§1221 — Capital asset defined

effectively overruled that line of cases and requires the result in the instant case that they advocate.

1221, 1231, in transactions involving related parties. Respondent instead argues that the amounts Dr. Filler received are taxable as ordinary income because sec. 1235 does not apply and the incorporation agreement described Dr.

We disagree with the premise that Evans was in the rental business and that he held the Newport Beach property as part ofhis rental business.

We do not agree with petitioner.

135 [*135] We hold that LHDC is permitted to deduct the entire $2,770,775 of salary-and-wage deductions reported on its 2010 return, the entire $2,326,407 of salary-and-wage deductions reported on its 2011 tax return, and the entire $1,818,542 of professional-fee deductions reported on its 2011 tax return.

Section 1221 provides that a capital asset is "propertyheld by the taxpayer (whether or not connected with his trade or business)".

Section 1221 provides that a capital asset is "propertyheld by the taxpayer (whether or not connected with his trade or business)".

Section 1221 provides that a capital asset is "propertyheld by the taxpayer (whether or not connected with his trade or business)".

While we agree with Long that he intended to sell the land (ready for construction), we hold that the character ofthe income is ordinary.

Accordingly, we hold the State tax credits petitioners sold are capital assets.

We hold that the excess lots were-held for investment purposes and the proceeds are capital gains and losses .

We hold, therefore, that the value-added payments are not excludable under section 1402(a)(3) in calculating petitioners’ net earnings from self-employment.

Section 1221 provides: For purposes of this subtitle, the term "capital asset" means property held by the taxpayer (whether or not connected with his trade or business), but does not include-- (1) stock in trade of the taxpayer * * *; (2) property, used in his trade or business, of a character * * * subject to * * * dep

1221 provides as follows: SEC.

tioners received in exchange for petitioners’ assignment is ordinary income or capital gain. Resolution of that dispute depends on whether petitioners’ right to receive future annual lottery payments constitutes a capital asset within the meaning of section 1221. Section 1221 defines the term “capital asset” as follows: SEC. 1221. CAPITAL ASSET DEFINED. For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business

Section 1221 defines “capital asset” as property held by a taxpayer, except for eight categories of property specifically excluded from the definition. None of the excluded categories is applicable to the State tax credits at issue. The purpose of capital gains treatment is to provide some relief to taxpayers from the excessive burdens of taxation

ry installment payments to Settlement Funding constitutes ordinary income or capital gain. Resolution of this issue depends on whether petitioner’s right to receive the remaining lottery installment payments was a capital asset within the meaning of section 1221. Petitioner’s argument that the assignment of the right to receive the remaining payments was the sale of a capital asset purports to apply the “parameters” but disputes the reasoning in United States v. Maginnis, 356 F.3d 1179 (9th Cir.

petitioner's old tools qualified as capital assets under section 1221 and some of the old tools were property used in petitioner's trade or business (of being an employee of IMC) of a character subject to the allowance for depreciation under section 167(a) (1).3 See Noyce v.

In Davis, we held that the taxpayers’ right to receive certain future annual lottery payments did not constitute a capital asset within the meaning of section 1221 and that the lump-sum amount that the taxpayers received for their right to receive the future annual lottery payments was ordinary income and not capital gain.

Commissioner, supra, are present in this case, that in the hands of Lea, the patents were long-term capital assets as defined in section 1221, and that the Leas satisfy the requirements of the ruling.10 10We note that sec.

Commissioner, supra, are present in this case, that in the hands of Lea, the patents were long-term capital assets as defined in section 1221, and that the Leas satisfy the requirements of the ruling.10 10We note that sec.

In the context of section 1221, the Supreme Court held that the term "primarily" means "of first importance" or "principally." Malat v.

OPINION In her notice of deficiency, respondent determined that the securities and futures contracts purchased and sold by petitioner during the taxable years 1989 and 1990 were capital assets within - 8 - the meaning of section 1221, and not inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

Section 1221(1), however, creates an exception to the definition of a capital asset for "stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary

Section 1221 defines capital assets as any property held by the taxpayer, - 6 - whether or not connected with his trade or business. Section 1221(1), however, creates an exception to the definition of a capital asset: Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on

olution of this issue depends on whether the right to receive future annual lottery 4Our resolution of the issue presented does not depend on who has the burden of proof in this case. - 5 - payments constitutes a capital asset within the meaning of section 1221. Section 1221 provides the following definition of the term “capital asset”: SEC. 1221. CAPITAL ASSET DEFINED. For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his

Treatment ofCapital Assets Under Section 1221 Petitioners assert that (1) petitioner's 2008 real estate activities constituted a trade or business and (2) the Florida properties were held primarily for sale to customers in the ordinary course oftrade or business, and thus they are entitled to ordinary loss treatment for the dispositions ofthe Florida properties.

