Richard L. Matz and Linda A. Matz, Deceased, Richard Lee Matz, Jr., Independent Executor - Page 18

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            meaning of section 1211, and the loss is ordinary.7  See Citron                             
            v. Commissioner, 97 T.C. 200, 213-217 (1991).                                               
                  Petitioners merely abandoned a worthless mineral interest.                            
            The loss, therefore, did not arise from a "sale or exchange"                                
            within the meaning of section 1211.  Accordingly, petitioners are                           
            entitled to ordinary loss treatment with respect to the                                     
            abandonment of Saddle Mountain during 1987.                                                 
            Issue 5.  Hidden Valley                                                                     
                  Respondent determined that the $1,643,900 loss petitioners                            
            sustained in 1989 relating to Hidden Valley is a long-term                                  
            capital loss.  Petitioners assert that it is an ordinary loss.                              
                  In October 1984, petitioner purchased Hidden Valley.                                  
            Petitioner testified that he intended to construct an office                                
            building on this property.  On January 3, 1989, petitioner                                  
            surrendered, disposed of, or lost his interest in Hidden Valley                             
            through foreclosure.                                                                        
                  In support of their argument that the loss sustained on                               
            Hidden Valley in 1989 is ordinary, petitioners again assert that                            
            petitioner was engaged in a trade or business of acquiring,                                 
            developing, and selling real property and that Hidden Valley was                            


                  7     We recognize that, under certain circumstances, the                             
            abandonment of mortgaged property can qualify as a "sale or                                 
            exchange".  See, e.g., Yarbro v. Commissioner, 737 F.2d 479 (5th                            
            Cir. 1984), affg. T.C. Memo. 1982-675; Middleton v. Commissioner,                           
            77 T.C. 310 (1981), affd. per curiam 693 F.2d 124 (11th Cir.                                
            1982).  These conditions do not exist in the instant case.                                  




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