Research Project Jorge has always earned his principal source of income from real estate activities. He is the president and majority shareholder of a corporation that develops single-family homes, and he has been active in his own individual capacity as a "dealer" in real estate by buying undeveloped parcels of real estate and selling them several months later to developers. As a "dealer" in real estate the land is considered his inventory so he has always reported his gains and losses as ordinary income and losses rather than as capital gains and losses. Seven years ago Jorge and his friend Manuel formed a partnership whose sole purpose was to acquire a single 1000-acre tract of land, Whiteacre. This has been the partnership's only asset for the past seven years and no improvements have been made to it. It has been held strictly for appreciation in value. This year the partnership sold Whiteacre for a $1,000,000 gain. Jorge's share of this gain is $500,000, and it is allocated to him on his K-1 from the partnership, for reporting in his personal tax return. Jorge is concerned that the IRS will treat the gain as ordinary income rather than capital gain, because of his other real estate activities. Because he is in the high marginal tax bracket, this would lead to a much larger tax bill than if it was taxed to him at the lower rate for long-term capital gains. Jorge has asked your advice about this. At what rate would this gain be taxed? A recent decision by the United States Tax Court, Timothy J. Phelan and Deborah A. Phelan, will help you. Using the internet, find this case. Prepare one page memo for your client Jorge.