*237 Decisions will be entered for the respondent.
In 1920, petitioner purchased 160 acres of land approximately one mile from the business center of Clovis, New Mexico, and approximately one-half mile from the city limits. His immediate plans were to use the land for grazing and feeding cattle. These plans failed to materialize and in 1924 he platted the land for sale in lots and small acreage tracts. Part of the land was incorporated into the city about 1930, and all of it had been so incorporated by 1939. Although he engaged in other business activities over the years and the number of sales were up and down in various years, petitioner continuously held lots and tracts for sale and, in the course of such holding, sold lots and tracts throughout the period from 1924 through 1945. As the town grew, and conditions and demands changed, petitioner subdivided and replatted various tracts to meet current market needs. He sold some land for school purposes and made a donation thereto of some additional acreage. He donated a lot to get the Federal Housing Administration Program started. His activities in selling varied with changing financial trends and with the needs in handling*238 his property. From 1940 to 1945, the population of Colvis almost doubled, due to the location of war facilities in that area, and during that period he devoted to his real estate operations only the time required to consider and act on the offers which came to him in due course. He was, during this period, regularly engaged in the lumber business with his son. Held, that the lots sold by petitioner in 1944 and 1945 were lots held by him primarily for sale to customers in the ordinary course of his business, within the meaning of section 117 (a) of the Internal Revenue Code, and the gain realized is includible in full in his gross income.
*699 Respondent has determined deficiencies in income tax against petitioners C. E. Mauldin and Helen T. Mauldin, for the year 1944, in the respective amounts of $ 427.19 and $ 277.18, and for the year 1945, in the amount of $ 3,798.14 against each petitioner.
The only question in issue is whether certain lots sold during the taxable years were properties held by C. E. Mauldin primarily for sale to customers in the ordinary course of his trade or business, within the meaning of section 117 of the Internal Revenue Code.
FINDINGS OF FACT.
Petitioners are husband and wife, and residents of Clovis, New Mexico. All income in issue is community income and was so reported by them. Their returns for the taxable years 1944 and 1945 were filed with the collector of internal revenue for the district of New Mexico.
C. E. Mauldin, hereinafter referred to as petitioner, was born February 23, 1877, in Pickens County, South Carolina. In 1900 he graduated from Clemson College, the A & M College of South Carolina. He later attended Iowa State College, at Ames, Iowa, and the University of Pennsylvania, from which latter school he received a*240 degree in veterinary medicine in 1904.
He served several years with the United States Bureau of Animal Husbandry. For about two and one-half years he was in charge of a livestock experimental station in Louisiana, and for approximately two and one-half years was manager of the Louisiana Livestock Commission. In 1916 he moved to Albuquerque, New Mexico. Having learned from the Chief of United States Engineers there that numerous road construction jobs were available, he organized a road construction company. He had had some experience in road work and grading in his activities in Louisiana.
In 1920 petitioner went to Clovis to bid on a sewer project. He was so impressed with the town, its climate for raising cattle and the cheap cattle feed available, that he immediately moved there. He began looking at property, with a view to finding something suitable for cattle feeding, yet near enough to town that the property would grow in value.
In 1920 he contracted for the purchase of 160 acres of land at the price of $ 20,000, or $ 125 per acre. The land was a quarter section, situated about one-half mile from the city limits of Clovis, and about one mile from its business district. *241 At that time, Clovis had a population of less than 5,000 people. Its main street extended to the *700 southwest corner of petitioner's land. The streets of Clovis were not paved. They were dirt roads, "graded in the middle of them."
The surface of the tract was uneven, and about 40 to 50 acres in the northwest corner consisted of a lake bed, with some water in it. There was a depression or draw that angled toward the southeast corner, which would afford protection to cattle. The land was grassy, and had been used for feeding cattle. At the time petitioner acquired the property, an old slaughterhouse was located on it. The farm, or ranch, house had been destroyed by fire. A water line had been extended to the property from the Clovis waterworks. At the time of purchase, the residential area of Clovis was still chiefly within the then city limits. The tract of land immediately south of petitioner's property and toward the city limits was already in town lots, but no houses had been built.
Petitioner did not use the property for feeding cattle. Shortly after his purchase, the country suffered from a lack of rain, which caused crop failures. From 1921 to 1924, there *242 was a decline in the cattle market and there were bank failures in Clovis. Petitioner's financial condition became such that he made an effort to sell his property, but there was no one available who had the money to pay the price asked. He was advised by real estate dealers that if he divided the property into small tracts he would more readily be able to sell.
