                        T.C. Memo. 1999-336



                      UNITED STATES TAX COURT



                   MARGARET HANCOCK, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20107-97.                     Filed October 7, 1999.



     John F. Daniels III, for petitioner.

     Doreen M. Susi, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined deficiencies in

petitioner's Federal income taxes of $70,132 for 1993 and $63,075

for 1994.

     After concessions, the sole issue for decision is whether

petitioner's losses from the sale of residential lots of $207,850

in 1993 and $166,599 in 1994 were capital losses, as respondent
                                  -2-

contends, or ordinary losses, as petitioner contends.       To

prevail, petitioner must show that she held the lots for sale to

customers in the ordinary course of her trade or business.         See

sec. 1221(1).     We hold that petitioner's losses were ordinary

losses.

     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the years in issue.       Rule

references are to the Tax Court Rules of Practice and Procedure.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Petitioner

     Petitioner lived in Scottsdale, Arizona, when she filed the

petition in this case.     She was 70 and 71 years old during the

years at issue.     Her husband, J.W. Hancock (Hancock, or her

husband), was 75 years old when he died on December 31, 1985.

     Petitioner has two sons, Trevor Hancock and Mark Hancock,

who are real estate brokers and developers.       Petitioner's nephew,

Greg Hancock, is also a real estate developer.

B.   Petitioner's Involvement in Real Estate

     Petitioner began working with her husband in the real estate

business in 1957 or 1958 in California.       Petitioner and her

husband moved to Arizona in the 1960's.       They formed a publicly

traded company called J.W. Hancock, Inc.       Petitioner managed its

day-to-day operations.     The company subdivided and developed land
                                 -3-

for residential and commercial construction.    Petitioner and her

husband owned 60 percent of the stock in J.W. Hancock, Inc.

     The real estate market declined in the 1960's.    Petitioner

and her husband surrendered their stock in J.W. Hancock, Inc.

They kept nine lots in Phoenix, Arizona, and built one house at a

time.

C.   J.W. Hancock Enterprises, Inc.

     1.     Incorporation

     Petitioner and her husband incorporated J.W. Hancock

Enterprises, Inc. (Hancock Enterprises), on May 1, 1973.    From

1973 to 1986, Hancock Enterprises developed real estate in the

Phoenix area.    Petitioner was the executive vice president of

Hancock Enterprises.

     Petitioner and her husband established the J.W. Hancock and

Margaret E. Hancock Trust (the trust) on September 23, 1976.

Hancock was the trustee.    The trust owned the stock of Hancock

Enterprises.

     2.     Operation of Hancock Enterprises

     Hancock Enterprises operated under the name of Camelot Homes

(Camelot).    Hancock Enterprises bought large tracts of land,

subdivided and rezoned the tracts, made improvements such as

roads and sidewalks, and delivered sewer and water lines to the

property.
                                -4-

     Petitioner and her husband jointly ran Hancock Enterprises.

Petitioner designed houses, developed floor plans, worked with

subcontractors to compute sale prices, ran the sales office, sold

houses, supervised assistants, created sales brochures, met with

accountants at Toback & Co. to discuss financing, engaged in

public relations, and handled customer complaints.    Hancock

handled the acquisition of property and obtained acquisition and

development loans.   After Hancock obtained the initial loans,

petitioner met with the banks and arranged for construction and

operating loans.

     Hancock Enterprises built five to seven model homes in each

of its subdivisions and had salespeople in the model homes.      It

sold the model homes when it no longer needed them.    Hancock

Enterprises built all the homes except the model homes for

specific buyers.

     Hancock Enterprises developed the Summer Shadows and Camelot

Village subdivisions in 1976 or 1977, the Playa Del Sur

subdivision in 1977, and the Estate La Colina, Estate Los

Arboles, and Paradise Village North subdivisions in 1978.    In

1977 and 1978, Hancock Enterprises was offering lots for sale in

at least five subdivisions.

     Until the 1980's, Hancock Enterprises sold all of the model

homes after it completed a subdivision.   Beginning in the 1980's,
                                  -5-

Hancock Enterprises sometimes held back (i.e., did not sell) some

lots that were harder to sell from each subdivision.

