*1575 1. During each of the years 1923 to 1926, inclusive, petitioner realized profits from sales of land which he had platted into city subdivisions. Held, (1) profits so realized during 1923 are taxable as capital gains under section 206(b) of the Revenue Act of 1921; (2) the lands sold in 1924, 1925 and 1926 constituted property held primarily for sale in the course of petitioner's business, under the Acts of 1924 and 1926, and profits therefrom are taxable under sections 210 and 211 of those Acts.
2. Land was bought in 1922 and sold in 1923 under a contract providing for installment payments. Held, the sale was consummated in 1923 and profits therefrom are not taxable as capital gain under section 208(a)(8) of the Revenue Acts of 1924 and 1926.
*97 This proceeding is for the redetermination of deficiencies in income tax asserted by the respondent as follows:
| 1923 | $2,126.44 |
| 1924 | 5,401.50 |
| 1925 | 18,785.72 |
| 1926 | 439.15 |
The deficiencies arise from respondent's determination that profits realized from real estate sales were*1576 not taxable as capital gains, but as ordinary income.
FINDING OF FACT.
The petitioner has lived in or near Los Angeles, California, for about fifty years. His business includes farming, real estate investments, mortgage loans, and buying and selling real estate. For more than forty years he has been a licensed real estate broker. He has maintained a business office in Los Angeles for over twenty-five years, and has platted and marketed at least three subdivisions in or near Los Angeles and West Hollywood. He maintains a branch office at one of the subdivisions.
In 1915 petitioner acquired two parcels of land in Los Angeles for the purpose of subdividing and selling them. Each parcel was deeded to a trust company, in trust, the beneficiaries thereof being the petitioner and his vendors. By the terms of one declaration of trust, known as No. 3500, proceeds from sales were to be applied first to the payment of the unpaid balance of the purchase price of the tract, and, when that price was fully paid and reimbursement made for certain expenditures, the remaining sales proceeds were to be distributed 60 per cent to the petitioner and 40 per cent to his vendors. The other*1577 declaration of trust, known as No. 3614, contained similar terms, except that petitioner was to receive only 50 per cent of the net proceeds of sales.
Lots were sold gradually, without the use of high-pressure tactics, on installment terms, and sales continued throughout the years 1923 to 1926, inclusive. Collections were made during the taxable years on contracts of sale entered into after October 30, 1917, and petitioner received distributions from such collections as follows:
| Trust No. | 1923 | 1924 | 1925 | 1926 |
| 3500 | $9,560.94 | $13,930.15 | $17,584.88 | $13,455.27 |
| 3614 | 8,801.07 | 10,440.84 | 11,130.37 | 7,090.27 |
Petitioner also owned another parcel of land, which was held under Trust No. 50, from which he received some distributions of *98 sales proceeds. With respect to these trusts the parties have stipulated, and we therefore find as facts, the following:
That petitioner's income for each of the years 1923 to 1926, inclusive, should be reduced by the following amounts, included in the deficiency letter as dividends from associations:
| Trust No. | 1923 | 1924 | 1925 | 1926 |
| 3500 | $10,200.00 | $20,520.00 | $22,800.00 | $16,200.00 |
| 3614 | 16,000.00 | 16,750.00 | 18,600.00 | 11,000.00 |
| 50 | 2,756.29 | 3,521.97 | 97.32 |
*1578 The petitioner's income for each of the years 1923 to 1926, inclusive, should be increased by the following amounts, being petitioner's distributive share of the income of the trusts:
| Trust No. | 1923 | 1924 | 1925 | 1926 |
| 3500 | $9,560.94 | $13,930.15 | $17,584.88 | $13,455.27 |
| 3614 | 8,801.07 | 10,440.84 | 11,130.37 | 7,090.27 |
| 50 | 1,536.76 | 2,700.23 | 3,011.31 |
That petitioner, in addition to the adjustment mentioned above, is entitled to a deduction from the gross income as set forth in the deficiency letter dated February 24, 1928, for the years and in the amounts as shown below, on account of improvements made by petitioner to the property in Trusts Nos. 3500 and 3614, for which the petitioner was never reimbursed, and which costs have never been allowed as deductions to the trust, or heretofore to the petitioner:
| 1923 | $1,794.31 |
| 1924 | 959.86 |
| 1925 | 971.21 |
| 1926 | 739.02 |
On November 7, 1922, petitioner acquired a tract of 836 acres of land in Los Angeles on terms of payment extending over five years. His intention was not to subdivide it, but to hold it until he could sell the entire tract at a profit. On November 9, 1923, the petitioner entered*1579 into a contract respecting the tract, the pertinent terms being as follows:
LOS ANGELES, CALIF., November 9, 1923.
W. H. Hay, hereafter known as the Seller, agrees to sell and The Butterbaugh & Hunnicutt Land Co., Incorporated, hereafter known as the Buyers, agree to buy all of Lots 1, 2 and 4, Tract 3132, as per map recorded in Book 33, pages 66 and 67 of Maps, Los Angeles County, excepting 75 acres of Lot 2, deeded to C. F. Seccombe, et ux, and excepting the second half of taxes, year *99 1923-24; all assessments now or hereafter levied against the property, and subject to the restrictions, conditions and exceptions of record, being approximately 836 acres measured to the center of the street for $543,400.00, payable $10,000.00 cash, on the signing of this instrument, $65,000.00 on or before thirty (30) days from the date of this instrument, $75,000.00 with interest from December 9, 1923, to be paid on or before January 5th, 1924, and $131,133.33 payable on or before one year, and a like amount on or before two and three years from January 1st, 1924, secured by Payees interest in a Subdivision Trust; or secured by Collateral Assignment of the Beneficiary Interest*1580 in the existing Subdivision Trust, with proper amendment, known as Trust No. S-5878.