The land was surveyed, platted and subdivided into 29 separate tracts of small acreage and four blocks of 88 lots, and was named The Mauldin Addition. The plat was filed in the county clerk's office in December 1924. The first 12 tracts, ranging from less than 3 acres to 10 acres each, were situated north of a road which diagonally crossed the quarter section from the southwest to the northeast corners. They were numbered 1 to 12, and from east to west. The other tracts and the four blocks of lots were south of the road. At the southwest corner of the addition, the road appears as an extension of Main Street, curving from a direction due north and running diagonally to the northeast corner of the addition. The right-of-way was donated by petitioner, and the dedication to public road purposes appears to have been made*243 by the filing of the plat. The road was opened in 1924 or 1925. How far it extended beyond petitioner's property is not shown. The plat shows, also, that four streets and parts of two other streets had been dedicated to the public. Four streets were continuations of streets running north from the original town of Clovis and through a subdivision called North Park Addition, situated between the town and Mauldin's Addition. They extended to the diagonal road. The streets were dedicated at the same width as they were within the city. The street extending along the eastern boundary of the blocks of lots was only 40 feet wide, the other 40 feet, presumably, to come from the *701 adjoining tract. The streets running east and west were East 14th Street and East 16th Street. East 14th Street apparently was already laid out along the southern boundary of petitioner's property, and was widened by the addition of 40 feet from petitioner's land, so as to make it 80 feet in width. East 16th Street did not run all of the way through petitioner's property, but only from the diagonal road to as far as the eastern boundary of the area platted into city lots. It was the northern boundary*244 of blocks 1, 2, and 3, consisting of 24 lots each. No street was platted corresponding to East 15th Street, so that blocks 1, 2, and 3 extended approximately two blocks from East 14th Street, on the south, to East 16th Street, on the north. Block 4 was an irregular block of 16 lots, situated on the curve of Main Street, as it entered petitioner's property. To the north, between blocks 1, 2, and 3 and the diagonal road, were six small tracts numbered 13 to 17. To the east of the lots and tracts 13 to 17, were 12 acreage tracts ranging from something under two acres to a bit over four and one-half acres. The north 6 tracts numbered 18 to 23, inclusive, abutted on the diagonal road on the north. The remaining 6 tracts, numbered 24 to 29, were immediately south of tracts 18 to 23, and were bounded on the south by East 14th Street.
After opening the addition, in December 1924, petitioner sold only a few pieces of property. Economic conditions became better in the latter part of 1925 and in 1926, when other sales were made. After 1925 petitioner made sales of lots with restrictions as to the value of the houses to be built. This policy was carried out through 1945. In 1927 petitioner*245 built his home on a lot close to the center of the platted lots. This brought sales of other lots.
About 1930 petitioner donated for school purposes approximately fifteen acres in tracts 11 and 12, and sold the balance, to the School Board. Part of the lake bed was in the northern portion of these tracts. Petitioner had already sold part of tract 10, which was later subdivided by the purchaser. On August 25, 1931, petitioner subdivided the south end of tract 10 into nine lots, selling one to an individual and the others to the School Board. The thought of the School Board was "to put teachers" there. In 1933 he subdivided tract 14 into two parcels, for two buyers. In 1935 he subdivided tract 3 into 13 lots. He considered this property the least in value of his holdings, and sold the lots for $ 125 each. In November 1937, he subdivided tract 9 into two blocks of 20 lots each. This plat was later vacated and the tract was incorporated in a larger subdivision. In December 1937, he subdivided into eight lots, tract 15, which was situated south of the road. He donated a corner lot to assist the Federal Housing Administration in getting started with its building program. The*246 first F. H. A. house built in Clovis was erected on this lot. Petitioner *702 sold five of these lots, and still owns the other two. In November 1938, petitioner subdivided tracts 4, 5, 6, 7, and 8. The F. H. A. objected to the way a certain street was platted and, in order to have the approval of F. H. A., petitioner vacated the plat and in July 1939 filed a new plat for the tracts mentioned. The plat for tract 9 was also vacated and that tract was included in the new subdivision. By the July 1939 plat, tracts 4 to 9, inclusive, were subdivided into 162 lots. This plat indicates that the adjoining tract, number 10, had been acquired by the School Board, since it reveals that a "Gymnasium," "Stadium and playgrounds" were located on that property. A school building was constructed on the property about 1935. One of the objections to the former subdivision was that a street ran through to the stadium and playground, and the F. H. A. was afraid someone might be injured on account of it. The new plat met the requirements of F. H. A. It also shows that the diagonal road had been named "Commerce Way."
