Finder v. Comm'r of Internal Revenue (In re Estate of Finder), Docket Nos. 74592
| Decision Date | 04 December 1961 |
| Docket Number | Docket Nos. 74592,74593. |
| Citation | 37 T.C. 411 |
| Parties | ESTATE OF PETER FINDER, DECEASED, NATHAN FINDER, COEXECUTOR, AND FRIEDA FINDER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.NATHAN FINDER AND LILLIAN FINDER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Jackson L. Boughner, Esq., for the petitioners.
Arthur N. Nasser, Esq., for the respondent.
1. Held: That real estate lots sold in the year in question constituted property held primarily for sale to customers in the ordinary course of trade or business, and that the gain therefrom is taxable as ordinary income. Section 1237 of the Internal Revenue Code of 1954 is not applicable since other lots in the tract of land had previously been held by the individuals or their partnership primarily for sale to customers in the ordinary course of trade or business; two of such other lots continued to be so held in the year in question; and substantial improvements were made upon the tract of land and petitioners have not shown that such improvements did not substantially enhance the value of the lots sold.
2. Held, further, that the burden was upon the petitioners to prove the amount of depreciation of hotel alterations which is properly allowable as a deduction and that they have failed to meet such burden.
Respondent determined deficiencies in income tax of petitioners in Docket Nos. 74592 and 74593 in the respective amounts of $651.70 and $3,037.92 for the taxable year 1954. The issues are:
(1) Whether gain upon the sale of real estate lots constituted long-term capital gain, as contended by the petitioners, as ordinary income from sale of property held primarily for sale to customers in the ordinary course of trade or business, as determined by the respondent, and (2) whether the respondent properly disallowed a portion of depreciation claimed upon a hotel property.
Some of the facts have been stipulated and are incorporated herein by this reference.
Peter Finder and his brother Nathan Finder, together with their respective spouses, Frieda and Lillian, filed joint Federal income tax returns for the taxable year 1954 with the district director of internal revenue, Chicago, Illinois. Peter Finder died on February 3, 1957.
In 1926 Nathan and Peter acquired for investment purposes, at a cost of $22,500, 20 acres of land in Oak Lawn, Illinois, which is located in the Chicago metropolitan areas. Over a period of years thereafter they made no attempts to sell the land, but at some time not disclosed by the record they determined to sell it. In 1947 a number of persons made offers ranging up to $10,000 for the land. No buyer was found who was willing to pay a reasonable price for the tract.
The affairs of Nathan and Peter were being handled by Nathan's son, Paul Finder, and his nephew, Harvey Amsterdam, who had complete authority to dispose of the property or to use it in any fashion that they saw fit. In the late summer of 1952 Nathan and Peter, together with Paul Finder and Harvey Amsterdam, met with A. Jerome Moos, an attorney who had represented builders. Moos discussed with them the details of the operation of building homes and various methods that were used by his clients. Paul Finder and Harvey Amsterdam decided that it was advisable to subdivide the land. Accordingly, in September 1952, Nathan and Peter subdivided the 20 acres into 64 lots and entered into a partnership, known as Lorel Homes, which had as its purpose the construction and sale of homes thereon.
On October 8, 1952, Nathan and Peter recorded the subdivision as ‘Lorel Homes' in the office of the recorder of deeds of Cook County, Illinois. Subsequently a portion of the property was improved with a gravel road. This and other subdivision costs amounted to $5,084.45. A contracting firm was engaged, construction of 5 homes was begun on lots numbered 1, 2, 3, 4, and 32, and a realty firm was given the exclusive agency to sell the homes.
Nathan had been in the candy-manufacturing business. He did not have a real estate dealer's license and had never engaged in any form of the real estate business.
On December 22, 1952, and March 3, 1953, the first and second sales were made, being lots 2 and 32, respectively, on which homes had been built. Homes on lots 1, 3, and 4 were completed or substantially completed by approximately March 1953. Thereafter Nathan and Peter, doing business as Lorel Homes, discontinued the construction of homes.
Since the realty firm had not been successful in disposing of the homes, further conferences were had by Nathan and Peter and their managers with Moos about February or March 1953, at which there was discussed the feasibility of Moos' taking over the operation or the possibility of creating a corporation to take over the further development and sale of homes in the area. As a result, a corporation known as Reliabilt Homes, Inc., was formed on May 11, 1953,by Paul Finder, Amsterdam, and Moos. On the same date an option agreement was executed between Reliabilt Homes, Inc., and Nathan and Peter Finder and their wives.
The agreement granted an option to Reliabilt Homes, Inc., to purchase, as required by it and upon its demand, any or all of the 62 lots then remaining unsold (lots 2 and 32 having already been improved by construction of homes and sold). The option price of 40 of the lots was $1,300 each and of 18 of the lots was $1,452 each. The option price of lot 1 (which was improved with a home) was $10,800, and the price of lots 3, 4, and 31, which also contained improvements, was $1,452 each plus the actual cost of the improvements. It was provided that as the transfer of each lot was demanded, the sellers would deliver a warranty deed thereto. It was also provided that the option should continue to December 31,1953, at which time it should automatically expire unless prior to that time the buyer had exercised the option and paid for not less than 25 lots, in which case the option was to be extended automatically to December 31, 1954.
Within a week after the incorporation of Reliabilt, Moos arranged financing of his own. Thereupon Paul and Amsterdam withdrew from the corporation, leaving Moos as the sole shareholder.
