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from the buyers for unmined sand. The parties to the exchange
believed they were not required to comply with Florida's bulk
sales law, which applied to sales of stock in trade. From the
time petitioners first agreed to exchange the property for $1.2
million to the time they closed on the exchange, petitioners sold
about 130,000 cubic yards of sand. Petitioners did not adjust
the price of the 76.5 acres based on the sales.
Respondent cites Watson v. Commissioner, 345 U.S. 544
(1953), to support the contention that petitioners held the
unmined sand primarily for sale at the time of the exchange. In
that case, the taxpayer sold an orange grove with unharvested
oranges. The buyer wanted to operate the orange grove and sell
oranges, including the unharvested oranges. The issue was
whether the portion of the price attributable to the unharvested
oranges was taxable as a capital gain or as ordinary income. The
Supreme Court pointed out that the parties attributed substantial
value to the unharvested oranges and held that income from the
sale of the unharvested oranges was ordinary income. Id. at 550-
551. The seller sold and the buyer bought a crop of growing
oranges and the real property on which it grew.
The Supreme Court distinguished Watson from Butler Consol.
Coal Co. v. Commissioner, supra, and cases in which the sale of
land included minerals "not separated from its natural state and
not in the course of annual growth leading to a seasonal
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