Respondent determined deficiencies in the petitioners’ income tax and additions to tax as follows:
Additions to tax under sec. 294 Year Deficiency (d) (2)
1951_$13, 446. 78 _
1952_ 8, 077. 64 $520. 27
1953_ 4,333. 36 208. 02
The issues are (1) whether the gain realized from the sale of real estate in the years 1951, 1952, and 1953 is taxable as ordinary income or as capital gains; and (2) whether petitioners are liable for additions to tax in the years 1952 and 1953 under section 294 (d) (2) of the Internal Revenue Code of 1939 for substantial underestimates of the estimated tax.
FINDINGS OE EACT.
Some of the facts are stipulated and are hereby found as stipulated.
Sallie F. Barrios, hereinafter referred to as petitioner, and Luke J. Barrios, deceased, were husband and wife during the years here involved. They filed a joint income tax return for the year 1951 with the then collector of internal revenue for the district of Louisiana at New Orleans, Louisiana, and joint income tax returns for the years 1952 and 1953 with the district director of internal revenue for the district of Louisiana at New Orleans, Louisiana. Luke J. Barrios died in March 1953, and the return for 1953 was filed by petitioner, as surviving spouse, in the name of her husband and herself.
Petitioner and her husband reported income for the years 1949 through 1953 as follows:
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Luke J. Barrios was a doctor of veterinary medicine and was in active practice until the year 1951 when he became sick and unable to practice thereafter.
Petitioner had held a license to sell real estate in 1923 and 1924 when she was an employee of the People’s Investment Security Company. This company was liquidating some plantation property and the secretary of the association secured a license for her so she could go with him and aid in the sales of the property which had been divided up into tracts. She worked with the secretary for about 2 months and sold two tracts. Petitioner held no real estate broker’s license after the year 1924 and her husband was never licensed as a real estate agent or broker.
In the years 1923 to 1926 petitioner and her deceased husband purchased, in community, a total of 165.2 acres of real estate, which was part of a former plantation known as Crescent Plantation, located on Bayou Black near the town of Houma, Louisiana. The land was purchased for the purpose of raising sugar cane and was under active cultivation until the year 1936. In 1936 the completion of the Intercoastal Canal south of the property affected the drainage facilities and after 1936 no further farming was done on the property. In 1936 Luke J. Barrios transferred all his right, title, and interest in the property to petitioner, in settlement of an obligation to petitioner for the use of her separate and paraphernal funds during their marriage. In the same year petitioner sold a part of the property in two separate sales.
On May 1 and June 16, 1951, petitioner purchased two additional tracts of land in the Crescent Plantation property for a total consideration of $4,200. During the years 1939 to 1950, the petitioner subdivided a part of the property owned by her. The subdivision was designated Barrios Subdivision No. 1. The following plat and addenda were filed by petitioner:
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Petitioner in 1946 subdivided additional property which was designated Barrios Subdivision No. 2, comprised of 16 lots. In 1950 petitioner subdivided additional property which was designated as Barrios Subdivision No. 3, comprised of 17 lots. Petitioner in 1950 subdivided further property designated as Barrios Subdivision No. 4, comprised of 177 lots. The plat for Subdivision No. 4 was filed on January 13, 1951. Addendum No. 1 was filed January 25, 1954, showing two blocks consisting of 14 lots. This addendum was comprised of the two purchases of property by petitioner on May 1 and June 16, 1951. On April 23, 1940, the petitioner purchased for $977.50 a strip of land 50 feet in width that passed through her property. This strip had formerly been used as a right-of-way for a railroad.
During the years 1949 through 1953, Barrios Subdivision Nos. 1, 2, 3, and 4 were surveyed and landscaped, and water mains, streets, and culverts were installed. The cost of these developments and subdividing was as follows:
Tear Amount
1949_$1, 500. 00
1950_- 17,150. 48
1951_ 46, 272. 77
1952_25, 510. 29
1953_ 6, 410. 70
Petitioner, in the years 1939 to 1948, inclusive, made total sales of 30 lots from Barrios Subdivision Nos. 1 and 2. In the years 1949 through 1953, sales were made of 233 lots from Barrios Subdivision Nos. 1,2,3, and 4 as follows:
Year No. of lots sold No. of sales
1949_.________ 7 5
1950___ 58% 37
1951_ 94 44
1952_ 38% 22
1953_ 35 22
The lots were sold both for cash and on the installment basis.
Petitioner’s inventory of lots, additions, sales, total selling prices, and profit during the years 1949 to 1953 in Barrios Subdivision Nos. 1,2, 3, and 4 were as follows:
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In connection with the sale of lots from the subdivisions, all sales were handled by petitioner personally in her home. Petitioner did not demonstrate any lots to prospective purchasers. She arranged all details in connection with the conveyances and when installment sales were made, held the mortgage notes and made installment collections. Petitioner also managed and supervised all development activities. Petitioner did not employ any real estate agent or other salesman to handle the sale of the lots. No advertising was ever done and there was no real estate listing for petitioner in the telephone directory. All acts of sale in connection with these lots were completed in the office of the same attorney.
