DocketNumber: Docket No. 3504-78
Judges: Nims
Filed Date: 4/29/1980
Status: Precedential
Modified Date: 10/19/2024
*141
Petitioners formed a subch. S corporation in 1968 to acquire a tract of undeveloped land. They intended to sell the entire property intact as soon as the local municipality approved the corporation's application to subdivide the property. A dispute between the municipality and the corporation developed over the subdivision application. A major portion of the property was sold in 1973, after resolution of the controversy. The corporation acquired no other property and was engaged in no other activity.
*188 Respondent determined deficiencies for 1973 for the following individuals:
George V. Buono | $ 9,621 |
John R. and Margaret H. Fiorino | 17,550 |
Thomas F. and Judy K. Kane | 35,420 |
Francis A. and Barbara A. Miller | 8,750 |
Ben and Sylvia Roberts | 7,543 |
Henry E. and Edith M. Traphagen | 10,214 |
Respondent also asserted an addition to tax for 1973 under section 6653(a) against Thomas F. and Judy K. Kane in the amount of $ 1,771. Although separate notices of deficiency were sent to the various petitioners, a single petition*143 was filed by all petitioners, as permitted by
Concessions having been made, the issues for decision are:
(1) Whether the sale of certain real property constitutes the sale of a capital asset within the meaning of
(2) Whether the activities of certain shareholders should, under
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulation, together with the exhibits attached thereto, is incorporated herein by this reference.
The petitioners' legal residences on the date the petition was filed were as follows: *144 *189
George V. Buono | New Brunswick, N.J. |
John R. and Margaret H. Fiorino | Matawan, N.J. |
Thomas F. and Judy K. Kane | Summit, N.J. |
Francis A. and Barbara A. Miller | Matawan, N.J. |
Ben and Sylvia Roberts | Matawan, N.J. |
Henry E. and Edith M. Traphagen | Wickatuch, N.J. |
In 1973, a corporation known as the Marlboro Improvement Corp. (referred to hereinafter as Marlboro Improvement) sold some real property which gave rise to recognizable gain. During 1973, each of the male petitioners were shareholders of Marlboro Improvement, 2 a corporation which had elected to be treated as a small business corporation under subchapter S of the Internal Revenue Code. Each shareholder reported his aliquot share of the net proceeds from the sale on his 1973 tax return as gain from the sale of a capital asset.
In 1967, petitioner*145 Henry Traphagen learned that a neighbor, Kenneth V. Hayes, was interested in selling a large tract of farmland. 3 With the exception of a 1-acre portion which was to be retained for a personal residence, Hayes wanted to dispose of the entire tract as he had recently retired from farming. The property was located in the township of Marlboro, Monmouth County, N.J. (referred to hereinafter as Marlboro or the town), about a half mile from Traphagen's residence, and consisted of approximately 130 acres.
Traphagen believed that acquisition of this property would present a good opportunity for financial gain. Up until that time, there had been minimal residential development in Marlboro because many residents wanted to preserve the town's rural atmosphere. Traphagen feld that a significant market for the sale of residential property had resulted*146 from the town's antidevelopment climate. For example, he was aware that Monmouth Heights, a successful residential development having over 300 homes, had been built approximately one-third of a mile from Hayes's tract.
Traphagen also realized that property which had been approved *190 for subdivision was significantly higher in value than raw land. In this context, approval of a subdivision plan means that the local municipality has authorized the respective sizes for each building lot within a tract as well as the layout for streets, sewers, sidewalks, and any commercial areas. As a consequence, developers of residential housing are generally willing to pay a premium for land which has already obtained subdivision approval.
At the time, the zoning ordinance of Marlboro Township provided for 40/30 or three-quarter-acre zoning. Under this ordinance, 40 single-family residences could be built per 30 acres of land. In other words, each building lot was required to contain three-quarters of an acre of land. During the negotiations with Hayes, Traphagen informally approached the Marlboro Planning Board to ascertain whether an application for subdivision approval pursuant to *147 the 40/30 zoning ordinance would encounter any difficulty. Members of the planning board informed Traphagen that he would not have any problems in processing an application under the current zoning ordinance.
Hayes and Traphagen agreed to a purchase price of $ 2,200 an acre. After this final price was negotiated, Traphagen contacted a longtime friend, petitioner John Fiorino, and asked him if he would be interested in jointly purchasing Hayes's property as Traphagen felt that the transaction was too large to handle alone. Fiorino agreed to join Traphagen in this venture.
