David Cubeta was quoted regarding disagreement over the scope of the recent Pilgrim's Pride decision and section 1234A. Regarding the $20 million offer Southern States made to repurchase shares from the taxpayer in the case, Cubeta said, "The court must have been motivated by the observation that the taxpayer was taking advantage of selectivity in foregoing an economic benefit it could have obtained in favor of a tax benefit." This holding is particularly detrimental to taxpayers that frequently use the abandonment technique to recognize ordinary loss deductions.
Prior to the enactment of section 1234A, taxpayers relied on the so-called extinguishment doctrine, which is an issue in the background of the Pilgrim's Pride case, Cubeta said, adding that under this doctrine, the taxpayer must extinguish the rights it holds in the property. "In order for that to happen it can't be a transfer; that is why they call it the extinguishment doctrine," he said. "I like to think of the analysis as saying that the taxpayer owns shares, [that] that was his right, and [that] the shares were a capital asset, and when the taxpayer tendered the shares to the company for nothing, [the taxpayer] extinguished its ownership rights."