- 16 -
of the old tools as compensation. It is likely that some of
petitioner’s old tools qualified as capital assets under section
1221 and some of the old tools were property used in petitioner’s
trade or business (of being an employee of IMC) of a character
subject to the allowance for depreciation under section
167(a)(1).3 See Noyce v. Commissioner, 97 T.C. 670, 683 (1991).
It is unnecessary for us to distinguish among petitioner’s old
tools; the result is the same. Gain from the sale of a capital
asset held longer than 1 year is long-term capital gain under
section 1222(3), and net gain from the sale of property used in a
taxpayer’s trade or business is treated as long-term capital gain
under section 1231(a)(1). Petitioner has shown that he owned all
of the old tools for more than 1 year before he first began
selling them to IMC; i.e., March 1996. We believe, based on
petitioner’s testimony and the photographs the parties submitted
of petitioner’s old tools, that these were tools petitioner owned
for both everyday use and use in his work for many years.4
3We do not believe that any of the tools petitioner sold to
IMC during 1999 should be characterized as supplies of a type
regularly used or consumed by petitioner in the ordinary course
of his trade or business within the meaning of sec. 1221(a)(8).
Any such supplies held or acquired by a taxpayer on or after Dec.
17, 1999, are excluded from characterization as capital assets by
sec. 1221(a)(8).
4We make the distinction between long- and short-term
capital gain with respect to petitioner’s old tools only. IMC
reimbursed petitioner for the new equipment he purchased for IMC
during 1994, 1995, 1996, 1997, 1998, and 1999 as part of the
(continued...)
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011