Dreymann v. Comm'r

Carl G. Dreymann, Petitioner, v. Commissioner of Internal Revenue, Respondent

Dreymann v. Comm'r

Docket No. 12707

United States Tax Court

11 T.C. 153; 1948 U.S. Tax Ct. LEXIS 109; 78 U.S.P.Q. (BNA) 302;

August 9, 1948, Promulgated

---

Decision will be entered under Rule 50.

1. In September 1932 petitioner orally promised to give his daughter a one-half interest in a process for moisture-proofing paper and paper board if she would devote her full time in helping him produce the process. Petitioner's daughter agreed and complied with the terms of the agreement by rendering substantial and vital services to petitioner from September 1932 to 1942 in the invention, development and improvement of the process. The process was invented sometime in the period between April 1933 and August 30, 1933. Held, as of the moment the moisture-proofing process was reduced to practice, petitioner's daughter, by virtue of the agreement of September 1932, acquired an undivided one-half equitable interest in petitioner's property and the "royalty" income which was realized from such interest is not includible in petitioner's gross income.

2. Upon the evidence, held, the gain which petitioner realized in the involved taxable years for the sale of the invention is taxable at capital gain rates provided for in section 117, Internal Revenue Code, and not as ordinary income.

Sidney B. Gambill, Esq., for the petitioner.

Homer F. Benson, Esq., for the respondent.

Hill, Judge.

---

HILL

Respondent determined deficiencies in petitioner's income and victory taxes as follows:

1941, income tax	$ 4,245.41
1943, income and victory tax	16,538.21
1944, income tax	12,385.84

Due to the forgiveness feature of the Current Tax Payment Act of 1943, no deficiency was determined for the year 1942. The questions are:

(1) Is all of the "royalty" income realized from the sale of the process for moisture-proofing paper and cardboard for the years here involved includible in petitioner's gross income?

(2) Is the "royalty" income realized by petitioner from the sale of the invention for the years involved taxable as ordinary income or as capital gain?

Petitioner reported the "royalty" income which he received as ordinary income, but he contends here that such income was capital gain.

The returns were filed with the collector of internal revenue for the twenty-third district of Pennsylvania at Pittsburgh.

FINDINGS OF FACT.

Petitioner resides in Pittsburgh, Pennsylvania. He was born in Germany in 1875. He came to the United States during July 1913 for the purpose of becoming a permanent resident. He brought with him his wife and his only child, Annie L. Dreymann, who was born in Germany in 1913. Previously, he had come to the United States in 1906 and 1912 to study manufacturing.

After his arrival in the United States in 1913 petitioner constructed a plant in Baltimore, Maryland, to manufacture certain products out of fish oil. This business was discontinued in 1918, due to the increase in the price of the basic ingredient needed to manufacture his products.

While petitioner was engaged in operating the processing plant in Baltimore, he devised a process for substituting fish oil in the manufacture of steel. The process was patented and made available to United States Steel Corporation free of charge. While petitioner was in Europe, after World War I, he was contacted by one Dewey, formerly research director of United States Steel Corporation, who wanted to purchase petitioner's patent. Petitioner sold that patent to him for $ 3,000. Petitioner developed no other inventions until he discovered the process for moisture-proofing paper herein involved.

During 1924, principally through financing by citizens of the United States, petitioner built a rayon factory in Utica, New York. He operated that plant until 1928, at which time he left Utica to go to Chicago as a consulting chemist. He stayed there approximately six months and then went to New York City to become a consulting engineer.

During 1929 petitioner's wife died in New York, leaving petitioner and his daughter Annie without relatives in this country. Annie (now Mrs. Wilson) inherited property from her mother.

During 1930 a New York firm employed petitioner to go to the Mellon Institute at Pittsburgh, Pennsylvania, to test laminating materials for manufacturing shirt collars.

During 1931, while at the Mellon Institute, petitioner heard of the need for moisture-proof paper and paper board. Since he wanted to return to manufacturing, petitioner became interested in developing the desired materials and process therefor. During 1931 and 1932 he did considerable research in connection with this moisture-proofing problem in a laboratory in his home.

