|Livestock (a mink).|
Internal Revenue Code section 1231(b)(3) provides this best of both worlds, in that gains from selling certain livestock are capital gains, while losses from selling the livestock are ordinary losses. The rule applies to any livestock, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes. But not poultry.
The Treasury Regulations helpfully clarified that 'livestock' has a broad meaning and "includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. However, it does not include poultry, chickens, turkeys, pigeons, geese, other birds, fish, frogs, reptiles, etc."
In the landmark case of Sykes (1972), the Tax Court held that breeder bees are not 'livestock,' because the Treasury Regulations impliedly excluded all lower forms of life.
The taxpayer must own the cattle and horses for over two years and own the other livestock for over one year.
An incredibly large amount of litigation has occurred over whether particular animals are used for draft, breeding, dairy, or sporting purposes. For example, the courts have decided that racehorses are acceptable, and cows purchased for breeding who turned out to be sterile are okay, but pigs sold before their first pregnancy do not count.
Section 1231 Property used in the trade or business and involuntary conversions.
(b) Definition of property used in the trade or business.
For purposes of this section —
(1) General rule.
The term “property used in the trade or business” means property used in the trade or business ***
Such term includes—
(A) cattle and horses, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 24 months or more from the date of acquisition, and
(B) other livestock, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 12 months or more from the date of acquisition.
Such term does not include poultry.