     3.      Accountants and Bookkeeper

     Toback & Co., C.P.A.'s (Toback), were the accountants for

Hancock Enterprises.     John J. Gorman, Jr. (Gorman), began

handling the Hancock Enterprises account in 1981.     Toback

prepared all of the Hancock Enterprises returns from 1973 to 1986

and prepared petitioner's individual tax returns from 1987 to

1994.     Petitioner worked closely with Toback's accountants,

including Gorman.     She met with Gorman nearly monthly from 1981

to 1985.     Her husband met with Gorman once or twice from 1981

until he died in December 1985.

     Hancock Enterprises stopped building houses in 1982 or 1983

and began selling its lots because interest rates were 18 and 19

percent.     It laid off its superintendents, foremen, and

architects.     Hancock Enterprises had about 115 lots when it

stopped building homes.

     4.      Building Industry in Phoenix

     The homebuilding market in Phoenix peaked around 1984-86.

The number of building permits issued in Phoenix declined from

then until 1990.     Residential real estate prices also declined

after 1986.     High interest rates caused some buyers to abandon

their deposits on lots.     Hancock Enterprises' buyers canceled

contracts for three lots in the Summer Shadows subdivision
                                 -6-

because buyers could not get financing due to the high interest

rates.    The larger builders in Phoenix "bought down" mortgage

interest rates from 18 to 9 percent for their home buyers, but

Hancock Enterprises could not afford to do that.

     After Hancock Enterprises stopped building houses,

petitioner and her husband explored other development activities.

In 1985, they considered the possibility of building 5,000 low-

cost houses for the Government of Ecuador.    About that time,

Hancock Enterprises sold some lots to repay its loans.    In 1985,

Hancock Enterprises owed about $2.5 million to the banks and

$800,000 to petitioner and her husband.

     In 1987, the City of Phoenix proposed to build a freeway

near Summer Shadows.    This made it harder for petitioner to sell

lots in Summer Shadows.    Petitioner later sold those lots when

the City of Phoenix built the freeway about 12 blocks from Summer

Shadows.

     The Phoenix real estate market improved from 1991 to 1994.

     5.     Liquidation of Hancock Enterprises

     Petitioner became the trustee of the trust after her husband

died on December 31, 1985.    The parties agree that petitioner's

basis in Hancock Enterprises' stock stepped up to the date of

death value under section 1014(b)(6).

     Hancock Enterprises made a bulk sale of six Playa del Sur

lots in 1986 for $52,870 per lot.
                                  -7-

     Petitioner's counsel, John Pattullo, advised her for tax

purposes to liquidate Hancock Enterprises and distribute its

assets to the trust.     On December 31, 1986, Hancock Enterprises

owned 48 lots from subdivisions it had developed.      On that date,

Hancock Enterprises adopted a plan of liquidation under section

337 (as then in effect), filed final corporate tax returns, and

distributed the 48 remaining lots to the trust.      After the

liquidation, the trust owned the 48 lots.

D.   Lots Petitioner Sold From 1987 to 1996

     1.      Petitioner's Sales Efforts

     Selling lots was petitioner's primary activity from 1987 to

1994.     Petitioner maintained liability insurance and paid

property taxes on the lots at all times.      She met with people who

wanted to build houses on the lots.       Some prospective buyers who

were interested in buying lots contacted petitioner.      She reduced

the price of some lots.     She put "for sale" signs on some lots.

She attended some homebuilders' meetings and used her contacts in

the real estate industry to help sell the lots.

     Petitioner listed some of the 48 lots for sale with Trevor

Hancock from 1987 to 1991.     He listed those lots on the Multiple

Listing Service (MLS).     Two of petitioner's properties were

listed on the MLS in 1987 and 1988, three in 1989, one in 1990,
                                               -8-

and five in 1991.1           Petitioner paid real estate commissions of

$13,653 in 1987, $2,110 in 1990, $23,244 in 1991, and $750 in

1992.

       After 1986, petitioner sometimes worked in an office at Mark

Hancock's place of business.              She paid no rent to him.          She had

no other real estate office.

       Petitioner has not subdivided or rezoned any property, made

offsite improvements, or installed water and sewer lines on any

property since she liquidated Hancock Enterprises.                      From 1987

through the years in issue, petitioner had no advertising

expenses.         After she received the lots in liquidation, petitioner

regularly met with Gorman to discuss whether to acquire more

property.

