Court Opinion

ID: 4475972
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:46.953997+00
Date Added: 2024-06-11T15:04:23.207168
License: Public Domain

MuRdock, J., dissenting: I do not find in this case or in other decided cases a satisfactory rationale in regard to the application of section 117 (j). This case presents the difficulty rather clearly. Back of section 117(j) is the thought that a part or all of the profit realized from a sale was due to an increase in value which occurred during the period while the property was held for investment and Congress has deemed it proper to tax that profit as a capital gain as distinguished from the ordinary gain which results from sales to customers in the ordinary course of a business. A decision of the owner to sell must necessarily precede every sale, and after he makes that decision he is holding the property for sale until he succeeds in selling it. This taxpayer was not in the business of selling property, but if he had happened to be in the business of selling similar property, then his sale of this property would be just like the sale of any other property in that business. Yet it has been recognized that property, which under some circumstances would be held primarily for sale to customers in the ordinary course of the owner’s business can, nevertheless, be held by that same taxpayer, not for that purpose, but for another so that when he sells, section 117 (j) will apply. The petitioner was formed “for the purpose of entering into the business of constructing rental houses for defense workers.” It never built any houses for sale and it had no sales force. It was not organized for selling. The houses in question were built in accordance with the purpose of the corporation as rental houses and they were actually rented for a number of years. They were only a part, and, apparently, not the greater part, of the rental housing owned by the corporation. It had a broker sell them. The petitioner never changed its business or original purpose to include a selling business, and it never converted the 42 houses from its rental business to any such new selling business. These facts are different from those in the Winnich case. I should think that a taxpayer, organized as the petitioner was to construct rental properties and not as a selling organization, should be permitted to sell even a substantial number of its units, at least through a broker, without losing the benefit of section 117(j), and if that can happen in any case, I do not understand what there is about this case which prevents the application of 117(j). Maybe section H7(j) would not apply to this petitioner if, for example, it wTent into the selling business and decided to use its rental houses as stock in trade to carry on that selling business. But it did not do that and this record fails to show that it had any customers or that it had a course of business of selling houses for profit or that these particular houses wTere held for sale to customers in the ordinary course of any such business. So I do not understand why the result reached is the right one. Nice, c/., agrees with this dissent.