No, Renee, and no Pilgrim’s Pride, not if you want an ordinary loss. And that notwithstanding The Left Banke’s 1966 hit.

Judge Dawson, who rarely features on my blogposts, stars in a mouthful, Pilgrim’s Pride Corporation Successor In Interest To Pilgrim’s Pride Corporation Of Georgia f.k.a. Gold Kist, Inc. Successor In Interest To Gold Kist Inc. and Subsidiaries, 141 T. C. 17, filed 12/11/13.

Simple facts. Way back down the corporate tree, Gold Kist, Inc., the stem from which the Pilgrims grew, was a Georgia cooperative; Gold Kist was obligated to buy some stock from another cooperative, Southern States, due to a busted asset purchase and IPO. Gold Kist did, and paid $98 million plus.

The stock was supposed to be entitled to dividends, and for about five years Southern States paid them; then Southern States told Gold Kist that all bets were off as to dividends, but Southern States offered to pay Gold Kist to get back the stock for which Gold Kist had paid the $98 million plus, at a price much less than $98 million. Of course, the stock was non-callable, so Gold Kist had no obligation to tender the stock or reply to Southern States.

Nevertheless, after certain haggling, Southern States offered $20 million, and Gold Kist, rather than take a $70 million plus capital loss, decided that a $98 million plus ordinary loss was much better. Whereupon and in consequence thereof, as the expensive lawyers say, Gold Kist relinquished, abandoned and surrendered the stock and the certificates evidencing its ownership thereof, and told the transfer agent to expunge the fair name of Gold Kist forever from the records of Southern States.

Gold Kist had the stock on its books at $38 million plus when they walked, and that’s the loss they showed on their books.

Their 990-C, however, showed a $98 million ordinary loss, transferable to the Pilgrims when the Pilgrims bought Gold Kist and went public.

IRS was not amused. But the Pilgrims had filed chapter, so IRS was barred from proceeding on the deficiency it had bestowed on Gold Kist and its successor, the Pilgrims, until the Pilgrims got their reorganization plan approved.

The key here is whether the “abandonment” of the stock was a sale or exchange of the stock for tax purposes. If so, it’s a capital loss. And “sale or exchange” is a narrower concept than “sale or other disposition”.

If not a sale or exchange of the stock, and not required by statute to be treated as such, the loss is ordinary.

Judge Dawson decides that Section 1234A controls. It says that gain or loss from cancellation, lapse, expiration or termination of property that is a capital asset in taxpayer’s hands is a capital gain or loss. The Pilgrims argue the statute applies only to rights in property, not the property itself. Judge Dawson prefers the plain meaning of the words of Section 1234A: “We hold that the plain meaning of the phrase ‘a right or obligation * * * with respect to property’ encompasses the property rights inherent in intangible property as well as ancillary or derivative contractual rights.” 141 T. C. 17, at p. 20.

The legislative history also thwarts the Pilgrims. Section 1234A was enacted to prevent straddles, a game whereby offsetting interests produced ordinary, rather than capital, losses, because the transactions weren’t “sales or exchanges” under then-existing laws.

So after much more parsing of statute and regulations, with the twice-repeated proposition that IRS need not assert a position the instant a legislative change permits them to do so, Pilgrims get a capital, not an ordinary, loss.

And IRS graciously concedes the accuracy penalties.