Parkside, Inc. And Beaconcrest, Inc. v. Commissioner of Internal Revenue

The Commissioner of Internal Revenue (Commissioner) issued deficiency notices to taxpayer-appellants Parkside, Inc. (Park-side) and Beaconcrest, Inc. (Beaconcrest) upon determining that income reported as interest for certain taxable years brought the two corporations within the rigorous provisions of the personal holding company tax (PHCT), Int.Rev.Code of 1954, §§ 541-47, 1 and the Tax Court agreed. We reverse.

The basic facts in this case are undisputed. Parkside and Beaconcrest are Washington state corporations, the stock of which is owned in equal shares by three brothers and a sister: Philip Long, James Long, Dwight Long, and Erma Long McKenzie (shareholders). The stock in Parkside was inherited upon the death of their father. Beaconcrest was formed in 1960 to receive part of the assets of Standard Homes, Inc., a corporation owned and organized by the father to construct buildings for rental or sale. Parkside’s principal assets consisted of 26 duplex homes, and Beaconcrest’s principal assets consisted of 21 duplexes.

After his father’s death, Philip Long left employment in the insurance industry to assume the presidency of both taxpayer-corporations. Concluding after study…

dissenting:

In my view the Tax Court was correct, both in its ultimate conclusions of fact and in its ruling on the central legal question. I do agree with the opinion of the court that in this case the authorities under section 1221(1) provide the applicable rules for interpreting section 543(b)(3), although the identical language of these two sections may not always require parallel construction. As I interpret those authorities, however, the decision of the Tax Court should be affirmed.

A taxpayer’s intent in acquiring an asset is rarely a controlling factor in determining the purposes for which it is held at the time of sale, and doubtless a bona fide intention to hold for investment is eclipsed if at some later time the primary purpose for holding an asset is for sale to customers in the ordinary course of business. Ehrman v. Commissioner, 120 F.2d 607 (9th Cir.), cert. denied, 314 U.S. 668 , 62 S.Ct. 129 , 86 L.Ed. 534 (1941); Biedenharn Realty Co. v. United States, 526 F.2d 409 (5th Cir.), cert. denied, 429 U.S. 819 , 97 S.Ct. 64 , 50 L.Ed.2d 79 (1977). In the instant case, however, the new direction taken by the corporation was not so complete a change in purpose or…

concurring:

Whether taxpayers’ real property was “held primarily for sale to customers in the ordinary course of [taxpayers’] trade or business” within the meaning of 26 U.S.C. § 543 (b)(3) is a question of law, see Estate of Franklin v. Commissioner, 544 F.2d 1045, 1047, n. 3 (9th Cir. 1976), to which the “clearly erroneous” rule should be inapplicable. Winthrop v. Commissioner, 417 F.2d 905, 910 (5th Cir. 1969).

While referring to the “clearly erroneous” standard, Ninth Circuit cases such as Austin v. Commissioner, 263 F.2d 460 (1959), still carefully analyze the facts in light of the applicable law. This careful analysis, in effect, amounts to a de novo review of the Tax Court’s legal conclusion.

I vote to reverse because an analysis of the facts of this case in light of the applicable law reveals that the Tax Court reached an incorrect legal conclusion.

571 F.2d 1092 78-1 USTC P 9147 PARKSIDE, INC. and Beaconcrest, Inc., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 75-2893. United States Court of Appeals, Ninth Circuit. Dec. 2, 1977. Susan Long (argued), Bellevue, Wash., for petitioners-appellants. Leonard J. Henzke, Jr. (argued), of Dept. of Justice, Washington, D. C., for respondent-appellee. On Appeal from the Decision of the United States Tax Court. Before CHOY and KENNEDY, Circuit Judges, and PREGERSON, * District Judge. CHOY, Circuit Judge: 1 The Commissioner of Internal Revenue (Commissioner) issued deficiency notices to taxpayer-appellants Parkside, Inc. (Parkside) and Beaconcrest, Inc. (Beaconcrest) upon determining that income reported as interest for certain taxable years brought the two corporations within the rigorous provisions of the personal holding company tax (PHCT), Int.Rev.Code of 1954, §§ 541-47, 1 and the Tax Court agreed. We reverse. 2 The basic facts in this case are undisputed. Parkside and Beaconcrest are Washington state corporations, the stock of which is owned in equal shares by three brothers and a sister: Philip Long, James Long, Dwight Long, and…