       2.      Sales of Lots

       From 1987 to 1996, petitioner sold 47 of the 48 lots that

she had acquired in the liquidation as follows:

           Number of                               Sale     Economic        Tax
Year       lots sold     Cost        Basis         price      gain          loss
1987           7       $222,395    $499,000      $397,135   $174,741     ($230,972)
1988          none        --          --           --          --            --
1989           2         28,826     155,000       145,000    116,174      (132,880)
1990           3         54,396     193,000       165,200    110,804      (165,782)
1991          13        482,644     871,000       688,000    230,926      (247,805)
1992          11        230,258     753,000       488,670    258,412      (299,807)
1993           4         53,491     355,000       190,000    136,509      (207,850)
1994           4         43,906     370,000       215,000    171,094      (166,599)
1995           2         28,826     150,000       100,000     71,174      (124,996)
1996           1         14,897      75,000        50,000     35,103       (47,759)

 Total       47        1,159,639   3,421,000    2,439,005   1,304,937   (1,624,450)



       1
       The record contains no evidence that petitioner listed
property for sale with any realtor from 1992 to 1994.
                                  -9-

     Petitioner sold three of these lots to Trevor Hancock (one

lot per year in 1994, 1995, and 1996) for a total of $160,000.

Petitioner and Hancock Enterprises' investment in these three

lots was $35,882, but petitioner had a basis in the three lots

totaling $235,000.

     Petitioner used the sale proceeds from the lots to repay

loans she and her husband used to obtain the lots, repay herself

the $800,000 that Hancock Enterprises owed her, and pay land

taxes associated with the lots.

     In 1986 and 1990, petitioner bought five lots and sold them

soon after she had acquired them.       She bought one lot in 1986 and

sold it in 1987.   She bought four lots in 1990; she sold one of

those in 1990, two in 1991, and one in 1992.      In 1996, she owned

only one lot.

E.   Other Hancock Real Estate Ventures

     1.    The Mark Hancock Corp.

     Mark Hancock began to operate his own real estate business

in 1973.   He started building houses in 1977 or 1978.     He

operated the Mark Hancock Real Estate Development Corp. (Mark

Hancock Corp.) from the 1980's through the years in issue.      After

1986 and through the years in issue, the Mark Hancock Corp. used

the trade name "Camelot Homes".     The Camelot Homes operated by

the Mark Hancock Corp. represents to the public that it is the

second generation of the Camelot Homes operated by petitioner and
                                -10-

her husband.   The Mark Hancock Corp. developed several

subdivisions during the 1980's and 1990's.

     In February 1986, Hancock Enterprises deeded two lots in the

Playa del Sur subdivision to petitioner, which she immediately

sold to Mark Hancock.   He paid $104,270 for the two lots.    The

Mark Hancock Corp. built houses on those lots at a date not

specified in the record.

     2.   Greg Hancock Corp.

     Greg Hancock Corp. developed subdivisions with about 80 lots

in 1986, 220 lots in 1987, and about 68 lots in 1988.

F.   Petitioner's Tax Returns

     Hancock Enterprises treated the 48 lots it held when it was

liquidated as inventory on its books.

     Petitioner reported the amounts realized from the sale of

lots in 1987 as gross receipts on a Schedule C attached to the

trust's 1987 tax return.   She treated her adjusted basis as the

cost of goods sold and deducted several other expenses.

     Petitioner reported sales of lots as sales of inventory on

the Schedules C attached to her returns for 1989 to 1996.    She

reported the amounts she realized from those sales as gross

receipts and her adjusted basis as cost of goods sold, and she

deducted several other expenses.

     Petitioner reported on Schedules C for 1987 and 1989-96 that

she was in the real estate development business.
                                 -11-

G.   Statements by Petitioner's Representatives

     Respondent's revenue agent, Patricia Burson (Burson), met

with petitioner's representatives, Howard Kesselman (Kesselman)

and Carrie Ransil (Ransil), during the audit.    At the time,

Kesselman was a consultant for (and not an employee of) Toback,

and Ransil had been employed by Toback for 1 month.    At the

audit, Kesselman and Ransil told Burson that Hancock Enterprises

sometimes held back lots from subdivisions for petitioner and her

husband for investment.   Ransil had not met petitioner and was

unfamiliar with petitioner's operations at the time of the audit.

                                OPINION

     Petitioner contends that the eight lots she sold in 1993 and

1994 were held for sale to customers in the ordinary course of

her trade or business, and thus that the tax losses from her

sales of those lots that resulted because of the step-up in basis

under section 1014(b)(6) at her husband's death are ordinary

losses under section 1221(1).    Respondent contends that

petitioner did not hold the eight lots for sale to customers, and

that the sales were not in the ordinary course of a trade or

business, and thus petitioner's losses are capital losses.

