dissenting:
I respectfully dissent from the opinion of the majority.
The record reflects that the taxpayers, real estate lawyers, invested in various real properties as minority members of syndicates. They did not manage the properties. They did not, and their syndicates did not, develop, subdivide, or otherwise change the condition of the properties. They did did not sell off large parcels in small lots at retail as a sub-divider does. So far as appears the buyers were other in*676vestors like plaintiffs, purchasing entire buildings or comparable properties, substantially in the condition plaintiffs’ syndicates had bought them, depreciation excepted. These transactions, if infrequent, would concededly be classic instances of capital investment. By some magic mere frequency is held to strip them of that character.
The court has concluded that:
It is not necessary to make separate findings and conclusions on each separate tract where the circumstances of each have been considered and the number of prov-erbies and sales thereof is great and frequent. The normal course of taxpayers’ business is not established by an individual transaction. It is the overall, factual situation that must govern a particular case. (Emphasis supplied.)
The taxpayers objected to this conclusion, and argued that even if sales were great and frequent, a taxpayer’s purpose in holding real property must be determined separately as to each tract he holds, citing Tibbals v. United States, supra; Municipal Bond Corp. v. Commissioner, supra; Murray v. Commissioner, 370 F. 2d 568 (4th Cir. 1967), aff’g. per curiam 24 TCM 762 (1965); and Stanley H. Klarhowshi, 24 TCM 1827 (1965), aff’d. (7th Cir.) 67-2 USTC ¶ 9649 (1967). On the facts of this case I agree.
In the past this court has held the factor of frequency and continuity of sales not to be a conclusive test. Oahu Sugar Company v. United States, 156 Ct. Cl. 546, 555, 300 F. 2d 773, 778 (1962). Yet, great stress has been put on such factor in this case, as is evidenced by the fact that it is the only one of the numerous factors usually looked to in a case of this type that is specifically mentioned in the above quoted conclusion. It is with this conclusion, and the ramifications therefrom, that I take exception.
The gains in issue in the case at bar stem from the sale or disposal of real properties which were held for 6 months or more. The total number of separate gains being looked to is 20, or, over the 3 year period in issue, an average of somewhat less than 7 a year. The court has characterized this average number of sales as being “great and frequent.” I cannot agree.
In Rollingwood Corp. v. Commissioner, 190 F. 2d 263, *677266 (9th Cir. 1951), an average of 400 sales a year for 2 years was held to be frequent; in Ehrman v. Commissioner, supra, an average of 153 sales a year for 2 years was held to be frequent; and in Brown v. Commissioner, supra, an average of 26 sales a year for 3 years was held to be frequent. However, in Dunlap v. Oldham Lumber Co., 178 F. 2d 781, 784-85 (5th Cir. 1950), an average of 17 sales a year for 2 years was held to be infrequent; in Lazarus v. United States, 145 Ct. Cl. 541, 549,172 F. Supp. 421, 426 (1959), this court said that an average of 23 sales a year for 4 years was “not particularly frequent;” and in Abe Pichus, 22 TCM 1791, 1796 (1963), an average of 6.4 sales a year for 10 years was held to be infrequent. Thus, I cannot see how, in the case at bar, the taxpayers’ average sales being looked to for the years in issue of somewhat less than 7 a year can properly be characterized as “great and frequent.” The same would hold true for all sales made during the years in issue, those averaging 17 a year. Without its finding of “great and frequent” sales, all the court is saying is that separate findings need not be made where the circumstances underlying the holding of each tract have been considered. If this were the typical subdivision case I would agree. However, it is not.
Of the cases relied upon in the commissioner’s opinion, as modified and adopted by the court, I do not take issue with those indicating that no one factor is determinative of the purpose for which property is held. However, the court, in reaching its decision, has refused to apply the test, evolving from Municipal Bond Corp., supra, of viewing each property separately in order to make specific findings of fact as to each because “The circumstances in Municipal Bond Corp., do not exist here,” that is, this court has not, as did the lower court in Municipal Bond Corp., misinterpret the word “primarily” as used in the statute.
In finding against the taxpayers, the court has relied mainly, indeed almost wholly, on cases involving subdivisions made by the taxpayer. Such a subdivider is essentially a retailer, and the lots he sells normally are just as much stock in trade as the inventory of a supermarket. Even so, some subdividers have obtained capital gains treatment for their *678sales by persuading the courts, through the infrequency of their transactions, that they were not actually in the business of retailing land. Thus courts have got in the habit of applying a frequency test, and here now it has been used in an instance of pure investment where it is grotesquely misapplied. The Mmioipdl Bond Gorp., case did not involve a subdivision and that was why it was held necessary to view each property separately, as we should have done here. (However, the Tax Court even in a subdivision case has held that a “separate look” at each tract is necessary, e.g., Stanley E. ElarhowsJd, supra.) It is this distinction that I deem significant, now that the definition of “primarily” has been authoritatively settled, see Malat v. Riddell, supra, and it is the circumstance that does exist in both Municipal Bond Gorp., and the case at bar.
