Wood v. CIR
| Decision Date | 11 April 1960 |
| Docket Number | No. 17651.,17651. |
| Parties | W. C. WOOD and Altamae Wood, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Robert J. Hobby, Wentworth, T. Durant, Dallas, Tex., for appellant.
Charles K. Rice, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., Arch M. Cantrall, Chief Counsel, I.R.S., Washington, D. C., John M. Morawski, Sp. Atty., I.R.S., Washington, D. C., Lee A. Jackson, Robert N. Anderson, Melva M. Graney, Attys., Dept. of Justice, Washington, D. C., Howard A. Heffron, Acting Asst. Atty. Gen., Davis W. Morton, Jr., Atty., Department of Justice, Washington, D. C., for appellee.
Before HUTCHESON, JONES and WISDOM, Circuit Judges.
The petitioners seek review of a decision of the Tax Court holding the proceeds of certain real estate sold during the years 1948 through 1953 to be taxable as ordinary income rather than as capital gains. This decision followed a determination that the sales involved were of property held primarily for sale to customers in the ordinary course of petitioner's trade or business. Petitioners attack this determination and contend that the proceeds should be treated as capital gains under sections 117(a) and (j) of the Internal Revenue Code of 1939. 26 U.S.C.A. (I.R.C.1939) § 117. Mrs. Wood is a party because of the filing of a joint income tax return with her husband. The record shows that she took no part in the transactions and therefore by any reference to the taxpayer we shall mean Mr. Wood.
The taxpayer is a resident of Lubbock, Texas. Early in 1945, after being in the printing business for twenty years, his doctors advised him to get out of business for reasons of health. This he did promptly, selling his business and his residence. He and his wife moved to a hotel. Wood had been active in religious pursuits for many years and, upon selling his business, he announced it to be his intention to devote the rest of his life to religious endeavors. He invested the proceeds from the sale of his business in Government bonds. In October of 1945, he was telling one of his long-time friends, an investment counsellor, of the sale of his business and the investment of the proceeds. The friend suggested that Government bonds afforded no protection against inflation and recommended that at least a part of his investment should be in common stocks or real estate. Following the suggestion of his friend, Wood decided to take his money out of the Governments and invest it in real estate strategically located on the outskirts of Lubbock. In a letter to his bookkeeper, Wood declared his intention to hold these properties and derive income from them during his life and leave them to his wife. Like statements were made to others. About this time Wood rented an office on the door of which was the caption "William C. Wood, Investments." His telephone listing was under "Listed Investments." He was not licensed as a real estate broker and did not act for others in real estate transactions unless his activity with respect to the Woodlawn subdivision, which is hereafter discussed, could be so designated.
Wood's first venture into real estate ownership was the purchase in November of 1945, of the so-called Merrill tract. The purchase price was $40,000, of which half was paid in cash and the balance was represented by promissory notes. This land was on the outskirts of Lubbock. Railroad trackage ran along the length of the property. The tract had been platted and the lots had been listed for sale with several real estate brokers by those from whom the taxpayer bought it. The taxpayer removed an old building and did other clearing. He arranged for additional trackage. He cancelled the listings of the lots in the tract which had been made by his predecessors in title. Wood had the land replatted into odd-shaped lots of different sizes with each lot having railway trackage. These things being done, the taxpayer was ready to enter into long-term leases of the several lots to tenants needing sites for industrial purposes.
Of a similar character was the so-called Nelson-Brown Addition. This too was a subdivision in a section of Lubbock suitable for industrial development. By three separate purchases, in April, 1947, January, 1950, and October, 1951, Wood acquired most of the subdivision. At his own expense, Wood arranged for railroad trackage to be brought into the property, As in the case of the Merrill tract the taxpayer did not acquire the Nelson-Brown land for the purpose of selling it. He intended to make long-term leases and, to this end, he asked Cox and Murfee to find tenants.
The efforts made to make leases on the land in the two tracts were quite extensive and intensive. A brochure was prepared to show the attractive features of the properties as industrial sites, in which it was asserted that attractive leases could be arranged. The brochure stated, "Properties Shown are Not for Sale." The brochure was widely distributed. Interest was developed by the brochures and otherwise. One lease was made. It contained an option to purchase which was subsequently exercised. Most of those who were interested were unwilling to make leases, usually because of the necessity of having fee ownership in order to finance the construction of improvements. Wood was unwilling to erect any improvements on the property, because he could have done so only with borrowed capital, and it was his desire to leave the property to his wife without encumbrance. When some of the interested prospects were unwilling to enter into leases but offered to buy sites, these offers were submitted by Cox or Murfee to Wood and, from time to time sales were made. During the years involved in this proceeding seven sales were made of land in the Merrill tract; two in 1949, two in 1950, and three in 1951. No sales were made in 1948, 1952 or 1953. Sales of land in the Nelson-Brown tract followed pretty much the same pattern. Two sales were made in each of the years 1949, 1950, 1951 and 1953; none in 1948 or 1952. During the period the activity was directed toward not making sales but to the making of leases. As the Tax Court pointed out in its opinion:
Although Cox became convinced that the likelihood of obtaining lessees in substantial numbers was remote, he was unable to convince Wood that this was so. Throughout all of the tax years and to and at the time of the trial before the Tax Court Wood believed that these properties could be leased for industrial purposes. The Tax Court...
To continue reading
Request your trial
-
Biedenharn Realty Co., Inc. v. United States, 73-3690.
...* * * Specific factors, or combinations of them are not necessarily controlling." Thompson, supra at 127; Wood v. Commissioner of Internal Revenue, 5 Cir. 1960, 276 F.2d 586, 590; Smith v. Commissioner of Internal Revenue, 5 Cir. 1956, 232 F.2d 142, 144. Nor are these factors the equivalent......
-
Byram v. United States
...may not be held primarily for sale in that business, or particular sales may be outside its ordinary scope. See, e.g., Wood v. Commissioner, 276 F.2d 586 (5th Cir.1960); Maddux Construction Co. v. Commissioner, 54 T.C. 1278 (1970). However, in the present case the three statutory questions ......
-
United States v. Winthrop
...Usry, supra, 294 F.2d at 427. Accord: Thompson v. Commissioner of Internal Revenue, 5 Cir.1963, 322 F.2d 122; Wood v. Commissioner of Internal Revenue, 5 Cir.1960, 276 F.2d 586; Thomas v. Commissioner of Internal Revenue, 5 Cir.1958, 254 F.2d 233; Smith v. Commissioner of Internal Revenue, ......
-
Tibbals v. United States
...of it for sale to customers in the ordinary course of business and hold the remainder as capital assets." Wood v. Commissioner of Internal Revenue, 276 F.2d 586, 590-591 (C.A.5, 1960). See, for further examples, Margolis v. Commissioner of Internal Revenue, 337 F.2d 1001, 1005 (C.A.9, 1964)......