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and passed through to the taxpayer and his wife, as an ordinary
loss from the sale of property used in a trade or business) and
sold the timberland at a gain (which it reported, and passed
through to the taxpayer and his wife, as a capital gain from the
sale of an investment asset). The Commissioner challenged the
characterization of the timberland gain as capital gain, arguing
that the timberland was not a capital asset because it was
property used in the partnership’s sawmill and lumber business.
We rejected the Commissioner’s position and sustained the
taxpayer’s argument that the property was investment property in
the hands of the partnership. In reaching that conclusion, we
noted that “[t]he incidental use of this 7,700-acre tract in
connection with * * * [the] cutting of scattered timber did not
convert the tract from investment property to real property used
in the [partnership’s] sawmill business within the meaning of
section 1231.” Id.
In Ouderkirk, as in Reese v. Commissioner, supra, the issue
was whether the property in question had a business connection
sufficient to require its exclusion from the definition of a
capital asset (in Ouderkirk, as property used in a trade or
business, and, in Reese, as inventory type property). Therefore,
Ouderkirk, like Reese, is distinguishable from this case, where
the issue is whether assets undeniably used in a trade or
business were used in a trade or business conducted by Dover UK.
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