A contract for purchase of the property was executed on December 11, 1967, with both Traphagen and Fiorino as parties thereto. The total net purchase price was $ 270,600. 4*148 Hayes received $ 20,000 on the signing of the contract with an additional $ 30,000 due on April 30, 1968. The balance of the purchase price was to be financed by a purchase-money mortgage held by Hayes. No principal payments were due until 4 years after the closing date. 5 Interest on the mortgage was set at 6 percent and due quarterly.
Soon after the purchase contract was executed, Fiorino and *191 Traphagen sought other investors to join them. Both realized that the transaction, with all of its attendant financial burdens, was too large for them to manage by themselves. The additional people who entered into the transaction comprise the remaining petitioners in this case. All were personal friends of either Fiorino or Traphagen (or both).
The petitioners agreed that a corporation would be formed to hold the property with each petitioner being entitled to a percentage interest commensurate with his respective capital contribution. Accordingly, Marlboro Improvement was formed on June 19, 1968, under the laws of New Jersey with Traphagen, Fiorino, and petitioner Francis A. Miller listed as the incorporators.
Marlboro Improvement's shareholders and the respective shares each held were:
Name | Shares | Percent |
Buono | 40 | 10 |
Roberts | 60 | 15 |
Miller | 60 | 15 |
Traphagen | 60 | 15 |
Kane | 80 | 20 |
Fiorino | 100 | 25 |
*149 In addition, Marlboro Improvement elected to be taxed as a small business corporation under the provisions of subchapter S, subtitle A, of the Internal Revenue Code.
On June 19, 1968, Hayes transferred the property to Marlboro Improvement by deed. The final purchase price was $ 286,374. As the corporation was credited with a $ 50,000 downpayment, the amount of the purchase-money mortgage was $ 236,374.
The petitioners, generally, were in agreement that the property would be held for about 1 1/2 years. They intended to sell the entire tract intact as there were no plans to develop the property and dispose of it in separate lots. However, as it was apparent that an approved subdivision plan would significantly enhance the property's marketability and value, soon after the property was acquired, Marlboro Improvement undertook the preliminary steps needed to process a subdivision application.
In connection with its subdivision application, Marlboro Improvement was required to submit a plan setting forth the boundaries of the respective lots as well as the street plans for *192 the tract. Marlboro Improvement retained engineers to draft a map (or sketch plat) showing the division*150 of land into the respective lots, the street layout, and the proposed location of water and sewer lines. In order to prepare the map, the engineers took numerous topographical surveys of the land.
On December 3, 1968, Marlboro Improvement applied to the Marlboro Planning Board for a classification of its proposed subdivision. The details of the subdivision were set forth on the sketch plat it submitted with its application. On December 23, 1968, the application was classified as a "major" subdivision (since the property would eventually be developed residentially).
The subdivision plan which was submitted to the planning board proposed a division of the entire tract, with the exception of a 15-acre portion, into three-quarter-acre residential lots. The 15-acre portion was reserved for a shopping center, since that portion of the tract had already been zoned commercially under the town's zoning ordinance. 6
*151 Subsequently, there were a series of informal meetings or work sessions with the planning board. At these meetings, which were attended by Traphagen and one of Marlboro Improvement's engineers, the proposed subdivision plan was analyzed and the board would recommend various engineering changes to the sketch plats.
The final workshop meeting occurred sometime in the early part of July 1969, about 1 week before Marlboro's application for preliminary approval was to be formally heard. At this meeting, the planning board informally agreed to approve Marlboro's subdivision. Consequently, Traphagen and the other petitioners anticipated that the planning board would automatically vote in favor of approving Marlboro Improvement's subdivision plan at the formal application hearing.
The next week at the regular planning board meeting, the expectations for routine approval were not realized. The planning board proposed a resolution that the township of Marlboro amend its zoning ordinance to provide for 2-acre residential zoning for the entire town. 7 Pursuant to this proposed amendment, *193 every residential lot would have to consist of a minimum of 2 acres. The planning board failed*152 to act on Marlboro Improvement's application and deferred consideration thereon until its next regular meeting.
On or about July 14, 1969, the Marlboro Township Council abided by the planning board's proposal and adopted an ordinance, effective August 18, 1969, changing the town's residential zoning requirements to 2 acres.
After the amendment was passed, the planning board conducted its next meeting. The corporation's subdivision application was routinely denied since it no longer conformed with the town's zoning requirements.