The definition ofcapital assetunder section 1221 is bound by the 5Eight categories ofproperty are excluded from this definition.

Section 1221 Petitioners assert they purchased real estate for the purpose of holding it for investment and with the intent of renting it. Respondent argues that petitioners' intent was to resell the property. A "capital asset" is broadly defined as property held by the taxpayer, whether or not connected with his or her trade or business, subject t

1964), we faced the question of whether a lender's mortgage loans made in the ordinary course of business were ordinary or capital assets under section 1221(4) .43 .

Section 1221 defines “capital asset” as follows: SEC. 1221. CAPITAL ASSET DEFINED. (a) In General. For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include-– (1) stock in trade of the taxpayer or other property of a kind which would proper

ger is ordinary income or capital gain. Our resolution of the issue presented does not depend on who has the burden of proof in this case. Resolution of this issue depends on whether the sale to Singer involved a capital asset within the meaning of section 1221. Section 1221 provides the following definition of the term “capital asset”: SEC. 1221. Capital Asset Defined. (a) In general. For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not con

Section 1221 defines capital asset broadly as “property held by the taxpayer (whether or not connected with his trade or business)” but excludes from that definition property described in section 1221(a)(1) through (5). The exclusions include stock in trade of the taxpayer, other property of a kind normally includable in inventory if on hand at the

The taxpayer argued in this Court that he could deduct $10,960 of the expenses because they were attributable to a hearing held by the Federal Communications Commission on this matter and which did not add any value to the acquired stock. We disagreed with the taxpayer that any of these amounts were currently deductible. On appeal, so did the Court of Appeals for the Ninth Circuit. According to 30 As mentioned above, we understand the term “capital asset” to be used in its accounting sense and n

ses in general: an expenditure that would ordinarily be a deductible expense must nonetheless be capitalized if it is incurred in connection with the acquisition of a capital asset.6 6We do not use the term “capital asset” in the restricted sense of section 1221. Instead, we use the term in the accounting sense, to refer to any asset with a useful life extending beyond one year. Accord American Stores Co. & Subs. v. Commissioner, 114 T.C. 458 (2000) (taxpayer required to capitalize legal fees in

ses in general: an expenditure that would ordinarily be a deductible expense must nonetheless be capitalized if it is incurred in connection with the acquisition of a capital asset.6 6We do not use the term “capital asset” in the restricted sense of section 1221. Instead, we use the term in the accounting sense, to refer to any asset with a useful life extending beyond one year. Accord American Stores Co. & Subs. v. Commissioner, 114 T.C. 458 (2000) (taxpayer required to capitalize legal fees in

429, 433 (1970) (interpreting “his trade or business” under section 1221(1) to 9(...continued) references sec.

In order for contract rights to qualify as capital assets under section 1221, the contract rights must constitute “property” of the taxpayer and not constitute any of the five types of property excluded from capital gain treatment under section 1221(1) through (5) (namely, (1) inventory; (2) depre-ciable personal property or real property used in a trade or business; (3) certain intangible property; (4) account

1221; Arkansas Best Corp. v. Commissioner, supra at 215. Section 1221(1), the only category that could apply here, provides that property is not a capital asset if it is: stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or p

1221; Arkansas Best Corp. v. Commissioner, supra at 215. Section 1221(1), the only category that could apply here, provides that property is not a capital asset if it is: stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or p

ion of the disputed issue. Discussion Although not specifically addressed by either party, there appears to be agreement between them on the following points. First, the BCBI stock in the hands of petitioner constituted a capital asset as defined by section 1221. Except as provided by section 1244, because of the period that petitioner held the 3(...continued) purposes. In this regard it should also be noted that the parties stipulated that in the agreement petitioner "agreed to sell all of the

Section 1221 defines the term "capital asset" to mean "property held by the taxpayer", except for the property that falls into five enumerated categories. The first category of property excluded from the definition of capital asset is the following: (1)stock in trade of the taxpayer or other property of a kind which would properly be included in th

