Howard V. More - Page 15




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            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 treated                          




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