In the meantime, some other owners had subdivided the tracts they had purchased*247 from petitioner. A. L. Johnson, who had bought a portion of tract 10, was the first purchaser to subdivide his property. He filed his plat in August 1929. It appears, however, that this property, with the balance of the tract, was later acquired by the School Board, as shown hereinabove. Other purchasers from petitioner who filed plats of their respective tracts, are as follows:
| Tract | Date plat was filed | |
| S. L. Lewis | 26 | March 26, 1930. |
| Minor G. Thompson | 24 | April 16, 1932. |
| W. H. Collins | 1 28 and 31 | December 3, 1938. |
| Lester Trimble | 1 27 and 32 | December 3, 1938. |
| Wm. Lancaster, et al | 18 and 29 | December 5, 1938. |
| Anne E. Janes Clark | 17 | July 26, 1940. |
| A. L. Larue | 19 | November 30, 1940. |
| J. H. Hill | 20 | March 21, 1944. |
| C. C. Doris | 3 | March 16, 1945. |
Part of petitioner's addition was taken into the city about 1930, as petitioner was first assessed in 1931 with a city levy on properties in the Mauldin Subdivision to the city of Clovis. The city limits were extended so as to include all of petitioner's property*248 by 1939. Many houses had been built in and around the Mauldin Addition, and in other areas in Clovis.
By the end of 1945, petitioner had sold acreage tracts of approximately 72.076 acres, and lots equal to about 34.64 acres. In addition to the acreage given to the School Board, approximately 15 acres were *703 donated by petitioner for road purposes. With the exception of about 20 acres, petitioner had disposed of all of his 160-acre tract by the end of 1945. Most of the 20 acres then held by petitioner were situated south of Commerce Way and were considered by him and real estate dealers to be his more valuable properties.
After petitioner's property was taken into the city, substantial improvements, in the way of street paving, which included curbs and gutters, were made in Mauldin Addition. The usual method of procedure was for a group of property owners or the city commissioners to set up an improvement district. Time for protests was allowed, after which the necessary steps were taken to finance the work and to have it done. In the end, the work was paid for through the assessment of benefits against the property affected and collection of the levies covered thereby. *249 In the outlying districts more attention was paid to the protests of the property owners. The method of setting up the districts in Mauldin Addition, the dates or exact number thereof, their scope as to lots and parcels covered, or the terms of the financing, are not shown with any definiteness. It does not appear that petitioner was a moving spirit in the creation of any of these districts, but neither was he a protestant. In at least one instance, he was away from Clovis on the critical date.
A few blocks of paving had been done prior to the time any part of Mauldin Addition was taken into the city limits. The property covered not being a part of the city, only property-holders were responsible for the setting up of the district.
About 1936 or 1937, the Clovis sewer system was extended over some part or parts of Mauldin Addition. This work was done by the city as a W. P. A. project.
There was a land boom in Clovis from 1926 through 1929. Petitioner sold some of his properties during this period, and thought he could have sold all his holdings if he had desired to do so. He did not desire to sell more at the prices obtainable. He was out of the city during much of this time*250 on his construction business.
By 1930, there were no construction contracts available and petitioner was unable to stay in that business. During the 1930's, he held political positions or appointments under the governors of New Mexico. On highway assignments, he was usually paid on a per diem basis. On other work, he usually received a salary.
Due to extensive paving, petitioner owed assessments therefor in 1937 or 1938 approximating $ 25,000, and in 1939 he was threatened with legal action for payment in one district. One reason for platting the 162 lots north of the road at the time he did was to sell enough of them at that time to pay the street and road assessments and thereby protect his more valuable property, situated south of Commerce Way, on which paving liens had been impressed. He completed payment of *704 the assessments in 1940 from money realized primarily from the sale of some of those lots, the approximate number sold being one-half or slightly less.
In April 1939, after having borrowed some money from a bank, petitioner started a lumber business in partnership with his son. After 1940, and until 1949, when his health failed, he devoted his time to his lumber*251 business and to the sale of lots when solicited by the buyers.
