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losses exceed the gains for the taxable year, then all of
the gains and losses are treated as ordinary gains and
losses. See sec. 1231(a)(2). Respondent argues that any
gain or loss that is treated as a capital gain or loss
under section 1231 should be classified as from
nonpatronage sources.
As a threshold matter, respondent’s argument does not
satisfactorily explain why assets that qualify as property
used in the trade or business under section 1231(b) are
subject to a per se rule under section 1.1382-3(c)(2),
Income Tax Regs., which is formulated in terms of “income
derived * * * from sale or exchange of capital assets”.
Assets treated as “property used in the trade or business”,
as defined by section 1231(b), are excluded from the
definition of the term “capital asset”. Sec. 1221(2).
See St. Louis Bank for Coops. v. United States, 624 F.2d
at 1053, where the Court rejects the Commissioner’s
classification of gain from the sale of a car as
nonpatronage income under section 1.1382-3(c)(2), Income
Tax Regs., and points out that the Commissioner’s treatment
was erroneous “since the car was not a capital asset under
section 1221 of the Code.”
Respondent’s position is that, if the section 1231
gains and section 1231 losses for the taxable year are
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