Court Opinion

ID: 9464580
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:37:54.93787+00
Date Added: 2024-06-11T17:38:43.417629
License: Public Domain

KENNEDY, Circuit Judge,
dissenting:
In my view the Tax Court was correct, both in its ultimate conclusions of fact and in its ruling on the central legal question. I do agree with the opinion of the court that in this case the authorities under section 1221(1) provide the applicable rules for interpreting section 543(b)(3), although the identical language of these two sections may not always require parallel construction. As I interpret those authorities, however, the decision of the Tax Court should be affirmed.
A taxpayer’s intent in acquiring an asset is rarely a controlling factor in determining the purposes for which it is held at the time of sale, and doubtless a bona fide intention to hold for investment is eclipsed if at some later time the primary purpose for holding an asset is for sale to customers in the ordinary course of business. Ehrman v. Commissioner, 120 F.2d 607 (9th Cir.), cert. denied, 314 U.S. 668, 62 S.Ct. 129, 86 L.Ed. 534 (1941); Biedenharn Realty Co. v. United States, 526 F.2d 409 (5th Cir.), cert. denied, 429 U.S. 819, 97 S.Ct. 64, 50 L.Ed.2d 79 (1977). In the instant case, however, the new direction taken by the corporation was not so complete a change in purpose or business objective as to require the conclusion as a matter of law that the taxpayers held the property primarily for sale in the ordinary course of business.
This was simply a case of two corporations going out of business as quickly and efficiently as they could. The minimal sales efforts made were consistent with this design. Of the twenty-six duplexes held by Parkside, twenty-one were sold to the same two parties. Four buyers accounted for sixteen of the twenty-one sales by Beacon-crest. While it is true that the sales were individual and were made over the course of a two-year period, nevertheless the corporations were simply trying to sell the property for whatever price they could get during a liquidation phase. Neither sales activities nor management skills enhanced the value of the corporate assets. No improvements were made for purposes of sale. *1098The employment of brokers, on these facts, indicates to me that the corporation had neither the capacity nor the policy to engage in selling as a regular course of business. Finally, the properties were not capable of alternative use or disposition. Once it became apparent that no rental market existed, the duplexes had to be sold.
The operation of the personal holding company provisions are such that a determination that the properties were not held primarily for sale in the ordinary course of business is adverse, even harsh, to the taxpayers. Nonetheless, the decision of the Tax Court on this issue was correct and should be affirmed.