Discussion:Schedule D or 4797

In Alamo Broadcasting, Inc. v. Commissioner, 15 T.C. 534 (1950), the taxpayer claimed a $107,715.62 loss on the disposition of a diesel generator and spare parts. The taxpayer was a Texas company engaged in operating KABC radio in San Antonio, and it wanted to increase its power from 250 watts to 50,000 watts. It purchased XENT, a Mexican radio station, in order to move XENT's equipment to San Antonio to be used at KABC. After purchasing XENT and sending trucks down to Mexico to move the equipment, the President of Mexico issued a special decree forbidding export of the equipment. The Tax Court allowed the loss, stating:

"We have previously held that "used in the trade or business" means "devoted to the trade or business" and includes property purchased with a view to its future use in the business even though this purpose is later thwarted by circumstances beyond the taxpayer's control. Carter-Colton Cigar Co., 9 T. C. 219. See also Wilson Line, Inc., 8 T. C. 394; Kittredge v. Commissioner, 88 Fed. (2d) 632; Yellow Cab Co. of Pittsburgh v. Driscoll, 24 F. Supp. 993; Independent Brick Co., 11 B. T. A. 862."

In Carter-Colton Cigar Co. v. Commissioner, 9 T.C. 219 (1947), the taxpayer, a tobacco wholesaler, purchased a vacant lot with the intention of constructing a warehouse and store to be used as its principal place of business, but due to the depression of the 1930’s, the construction plans were abandoned, and the vacant lot was sold in 1934 at a loss. The Tax Court allowed the loss as an ordinary loss under IRC §117(a)(1) (the predecessor to IRC §1231). In Drew v. Commissioner, T.C. Memo. 1972-40, the taxpayer purchased a building anticipating that he could rent it to a company that would thereafter purchase the building, but the prospective buyer company’s finances didn’t permit it, so the taxpayer defaulted on the mortgage, and the lender foreclosed. The Tax Court allowed the loss as an IRC §1231 loss.

Excellent job by DaveFogel. I'm wondering if we need more facts, however. Mold is obviously a pretty common problem, and generally, can be remediated rather quickly. What if IRS says, "Mold could have been remediated in 4-weeks and then property could have easily been held for rent thereafter, but taxpayer chose not to do this." Would this type of argument put a kibash on things? Is this type of argument even valid? That is, does "would of, could of or should of" even come into play? Or does taxpayer need only prove that (1) there was mold (2) it was never remediated [no matter the reason] (3) taxpayer intended to hold the property out for rent but (4) could not because of the mold problem.