A.   Whether Petitioner Held Lots for Sale to Customers in
     the Ordinary Course of Her Trade or Business

     1.   Section 1221(1)

     Section 1221(1) excludes from classification as a capital

asset--
                                 -12-

     stock in trade of the taxpayer or other property of a
     kind which would properly be included in the inventory
     of the taxpayer if on hand at the close of the taxable
     year, or property held by the taxpayer primarily for
     sale to customers in the ordinary course of his trade
     or business * * *

Section 1221(1) differentiates between the "'profits and losses

arising from the everyday operation of a business' * * * and 'the

realization of appreciation in value accrued over a substantial

period of time'".     Malat v. Riddell, 383 U.S. 569, 572 (1966)

(quoting Corn Prods. Refining Co. v. Commissioner, 350 U.S. 46

(1955), and Commissioner v. Gillette Motor Transp., Inc., 364

U.S. 130 (1960)).    "[P]rimarily" means "principally" or "of first

importance."   Id.

     Whether property is held by a taxpayer "'primarily for sale

to customers in the ordinary course of * * * business'" is a

question of fact.     S & H, Inc. v. Commissioner, 78 T.C. 234, 242

(1982) (quoting sections 1221(1) and 1231(b)(1)(B)).    Courts

consider numerous factors in deciding this issue, and no one

factor controls.     See Biedenharn Realty Co. v. United States, 526

F.2d 409, 415 (5th Cir. 1976).    Petitioner bears the burden of

proving that her property was held for the purpose she contends.

See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

     The following factors indicate whether property is held

primarily for sale to customers in the ordinary course of a trade

or business:   (a) The frequency and substantiality of sales, (b)

the nature of the taxpayer's business, (c) the purpose for which
                                -13-

the taxpayer acquired and held the property before sale, (d) the

time and effort the taxpayer habitually devoted to the sales, (e)

the extent to which the taxpayer improved the property, and (f)

the length of time the property was held.     See Byram v. United

States, 705 F.2d 1418, 1424 (5th Cir. 1983); United States v.

Winthrop, 417 F.2d 905, 910 (5th Cir. 1969); Ross v.

Commissioner, 227 F.2d 265 (5th Cir. 1955), revg. T.C. Memo.

1954-177; Goldberg v. Commissioner, 223 F.2d 709 (5th Cir. 1955),

revg. 22 T.C. 533 (1954); Guardian Indus. Corp. v. Commissioner,

97 T.C. 308, 316-317 (1991), affd. without published opinion 21

F.3d 427 (6th Cir. 1994); Cottle v. Commissioner, 89 T.C. 467,

487-488 (1987).   We will apply the factors that are relevant to

this case.

     2.    Application of Factors

     The frequency and substantiality of sales is the most

important factor.   See Suburban Realty Co. v. United States, 615

F.2d 171, 176 (5th Cir. 1980); Biedenharn Realty Co. v. United

States, supra at 416; Buono v. Commissioner, 74 T.C. 187, 199

(1980).   Petitioner's sales were frequent, regular, and

substantial during the years in issue.     Petitioner sold 7 lots in

1987, 2 in 1989, 3 in 1990, 13 in 1991, 11 in 1992, 4 in 1993, 4

in 1994, 2 in 1995, and 1 in 1996.     She sold eight lots during

the years in issue (1993-94).
                                -14-

     Respondent argues that petitioner's failure to sell more

than eight lots during the years in issue shows she did not hold

the lots as inventory.   We disagree.   The sale of eight lots was

substantial in light of the fact that, at the start of the years

in issue, petitioner had only 12 of the 48 lots left.    See

Thompson v. Commissioner, 322 F.2d 122, 127-128 (5th Cir. 1963)

(taxpayer's sales declined from 20 in the first year to 8 in the

second year because, at the start of the years in issue, he had

only 37½ of the original 387 lots left to sell), affg. in part

and revg. in part 38 T.C. 153 (1962).

     Respondent contends that the fact that petitioner sold more

lots when the real estate market improved in 1991 shows that she

held the lots for investment rather than for sale.    We disagree.

Petitioner began to sell lots in 1987, soon after Hancock

Enterprises distributed them to her, despite the fact that

residential real estate prices declined after 1986.    She sold 12

of her 48 lots before 1991, which shows that she was not merely

waiting for the market to rebound.