The petitioners were quite upset over the planning board's change of heart and the new zoning ordinance; the planning*153 board's recommendation for a zoning amendment had taken them totally by surprise. Up until that time, the board members had consistently conveyed the impression, through a series of informal representations, that Marlboro Improvement's subdivision plan would be approved without any difficulty. A significant amount of time and money, particularly with respect to the sketch plat of the proposed subdivision, had gone into the preparation of their subdivision application. These maps were now rendered useless by the town's new zoning requirements. In order to comply with the new ordinance, more money would now have to be spent for the drafting of new sketch maps.
Submission of a conforming subdivision plan was not, however, viewed as a viable alternative since a residential tract with larger lot sizes was not considered readily salable. Petitioners felt that they had no option other than to seek legal redress for their grievances. As a result, litigation ensued between Marlboro Improvement and the town over the zoning amendment. Finally, in April of 1972, Marlboro Improvement and the town agreed to a settlement. Pursuant to this settlement (as evidenced by a consent judgment), *154 Marlboro Improvement was granted the right to file and obtain approval for a subdivision plan based on half-acre zoning (the town had recently amended its zoning ordinance in contemplation of the settlement). Every building *194 lot was required to consist of at least one-half acre. In addition, Marlboro Improvement agreed to dedicate 70 acres to the town; a 15-acre portion of the tract was to retain its commercial zoning.
Marlboro Improvement subsequently applied to the Marlboro Planning Board for approval of its revised sketch plat. The subdivision map consisted of 79 half-acre residential lots, a 15-acre area for future development as a shopping center, and a 70.6-acre residual area to be dedicated to the town. The subdivision application was given final approval on November 9, 1972, in a resolution by the Marlboro Township Council.
The portion of the property which had been subdivided into 79 half-acre lots was sold to Fairfield Manor, Inc. (Fairfield). Fairfield, a development company, had learned that Marlboro Improvement was in the process of making its revised subdivision application. A Fairfield developer had spoken to Mrs. Traphagen one day while paying a water*155 bill and she informed him about the property which Marlboro Improvement held.
A contract to sell the property to Fairfield was executed on November 3, 1972. The 79-lot tract was deeded to Fairfield on January 25, 1973, for a total purchase price of $ 513,500.
The 130-acre tract acquired from Hayes in 1968 is the only property Marlboro Improvement has ever owned. With respect to the 79-lot portion sold to Fairfield, the corporation did not engage in any advertising, solicitation, sales promotion, or other marketing techniques. The only other realty transactions which Marlboro Improvement had any involvement with were a condemnation by the State of New Jersey of a 2 1/2-acre portion and the subsequent sale of the remaining 15-acre shopping center lot.
During this same approximate time period, the corporation was involved in negotiations over a condemnation award. The State of New Jersey had condemned 2 1/2 acres of the tract in order that a new State highway, Route 18, could be constructed. The proposed highway cut through the lower portion of the tract and would isolate about 5 acres. Eventually, in 1972, the State of New Jersey paid Marlboro Improvement $ 29,000 for the 2 1/2*156 acres it condemned. 8
*195 The 15-acre lot had originally been zoned commercially for future development as a shopping center. After the sale to Fairfield, this was the only land Marlboro Improvement held. The town, however, had second thoughts about permitting the development of the 15-acre lot into a shopping center. As a result, Marlboro Improvement applied for a zoning variance on June 15, 1976. The planning board, on November 3, 1976, approved the application by Marlboro Improvement for a zoning variance and allowed it to obtain residential zoning for the 15 acres. That portion was subsequently subdivided into 30 residential lots and sold. 9
*157 During the period from the acquisition of Hayes's property until the eventual sale to Fairfield, Marlboro Improvement incurred various expenses totaling over $ 100,000. In addition to the engineering fees, there was a $ 3,000 fee incurred in connection with the subdivision application. A major portion of the expenses Marlboro Improvement paid was attributable to interest and local taxes, which petitioner Ben Roberts, Marlboro Improvement's accountant, estimated at $ 5,000 per quarter during the period Marlboro Improvement held the property.
During the period from acquisition until sale, the value of raw land in the vicinity of Marlboro Township increased at a rate of 5 to 10 percent per year.
The petitioners in this case have varying backgrounds, with some of them having previously engaged in real estate activities. Traphagen, between 1967 and 1973, was employed for over 30 years as a tool and die maker. He has been a resident of Marlboro Township for over 12 years and at the time of the trial of this case was Deputy County Clerk of Monmouth County.
