Loren F. Paullus and Donna Paullus - Page 26

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          ordinary course of its business.  Essentially, respondent asserts           
          that the unit 10 property was inventory, and did not qualify for            
          the nonrecognition provision of section 1031.  Ridgemark argues             
          that it held the unit 10 property for investment purposes.                  
               Consequently, the issue is clearly drawn, and we focus on              
          the characterization of the unit 10 property held by Ridgemark.             
          1.  Nature and Purpose of the Acquisition of the Property and the           
          Duration of Ownership                                                       
               Ridgemark segregated its business of operating Ridgemark               
          Golf and Country Club from the development and sales of lots.               
          Development and sales were placed in separate corporate entities.           
          After the creation of the new corporations, Ridgemark had seven             
          sales of property, excluding the unit 10 property.  The sales               
          were made over a 12-year period exclusively to Financial or                 
          Construction, the new corporate entities, which developed and               
          sold real property.                                                         
               The one significant acquisition (the Bushmont property) was            
          used to expand Ridgemark Golf and Country Club.  Ridgemark also             
          found it necessary to sell some of its real property holdings to            
          finance a new 18-hole golf course and other facilities on the               
          Bushmont property.  Ridgemark’s primary activity was the                    
          development and operation of golf courses.  To that end, it was             
          successful, thereby increasing the value of the facility,                   
          including the adjacent real property.  Specifically, demand for             
          the lots and residences in Ridgemark Estates was increased by               
          coupling them to the golf and country club memberships.                     

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