In June 1932 Annie, then 19 years old, was graduated from Madeira Preparatory School in Washington, D. C. She majored in scientific subjects. She had hoped to go to college and specialize in chemistry, but she felt that, due to the depression, she should get a job. She talked about this problem with petitioner shortly after her graduation, but they decided to postpone further discussion until she returned from her employment as counselor in a summer camp. In September 1932 petitioner asked Annie to work with him on the development of the process for moisture-proofing paper and paper board. During this discussion he agreed to give her a one-half interest in any process for moisture-proofing paper and paper board their efforts might produce. He pointed out to her that he would rather have her associated with him than anyone else. She previously had helped him while she was a senior at Madeira during the Christmas and Easter vacations. Annie accepted that offer and they immediately commenced work. They did their work at first in petitioner's home laboratory, which was set up in his kitchen.

During a conversation with a man in Pittsburgh, Pennsylvania, petitioner learned of the Grant Paper Box Co. (hereinafter referred to as Grant), which had a manufacturing plant in Pittsburgh. Petitioner and Annie conferred with Grant, the president of the company, in April 1933. Grant felt they were proceeding on the wrong course and suggested that his company install a laboratory so they could continue further research along the lines he suggested. At this time petitioner entered into a contract with Grant dated April 1933. It contained, among others, the following provisions:

Whereas, the second party claims he has a formula for making paper, or paper board, moisture proof to the extent that the paper or paper board after being treated with the preparation will prevent moisture from penetrating the paper or paper board to the extent of     milligrams, or better, and,

Whereas, the first party desires to assist the second party in the development of the said formula.

Now, Therefore, This Indenture Witnesseth that the first party shall pay the second party the sum of $ 200.00 per month for period of two months.

During the said period the second party agrees to devote his time and attention to the development of any ideas in the manufacture of paper boxes and cartons, as well as water proof board and water proof paper.

In the event that the second party is successful in developing anything new along the lines above set forth, then the first party is to have the sole, exclusive right of manufacturing and selling the same in the United States and Canada and the first party agrees to pay the second party, five (5%) per cent of the gross sales.

* * * *

Soon after the execution of the above contract petitioner and Annie continued their experiments and research in the laboratory set up by Grant. Sometime after the execution of the April 1933 contract, the exact date was not shown, while they were testing certain material, petitioner spilled some wax which he found to be sticky. It occurred to him that this substance was the water-proofing material for which they had been searching. Tests with this substance developed the desired process and demonstrated its practical application. The results of these tests were communicated to Grant and thereupon another contract between petitioner and Grant was executed on August 30, 1933. That contract provided as follows:

Agreement, made this 30th day of August, 1933, by and between GrantPaper Box Company, a corporation of the State of Pennsylvania (hereinafter referred to as the "Company"), and Carl Dreymann, of Pittsburgh, Allegheny County, Pennsylvania.

Whereas, Carl Dreymann has developed a process for making moisture proof cardboard and has conducted his work of development at the plant of the Company under a preliminary agreement, dated April, 1933; and

Whereas, the parties have decided to commence production of moisture proof cardboard and marketing of cartons made therefrom (which cartons are hereinafter referred to as the Product);

Now, Therefore, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

1. The agreement of April 1933, is hereby rescinded.

2. It is agreed between the parties that Carl Dreymann shall forthwith make applications for United States and Canadian patents, protecting the manufacture of moisture proof paper, moisture proof cardboard and moisture proof cartons and paper boxes. The Company agrees to pay all fees and expenses necessary for the procuring of patent rights.

3. Carl Dreymann hereby agrees on the issuance of said patents, or either of them, to assign them to the Company.

4. Carl Dreymann agrees to devote all the time necessary to the perfecting and developing of his manufacturing process.

5. The Company agrees to pay Carl Dreymann as compensation for his time and ordinary services the sum of $ 200.00 per month, less any royalties due and payable under this contract. When the royalties payable according to the terms hereof shall amount to more than $ 200.00 per month then the company agrees to pay Carl Dreymann the sum of $ 350.00 per month less the royalties due and payable hereunder.

6. The Company further agrees to pay as royalty on all of the product marketed by it, five (5) per cent of the gross sales price, one-half to be paid to Carl Dreymann and one-half to his daughter, Annie L. Dreymann, settlements to be made by the fifth day of each month for all sales of the product made during the preceding month. It is understood that Carl Dreymann shall not assume the credit risk of the purchaser of the product, but shall be entitled to the payment of royalties regardless of the payment by the purchaser to the Company.

