Volume 7 No 2    /    Read Article

By Lisa Marie Singh and Stanley C. Ruchelman

In an Action on Decision (“A.O.D.”) published in late 2019, the I.R.S. announced its nonacquiescence to the Tax Court’s decision in Greenteam Materials Recovery Facility v. Commr. The case involved Code §1253, the provision that standardizes the rules under which payments that are incident to the transfer of a franchise, trademark, or trade name may or may not be properly treated as capital gains. The case was decided in the taxpayer’s favor because the taxpayer’s agreement avoided all the terms that would otherwise cause the sales proceeds to be characterized as ordinary income. The nonacquiescence means that the I.R.S. will not follow the holding in cases appealable in Circuit Courts of Appeals other than the 9th Circuit. The I.R.S. position is that the assets were limited-term contracts to provide services under fixed-term arrangements and looked more like a sale of future income than the sale of an appreciated asset. Lisa Marie Singh and Stanley C. Ruchelman discuss the case and the nonacquiescence, cautioning that a franchise contract that cannot appreciate over time because the payments are fixed in amount or in scope of service is not an appreciating asset in the eyes of the I.R.S.  See more →