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the notice of deficiency failed to state the proper adjustment,
thereby denying petitioners the benefit of this capital loss.
The parties agree that petitioners are entitled to a short-term
capital loss adjustment, subject to the limitations on the amount
of such adjustment, if respondent ultimately prevails in this
case.
Discussion
The parties dispute whether the $1,155,000 received by Mr.
Clopton from Singer is ordinary income or capital gain. Our
resolution of the issue presented does not depend on who has the
burden of proof in this case. Resolution of this issue depends
on whether the sale to Singer involved 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.
(a) In general.
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;
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Last modified: May 25, 2011