7. The Company agrees to render to Carl Dreymann with each payment of royalties a report of the sales of the product for the previous month. The Company further agrees to advise, and to keep advised, Carl Dreymann or his appointee with respect to the accounting methods employed by it, which methods shall be standard recognized accounting methods for the container manufacturing business, and to make available to him or his appointee at reasonable times for inspection and audit, all accounts and records of the company relating to the manufacture and sale of the product.

8. The Company will install as soon as practical one machine for the manufacture of moisture proof cardboard. It agrees to prosecute the manufacture, merchandising, distributing, and selling of the product with diligence and dispatch in the best possible manner. It further agrees to install additional machines from time to time as the requirements of the business demand.

9. The Company agrees not to assign the patent or patents, nor to grant any licenses under the said patents to any person or corporation without the written consent of Carl Dreymann. In case the Company grants licenses to any person or corporation for the manufacture of moisture proof cardboard or cartons made therefrom, or in case it sells moisture proof cardboard to others for the manufacture of cartons the royalty in each case shall be fixed and agreed upon between the parties hereto.

10. In the event that the Company becomes bankrupt, or that a receiver is appointed for it, or that it discontinues for any cause whatsoever the manufacture of moisture proof cardboard, or the manufacture of cartons made therefrom, then the Company agrees to reassign forthwith all patents for the manufacture of moisture proof cardboard, or for the manufacturing of cartons made therefrom, to Carl Dreymann.

11. The Company agrees to make diligent effort to make the sale of the product a profitable business and to cooperate with and consult the said Carl Dreymann about enlarging the sale of the product.

12. The Company agrees to protect and defend the validity of the patents and to pay for all legal and other expenses necessary to save the integrity of the patents. The Company agrees not to assign the patent or patents, or to grant any licenses under the said patents to any person or corporation without the written consent of Carl Dreymann.

13. This agreement shall remain in full force and effect for the duration of the essential patents for the product, but in no event less than the period of ten (10) years from the date hereof.

* * * *

The above agreement was drawn by Carl E. Glock, a Pittsburgh attorney. Prior to the execution of the agreement, petitioner and Annie had visited Glock's office on several occasions to discuss problems related to the contract. Annie was with petitioner when the contract was prepared. There never was any question of tax consequences during the time the contract was being discussed and when it was signed.

Annie worked for petitioner in the development and improvement of the moisture-proofing product and in its production from 1932 to 1942. She helped petitioner conduct tests in his search for the process; she conducted many tests herself; and she kept records of nearly all tests made. After the process was accidentally discovered, she continued conducting tests, both with petitioner and alone, to develop, improve, and perfect the process. She also assisted in working out the method of manufacturing the moisture-proofing materials. Her only compensation during these years, in addition to the "royalty" payments commenced in 1936, was $ 16 per week paid by Grant for typing circulars and assisting in sending them out to various people in the paper industry.

During 1942 Annie, desiring to contribute to the war effort, volunteered her services as a laboratory technician to St. Margaret's Hospital in Pittsburgh. She worked there as a technician from 1942 until the end of the war without compensation. After the war she continued to work there for six months, for which she was paid. Often during the period in which she worked for the hospital she returned to the company laboratory and helped her father for a few hours and sometimes during the entire working day. Many times in the evenings and on week ends, while she was employed at St. Margaret's, petitioner would consult with her about problems connected with the invention. She was married in May 1947.

Petitioner applied for a patent on May 17, 1934. The application for patent stated: "This invention consists in a composition of matter having adhesive and water-proofing properties, and in the method of its production. * * *"

On August 22, 1935, petitioner executed an instrument in writing as follows:

Whereas, I, Carl G. Dreymann, * * * have invented certain new and useful improvements in Composition of Matter and Method of Its Production, for which an application of Letters Patent of the United States was filed by me on the 17th day of May, A. D. 1934, under Serial No. 726,110;

And Whereas, GrantPaper Box Company, a corporation of the State of Pennsylvania, is desirous of acquiring rights and title and interests in said invention and the Letters Patent to be obtained thereof;

Now These Presents Witness, that for and in consideration of the sum of One Dollar to me in hand paid by the said GrantPaper Box Company, and other good and valuable considerations, I, the said Carl G. Dreymann, have sold, assigned, and transferred, and by these presents do sell, assign, and transfer unto the said GrantPaper Box Company the full and exclusive right, title and interest in and to the said invention set forth and described in the specification forming part of the above recited application or intended so to be, and in, to, and under the above recited application, and I do hereby authorize and request the Commissioner of Patents to issue such Letters Patent as shall be granted in pursuance of the above cited application to the said GrantPaper Box Company as the assignee of my entire right, title and interest in and to the same, for the sole use and behoof of the said purchaser, and its legal representatives.

