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Petitioner timely filed its Forms 1120, U.S. Corporation
Income Tax Return, for 1999 and 2000, reporting the losses at
issue. Upon examination of those returns, respondent issued a
Notice of Deficiency to petitioner on February 25, 2003,
determining that the classic cars were held for investment
purposes and should be accorded capital loss treatment, not
ordinary loss.
Petitioner filed a petition contesting respondent’s
determination and argued that the classic cars were held for sale
and should be accorded ordinary income treatment. We must
therefore determine whether the losses from the sales of the
classic cars are ordinary or capital losses.
OPINION
We are asked to decide whether the dealership held the
classic cars for investment or for sale. If the dealership held
the classic cars as capital assets for investment, then we must
sustain respondent’s determination.10 Conversely, if the
10A “capital asset” is broadly defined as property held by
the taxpayer, whether or not connected with his trade or
business, subject to a number of exceptions. Sec. 1221(a).
These exceptions include stock in trade, property of a kind that
is properly included in a taxpayer’s inventory, and property held
primarily for sale to customers in the ordinary course of a
taxpayer’s trade or business. Sec. 1221(a)(1).
The U.S. Supreme Court has defined “primarily” as used in
sec. 1221(1) to mean “principally” or “of first importance.”
Malat v. Riddell, 383 U.S. 569, 572 (1966); Biedenharn Realty Co.
v. United States, 526 F.2d 409, 422-423 (5th Cir. 1976). The
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