*87 Decision will be entered under Rule 50.
In 1947, 1948, 1949, and the fiscal year ending March 31, 1950, petitioners realized gains from the sale of certain units of a defense-housing project and unimproved lots.
1. Held, that all of the houses and one of the unimproved lots were held primarily for investment and were entitled to capital-gains treatment under section 117 of the Internal Revenue Code.
2. Held, further, that the remaining unimproved lots were held primarily for sale to customers in the ordinary course of trade or business and were not entitled to such capital-gains treatment.
*841 These consolidated proceedings involve the following deficiencies in income tax:
| Taxpayer | Docket No. | Year | Amount |
| Walter R. Crabtree | 36284 | 1947 | $ 2,854.15 |
| Geraldine P. Crabtree | 36285 | 1947 | 2,313.08 |
| Walter R. and Geraldine P. Crabtree | 36286 | 1948 | 1,062.20 |
| 1949 | 126.86 | ||
| Walter R. Crabtree Company | 36287 | Mar. 31, 1950 | 5,013.24 |
*842 The issue to be determined is whether the gain from the sale of certain residential properties and*88 unimproved lots was properly treated by petitioners as a long-term capital gain under section 117 (j) of the Code, or whether such gain, as respondent asserts, constituted ordinary income. Another adjustment of respondent relating to the cost basis of a lot sold in 1947 was not contested and will be taken into account in the Rule 50 computation.
Some of the facts were stipulated.
FINDINGS OF FACT.
The stipulated facts are so found and are incorporated herein.
Walter R. Crabtree and Geraldine P. Crabtree were husband and wife during the taxable years in question, residing together in Jacksonville, Florida. They did business as a partnership, alternately known as Walter R. Crabtree Agency and Walter R. Crabtree Company, until April 1, 1949, at which time all of the partnership assets were transferred to a Florida corporation, Walter R. Crabtree Company (hereinafter referred to as the Corporation), of which they owned all of the outstanding shares of stock. Individual returns for the calendar year 1947 and joint returns for the calendar years 1948 and 1949 were filed by Walter and his wife with the collector of internal revenue for the district of Florida. Partnership returns for*89 those years and a corporate return for Walter R. Crabtree Company for the fiscal year ending March 31, 1950, were filed with the same collector.
In 1925 Walter R. Crabtree (hereinafter referred to as the petitioner) obtained a real estate broker's license, and has been actively engaged in the real estate business in the city of Jacksonville since that time.
Petitioner's initial venture in the real estate business occurred in 1924. In that year he leased, on a long-term basis, an old house which he remodeled into a duplex dwelling. The quarters on the second floor were rented, and petitioner and his family lived on the first floor. This rental income was sufficient to cover all payments and expenses on the property for several years.
In 1927 he purchased a tract of approximately 6 acres. This was subdivided into 30 lots, all but 2 of which were subsequently sold. An old building located on one corner of the property was retained by petitioner, and later remodeled into a store which he still owns and rents.
In 1929 petitioner purchased a 2-apartment dwelling. He lived in one and rented the other. From 1929 to 1932 he was associated with the Earnest Childs Realty Company. During*90 that time he managed the Andrew Jackson Hotel which the firm owned.
*843 In 1932, in addition to his real estate activities, petitioner became an agent for the Travelers Insurance Company. He bought several small agencies which were consolidated into one profitable organization.
In 1937 he built and sold 3 houses. In 1938 he bought some 10 or 11 lots on which 7 houses were built. In 1939 he purchased some 60 or more lots on which 77 houses were built and sold.
In 1940 petitioner acquired a tract of land known as Riverside Manor which was developed as an urban subdivision. A business district was laid out in which petitioner built and leased certain commercial properties. In 1941 approximately 130 houses were built in this development by Crabtree Homes Company. His financial position in 1941 was such that it was possible for him to begin making additions to his portfolio of investment properties. This he did by retaining for rental purposes the more desirable houses of those he built, for example, those on corner lots and with better equipment; the remaining units were sold. Over 200 housing units were built about that time; some were sold and some were rented according*91 to petitioner's plan of dual operation -- building and selling for quick and larger profit returns, building and retaining the choice properties in his investment portfolio.
