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case, the term “security” includes shares of stock in a
corporation, unless those shares are in a corporation affiliated
with a taxpayer that is a domestic corporation.23 Sec.
165(g)(2)(A) and (3).
Absent the applicability of a specific statutory provision
prescribing ordinary loss treatment, losses from the sale or
exchange of a capital asset are treated as capital losses. Secs.
65, 1222(2), (4). Section 1221 broadly defines a “capital asset”
as “property held by the taxpayer (whether or not connected with
his trade or business),” subject to enumerated exceptions for
certain kinds of property. Specifically, with respect to stock
in a corporation, unless the taxpayer is a securities dealer
within the meaning of section 1221(1), the stock is deemed to be
capital and the taxpayer’s other business motive for holding that
stock is irrelevant. Sec. 1221; Ark. Best Corp. v. Commissioner,
485 U.S. 212, 215-218, 221-223 (1988). In the case of a
corporate taxpayer, a capital loss may not be deducted against
that taxpayer’s ordinary income. Secs. 165(f), 1211(a).
23Cap Corp. and petitioner were not affiliated corporations.
Further, if held to be debt for tax purposes, the advances from
petitioner in controversy would not be “securities” for purposes
of sec. 165(g), as the Cap Corp. promissory notes evidencing
those advances did not have interest coupons and were not issued
in registered form. See sec. 165(g)(2)(C).
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