1221; Commissioner v. McCue Bros. & Drummond, Inc., 210 F.2d 752, 753 (2d Cir. 1954), affg. 19 T.C. 667 (1953); Miller v. Commissioner, 48 T.C. 649, 651-652 (1967); sec. 1.1221-1(a), Income Tax Regs. Petitioner's sale to Seawall of his leasehold interest constitutes a sale or exchange. Sec. 1241. Petitioner paid Spyropoulos legal expenses for

attributable to negligence or disregard of 3Respondent, in her brief, suggests that Daisy was not a capital asset in the hands of petitioner. No authority for this proposition was stated and it would appear to us that, given the express language of sec. 1221, which provides the definition of a capital asset, Daisy clearly fits within that definition. - 10 - rules or regulations. The term "negligence" includes any failure to make a reasonable attempt to comply with the statute, and the term "dis

A “written determination” of the IRS may not be used or cited as precedent, § 6110(k)(3), and written determinations are defined to include IRS private letter rulings, § 6110(b)(1)(A); see also Plano Holding LLC v.

Carbonara], and we have no knowledge to the contrary, that the Property does not constitute stock in trade or inventory and because the Property is not one of the other types of property listed in Code Section 1221 that do not qualify as “capital assets,” the Property is a capital asset.

- 25 - [*25] Section 1221(a) provides that a capital asset is "propertyheld by the taxpayer (whether or not connected with his trade or business)".

We held for the Commissioner and explained: [B]oth the legislative history ofsection 741 and its language indicate that Congress intended it to operate independently ofsection 1221 so as to be dispositive ofthe character ofpetitioner's loss.

The Commissioner says that since section 1253 doesn't apply, we have to decide whether the contracts were capital assets by looking at section 1221, the six-part multiprong test ofF_oy 8(...continued) when they filed their petitions, these cases are presumptively appealable to the Ninth Circuit.

The Commissioner says that since section 1253 doesn't apply, we have to decide whether the contracts were capital assets by looking at section 1221, the six-part multiprong test ofF_oy 8(...continued) when they filed their petitions, these cases are presumptively appealable to the Ninth Circuit.

The Commissioner says that since section 1253 doesn't apply, we have to decide whether the contracts were capital assets by looking at section 1221, the six-part multiprong test ofF_oy 8(...continued) when they filed their petitions, these cases are presumptively appealable to the Ninth Circuit.

members," as the statute requires. Sec. 513(a)(2) (emphasis added). In another tax context, the Supreme Court has interpreted the term "primarily' to mean "offirst importance" or "principally." Malat v. Riddell, 383 U.S. 569, 572 (1966) (construing section 1221(1)). As the Claims Court concluded in Am. College ofPhysicians, "[t]here seems to be no reason to depart from this common sense definition in interpreting section 513(a)(2)." 3 Cl. Ct. at 536. During 2004-2007 petitioner derived aggregat

According to respondent, section 1234A expressly references a "capital asset in the hands ofthe taxpayer." Since the Radisson Bay Harbor Hotel was section 1231 property, it by definition was not a capital asset as defined in section 1221 and thus cannot fall under section 1234A.

Although section 1221 doesn't define these terms either, there's caselaw under that section and we can look to it to help us solve the mystery - 8 - [*8] before us.

Pursuant to section 32(i), petitioners' disqualified income for 2012 is $4,117, which exceeds the $3,200 threshold for entitlement to an EIC. Accordingly, petitioners are not entitled to an EIC for 2012. 3. American Opportunity Credit Respondent disallowed petitioners' claimed American Opportunity Credit for 2012. The American Opportunit

The FPAA stated that the $3,816,000 Route 231 received from Virginia Conservation for Virginia tax credits was income to Route 231 because (1) the - 21 - [*21] credits were income derived from business under section 61(a)(2); (2) they were property taxable under section 61(a)(3) as ordinary income and not capital assets under section 1221; or (3) alternatively, they were property under section 1221 but taxable only as short-term capital gain.

The term "primarily" forpurposes ofsection 1221 means "offirst importance" or "principally".

