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In determining whether gains realized by JCLC from the 1998
sales of the Jackson Creek property were capital gains or income
derived from the sale of the property in the ordinary course of
business, we make three factual inquiries: (1) Was JCLC engaged
in a trade or business, and, if so, what business? (2) Was JCLC
holding the property primarily for sale in that business? (3)
Were the sales contemplated by JCLC ordinary in the course of
that business? Sanders v. United States, 740 F.2d 886, 888-889
(11th Cir. 1984); Suburban Realty Co. v. United States, 615 F.2d
171, 178 (5th Cir. 1980).
The Court of Appeals for the Tenth Circuit, to which this
case would be appealable barring stipulation to the contrary,
articulated the following factors to be considered in making this
determination:
the purposes for which the property was acquired; the
activities of the taxpayer and those acting in his
behalf or under his direction, such as making
improvements or advertising the property to attract
purchasers; the continuity and frequency of sales as
distinguished from isolated transactions; and any other
fact which tends to indicate whether the sale or
transaction was in furtherance of an occupation of the
taxpayer. [Friend v. Commissioner, 198 F.2d at 287.]3
3Although these factors evolved in connection with the
Court’s consideration of sec. 117 of the 1939 Internal Revenue
Code, the statutory language is identical to that of sec.
1221(1), as in effect during the 1998 tax year, and the factors
established in Friend v. Commissioner, 198 F.2d 285, 287 (10th
Cir. 1952), affg. a Memorandum Opinion of this Court, continue in
use by the courts.
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