Michael L. Rockwell, and Regina Rockwell v. Commissioner of Internal Revenue

The Rockwells, husband and wife, who filed joint income tax returns for the years in dispute and whom we shall call Rockwell for convenience, appeal from a decision of the Tax Court. Tax Court Memorandum 1972-133, 31 T.C.M. 596 , 72 T.C.Memo. 621. The Tax Court found that twelve real properties sold or exchanged by Rockwell during the taxable years 1963 through 1967 were held primarily for sale to customers in the ordinary course of a trade or business. Based on these findings, the Tax Court held that: (1) the gain or loss on “like kind” exchanges of certain of the properties should have been recognized; (2) the gain from the sales and exchanges was taxable as ordinary income rather than capital gain; (3) Rockwell was not entitled to certain deductions for depreciation of the properties; and (4) Rockwell was liable for the self-employment tax. Internal Revenue Code of 1954 (“IRC”), 26 U.S.C. §§ 1031 (a), 1221(1), 167, 1401, respectively. See also Treas. Reg. § 1.167 (a)-2. Rockwell’s counsel properly concede that the validity of holdings (3) and (4) depend upon the correctness of holdings (1) and (2). We affirm.

I. The Tax Court’s Findings.

Whether property is held…