Clovis had grown in population in 1940 to about 14,000, and to 20,000 to 25,000 in 1944 and 1945. This latter growth was due primarily to the location of war facilities in or near Clovis during the war, which caused the city to develop very rapidly, and the lots in the Mauldin Addition to be in great demand. From the time petitioner filed his original plat, it was not his practice actively to seek buyers, but to sell his properties on the solicitation of buyers or of real estate men representing prospective buyers. The only period when this practice was to any extent modified, was the period 1937 to 1940. It was also his policy to sell first those properties that he considered the least valuable to hold. Also, when he began to sell lots from one block, it was a practice to continue selling from that block, rather than open up a second block. These methods and policies were generally known, especially to real estate men. Petitioner preferred to hold his better properties for greater profits in the future, as they were appreciating in value each year. He did not have a real estate office, nor a license to sell real*252 estate. He did not advertise his properties for sale either by signs on the property or by advertisements in the newspapers. With one or two possible exceptions, he had no fixed prices or scale of prices for his various lots and tracts. An individual or a real estate dealer representing a client, who wanted to buy petitioner's property, would telephone or see petitioner and ascertain if he would sell the particular parcel in which the buyer was interested and for what price. On occasion, he refused to sell, either because he did not want to sell the particular property at that time, or the prospective buyer would not pay the price petitioner asked. Petitioner would not sell lots unless he knew the cost of the house that was to be constructed thereon. He often fixed his price at 10 per cent of the estimated cost of the house to be built. This was particularly true in cases where the house was to be built under the F. H. A. program. Some sales made by petitioner during the taxable years 1944 and 1945 were made over the telephone and on the street, but principally they were made at his lumber business. Most of the lots sold in the said years were sold from the 162-lot subdivision, *253 north of the road. This was the area replatted in 1939, at the instigation of the Federal Housing Administration.
The only real estate petitioner purchased after acquiring the 160-acre tract was one unsightly block of lots near his residence, and some *705 commercial properties for lumber-yard sites in Clovis, Tucumcari, and Amarillo. After cleaning up the block near his home, he sold the lots to three different buyers, at a profit.
In his income tax return for 1939, petitioner showed, under Schedule D, gross income of $ 14,116.50 from "Sale of Real Estate -- Improved Lots." He deducted "Cost of Lots Sold -- $ 2,077.02; Improvements -- $ 2,300.88; Total -- $ 4,377.91." His net profit was $ 9,738.59. With deductions of $ 230.91 for interest and $ 181.39 for taxes, his net income was $ 9,326.29. This was the only income reported.
In his return for 1940, he stated the nature of his business was "Real Estate." Stated details disclosed "the sale of 15 lots on contract for $ 7,315.00," the land cost as $ 1,518.40, sales costs as $ 881.91, and the cost of street and land improvements as $ 1,362.27. The profit shown was reported as ordinary income. Due, however, to a deduction *254 claimed by reason of loss on the sale of stocks, no net income was reported.
Petitioner lists his business in his 1943 return as "Lumber Business." The real estate sales show a gross of $ 3,535, and a net gain of $ 2,679.51. They were reported as long term capital gains as follows:
| Gross | |||
| Date | sales | ||
| Kind of property | acquired | Date sold | price |
| 2 lots | 1920 | 4/43 | $ 1,000 |
| Lots | 1920 | 9/43 | 525 |
| Lots | 1920 | 10/43 | 2,000 |
| Total |
| Gain taxable | |||
| Kind of property | Cost | Gain | (50 |
| per cent) | |||
| 2 lots | $ 72.75 | $ 927.25 | $ 463.63 |
| Lots | 72.75 | 452.25 | 226.13 |
| Lots | 699.01 | 1,300.01 | 650.00 |
| Total | 1,339.76 |
His gross and net income as reported for 1943 were:
| Sales of lots (50 per cent of $ 2,679.51) | $ 1,339.76 | |
| Partnership | 11,876.13 | |
| 13,215.89 | ||
| Deductions: | ||
| Contributions | $ 25.00 | |
| Interest | 278.35 | |
| Taxes | 380.71 | 684.06 |
| Net | 12,531.83 |
In his original and amended returns for 1944, petitioner did not state the nature of his business. In Schedule D he reported long term capital gains from sales of lots as follows:
| Gross | Gain taxable | |||||
| Date | Date | sales | (50 | |||
| Kind of property | acquired | sold | price | Cost | Gain | per cent) |
| Lots | 1920 | 1944 | $ 5,400 | $ 2,130.29 | $ 3,269.91 | $ 1,634.85 |
*255 *706 In Schedule E he reported income from the partnership, Mauldin Lumber & Builders Supply Company, of $ 13,238.20. His reported net income was $ 14,385.05.
