- 31 -
(2). Section 1231 mandates capital gain treatment for certain
gains and losses recognized on the sale of property used by the
taxpayer in a trade or business, even if the property was not
otherwise a capital asset, but provides that property used in the
trade or business excludes, among other things, property held by
the taxpayer primarily for sale to customers in the ordinary
course of his trade or business. See sec. 1231(b)(1)(B); see
also S & H, Inc. v. Commissioner, 78 T.C. 234, 241 (1982).
Resolution of this issue, then, depends on whether
petitioners, through their joint venture, held the 40 acres
primarily for sale to customers in the ordinary course of
business. If they did, the land was not a capital asset. The
question is a factual one. The burden of proof is on
petitioners. See Rule 142(a).
In 1983, Briggs, Mr. Morris, and Daniell entered into a
joint venture to participate equally in profits generated from
real estate activities. As reflected in the July 20, 1985,
“letter agreement”, the joint venture specifically included
development of phase I of Gulf Highlands as well as future
development of the adjacent 40 acres as phase II of Gulf
Highlands. As reflected in the April 25, 1986, written joint
venture agreement, the joint venture’s real estate activities
were intended to include all aspects of acquiring, developing,
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011