     Respondent points out that some of the sales were to

petitioner's sons and argues that those were not sales in the

ordinary course of business.2   We disagree.   Petitioner made a

large economic profit on the sales to her sons.    The fact that


     2
      Respondent does not contend that sec. 267 applies to the
lot petitioner sold to Trevor Hancock in 1994.
                               -15-

parties to a transfer are related does not mean the transfer was

not in the ordinary course of business if the parties act at

arm's length.   See Beveridge v. Commissioner, 10 T.C. 915, 918

(1948).

     Petitioner's sales were substantial during the years at

issue (sales of $190,000 in 1993 and $215,000 in 1994), with an

economic profit of $136,000 in 1993 and $171,000 in 1994.   See

Lewellen v. Commissioner, T.C. Memo. 1981-581 (sale of 31 lots

over a 12-year period coupled with sales of $151,400 during the

years at issue suggests that the lots were held primarily for

sale to customers in the ordinary course of business).

     Respondent contends that the fact that petitioner had large

tax losses from the sale of the lots from 1987 to 1994 shows that

she was not in the trade or business of real estate because she

would have abandoned the business to avoid having those tax

losses.   Respondent also contends that petitioner could have sold

the lots if she had lowered their prices.   We disagree.

Petitioner derived economic profit of $1,304,937 from selling 47

of the 48 lots from 1987 to 1996; she did not sell them primarily

to generate tax losses.   If petitioner had abandoned her efforts

to sell the lots or sold them for less, she either would have

been left with unsold lots or had smaller economic profit and

larger tax losses.
                               -16-

     Respondent contends that petitioner intended to hold the

lots for investment until the real estate market improved, and

that petitioner was not in the business of selling or developing

real estate because she was not developing properties and was not

looking for development opportunities.

     We disagree.   Petitioner began selling the 48 lots as soon

as she received them from Hancock Enterprises.    This suggests

that she was not holding them for investment.    The fact that

sales occur in the course of a liquidation neither compels nor

forecloses a finding that property was held primarily for sale in

the ordinary course of a trade or business.    See Ehrman v.

Commissioner, 120 F.2d 607, 610 (9th Cir. 1941), affg. 41 B.T.A.

652 (1940) and Heller v. Commissioner, 41 B.T.A. 1020 (1940); Van

Bibber v. Commissioner, T.C. Memo. 1985-344.     We disagree with

respondent's contention that petitioner did not hold the lots for

sale because she was not in the real estate development business.

Even if petitioner was not developing real estate, she was in the

business of selling lots to customers.

     Respondent contends that petitioner did not devote much time

or effort to selling her lots, and that she did not advertise or

use real estate agents or salespeople.   Respondent also contends

that the fact that petitioner borrowed office space at Mark's

place of business shows that she was not operating a real estate

business.
                               -17-

     We disagree.   Petitioner sold the lots by putting "for sale"

signs on some of the lots and using her real estate contacts.

She also paid real estate commissions of about $40,000 from 1987

to 1992.   Petitioner begin selling lots in 1987 and sold 25

percent of them before 1991 when the market rebounded, 75 percent

of them before the years in issue, and all but one of them in

less than 10 years.   The fact that petitioner sold the lots

without using an outside agent, without having her own real

estate sales office, and without incurring advertising expenses

or broker's fees suggests that petitioner devoted enough time and

effort to selling the lots.   See United States v. Winthrop, 417

F.2d at 912, in which the U.S. Court of Appeals for the Fifth

Circuit stated:

     While advertising, solicitation and staff are the usual
     components of a business, they are not a necessary
     element in either the concept or the pragmatics of
     selling. Here it is evident that the taxpayer was
     quite successful in selling the lots without the
     assistance of these usual props. It is not necessary
     that customers be actively and fervently and
     frenetically sought. * * *

     Respondent contends that the fact that petitioner did not

improve the 48 lots she received from Hancock Enterprises shows

that she held them for investment.    We disagree.   Petitioner and

her husband's corporation, Hancock Enterprises, fully developed

the lots before petitioner acquired them.    Petitioner paid real

estate taxes, maintained liability insurance, and made sure that

the lots were kept clean, the grass was cut, and the shrubs were
                                -18-

maintained.   See Kesicki v. Commissioner, 34 T.C. 675, 678-679

(1960) (the taxpayer held property for investment even though he

did not develop it before he sold it).

