D. M. Haggard and Nila Haggard v. Commissioner of Internal Revenue

This was a proceeding in the Tax Court, wherein a decision sustaining a deficiency against the Haggards, as taxpayers, was entered. Review of the decision by this Court is asked.

The Haggards are operators of a ranch in Arizona. On February 9, 1948, two documents were entered into simultaneously between one Butler and the Hag-gards. The effect of these instruments was to lease 160 acres of land to the Hag-gards for the rest of 1948 for $10,000.00, for 1949 for $12,000.00, to grant an option for $2,000.00 cash to purchase the tract after January 1, 1950, and before January 10, 1950, for $24,000.00. The option was of course, exercised and the Haggards became the purchasers.

Haggards, as taxpayers, treated the $12,000.00 above mentioned as rental, but the Commissioner determined this sum as an installment on the purchase price of the property. The Tax Court held under § 23(a) (1) (A) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 23 (a) (1) (A), that taxpayers, by means of these payments, were either taking title to or acquiring equity in the property involved and therefore were not entitled to deduct these payments as rent, regardless of what the parties nominally may have…