After the entrance of the United States into World War II, the Federal Housing Administration (hereinafter referred to as the F. H. A.) approached builders and developers in the Jacksonville area in an effort directed particularly toward providing new rental housing for defense workers. Petitioner was among those builders. In response to the efforts of the F. H. A., he organized the Standard Homes Company, a Florida corporation, whose stock was owned by him and his wife. The stated purpose of the corporation was to construct rental housing for defense workers. The corporation, however, agreed to construct some houses for immediate sale. Under the provisions of war housing regulations, petitioner could have sold all houses which he built to defense workers. By April 29, 1944, a total of 118 houses had been built. Thirty additional units were in the process of construction. Fifty-four of the houses had been sold immediately after completion pursuant to the original agreement. Gains from the sale of these*92 houses were reported as ordinary income by the corporation. The remainder was rented.
Early in 1943 petitioner, through another wholly owned Florida corporation, Crabtree Corners, Incorporated, completed a group of apartment units which he still owns and rents profitably. Because of the favorable experience with his first multiple-dwelling type rental property, with its smaller upkeep expenses and greater return on investment, petitioner was anxious to expand his holdings of such type investment property. Due to lack of adequate financing and the *844 unavailability of materials, however, he was not able to construct any additional multiple-dwelling units during the war years.
On January 1, 1944, petitioner formed the Walter R. Crabtree Agency (hereinafter referred to as the partnership). Petitioner and his wife were the partners. To it were transferred the assets of Crabtree Corners on February 29, 1944, and Standard Homes Company on April 29, 1944. The partnership also held petitioner's other rental properties and parcels of unimproved realty.
After mid-1944, with the completion of the remaining units of the defense-housing project, petitioner ceased building single-dwelling*93 houses. In that year, 45 additional houses in the defense-housing project were sold. The gain therefrom was reported as ordinary income. The remaining houses in the project were retained as rental investment property. These remaining units were the better houses, located on the choicer sites, and with the best equipment. A separate bookkeeping system was maintained for rental property and for property held for sale. Rental income and expenses incident thereto were always carefully segregated from income derived from sales and other sources.
In late 1945 petitioner purchased a large tract, known as the Lakewood Property, on which he planned to construct an extensive multiple-dwelling development. The Lakewood Realty Corporation was formed. Petitioner needed working capital to install a sewerage and water system on the property.
Beginning late in 1945 and continuing through the first 3 months of 1946, petitioner disposed of substantially all of the remaining units of the defense-housing project, which at the time of their sale were still being held as rental investment property. No effort was made to sell. For some months prior to the sale of this property, petitioner had *94 been besieged by occupants and others with offers to buy. Such offers he had refused consistently. His office staff was similarly instructed to refuse these offers. The houses had been leased on a month-to-month basis, but with no purchase option. There was no advertisement, nor solicitation of purchasers. The interested occupants were advised by phone or letter of petitioner's decision to sell the houses.
Sixteen units were sold in 1945, many on the installment-sale basis. In that year, three unimproved lots (hereinafter referred to as the Stanley, Paschal, and Cardwell lots) were also sold on the installment basis. The Stanley lot was located in the Victory Park area and the other two in the Riverside Manor area. Early in 1946, 33 more units of the defense-housing project were sold; many on the installment-sale basis.
In 1946 petitioner constructed the first group of multiple-dwelling units on the Lakewood property. In subsequent years additional units *845 were built in that and other similar developments. None has ever been sold. As early as 1944, petitioner's income from rental properties was substantially greater than from sales. His holding of all types of rental*95 units increased from 135 in 1945 to 340 units in 1950. At the time of trial, he was one of the largest holders of rental property in the Jacksonville area.
The first taxable year in controversy is 1947. In that year petitioner sold a parcel identified as the San Jose lot, originally purchased in 1943. This property had been acquired by petitioner for his personal home site. At the time of purchase, an old house known as the Porter Place stood on the property. Petitioner had intended to remodel this. In 1947, however, he remodeled the home in which he was then living, on Montgomery Place, for his daughter, and decided to purchase another tract near the San Jose lot for himself. The Porter Place had been torn down, and a well and wall had been added to the property. Gain from the sale of the lot was reported as a long-term capital gain. The respondent determined that such gain should be reported as ordinary income.
