Rev. Mr. Rul. 80-58 allows a tax payer to be referred to as being referred to as a transaction (and thus to claim that it was not tax-free), provided that ( 1) the termination takes place in the same tax year as the underlying transaction; and (2) the parties to the transaction are returned to the status quo ante, i.e. they must be returned “to the relative positions they would have been occupied if no contract had not been entered into.” Resignation may be by a withdrawal agreement, a reform or repatriation operation, the call for a savings clause, guarantees or a conditional sale clause, options or sales rights. A state decision that a transaction should be wrapped up has no bearing on the IRS`s determination to tax-ignore the transaction. An example would be for a court to order that the transaction be revoked. State law may put the parties back in their respective pre-conclusion positions, but if the court order is not the same fiscal year as the reference date, the parties still have to bear the tax effects arising from the transaction: income and profit for the seller. The seller would therefore have the repayment of the asset, but he would also have to tax the profit of the “sale”, which was withdrawn with money from his pocket, since the buyer would have to obtain the total purchase price to put it back in its pre-defined financial position. But what does it mean to bring the parties back to the status quo ante? How close should we be? The answer seems to be that the parties must be assigned to the exact financial and legal positions they had before the closing date.
This means both assets and liabilities. The transfer of assets with different assets in number, in kind or in kind at the time of the withdrawal transaction poses fundamental challenges. (But see Ltr. rul. 9829044, where the IRS authorized an “asset sale” of shares – not a current transaction – was withdrawn.) In very limited circumstances, consumer protection rules can allow you to “develop” your lease.