*2235 1. The cost of the part of the real estate involved in this case, which was sold in the years 1922 and 1923, was, under the 1921 Act, a capital investment, and the profits made thereon are liable to tax under section 206(b) of the 1921 Act.
2. Such of said real estate as was sold in 1924 and subsequent years constituted, under the 1924 Act, property held primarily for sale in the course of the taxpayer's business, and the profits realized thereon are taxable under sections 210 and 211 of the Revenue Act of 1924.
*1293 These consolidated cases are before us in a proceeding for the redetermination of deficiencies for the years below proposed in notices timely mailed to the respective taxpayers, as follows:
| 1922 | 1923 | 1924 | 1925 | |
| John S. Phipps | $2,402.03 | $1,003.47 | $7,582.94 | $2,337.56 |
| Henry C. Phipps | 1,612.08 | 1,109.47 | 13,987.69 | 2,337.52 |
| Amy Guest | 1,418.27 | 320.15 | 4,959.31 | 2,424.12 |
The question at issue is whether profits realized in these years from the sale of real estate are taxable*2236 as capital net gain under the provisions of the Revenue Acts of 1921 and 1924, or at the ordinary rates of normal tax and surtax imposed by sections 210 and 211 of those acts.
FINDINGS OF FACT.
Petitioners are two sons and a daughter of Henry Phipps. Their address is 787 Fifth Avenue, New York City. In 1916 petitioners *1294 borrowed certain moneys from the Bessemer Investment Co., a banking corporation owned and controlled by the Phipps family, and with the proceeds of the loan purchased in the early part of that year a parcel of real estate in Palm Beach, Fla. The deed was drawn in the name of H. W. Robbins, who was at that time secretary to John S. Phipps; but Robbins never had any interest in the property in any way whatever, though he represented the owners thereof. There was no written instrument that clothed him formally with authority, but, inasmuch as the property stood in his name, he was informally authorized to offer the property for sale and to sell it, and he did in fact sign contracts of sale and deeds conveying it to others, and he received for these three petitioners the purchase price, or parts of the purchase price, covering such sales. The actual*2237 sales, however, were made by two or three real estate agents resident in Palm Beach, as Robbins' regular place of business is in New York City.
At the time of its purchase in January, February, or March of 1916, the property "was more or less of a jungle." "Soon thereafter" it was cleared and graded. It was surveyed and platted into some seventy lots. Roads were laid out and surfaced, and water mains, sewers, and electricity were installed. Some trees were planted.
The property was offered for sale and some sales were made while the improvements were still in progress. The first sale was made on August 3, 1916, and a large number of these lots were sold during the years 1916 and 1917. Most of the contracts were three-year contracts; some of them were for five years. All of the lots were sold before October, 1929. A lot was sold as late as 1925, but the date of the sale of the last lot was not definitely shown.
After the property was subdivided into lots, a selling price was placed on each lot, but those prices were tentative and flexible, and subject to increase when the demand for the lots was active. This tract of land is the only real property that was purchased*2238 by these petitioners all acting together, though there were some individual transactions from time to time and in some cases in late years the two brothers were both interested in somewhat similar ventures. The purchases by the brothers of real estate in Florida were not made each year; sometimes there would be lapses of a year or two years, or perhaps four or five years when no property was bought there; but these petitioners were always acquiring real estate somewhere in the United States, both as individuals and collectively, and this venture, known as the H. W. Robbins Co., was in line with such business. Robbins was acting as the agent representing these three individuals. From 1922 to 1925 his business was handling real *1295 estate matters for Henry Phipps Estates, a corporation dealing in real estate, in which the principal people interested are John S. Phipps, Henry C. Phipps, and other members of the Phipps family
For 1922, 1923, and 1924, information returns were made on Internal Revenue Form 1065 headed "Partnership Return of Income," in the name of "H. W. Robbins Co." The return for 1922 is signed "H. W. Robbins, (member of Partnership)"; the return for 1923*2239 is signed "Henry C. Phipps, (member of Partnership)"; and the return for 1924 is stamped "John S. Phipps, (member of partnership)" and signed "Charles A. Weiss, Jr., Agent."
From these returns we find that the total cost of the land was $143,255.45. The total asking price of all lots was originally fixed at $308,167, but by the end of 1923 the amount of sales actually made was $337,806.15, and in 1924 the total sale price of all lots was raised to $443,523.65, at which figure it stood on December 31.
Sales were made as follows:
| Sale price | Per cent of | |
| total sale | ||
| price of | ||
| all lots | ||
| In the first two years following the purchase of | ||
| the property - 44 lots and some parts of lots | $164,367.50 | 37.2 |
| In 1919 | 77,000.00 | 17.3 |
| In 1920 | 30,933.85 | 7.1 |
| In 1921 | 13,000.00 | 2.9 |
| In 1922 | 29,000.00 | 6.5 |
| In 1923 | 23,504.80 | 5.3 |
| In 1924 | 75,317.50 | 16.9 |
| 413,123.65 | 93.2 | |
| Unsold, December 31, 1924 | 30,400.00 | 6.8 |
| Total sale price of all lots | 443,523.65 | 100.00 |
OPINION.