There was a strong demand for homesites in the vicinity of Houma, Louisiana, during the years here involved. Petitioner’s land- was ideally situated for this purpose and was readily salable.
The lots sold by petitioner during the years 1951, 1952, and 1953 were held primarily for sale to customers in the ordinary course of petitioner’s trade or business.
OPINION.
Eespondent contends that the lots sold by petitioner in the years 1951, 1952, and 1953 were held primarily for sale to customers in the ordinary course of her trade or business, and that the gam realized is ordinary income. Sec. 117 (a) and (j), I. E. C. 1939. Petitioner contends that the sales were in liquidation of capital assets within the meaning of section 117 (a), and that capital gain resulted.
We agree with the respondent.
The issue is one of fact, D. L. Phillips, 24 T. C. 435 (1955), and there is no one determinative test. The many cases that turn on this issue have set forth certain factors to be considered. C. E. Mauldin, 16 T. C. 698 (1951), affd. 195 F. 2d 714 (C. A. 10, 1952). But each case rests on its own facts and in most instances it is unlikely that all the factors will be applicable or of the same weight that they might have in another factual background. See C. E. Mauldin, supra. Gamble v. Commissioner, 242 F. 2d 586 (C. A. 5, 1957), affirming T. C. Memo. 1955-289; Consolidated Naval Stores Co. v. Fahs, 227 F. 2d 923 (C. A. 5, 1955); Smith v. Commissioner, 232 F. 2d 142 (C. A. 5, 1956), reversing T. C. Memo. 1955-35. These factors were enumerated in W. T. Thrift, Sr., 15 T. C. 366, 369 (1950) :
The governing considerations have been the purpose or reason for the taxpayer’s acquisition of the property and in disposing of it, the continuity of sales or sales related activity over a period of time; the number, frequency, and substantiality of sales, and the extent to which the owner or his agents engaged in sales activities by developing or improving the property, soliciting customers, and advertising. * * *
Petitioner argues that she was engaged in the liquidation of the plantation originally purchased in the years 1923 to 1926 and used for approximately 10 years for the cultivation of sugar cane. It is true that one may liquidate an asset in the most advantageous way and still obtain capital gains treatment, but the question is whether in liquidating one entered a business; whether he entered a business to liquidate or to make money is not controlling. Ehrman v. Commissioner, 120 F. 2d 607 (C. A. 9, 1941), affirming 41 B. T. A. 652 (1940), certiorari denied 314 U. S. 668 (1941). As was said in Galena Oaks Corporation v. Scofield, 218 F. 2d 217, 220 (C. A. 5, 1954) :
One may, of course, liquidate a capital asset. To do so it is necessary to sell. The sale may be conducted in the most advantageous manner to the seller and he will not lose the benefits of the capital gain provisions of the statute, unless he enters the real estate business and carries on the sale in the manner in which such a business is ordinarily conducted. In that event, the liquidation constitutes a business and a sale in the ordinary course of such a business and the preferred tax status is lost.
The fact of liquidation, then, is not to be disregarded but is not of great weight when accompanied by active elements of development and sales activity. Milton S. Yunker, 26 T. C. 161 (1956), on appeal (C. A. 6, 1956). Likewise the purpose of acquisition is a factor to be considered, Goldberg v. Commissioner, 223 F. 2d 709 (C. A. 5, 1955), reversing and remanding 22 T. C. 533 (1954), but it is not controlling, and the ultimate question is for what purpose was the property held. Richards v. Commissioner, 81 F. 2d 369 (C. A. 9, 1936), affirming 30 B. T. A. 1131 (1934); C. E. Mauldin, supra; D. L. Phillips, supra. On the facts here, it is clear that there has been a change of purpose from farming to selling. This fact alone would not preclude capital gains treatment. It must be determined whether the sales were in the ordinary course of a business.
It is to be noted that only part of the subdividing and platting took place from 1939 through 1948, and of the 263 lots sold, only 30 were sold during this 10-year period. Most of the subdividing and platting and all other disclosed development and improvement of the land, including landscaping and installation of streets, water mains, and culverts were done in the years 1949 through 1953 at a total cost of $96,850.24. In 1951 petitioner, in two separate transactions, purchased a parcel of land which later became addendum No. 1 of subdivision 4, consisting of 14 lots. She purchased this parcel, encompassed by her other holdings, to protect the value of her property, and these purchases were the only ones she felt were necessary to fulfill that objective. During the same 5-year period, 233 lots were sold in 130 sales. These facts are more indicative of an active business operation during the later 5 years than of a passive and gradual liquidation over the 15-year period from 1939 through 1953.
