Continental Can Company Inc. v. United States 422 F.2d 405 (1970) Continental produced machinery to make cans. For decades they only leased their machinery to canning companies, they wouldn't sell it. As a result of an anti-trust action, Continental was ordered by a court to sell canning machinery to their customers. Continental began selling machinery that had previously been leased. When they filed their taxed, they claimed the profits from the sales as a capital gain. The IRS disagreed. The IRS argued that under what is now §1221(a)(1), the definition of a capital asset does not include "property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business." Continental argued that they had not been in the business of selling machinery, they were in the business of leasing them. Continental argued that the anti-trust ruling forced them to end their leasing business and they were liquidating their assets. Therefore, the sales should be counted as capital gains. See Curtis Company v. Commissioner (232 F.2d 167 (1956)). The Trial Court found for IRS. The Trial Court noted that in Curtis, the company was liquidating all of their assets because they were ending their business entirely. The Court found that in this case, Continental wasn't ending their trade or business, but transforming into a new trade or business. The machinery that had previously been leased is the inaugural inventory for this new trade or business. Therefore it is not a capital asset and is not subject to the capital gains tax rate.