1235-1(b), Income Tax Regs. Instead, the tax consequences ofsuch transactions are determined under other provisions ofthe Code. R Petitioners do not contend that Mr. Cooper is entitled to capital gain treatment under any provisions ofthe Code (e.g., sec. 1221 or sec. 1231) other than sec. 1235. 3¹In determining whether a transfer ofall substantial rights to a patenthas occurred, the language ofthe transfer agreement is not controlling. Sec. 1.1235- 2(b)(1), Income Tax Regs. Instead, the entire a

However, section 165(f) provides that losses from sales or exchanges ofcapital assets are allowed only to the extent allowed under sections 1211 and 1212.

The term "primarily" forpurposes ofsection 1221 means "offirst importance" or "principally".

The definition of capital asset under section 1221 is bound by the ordinary income doctrine.

l(b), Income Tax Regs. Instead, the tax consequences of such transactions are determined under other provisions of the Code. Id. Petitioners do not contend that Mr. Cooper is entitled to capital gain treatment under any provisions of the Code (e.g., sec. 1221 or sec. 1231) other than sec. 1235. In determining whether a transfer of all substantial rights to a patent has occurred, the language of the transfer agreement is not controlling. Sec. 1.1235-2(b)(l), Income Tax Regs. Instead, the entire a

- 17 - (B) Interest, dividends, rents, royalties, or annuities, not derived in the ordinary course ofa trade or business; (C) Receipts from the sale or exchange ofcapital assets, as defined in section 1221; (D) Repayments ofloans or similar instruments * * *; (E) Receipts from a sale or exchange not in the ordinary course ofbusiness * * *, and (F) Receipts from any activity other than a trade or business or an activity engaged in for profit.

However, section 165(f) provides that a loss from the sale or exchange ofa capital - 7 - asset is allowed only to the extent allowed under sections 1211 and 1212.6 Section 1221 defines a capital asset as any property held by the taxpayer, whether or not connected with his or her trade or business.

evant property to be allowed a loss deduction. See secs. 165(b), 1011(a), 1012(a), 1016; see also Barberv. Commissioner, 152 F.2d 930 (2d Cir. 1946) (affirming the Tax Court's finding that the taxpayerdid not 1°The term "capital asset" is defined in sec. 1221 as "propertyheld by the taxpayer (whether or not connected with his trade or business)", with four exceptions, none ofwhich is relevant here. "Ifan individual's capital losses exceed capital gains, sec. 1211(b) restricts deductions for capi

not include amounts representing— (A) Returns or allowances; (B) Interest, dividends, rents, royalties, or annuities, not derived in the ordinary course of a trade or business; (C) Receipts from the sale or exchange of capital assets, as defined in section 1221; (D) Repayments of loans or similar instruments * * *; (E) Receipts from a sale or exchange not in the ordinary course of business * * *, and (F) Receipts from any activity other than a trade or business or an activity engaged in for pro

Generally, no deduction is allowed for capital expenditures. Sec. 263(a). In any - 8 - event, debts arising from unpaid rents are not allowable as a bad debt deduction unless the rental income has been included on the return for the year or a prior taxable year. Sec. 1.166-1(e), Income Tax Regs. Petitioner has not shown that she include

While the context in which the word "primary" is used is important--Malatlooked at section 1221--there is nothing in the regulation or section 7701(a)(48) that suggests "primary" means anything else in this context.

Finally, respondent argues that under section 1221 the property was not held primarily for 3Sec.

2, 1998), also excluded certain items from the definition, including: (I) returns or allowances; (ii) receipts from the sale or exchange of capital assets, as defined in section 1221; (iii) repayments ofloans or similar instruments (e.g., a repayment ofthe principal amount ofa loan held by a commercial lender); (iv) receipts from a sale or exchange not in the ordinary course ofbusiness, such as the sale ofan entire trade or business or the sale ofproperty used in a

While the context in which the word “primary” is used is important — Malat looked at section 1221 — there is nothing in the regulation or section 7701(a)(48) that suggests “primary” means anything else in this context.

Gross receipts are not reduced by cost of goods sold or by the cost of property sold if such property is described in section 1221 (1), (3), (4) or (5).

