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makes reference to section 165(g), which provides that the
loss from a "security" which is a capital asset that
becomes worthless during the taxable year shall be treated
as a loss from a sale or exchange. Petitioners argue that
the club memberships are not capital assets, but they do
not question respondent's determination that they were
sold or exchanged. Petitioners do not argue that they
are entitled to ordinary loss treatment, even if the club
memberships are capital assets, on the ground they were not
sold or exchanged. See generally Leh v. Commissioner, 260
F.2d 489 (9th Cir. 1958), affg. 27 T.C. 892 (1957); Com-
missioner v. Pittston Co., 252 F.2d 344 (2d Cir. 1958),
revg. 26 T.C. 967 (1956).
Petitioners contend that they are each entitled to
deduct against ordinary income in 1986 one-half of
Mr. Lemons' basis in the subject club memberships, viz.
$620,000. Petitioners make two arguments in support of
that position. First, they argue that the subject club
memberships were not capital assets in Mr. Lemons' hands
because he held the memberships "primarily for sale to
customers in the ordinary course of his trade or business".
Sec. 1221(1). Petitioners assert that Mr. Lemons' primary
purpose for holding the club memberships was for sale to
customers. According to petitioners, that purpose is
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