77 T.C. 293 (1981)
JOHN W. LEDOUX and GERALDINE C. LEDOUX, PETITIONERS
COMMISSIONER of INTERNAL REVENUE, RESPONDENT
United States Tax Court
August 10, 1981
Petitioner sold his 25-percent interest to other partners. Held, a part of the sales proceeds received by petitioner is attributable to unrealized receivables (sec. 751(a) and (c), I.R.C. 1954), and therefore must be characterized as ordinary income.
Maxwell W. Wells, Jr ., for the petitioners.
Avery Cousins III, for the respondent.
By statutory notice dated May 16, 1978, respondent determined deficiencies in petitioners' Federal income taxes as follows:
After concessions, the sole issue remaining for our decision is whether any portion of the amount received by petitioner John W. Ledoux pursuant to an agreement for the sale of a Page 294
partnership interest was attributable to an unrealized receivable of the partnership and thus was required to be characterized as ordinary income under section 751, I.R.C. 1954. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts, first supplemental stipulation of facts, and the exhibits attached thereto are incorporated herein by this reference. Petitioners John W. Ledoux and Geraldine C. Ledoux, husband and wife, resided in Winter Park, Fla., at the time of the filing of their petition herein. They filed joint Federal income tax returns for the calendar years 1972, 1973, and 1974 with the Internal Revenue Service Center at Chamblee, Ga. Geraldine C. Ledoux is a party herein solely by reason of her filing a joint return with John W. Ledoux (hereinafter petitioner). Pari-mutuel wagering at greyhound dogracing tracks was legalized in the State of Florida in 1935. Prior to July 1955, the Sanford-Orlando Kennel Club, Inc. (hereinafter referred to as the corporation), held a greyhound racing permit issued by the Florida State Racing Commission to operate a racetrack in Seminole County, Fla. The corporation owned certain land in Seminole County, Fla., and improvements thereon including a grandstand, kennels, track, and other facilities and equipment necessary to operate a racetrack and to handle pari-mutuel pools. The sole shareholders of the corporation were a Mr. Anderson and a Mr. Davey. Also prior to July 1955, the corporation had entered into an operating agreement with the Sanford-Orlando Kennel Club, a copartnership composed of Messrs. Anderson and Davey, as the partners. Under the agreement, the copartnership was to operate the track and the corporation was to receive 30 percent of the net profits from the dog track operation. Due to problems in managing the dog track, the Sanford-Orlando Kennel Club copartnership entered into a written agreement (dog track agreement) on July 9, 1955, with Jerry Collins, an experienced operator of dogracing tracks, and his son, Jack Collins. Pursuant to the dog track agreement, the Collinses acquired the right " to manage and operate the Greyhound Racing Track, owned by the Sanford-Orlando Page 295
Kennel Club, Inc.," for a period of 20 years commencing on October 1, 1955. In return, the Collinses agreed to pay to the copartnership the first $200,000 of net annual profit from track operations. Representatives of the copartnership were given the right to enter the racetrack during normal business hours for purposes of inspecting and making necessary repairs to the premises. Further, any structural improvements or alterations to the dog track involving an estimated cost of over $50,000 that the Collinses wanted to make had to be approved in advance by the copartnership. On October 1, 1955, petitioner John W. Ledoux, his father-in-law, Jerry Collins, and his brother-in-law, Jack Collins, entered into a partnership agreement creating a partnership (hereinafter the Collins-Ledoux partnership or partnership) for the stated purpose of " carrying on of the business of managing and operating a greyhound dog racing plant in Seminole County, Florida." The percentage interests in the Collins-Ledoux partnership, and the respective profits and losses interests therein, were as follows:
The dog track agreement was amended on January 25, 1957, to include petitioner John W. Ledoux as a party thereto. Under Florida law, the corporation's dogracing permit was not readily transferable. Accordingly, the racing permit had remained in the name of the corporation at all times from 1955 through 1972. On November 29, 1957, the Sanford-Orlando Kennel Club copartnership terminated and the corporation succeeded to all interests of the copartnership in the July 9, 1955, agreement, as amended. On June 30, 1956, the term of the dog track agreement was extended to September 1, 1985, conditioned on the expenditure by the Collins-Ledoux partnership of $100,000 for improvements in the clubhouse and the clubhouse furnishings on property owned by the corporation. On April 10, 1966, the dog track agreement was extended further to September 30, 1999. This extension was premised on the Collins-Ledoux partnership Page 296
increasing the annual payment to the corporation to include a percentage of the annual mutuel play revenue from the track. On June 9, 1972, an amendment to the agreement further modified the method of computing the annual payment to the corporation. This amendment was conditioned on the Collins-Ledoux partnership replacing the track's grandstand facilities at a cost to the partnership of not less than $1 million. During the period from October 1, 1955, to September 30, 1972, the Collins-Ledoux partnership operated the greyhound racetrack pursuant to and in accordance with the July 9, 1955, agreement, as amended. Petitioner John W. Ledoux was a manager of the operations of the racetrack for the Collins-Ledoux partnership. Petitioner received compensation for his services in the form of salary, which was charged as an expense of the track operation. Along with his salary, petitioner received a share of the net profits of the Collins-Ledoux partnership. Petitioner's duties included, among other things, the directing of promotional, advertising, and development activities on behalf of the Collins-Ledoux partnership. In addition, during this period the partnership made improvements to the corporation's property. Virtually every building was replaced except for the main grandstand, which was remodeled extensively. The Collins-Ledoux partnership also acquired property adjacent to the corporation's dog track property for additional parking, paddocks, and kennels, all of which were used in connection with the operation of the dog track. The partnership invested $56,114.56 in equipment for operation of the racetrack, $64,000.71 in improvements to the clubhouse on the corporation's property, $180,327.27 for other new buildings on the corporation's property, and $51,774.93 for kennels on adjacent land owned by the partnership. The partnership's actions with respect to operation and management of the dog track were eminently successful. During the period from 1955 to 1972, the gross income from track operations increased from $3.6 million to $23.6 million, and the net income to the Collins-Ledoux partnership increased from $72,000 to over $550,000. The increases in gross and net income were attributable to the work of the partnership, including petitioner, and to the general economic growth in the Central Florida area. Accordingly, the fair value of the Page 297
right to operate the greyhound racetrack in Seminole County, Fla., pursuant to the racing permit held by the corporation and pursuant to the dog track agreement, increased significantly during the period from 1955 to 1972. Separate bookkeeping records were maintained for the corporation, the dog track operation, and the partnership. The records of the dog track operation and the corporation were consolidated on the corporation's income tax returns for the years in question. Such corporate income tax returns included the corporation's $200,000 annual payment from gross operating profit, along with any additional percentage payments due under the dog track agreement as amended. Depreciation deductions in connection with the corporation's assets were taken on the corporate returns. The corporation maintained a separate corporate bank account and there were two bank accounts maintained for the dog track operation, a general account and an operating account. The partnership maintained no separate bank account. The purposes of the aforementioned general account were to provide the corporation with control over the gross receipts from the dog track and to provide security for the annual payment ($200,000 plus a percentage of the annual mutuel play revenue) due to the corporation. Accordingly, all gross receipts from the dog track operation were deposited daily into the general account. The local accountant for the corporation, Mr. Marion G. Laney, visited the track once or twice a week to check disbursements that had been made by the partnership and to audit the vouchers. Mr. Laney, for the corporation, would transfer funds to the operating account, as needed, for use by the partnership in day-to-day management of the dog track. At the same time, he would be sure to retain sufficient funds in the general account to satisfy the annual amount due to the corporation under the dog track agreement, as amended. The...