David K. and Elizabeth Simpson - Page 5

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          payments constitutes a capital asset within the meaning of                  
          section 1221.                                                               
               Section 1221 provides the following definition of the term             
          “capital asset”:                                                            
               SEC. 1221.  CAPITAL ASSET DEFINED.                                     
                    For purposes of this subtitle, the term “capital                  
               asset” means property held by the taxpayer (whether or                 
               not connected with his trade or business), but does not                
               include-–                                                              
                         (1) stock in trade of the taxpayer or other                  
                    property of a kind which would properly be                        
                    included in the inventory of the taxpayer if on                   
                    hand at the close of the taxable year, or property                
                    held by the taxpayer primarily for sale to                        
                    customers in the ordinary course of his trade or                  
                    business;                                                         
                         (2) property, used in his trade or business,                 
                    of a character which is subject to the allowance                  
                    for depreciation provided in section 167, or real                 
                    property used in his trade or business;                           
                         (3) a copyright, a literary, musical, or                     
                    artistic composition, a letter or memorandum, or                  
                    similar property, held by-–                                       
                              (A) a taxpayer whose personal efforts                   
                         created such property,                                       
                              (B) in the case of a letter, memorandum,                
                         or similar property, a taxpayer for whom such                
                         property was prepared or produced, or                        
                              (C) a taxpayer in whose hands the basis                 
                         of such property is determined, for purposes                 
                         of determining gain from a sale or exchange,                 
                         in whole or part by reference to the basis of                
                         such property in the hands of a taxpayer                     
                         described in subparagraph (A) or (B);                        
                         (4) accounts or notes receivable                             
                    acquired in the ordinary course of trade or                       





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