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decide the question of whether petitioner’s distributive share
should be characterized as ordinary or capital gain income, we
must consider the character of the gain at the entity level.
Cannon v. Commissioner, 949 F.2d 345 (10th Cir. 1991), affg. T.C.
Memo. 1990-148; see Brannen v. Commissioner, 78 T.C. 471 (1982),
affd. 722 F.2d 695 (11th Cir. 1984); Podell v. Commissioner, 55
T.C. 429 (1970). More particularly, we must decide whether JCLC
held the Jackson Creek property for sale in the ordinary course
of its business or whether it was held as a capital asset.
Section 1201(a) provides for preferential treatment with
respect to gain realized on the sale of a capital asset. See
sec. 1201(a). Section 1221(1) defines a capital asset as
“property held by the taxpayer * * * but does not include * * *
property held by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business.”
Whether property held by a taxpayer was sold in the ordinary
course of business is a question of fact.2 See Friend v.
Commissioner, 198 F.2d 285, 287 (10th Cir. 1952), affg. a
Memorandum Opinion of this Court. The term “primarily” for
purposes of section 1221 means “of first importance” or
“principally.” See Malat v. Riddell, 383 U.S. 569, 572 (1966).
2No question has been raised with respect to the burden of
proof under sec. 7491(a).
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