Camp v. Murray, 7078.

• Decision Date: 07 November 1955
• Docket Number: No. 7078.,7078.
• Citation: 226 F.2d 931
• Parties: Hugh D. CAMP and Ada C. Camp, Appellants, v. Hoke MURRAY, District Director of Internal Revenue, formerly Director of Internal Revenue, of the United States of America for the District of Virginia, at Richmond, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

226 F.2d 931 (1955)

Hugh D. CAMP and Ada C. Camp, Appellants, v. Hoke MURRAY, District Director of Internal Revenue, formerly Director of Internal Revenue, of the United States of America for the District of Virginia, at Richmond, Appellee.

No. 7078.

United States Court of Appeals Fourth Circuit.

Argued October 5, 1955.

Decided November 7, 1955.

Lewis F. Powell, Jr., Richmond, Va. (H. Brice Graves and Hunton, Williams, Gay, Moore & Powell, Richmond, Va., on brief), for appellants.

Louise Foster, Atty., Department of Justice, Washington, D. C., (H. Brian Holland, Asst. Atty. Gen., and Ellis N. Slack, Atty., Department of Justice, Washington, D. C., on brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge.

The question in this case is whether certain gains derived by the taxpayer in 1950 from sales of land in Franklin, Virginia, should be classified under § 117 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 117, as capital gains or as profits earned in the ordinary course of a trade or business. The Commissioner of Internal Revenue determined that the gain was taxable as ordinary income and assessed a deficiency which the taxpayer paid. The instant suit for refund was then brought and submitted upon undisputed facts to the District Judge who denied recovery and dismissed the complaint.

The taxpayer in 1926 inherited from his father 80 acres of land situated near Franklin, and in 1938 purchased an adjoining tract of 40 acres from a brother for $50 per acre, and used the whole for pasturing cattle until 1950. The taxpayer was vice president in charge of production and personnel of the Camp Manufacturing Company which operated a paper mill and conducted the principal business activity of the community. The post war increase of the business in 1947 led the company to bring many new employees to Franklin and a critical shortage of house sites arose because none were available in the town and the adjacent lands were owned by the members of the Camp and other families who declined to sell. The taxpayer, as the official in charge of company personnel, was constantly importuned to devote his farm to residential purposes, and, although reluctant to do so, finally yielded to the pressure in 1948 after he had tried and failed to persuade other persons to supply the needed space. Thereupon the transactions occurred which gave rise to this suit.

In October, 1948 the taxpayer transferred 6 acres of his farm to Southampton County to provide a right of way for a highway connecting Franklin with the town of Hunterdale, three miles away, where many of the Camp employees lived and there was thus provided the only direct route between the two communities. In 1950, the taxpayer, having decided to make his farm available, sold 24 acres to his brother for $991.57 per acre, and reported and was taxed upon the profit as a taxable gain. He then caused his remaining 90 acres to be surveyed and platted into 137 lots at a cost of $2143.66; he also spent $20,841.80 for the construction of water lines which he conveyed to the town and $15,189.02 for black topping roads which he conveyed to the county.

These activities brought about inquiries for home sites from employees and a few others, without solicitation on the part of the taxpayer. Thereupon he turned over the business of selling the lots to the only real estate firm of brokers in Franklin, agreeing to pay them 7½% commissions on the sales, and they at their own expense inserted advertisements in the local newspaper. His only instruction to the brokers as to sales was to give preference to Camp employees. He fixed the price of the lots so as to equal the amount he could have obtained for the whole tract if he had sold it as undeveloped acreage. He calculated that the lots should produce $1250 an acre over a ten year period in order that the price should approximate $991 per acre at which he had made the sale to his brother.

During 1950 a total of 30 lots were sold of which 23 were sold to the Camp employees. The taxpayer realized a gain on the total sales of $31,431.21, which was about 19% of his total income. The taxpayer did not solicit sales at any time. He had no real estate license and had never subdivided any property other than that now in question. The total time spent by the taxpayer with respect to the entire project was approximately six hours. His duties as vice president of the company during 1950, when a large expansion of the paper mill was in progress, consumed practically all of his business time. The judge found and the record shows that the taxpayer's net profit on the sales did not exceed what ...