W. E. Starke and Cecilia, G. Starke v. Commissioner of Internal Revenue

W. E. Starke is a San Diego lawyer who has been in private practice since 1937 when he left public employment. About 1931, while he was a redemption clerk in the county auditor’s office, he began buying street bonds. Many of the bonds went into default, and as a consequence, he acquired specific vacant San Diego lots. Also, he acquired other lot titles through tax deeds. There is a course of acquisition by the former method which extends through" 1956 and by the latter method through 1953. (We think we would do Starke no injustice to say that he made his purchases of bonds expecting that many of the bonds would end up as lots in his hands.) Most acquisitions were for his own account, but he did have joint venturers with him on some of the lots.

The days that Starke must have been waiting for came in the war time years of 1941-1945 and again in 1953, 1954 and 1955. San Diego was experiencing an economic upturn which brought lot buyers to Starke’s door. He had the lots. They bought, and he sold. There was considerable profit. Starke in 1953 and thereafter continued to treat his profits as capital gains, as he had done through the preceding years. But the commissioner has taken the…