Court Opinion

ID: 9442320
Source: CourtListenerOpinion
Date Created: 2023-08-03 18:43:50.591746+00
Date Added: 2024-06-11T17:29:03.703504
License: Public Domain

DUFFY, Circuit Judge,
(dissenting).
I am unable to distinguish the case at bar from Carter-Colton Cigar Co. v. Commissioner of Internal Revenue, 1947, 9 T.C. 219. The Commissioner of Internal Revenue has announced his acquiescence in that decision. The significance of such acquiescence is that the officers and employees of the Bureau of Internal Revenue are supposed to rely upon that case as a precedent in the disposition of other cases.
In the Carter-Colton Cigar Co. case the taxpayer was engaged in the business of distributing tobacco products. In 1926 it purchased a vacant lot with the intention of having a warehouse and store building erected thereon. Plans and specifications were prepared for the building but construction was never commenced because of business conditions. In 1934 the idea of erecting such a building was entirely abandoned. In 1935 the lot was offered for sale, and in 1943 it was finally sold at a loss. The Tax Court held that this loss was not a “capital loss” by reason of the 1942 amendment to § 117(a) (1), Internal Revenue Code. The court said, 9 T.C. pages 220-221:
“Respondent * * * contends that the real estate involved here was a capital asset, since it was never actually used in petitioner’s trade or business. * * *
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“It is our view that the real property involved here was ‘used in the trade or business’ of the petitioner, within the meaning of the statute, when it was purchased for the business purpose of causing a building to be constructed thereon to be occupied by the petitioner corporation and steps were taken looking toward the consummation of that plan, to the extent of causing plans to be drawn and specifications to be prepared for use in building on that particular lot. It seems to us that at that time some use, normal for that state of proceedings, had begun to be made of the lot for *691the petitioner’s business purposes. Full or maximum use, of course, had not yet been made, and was finally prevented by later-developing circumstances over which petitioner had no control.”
The Carter-Colton Cigar Co. case was reviewed by the Tax Court as a whole. As stated before, the Commissioner has announced his acquiescence in the decision. In my opinion the case at bar cannot be distinguished from it on any sound legal basis. The business of petitioners was varied, but in large part was that of holding and managing real estate for rental and income purposes. The lot here in question was difficult to handle because the taxpayers owned only an undivided one-half interest. The area of its location was zoned against commercial development other than hotels and apartment buildings. When petitioners acquired their interest in 1937, they took immediate steps looking to the improvement and development of the lot for the production of income. Much effort was given in 1938 to put across a program for the erection of a «multiple apartment building. A second project was undertaken in late 1938 and 1939 when drawings were made for an eight-story apartment building containing 108 apartments and 409 rooms. Several large insurance companies were contacted in an unsuccessful attempt to obtain the necessary financing. A third project, the construction of a group of fourteen row houses, followed which in turn was followed by diligent efforts to have a change made in the zoning laws covering the property. Of course after 1940 when our involvement in the war threatened, and after this country went into war, all propositions for a new building had to be abandoned, and 1943 was the year that taxpayers decided to abandon all building plans.
The decision in this case must turn on the last clause in § 117(a)(1) of the Code, which expressly excludes from the category of capital assets “real property used in the trade or business of the taxpayer.” This clause was inserted by amendments made to the Revenue Act of 1942 which revised the pre-existing definition of capital assets.
Because I agree with those authorities which hold that the phrase “used in the trade or business” was intended by Congress to mean the same as “devoted to the trade or business,” in my opinion the decision of the Tax Court in each of these cases should be reversed.