During the year 1953, 16 lots of the Lorel Homes subdivision, none of which was improved with a residence, and lot #1 which was improved with a residence, were sold by Nathan and Peter to Reliabilt pursuant to the option agreement. The sale of lot #1 together with the residence thereon and other improvements thereto resulted in a loss of $443.32.
Toward the end of the year 1953, it appeared that Reliabilt might not sell within that year enough lots to cause an automatic extension of the option agreement, but Nathan and Peter entered into an agreement with Reliabilt on December 9, 1953, whereby it was agreed that if Reliabilt should, by January 5, 1954, purchase 10 lots, specified by number, the option would be automatically extended to December 31, 1954. The option agreement was duly extended automatically to December 31, 1954.
During the year 1954 eight more lots of the Lorel Homes subdivision, none of which had been improved with a residence, were sold by Nathan and Peter to Reliabilt pursuant to the option agreement.
Reliabilt, which had been exercising its option as it found purchasers for particular lots, had been unable to sell lots 3 and 4, the remaining lots which had been improved with residences. On August 2, 1954, it surrendered its option right to those two lots. Subsequently, on August 6, 1954, and September 3, 1954, lots 3 and 4, respectively were sold by Nathan and Peter through the facilities of the realty company which they had originally engaged, accepting mortgages in order to make the sales. Each lot was sold at a loss.
The following is a summary of the lots, unimproved by residences, sold by Nathan and Peter to Reliabilt:
+------------------------+
¦Date of sale ¦Lot Nos. ¦
+--------------+---------¦
¦ ¦( ¦5 ¦
+--------------+---+-----¦
¦June 18, 1953 ¦( ¦30 ¦
+--------------+---+-----¦
¦ ¦( ¦40 ¦
+--------------+---+-----¦
¦ ¦ ¦ ¦
+--------------+---+-----¦
¦July 16, 1953 ¦( ¦29 ¦
+--------------+---+-----¦
¦ ¦( ¦34 ¦
+--------------+---+-----¦
¦ ¦ ¦ ¦
+--------------+---+-----¦
¦Aug. 7, 1953 ¦( ¦6 ¦
+--------------+---+-----¦
¦ ¦( ¦35 ¦
+--------------+---+-----¦
¦Aug. 20, 1953 ¦ ¦25 ¦
+--------------+---+-----¦
¦Sept. 17, 1953¦( ¦8 ¦
+--------------+---+-----¦
¦ ¦( ¦37 ¦
+--------------+---+-----¦
¦ ¦ ¦ ¦
+--------------+---+-----¦
¦Oct. 16, 1953 ¦( ¦31 ¦
+--------------+---+-----¦
¦ ¦( ¦36 ¦
+--------------+---+-----¦
¦Nov. 2, 1953 ¦ ¦10 ¦
+--------------+---+-----¦
¦Nov. 6, 1953 ¦ ¦7 ¦
+--------------+---+-----¦
¦Dec. 19, 1953 ¦ ¦41 ¦
+--------------+---+-----¦
¦Dec. 15, 1953 ¦ ¦39 ¦
+--------------+---+-----¦
¦ ¦( ¦9 ¦
+--------------+---+-----¦
¦ ¦( ¦26 ¦
+--------------+---+-----¦
¦ ¦( ¦27 ¦
+--------------+---+-----¦
¦Jan. 4, 1954 ¦( ¦28 ¦
+--------------+---+-----¦
¦ ¦( ¦38 ¦
+--------------+---+-----¦
¦ ¦( ¦42 ¦
+--------------+---+-----¦
¦ ¦( ¦43 ¦
+--------------+---+-----¦
¦July 19, 1954 ¦ ¦24 ¦
+------------------------+
Upon the request of Nathan and Peter, Moos agreed to a termination of the option and on December 10, 1954, it was terminated by the parties and Reliabilt executed a quitclaim deed to the remaining 34 lots.1 In 1956 all the remaining lots were sold in one unit to one purchaser.
The sales of lots which were unimproved by houses resulted in the realization of gains of $15,162.87 in 1953 and $11,125.96 in 1954. Such sales in 1953 and 1954 were not reported in any returns filed by the partnership...
To continue reading
Request your trial
-
Hollywood Baseball Ass'n v. Comm'r of Internal Revenue, Docket No. 93647.
...supra; Rollingwood v. Commissioner, supra; Municipal Bond Corporation, 41 T.C. 20; R.E. Moorhead & Son, Inc., 40 T.C. 704; Estate of Peter Finder, 37 T.C. 411; Real Estate Corporation, 35 T.C. 610, affd. 301 F.2d 423 (C.A. 10), certiorari denied 371 U.S. 822; Joseph A. Harrah, 30 T.C. 1236;......
-
Hayutin v. Commissioner
...of the respondent's determination is not destroyed by the reason given, even if it be unsound or badly expressed." Estate of Peter Finder Dec. 25,159, 37 T.C. 411, 423 (1961), appeal dismissed (C.A. 7, The respondent initially contends that no portion of the Barnes and Shaw tract and no sto......
-
Conforte v. Comm'r of Internal Revenue
...that respondent's determination may be affirmed for reasons other than those assigned in his notice of deficiency. Estate of Finder v. Commissioner, 37 T.C. 411 (1961). Without attempting to define the term “new matter,” we think it is clear in the instant case that respondent has presented......
-
Stewart v. Commissioner
...(9th Cir. 1975), affg. a Memorandum Opinion of this Court Dec. 31,430(M), cert. denied 423 U.S. 1015 (1975); Estate of Finder v. Commissioner Dec. 25,159, 37 T.C. 411, 423 (1961). Here, petitioners had to prove the value of the portions of the Sixteenth Section Lease which they contributed ......