This point is not a personal invention of mine. In Frieda E. J. Farley, 7 T.C. 198 (1946), acq. 1946-2 C.B. 2, the Tax Court said (at p. 202) :
* * * It is unquestionably true that the frequency and continuity with which a particular activity is carried on is a primary consideration in determining whether such activity constitutes a trade or business. It is significant to note, however, that the cases which have applied this test to real estate transactions involved elements of development and substantial sales activity which are essentially lacking in this case. * * *
It will be noted that the statutory language relied on by our commissioner, in the opinion we adopt per curiam, is that of I.R.C. of 1939, Sec. 117, which excludes from capital gains treatment:
* * * property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business * * *
The intent of Congress must be our lodestar, and in determining that intent it is always helpful to consider what Congress actually said. The majority considers the meaning of the word “primarily”, but they pass the word “customers” over in silence. I presume some sales are other than to customers, else the word is surplusage. In my semantics, the *679word fits tbe buyers of subdivision lots perfectly and the purchasers here involved not at all. However, we may assume arguendo that if a person is in a “trade or business” the persons he sells to in the ordinary course of his business are “customers.” See Charles H. Black, 45 B.T.A., 204, 210 (1941), acq. 1941-2 C.B. 2. Whether mere passive investment in property in the hope it will appreciate in value is in this context a “trade or business” if extensively engaged in is, alas, something else I am not clear about. If it is, it seems to me we confront the logical absurdity that a systematically pursued intent to realize capital gains deprives one of capital gains treatment. It denies the usual rule that a person may purposely arrange his transactions, as long as they have a business purpose or other substantial economic reality, in the manner that incurs the lowest tax. Gregory v. Helvering, 293 U.S. 465 (1935). To obtain capital gains treatment, one must make a great show of having been thinking of something else. Taxpayers here took their assigned role, attempting unsuccessfully to persuade our commissioner that they contemplated only rental income and that the realization of gains on resale came as a complete surprise to them.
This branch of the income tax laws, as interpreted, should be of great interest to those whom H. L. Mencken used to call “connoisseurs of the preposterous.” I await future developments with interest and anticipation.
I would hold that in a non-subdivision case each specific tract of realty must be looked at separately, with specific findings of fact made as to each tract, to determine the nature of the gain resulting from the sale or other disposition thereof, with the test of frequency of sales, when applied to the whole, not being given the controlling emphasis it has received today.
FINDINGS OF FACT
1. Plaintiffs David B. Goodman and Theresa L. Goodman are residents of New York State and are both citizens of the United States and at all times relevant herein were husband and wife. Theresa L. Goodman is a plaintiff solely as the result of filing joint federal income tax returns for the years *6801953, 1954 and 1955 with her husband and is not otherwise connected with the transactions here in issue.
2. Herbert S. Goodman, prior to his decease on April 9, 1956, was, and plaintiff Gladys C. Goodman is a citizen of the United States and until April 9,1956, they were husband and wife.
3. Gladys C. Goodman (now known as Gladys 0. Dubin as the result of her marriage on October 12,1958, to Herman D. Dubin) is the duly appointed and acting executrix of the estate of Herbert S. Goodman and is a resident of New York State. She is a plaintiff as the result of filing joint federal income tax returns for the years 1953, 1954 and 1955 with Herbert S. Goodman and as the executrix of his estate but is not otherwise connected with the transactions here in issue.
4. Plaintiff Harry Mabel is, and Florence Mabel was, prior to her decease on December 27,1955, a citizen of the United States and at all times relevant until her death they were husband and wife.
5. Harry Mabel is the duly appointed and acting executor of the estate of Florence Mabel. He is a resident of New York State. The estate of Florence Mabel is a plaintiff as the result of joint federal income tax returns filed for the years 1953, 1954 and 1955 by Harry and Florence Mabel but neither Florence nor her estate was otherwise connected with the transactions in issue in this case.
6. Plaintiffs’ claims are for recovery of federal income tax and interest thereon assessed against and paid by them for the calendar years 1953,1954 and 1955 to the District Director of Internal Revenue, Manhattan, New York. Pursuant to the rules of the court, the parties stipulated, with the approval of the Commissioner, that the trial of this case should be limited to the issues of law and fact relating to the rights of the respective plaintiffs to recover, reserving the determination of the amount of recovery and the amount of offsets, if any, for further proceedings.
7. David Goodman was admitted to the practice of law in the State of New York in 1921, Harry Mabel in 1920 and Herbert Goodman in 192.9. From 1929 and through the relevant years of 1953, 1954 and 1955, they were members of *681tb.e bar of that state and practiced together as partners the firm name of Goodman and Mabel with offices in New York City.
8. The law firm of Goodman and Mabel specialized in the practice of real estate law. David Goodman’s practice was limited to the practice of such law. The other members of the firm handled other and related legal matters.'
9. Among other legal matters handled by plaintiffs through their law firm was the representation of clients who bought and sold real estate and placed mortgages on real estate. Some of these clients invited the plaintiffs to participate with them in certain such real estate ventures and it was their practice to do so since the middle 1930’s. The clients who invited plaintiffs’ participation were aware of their continuing interest in purchasing real property.
