-14-
Respondent argues that petitioner's failure to sell more
than eight lots during the years in issue shows she did not hold
the lots as inventory. We disagree. The sale of eight lots was
substantial in light of the fact that, at the start of the years
in issue, petitioner had only 12 of the 48 lots left. See
Thompson v. Commissioner, 322 F.2d 122, 127-128 (5th Cir. 1963)
(taxpayer's sales declined from 20 in the first year to 8 in the
second year because, at the start of the years in issue, he had
only 37� of the original 387 lots left to sell), affg. in part
and revg. in part 38 T.C. 153 (1962).
Respondent contends that the fact that petitioner sold more
lots when the real estate market improved in 1991 shows that she
held the lots for investment rather than for sale. We disagree.
Petitioner began to sell lots in 1987, soon after Hancock
Enterprises distributed them to her, despite the fact that
residential real estate prices declined after 1986. She sold 12
of her 48 lots before 1991, which shows that she was not merely
waiting for the market to rebound.
Respondent points out that some of the sales were to
petitioner's sons and argues that those were not sales in the
ordinary course of business.2 We disagree. Petitioner made a
large economic profit on the sales to her sons. The fact that
2Respondent does not contend that sec. 267 applies to the
lot petitioner sold to Trevor Hancock in 1994.
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