Margaret Hancock - Page 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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