William Malat and Ethel Malat v. Robert A. Riddell, District Director of Internal Revenue

Profit derived from sales of property held by a taxpayer, primarily for sale to customers in the ordinary course of his trade or business, is, under section 1221 of the Internal Revenue Code of 1954, excluded from treatment as capital gain.

^This case presents the question wheth"er real estate sold at a profit by one engaged in the business of dealing in real estate had, under the particular circumstances, been held by him as an investment or primarily for sale to customers. Upon this issue the trial court has found against the taxpayer, ruling that the profit must accordingly be treated as ordinary income. We conclude that the District Court’s finding is not clearly erroneous and affirm.

The case involves income tax for the year 1956. The taxpayer had reported the gain on the transaction in question as capital gain. The Internal Revenue Service disagreed. A deficiency was assessed and was paid by the taxpayer. This suit for recovery followed.

Taxpayer at all times pertinent to this case was a member of Louis Lesser Enterprises, Ltd., a partnership (to which we shall refer as “Lesser”), which for some time as a business enterprise had been engaged in the purchase and…