All amounts to bear interest at six per cent per annum, payable quarterly, from December 9, 1923.
This property to be placed in Trust with the Title Insurance and Trust Company, or Beneficiary Interest under present Trust No. S-5878, to be assigned to the Buyers and a Collateral Assignment, securing the debt as above outlined, taken back by the Seller and Title Insurance and Trust Company, with an amendment covering proper release clause. If placed in a new Trust the above debts to be taken care of after the payment of $75,000.00 from release clause to be furnished later, the Trust to carry the general terms of a Subdivision Trust, allowing the property to be subdivided and map recorded but providing that in case any improvement is contemplated that the Contractor must file a waiver of a lien on the real estate for any moneys due him.
* * *
* * * It is understood and agreed that the $10,000.00 and the $65,000.00 paid as above outlined, is to be forfeited as liquidated damages to the Seller in case the balance of the payments are not promptly made.
The land was held in Trust No. 5878*1581 from November, 1922, to November, 1923, petitioner being the beneficiary. Pursuant to the foregoing contract made in 1923, the land was placed in Trust No. 6327, with petitioner's vendees as beneficiaries thereof as to the amount of sales proceeds remaining after payment of the balance owed to petitioner upon the purchase price, and certain charges. The declaration of trust permitted subdivision of the land. In 1927 petitioner received the final payment due him for the entire tract.
The respondent has included the following amounts as taxable income for the years named received by petitioner after November 7, 1924, from the purchasers of the above mentioned tract:
| 1924 | $3,333.33 |
| 1925 | 97,055.57 |
| 1926 | 7,178.67 |
During the year that he held this tract of land the petitioner farmed a considerable portion of it. He also farmed the unsold portions of the tracts in Trusts Nos. 3500 and 3614, pending sales of the lots.
Petitioner makes no complaint regarding Trust No. 50. The amounts received from the other trusts he has treated as capital gains. Respondent has treated them as ordinary income.
*100 OPINION.
MARQUETTE: The question here presented*1582 is whether, for the purpose of Federal income tax, petitioner is entitled to treat as capital gain the amounts he received from sales of certain real estate. Three tracts are involved. Two of them, known as Trusts No. 3500 and No. 3614, were subdivided and gradually sold as lots by petitioner after he had held them for more than two years. The third, known as Trust No. 5878, was sold as an entirety about one year after petitioner acquired it, but the sale was not for cash and the final payment was not received by petitioner until about five years after he first bought the land.
It is clearly shown by the facts before us that petitioner was simultaneously engaged in several lines of business, and that one of them was the buying and selling of real estate. He was a licensed real estate broker and maintained an office. He had platted subdivisions and during the taxable years he had a branch office on or near the property and kept salesmen there. A person may be engaged in more than one trade or business at the same time. ; *1583 .
With respect to the year 1923 the question is governed by the Revenue Act of 1921, section 206, the pertinent provisions of which are:
(1) The term "capital gain" means taxable gain from the sale or exchange of capital assets consummated after December 31, 1921;
* * *
(6) The term "capital assets" as used in this section means property acquired and held by the taxpayer for profit or investment for more than two years (whether or not connected with his trade or business), but does not include property held for the personal use or consumption of the taxpayer or his family, or stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
As to the other years here involved, the Revenue Acts of 1924 and 1926 govern. Section 208(a)(8) of each of those acts provides:
The term "capital assets" means property held by the taxpayer for more than two years (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the*1584 inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business.
Respecting the land which petitioner had subdivided and placed in Trusts No. 3500 and No. 3614, the exact question before us was considered in . The Board held that real estate could not be included in an inventory, citing , and . *101 Therefore, real property sold in 1923 that had been held by the taxpayer for more than two years was a capital investment. The same reasoning applies in the instant proceeding, and petitioner's receipts from Trusts No. 3500 and No. 3614 during 1923 should be taxed as capital gain. But his receipts from those trusts for 1924, 1925 and 1926 were not derived from capital assets as defined by the controlling statutes, but from property held primarily for sale in the course of his business. Hence, such receipts constitute taxable income under sections 210 and 211 of the Revenue Acts of 1924 and 1926. Cf. *1585
With respect to the tract known as Trust No. 5878, petitioner had held it less than two years when, in November, 1923, he entered into a contract for its sale. The purchase price was paid to him in installments during the next four years. He contends that the sale was not consummated until 1927, when the final payment was made.
In our opinion petitioner's agreement in 1923 was a contract of sale of the tract. He received a substantial sum as a down payment and placed the property in trust for the benefit of the purchasers after payment of the balance of the purchase price. The dominion of the property passed from petitioner to the purchasers. Such circumstances preclude the idea of an executory contract to sell at some future date. ; ; . The petitioner acquired the tract in 1922 and sold it in 1923. Therefore, the property did not constitute a capital asset within the meaning of section 208(a)(8) of the Revenue Acts of 1924 and 1926, and profits*1586 from its sale are taxable as ordinary income.
Decision will be entered under Rule 50.