In 1947, petitioner also realized income from collections on installment sales of seven units of the defense-housing project sold in 1945. Such realized income was reported as a capital gain. Final installment payments on the Paschal and Cardwell lots sold in 1945*96 were made. These also were reported as capital gains. In 1947 petitioner also reported as a capital gain the collection on installment sales of 16 units of the defense-housing project sold in 1946. The respondent determined that such payments, representing gains from the sale of the houses and the two lots, constituted ordinary income.
In 1948 petitioner sold, on the installment basis, 3 houses identified as the remaining units of the defense-housing project. Gain therefrom was reported as a capital gain. An unidentified lot was also sold in that year, and profit therefrom was reported as a capital gain. In 1948 petitioner reported, as capital gains, collections on seven of the installment sales of defense-housing units made in 1945, 11 units made in 1946, and the final payment on the Stanley lot. The respondent determined that gain from the sale of 3 houses and the unidentified lot sold in 1948, as well as payments on installment sales of houses and lots in 1945 and 1946, were ordinary income.
On April 1, 1949, the assets of the partnership were transferred to the Corporation. The partnership filed a final income tax return covering the first 3 months in 1949. It reported, *97 as capital gains, collections from installment sales of defense-housing units made in 1945, 1946, and 1948. The Corporation filed a return for the fiscal year ending March 31, 1950. It reported, as capital gains, collections on installment sales of defense-housing units made in 1945, 1946, and *846 1948. In 1949 it also reported, as capital gain, payment by the Crabtree Lumber Company for lots sold to it by the partnership in 1946. Respondent determined that gains from all such collections should have been reported by the partnership and the Corporation as ordinary income.
The units of the defense-housing project sold in 1945, 1946, and 1948, and the San Jose lot sold in 1947 were capital assets held primarily for investment purposes. Lots sold in 1946 to the Crabtree Lumber Company, the three parcels known as the Stanley, Paschal, and Cardwell lots sold in 1945, and the unidentified lot sold in 1948, were held primarily for sale to customers in the ordinary course of trade or business.
OPINION.
In order for the petitioners to overcome the determination of the respondent as set forth in the deficiency notices, it is incumbent upon them to sustain the burden of proving that*98 the houses and the unimproved real property involved were not held primarily for sale to customers in the ordinary course of trade or business. Greene v. Commissioner, 141 F. 2d 645 (C. A. 5, 1944), certiorari denied 323 U.S. 717">323 U.S. 717; Commissioner v. Boeing, 106 F. 2d 305 (C. A. 9, 1939), certiorari denied 308 U.S. 619">308 U.S. 619. In similar cases involving a determination of whether gain from the sale of property should be accorded capital-gains treatment or should be reported as ordinary income, we have emphasized that this is a question of fact. King v. Commissioner, 189 F. 2d 122 (C. A. 5, 1951), certiorari denied 342 U.S. 829">342 U.S. 829 (1951); Rubino v. Commissioner, 186 F. 2d 304 (C. A. 9, 1951), certiorari denied 342 U.S. 814">342 U.S. 814 (1951). In making that analysis, we have recognized that no single test is decisive. King v. Commissioner, supra.We have looked at the purpose for which the property was acquired, whether for sale*99 or for investment; at the frequency of sales; at the nature and extent of taxpayer's business; and at the activity of the taxpayer and those acting for him, or on his instructions. We have indicated that the test which deserves greatest weight is the purpose for which the property was held during the period in question. Carl Marks & Co., 12 T. C. 1196 (1949).
The evidence is clear in this case that the nature and extent of petitioner's business puts him in the dual role of both a dealer and an investor in real estate. We recognized such a dual role in Nelson A. Farry, 13 T. C. 8 (1949), where we said:
a dealer can also be an investor, and, where the facts show clearly that the investment property is owned and held primarily as an investment for revenue and speculation, it is classed as a capital asset and not property held "primarily for sale to customers in the ordinary course of trade or business."
*847 Respondent contends that the sale of the remaining units of the defense-housing project is similar to a long list of cases dealing with the identical question presented here; that the houses were built because*100 of the urgent need for housing for defense workers; and that subsequent sale of them was from the beginning always contemplated. We think the evidence is to the contrary. Petitioner, over the entire course of his activity in the real estate business, has demonstrated a consistent purpose to acquire and hold rental investment property. Admittedly his holdings of this type of property during many of the early years were not large, but neither were his activities as a builder and developer. By 1950, however, his extensive holdings of rental property, compared to his complete inactivity as a builder and seller of single-dwelling houses, corroborates the other evidence in this record of the dual role of dealer and investor played by these petitioners during the taxable years.
