Court Opinion

ID: 8138714
Source: CourtListenerOpinion
Date Created: 2022-09-09 18:34:53.637658+00
Date Added: 2024-06-11T16:39:28.306857
License: Public Domain

Hill, J., dissenting: I disagree with the holding of the majority (1) that the loss sustained on the disposal in 1941 of an 80-acre tract of land was an ordinary and not a capital loss and (2) that petitioner sustained a net operating loss in 1940 entitling him to a deduction therefor in 1941. The underlying question, determinative of both points, is whether the properties in respect of which loss deductions are claimed by petitioner were disposed of by him in carrying on the business of buying and selling real property. The 80-acre tract of land in question was purchased in December 1925, four years before the 1929 “crash” which initiated the depression of the early 1930’s. This property was purchased in anticipation of an enhancement of its market value as a subdivided residential area, based on the “talk” that a railroad would be built near the land. Apparently the purchase was deemed a good investment. The railroad was not built and petitioner did not subdivide the land or otherwise develop it for sale. Petitioner sold the land in 1941 and sustained the loss which he seeks to deduct as an ordinary, rather chan a capital, loss. In my opinion, this property was a capital asset and the loss sustained thereon was a capital loss. Regardless of whether petitioner may be held to have been carrying on a real estate business in respect of other properties, I think the evidence establishes that this 80-acre tract was not held by petitioner for sale in the regular course of a real estate business and was not so disposed of by him. The properties in respect of which the claimed net operating loss was sustained in 1940 are the Pal lister & Churchill Streets property and the property at 2930 West Grand Boulevard, dealt with in the majority report. The Pallister & Churchill Streets property was acquire by petitioner prior to 1920 and was sold by him in that year, subject to an outstanding mortgage which was assumed by the purchaser. Petitioner repossessed the property in 1932 because of the vendee’s default in paying taxes and making the mortgage payments. Petitioner held and operated the property as rental property until July 2, 1940, and then surrendered it to the mortgagee. The rental operation resulted in the various years thereof either in a loss or a very small profit. Petitioner endeavored unsuccessfully to sell the property to relieve him of the mortgage obligation. By the surrender of the property to the mortgagee petitioner sustained a loss of $4,084.48, which he claimed was an operating loss incurred in carrying on a real estate business. Such loss is one of the two items in the computation of the claimed net operating loss of 1940 sought to be carried over and deducted in 1941. It appears to me from a mere statement of the facts that petitioner did not hold this property for sale in the regular course of carrying on a real estate business and did not so dispose of it. I think, therefore, that the loss sustained in respect of such property was a capital loss and not includible in the computation of a net operating loss. The Grand Boulevard property was a four-family apartment building and was acquired by land contract in December 1926 in anticipation that much activity would occur in the neighborhood. Petitioner was disappointed in this anticipation. He forfeited his interest in the property to the vendor in January 1940 and sustained a loss of $30,619.55, which he claims was an operating loss sustained in carrying on a real estate business. Such a loss is the other of the two items in question here in the computation of the claimed net operating loss of 1940 sought to be carried over and deducted in 1941. It appears to me evident that petitioner purchased the Grand Boulevard property because he deemed it a good investment. The fact that it turned out otherwise does not alter the motive for the purchase. He held this property for 3 years prior to the financial debacle in 1929. He also held it for a number of years after the depression period of the 1930’s. It is true that petitioner contends that he had no “satisfactory” offers of purchase for the property. What constitutes a satisfactory offer of purchase might vary within the range from a salvage price to a price yielding a thousand per cent profit. Therefore, the fact that petitioner did not receive a satisfactory offer of purchase contributes little, if anything, toward the solution of the question we have before us. However, it would seem that under the circumstances here the withholding of a piece of property from sale for 14 years eliminates that property from the category of property held for sale to customers in regular course in carrying on a real estate business. Petitioner’s basic contention in support of his claim that the losses sought to be deducted herein is that throughout the years from 1916 to 1941, inclusive, he was engaged in regularly carrying on the business of buying and selling real estate. In his efforts to show he was so engaged, petitioner presented evidence of his real estate activities and also of the real estate operations of the Crystal Lake Realty Co., of which he was the managing executive and the controlling stock of which was owned by petitioner and his family. He also presented evidence of his activities as a real estate broker in selling property for others on commission. It should be pointed out that the Lake Realty Co.’s real estate business was not a business carried on by petitioner. He was merely the managing official of that corporation in carrying on its business. Likewise, petitioner’s activities in selling real property for others on commission or as a broker does not constitute a business on his part of buying and selling real estate. We are concerned here with the question of whether the losses here sought to be deducted were sustained in respect of property which petitioner, himself, held and disposed of in carrying on the business of buying and selling real estate. We are not concerned with the business he may have conducted as a real estate broker or as a representative of the Realty Co. We can, therefore, eliminate from consideration all of petitioner’s activities in either of the latter two capacities. Pertinent to the question of whether petitioner in his own .right was engaged in the real estate business, the record discloses that petitioner was in the business of renting real properties from 1920 to 1941, inclusive. The record also discloses that he was in the business of buying and selling real property from 1920 to 1931, inclusive. It is further disclosed in the record that from 1932 to 1939, inclusive, petitioner neither bought nor sold any real property, but that his livelihood came exclusively from activities in other lines of endeavor. I shall not go into a detailed analysis of the evidence, since to do so would unduly prolong the space occupied for this opinion. I shn.ll, however, point to the ultimate facts which I think the evidence warrants. But first I venture the statement that mere intent, without more, to carry on a business does not constitute the carrying on of a business. The above mentioned ultimate facts are (1) that 9 years prior to 1940 petitioner abandoned the real estate business and during that 9-year period he was at no time engaged in the carrying on of a real estate business, (2) that neither in 1940 nor 1941 did petitioner resume or engage in the real estate business and, (3) that in any event, neither the 80-acre tract of farm land, the Pallister & Churchill Streets property, nor the Grand Boulevard property was held for sale or exchange in the regular course of carrying on a real estate business. In my conception, the carrying on of a business requires business transactions with reasonable regularity. Where no business transactions have occurred for 9 years in respect of a business formerly carried on, I would say that the business is dead and not merely sleeping. As I see it, petitioner’s sole reliance in support of his contention that he was engaged in the real estate business throughout the years subsequent to 1916 is that, notwithstanding a period of 9 years of inactivity in buying and selling real estate, he intended to resume such activities when conditions in the real estate business should improve. It is my opinion that an intent to resume a business formerly carried on if, as, and when the conditions in that business should improve, would become too anemic after the lapse of 9 years to stimulate a pulsation of life in the stilled heart of such business. Therefore, it is my opinion that the losses herein sought to be deducted were capital, and not ordinary, losses and should be allowed as deductions Only to the extent allowed by respondent.