Western Homes, Inc. v. United States

Ross Chamberlain and David O. Bohannon were the organizers and sole stockholders of Western Homes, Inc., Pacific Homes, Inc., Greenwood Corporation and Rollingwood Corporation. Each corporation followed a business pattern of renting defense housing to war workers (generally with an option to purchase) and then selling off the houses either to option holders or to others willing to buy.

Plaintiff’s position is that the profits which resulted from their sales of defense housing were subject to the capital gains tax of 25% under Section 117(j) of the U. S. Internal Revenue Code, 26 U.S.C.A. Defendant claims that the profits from the sales of defense housing should be taxed at ordinary income and excess profits tax rates in the same manner as if the houses constituted property held by plaintiff primarily for sale to customers in the ordinary course of its trade or business.

This specific issue has been considered by our Ninth Circuit Court of Appeals in two cases, Rollingwood Corporation v. Commissioner of Internal Revenue, 1951, 190 F.2d 263 ; McGah v. Commissioner of Internal Revenue, 1954, 210 F. 2d 769 .

In the Rollingwood case the Tax Court found that the corporation held its…