Home Co. v. Commissioner of Internal Revenue
| Decision Date | 12 May 1954 |
| Docket Number | No. 4770.,4770. |
| Citation | 212 F.2d 637 |
| Parties | HOME CO., Inc. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Claude L. Rice, Kansas City, Kan. (Dallas Knapp, Coffeyville, Kan., was with him on the brief), for petitioner.
S. Walter Shine (Ellis N. Slack and Dudley J. Godfrey, Jr., Sp. Assts. to Atty. Gen., and H. Brian Holland, Asst. Atty. Gen., were with him on the brief), for respondent.
Before PHILLIPS, Chief Judge, and BRATTON and HUXMAN, United States Circuit Judges.
This appeal challenges the correctness of a decision of the Tax Court, holding that certain houses sold by appellant taxpayer during 1946 constituted "property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business," within the exclusionary clause of Section 117(a), 26 U.S.C.A. of the Internal Revenue Code.
Under Section 117 of the Internal Revenue Code, a taxpayer is entitled to preferential treatment with respect to gain realized from the sale of capital assets save with respect to the sales covered by Subsection (a) of Section 117. The difficulty in this case, as always, comes when we seek to apply clear, well recognized principles of law to a given state of facts. There are innumerable cases which have considered Section 117 in all of its phases but in the main they are not decisive or too helpful in pin pointing the precise question, because in the end the decision in each case depends upon the particular facts of the case. Neither is it possible in the resolution of these questions to adopt fixed indices from which the answer can be reached. There are, however, certain factors which have been recognized as helpful guides in seeking a just and correct result. Among these are the purposes for which the property was acquired, the activities of the taxpayer and his agents with respect thereto such as making improvements on the property, conducting a sales campaign either through advertisements or the employment of real estate agents, the frequency and continuity of sales as differentiated from isolated sales, as well as any other factor reasonably tending to show that the transaction was in furtherance of or in the course of the taxpayer's occupation or business.1
Whether property sold or disposed of by a taxpayer was held for sale to customers in the ordinary course of his trade or business within the meaning of Section 117(a) is essentially a question of fact and, since it is the duty of the Tax Court to weigh evidence, draw inferences, make deductions and find the facts, the finding of fact by that court will not be disturbed on review if it is supported by substantial evidence and is not clearly erroneous.2
With respect to the 61 houses in question which were sold during 1946, the Tax Court found that they were held primarily for sale in the ordinary course of taxpayer's business. The sole question is whether this finding is adequately supported by the record. The taxpayer is a Kansas Corporation, organized in 1939. Its charter states that the purposes for which it was organized were "the purchase, location and laying out of town sites and the sale and conveyance of the same in lots and subdivisions; the purchase, erection and maintenance of buildings including the real estate upon which the same are or may be situated when erected; to invest or loan money with or without security; to conduct a general brokerage agency and commission business for others or as owners in the purchase, sale, rental and management of real estate for others or as owners and the negotiation of loans thereon; to do any and all things necessary for the purpose of carrying out the above." The record does not disclose appellant's real estate activities prior to 1941. The advent of World War II created a serious housing shortage in Coffeyville and in Parsons, Kansas. In 1941 the Federal Housing Administration enlisted the aid of appellant to construct defense housing units in Parsons and Coffeyville under Title VI of the National Housing Act, 12 U.S.C.A. § 1736 et seq., to accommodate Government workers in Government plants established there. Appellant thereafter undertook the construction of two defense housing projects, one at Parsons, consisting of 65 units, and one at Coffeyville, consisting of 83 units. Appellant secured an allotment to build the units from the F. H. A. and made arrangements with a private lender, the First Federal Savings and Loan Association of Coffeyville, to lend it the necessary money up to 90 per cent of the appraised value of the proposed projects. The plans and specifications for the proposed projects were submitted to and approved by the F. H. A.
The Parsons project was built by appellant. A contracting firm was engaged to build the Coffeyville project. The units in both projects were constructed by the petitioner for rental purposes. The units at Parsons were not restricted as to sale but none were sold by appellant prior to 1946. The units at Coffeyville were constructed subject to certain Government restrictions, the pertinent portion of which required appellant as found by the court to "make every reasonable effort to grant preference as to occupancy to persons engaged in war activities"; to "not sell any structure or rent any portion thereof for at least 60 days after its completion except for occupancy by a person engaged in war activity in the area." There were also restrictions with relation to the conditions under which the units could be sold.
With few exceptions, construction was completed on the Parsons project by the end of 1942 and on the Coffeyville project by the end of 1943. The housing units in both projects, with the exception of one four-unit building and two duplexes in the Coffeyville project, were single family dwellings. The Tax Court found that the housing units in both projects were constructed by appellant for rental purposes. Appellant's...
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