Personal Income Tax Appeal Decision Form - California State Board Of Equalization (Page 2 of 4) in pdf

Appeal of BML Inc./Bayview Mortuary

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Autos and truck

$ 92,978

Auto hearse

$ 54,180

Building, furniture, and fixtures

$273,896

Less accumulated depreciation

($417,774)

Land

$ 50,000

Inventory

$ 4,000

Miscellaneous assets

259

Treasury stock

$166,667

Costs to sell

$ 25,000

Total adjusted basis plus costs

$249,206

Appellant reported its gain on the sale on its 2000 federal form 4794 (Sale of Business Property)

in the amount of $200,794. Respondent examined appellant’s return and determined that

appellant incorrectly included the treasury stock in its basis calculation. Respondent removed

the treasury stock from appellant’s basis calculation and issued a Notice of Proposed Assessment

(NPA).

At protest, appellant agreed that the costs to sell the business assets should be reduced

from $25,000 to $19,414, and that respondent’s net operating loss adjustment was correct.

Respondent also made a minor adjustment of $800 to the value of the building and increased the

basis of the miscellaneous assets by $21. Respondent issued a Notice of Action (NOA)

reflecting the foregoing adjustments that also affirmed the removal of the cost of the treasury

stock from appellant’s adjusted basis.

Appellant filed this appeal.

Appellant disputes respondent’s removal of the amount it spent to

reacquire its treasury stock from its calculation of basis and gain on the sale of its

business assets. Appellant appears to contend that its treasury stock should be treated

as an asset (so that its basis may be included in its calculation of gain) at the time it sold

its business assets. Appellant cites, e.g., “APB Opinion No. 6,” and specifically, the

following language: “[t]reasury stock is rarely reported as an asset because it is difficult

to justify classifying what is essentially equivalent to unissued stock as an asset.

However, occasionally corporations acquire their own stock to satisfy a specific

obligation and classify these reacquired shares as assets . . . .” However, appellant

does not assert that, like the foregoing example, it reacquired its own stock to satisfy a

specific obligation. Instead, appellant contends that its treasury stock transformed into

an asset at the time it sold its business assets. Appellant does not, however, cite

The appeal record does not contain a copy of the NPA.

The NOA adjusts appellant’s “net costs claimed-stock reacquisition” in the amount of $171,432, and revises

appellant’s taxable income from $165,245 (as reported) to $336,677. The NOA proposes tax of $29,013.68, minus

previously assessed tax of $13,859.00, for total additional tax of $15,154.68.

NOT TO BE CITED AS PRECEDENT

Personal Income Tax Appeal Decision Form - California State Board Of Equalization Page 2

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