David Taylor Enterprises, Inc. & Subsidiaries - Page 20

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          Any costs associated with the car were added to the basis of that           
          car, and no depreciation or current deduction was claimed.  The             
          dealership reported each car sale, whether new, used, or classic,           
          as a sale of inventory at ordinary income rates.  See Daugherty             
          v. Commissioner, 78 T.C. 623, 630-631 (1982) (an important way of           
          determining the taxpayer’s intent in holding the property is how            
          the property was handled on the taxpayer’s books and records).              
          That the dealership reported sales at ordinary income rates in              
          the 10 years prior to the years at issue and consistently held              
          the classic cars out to third parties as inventory bolsters its             
          argument that its purpose was to hold the cars for sale.                    
               Further, we cannot accept respondent’s assertion that the              
          primary holding purpose of the classic cars was merely to exhibit           
          them as “museum pieces”.  We question whether the dealership                
          would expend effort to acquire, rebuild, and maintain the classic           
          cars if the purpose were merely to display them, stationary, at a           
          museum.  On the contrary, each car was rebuilt to near                      
          perfection, and the dealership maintained standards so that each            
          car could be driveable at any time and therefore command the                
          highest price.  The dealership started the car engines every 6              
          weeks and changed the oil every 6 months to maintain them in                
          driving condition.  Designating the Galveston property as a                 
          museum made business sense as a means to gain exposure for the              

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Last modified: May 25, 2011