Ms. Z is a cash basis taxpayer who owns and operates a clothing store as a sole proprietor. She wishes to retire after holding a liquidation sale. She would like to avoid ordinary income from the sale of the inventory.
Ms. Z shuts her store for one month and then begins the sale. She then suggests to her tax preparer that he should report the proceeds of the sale as capital gains.
Ms. Z's logic is that she was no longer using those assets in a business at the time of the sale, but rather was holding them for investment.
What do you think about Ms. Z's approach?