered opinion, Judge Raum had allowed such treatment in a similar case decided only two months later, Boston Fish Market Corp., 57 T.C. 884 (1972), or even to explain the differences in result when Sirbo sought reconsideration. Thinking that the Tax Court's lack of response to Sirbo's petition might have been due to deference to dicta in Billy Rose's Diamond Horseshoe, Inc. v. United States, 448 F.2d 549, 551--552 (2 Cir.), aff'g 322 F.Supp. 76 (S.D.N.Y.1971), which held that a similar transaction involving a series of payments did not qualify for special relief treatment under the installment reporting method of I.R.C. § 453(a)(1) & (b)(1) for 'a casual sale or other casual disposition of personal property,' we advanced some suggestions why that decision did not necessarily determine that the transaction here at issue was not a sale or exchange of property used in the trade or business, one of the tests applicable for capital gains treatment under I.R.C. § 1231(a), but we reserved the question of law pending 'the benefit of the considered view of the Tax Court . . . on whether it would follow Boston Fish Market on the facts here.' 476 F.2d at 989 (footnote omitted). In a supplemental opinion by Judge Quealy, 61 T.C. 723 (1974), reviewed by the full court, the Tax Court adhered to its earlier determination, and petitioner has again appealed.

We can now forget about Boston Fish Market. We had noted, 476 F.2d at 987, that in that case the Commissioner was primarily concerned with fending off the landlord's claim that the tenant's payment was not income at all under I.R.C. § 109, which excludes from a lessor's gross income the value upon termination of a lease of improvements made by the lessee, and had 'abandoned his challenge to the propriety of capital gains treatment, see 57 T.C. at 887 n. 2'. But there were statements in Judge Raum's opinion which we took as possibly meaning that the Tax Court thought

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that abandonment of the objection to capital gains treatment was required. See 57 T.C. at 889 (such payments 'have generally been regarded as having been received in sale or exchange of the unrestored property.'). The Commissioner now states that his acquiescence in capital gains treatment in Boston Fish Market was not considered policy but rather was an error, and the Tax Court says that 'Without such concession, the Boston Fish Market case may well have been decided differently,' 61 T.C. at 726 n. 4--which we take to be a way of saying 'would have been decided differently.' While even-handed...

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