However, section 165(f) provides that losses from sales or exchanges of capital assets are allowed only to the extent allowed under sections 1211 and 1212.

stributions from both MXF and MXE during that time. The record contains various 3(...con.tinued) 2000 as they were destroyed in a fire. 4Long-term capital gains are profits from a transaction in which a taxpayer sells a capital asset, as,defined by sec. 1221, for more than the taxpayer's basis in that property and has held that property for more than 1 year. sPetitioner contends that he deducted a $3,000 loss from the $12,000 loss and the $9,000 loss in the years he realized those losses. 'RICs,

)(2), 1231(b)(1) , 1239 (a) and (e), 1245(a)(3), 1250(c), 7871(c) (3) (B) (i) . 30 - allowance" for depreciation in revenue legislation, see, e .g ., Revenue Act of 1938, ch . 289, sec. 117(a), 52 Stat . 500 (enacting the predecessor of the current section 1221) . When drafting section 1239, however, Congress did not merely reuse the already familiar phrase but clarified in the hands of which taxpayer the determination of the character of the property should be made . Because section 1239 discus

Under section 1221, the term "capital assets" includes all assets other than assets expressly excluded. Dealers in securities who sell-to customers may recognize ordinary income or ordinary loss on their securities trading activity . Dealers' securities are considered-to be inventory held for sale to customers . Sec . 1221(a)(1) . 'Apart from dealers, ho

575 (1970) . Litigating costs that are incurred in connection with the sale of a capital asset are capital expenditures . Sec . 1211(b)(1) . A capital asset is property held by the taxpayer and not specifically excluded from capital asset status by section 1221 . Sec . "The sec . 212 deduction is reported on Schedule A and is subject to the 2-percent floor . See supra note 1 . I - 17 - 1221 (a) . The regulations under section 1221 provide that "Property held for the production of income, but no

Section 1221 defines the term "capital asset" as follows : SEC . 1221(a) . In General.--For purposes of this subtitle, the term "capital asset" means property held by the taxpayer (whether or not connected with hi s trade or business), but does not include-- (1) stock in trade of the taxpayer or other property of a kind which would properly be incl

Capital Losses Under Regular Tax and Alternative Minimum Tax If securities which are capital assets (as defined by section 1221) become worthless during a taxable year, any losses resulting therefrom are treated as capital losses, as if a sale or exchange of the securities occurred on the last day of that taxable year.

pital losses for AMT purposes . See secs . 55-59 (and accompanying regulations) . Petitioners are not securities dealers, and they held thei r MGC shares strictly as investors . There is no dispute the MGC shares in question are capital assets under section 1221 . The record also shows petitioner sold MGC shares in 2001 and that he realized capital losses as a result ." However, the capital loss limitations of sections 1211(b) and 1212(b) restricted petitioners' ability to deduct these regular c

Respondent points out that the premise underlying petitioners’ contentions is that the right to receive future lottery payments is “considered ‘property’ under certain provisions of Federal and state law * * * [and that therefore] the right must be considered ‘property’ for purposes of * * * [section 1221)(a)]”; i.e., a capital asset.

Capital Losses Under Regular Tax and Alternative Minimum Tax If securities which are capital assets (as defined by section 1221) become worthless during a taxable year, any losses resulting therefrom are treated as capital losses, as if a sale or exchange of the securities occurred on the last day of that taxable year.

of capital losses for AMT purposes. See secs. 55-59 (and accompanying regulations). Petitioners are not securities dealers, and they held their MGC shares strictly as investors. There is no dispute the MGC shares in question are capital assets under section 1221. The record also shows petitioner sold MGC shares in 2001 and that he realized capital losses as a result. However, the capital loss limitations of sections 1211(b) and 1212(b) restricted petitioners’ ability to deduct these regular capi

A taxpayer must generally recognize the entire amount of the realized gain or loss. Sec. 1001(c). However, where there was an “installment sale”, a taxpayer can use the installment method to defer recognition of income.4 See sec. 453. An installment sale is a “disposition of property where at least 1 payment is to be received after the c

