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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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