S. Nicholas Jacobs and Dolores I. Jacobs v. Commissioner of Internal Revenue

Petitioners, husband and wife filing joint returns, seek a review of the Tax Court’s findings,and decision of the income tax liability of petitioners for the year 1948. Since all the pertinent transactions were by 'the husband he is hereafter called petitioner.

The Tax Court found that at all pertinent times petitioner was in the business of holding and selling land.

On April 1, 1948, petitioner transferred certain land to a corporation known as Hollywood Subdivision, Inc., hereafter Subdivision, in exchange for 1,750 shares of $100 par value stock. The land was the sole asset of the corporation and petitioner became the sole owner of the corporation. On April 5, 1948, petitioner sold all the stock to a newly formed corporation, Hollywood Terrace, Inc., hereafter Terrace, in exchange for a promissory note for $175,000 which was secured - by the land above mentioned. Petitioner has never had any proprietary interest in Terrace. Petitioner reported the profit from this transaction as capital gain from the sale of stock. The Commissioner determined, that the profit was ordinary income from the sale of land held for sale in the ordinary course of business and petitioner petitioned…