LOVE: Respondent contends that petitioners were each members of a partnership entitled "H. W. Robbins Co.," created to handle this transaction. We are not of that opinion. *2240 There is no evidence whatever of the existence of such a partnership, except the so-called partnership returns for 1922, 1923, and 1924, and the individual returns of petitioners. It does not appear that such an information return was filed for 1925, although at least one lot from this tract was sold in that year. On the contrary, we think that there is persuasive evidence that no such partnership existed. It has not been shown that business of any kind was transacted as a partnership. H. W. Robbins was, in 1916, the secretary of John S. Phipps, one of the petitioners, and the record title was taken in Robbins' name as a matter of convenience and to cloak the real owners because they did not wish their names known in connection with the purchase of the property. They were known to be wealthy and they had in contemplation the purchase of additional property, and if it were known that they were *1296 in the market the price might be raised and their real estate taxes might be affected if the title to the property were recorded in their names. When a contract for sale of a lot was entered into, a "down payment" was made, usually by check to Robbins, and the papers sent to*2241 him in New York for execution, by the broker who made the sale. He deposited such checks to the credit of the account with this property on the books of the Bessemer Investment Co., which had loaned money to the individuals for the purchase of the property. No partnership articles were written up. There were no letterheads of the "H. W. Robbins Co."; no listings in the telephone directories. In correspondence connected with this transaction the paper bore only the address "787 Fifth Avenue, New York," and nothing else, and the communications were signed "H. W. Robbins." Said the witness (Robbins):
It was not a separate business in any sense of the word. It was part of the Phipps investments. We never considered it as a separate business.
It the light of these facts, we hold this transaction to have been a joint venture in which each of these petitioners had an undivided one-third interest; the legal title to the property being in H. W. Robbins, their representative, but the equitable title to the estate resting in them as tenants in common.
The contentions of the petitioners are that transactions in real estate did not constitute their trade or business (although they*2242 offer no evidence to show that they had any other trade or business); that this property did not form their stock in trade; that it was a capital asset held for more than two years, and that the gain thereon was a capital gain taxable under the provisions of section 206 of the Revenue Act of 1921, and section 208 of the Revenue Act of 1924.
The pertinent provisions of section 206 of the 1921 Act are:
(a) That for the purpose of this title:
(1) The term "capital sain" 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.
Section 208 of the Act of 1924 is similar but not identical. It provides that:
(a) For the purposes of this title -
(1) The*2243 term "capital gain" means taxable gain from the sale or exchange of capital assets consummated after December 31, 1921;
* * *
(8) *1297 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 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.
The provisions of section 208(a)(1) and (8) of the Revenue Act of 1926, which are controlling for the year 1925, are substantially the same as the above quoted provisions of the 1924 Act.
With reference to the 1924 and 1925 transactions, petitioners claim that the purchase and sale of Florida town lots in question was an isolated transaction and not one entered into in connection with their trade or business in such a way as to bring it within the provisions of the last phrase of section 208(a)(8) of the 1924 Act.
We believe that the evidence clearly shows, and we so hold, that petitioners were dealers as well as*2244 investors in real estate.
Robbins, the sole witness, testified that John S. Phipps, Henry C. Phipps, and other members of the Phipps family were the principal people interested in the Henry Phipps Estates, a corporation dealing in real estate, and that the Bessemer Investment Co., a family banking corporation, furnished the money for the purchase of this property. He further testified that "they [the Phipps] were always investing in real estate, both individually and collectively."
The land, as acreage, was purchased early in 1916, and was immediately cut up into lots and improved and offered for sale by lot sale. Some lots were sold as early as August, 1916, and sales continued throughout 1916 and subsequent years. All the lots were sold by October, 1929. The fact that the record title to the land was in the name of H. W. Robbins does not alter the situation. The evidence conclusively shows that it belonged to the petitioners, and was handled through Robbins simply for convenience. The fact that some of the lots were held more than two years does not alter the situation. The evidence clearly shows that the property was purchased, and at all times held primarily for sale*2245 in the course of their business.
The situation is different for the years 1922 and 1923. For those years, the 1921 Act was in effect. That act does not contain the last phrase of section 208(a)(8) of the 1924 Act. Therefore, we must consider the last phrase of section 206(a)(6) of the 1921 Act. Whether or not real estate, under any circumstances, could properly be classed as "stock in trade," the syntax of the phrase in which that term is used in the statute now under consideration is such that it is modified by the clause "which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year."
Real estate may not be included in an inventory. ; .
*1298 The property was purchased in 1916, and hence the lots sold in 1922 and 1923 had been held for more than two years, and by reason of the fact that real estate, however held, is not excluded by the excluding clause of the statute, it must be deemed to be included within the provisions of section 206(b) of the Revenue Act of 1921. *2246
Judgment will be entered under Rule 50.