In his 1945 return, petitioner designated his occupation as "Lumber & Real Estate." He showed adjusted gross income as follows:
| Mauldin Lumber & Builders Supply Co | $ 12,646.12 | ||
| Interest Received | 187.50 | ||
| 12,833.62 | |||
| Deduct: | |||
| Travel and Business Expense | $ 230.00 | ||
| Property Taxes | 263.82 | ||
| Total Deductions | 493.82 | $ 12,339.80 |
Long-term Capital Gains:
| Date acquired | Date | Gross sales | |
| Kind | sold | price | |
| 41 lots | 1920 | 1945 | $ 28,512.21 |
| Adjusted Gross Income |
| Gain taxable | ||||
| Kind | Cost | Gain | (50 per cent) | |
| 41 lots | $ 8,027.37 | $ 20,484.84 | $ 10,242.42 | 10,242.42 |
| Adjusted Gross Income | $ 22,582.22 |
In his 1946 return, petitioner designated his occupation as "Lumber." He showed adjusted gross income as follows:
Long-term Capital Gains:
| Date | Gross sales | ||
| Kind | Date acquired | sold | price |
| Town lots | Var | 1946 | $ 28,739.75 |
| Schedule E -- Mauldin Lumber | |||
| Co., Tucumcari, N. M | |||
| Income: Mauldin Lumber & | |||
| Builders Supply Co., Clovis, N. M | |||
| Deduct: | |||
| Business Expenses and | |||
| Travel Expense | |||
| Property Taxes | |||
| Interest | |||
| Total Deduction | |||
| Adjusted Gross Income |
| Taxable Gain | |||
| Kind | Cost | Gain | (50 per cent) |
| Town lots | $ 6,796.87 | $ 21,942.88 | $ 10,971.44 |
| Schedule E -- Mauldin Lumber | |||
| Co., Tucumcari, N. M | 704.09 | ||
| Income: Mauldin Lumber & | |||
| Builders Supply Co., Clovis, N. M | $ 26,120.79 | ||
| Deduct: | |||
| Business Expenses and | |||
| Travel Expense | $ 678.21 | ||
| Property Taxes | 362.85 | ||
| Interest | 74.66 | ||
| Total Deduction | 1,115.72 | 25,005.07 | |
| Adjusted Gross Income | $ 36,680.60 |
Petitioner's income from real estate and lumber business during the period 1939 to 1946, inclusive, as shown in his returns, with the exception of 1941 and 1942, was as follows:
| Real estate | Real estate | Lumber | |
| Year | sales -- gross | sales -- net | business -- net |
| 1939 | $ 14,116.50 | $ 9,738.59 | |
| 1940 | 19,115.00 | 4,653.07 | |
| 1943 | 3,525.00 | 2,679.51 | $ 11,876.13 |
| 1944 | 5,400.00 | 3,269.91 | 12,750.00 |
| 1945 | 28,512.21 | 20,484.84 | 12,339.80 |
| 1946 | 28,739.75 | 21,942.88 | 25,005.07 |
| Total | 99,408.46 | 62,768.80 | 61,971.00 |
*707 Petitioner's real estate sales during the period 1941 to 1948, inclusive, were as follows:
| Number of | Number of | |
| Year | transactions | lots sold |
| 1941 | 2 | 2 |
| 1942 | 3 | 11 |
| 1943 | 3 | 5 1/2 |
| 1944 | 3 | 5 1/2 |
| 1945 | 15 | 44 1/2 |
| 1946 | 39 | |
| 1947 | 1 | 1 |
| 1948 | 2 |
*257 During the above years, the lumber company, operated by petitioner and his son, did not supply any lumber for houses built on lots sold by petitioner.
In determining the deficiencies herein, the respondent treated the gain from the sale of lots as ordinary income and included the full amount thereof in gross income.
The lots sold by petitioner in 1944 and 1945 were held by him primarily for sale to customers in the ordinary course of his business.
OPINION.
The question is whether the lots sold by petitioner in 1944 and 1945 were held by him primarily for sale to customers in the ordinary course of his trade or business, within the meaning of section 117 (a) of the Internal Revenue Code. If so, the gain realized was ordinary income, as the respondent has determined. If not, it was long term capital gain, as reported by petitioner.
