Company was formed in 1971 for the purpose of acquiring Blackacre which consisted of 1,500 acres of unimproved real property in Sussex County, Delaware. Company's bylaws provide that it was formed to erect or repair any building or improvement, and to accumulate and lend money for such purposes, and to purchase, sell, and subdivide real property, and to accumulate and lend money for that purpose. Between 1974 and 2014, Company sold 244 lots of Blackacrewhich were mostly used for residential development. More than 80% of Company'sincome over the years in question came from sales of the real estate.
In 2007,Change Co., Inc. acquired a 40% stake in Company. After the Change Co., Inc.acquisition Company began a serious of substantial investments in variousmarketable securities and other investments not involving real estate. In early2008, Company sold five parcels of Blackacre for a total of $5,000,000 and Company recorded the transaction as capital gain income. The IRS challenges the capital gains treatment and instead classifies the gain as ordinary income. Company petitions the Tax Court disputing the assessment of ordinary income.
Howshould the Tax Court rule? Support your answer.