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Gain from the Sale of
the Drawing in Question
The parties agree that petitioner purchased the drawing in
question during the 1970's for $1,300, sold it during 1989 for
$115,000, and realized a gain of $113,700 from that sale. The
dispute here is whether that gain should be characterized as
ordinary income, as petitioner contends, or as long-term capital
gain, as respondent contends. The parties agree that if the
Court were to determine that that gain is long-term capital gain,
petitioner would not be entitled to deduct any amount for his
contribution to the SEP for 1989 and that he would be liable for
the excise tax imposed by section 4972(a) as determined by
respondent.17 The parties further agree that the resolution of
the dispute over the character of the gain from the sale of the
drawing in question depends on whether that drawing is "property
held by * * * [petitioner] primarily for sale to customers in the
ordinary course of his trade or business" within the meaning of
section 1221(1). If it is, the gain at issue is ordinary income,
and not capital gain.
The purpose of section 1221(1) is to "differentiate between
the 'profits and losses arising from the everyday operation of a
business' * * * and 'the realization of appreciation in value
17 Petitioner does not dispute that if the Court were to
determine that that gain is ordinary income, he would nonetheless
be liable for the excise tax imposed by sec. 4972(a), but in a
lesser amount than that determined by respondent. See supra note
16.
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