Philhall Corp. v. U.S.
| Decision Date | 15 December 1976 |
| Docket Number | No. 75-2389,75-2389 |
| Citation | 546 F.2d 210 |
| Parties | 77-1 USTC P 9116 PHILHALL CORPORATION, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Ervin M. Entrekin, Thomas V. White, John W. Nelley, Jr., Nashville, Tenn., for plaintiff-appellant.
Charles H. Anderson, U.S. Atty., Nashville, Tenn., Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews, Jr., Appellate Sect., Tax Div., Dept. of Justice, Washington, D.C., Gary R. Allen, Daniel F. Ross, Washington, D.C., for defendant-appellee.
Before PHILLIPS, Chief Judge, WEICK, Circuit Judge, and CECIL, Senior Circuit Judge.
This case involves a suit for a refund of federal income taxes paid on the sale of an option on land. The taxpayer, Philhall Corporation, contends that the option was a capital asset in its hands and that it was entitled to capital gains treatment on its sale. The United States asserts that the option, having the same character as the underlying land, was inventory or property of the taxpayer, held for sale in the ordinary course of business and not entitled to capital gains treatment. After a trial and a favorable jury verdict for the taxpayer, the District Court entered a judgment notwithstanding the verdict denying the taxpayer its refund. We affirm.
Philhall has been engaged in various facets of the real estate business, but primarily the construction and sale of homes. Its charter recognizes the following corporate purposes:
1. To engage in the business of developing real estate.
2. To carry on and conduct any and every kind of general contracting and construction business.
3. To take, acquire, buy, hold, own, hire, maintain, develop, sell, convey, lease, mortgage, pledge, exchange, improve and otherwise deal in and dispose of real estate and real property, or any interest or right therein, and all other kinds of property . . . without limit . . . .
5. To operate a general real estate agency and brokerage business, including the renting and managing of estates.
On November 19, 1969, the taxpayer entered into an option to purchase 188 acres of undeveloped land from the Tennessee Baptist Children's Home, Inc. The contract between the taxpayer and the Baptist Home stated: "It is understood and agreed by and between the parties that the property is being purchased by the Buyer for the purpose of developing same as a subdivision." The agreement also provided that Philhall would proceed to take affirmative steps toward obtaining the rezoning of the property and the approval of subdivision plats by the City of Brentwood. Under the terms of the contract, a $10,000 earnest money payment could not be refunded until Philhall had made all reasonable efforts to get rezoning and approval of its subdivision plans without success.
On May 11, 1970, representatives of the taxpayer appeared before the Brentwood Planning Commission. As reflected in the minutes of the Planning Commission, their purpose was to "present an informal plat for development of" the property. Prior to the appearance before the Commission, a representative of Philhall told James L. Murphy of Philhall's intention to develop the property and asked him to prepare informal plats of different uses to which the land could be put. Taxpayer's president circulated these drawings at the May 11, 1970, meeting and told the Planning Commission that the drawings illustrated what the taxpayer wanted to do with the land. However, no formal zoning request was submitted. Taxpayer's president appeared at another meeting of the Planning Commission seeking zoning advantageous to the property, but again there was no formal request.
No engineering feasibility studies were performed and no formal subdivision plans were prepared, but aerial photographs of the property were taken. Inquiries were made of both the City of Brentwood and its architectural engineers regarding the status of a Brentwood sewage system. Such a system would have allowed a higher density, more profitable development of the property. Throughout the time the taxpayer owned the property it was carried on its books as inventory land and costs incurred were described as development costs.
On February 15, 1971, the taxpayer sold its interest in the option to a limited partnership known as Brentwood South. The partnership included the taxpayer and the taxpayer's president and vice-president. The profits received in 1971 on the installment sale were treated as ordinary income and taxes were paid accordingly. A year later the taxpayer filed for a refund, claiming it had made an error in accounting and that the profit from the sale was a long-term capital gain. After the refund was denied, the present suit was filed in the District Court, seeking recovery of $6,248.83, plus interest.
A trial of the issue was conducted and a jury found that the sale was taxable as long-term capital gain. Two days after the conclusion of the trial the clerk of the court entered a document titled "Judgment" in the record and sent a copy to each party. The document set forth the following:
Fifteen days after the entry of the "Judgment," the United States filed a motion for judgment notwithstanding the verdict, or in the alternative, a motion for a new trial. On October 8, 1975, District Judge L. Clure Morton entered an order granting the judgment n. o. v. and dismissed the action on the merits. The taxpayer appeals from that order.
The first issue on appeal concerns the timeliness of the motion for judgment n. o. v. Rule 50(b) of the Federal Rules of Civil Procedure provides that a motion for judgment notwithstanding the verdict must be made within ten days after the entry of judgment. In the absence of a timely motion, the courts do not have the power to grant such relief. Johnson v. New York, New Haven & Hartford Railroad, 344 U.S. 48, 50, 73 S.Ct. 125, 97 L.Ed. 77 (1952).
Appellant argues that the first document entered by the clerk of the court was a judgment in the case and that the defendant's motion for judgment n. o. v. was too late. In support of its position the taxpayer asserts the document was titled "Judgment," that it was set forth on a separate document, and that the jury decision was simple and precise. In such cases, the appellant argues, the rules clearly contemplate prompt entry of the verdict by the clerk of the court. It is a ministerial duty and, according to the rules, needs no approval from the court.
The record demonstrates, however, that the first document was not a judgment but a mere clerical error. The District Court had informed counsel that judgment would not be entered until after recomputation of the amount of the refund to be paid by the Internal Revenue Service. The District Judge in his findings stated that, "(n)either the Court nor the Clerk's Office considered or intended that to be the final judgment in this cause of action."
In addition to the fact that the court never intended the document to be a final judgment, the document itself was not legally sufficient to constitute a final judgment. As the Supreme Court recognized in United States v. F. & M. Schaefer Brewing Co., 356 U.S. 227, 232, 78 S.Ct. 674, 678, 2 L.Ed.2d 721 (1958), a tax refund suit is an action for money only, and
In Schaefer the Court held that the award of a monetary sum was a vital part of the decision in a refund action:
(I)t is obvious that a final judgment for money must, at least, determine, or specify the means for determining, the amount . . . and an opinion, in such a case, which does not either expressly or by reference determine the amount of money awarded reveals doubt, at the very...
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