That the lots were held primarily for sale to customers, is, we think, evident from the facts. From the time his plans for feeding and grazing cattle failed to materialize, the only plan petitioner had for the property was its sale. Being hard pressed for cash, he was at first desirous of selling the property promptly and as a unit. There were no buyers*258 at that time for such a property, and petitioner, on the advice of one or more real estate operators in the locality, subdivided the property as an addition to the town of Clovis and filed a plat thereof with the county clerk, as provided by law. From that time forward, petitioner's primary purpose, and his only purpose shown of record, was the sale of the various lots and tracts into which the property had been divided at a profit, excepting, of course, the lot on which his home was located, and such parcels as were donated for school purposes, streets, roads and for the first F. H. A. house in Clovis, all of which would tend to make the various parcels to be sold more attractive to prospective buyers. At no time was any program *708 or plan formulated for use of the properties for the purpose of producing income other than by sale.
The next phase of the question is whether or not petitioner's activities preliminary to and in the actual sale of the lots were of such character as to make of them the conduct of a business. If so, the lots sold were sold in the ordinary course of his business and the gain realized therefrom was ordinary income. It is petitioner's position that*259 he was holding the properties as an investment, that during the years 1944 and 1945, he was devoting his full time to a lumber business which he conducted with his son, and that since his real estate selling activities required little time or effort on his part, it may not be said that those activities were such as to constitute the conduct of a business within the meaning of the statute. In support of this position, he stresses particularly that he maintained no real estate office, he had no real estate broker's license, he never advertised the property for sale through the papers or by signs placed thereon, and his personal activities were limited to the negotiation of sales upon the solicitation of prospective buyers or their representatives. He also regards as significant his refusal, from time to time, to sell a particular property in which someone might be interested.
As indicating that his real estate activities in 1944 and 1945 did not constitute a business, he contrasts his activities in those years with his activities during the period from 1937 to 1940. For the period 1937 to 1940, he testified that he did indulge in substantial activity in the selling of tracts and *260 lots, that he would at times "chase" a prospective buyer "around the block." Also, he thought he may have listed some of his lots with real estate operators during that period, though he had previously testified that he did not list any properties after the 1926 to 1929 period. In that connection, one real estate operator could not recall that petitioner had ever listed any properties, or had ever affirmatively gone out and solicited sales or asked the assistance of real estate brokers in the sale of his tracts and lots, while another operator did testify that during the period 1937 to 1940, the petitioner had asked his assistance in the selling of lots. Although the petitioner does not categorically admit that his real estate operations in 1937 to 1940 were such as to constitute a business, within the meaning of the statute, on the other hand, he does not deny that he was in such business, but, to the contrary, argues that the change of his activities from 1940 on was such as to indicate that during the taxable years he had disengaged himself from the conduct of a business within the meaning of the statute.
On the facts of record, we think that the activities of the petitioner in*261 connection with the platting, subdividing and selling of the tracts and lots in the Mauldin Addition to the City of Clovis over the years before, during and after the period 1937 to 1940, were such as to put *709 him in the business of selling tracts and lots in the addition. The fact that the personal activities of petitioner at any one time may have required much or very little of his time is not determinative. He might have been engaged in two or more businesses and the business of selling real estate might not have been his principal business. Snyder v. Commissioner, 295 U.S. 134">295 U.S. 134; Oliver v. Commissioner, 138 Fed. (2d) 910; Ignaz Schwinn, 9 B. T. A. 1304, 1308.
In our opinion, the facts not only justify but require the conclusion that the petitioner, after being unable to dispose of the property as a unit shortly after his cattle-feeding business failed to materialize, entered upon a business of subdividing and selling the said property, which he then denominated Mauldin Addition. Certainly he was not a passive investor, and his activities were clearly more than mere liquidating*262 activities; and as the years passed and the town of Clovis grew, he adjusted his operations to meet the demands and needs of his business. At first, the property was divided chiefly into small acreage tracts, with only that portion nearest the city limits divided into lots. Streets were platted to tie in and conform to streets already extending from the city limits to his property. Later, as the town grew and the demand became greater and the tastes or needs of customers changed, revisions were made to attract the eye of the buying public. The School Board bought some of the land as the site for a school, and petitioner donated approximately 15 acres adjoining, for school uses. The property donated was not suitable for building purposes, but could be used, and was adapted to use, as a football or athletic field. It was low ground and flooded at times. At the time of purchase, the School Board was considering making part of the land purchased available to teachers. In 1927 Mauldin built a home for his own use on one of the lots. He had already established the practice of setting up building restrictions on lots sold. This program not only protected his home, but maintained*263 the desirability of the other lots and tracts. As time progressed, tracts which had at first been subdivided as small acreage tracts were subdivided into lots and so sold. The first house constructed under the auspices of the Federal Housing Administration in and near Clovis was built on a selected lot donated by petitioner. Subsequently, at the instigation of F. H. A., Mauldin had a plat covering a portion of the property north of Commerce Way vacated and the property replatted to meet the requirements and suggestions of F. H. A., and while he had not set up any fixed scale of prices, except possibly for some small blocks which he sold at $ 125 per lot, he did, at or about that time, follow a standard based on the loans being made under the F. H. A. program for the building of houses. He generally regarded 10 per cent of the prospective cost of the house as a fair and proper price for the *710 lot. So far as appears, however, he did not publicize this method of fixing prices.
