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Issue 2. Whether Petitioner Is Entitled to a Capital or Ordinary
Loss in Connection With Road Construction Activity, and, If So,
in Which Year
In 1980, Gloria Jackson (Ms. Jackson) formed a partnership
entitled BAJAC Construction Co. (BAJAC) with her sister, Joanne,
and a third partner, Robert O. Hollar (Mr. Hollar). Due to
inadequate cash-flow, BAJAC filed for protection under chapter 11
of the U.S. Bankruptcy Code during 1984.
Cities Development Group, Inc. (Cities), was a corporation
formed in the summer of 1985 by Ms. Jackson (80 percent) and Mr.
Hollar (20 percent) to engage in subcontracting work and to
create a more competitive, nonunion organization. Cities, which
later changed its name to American Cities, was a "minority
business enterprise" and a "woman business enterprise", which
enabled it to take advantage of certain affirmative action
contracting programs. Cities made a bid on the Lake Elsinore
project and was awarded a subcontractor project by Cornish
Construction.
Normally, receipt of payment to Cities for road construction
work was delayed. In some instances Cities received payment more
than 2 months after the prime contractor had billed the local
government. After completing a percentage of the Lake Elsinore
project during the first half of 1986, Cities was removed from
the job and commenced litigation in Federal court. Ms. Jackson
believed Lake Elsinore was a project worth $900,000 and sought
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