                         T.C. Memo. 1995-480



                       UNITED STATES TAX COURT



              CHRISTINE C. DEIGNAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17309-93.                Filed October 4, 1995.



     Mark R. Schuling, for petitioner.

     Jeffrey A. Schlei, for respondent.


                         MEMORANDUM OPINION


     RAUM, Judge:    The Commissioner determined deficiencies in

petitioner's Federal income taxes totaling $28,802 in 1986 and

$28,961 in 1989.    At issue is whether a loss from the sale of

real estate should be characterized as ordinary or capital.       The

parties agree that the resolution of this issue controls the

treatment of the loss carried back to 1986.
     Petitioner, Christine C. Deignan, resided in Davenport,

Iowa, at the time the petition in this case was filed.    She

became licensed as a physician in 1977, and, since then has

engaged in the solo practice of internal medicine.

     In 1977, petitioner married Paul Deignan.    The couple

purchased a residential lot in Davenport, Iowa, at 2801 East 42nd

Street in 1984 on which they planned to construct a personal

residence.   They began construction in 1987.   However, on October

9, 1987, before completion of the house, petitioner filed a

Petition for Dissolution of Marriage in the Iowa District Court

for Scott County.    At that time, she stopped contributing

financially to the construction project.

     On February 19, 1988, Paul Deignan filed a Motion to

Preserve Assets.    Lacking sufficient funds to complete the

project himself, he sought an order "requiring that the

Petitioner [Christine Deignan] cooperate in expending joint

assets, sufficient to complete the home in the most expeditious

manner consistent with good construction practice."

     In the divorce decree issued on October 5, 1988, the court

ordered petitioner to "complete the home at her expense."      The

decree directed that, upon completion of the house, title would

be held by petitioner and her ex-husband as tenants in common.

The court further directed that the house be sold as soon as

completed, with petitioner and her ex-husband splitting the

proceeds of the sale equally.
                                - 3 -

     In December 1988, petitioner purchased her ex-husband's

interest in the property for $62,500.   The following spring,

construction of the property was completed.    At about the same

time, petitioner listed the property for sale with Mel Foster

Co., a real estate agency.    After 6 months without success, she

listed the property with another real estate agency, Ruhl & Ruhl

Realtors, Inc.   In September 1989, petitioner sold the property

for $166,000.    Neither before nor since the sale has petitioner

participated in the business of building houses or selling real

estate.

     Petitioner filed U.S. Individual Income Tax Returns, Forms

1040, for the taxable years 1986 and 1989.    Her 1989 return

contained two Schedules C, Profit or (Loss) From Business or

Profession.   The first, relating to her internal medicine

practice, showed gross income of $380,095 and a net profit of

$105,629.   The second, which listed her business as "Construction

Housing", showed a net loss of $179,596.   Petitioner claimed an

overall loss of $73,967 from business activities in 1989, i.e.,

the difference between her $105,629 net income from her medical

practice and her $179,596 loss from the "business" involving the

sale of the house.   She carried back that $73,967 loss to 19861


     1
       Since that claimed $73,979 loss was combined with other
items on petitioner's 1989 return to produce a zero amount of
tax, and since, as we hold hereinafter, the carryback was
incorrectly claimed, we need not consider what the correct amount
of the carryback would be if it were otherwise allowable.
                                 - 4 -

by filing an amended U.S. Individual Income Tax Return, Form

1040X, and claimed a refund for 1986.

     In the notice of deficiency, the Commissioner determined

that petitioner was not in the business of constructing and

selling houses.   As a result, petitioner's claimed $179,596

ordinary loss was recharacterized as a capital loss.       Because

section 12112 limits the deductibility of capital losses of

individual taxpayers to $3,000 a year, respondent also denied the

claimed net operating loss carryback deduction.

     The parties have stipulated that if respondent's

determination is sustained, petitioner's taxable income for 1986

must be increased by $73,967.    The parties have also stipulated

as to certain other adjustments that were taken into account in

the deficiency notice.

     Section 165(a) generally allows taxpayers to deduct any

losses sustained during the taxable year that are not compensated

for by insurance or otherwise.    Section 165(c) limits the scope

of this deduction for individuals.       Petitioner claims that the

deduction in controversy is an ordinary loss, allowable under

section 165(c)(1) as a loss "incurred in a trade or business."

          If a loss is characterized as capital, however, it is

subject to even stricter treatment than ordinary losses under the

     2
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 5 -

Code.   For individuals, the deduction of capital losses is

limited to the lesser of $3,000 a year or the excess of such

losses over capital gains.   Sec. 1211(b).   Any remaining capital

loss is deductible in the succeeding taxable year as provided in

section 1212(b).

     Capital loss treatment applies primarily to the disposition

of capital assets.   Section 1221 defines a capital asset as

"property held by the taxpayer (whether or not connected with his

trade or business)," but excludes four categories of assets, only

one of which is of relevance here, namely:

     (1) 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; [Emphasis added.]

The issue, whether the property in question was a capital asset,

therefore turns on whether petitioner was engaged in the "trade

or business" of selling real estate, holding the property for

sale to customers in the ordinary course of such a business.    We

hold that she was not.