Section 1221 broadly defines a “capital asset” as “property held by the taxpayer (whether or not connected with his trade or business),” subject to enumerated exceptions for certain kinds of property. Specifically, with respect to stock in a corporation, unless the taxpayer is a securities dealer within the meaning of section 1221(1), the stock is

installment payments constitutes ordinary income or capital gain during the year in issue. Resolution of this issue depends on whether petitioner's right to receive the remaining lottery installment payments was a capital asset within the meaning of section 1221. Petitioner's argument that the assignment was a sale of a capital asset relies on reasoning found in United States v. Maginnis, 356 F.3d 1179 (9th Cir. 2004). We note from the outset that we are not bound by the opinion of the Court of

nstallment payments constitutes ordinary income or capital gain during the years in issue. Resolution of this issue depends on whether Mr. Wolman's right to receive the remaining lottery installment payments was a capital asset within the meaning of section 1221. We find the facts in the instant case indistinguishable in substance from the facts in our opinion of Davis v. Commissioner, 119 T.C. 1 (2002), and cases relying on that opinion, in which a taxpayer assigned a right to future lottery in

er section 1.1221-2). Respondent contends, among other things, that Mr. Welter’s commodities trading activity is not described in former section 1.1221-2. B. Law The term “capital asset” includes all classes of property not specifically excluded by section 1221. Sec. 1.1221-1(a), Income Tax Regs. Section 1221, as in effect during the years at issue, did not contain a specific exclusion relating to hedging transactions. However, former section 1.1221-2(a)(1) provided that, notwithstanding section

ment of the 12 future lottery payments to Woodbridge is ordinary income or long-term capital gain. Resolution of that issue depends upon whether Mary’s right to receive the 12 future lottery payments constitutes a capital asset within the meaning of section 1221. The question of whether the right to receive future lottery payments, which represent a portion of the total anticipated payout, constitutes a capital asset does not present an issue of first impression. In Davis v. Commissioner, 119 T.

1221(c)(2) (which amended the definition of foreign base company shipping income under section 954(f) to include income from a space or ocean activity (as defined in section 863(d)(2)).

In Schelble v. Commissioner, T.C. Memo. 1996-269, affd. 130 F.3d 1388 (10th Cir. 1997), we considered whether the taxpayer received gain from the sale or exchange of a capital asset. Pursuant to the terms of the agreement with the insurance company for which he was an agent, the taxpayer was required to return all records, manuals, mater

oblem was substantially lessened because space and ocean income is included in the separate foreign tax credit limitation for shipping income, secs. 904(d)(2)(D), 954(f), flush language, and is subject to U.S. tax under the subpart F rules, 1986 TRA sec. 1221(c)(2) (which amended the definition of foreign base company shipping income under section 954(f) to include income from a space or ocean activity (as defined in section 863(d)(2)). H. Conf. Rept. 99-841 (Vol. II), supra at 11-600, 1986-3 C.

In Schelble v. Commissioner, T.C. Memo. 1996-269, affd. 130 F.3d 1388 (10th Cir. 1997), we considered whether the taxpayer received gain from the sale or exchange of a capital asset. Pursuant to the terms of the agreement with the insurance company for which he was an agent, the taxpayer was required to return all records, manuals, mater

he same taxable year. When an outlay is connected to the acquisition of an asset with an extended life, it would understate current net income to deduct the outlay immediately. * * * 6We do not use the term “capital asset” in the restricted sense of section 1221. Instead, we use the term in the accounting sense, to refer to any asset with a useful life extending beyond one year. Metrobank chose to acquire Community’s assets. One way to accomplish this was through a conversion transaction where a

During the year in issue, none of the exceptions addressed futures contracts. Sec. 1221. (Section 1221 was amended by adding subsection 7 which excludes clearly identified hedging transactions from the definition of capital asset, effective for any transaction entered into on or after December 17, 1999. Ticket to Work and Work Incentives

CO, Inc. v. Commissioner, 503 U.S. 79, 87-88 (1992). See Commissioner v. Idaho Power Co., 418 U.S. 1, 13 (1974); American Stores Co. & Subs. v. Commissioner, 114 T.C. 458, 469 (2000). We do not use the term “capital asset” in the restricted sense of section 1221. Instead, we use the term in the accounting sense, to refer to any asset with a useful life extending beyond one year. These objectives appeal- to be significant long-term benefits that support respondent’s argument. Petitioner states on

e same taxable year. When an outlay is connected to the acquisition of an asset with an extended life, it would understate current net income to deduct the outlay immediately. * * * 6We do not use the term “capital asset” in the restricted sense of section 1221. Instead, we use the term in the accounting sense, to refer to any asset with a useful life extending beyond one year. Distinguishing between expenses that can be deducted under section 162 and those that must be capitalized under section

ily for his own benefit and because petitioner argues that the entire alleged loss should be allocated to him, we agree with respondent that the gain calculated with regard to the sale of the Longport (continued...) - 9 - gain is not subject to the section 1221 capital gain preference as a result of the application of section 1221(2), petitioner’s gain does receive preferential treatment under section 1231.

