It said the contracts are “franchises” within the meaning of section 1253 of the US tax code. There is no difference in tax rates on corporate capital gains, but any capital losses a corporation is carrying forward can only be used to offset capital gains.īy the time the case got to court, it had come down to one issue: whether sale of the service contracts produced capital gains. Individuals are taxed on their capital gains at reduced rates. The IRS audited in 2009 and insisted that the sellers had to report everything as ordinary income. The partnerships reported the gains largely as capital gains. The parties allocated the purchase price among the three partnerships and among three categories of assets: covenants not to compete, the trucks and other tangible assets, and goodwill and going concern value. A sale was arranged later the same year to Waste Connections for $46 million.
The partnerships invested in garbage trucks, trash bins and other equipment.Īn outside consultant approached the partnerships in 2002 about selling the business. They could be renewed by agreement of the parties. The partnerships won the contracts by bidding for them after the municipalities issued requests for proposals. Three partnerships held contracts with Tehama County and the cities of Red Bluff and San Jose in California to collect garbage and recyclables and to dispose of the garbage. The key was the contract qualified as a “franchise” to provide services in a particular geographic area. *You should file your I-T return before July 31 to carry forward any losses.Sale of a service contract produced capital gain rather than ordinary income, the US Tax Court said in June 2017. *Any unutilised capital loss after absorption in the same year can be further carried forward to next eight years and be utilised under the same conditions as above. *Loss from transfer of a short-term capital asset can be set off against gain from transfer of any other capital asset in the same year. But, long-term capital loss cannot be set off against short-term capital gains. *Loss from transfer of a long-term capital asset can be set off against gain from transfer of any other long-term capital asset in the same year. SET-OFF PROVISIONS FOR CAPITAL LOSSES ARE RATHER RESTRICTIVE For all other type of assets, holding up to 36 months will qualify as STCG. For immovable properties and unlisted securities, holding up to 24 months will qualify for STCG. When securities (listed/equity oriented MF/zero coupon bonds) are held for up to a year, the gain is treated as STCG. All other types of capital assets, including debt-oriented MFs, sale post 36 months will qualify as LTCG. Unlisted securities and immovable property have to be held for more than 24 months to qualify for LTCG. STT rates are for delivery-based transactions only).Ĭapital gains on sale of all listed securities mentioned above (other than debt-oriented MFs), held for more than 12 months, is treated as LTCG. Short Term CG: 15% (If STT of 0.001% each is paid by seller and buyer in both cases. STT rates are for delivery-based transactions only). Short Term CG: 15% (If STT of 0.1% each is paid by the seller and buyer in both cases. Long Term CG: Exempt (Exemption is available if STT is paid on sale and purchase, in case of equity shares acquired on or after October 1, 2004, subject to certain exceptions notified. Tax-free bonds: Interest from notified tax-free bonds is exempt from tax.
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