     Respondent contends that the fact that petitioner had held

the lots since 19873 suggests that she held them primarily for

investment.   We disagree.   A long holding period suggests

property was held for investment; alone, however, it does not

establish that a taxpayer held property for investment.    See

Suburban Realty Co. v. United States, 615 F.2d at 184-185 (the

taxpayer's primary purpose for holding real estate up to 33 years

was for sale to customers); United States v. Winthrop, supra at

907, 909, 911 (the taxpayer held lots up to 25 years for sale to

customers); Walsh v. Commissioner, T.C. Memo. 1994-293 (income

from the sale of a parcel of 13 acres a taxpayer had held for 13

years was ordinary income), affd. without published opinion (8th

Cir., July 11, 1995); Tollis v. Commissioner, T.C. Memo. 1993-63

(the taxpayer's proceeds from the sale of 9 parcels of real

property over an 8-year period were ordinary income; his decision

to retire from the real estate business did not convert the

parcels into capital assets), affd. without published opinion 46

F.3d 1132 (6th Cir. 1995); Herndon v. Commissioner, T.C. Memo.




     3
       Respondent does not contend that we should consider the
fact that Hancock Enterprises held the lots from 1977 to 1986 in
deciding if petitioner held them for sale to customers.
                                -19-

1968-135 (lots that were held for over 20 years by the taxpayer

were held for sale in the ordinary course of business).

     3.     Respondent's Other Contentions

     Burson testified that petitioner's representatives Ransil

and Kesselman told Burson during the audit of petitioner that

Hancock Enterprises kept some lots in each of its subdivisions

for petitioner and her husband to hold for investment.

Respondent contends that this shows petitioner held the lots for

investment.   We disagree.   At the time of the audit, Kesselman

was not an employee of Toback and Ransil had worked only 1 month

for Toback and had not yet met petitioner.    Neither was fully

familiar with her operations.

     Respondent contends that petitioner's testimony that she

could not sell the lots in the late 1980's is not credible

because her son and her nephew were developing property in

Phoenix during those years.    The record does not contain enough

information for us to evaluate respondent's assertion.

     Respondent contends that the fact that Mark Hancock began

doing business in the name of "Camelot Homes" shows that

petitioner was no longer in the real estate business.    We

disagree.   First, Mark Hancock had been in the homebuilding

business since the late 1970's; the fact that he began operating

under the name "Camelot Homes" when Hancock Enterprises

liquidated in 1986 does not seem significant to us because
                               -20-

Hancock Enterprises had stopped building homes around 1982 or

1983.   Second, the fact that Mark Hancock used the "Camelot

Homes" name does not show whether petitioner was still in the

trade or business of selling lots to customers.

     Respondent contends that the fact that petitioner and her

husband held the lots for sale to customers through Hancock

Enterprises does not mean she held them for sale to customers in

1993 and 1994 because (a) Hancock Enterprises began to hold the

lots as an investment when it abandoned its plans to develop them

around 1983 and decided to hold them until market conditions

improved, and because (b) Hancock Enterprises' holding purpose is

irrelevant in deciding petitioner's holding purpose.    We

disagree.   First, Hancock Enterprises did not abandon its efforts

to sell its lots.   Hancock Enterprises had about 115 lots when it

stopped building homes in 1982 or 1983, but it had only 48 lots

when it liquidated at the end of 1986.   This shows that Hancock

Enterprises actively sold lots after it stopped building homes.

See Suburban Realty Co. v. United States, supra at 184 (the court

did not view the fact that the taxpayer stopped its development

activities and had fewer sales several years before the years at

issue as establishing that the taxpayer changed its holding

purpose).   Second, we may consider the holding purpose of Hancock

Enterprises in deciding why petitioner held the lots.   See

Parkside, Inc. v. Commissioner, 571 F.2d 1092, 1096 (9th Cir.
                                 -21-

1977) (in deciding the purpose for which the taxpayer held

property, the court considered the holding purpose of the

taxpayer's shareholders' father, from whom the shareholders

inherited the property), revg. T.C. Memo. 1975-14.

B.      Conclusion

     We conclude that petitioner held the eight lots she sold

during the years in issue for sale to customers in the ordinary

course of her trade or business.    Petitioner's sales were

frequent, regular, and substantial in the years in issue.      She

devoted a sufficient amount of time and effort to selling the

lots.     She began to sell the lots when she received them from the

corporation.     The fact that petitioner held some of the lots for

a substantial period of time before she sold them does not in

itself establish that she held the lots for investment.

     To reflect the foregoing and concessions,


                                             Decision will be entered

                                        under Rule 155.
