Court Opinion

ID: 6888403
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:35:15.31347+00
Date Added: 2024-06-11T16:05:46.831157
License: Public Domain

WALLER, Circuit Judge
(dissenting).
The taxpayers seek a reversal because, they say, the evidence before the Tax Court shows that the properties sold in 1938 and 1939 were not held by petitioners primarily for sale to customers in the ordinary course of their trade or business, and, therefore, the profits from the sales were long-term capital gains as defined by Sec. 117 of the Revenue Act of 1938.1 I *647agree. The principal business of the Taxpayer had been blocking up leases for major oil companies, but as an incident to such business he frequently acquired oil leases, mineral rights, or the fee-simple title to parcels of land for his own account. He was endeavoring to obtain for himself some oil producing property. Eleven of the properties so acquired were drilled for oil. Some were abandoned. Some were sold. Some were farmed out to others. What happened to his holdings depended on whether oil was found on his or nearby property, or whether off-set wells were to be drilled, or whether someone else wanted the lease worse than taxpayer did, or whether the prospect of oil production in the vicinity was proximate or remote. The fact that one in his financial circumstances developed, or caused to be developed, for oil only eleven parcels is no proof that taxpayer acquired and held the other parcels primarily for sale to customers in the ordinary course of trade. The preferred definition of customer by Webster’s New International Dictionary is “one who regularly or repeatedly makes purchases of, or has business dealings with a tradesman or business house; one who customarily has dealings with a business establishment”. In Weinhouse v. Cronin, 68 Conn. 250, 36 A. 45, it was said:
“A customer is a person with whom a business house or business man has regular or repeated dealings. The plaintiff being a real-estate broker, his customer would be one for whom he had acted in the buying or selling of real estate.”
See also Lyons v. Otter Tail Power Co., 70 N.D. 681, 297 N.W. 691. Under the definitions, the only “customers” the taxpayer had were the major oil companies and it was not shown that he held these properties for sale to them, or that he sold any of the properties in question to them.
The Tax Court seems to have been influenced in its conclusions by its findings that petitioner “had some wells drilled over a period of years and is definitely in the oil business”. So is The Texas Company, but that fact is no proof that The Texas Company is holding leases primarily for sale to its customers in due course. The law does not intend to deny a real estate broker the same privilege in the sale of his own land that it allows any other taxpayer who sells his capital assets, unless the selling of his own land is his primary business.
The fact that taxpayer was willing to sell anything that he owned if he could get his price is persuasive of nothing except that taxpayer is not different from the average person in that respect.
The taxpayer’s purpose in the acquisition of the asset is the test rather than the fact that he sold it. Did he buy the asset to put into his stock in trade with the idea of resale in due course, or did he buy it, as he testified (without contradiction), with the idea to drill if production got close; to sell if prospects were not good; to forfeit if lease was worthless; to farm out perhaps; and always with the idea of being governed in his course as to each lease by subsequent events? Holding a lease until one could see “how the cat hops” is not holding it primarily for sale to customers in due course.
The recent case of Dobson v. Commissioner of Internal Revenue, 64 S.Ct. 495, does not require an affirmance of the present case because there is no factual controversy here. The facts are not now, and have never been, in dispute. We, therefore, have the problem of taking a given and admitted state of facts and determining what the law under such facts is. I have no complaint with the finding of facts of the Tax Court, but in its application of the statute to those facts I think that the Tax Court was in error and its decision should be reversed.

“(1) Capital assets.—The term ‘capital assets’ means property held by tbe 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 dose of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in Section 23 (i);
* * * * *
“(4) Long-term capital gain.—The term ‘long-term capital gain’ means gain from the sale or exchange of a capital asset *647field for more tfian 18 months, if and to tfie extent sucfi gain is taken into account in computing net income; * * *
“(b) Percentage taken into account.^ In the ease of a taxpayer, other tfian a corporation, only tfie 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 field for not more than 18 months;
“66-2/3 per centum if tfie capital asset has been field for more tfian 18 months but not for more tfian 24 months;
“50 per centum if tfie capital asset has been field for more tfian 24 months.”