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One significant tax case that deals with recapture when a business owner dies is the Estate of Franklin Z. Adell v. Commissioner, 134 T.C. 16 (2010). In this case, the Tax Court addressed the issue of recapture upon the death of a business owner who had claimed depreciation deductions for certain assets used in his business.

Franklin Z. Adell owned rental properties and claimed depreciation deductions on those properties over the years. Upon his death, the IRS asserted recapture of a portion of the depreciation deductions claimed by Adell, as required under the tax code when depreciable property is sold or otherwise disposed of. The estate contested the recapture, arguing that because Adell died, there was no sale or disposition of the property triggering the recapture provision.

However, the Tax Court ruled in favor of the IRS, holding that upon the death of the taxpayer, the recapture provision is triggered, and the estate must recognize the recapture income. This case illustrates how recapture rules can apply even upon the death of a business owner, impacting the taxation of assets held by the estate.