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In Azar Nut Co. v. Commissioner, 94 T.C. 455 (1990), the
taxpayer, in connection with its termination of an individual’s
employment, purchased the employee’s residence at an appraised
fair market value pursuant to the terms of an employment
agreement. The taxpayer immediately listed the house for sale at
the purchase price paid to its former employee but eventually
incurred a substantial loss on the sale, some 22 months later.
Because the house was never held for rental by the taxpayer or
used or intended for use in the taxpayer’s business, we held that
it was not exempt from capital asset status as property used in a
trade or business and that the loss was, therefore, capital
loss.14 Id. at 463-464. In Azar Nut, as in Ouderkirk v.
Commissioner, supra, and Reese v. Commissioner, supra, capital
asset status was based upon insufficient (or no) business use,
not, as respondent argues in this case, upon the identity of the
user of assets undeniably used in a trade or business.
14 The taxpayer in Azar Nut Co. v. Commissioner, 94 T.C.
455 (1990), affd. 931 F.2d 314 (5th Cir. 1991), argued that the
house was not a capital asset because its purchase from the
terminated employee and subsequent resale were connected with the
taxpayer’s business; i.e., the transactions arose out of a
business necessity, not an investment purpose. We rejected that
argument on the basis of Ark. Best Corp. v. Commissioner, 485
U.S. 212 (1988). That case rejected the business connection-
business motivation rationale of such cases as Commissioner v.
Bagley & Sewall Co., 221 F.2d 944 (2d Cir. 1955)(relied upon by
the taxpayer in Azar Nut), affg. 20 T.C. 983 (1953), and held
that property constitutes a capital asset unless it is excluded
from capital asset status by one of the specific statutory
exclusions listed in what is now sec. 1221(a). Ark. Best Corp.
v. Commissioner, supra at 223.
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