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In determining whether the gains that petitioner realized
from the sales of the three parcels of the Prather Ranch Property
were capital gains, we must ask three questions: (1) Was
petitioner engaged in a trade or business, and, if so, what
business?; (2) was petitioner holding the property primarily for
sale in that business?; (3) were the sales contemplated by
petitioner “ordinary” in the course of that business? Sanders v.
United States, 740 F.2d 886, 888-889 (11th Cir. 1984); Suburban
Realty Co. v. United States, 615 F.2d 171, 178 (5th Cir. 1980).51
The question whether property is held primarily for sale to
customers in the ordinary course of one’s business is “purely
factual”, Pritchett v. Commissioner, 63 T.C. 149, 162 (1974), and
51The following factors are considered in answering those
questions:
(1) the nature and purpose of the acquisition of the
property and the duration of the ownership; (2) the
extent and nature of the taxpayer’s efforts to sell the
property; (3) the number, extent, continuity and
substantiality of the sales; (4) the extent of
subdividing, developing, and advertising to increase
sales; (5) the use of a business office for the sale of
the property; (6) the character and degree of
supervision or control exercised by the taxpayer over
any representative selling the property; and (7) the
time and effort the taxpayer habitually devoted to the
sales. [Sanders v. United States, 740 F.2d 886, 889
(11th Cir. 1984); United States v. Winthrop, 417 F.2d
905, 910 (5th Cir. 1969).]
The frequency and substantiality of sales is the most important
factor of those listed. Suburban Realty Co. v. United States,
615 F.2d 171, 176 (5th Cir. 1980); Biedenharn Realty Co. v.
United States, 526 F.2d 409, 416 (5th Cir. 1976); Hancock v.
Commissioner, T.C. Memo. 1999-336.
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