Moore v. Comm'r of Internal Revenue, Docket Nos. 58374

• Decision Date: 30 September 1958
• Docket Number: Docket Nos. 58374,58375,58376,58405.
• Citation: 30 T.C. 1306
• Parties: ALLEN MOORE AND MARGARET R. MOORE, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

30 T.C. 1306

ALLEN MOORE AND MARGARET R. MOORE, ET AL.,1 PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 58374

58375

58376

58405.

Tax Court of the United States.

Filed September 30, 1958.

Ewing Everett, Esq., and Eugene Chester, Esq., for the petitioners.

Paul J. Henry, Esq., and Chester M. Howe, Esq., for the respondent.

CAPITAL GAINS— SALES OF LOTS.— Trust created by petitioners for purpose of liquidating a tract of land acquired by gift held not engaged in trade or business in selling 22 lots over an 11-year period and gain realized on sale of 6 lots in taxable year is entitled to capital gains treatment.

ATKINS, Judge:

The respondent determined deficiencies in income tax for the taxable years 1949 and 1950 as follows:

+------------------------------------------------------------+
                ¦Docket¦Petitioners                          ¦1949  ¦1950    ¦
                +------+-------------------------------------+------+--------¦
                ¦No.   ¦                                     ¦      ¦        ¦
                +------+-------------------------------------+------+--------¦
                ¦58374 ¦Allen Moore and Margaret R. Moore    ¦$27.78¦$406.48 ¦
                +------+-------------------------------------+------+--------¦
                ¦58375 ¦Maxwell Moore and Alice C. Moore     ¦30.22 ¦507.20  ¦
                +------+-------------------------------------+------+--------¦
                ¦58376 ¦Maurice H. Pease and Barbara M. Pease¦47.72 ¦1,077.33¦
                +------+-------------------------------------+------+--------¦
                ¦58405 ¦Roswell Moore and Elisabeth T. Moore ¦78.94 ¦386.72  ¦
                +------------------------------------------------------------+
                

The petitioners concede the deficiencies for the taxable year 1949 as determined by the respondent. The only issue remaining for decision is whether gains from the sale of building lots realized by a trust in 1950 and taxable to the petitioners in that year as beneficiaries of the trust are taxable as ordinary income as determined by the respondent, or as long-term capital gain as contended by the petitioners.

FINDINGS OF FACT.

Some of the facts are stipulated and are incorporated herein by this reference.

The eight petitioners herein consist of four married couples who filed timely joint income tax returns on the cash basis for the calendar years 1949 and 1950 with the collector of internal revenue for the district of Connecticut.

E. A. Moore was the father of petitioners Allen Moore, Maxwell Moore, Roswell Moore, and Barbara M. Pease. E. A. Moore was reared in the New Britain, Connecticut, area. He rose to the position of president and chairman of the board of the Stanley Works, a large hardware-manufacturing company located in that area. He died February 15, 1956, at the age of 91.

E. A. Moore was the owner of 2 parcels of land, one known as the Upper Farm and the other known as the Lower Farm. He was brought up on the farm and was interested in raising purebred Guernsey stock. He purchased the Upper Farm, located at Berlin, Connecticut, which was near his home, sometime before 1913 to operate it as a dairy farm and to raise purebred stock. The Lower Farm was the family homestead which he later acquired by inheritance from his brother and sister. During the period he owned these properties he operated them both as farmland for the production of feed and hay crops, and for pasturing the animals.

In 1923 a firm which he employed made a survey of the Upper Farm property, laid out streets and lots, and prepared subdivision maps of the area. E. A. Moore also purchased from an aerial survey company an aerial map covering this farm, which that company had for sale to the general public. However, apparently nothing further was done at that time towards subdividing the property.

It was the desire of E. A. Moore that all his children should have lots in this area and build their homes thereon. Accordingly, in 1937 he gave 2 lots on the Upper Farm to the petitioner Allen Moore, who built his home there, and 1 lot to the petitioner Barbara M. Pease. In 1937 and 1938 he gave 2 lots to the Mooreland Hill School. In 1938 he constructed Mooreland Road through the property and sold 4 lots on that road to a friend, applying the proceeds toward the construction of the road. By that time he was at an advanced age and did not want to be burdened with looking after the property. After terminating his farming operations and selling his farming equipment and stock, he in 1938 and 1939 made gifts of the remainder of the Upper Farm to all the petitioners and Martha Moore, his daughter who is not a petitioner herein, each acquiring an equal undivided one-ninth interest.

