Boykin v. Commissioner

• Decision Date: 30 December 1963
• Docket Number: Docket No. 94800.
• Citation: 22 TCM (CCH) 1800,1963 TC Memo 343
• Parties: Marshall E. Boykin and Jimmie Boykin v. Commissioner.
• Court: U.S. Tax Court

22 T.C.M. (CCH) 1800 (1963)

T. C. Memo. 1963-343.

Marshall E. Boykin and Jimmie Boykin v. Commissioner.

Docket No. 94800.

United States Tax Court.

Filed December 30, 1963.

Wm. Bernard Clinton, 1016 Dallas Athletic Club Bldg., Dallas, Texas, for the petitioners. James F. Hart, for the respondent.

Memorandum Findings of Fact and Opinion

FAY, Judge:

Respondent determined a deficiency in the petitioners' income tax for the year 1956 in the amount of $13,516.72. The principal issue for decision is whether petitioners owned a certain property known as the Hayter Farm for a period of more than six months prior to its sale.¹ An alternative issue is whether the Hayter Farm was held by petitioners primarily for sale to customers in the ordinary course of their business.

Findings of Fact

Some of the facts have been stipulated and this stipulation of facts, together with the exhibits attached thereto, is incorporated herein and made a part of our Findings by this reference.

Petitioners are husband and wife and for the year 1956 timely filed a joint income tax return with the district director of internal revenue at Dallas, Texas. Petitioner Marshall E. Boykin will hereinafter be referred to as petitioner. During the year 1956 petitioner was engaged in the business of subdividing real property and in the business of constructing and leasing commercial buildings in the Abilene, Texas, area. Petitioner kept his records and filed his income tax returns on the cash basis.

The property involved in this case is a farm of approximately 860 acres (hereinafter referred to as the Hayter Farm) in Taylor County, Texas, that was owned by W. O. Hayter, Jr., prior to its sale to petitioner. Sometime during the first two months of 1956, Hayter was approached by A. J. Carriger, an Abilene real estate agent employed by the firm of W. Wiley Cox Real Estate and Insurance with respect to the possible sale of the Hayter Farm. Hayter indicated he would be interested in selling the Hayter Farm if he could obtain a price of approximately $300,000. No agreement was reached between Carriger and Hayter and their negotiations ended. Sometime in the latter part of February and about one or two weeks after Carriger and Hayter had discussed the sale of the Hayter Farm petitioner approached Hayter and offered to buy the Hayter Farm as well as a residence Hayter owned in Abilene, Texas.

On March 5, 1956, petitioner and Hayter entered into an agreement which provided in part as follows:

WITNESSETH:

1 Seller hereby agrees to sell to purchaser and Purchaser agrees to purchase from Seller the following described property, * * *. A description of the subject property is then set forth.

2. The total price to be paid for the above described seven tracts of land is $350,000.00, payable as follows:

(a) $30,000.00 cash, which purchaser has deposited with W. O. Hayter, Jr. of Abilene, Texas, said sum to be applied on the total consideration if this transaction is consummated, and if this transaction is not consummated, to be delivered in accordance with the terms and provisions of this contract;

(b) The balance of $320,000.00 shall be evidenced by the execution of one certain promissory note by Purchasers herein payable to the order of W. O. Hayter, Jr. in Abilene, Texas, said note to be of even date with this contract, with interest thereon at the rate of five per cent per annum, payable as follows: $20,000.00 shall be due and payable on or before January 10, 1957; $37,500.00 plus all accrued interest hereon shall be due and payable on or before September 5, 1957; with a like installment of $37,500.00 plus all accrued interest being due and payable on or before the 5th day of September of each and every year thereafter until the entire sum, both principal and interest, has been fully paid. Said note to be secured by the vendor's lien and deed of trust with power of sale and with usual covenants as to taxes, insurance and default.

3. It is understood and agreed between the parties hereto that there is now due and secured by liens against the first tract described herein, the sum of $11,495.79 to Southwestern Life Insurance Company, representing a loan against the above property. It is further understood that there will be due on July 1, 1956, a semi-annual payment thereon in the sum of $693.00, being $434.34 principal and $258.66 interest. The said Purchaser agrees to make the payments due on such loan as they accrue until such time as this transaction is consummated. At the time of closing all such payments made on said loan by Purchaser will be deducted from the purchase price of the property herein described, and the said above mentioned notes shall be reduced by said sums so deducted. At the time of closing the balance then remaining on the above described loan will be paid off by Seller and the lien securing said note will be duly released.

