William W. Saunders and Gertrude H. Saunders v. United States

William W. Saunders and his wife Gertrude brought this suit against the United States to recover $21,897.25, paid pursuant to the Commissioner’s determination of deficiencies in their federal income tax for the year I960. The District Court entered judgment for the Saunders and the United States has appealed.

Saunders, an attorney, has for some time been actively and successfully engaged in real estate development in the State of Hawaii. In October 1959, he and an associate, Ben Gromet, discovered that a 29 acre parcel of land along the northerly side of Kapiolani Boulevard, one of the principal streets in Honolulu, could be purchased at an attractive price. Saunders, being of the opinion that the property was a likely vehicle for a profitable venture, thereupon approached several prospective inves tors to purchase the property for commercial exploitation. His prospects included Allan Link, the business manager for Norton Clapp, president of one of the world’s largest lumber producing corporations.

After extensive negotiations, Saunders received assurances that Clapp and a number of the latter’s business associates would join in the proposed venture and, on December 15, 1959,…