McGah

Petitioners, Lucille McGah, E. W. Mc-Gah, Carole O’Shea and John P. O’Shea, partners calling themselves San Leandro Homes Company, were at all pertinent times engaged in the trade or business of renting and selling houses in (San Leandro, California. In August, (September and October, 1944, they sold, and derived gains from the sale of, 14 houses, all of which had been used in their trade or business and held by them for more than 6 months. For income tax purposes, they treated the gains so derived as gains from sales of capital assets held for more than 6 months, which is to say, as long-term capital gains. Respondent, the Commissioner of Internal Revenue, treated them as ordinary gains and, so treating them, determined that there were deficiencies in respect of petitioners’ income taxes for 1944. The Tax Court agreed with respondent. Its decisions are here for review.

In treating the gains derived from the sale of the 14 houses as long-term capital gains, petitioners relied on 26 U.S.C.A.Int. Rev.Code, § 117(j), which provided:

Petitioners claimed that the 14 houses were “property used in the trade or business”, as defined in paragraph (1) of § 117(j), and that therefore the…