412 F.2d 598 (5th Cir. 1969), 26718, Kirby Lumber Corp. v. Phinney

Docket Nº:26718.
Citation:412 F.2d 598
Party Name:KIRBY LUMBER CORPORATION, Plaintiff-Appellee, v. R. L. PHINNEY, District Director of Internal Revenue, Defendant-Appellant.
Case Date:May 27, 1969
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 598

412 F.2d 598 (5th Cir. 1969)



R. L. PHINNEY, District Director of Internal Revenue, Defendant-Appellant.

No. 26718.

United States Court of Appeals, Fifth Circuit.

May 27, 1969

Page 599

Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Atty., Richard M. Roberts, Acting Asst. Atty. Gen., Harry Marselli, David E. Carmack, Gilbert E. Andrews, Attys., Dept. of Justice, Washington, D.C., John O. Jones, Leonard B. Tatar, Attys., Dept. of Justice, Fort Worth, Tex., Ted Butler, Asst. U.S. Atty., Ernest Morgan, U.S. Atty., San Antonio, Tex., for defendant-appellant.

Joe G. Roady, Houston, Tex., Fountain, Cox & Gaines, Houston, Tex., for plaintiff-appellee.

Before JOHN R. BROWN, Chief Judge, COLEMAN, Circuit Judge, and SCOTT, District Judge.

COLEMAN, Circuit Judge:

The District Director of Internal Revenue collected $29,139.55 from the Kirby Lumber Corporation as additional income taxes allegedly due on the sale of standing tie grade hardwood timber (hereinafter, tie timber) in the year 1959. Before the District Court, sitting without a jury, Kirby recovered judgment for the refund of the amount paid, plus interest. The District Director vigorously appeals. We affirm.

The District Director says that the issue is 'whether the District Court erred in holding that the income realized by the Kirby Lumber Corporation in 1959 from the sale of standing tie or local log grade hardwood timber was taxable as long-term capital gain rather than as ordinary income'.

The taxpayer says that the issue might more precisely be stated as 'whether in the year 1959 standing tie grade hardwood timber, as real property used in the trade or business of Kirby Lumber Corporation, was property held primarily for sale to customers in the ordinary course of its trade or business'.

At the close of the evidence and after argument of counsel, the District Court found as a fact and held as a matter of law that in the year 1959 the tie timber in question was not property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, but was real property used in the taxpayer's trade or business, entitling the taxpayer to recover under the provisions of § 1231 of the Internal Revenue Code (1954).

Against this judicial result the District Director fires a thunderous salvo:

'It is the position of the District Director on this appeal that certain findings of fact made by the District Court do not constitute an accurate reflection of the record, that some of them are clearly erroneous and that others of them are incomplete or misleading'.

A critical, painstaking scrutiny of the record fails, in our opinion, to justify the barrage.

Some of the crucial facts were stipulated. As to the remainder of the record, the Director tried the generally fruitless expedient of attempting to support his contentions with his adversary's proof. The Director offered no witnesses.

At any rate, considering the stipulations and the absence of material contradictions

Page 600

from witnesses appearing exclusively for the same side, there were no materially significant credibility issues for the trial court to settle. Thus, on this appeal, we are left only to consider the logical inferences to be drawn from undisputed facts and documents, according to the rule alluded to by Judge WISDOM in his dissenting opinion in United States v. Temple, 5 Cir., 1966, 355 F.2d 67 (citing Galena Oaks Corporation v. Scofield, 5 Cir., 1954, 218 F.2d 217, 219). We feel, nevertheless, that there was no error, clear or otherwise.

This Court has several times addressed itself to the law applicable to the issue here presented. It may be briefly summarized as follows: Whether property has been held primarily for sale to customers in the ordinary course of his trade or business so that the proceeds are taxable as ordinary income rather than as capital gains is essentially a question of fact, with each case to be decided on its own peculiar facts. Specific factors or combinations of them are not controlling. We may consider the nature and character of the taxpayer's title, reason, purpose, and intent of acquisition and ownership, its duration, taxpayer's vocation, extent of its activities, extent and nature of efforts to sell, and such like. See United States v. Burket, 5 Cir., 1968, 402 F.2d 426; United States v. Temple, supra; 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; Smith v. Dunn, 5 Cir., 1955, 224 F.2d 353; Baum v. United States, 5 Cir. (decided April 18, 1969) 409 F.2d 829.

With these well established guidelines firmly before us we now consider the Findings of Fact incorporated in the memorandum of the District Court dated June 28, 1968. We cannot get the composite picture if we abridge or condense the findings. We have, therefore, decided to incorporate them at this point in toto. To avoid needless repetition in the concluding discussion we shall italicize those items which we consider to be of controlling significance.


'(4). Plaintiff operates on the basis of the calendar year and timely filed its corporate return for the year 1959. In such return income from sales by plaintiff of...

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