- 15 - acquired as early as 1960, and petitioner did not begin underwriting until the mid-1970's. Petitioner has not shown that acquisition of any of the pledged stock was an ordinary and necessary part of his underwriting activities. The evidence indicates instead that petitioner acquired the pledged stock as an investment. He merely pledged this investment asset to secure the letter of credit that he needed for his underwriting activities. The pledging of the stock did not convert petitioner’s investment asset to an asset used in a trade or business of underwriting. We do not find that petitioner’s acquisition of the pledged stock was “made in the ordinary course of a trade or business” as contemplated by subdivision (ii)(C). Further, we believe petitioner’s gain is not the typical type of income recognized by insurance companies or reinsurers on their investment of insurance premiums. There is no evidence that petitioner acquired the pledged stock with the premiums of the policies underwritten. Nor does the record show that the gain from the disposition of the pledged stock was committed to his underwriting activities and not spent for personal purposes such as living expenses. Consequently, we do not believe that subdivision (ii)(C) was meant to encompass petitioner’s gain. We also draw an analogy between petitioner’s gain and the interest earned on the investment of working capital. Section 469(e)(1)(B) provides that any income, gain, or loss which is attributable to an investment of working capital shall be treatedPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
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