Homann

A. G. Homann and his wife Anna Ho-mann, hereafter the Taxpayers, each seek a review of identical decisions of the Tax Court holding that income from the sale in 1946 of sixty-eight (68) houses located in Sunnyside, Washington was taxable as ordinary income rather than as capital gain.

The Commissioner seeks review of the Tax Court’s decision that the basis of these houses did not have to be adjusted by an allowance for depreciation for the years in which they were rented, and that the income from the sale of furnaces and refrigerators removed from some of the houses was capital gain.

A. The Taxpayers’ Petition.

The question here is whether the taxpayers have sustained their burden of proof 1 that they were primarily engaged in the business of holding for rental purposes the 68 houses sold in 1946, which the Tax Court found were held primarily for sale to customers in the ordinary course of business.

*673 In July of 3944, the taxpayer, A. G. Homann, started construction of eighty-five (85) houses in Sunnyside, Washington, for the use of war workers employed by the Hanford Engineering Works. He testified that his original intent was to rent the houses to the workers. He had…