Prior to his residence in Marlboro, Traphagen lived in Matawan Township, where he held the public offices of township committeeman*158 and mayor. In addition, he had also been a member of Matawan's planning board, library commission, and chairman of its utilities authority. His familiarity with zoning procedures was derived from his service as a member of the Matawan Planning Board. At one time, he was involved in selling residences and he still maintains a saleman's license. *196 However, the last commission he derived from selling a home was approximately 10 years ago in 1970.
John Fiorino is a licensed real estate and insurance broker and an appraiser of residential land. He is the owner of Van's Agency, a real estate agency where Traphagen was once employed for a short time. The business premises of Van's Agency were used for conducting Marlboro Improvement's affairs. From approximately 1961 to 1965, Fiorino served as a member of the Matawan Planning Board.
Francis Miller is an industrial real estate broker involved in the sale and leasing of factories, warehouses, office space, and industrial land. He first learned of the property from Fiorino, whom he had known since 1960. In the 1960's, Miller was a partner with Fiorino in Van's Agency. Most of their business involved the resale of residential*159 homes in Matawan, N.J. Miller left Van's Agency in 1969. He never had any previous involvement in a residential real estate venture.
Ben Roberts is a certified public accountant who learned of this venture from Traphagen. He was treasurer of Marlboro Improvement and was responsible for the corporation's books and records, including its tax returns.
George V. Buono is a school principal and has been so employed since 1961. He first learned of Hayes's tract from Fiorino.
Thomas F. Kane is in the securities business. Miller first informed him of the property. He sold his interest in the corporation after the property was sold to Fiorino and Traphagen in 1973.
With the exception of Traphagen and Fiorino, all of the petitioners were passive investors in the transaction. Each contributed their proportionate initial capital outlay and made such additional contributions as were necessary. Traphagen and Fiorino were actively involved in Marlboro Improvement's affairs, particularly with respect to obtaining subdivision approval and the lawsuit with the town. As a consequence, after the sale to Fairfield, the corporation voted them $ 25,675 for services they rendered on its behalf.
*160 OPINION
This Court has previously held that "There is nothing unique or improper about a corporation engaging in exclusively investment *197 activity," including under this rubric a subchapter S corporation.
Briefly, the facts in
*162 We found as a fact in
In the case before us, petitioners are, in effect, asking us to go one step beyond
Respondent's first argument for denying capital gain treatment is based on the contention that the property Marlboro Improvement sold to Fairfield was "property held by the taxpayer primarily for sale to customers in the ordinary course of [its] trade or business." (
*164 Petitioners, on the other hand, argue that the Hayes's tract was acquired and has consistently been held solely for investment purposes and that Marlboro Improvement was never in the business of selling real estate. Petitioners urge that ordinary income treatment should not result since the property was merely subdivided (i.e., approved by the township of Marlboro to be sold in separate lots) and sold intact. Given the presence of *199 only a single conveyance, petitioners claim that Marlboro Improvement's activities lack sufficient continuity and frequency to constitute a trade or business under
Many courts, including this one, have relied on a group of certain key factors to determine whether property is excluded from the
*166 Here, there is little dispute concerning Marlboro Improvement's purpose for acquiring Hayes's tract. The petitioners testified that they intended to hold the property for approximately 1 1/2 years and then resell it at a profit. It is evident that petitioners intended ab initio to resell the property as soon as the subdivision plan had been approved. But even though Marlboro Improvement may have held the property at all times for sale to customers, our analysis cannot end here. Satisfying the "held for sale to customers" requirement of
We are convinced that Marlboro Improvement did not hold the tract "for sale to customers in the ordinary course of a trade or business" for purposes of
Our determination here is based on considerations which relate primarily to a lack of frequent and substantial sales activity. In the context of this case, we consider the lack of frequent sales to be the most important
All of the evidence demonstrates*168 the isolated nature of the transaction. Hayes's tract has been the only property Marlboro Improvement acquired. Related to this is a lack of improvements, construction, or sale of the tract in individual lots. The solitary nature of the acquisition and the single sale to Fairfield, by definition, precludes a finding that Marlboro Improvement was engaged in substantial and frequent real estate sales over an extended period of time. 15 The only other dispositions of property consisted of the condemnation by New Jersey for Route 18 and the subsequent sale of the shopping center portion after the township of Marlboro retreated from its plan to permit the development of that area commercially. Both of these dispositions, which resulted solely from the mandates of State and local governments, were essentially involuntary and do not add anything of significance for purposes of analyzing the frequency and substantiality of Marlboro Improvement's sales.