Section 1221 defines "capital asset" generally as any property held by a taxpayer, with certain exceptions, including property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, and real property used in the taxpayer's trade or business. See sec. 1221(1) and 22 On their respective Schedules D, Capi

Section 1221 generally defines “capital asset” as “property held by the taxpayer (whether or not connected with his trade or business)”, but specifically excludes five classes of assets. The cases cited and relied upon by petitioners were all decided under the doctrine of Corn Prods. Refining Co. v. Commissioner, 350 U.S. 46 (1955), in which the Su

ess otherwise indicated, section references are to the Internal Revenue Code applicable to the subject years, and Rule references are to the Tax Court Rules of Practice and Procedure. We do not use the term “capital asset” in the restricted sense of section 1221. Instead, we use the term in the accounting sense, to refer to any asset with a useful life extending beyond one year. In Brown v. United States, 526 F.2d 135, 139 (6th Cir. 1975), legal expenses paid in settlement of a derivative action

Under section 1221(1), the term "capital asset" does not include property held by a taxpayer primarily for sale to customers in the ordinary course of the taxpayer's trade or business.1 There is no fixed formula or rule of thumb for making this determination, and each case must rest upon its own facts. See Kaltreider v. Commissioner, 255 F.2d 833, 838 (3

1221; Frederick Weisman Co. v. Commissioner, 97 T.C. 563, 572 (1991); Proskauer v. Commissioner, T.C. Memo. 1983-395. Because Lakeview incurred the legal fees in defending claims that arose from a transaction involving the acquisition of a capital asset, under the "origin-of-the-claim" test the cost of such fees must be capitalized.' 8 As note

This includes not only gains and losses realized from the sale or other disposition of capital assets, as defined by section 1221, but also gains and losses from the sale or other disposi- tion of “property used in the trade or business”, as defined by section 1231(b).

There must be a "sale or exchange" of a capital asset in order for the transaction to be taxed as a capital gain or loss. Sec. 165(f). Our analysis, therefore, is not directed at whether petitioner was in a trade or business with respect to Saddle Mountain, but whether there was a "sale or exchange". As the Court stated in La Rue v. Comm

1973); see also NCNB Corp.

s include the direct costs of such property and such property's proper share of those indirect costs part or all of which are allocable to such property. Section 1.263A-1T, Temporary 5 Sec. 263A also applies to real or personal property described in sec. 1221(1) which is acquired by the taxpayer for resale except for taxpayers who have annual gross receipts of $10 million or less. Sec. 263A(b)(2). There is no exception provided for producers who have annual gross receipts of $10 million or less.

Idaho Power Co., supra at 16, the Supreme Court considered the interrelationship between Part VI (which includes section 161 and following, relating to items deductible) 17"It is clear that an expenditure need not be for a capital asset, as described in Section 1221 * * * in order to be classified as a capital expenditure." Georator Corp.

Section 1221(2) provides that real property used in a trade or business is not a capital asset (and therefore a loss from the disposition of such property would be an ordinary loss). Accordingly, we must determine whether the two 1-acre lots and the airplane hangar were used in petitioner's trade or business. The Supreme Court has stated that "to b

Section 1221(2) provides that real property used in a trade or business is not a capital asset (and therefore a loss from the disposition of such property would be an ordinary loss). Accordingly, we must determine whether the two 1-acre lots and the airplane hangar were used in petitioner's trade or business. The Supreme Court has stated that "to b

contracts by which investors simply settle or close out their position in a straddle or in a leg of a straddle transaction. As stated, the parties agree that forward contracts in commodity markets held for investment constitute capital assets under section 1221. Commissioner v. Covington, 120 F.2d 768 (5th Cir. 1941), affg. in part and revg. in part 42 B.T.A. 601 (1940); Vickers v. Commissioner, 80 T.C. 394 (1983); Hoover Co. v. Commissioner, 72 T.C. 206 (1979). Although no delivery or physical

11 shareholders regardless of whether the various CFC's within the chain were engaged in similar or related business activity.¹ In 1986, section 952(d) was repealed, effective for any year ending after 1986. Tax Reform Act of 1986, Pub. L. 99-514, sec. 1221(f), 100 Stat. 2554. The repeal was based generally on Congress' belief that the chain deficit rule in section 952(d) . allowed U.S. taxpayers to shelter through CFC's excessive amounts of tax haven income from current U.S. tax. See H. Conf.