By reason of some differences between the parties as to certain of the facts and their import here, it appears desirable to take note of certain contentions made by petitioner's counsel. Much is made*264 of the fact that the taxpayer, in platting and subdividing his property, did not on his own account construct improvements, such as the paving of streets and roads, the building of curbs and gutters, and the laying of sewer and water lines. As to the water lines, the record is silent, except to show that a water line onto the property existed at the time petitioner bought the land in 1920. The sewer lines were laid by the city under the WPA program around or about 1937. The paving, in the main, was done through paving districts set up either by the property owners or the city commissioners and the cost thereof was covered by the assessment of benefits against the various tracts and lots affected by the program. Petitioner, at one point, testified, however, that the paving began about "1929 or 1930," and at another point, stated categorically that it started "before" the property was taken into the city. In such case, that project, of necessity, would have originated with the owners of the property themselves. As for the projects laid down or instituted by the city commissioners, it appears that the owners of the property affected had the right to protest, and possibly could *265 have defeated the paving program if the majority of the owners interested had been opposed to it. One witness, well informed with respect to such matters in and around Clovis, testified that the protests were of much greater force in the outlying districts. The attitude of petitioner at some points in his testimony seems to be that the paving was more or less forced upon him, even though it does appear of record that in no case did he openly oppose or protest the setting up of the paving districts, and one of his witnesses familiar with his operations was of the view that petitioner "originally" felt that the paving would benefit his property. In any event, there is nothing to indicate that petitioner even may have had any strong or adverse feeling in the matter, until he was being pressed for payment of the levies laid against the assessed benefits to his property.
As far as we are able to see, the facts in this case being what they are, the question whether petitioner did, or did not, participate in setting up the paving program, is not of any controlling importance. The need or desire for paving in the business or residential areas of Clovis apparently did not develop until *266 some time after petitioner had acquired the property. When his purchase was made in 1920, according to his testimony, there were no paved streets in Clovis. They were dirt roads, "graded in the middle." Regardless of the method of its accomplishment, it seems apparent that the paving had been done by the *711 time it became a factor of any particular importance in petitioner's real estate operations. At the time petitioner's property was taken into the city, he had already sold considerable parts of the addition and, to some extent, at least, the wishes, interests and desires of other land owners would be of some force in the approval or rejection of a proposed paving district. Petitioner's position, in so far as the paving of roads and streets, or the construction of curbs, gutters and sewer lines are concerned, was obviously quite different from that of a real estate developer whose property, from the time of its first platting, was so located that improvements of the character mentioned were a prerequisite to the successful conduct of the operation.
Petitioner's counsel also considers of controlling importance the fact that the step-up in petitioner's selling program between*267 1937 and 1940 was occasioned by his need or desire to raise money to pay off the accumulated paving assessments against various of his properties. The fact that the petitioner found it necessary to step up the sale of the lots for the purpose mentioned, or chose that method of raising money to pay the levies assessed against properties owned by him, does not, in any way we are able to comprehend, change the picture. To say the least, the financing of street and road paving costs through levies against assessed benefits to the properties affected is a common practice, whether the paving is done in new real estate developments or areas previously opened, and, in due course, payment of the levies must be made. The satisfaction of the levies cleared the properties in the said district and allowed the petitioner greater freedom in carrying out the subsequent sales thereof. If of any significance here, it would seem that the increased sale of lots during 1937 and 1940 supports, rather than negatives, the conclusion that petitioner's activities in platting and selling his properties in Mauldin Addition constituted the conduct of a business.
