Leonardo and Verdi, citizens and residents of Italy,

purchased some undeveloped farmland in Iowa for $$1$

million.

$$ After several years, Leonardo and Verdi have decided to

sell the land for $$10$ million $($its current fair market value$).$

$$ Will they be taxed on the gain realized from the sale and,

if so$,$ would the capital gains preference in $1($h$)$ apply to

such gain?

$$ Would your answer change if$,$ during their ownership of

the land, they had leased it to a tenant farmer on a net

lease basis $($i$.$e$.,$ the tenant farmer paid all the expenses

relating to the property, including real estate taxes as part

of the tenant$$s rental obligation$)$ and they had made the

election under $871($d$)?$

$$ Would the answer change if Italy had entered into a tax

treaty with the U$.$S$.$ identical to the U$.$S$.$ model treaty?