Robert E. Austin and Marian H. Austin v. Commissioner of Internal Revenue

This case involves deficiencies in income tax returns of petitioners assessed for the years 1950, 1951 and 1952.

The sole question on this appeal is whether certain real estate (vacant unimproved lots) sold by petitioners during the years above stated was held by petitioners primarily for sale to customers in the ordinary course of petitioners’ trade or business.

The Tax Court answered the question in the affirmative, holding that petitioners were engaged in the business of selling real estate, and that the gains realized from the sale of such property was subject to taxation as ordinary income. The petitioners contend that the decision of the Tax Court is clearly erroneous, and that the gains realized from the sale of such property are entitled to capital gain treatment under the provisions of Section 117 of the Internal Revenue Code of 1939, as amended. 26 U.S.C. 1952 Edition, § 117. Section 117(a)(1) excludes from the term “capital assets” held by a taxpayer property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. Section 117(j) excludes from the definition of property used in the trade or business property held by the…