Petitioner's counsel makes two other arguments*268 which are apparently regarded as of controlling importance. One is that petitioner's activities in 1944 and 1945, in so far as Mauldin Addition was concerned, were limited to the negotiation of sales in the cases where the offers to buy met with his approval and the rejection of numbers of sales where the offers were not satisfactory to him. In other words, controlling significance is attached to the fact that in the taxable years petitioner did not affirmatively conduct any selling campaign. One answer to the contention is that, while petitioner was devoting what might generally be referred to as full time to the lumber business, he did take out whatever time was necessary to carry on the desired sales activity. The population of Clovis had practically doubled by reason of the location of war plants in the vicinity, and we think it may properly be observed that during the war period there was what is generally referred to as a seller's market, and that was particularly true in areas *712 where activities connected with the conduct of the war were being carried on. Accordingly, it does not appear that any further action was required on the part of the petitioner in the conduct*269 of his real estate selling operations. The rejection of some offers would, in logic, seem to be part and parcel of the same operations. Certainly it may not be said that a rejection of some offers and the resulting holding of the lot or lots in question for better sale is, in and of itself, antagonistic to the conduct of a real estate business.
In many important respects, the petitioner's activities were comparable to those of the taxpayer in Oliver v. Commissioner, supra. Neither Oliver nor the petitioner had a real estate office or a real estate broker's license. Except for the first of Oliver's tax years, when he platted his last subdivision, their activities were much the same. They merely dealt with customers who came to them. The platting and subdividing of the properties sold had previously been done. To some extent, Oliver, as did petitioner in this case, benefited by having a seller's market. Neither did any newspaper advertising, and while Oliver did have a sign on the property he was holding for sale, his property was located in a relatively much larger metropolitan area, and even with the sign, the fact that he held lots for sale*270 was probably not nearly so well established in the Washington area as was the fact that petitioner held his lots for sale, in Clovis. In each instance, both taxpayers put forth only such effort as was necessary for the conduct of their operations in any particular year. In that connection, it is interesting to note Mauldin's own testimony. Referring to the situation as it existed when giving his testimony in this proceeding, he stated that the buyers had just about quit coming to him, "and it looks like I might have to go to selling them again, and if I do, I will go to selling them."
In our opinion, the lots sold by petitioner in the Mauldin Addition, in 1944 and 1945, were held by him primarily for sale to customers in the ordinary course of his real estate business of platting and selling the property, within the meaning of section 117 (a) of the Internal Revenue Code, supra, and we so hold. See and compare Snyder v. Commissioner, supra;Brown v. Commissioner, 143 Fed. (2d) 468; Snell v. Commissioner, 97 Fed. (2d) 891; Oliver v. Commissioner, supra;*271 Gruver v. Commissioner, 142 Fed. (2d) 363, affirming 1 T. C. 1204; Ehrman v. Commissioner, 120 Fed. (2d) 607, affirming 41 B. T. A. 652; Richards v. Commissioner, 81 Fed. (2d) 369, affirming 30 B. T. A. 1131; Julius Goodman, 40 B. T. A. 22; Ignaz Schwinn, supra.Frieda E. J. Farley, 7 T.C. 198">7 T. C. 198, cited and relied on by petitioner, is not this case.
Decisions will be entered for the respondent.
*713 Johnson, J., dissenting: I disagree with the conclusion reached by the majority. The evidence discloses that in 1940, when enough lots had been sold to liquidate petitioner's indebtedness to the city for paving, he decided to hold the remaining portions of his 160-acre tract and thereafter took no steps to promote sales. Such sales as he made thereafter resulted from unsolicited offers from individuals and he did not advertise his property for sale, hire any agents, erect signs, list the property, or *272 take any other steps ordinarily taken by individuals engaged in the business of selling real estate. "Business," as that term is used in the statute, "notwithstanding disguise in spelling and pronunciation, means busyness; it implies that one is kept more or less busy, that the activity is an occupation." Snell v. Commissioner, (CA-5, 1938), 97 Fed. (2d) 891; Dunlap v. Oldham Lumber Co., (CA-5, 1950), 178 Fed. (2d) 781; W. T. Thrift, Sr., 15 T. C. 366, 370; Thomas E. Wood, 16 T.C. 213">16 T. C. 213. An individual who has been active in the real estate business over a period of years can change his status if he indicates his intention to do so and refrains from activities ordinarily pursued by those engaged in such a business. Cf. Carl Marks & Co., 12 T. C. 1196, 1202. Petitioner made such a change in 1940. Thereafter he engaged in the lumber business with his son. Accordingly, in my view, the lots here in question were not, in the language of the statute itself, held by petitioner in the taxable years "primarily for sale to customers*273 in the ordinary course of his trade or business," section 117 (a) (1), I. R. C., and petitioners correctly reported the gains on the sales as long term capital gains.
Footnotes
1. Tracts 31 and 32 do not appear on the original plat of Mauldin's Addition.↩