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and bought some paintings for resale and others for investment.
The taxpayer kept separate his private art collection and the
paintings for resale. The taxpayer classified the paintings in
his private collection as capital assets and reported capital
gains on the sale of these paintings. The Commissioner objected
to the capital treatment, arguing that the taxpayer was an art
dealer and derived the sales proceeds in the ordinary course of
business. The Tax Court agreed with the taxpayer and held that
the paintings were capital assets held for investment.
The Court used eight factors to analyze whether the art
collection was held primarily for sale to customers in the
ordinary course of the taxpayer’s trade or business. The eight
factors are: (1) Frequency and regularity of sales; (2) the
substantiality of sales; (3) the duration the property was held;
(4) the nature of the taxpayer’s business and the extent to which
the taxpayer segregated the collection from his or her business
inventory; (5) the purpose for acquiring and holding the property
before sale; (6) the extent of the taxpayer’s sales efforts by
advertising or otherwise; (7) the time and effort the taxpayer
dedicated to the sales; and (8) how the sales proceeds were
used.14 Williford v. Commissioner, supra; see also Bramblett v.
14Petitioner and respondent both deem the last factor
inconclusive and not relevant, and we therefore do not address
it. Generally, this factor indicates that assets are held for
sale where the taxpayer uses sales proceeds to replenish
(continued...)
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