Court Opinion

ID: 4600602
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:25:57.088599+00
Date Added: 2024-06-11T07:52:20.231123
License: Public Domain

S. ROSE LLOYD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lloyd v. CommissionerDocket No. 75765.United States Board of Tax Appeals32 B.T.A. 887; 1935 BTA LEXIS 878; July 3, 1935, Promulgated *878 Held that the net loss sustained by petitioner in 1928 was incurred in a business regularly carried on.  Percy W. Phillips, Esq., and Eustis Myres, Esq., for the petitioner.  R. W. Wilson, Esq., and R. K. Jones, Esq., for the respondent.  TRAMMELL *887  The respondent determined a deficiency in the petitioner's income tax for the year 1930 in the amount of $8,781.52.  The deficiency results from the disallowance of an alleged net loss of $135,281.72 carried forward from 1928, after having wiped out the income of 1929.  FINDINGS OF FACT.  Petitioner is an individual, residing at Dallas, Texas.  Her father died intestate in 1914, a resident of Shreveport, Louisiana, leaving surviving him petitioner and her mother.  Petitioner inherited one half of her father's estate, consisting entirely of real estate, out of which he had made his fortune.  The total value of the estate of petitioner's father was approximately $2,000,000.  At the time of his death petitioner's father owned some 50 or 60 rent-producing business buildings in addition to other property including the Youree Hotel and Tulus Hotel in Shreveport, 700 or 800 acres of land*879  near Shreveport, known as the Uni or Rocky Point Plantation, the Hart's *888  Island Plantation of about 200 acres, and another plantation of about 750 acres, known as the Dogwood.  He also owned about 50 acres of rice land at Vinton, Louisiana, and about 30 or 40 acres of land at Monterey, Mexico.  After her father's death, petitioner took over the responsibility of the management and handling of these properties, selling those for which purchasers could be found and buying others, trading properties, improving them, and doing other things in connection with the real estate.  Petitioner's properties have always been held for sale and she has made constant effort to sell them to advantage.  Her purpose of selling the properties was to enable her to purchase other properties, improve other properties she owned to make them more readily salable, or to obtain better rental.  She spends an average of one week out of every month in Shreveport, Louisiana, looking after the properties there.  The rest of the month is taken up in making trips to other parts of the country to look after other properties, or is spent in Dallas, where she carries on a voluminous business correspondence. *880  Petitioner does not devote time to any other business activity, nor does she devote any part of her day to social activities, and she has no other source of livelihood except income from her properties and such profits as she makes from sales.  Petitioner personally decides all questions relating to the purchase, sale, and renting of properties, also matters pertaining to repairs, upkeep, and taxes, the mere details being carried out under her direction by attorneys or others.  Such questions of buying and selling properties, renting, repairs, improvements, advances to tenants on farms, taxes, etc., are before petitioner every day.  There are interviews or negotiations almost daily with respect to possible sales or trades.  The activities of the petitioner referred to here were of the same kind, nature, and character and to an equal extent in the years pertinent to this proceeding.  Petitioner is consistently and regularly engaged in efforts to sell her properties, and to that end visits real estate offices.  While she does not advertise her properties in the newspapers, she constantly writes letters and has interviews with prospective purchasers.  The profits derived from sales*881  and reinvested in real estate and real estate notes.  In 1920 petitioner sold several lots in Shreveport in the West End Subdivision, and one lot in the Fair Grounds Subdivision.  During the same year she purchased some unimproved property in Dallas.  In 1921 she sold other property in the Fair Grounds Subdivision.  In 1923 petitioner realized about $275,000 from sales of properties, including property at the corner of Jordan and Taxas Streets in Shreveport which sold for $50,000, and property at Texas*889  and Yale Streets which sold for $25,000, and the Hart's Island Plantation, which sold for $200,000.  The proceeds from these sales petitioner used to build an annex to the Youree Hotel.  Prior to that time petitioner had made efforts to sell the Youree Hotel, having negotiated with the owners of a chain of hotels and also with a local hotel company, but could not obtain what she considered a sufficient price.  The annex was then built in the hope of selling the property to better advantage or getting a better lease on it.  In 1923 petitioner sold an unimproved lot on Hope Street in Shreveport.  In 1925 she sold property on Texas Street for $7,000, and in 1926 two vacant*882  lots in Highland Addition in Dallas.  In 1928 she sold the Youree Hotel for a total consideration of $875,000, receiving $75,000 in cash and $800,000 in notes.  About that time she invested $75,000 in real estate notes in Dallas.  In 1926 petitioner also purchased property on Grant Avenue in Dallas for $10,000.  This property was purchased for the purpose of resale at a profit.  None of the petitioner's property is mortgaged, and she is never under the necessity of making forced sales, but all of her property is constantly for sale.  In 1919 or 1920 petitioner's uncle died, and from him she inherited a tract of land which she sold about a year later for approximately $20,000.  The proceeds of this sale she invested in real estate notes in Dallas.  