David Taylor Enterprises, Inc. & Subsidiaries - Page 8

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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.                                
               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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