Laudenslager v. CIR
| Decision Date | 27 June 1962 |
| Docket Number | No. 13753.,13753. |
| Citation | 305 F.2d 686 |
| Parties | Walter R. LAUDENSLAGER and Marguerite Laudenslager, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Third Circuit |
Morris J. Oppenheim, Asbury Park, N. J., for appellant.
Giora Ben-Horin, Washington, D. C. (Louis F. Oberdorfer, Lee A. Jackson, Joseph Kovner, Washington, D. C., on the brief), for appellee.
Before KALODNER, STALEY and SMITH, Circuit Judges.
This petition to review the decision of the Tax Court1 presents the question whether amounts received by taxpayers under a contract for the excavation and removal of earth fill from their land constitute ordinary income, as the Tax Court held, or capital gain, as taxpayers contend.
The facts as found by the Tax Court are as follows:
On October 1, 1945, taxpayers, Walter R. Laudenslager and his wife Marguerite, purchased certain property in Middletown Township, Monmouth County, New Jersey, which they used as a residence and farm.
In 1952 the New Jersey Highway Authority ("Authority") fixed and announced the alignment for a proposed limited access toll highway which cut across a section of taxpayers' property. A portion of their property was taken in condemnation by the Authority. Their remaining property was located approximately 300 to 400 feet from the Red Bank entrance to the new highway.
George M. Brewster & Son, Inc. ("Brewster"), a road building contractor, became the successful bidder for the contract to construct the section of the highway adjacent to taxpayers' property. Brewster's contract with the Authority provided that it would be its responsibility to acquire "borrow" material (fill dirt required for road construction) from an outside source at its own expense to complete the highway to its final grades and elevations. Brewster, prior to submitting its bid, had determined through tests that taxpayers' property could provide the requisite quantity and quality of earth fill, and had inquired of taxpayers whether it could buy either a section of their farm from which the fill could be obtained, or the fill itself. Taxpayers refused to sell any of their property but agreed to permit Brewster to buy fill from certain sections of it. On May 1, 1953, taxpayers and Brewster entered into an agreement which provided, in pertinent part, as follows:
Attached to the May 1, 1953 agreement was a map of taxpayers' property showing the area from which Brewster was to remove earth fill and the depth of the excavation to be made in order that Brewster might obtain the 400,000 cubic yards specified in the agreement. As work on the highway progressed Brewster needed additional fill. Each time more fill was needed, Mr. Laudenslager and a representative of Brewster decided upon the area from which such material could be taken and they established an elevation down to which the material could be removed, such elevation coinciding with and matching the elevation on an adjoining area from which material had already been taken. The excavation and removal operations, which took place during the period from July 1953 to August 1954, were performed by Brewster; taxpayers did not participate in the work. A total of 1,036,180 cubic yards of fill was taken from taxpayers' property, as follows:
Period Cubic Yards
Excavated
and
Removed
July, 1953 125,000
August, 1953 75,000
September, 1953 160,000
October, 1953 120,000
November, 1953 100,000
December, 1953 120,000
January 1, 1954 to
August 2, 1954 336,180
The fill was ordinary, sandy loam, generally characteristic of the area in which taxpayers' property was located and had no intrinsic value, by and of itself. It was the proximity of taxpayers' property to the section of the highway being constructed that made the property valuable as the source for obtaining fill required in the construction of the road. If Brewster had excavated more fill than it needed, it could not have sold it because there was no market for it.
Brewster complied with the provisions of the May 1, 1953 agreement requiring it to remove and stockpile the topsoil before excavating the fill. At taxpayers' request, and in accordance with the agreement, Brewster respread the topsoil when the work of excavation had been completed. The area that was excavated had previously been used by taxpayers for growing farm crops. After the excavation of the fill and the respreading of the topsoil, the area would have required several years of rehabilitation to regain its original productive quality.
The coming of the highway made taxpayers' property desirable for housing development. Taxpayers had decided to sell the property for such purposes prior to the transaction with Brewster; and by agreement dated January 27, 1954, as modified by supplemental agreements dated April 14, 1954 and May 20, 1954, they sold all of the property except the buildings and land surrounding the buildings which they reserved for themselves. The usefulness of the property for housing development purposes was neither impaired nor enhanced by the removal of the fill.
Taxpayers were not engaged in the business of buying and selling real estate. Except for the transaction with Brewster, they never sold or excavated any dirt, earth or other material from their property.
Brewster made the following payments to taxpayers pursuant to the agreement for the excavation and removal of the fill:
Date of Payment Amount
May 12, 1953 $ 5,000.00
August 11, 1953 1,250.00
September 16, 1953 3,750.00
October 13, 1953 8,000.00
November 11, 1953 6,000.00
December 12, 1953 5,000.00
January 16, 1954 6,000.00
October 27, 1954 $ 16,809.00
Less: charges for
respreading
topsoil 2,500.00 14,309.00
___________ ___________
TOTAL $49,309.00
The Tax Court...
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