During the period from the death of her father in 1914 to the year 1928, petitioner sold about $1,500,000 worth of property, or an amount equal to 75 percent of the value of the estate at the time of his death, all of which was reinvested in real estate or real estate notes.  During 1928 and prior thereto petitioner regarded herself as a dealer and trader in real estate and so held herself out to the public, but she did not act as a*883  real estate broker.  She maintained an office for that purpose in her home, where she kept all her records and files, and regularly devoted as much as half of her time to her real estate activities, including rentals, etc.  Petitioner during the year 1928 was engaged in the business of buying and selling real estate, and the Youree Hotel, which was sold in that year at a loss, had been held primarily for sale in the course of petitioner's business.  OPINION.  TRAMMELL: The only question for our decision is whether the taxpayer sustained a net loss in 1928 from a trade or business regularly carried on, so that the amount thereof in excess of the income of 1929 is deductible in 1930.  *890  The parties at the hearing stipulated that petitioner sustained a loss in 1928 sufficient to wipe out all income for the year 1928, 1929, and 1930, and that they only question for decision is as above set out, it being further stipulated that if the loss was sustained by petitioner in a trade or business regularly carried on in 1928, there is no deficiency for 1930.  In view of the stipulation of the parties the testimony was limited to the narrow issue presented.  The perrinent sections*884  of the Revenue Act of 1928 applicable to the question are as follows: SEC. 117. (a) Definition of "net loss". - As used in this section the term "net loss" means the excess of the deductions allowed by this title over the gross income, with the following exceptions and limitations: (1) NON-BUSINESS DEDUCTIONS. - Deductions otherwise allowed by law not attributable to the operation of a trade or business regularly carried on by the taxpayer shall be allowed only to the extent of the amount of the gross income not derived from such trade or business; (2) CAPITAL LOSSES. - In the case of a taxpayer other than a corporation, deductions for capital losses otherwise allowed by law shall be allowed only to the extent of the capital gains.  * * * (b) Net loss as a deduction. - If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called "second year"), and if such net loss is in excess of such net income (computed without such deduction), *885  the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called "third year"); the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.  * * * SEC. 101. (c)(2) "Capital loss" means deductible loss resulting from the sale or exchange of capital assets.  SEC. 101. (c)(8) "Capital assets" means property held by the taxpayer for more than two years (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 close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business.  We are convinced that the petitioner's contention should be sustained.  The fact that the petitioner said a million and a half dollars worth of real estate, or 75 percent of her inheritance, in small parcels during the period from 1914 to 1928 and bought other real estate or invested in real estate notes, coupled with constant activity in connection*886  with such sales and purchases over each of the years, if seems to us, is sufficient to justify the conclusion that she was regularly engaged in the business of buying and selling real estate.  Certainly, *891  such activity constituted a material part of the business regularly carried on by her.  The fact that she in addition to buying, selling, and trading in real estate, was also engaged in renting real estate and collecting rentals from it and otherwise looking after and occupying her attention in other ways, all connected with and pertaining to real estate, is not sufficient, in our opinion, to warrant us in holding that she was not engaged in the business of a dealer in buying and selling real estate.  She had an office in her home, where she constantly engaged in looking after such matters by correspondence, and she was constantly interviewing people with the view of buying, selling, or trading in real estate, as well as attending to matters of rentals, repairs, and improvement of her properties.  Her activity was such that it should properly he held to be a trade or business reguarly carried on.  It is not necessary that one occupy a full day each day in carrying on*887  one's activity to be considered to be regularly engaged in business.  It is continuity of efforts devoted to the undertaking which constitutes a business regularly carried on.  See ; ; ; . Clearly the transaction which resulted in the loss in 1928 was not a mere isolated transaction.  We think the loss sustained by the petitioner in 1928 from the sale of the Youree Hotel is attributable to a business regularly carried on.  If a loss results from or is incidental to the operation of a trade or business regularly carried on by the taxpayer, it is sufficient to bring it within the net loss provisions of the statute.  ; ;; . Respondent suggests in his brief that the sale of the Youree Hotel was the disposition of a capital asset and for that reason comes within an exception to the net loss provisions of the statute quoted, *888  but since we conclude that the purchase and sale of real estate was a business regularly carried on by petitioner, and since the evidence establishes that all of petitioner's property, including the hotel, was held primarily for sale in the course of her trade or business, it does not come within the capital loss exception of the statute, hereinabove referred to.  The parties having agreed that if the petitioner is entitled to carry forward the 1928 loss as a net loss, there is no taxable net income for 1930, it follows that there is no deficiency.  Respondent's determination is disapproved.  Reviewed by the Board.  Judgment will be entered for the petitioner.TURNER dissents.