*169 *201 In our view, Marlboro Improvement's efforts in obtaining subdivision approval and selling the major parcel as a single tract, coupled with two separate dispositions of the highway and shopping center parcels, do not put the corporation in a trade or business. Admittedly, subdivision of the tract into half-acre building lots takes us in the direction of the indistinct line of demarcation between investment and dealership. It may confidently be expected that eventually another case will present us with a fact situation where the taxpayer not only subdivides, but also physically lays out streets and puts in utilities before disposing of the tract in one single transaction. That decision, of course, is for another day. 16
*170 But here the petitioners have merely enhanced the property by taking purely legal steps to make it more marketable. In a State as densely populated as New Jersey, with 517 separately incorporated municipalities -- each jealous of its own prerogatives -- a successfully achieved major subdivision is no mean feat. This fact petitioners established beyond peradventure of a doubt at the trial of this case.
The
As the Third Circuit (the court to which this case would be appealed) has held in
We are not unmindful that the Third Circuit found ordinary income rather than capital gain in
About halfway through the lease term, the trucking company was*172 sold to an unrelated business, but the taxpayer continued grading, filling, and acquiring segments of the land. Significantly, shortly after the trucking company was sold, the taxpayer commenced selling segments of the unimproved land, and within 7 years it had sold approximately 40 of its 75 acres at a considerable profit in six separate transactions. Finally, the Circuit Court found it extremely significant that a number of the trucking company's other corporations acquired, improved, and resold marshland properties during the same general time frame as Jersey Land so operated. The court, accordingly, concluded that the taxpayer's acquisition, improvement, and sale of the property, which was part of a pattern of similar activities carried on by associated corporations, established that the taxpayer held the tract primarily for sale in the ordinary course of its business, resulting in ordinary income rather than capital gain.
Some of the facts that distinguish the case before us from those in
Thus, while questions in the dealer-investor area are rarely wholly free from doubt, we believe petitioners' facts are distinguishable from those of
In view of the fact *174 that Marlboro Improvement's activities do not fall within the general fact pattern of cases which have found ordinary income -- i.e., subdivision in conjunction with improvements and lot sales 17 -- respondent argues that the activities in connection with obtaining approval for the subdivision plan, alone, constitute a trade or business for purposes of
*175 To buttress this argument, respondent has directed our attention to several cases that have discussed the role which nonmarket appreciation plays in determining the character of gain on the sale of property. 19*176 Respondent indicates that any appreciation of the property could not have exceeded 10 percent *204 for any one year during Marlboro Improvement's holding period. 20 Accordingly, respondent contends the bulk of the gain realized on the sale to Fairfield is attributable to Marlboro Improvement's obtaining approval for its subdivision plan and thus urges that capital gain treatment should be denied since the property's appreciation did not accrue over a substantial period of time, citing
The Fifth Circuit in
Indeed, the cases are many where taxpayer efforts have contributed to value and have been accorded capital gains treatment. * * * We therefore conclude that this blanket interdiction of capital gains treatment where there has been any laying on of hands is belied by the past decisions of this court. 22
Petitioners, through Marlboro Improvement, merely subdivided the land in order to make it more marketable and enhance its value. 23 Indeed, many cases have allowed*177 capital gains treatment for taxpayers who subdivided their property even though improvements were made thereto and even though sales were effected by numerous dispositions of individual lots. See, e.g.,
The cases which respondent has cited as authority for a blanket "taxpayer efforts" rule fail to lend support for such a proposition. 24 Although the appreciation at issue in each of the*178 *205 cases was attributable mainly to the efforts of the taxpayer, such a factor supported a finding that the substantiality and frequency of the activities in question were sufficient to put the taxpayer in the real estate business. In other words, the fact that a taxpayer's activities contributed to the property's appreciation did not acquire significance independent of the question whether these activities constituted a trade or business under
*179 In an area of the tax law which is essentially factual, we cannot adhere to a blanket rule that any activity which results in appreciation necessarily constitutes a
We now turn to the respondent's second argument for taxing petitioners' sales proceeds as ordinary income. Respondent argues that petitioners are not entitled to report the income from the sale to Fairfield as capital gain because of the provisions of
(d)
Respondent points out that three of Marlboro Improvement's shareholders, Miller, Traphagen, and Fiorino, engaged in real estate activities and possessed sales licenses. Respondent maintains *206 that the subject property would not be a capital asset in their hands by virtue of such activities. Since they owned 55 percent of the stock of Marlboro Improvement, admittedly a substantial portion, respondent concludes that, under the regulation, Marlboro Improvement's sale of the property cannot be treated as capital gain.