On January 30, 1939, the Mooreland Hill Trust was created by the donees, each of whom then transferred to the trust his undivided one-ninth interest in the Upper Farm. The male petitioners herein were named trustees at the time of creation of the trust and continued to act in that capacity through the taxable years involved herein. The trust instrument states in part:

WHEREAS all the parties of the first part deem it impractical to equitably partition said real estate among themselves and

WHEREAS the parties of the first part are all desirous of selling and liquidating said real estate as soon as practicable at a fair price, and

WHEREAS much of said land can be made desirable and salable for building lots, and

WHEREAS each of the parties of the first part believes that the selling and liquidating of said real estate can be most advantageously accomplished by placing all of the real estate in the hands of said Maurice H. Pease, said Allen Moore, said Roswell Moore and said Maxwell Moore, as trustees for all the parties hereto, and

WHEREAS the sole purpose of this trust agreement is to accomplish the sale and liquidation of said real estate and the division of the proceeds, less expenses among the beneficiaries of this trust in proportion to their interests therein,

* * * the parties of the second part shall have the following powers:

(a) To sell exchange and or convey any or all of the real estate hereinbefore referred to in order to carry out the purpose of this trust, and to sell, exchange and or convey any or all other property real or personal that may in the future be acquired by the trust estate, for the foregoing purpose.

(c) To lease any or all real estate belonging to the trust estate for such length of time and on such terms as said parties of the second part may deem best, in order to carry out the purpose of this trust.

(i) To make repairs and improvements in and on any real estate belonging to the trust estate, which the parties of the second part in their discretion may deem necessary or proper, for the purpose of this trust.

(j) To grade, lay out streets, install sewers and water mains and otherwise develope any real estate belonging to the trust estate, for the purpose of this trust.

(m) To build or rebuild any dwelling house or other building or additions to buildings for the purpose of this trust (but not to carry on a building business).

(p) To employ real estate agents in selling or leasing real estate belonging to the trust estate and to pay reasonable fees for their services.

Third: The parties of the second part shall annually or oftener at their discretion, divide and distribute to the beneficiaries hereof in proportion to their interests herein, all liquid assets of the trust estate, not needed in their opinion to accomplish the advantageous liquidation of the unliquidated assets of this trust.

Thirteenth: This trust, if not sooner terminated by the sale of all the real estate belonging to the trust estate and distribution of all the net proceeds, shall continue until revoked by a majority vote of the beneficiaries hereunder * * *

The affairs of the trust were handled principally by the petitioner Allen Moore. Activities of the other trustees were limited to consultations with him. The trust maintained no offices, its name was not exhibited anywhere, and it was not listed in the telephone directory. No trustee or beneficiary ever received any compensation for any activity on behalf of the trust, and no secretary was employed, although on occasion matters were handled by E. A. Moore's personal secretary at the Stanley Works. The trust had no employees. None of the petitioners was a licensed real estate broker or agent.

It was the purpose of the trustees to create a small community and restrict sales of lots to relatives, family, friends, or others who would be good neighbors or friends. Accordingly, no promotional activities for the sale of lots were carried on. There was no advertising by the placing of signs or otherwise. A list of available lots would be made available upon inquiry, most of the selling activities being initiated over the telephone.

During the years 1947 through 1950 C. W. Parker, a real estate agent, obtained purchasers for 7 of the 11 lots sold by the trust in that period, upon which he received a commission of 5 per cent. No other lots were ever sold by a real estate agent. Parker was never engaged by the trust either orally or in writing to act as its agent in selling lots, but had at his disposal survey maps indicating lot subdivisions, which had been given to him at his request. He was an agent for the sale of lots in an adjoining country club area, and if he met a prospective buyer whom he considered a desirable person for one of the lots on the Upper Farm, also known as the Mooreland Hill property, he would then inquire of Allen Moore as to the lots which were available and the price thereof.

Considerations entering into selecting desirable purchasers included occupation, income, and education. In deeds to the lots the trust reserved the right to approve building plans in order that the buildings might conform to the pattern which would be desirable from a community standpoint. Each deed also reserved to the trust the right to repurchase the lot within a period of 3 to 3 1/2 years after the sale, at the selling price. The purpose of this provision was...