Petitioner, as evidence of a passive liquidation, emphasizes that she did no advertising, either by newspaper listings, signs, or by any of the other conventional methods. However, conventional advertising is only one method of sales promotion, and the question is whether or not there were definite acts of sales promotion on the part of petitioner personally or through her agents. The improving and developing of the land during the period of 1949 through 1953 was directed to the promotion of sales. Charles E. Reithmeyer, 26 T. C. 804 (1956); Brown v. Commissioner, 143 F. 2d 468 (C. A. 5, 1944), affirming a Memorandum Opinion of this Court dated August 31, 1943; Gruver v. Commissioner, 142 F. 2d 363 (C. A. 4, 1944), affirming 1 T. C. 1204 (1943); Snell v. Commissioner, 97 F. 2d 891 (C. A. 5, 1938), affirming a Memorandum Opinion of this Court dated October 5, 1936.
Not much weight can be given to the fact that there was no advertising when to advertise would have been an unnecessary expense. That it was unnecessary to advertise is clear from testimony indicating that since the petitioner’s subdivisions were located very close to Houma, they were generally known to the people of that city, and from petitioner’s own words, “I don’t see why I should advertise it when everybody was coming to me to buy it.” Further, that there was great demand for her property, particularly as it was subdivided and improved by petitioner, is evinced by the frequency and continuity of sales in the years 1949 through 1953. So great was this demand that one parcel reserved for a future park was subdivided and sold. Under such circumstances, tbe conventional methods of advertising are not necessary to put one in the business of selling. C. E. Mauldin, supra; see J. Roland Brady, 25 T. C. 682 (1955).
Petitioner stresses that the preliminary steps for each sale took place in her home and involved only a few minutes of her time. Petitioner did not have an office or a desk in her home. She contends that such a part-time informal activity could not constitute a trade or business. However, all the time that was necessary to carry out the transactions was taken by petitioner. The fact that the lots were readily accessible for examination by prospective purchasers and that there was a seller’s market enabled petitioner to make each sale with a minimum of time and effort on her part. The fact that she devoted the time necessary to make such sales, coupled with the frequency and continuity of sales which were the sole source of her income during the taxable years in question, indicates that she was in the business of selling real estate. One can be in a business even though only part of his time is devoted to it; this is more readily found to be the case where, as here, a taxpayer’s sole income is derived from such business. C. E. Mauldin, supra; Snell v. Commissioner, supra.
There was sufficient frequency and continuity of sales during the years 1949 through 1953 for a business operation as distinguished from isolated sales of property. Commissioner v. Boeing, 106 F. 2d 305 (C. A. 9, 1939), reversing 37 B. T. A. 178 (1938); Ehrman v. Commissioner, supra; Snell v. Commissioner, supra; Charles E. Reithmeyer, supra. Frequency and continuity of sales is also relevant in determining whether a taxpayer promoted sales. Goldberg v. Commissioner, supra. While the sales during the years 1949 through 1953 were due partly to favorable economic conditions, it is undoubtedly true that they were also promoted and stimulated by the substantial developments and improvements to the petitioner’s land made during these years.
In this area of the law, it is often difficult to rely on specific and isolated factors alone to determine whether or not certain activities constitute a business. Each case must turn on its own particular factual background. Nevertheless, the cases relied on by petitioner are clearly distinguishable from the instant case.
Petitioner relies upon Smith v. Dunn, 224 F. 2d 353 (C. A. 5, 1955), but in that case the Court of Appeals found that the business being carried on belonged to another, an issue not present in the instant case. In Consolidated Naval Stores Co. v. Fahs, supra, there was no sales activity either by way of development or otherwise. Offers to purchase were refused although made at prices above prevailing market, the income from sales was only a small percentage of petitioner’s total revenue, and selling was only an incidental activity. In Ross v. Commissioner, 227 F. 2d 265 (C. A. 5, 1955), reversing T. C. Memo. 1954-177, there were only 38 sales in the 2 years, and a complete absence of any promotional activities by the taxpayer or anyone in his behalf. Smith v. Commissioner, supra, and Goldberg v. Commissioner, supra, both dealt with taxpayers who did nothing to promote sales and whose tenants exercised options to purchase, which options were mandatory under National Housing Agency regulations. These option cases also turn on their own facts, some of which have held that the taxpayer realized ordinary income. Rollingwood Corp. v. Commissioner, 190 F. 2d 263 (C. A. 9, 1951), affirming a Memorandum Opinion of this Court dated July 17, 1950; Winnick v. Commissioner, 223 F. 2d 266 (C. A. 6, 1955), affirming per curiam 21 T. C. 1029 (1954).
The instant case is factually not dissimilar to and is governed by the principles set forth, in C. E. Mauldin, supra, and Brown v. Commissioner, supra.
We hold that the petitioner held the lots sold in 1951, 1952, and 1953 primarily for sale to customers in the ordinary course of her trade or business and that the gain realized from such sales is ordinary income rather than long-term capital gain.
There remains the question of whether petitioner is liable for additions to the tax under section 294 (d) (2) for substantial underestimation of estimated tax for the calendar years 1952 and 1953. The petitioner has introduced no evidence on this issue, and since we find that the petitioner is liable for the principal deficiency, we sustain the respondent on this issue.
Petitioner has conceded that Emmitt Hawkins did not qualify as a dependent for the calendar years 1952 and 1953.
Reviewed by the Court.
Decision will be entered under Bule 50.