- 23 - 1031(a) provides for the nonrecognition or deferral of gain or loss when “property held for productive use in a trade or business or for investment * * * is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” Section 1031(a) treatment, however, does not apply to any exchange of “property held primarily for sale”. See sec. 1031(a)(2). Section 1221(1) provides that a capital asset does not include by definition “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business”. In Malat v. Riddell, 383 U.S. 569, 572 (1966) (quoting Corn Prods. Refining Co. v. Commissioner, 350 U.S. 46, 52 (1955), and Commissioner v. Gillette Motor Transp., Inc., 364 U.S. 130, 134 (1960)), the Supreme Court explained the function of the section 1221(1) definition as differentiating “between the ‘profits and losses arising from the everyday operation of a business’ * * * and ‘the realization of appreciation in value accrued over a substantial period of time’”. The Court also defined “primarily”, as utilized in section 1221(1), as “‘of first importance’” or “‘principally.’” Whether property is held by a taxpayer primarily for sale to customers in the ordinary course of a trade or business is essentially a factual question. Guardian Indus. Corp. v. Commissioner, 97 T.C. 308, 316 (1991).Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Next
Last modified: May 25, 2011