Subject, however, to the following provisions of the contract dated August 30, 1933 between GrantPaper Box Company and Carl G. Dreymann, to wit:

[The provisions in question were those contained in paragraphs 9 and 10 of the contract of August 30, 1933, hereinabove set forth.]

The patent was granted February 18, 1936, by the United States Patent Office.

The first of the "royalties" which was paid by Grant under the terms of the contract of August 30, 1933, was received by petitioner and Annie during the latter part of 1936. The following schedule shows the amounts received by petitioner and Annie for the years 1936 to 1944, inclusive:

	Annie L.	Carl
	Dreymann	Dreymann
1936	$ 522.06	$ 522.06
1937	6,526.76	6,526.76
1938	6,948.67	6,948.67
1939	5,061.79	5,061.79
1940	5,730.60	5,730.60
1941	10,836.51	10,836.51
1942	16,279.59	16,279.59
1943	17,518.35	17,518.35
1944	18,078.57	18,078.57
Total	87,502.90	87,502.90

Annie deposited her "royalties" in a joint account in one bank and petitioner deposited his "royalties" in a joint account in another bank. The joint checking accounts were for their convenience in the event either of them became ill. Neither petitioner nor Annie ever drew checks on the joint account representing the "royalty" deposits of the other. Annie reported the amounts received by her from Grant throughout the years in her personal income tax returns. Petitioner reported the amounts he received in the years here involved as ordinary income.

In the determination of the deficiencies herein respondent determined that all of the amounts received by petitioner and his daughter under the contract of August 30, 1933, in the years 1941, 1942, 1943, and 1944 were includible in petitioner's gross income.

OPINION.

The respondent urges that petitioner assigned only his future earnings or income and that under the rule of Lucas v. Earl, 281 U.S. 11">281 U.S. 11, and Helvering v. Horst, 311 U.S. 112">311 U.S. 112, all of the "royalty" income here involved is includible in petitioner's gross income. We do not agree with this contention.

It is well settled that agreements to assign future inventions may be specifically enforced. Littlefield v. Perry, 88 U.S. 205">88 U.S. 205, 226; Conway v. White, 9 Fed. (2d) 863, 866; Ellis, Patent Assignments and Licenses (2d Ed.), § 73, p. 81. In Conway v. White, supra, the court stated as follows:

* * * agreements to assign any future inventions one may make may also be specifically enforced. Such contracts are not contrary to public policy, and are not on that account necessarily invalid. * * *

It is likewise true that an agreement to assign the invention need not be in writing to be specifically enforceable. See Ellis, supra, § 227, p. 250; § 289, p. 308.

In the instant case the record shows that petitioner orally agreed in September 1932 that his daughter should have an undivided one-half interest in the moisture-proofing process when and if it was found and that she should receive one-half of whatever was realized from such interest. That agreement was based upon the valuable and vital assistance which she was to, and did, render to petitioner in finding the process and in its subsequent development and improvement. In accordance with the above agreement, she commenced working for petitioner in September 1932 and from that time until the process was found in the period between April and August 30, 1933, she aided petitioner substantially in the research and experimentation leading to its reduction to practice. She continued working for petitioner in the subsequent development and improvement of the process and in the method of its production until 1942. Hence, we believe that by virtue of the above agreement Annie, having performed her part, acquired a one-half equitable interest in the moisture-proofing process the moment it was created. Her equitable title was recognized by Grant in the contract of August 30, 1933, when it agreed to pay her one-half of 5 per cent of the gross sales of the product which it marketed. Her right to legal title was specifically enforceable in equity, and, as of the time her equitable title vested, she had a right, title, and estate in and to property.

Respondent contends that the contracts between petitioner and Grant signed in April 1933 and on August 30, 1933, the application for a patent dated May 17, 1934, and the assignment of the patent made on August 22, 1935, all indicate that petitioner alone had title to the invention. It is true those instruments were all either signed by or issued in petitioner's name only. Upon the record, however, we do not believe these instruments negative the fact that it was petitioner's intent and desire that Annie should have one-half of the invention and that Annie did acquire such an interest.

