Case: Petitioners Were Entitled to Recognize Gains Recaptured on Sales of Qualified Replacement Property Under the Installment Method (T.C.) (§1042)

Petitioners were entitled to recognize gains recaptured under I.R.C. §1042(e) on the sales of their qualified replacement property (QRP) under the installment method, the U.S. Tax Court held, denying in part the government’s motion for summary judgment. Petitioners, a married couple and their cousin, sold stock to an employee stock ownership plan (ESOP) in 2002 in exchange for a promissory note to be paid in future taxable years, made §1042 elections to defer recognition of the realized gain, and obtained QRP for purposes of §1042. In 2003, Petitioners pledged the QRP as collateral for purported loans, which they later conceded ...