4. It is further understood between the parties hereto that there is a loan secured by liens against the last six tracts described hereinabove in the amount of $67,999.98, now held by Citizens National Bank in Abilene, and Seller agrees to pay off said loan at the time of closing.

It is further understood and agreed, however, that this transaction will not be consummated until such time as said $67,999.98 loan has been fully paid by Seller herein, unless all parties hereto agree to the closing at an earlier date. Immediately upon payment of said loan to Citizens National Bank in Abilene, all parties hereto agree that this contract will be consummated.

5. Seller agrees to furnish to purchaser complete abstracts of title to all of the above described property as soon as reasonably possible after the payment of the loan to the Citizens National Bank in Abilene. Purchaser agrees that within ten days from the receipt of said abstract, either to accept the title as shown by said abstract or to return the same to Seller with the objections in writing to the title to said premises. If said abstract is not returned to Seller with the objections to the title in writing to said premises within the time herein provided, Purchaser's action in not so returning said abstract and objections in writing will constitute acceptance of the title to said premises. If Purchaser furnishes written objections to said title as above provided, Seller shall have a reasonable time to cure said objections and show good and marketable title. In the event of failure to furnish good and marketable title, the purchase money hereby deposited with Seller shall be returned to the purchaser upon the cancellation and return of purchaser's copy of this contract.

6. This transaction is to be consummated by Seller delivering to Purchaser a good and sufficient Warranty Deed to the above described property for the delivery to Seller by Purchaser of the consideration above stated.

7. If Purchaser defaults on this contract, the purchase money hereby deposited with Seller shall be retained by Seller as liquidated damages for said default; or Seller may enforce specific performance of this contract.

8. Taxes for the current year, current rents, insurance, interest (if any), and delay rentals on oil and/or gas leases are to be pro-rated as of the date of this contract.

9. Purchaser shall have possession of the first tract described hereinabove by April 1, 1956.

Purchaser agrees to lease to Seller the last six tracts described hereinabove effective as of the date of this contract at an annual cash rental of $2,500.00 per year, payable in advance. Such lease to be the usual farming and agricultural lease, but shall not affect any oil and/or gas or other mineral leases now existing or hereafter executed on the above described property.

* * *

On March 6, 1956, petitioner was furnished a Title Opinion on the Hayter Farm which showed that the property was encumbered by a lien in the amount of $67,999.98 in favor of the Citizens National Bank of Abilene.

On March 7, 1956, the petitioner and Hayter executed an addendum to the March 5, 1956, contract which provided as follows:

In addition to the provisions of the foregoing contract, of which this addendum is hereby made a part, purchaser and seller therein hereby further agree as follows:

1. It is agreed and understood that the property described in said contracts shall be conveyed free and clear of all liens and encumbrances except those to be reserved by seller as heretofore set out in said contract; however, in the event purchaser wishes to assume the unpaid balance of the loan now held by Southwestern Life Insurance Company secured by liens against Tract No. 1 and described in the foregoing contract, then purchaser shall have such option and the balance due thereon shall be deducted from the purchase price.

2. Seller agrees to make all payments due on the foregoing indebtedness due the Citizens National Bank and the indebtedness due Southwestern Life Insurance Company as described in the foregoing contract as such payments become due; and it is further agreed and understood that buyer shall have the right to pay off such indebtedness in full at any time and receive credit therefor on the first maturing installments of principal only due under this contract as hereinabove provided. It being further agreed, however, that in connection with the loan held by Southwestern Life Insurance Company, purchaser shall pay to seller the installments due thereon as same become due, and seller will then immediately remit such payments to Southwestern Life Insurance Company.

3. It is expressly agreed and understood that the $320,000.00 note described in the foregoing contract shall not be executed until such time as this transaction is consummated, at which time said note shall be credited will all sums and payments theretofore made by seller under the terms of such contract.

4. In the event of failure or refusal by seller herein to consummate this contract, then purchaser shall have the right, at his option, to enforce

...