- 26 -
pool corn they purchased to satisfy their production and delivery
obligations under the UMAs qualifies as a capital asset. Rather,
it is the character of the property sold that controls the
analysis under section 1402(a)(3).
Section 1221 defines capital asset broadly as “property held
by the taxpayer (whether or not connected with his trade or
business)” but excludes from that definition property described
in section 1221(a)(1) through (5). The exclusions include stock
in trade of the taxpayer, other property of a kind normally
includable in inventory if on hand at the close of the taxable
year, and property held primarily for sale to customers in the
ordinary course of the taxpayer’s trade or business. Sec.
1221(a)(1); see also sec. 1402(a)(3)(C).
In this case, the property sold was corn and corn products.
The corn in question was acquired by petitioners to satisfy their
production and delivery obligations under the UMAs so that the
corn and any resulting corn products could be sold by MCP on
petitioners’ behalf to customers in the ordinary course of
petitioners’ business. The value-added payments resulted from
those sales. We hold, therefore, that the value-added payments
are not excludable under section 1402(a)(3) in calculating
petitioners’ net earnings from self-employment.
C. Section 1402(a)(2)
Petitioners alternatively argue that, if the exclusion under
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011