It is thus apparent that the thing assigned in the instant case was not petitioner's future salary or personal earnings, as in the Earl and Horst cases, supra; it was, instead, an interest in property. Since the "royalty" income in question stemmed from a property interest one-half of which was owned by Annie, it follows that only one-half of the income here in question is includible in petitioner's gross income. See Nelson v. Ferguson, 56 Fed. (2d) 121;Hall v. Burnet, 54 Fed. (2d) 443.

Petitioner contends that the "royalty" payments received under the contract with Grant, executed on August 30, 1933, were capital gain, not ordinary income as reported in his return, and that only a percentage of such gains should be taken into account in computing his net income. He points out that the term "royalty" as used in that contract is a misnomer and that the "royalty" payments commenced in 1936 were part of the periodic payments which constituted the purchase price of the invention. We agree. See Kimble Glass Co., 9 T. C. 183; Commissioner v. Celanese Corporation, 140 Fed. (2d) 339.

Respondent contends that the payments in question were ordinary income, for the following reasons: (1) The property (invention) was sold on August 30, 1933, and, therefore, was not a capital asset in accordance with section 101 (c) (8) of the Revenue Act of 1932 ^{*129 of his trade or business, and (3) the application of the capital gains limitation would produce consequences repugnant to the intent and purpose of Congress in that petitioner did not sell the process for one lump sum. We believe respondent's contentions are without merit.}

Refutation of respondent's first argument lies in answering the question, When was the invention sold? Respondent contends it was sold on August 30, 1933, and that, since the process was reduced to practice some time between April 1933 and August 30, 1933, it was not a capital asset, as petitioner did not hold it for more than two years as required by section 101 (c) (8), Revenue Act of 1932. We do not agree that the contract of August 30, 1933, constituted a sale of the invention. A sale connotes a closed transaction. J. T. Wurtsbaugh, 8 T. C. 183, 189, and cases cited therein. In the contract of August 30, 1933, petitioner agreed to assign the patents to Grant when issued, but title to the invention did not pass to Grant at that time. That agreement constituted an executory contract to assign the invention and the patent on a future date. Consequently, since there was no present passing of title to the invention indicated by that contract, there was no sale within the purview of the statute. The assignment executed by petitioner on August 22, 1935, however, did constitute a closed transaction. That assignment reads in part as follows:

* * * I, the said Carl G. Dreymann, have sold, assigned, and transferred, and by these presents do sell, assign, and transfer unto the said GrantPaper Box Company the full and exclusive right, title and interest in and to the said invention set forth and described in the specification forming part of the above recited application or intended so to be, and in, to, and under the above recited application, * * *

Neither the provision that Grant could not assign or license the invention, nor that title to it would revert to petitioner in the event of the former's becoming bankrupt militated against the validity of the assignment. See Patent Assignments and Licenses, Risdale Ellis (2d Ed.), 1943, sec. 124, p. 148, Platt v. Fire Extinguisher Mfg. Co., 59 Fed. 897; Commissioner v. Celanese Corporation, supra.

Hence, the Revenue Act of 1934 *162 asset unless it can be proved that it falls within one of the specific exclusions of section 117 (b) of that act.

Respondent argues that, even if the invention was sold on August 22, 1935, still it was not a capital asset, as it was held by petitioner primarily for sale to customers in the ordinary course of his trade or business. He cites as authority for such argument Harold T. Avery, 47 B. T. A. 538. In that case the taxpayer was engaged in the business of inventing and selling patents outside of and in addition to his regular employment. The taxpayer there was in no way obligated to transfer the inventions and patents to his employer. He had disposed of five inventions to three different persons prior to the disposition of the invention there in question. We believe the facts in the instant case are clearly distinguishable. The evidence shows petitioner never attempted to sell the invention to any one except Grant, nor did he ever develop a scientific hobby outside of his employment into a business. At the time he discovered the process in question he was employed by Grant. He had been engaged over a period of years in manufacturing and working as a chemical and consulting engineer. He testified that the primary reason why he became interested in developing the process in question was to enable him to get back into manufacturing. The patent he sold shortly after the end of World War I was his only previous record of a patent sale. We do not believe the above facts support respondent's contention that petitioner held his invention primarily for sale to customers in the ordinary course of his business. See Edward C. Myers, 6 T. C. 258, 266.