     A number of factors have been considered in determining

whether property is held primarily for sale to customers in the

ordinary course of business.   A non-exclusive list of these

factors includes:

     (1) The purpose for which the asset was acquired; (2)
     the frequency, continuity, and size of the sales; (3)
     the activities of the seller in the improvement and
     disposition of the property; (4) the extent of
                                 - 6 -

     improvements made to the property; (5) the proximity of
     sale to purchase; and (6) the purpose for which the
     property was held during the taxable years. * * *

Howell v. Commissioner, 57 T.C. 546, 554 (1972).     Additional

factors include the amounts of income received from the

taxpayer's regular business as contrasted with the amounts

received from the property as well as the regularity and

consistency of the taxpayer's activity regarding the property.

Adam v. Commissioner, 60 T.C. 996, 999 (1973).     These factors are

considered together, Buono v. Commissioner, 74 T.C. 187, 199

(1980), but no single one is dispositive.    Oace v. Commissioner,

39 T.C. 743, 747 (1963); Vidican v. Commissioner, T.C. Memo.

1969-207.   Whether the taxpayer holds the property as a capital

asset or an ordinary one is a question of fact.     Daugherty v.

Commissioner, 78 T.C. 623, 628 (1982); Sottong v. Commissioner,

T.C. Memo. 1966-268.

     Petitioner asserts that she sold the house to customers in

the ordinary course of business.    A taxpayer may have more than

one trade or business.   Cottle v. Commissioner, 89 T.C. 467, 489

(1987).   However, petitioner has the burden of establishing that

she was engaged in a business.    Rule 142(a).   Petitioner has not

met this burden.

     First, petitioner originally acquired the property for

personal reasons, to build a home with her husband.    Second, her

sale of the property was a one time event.    Petitioner did not

present any evidence that she even considered buying other
                               - 7 -

properties.   Third, petitioner took a relatively passive role in

disposing of the property.   She presented no evidence that she

made any independent efforts to sell the property.   She merely

listed the property with realtors upon its completion, as she

would have been required to do by court order prior to purchasing

her divorced husband's interest in the property.

     Fourth, petitioner did not make any improvements to the

property.   In the uniform residential appraisal report filed with

the divorce decree, the appraiser says of the property, "With

shutters and landscaping, it should have adequate if less than

typical appeal.   The interior is unusual and creates some

obsolescence."

     The appraiser also states that "there are significant

adjustments for design/appeal, and functional utility.   In my

opinion subject will be penalized."    Despite these opinions and

predictions, petitioner did not have any architectural

modifications made in the course of completion of the house to

increase the salability of the property.

     Fifth, there is no evidence that petitioner held the

property for a business purpose.   The burden rests on petitioner

to show that the purpose for which she held the property changed

to a business one.   Heiner v. Tindle, 276 U.S. 582 (1928);

Paffrath v. Commissioner, T.C. Memo. 1961-71.    Other than a bald

assertion by petitioner that the court order transformed

petitioner's purpose into a business one, petitioner has
                                - 8 -

presented no evidence that would support a finding that there was

a conversion to a business purpose.     She has not demonstrated

that she held the property for a business purpose.

     Sixth, petitioner did not receive any income from the sale

of the house.   The only positive income she received in 1989 came

from her medical practice.   Finally, there was no regularity and

consistency in petitioner's activity regarding the property.

When petitioner filed for divorce, she stopped paying any of the

bills connected with the house.    This action is inconsistent with

her claim that the house was a business property that she

intended to sell at a profit.   She resumed paying the bills and

eventually sold the property, but these actions were strictly in

compliance with the court order.    She made no sales efforts on

her own to indicate that she considered selling the house as a

business venture rather than a court-imposed obligation,

obviously all in the nature of a salvage operation.

     Petitioner argues that the similarity of her case to Bassett

v. Commissioner, T.C. Memo. 1976-14, entitles her to an ordinary

loss deduction.   In Bassett, the taxpayers purchased a lot on

which to build a home.   Because of marital difficulties, the

couple decided to complete the house, but not as their personal

residence.   Before resuming construction, the husband consulted

with the architect and builder.    Although they modified the

designs to cut costs as well as to give the house a wider

commercial appeal, the taxpayers eventually sold the house at a
                                    - 9 -

loss.    This Court held that the taxpayers had engaged in a

transaction for profit and were entitled to the loss deduction

under section 165(c)(2).      Id.    Unlike Bassett, we cannot find on

the record in this case that the "only reason for completing the

structure was in furtherance of his [the husband's] intention to

realize a profit."    Id.

     It is our judgment in this case that at most petitioner

completed construction and promptly undertook to sell the

property only to salvage what she could out of an unfortunate

situation.    Further, unlike Bassett, at the time of completion

petitioner had no modifications made in the plans for the house,

which had been designed to meet the personal needs or wishes of

petitioner and her husband and which rendered the property less

attractive for purposes of sale and less likely to generate a

favorable sales price.      Although there is some similarity between

this case and Bassett, there are obvious factual differences

between them, and in our judgment those differences call for

treating this case as lying on the other side of the line,

particularly since Bassett itself was at best a close case.3

Moreover, the loss allowed as a deduction in Bassett was allowed

under section 165(c)(2), which is concerned with capital losses

and for that reason alone would be of no help to petitioner.


     3
       As to cases in general falling on the opposite side of the
line, see Borchers v. Commissioner, 95 T.C. 82, 93-94 (1990),
affd. 943 F.2d 22 (8th Cir. 1991).
                             - 10 -

     The parties have stipulated that if this Court rules in

favor of respondent, the loss claimed by petitioner in 1989

should be recharacterized from ordinary to capital.   Because

capital losses may only be carried forward, our finding also

results in the elimination of any carryback of the loss to 1986.



                                   Decision will be entered

                              for respondent.
