Louis L. Gowans and Helen T. Gowans, Husband and Wife v. Commissioner of Internal Revenue

This matter is before us on a taxpayer’s petition to review a decision of the Tax Court of the United States. In that decision, the tax court upheld a $9,561.30 income tax deficiency determination by the Commissioner of Internal Revenue, covering the calendar years 1948,1949, and 1950.

The prime question presented is whether the net proceeds from a certain transaction involving removal of sand from the taxpayers’ property were ordinary income or capital gain. The taxpayers regarded the proceeds as capital gain, and so reported them in their income tax returns for those years. The commissioner and the tax court regard them as ordinary income.

Most of the essential facts have been stipulated. Petitioners were the owners of two three-acre lots situated on a hillside in Honolulu. Portions of the property were so steep that extensive grading would be required before they could be improved by buildings. The lots were found to contain a deposit of a volcanic material known as “black sand,” valuable in the manufacture of tile products. In the fall of 1944, Honolulu Construction and Braying Company, Ltd., desired to purchase approximately 4.33 acres of these lots, to obtain this sand.…