We do not agree with respondent's contention that to apply the benefits of the long term capital gains provisions to the amounts received from Grant in the years here involved would be repugnant to the "underlying theory of the capital gains limitations." He argues that the purpose of the capital gains limitations is to lessen the impact of the Federal income tax "on the realization in one lump sum in one taxable year of an increment in value which had taken place over a number of years." Since petitioner here did not sell the process for one lump sum, he concludes, the application of the capital gains limitations in the case at bar would defeat the intent and purpose of Congress. In the first place, section 117 of the Revenue Act of 1934 did not contain any provision to the effect that payment from the sale of a capital asset must be in one lump sum. Respondent supports his position, however, by pointing to House Report No. 350, 67th Cong., 1st sess. (C. B. 1939-1 (Part 2), p. 176). That report accompanied the Revenue Act of 1921, which first introduced the capital gains provision into our taxing statute. It reads in part as follows:

Section 206: The sale of farms, mineral properties, and other capital assets is now seriously retarded by the fact that gains and profits earned over a series of years are under the present law taxed as a lump sum (and the amount of surtax greatly enhanced thereby) in the year in which the profit is realized. * * *

See also C. B. 1939-1 (Part 2), p. 189, and S. Rept. No. 275, sec. 206.

There is nothing in the House report or in the Senate report which supports respondent's assertion that a taxpayer, in order to have the tax benefit of the capital gains provisions, must sell his asset for one lump sum. As a matter of fact, this and other courts have held that where, as here, the consideration for the sale of a capital asset was in the form of periodic payments based on a percentage of the gross sales made during the year, the taxpayer was entitled to a capital gains limitation on the sums received in each year. See Commissioner v. Celanese Corporation, supra;George James Nicholson, 3 T. C. 596, and cases cited therein. We can find no valid reason for holding otherwise in this case.

Having determined the invention was a capital asset and that the application of the capital gains limitation is not violative of Congressional purpose, we must next ascertain how long petitioner held the invention before it was assigned. This is important with respect to the year 1941 because, if the invention was held for more than 18 months and not more than 24 months, only 66 2/3 per cent of the gain would be taken into account in computing net income; if it was held for more than 24 months only 50 per cent would be taken into account. Harry B. Golden, 47 B. T. A. 94.

With respect to the taxable years 1942, 1943, and 1944, if petitioner held the invention for more than 6 months, only 50 per cent would be taken into account. It is not known on what date between April 1933 and August 30, 1933, petitioner reduced the invention to practice. Since petitioner sold the process on August 22, 1935, he must show that it was reduced to practice sometime prior to August 22, 1933, before we can say that he held the asset for more than 24 months. See Harriet M. Hooper, 26 B. T. A. 758. However, he has failed in his burden of proving that fact; he has proved only that the invention was reduced to practice sometime in the period between April 1933 and August 30, 1933. Hence, we hold that the proof shows that petitioner held the invention here involved for more than 18 months but does not show that he held it for more than 24 months. Since petitioner does not contend that he had any unrecovered cost basis of the invention, as to the year 1941, 66 2/3 per cent of his total gain should be taken into account in computing his net income, and as to the years 1942, 1943, and 1944, 50 per cent of his total gain should be taken into account.

Decision will be entered under Rule 50.

---

Footnotes

• 1. SEC. 101. CAPITAL NET GAINS AND LOSSES.

  * * * *

  (c) Definitions. -- For the purposes of this title --

  * * * *

  (8) "Capital Assets" means property held by the taxpayer for more than two years (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business. * * *↩

• 2. SEC. 17 [Revenue Act of 1934]. CAPITAL GAINS AND LOSSES.

  * * * *

  (b) Definition of Capital Assets. -- For the purposes of this title, "capital assets" means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.↩

• 3. The section of the Internal Revenue Code applicable to the taxable year 1941 is as follows:

  "SEC. 117. CAPITAL GAINS AND LOSSES.

  * * * *

  "(b) Percentage Taken Into Account. -- In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income:

  "100 per centum if the capital asset has been held for not more than 18 months;

  "66 2/3 per centum if the capital asset has been held for more than 18 months but not for more than 24 months;

  "50 per centum if the capital asset has been held for more than 24 months."

  The section of the Internal Revenue Code applicable to the taxable years 1942, 1943, and 1944, is as follows:

  "SEC. 117. CAPITAL GAINS AND LOSSES.

  * * * *

  "(b) Percentage Taken Into Account. -- In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net capital gain, net capital loss, and net income:

  "100 per centum if the capital asset has been held for not more than 6 months;

  "50 per centum if the capital asset has been held for more than 6 months."↩