The flaw in respondent's argument is his assertion that the property would not have been a capital asset in the hands of any of the three shareholders. On the basis of the facts presented, we find that the property would have been a capital asset in the hands of any of Miller, Traphagen, or Fiorino.
Fiorino presents the most likely choice for dealer status: he is a licensed real estate broker and appraiser of residential realty. *181 However, the fact that a taxpayer is a broker does not require a determination that he is in the business of buying and selling real estate for his own account (in other words, a dealer).
A broker is, in effect, a middleman or go-between who brings buyers and sellers together and who receives compensation for such efforts in the form of commissions. Brokerage activities necessarily relate to property owned by others.
Although a taxpayer can be both a broker and a dealer,
In the instant case, there is no*182 evidence that Fiorino bought and sold property on his own account and in such an extensive manner as to constitute a separate business as a dealer. It is also clear that the property would have been a capital asset in the hands of both Miller and Traphagen. Miller merely possessed a broker's license and, moreover, his real estate activities involved a different genre, namely, industrial real estate. Traphagen's connection with the real estate business was attenuated at best: he possessed a broker's license and his last sale occurred approximately in 1970.
*207 As regulation
Accordingly, we hold that petitioners were entitled to report the income from the tract sale as capital gain.
1. All section references are to the Internal Revenue Code of 1954 as amended and in effect during the years in issue.↩
2. Petitioners Margaret H. Fiorino, Judy K. Kane, Barbara A. Miller, Sylvia Roberts, and Edith M. Traphagen are parties to this proceeding as a result of having filed joint returns with their respective spouses.↩
3. Although Hayes owned the property jointly with his wife, the property was sold mainly through his efforts. Thus, for purposes of convenience, we will refer solely to Mr. Hayes.↩
4. This figure was based on the sale of an estimated 123 acres and was subject to an exact computation based on the actual number of acres in the tract. The actual number of acres was subsequently determined to be 130.6.↩
5. Although the closing occurred on June 19, 1968, the date for computing the accrual of interest and the due date for principal payments was May 31, 1968.↩
6. Mr. Hayes was able to farm this land since he was paying taxes to maintain an agricultural assessment.↩
7. There is a conflict between the testimony given and one of the documents submitted insofar as the minimum acre requirement of the proposed amendment is concerned. Although such has no bearing on the outcome of this case, we accept for purposes of discussion the testimony that the proposed amendment would change Marlboro's residential zoning requirements to a minimum of 2 acres.↩
8. Most of this award was paid to Hayes since Marlboro Improvement was in arrears on its first principal payment ($ 25,000).↩
9. The record does not indicate when either of these events occurred.↩
10. In
11. In other words, it would have been necessary for Marlboro Improvement, the subch. S corporation in the case before us, to have obtained some subdivision approval before doing what the
12. See, e.g.,
"The purpose of the statutory provision with which we deal is to differentiate between the 'profits and losses arising from everyday operation of a business' on the one hand (
13. It is readily apparent that any one case can be sui generis since its particular outcome may result from its own peculiar facts. See
14. The Fifth Circuit has recently emphasized in
15. Compare
16. The Sixth Circuit recently upheld a District Court determination that sales proceeds were taxable as capital gain in a case where the property was subdivided, improved by the addition of gravel roads,
17. E.g.,
18. For a discussion regarding dealers, see
19.
20. This is based on the testimony of John Brody, a real estate appraiser familiar with property located in the Marlboro area. He estimated that during the late 1960's and early 1970's, the real estate in Marlboro Township increased in value between 5 and 10 percent each year.↩
21.
22. The
23. See
24. See the cases cited in n. 17
25. The fact that a substantial amount of appreciation is due to the taxpayer's activities is, of course, a significant factor to consider in making this determination. However, such does not, standing alone,
26. We note that in the partnership area there is substantial doubt as to whether the dealer status of a partner will taint the partnership on a sale of property. See discussion in W. McKee, W. Nelson & R. Whitmire, Federal Taxation of Partnerships and Partners, par. 9.05[1], [2], pp. 9-19, 9-23.↩
27. It has been suggested that the validity of the regulation may be open to question, especially in view of the contemporaneous enactment of the shareholder characterization rules for collapsible corporations in sec. 341(e). See B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders, par. 6.06, pp. 6-26 and n. 58 (4th ed. 1979).↩
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