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On July 16, 1988, Daniell ended his business relationship
with Briggs and Mr. Morris by selling them his undivided interest
in the joint venture.
On their 1986 individual Federal income tax returns, Briggs
and the Morrises each reported the sales of their one-third
interests in the 40 acres as long-term capital gains.22
Respondent determined that the gain was ordinary income.
Discussion
Petitioners argue that the 40 acres was a capital asset
because it was “purchased for investment purposes in their
individual names, and not in the joint venture’s name.” They
argue that the 40 acres was not held or offered for sale in
petitioners’ trade or business. Respondent argues that the 40
acres was held by the joint venture as part of its trade or
business of acquiring and developing real estate, and
consequently was not a capital asset.
Section 1221 defines “capital asset” generally as any
property held by a taxpayer, with certain exceptions, including
property held by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business, and real property
used in the taxpayer’s trade or business. See sec. 1221(1) and
22 On their respective Schedules D, Capital Gains and
Losses, Briggs and the Morrises each reported a single sale of a
one-third interest in land, with a sale price of $363,333 and
basis of $209,980.
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