Margaret Hancock - Page 11

          G.   Statements by Petitioner's Representatives                              
               Respondent's revenue agent, Patricia Burson (Burson), met               
          with petitioner's representatives, Howard Kesselman (Kesselman)              
          and Carrie Ransil (Ransil), during the audit.  At the time,                  
          Kesselman was a consultant for (and not an employee of) Toback,              
          and Ransil had been employed by Toback for 1 month.  At the                  
          audit, Kesselman and Ransil told Burson that Hancock Enterprises             
          sometimes held back lots from subdivisions for petitioner and her            
          husband for investment.  Ransil had not met petitioner and was               
          unfamiliar with petitioner's operations at the time of the audit.            
               Petitioner contends that the eight lots she sold in 1993 and            
          1994 were held for sale to customers in the ordinary course of               
          her trade or business, and thus that the tax losses from her                 
          sales of those lots that resulted because of the step-up in basis            
          under section 1014(b)(6) at her husband's death are ordinary                 
          losses under section 1221(1).  Respondent contends that                      
          petitioner did not hold the eight lots for sale to customers, and            
          that the sales were not in the ordinary course of a trade or                 
          business, and thus petitioner's losses are capital losses.                   
          A.   Whether Petitioner Held Lots for Sale to Customers in                   
               the Ordinary Course of Her Trade or Business                            
               1.   Section 1221(1)                                                    
               Section 1221(1) excludes from classification as a capital               

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