- 15 - assets under section 1221 when resold by the employer.

The term "capital assets" is defined by section 1221 as follows: For purposes of this subtitle, the term "capital asset" means property held by the taxpayer (whether or not connected with his trade or business), but does not include-- (1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of

However, section 1221(1) provides in part that property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business does not constitute a capital asset. The purpose of the section 1221(1) exclusion is to "differentiate between gain derived from the everyday operations of a business and gain derive

contracts by which investors simply settle or close out their position in a straddle or in a leg of a straddle transaction. As stated, the parties agree that forward contracts in commodity markets held for investment constitute capital assets under section 1221. Commissioner v. Covington, 120 F.2d 768 (5th Cir. 1941), affg. in part and revg. in part 42 B.T.A. 601 (1940); Vickers v. Commissioner, 80 T.C. 394 (1983); Hoover Co. v. Commissioner, 72 T.C. 206 (1979). Although no delivery or physical

The term "capital asset" is defined in section 1221 as "property held by the taxpayer (whether or not connected with his trade or business)," subject to five specified exceptions.

s in Section 1256 Contracts", provides in pertinent 12 Respondent also contends, in the alternative, that Mr. Gordon’s 1986 net trading loss is a capital loss because it resulted from the sale of options that are capital assets within the meaning of sec. 1221. In light of our holding that that loss constitutes a capital loss pursuant to sec. 1256(f)(3)(A), we shall not address respondent's contention under sec. 1221. - 30 - part: (A) In general.--For purposes of this title, gain or loss from tra

t she means by a "dealer in securities", we assume that she is referring to an individual who holds securi- ties, other than the type of options that were held by Mr. Gordon during 1986, that are excluded from the definition of a capital asset under sec. 1221(1). Our use herein of the phrase "dealer in securities" shall have the same meaning as we assume Ms. Gordon intended by the use of that phrase. - 11 - you a dealer in securities? A No. Ms. Gordon also points to the following testimony elici

Respondent’s position thus follows the ruling position that relocating employees’ homes purchased by their employer to assist the employees in the sale of the residences are capital assets under section 1221 when resold by the employer.

1221(1); Philhall Corp. v. United States, 546 F.2d 210, 215 (6th Cir. 1976) (land option, ordinary income); McHugh v. Commissioner, T.C. Memo. 1957-4 (land contracts, ordinary income). They had a zero basis in the hands of Alice Berger to the extent they had not been properly taken into Woodbine income by Howard at the time of his transfer of

1221(1); Philhall Corp. v. United States, 546 F.2d 210, 215 (6th Cir. 1976) (land option, ordinary income); McHugh v. Commissioner, T.C. Memo. 1957-4 (land contracts, ordinary income). They had a zero basis in the hands of Alice Berger to the extent they had not been properly taken into Woodbine income by Howard at the time of his transfer of

were an incentive for the 17 Petitioners contend that respondent abandoned on brief the argument originally advanced in respondent’s trial memorandum that the warrants in issue were within the inventory exception to the definition of capital asset, sec. 1221(1), and suggest that respondent is raising a new theory on brief by arguing that the stock warrants constituted a trade discount. We consider respondent’s argument on brief, however, to be merely a development of the determination in the no

n shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221, by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501(c)(3) and is exempt under section 501(a) (other than a private foundation, as defined in section 509(a), which is not an operating foundation, as defined in section 4942(j)(3)), but only if-- (i) the use of the property by the donee is related to the purpose or function cons

And the gain attributable to the sale of a capital asset results in capital gain income. Sec. 1222. Moreover, the gain from the sale of property is equal to the excess of the amount realized (i.e., the sum of any money received plus the fair market value of the property received; sec. 1001(b)) from the sale, over the taxpayer's adjust

Section 1221 defines a capital asset as "property held by the taxpayer (whether or not connected with his trade or business)," but excludes four categories of assets, only one of which is of relevance here, namely: (1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on

— For purposes of this paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221, by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501(c)(3) and is exempt under section 501(a) (other than a private foundation, as defined in section 509(a), which is not an operating foundation, as defined in section 4942(j)(3)), but only if— (i) the use of the pro