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The membership fees for Ridgemark Golf and Country Club
increased from $700 in 1971, when Ridgemark was formed, to
approximately $14,000 in 1990, when it was sold to the members.
Petitioners deducted $292,773 for depreciation on Schedule F
of their 1989 Federal income tax return with respect to certain
farm property. Respondent determined that the depreciation
deduction claimed by petitioners exceeded the allowable amount by
$191,637. The parties agreed that the proposed adjusted capital
gain of $213,993 would be reduced to $174,030. Petitioners have
conceded the remaining adjustments.
OPINION
The parties agree that Ridgemark “exchanged” the unit 10
property for the Paicines property. The disagreement concerns
whether the unit 10 property was held primarily for sale in the
ordinary course of Ridgemark’s business. Respondent contends
that Ridgemark was a real property dealer and that the exchange
of the unit 10 property was merely a continuation of established
subdivision activities. Ridgemark contends that the unit 10
property was sold to liquidate its assets, and that the offsite
improvements were merely a condition of the sale. Petitioners
bear the burden of establishing that respondent’s determination
is erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
Generally, section 1001(c) requires that gain or loss on the
sale or exchange of property shall be recognized. Section
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