Issues
§1001(a) of the Internal Revenue Code (26 U.S.C. § 1001) requires that the tax consequences of a gain or loss in property value be deferred until it is realized by "the sale or other disposition of property". Since the transaction was certainly not a sale, Justice Marshall identified the main legal issue to be whether the exchange was a "disposition of property."
- The Commissioner had argued that an exchange of properties can be a "disposition" only if the properties involved in the transaction are "materially different".
- Cottage Savings argued that "material difference" was not a requirement—that any exchange of property could be considered a disposition. Just in case, it also argued that the participation interests exchange were materially different because they were secured by different real property.
Thus, to determine whether the exchange was a "disposition of property," the court first had to determine whether §1001 incorporated a "material difference" requirement, and if so, what that requirement involved.
Read more about this topic: Cottage Savings Association V. Commissioner
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