We do not think that the method by which petitioner acquired single-dwelling rental units changes their status as investment property. As a developer, he was building houses on an extensive scale from 1940 to 1944. As an investor, he was selecting and holding the best units for his rental investment portfolio.
It is true that some units in petitioners' defense-housing project were sold soon after completion. *101 But that some were sold and others rented does not change the primary reason for holding the latter. Rentals were on a month-to-month basis, no effort was made to sell, no advertisement or "for sale" signs were placed on the premises, and separate bookkeeping entries were made for the rental property. Substantially all of the units were sold within a short period of time, indicating petitioner's intent to liquidate these assets and transfer his investment holding to another type of property.
Respondent has cited several cases involving the sale of defense-housing projects decided by this and other courts where it was held that the gain therefrom should be treated as ordinary income. King v. Commissioner, supra;Rollingwood Corporation v. Commissioner, 190 F. 2d 263 (C. A. 9, 1951); Lucille McGah, 15 T. C. 69 (1950), remanded 193 F. 2d 662 (C. A. 9, 1952), rehearing 17 T. C. 1458 (1952), on appeal C. A. 9, June 5, 1952; Rubino v. Commissioner, supra;Albert Winnick, 17 T. C. 538 (1951),*102 remanded 199 F. 2d 374 (C. A. 6, 1952); Victory Housing No. 2, Inc., 18 T. C. 466 (1952), reversed 205 F. 2d 371 (C. A. 10, June 12, 1953). We think those cases are clearly distinguishable from the instant case.
Running through those cases are elements absent from the instant case, namely, an aggressive effort made to sell defense-housing units; leases containing purchase options; the purpose of sale being to acquire additional capital to build more houses for sale; the taxpayer's *848 previous history of being exclusively in the business of building houses for sale; income from sales far exceeding income from rents during the period in question; a clear and distinct intention on the part of the taxpayer to change the purpose of holding the houses for rent to holding them for sale. In none of those cases do we find the continuity of intent to acquire and hold rental investment property extending over a period of many years, and a definite plan for so doing, as we find on the part of the petitioners in this case.
The sale by petitioners of the remaining units of the defense-housing project does*103 not convince us that the houses were held primarily for sale to customers during the period in question. Petitioner has made clear his intent to acquire rental investment property. That he sold single-dwelling rental units and immediately thereafter constructed and held multiple-dwelling rental units does not alter the essential purpose for which both types were acquired and held.
In the instant case, to reach the conclusion for which respondent contends would be tantamount to saying that a dealer in real estate could never sell a defense-housing project and accord capital-gains treatment to such profit as may arise therefrom. To so hold would be a clear usurpation of the legislative prerogative. For nowhere does respondent point to nor can we find any evidence of Congressional intent to treat dealers in real estate, who sell investment property, differently from dealers of another sort. In Carl Marks & Co., supra, we allowed a security dealer in 1941 to take from his dealer's account certain securities and place them in an investment account. The following year, more securities were added to the investment holdings. The holdings in each account*104 were carefully separated as were accounting entries pertaining thereto. In 1942, when some of the investment holdings were sold, we allowed capital-gains treatment of the profits therefrom. We see no such clear dissimilarity in that case and this, except in the kind of property dealt in, to warrant our according capital-gains treatment in the one and not the other.
Petitioner purchased the San Jose lot for his personal home site. He did not sell this lot until he purchased another nearby on which he built his present home. We think this clear evidence that this property was acquired, and held as an investment, and that its sale was the sale of a capital asset.
We think petitioners have failed to sustain the burden of proof sufficient to overcome the respondent's determination that gain from the sale of the Stanley, Paschal, and Cardwell lots; the unidentified lot sold in 1948; and the lots transferred to the Crabtree Lumber Company should be treated as ordinary income. Petitioner admitted, in fact, that the Stanley and Paschal lots "probably should have been a regular gain."
Decision will be entered under Rule 50.
Footnotes
1. The following proceedings have been consolidated:
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Petitioner Docket No. Year Walter R. Crabtree 36284 1947 Geraldine P. Crabtree 36285 1947 Walter R. and Geraldine P. Crabtree 36286 1948 and 1949 Walter R. Crabtree Company 36287 Fiscal year ending Mar. 31, 1950