10. David B. and Herbert S. Goodman and Harry Mabel were never licensed real estate brokers nor advertised nor acted as such. Plaintiffs neither individually nor as Goodman and Mabel ever advertised for opportunities to buy or sell interests in real estate. Their opportunities in real estate arose through contact with clients who were investors and speculators in real estate. Plaintiffs took part in only 3 to 5 percent of the real estate transactions in which they acted as lawyers. At all times they reserved their own judgment as to whether they would participate in opportunities offered by their clients.
11. Groups with which plaintiffs bought interests in real estate were usually composed of four to six persons. However, a few of the groups were large, containing as many as 10 to 25 participants, one group including 95. The participants in the various groups were often different persons but the clients who invited plaintiffs’ participation were often the same. There were some people who would not buy an interest in a real estate venture unless plaintiffs participated for they had confidence in their judgment in such matters.
12. Prior to participating in any real estate venture, plaintiffs would go over the information furnished thereon by the broker, such as rental income and expenses. They would verify the figures, discuss the merits of the deal and one or *682more of the partners would often examine the property. Often, if the property was located outside the city of New York, plaintiffs relied upon the ability of their clients in evaluating it and sometimes relied upon the known responsibility of the tenant.
13. Plaintiffs always participated in real estate ventures together. Each proposed transaction was discussed among the members of the law partnership prior to participation therein, and they did not participate unless all three agreed it was wise to do so. David Goodman, because of his special background and experience in real estate, usually took the lead in identifying for his partners prospective ventures for their consideration.
14. David Goodman devoted as much of his time as he felt required by the real estate interests of Goodman and Mabel, whether during the week, on evenings or on weekends. The work included keeping track of the moneys received by Goodman and Mabel as its return from its interests in real estate ventures. This cash flow, representing income generated by properties and return of capital, was substantial. Cash receipts amounted to $220,730.61 in 1953, $191,183.35 in 1954, and $245,897.25 in 195'5. David Goodman also made disbursements as required for a few projects in which the partnership acted as agent for a venture, as noted in finding 21. Harry Mabel and Herbert Goodman’s time was devoted largely to the practice of law except for the time required for consultation and study concerning the advisability of purchases or sales of real estate interests or participation in ventures with others involving the same as heretofore noted.
15. When plaintiffs purchased an interest in real estate they held it either in partnership or corporate form. When held as a partnership, title would be taken in two or three names as tenants-in-common. The law partnership was represented by one of the plaintiffs who issued a letter to his two partners in which he stated that he held title for their benefit. Plaintiffs’ ownership interest in each venture varied from 2 to 50 percent. Normally their partnership interest ranged between 15 and 25 percent.
*68316. The individual who inaugurated the purchase of the property usually negotiated its sale or chose a broker to do so. The proposed price was always discussed with the entire group before an appointment was made to close the contract. When a piece of property was finally sold, it was the unanimous opinion of all the venturers that the price received was the best one available, and that the sale should be made. Plaintiffs never vetoed or refused to consent to a sale when the other participants desired to dispose of the property.
17. During the years 1953, 1954 and 1955 the law firm of Goodman and Mabel continued the practice commenced by them in the 1930’s of buying, holding and selling interests in real estate either through partnerships owning real property as tenants-in-common, through ownership of stock in corporations owning real property, or through mortgages on realty. Most of the properties in which plaintiffs owned an interest were located in the metropolitan area of New York City but a substantial number were scattered throughout the entire country.
18. The law firm of Goodman and Mabel sold or otherwise disposed of certain of its interests in real estate during the years 1953,1954 and 1955 and, as a result, realized gains and losses reportable for federal income tax purposes. Goodman and Mabel reported income on the calendar-year basis and used the cash receipts method of accounting. The firm filed form 1065 — United States Partnership Returns of Income— for the years in issue and reported the gains and losses resulting from the sale or disposal of its interests in real properties as gains or losses on the sale or disposal of capital assets. The real properties, the sale or disposal of which gives rise to the gains on which tax is here in issue, were held by partnerships in which the law firm of Goodman and Mabel had owned an interest for 6 months or more.
19. The extent of plaintiffs’ transactions during the years 1953,1954 and 1955 is set forth below in tabular form showing location of the property, date of acquisition, percentage of total ownership, date of sale or other disposition and the resulting gain or loss on all realty property interests sold or disposed of during the 3-year period here in issue, whether held for more or less than 6 months:
*684
*685
*686 1955
Partnerships — Properties held 6 months or less
20. The sponsor of the ventures in which plaintiffs participated was usually their client. He was responsible for management of the property although sometimes he selected a managing agent to collect rents, maintain the property and keep it occupied. The sponsor would receive reports from the agent on behalf of the participating owners to whom he was accountable. The sponsor maintained an account in which he deposited the rents and from which he made all required payments for such things as interest, taxes, management fees, water bills, repairs, maintenance and other expenses. All expenses were borne by each venturer in his pro rata share in accordance with his percentage of the ownership.
21. In some instances, the plaintiffs’ law partnership acted as agent of the venture for collection of rents and disbursement of expenses. Bent and other income received from the property was deposited in a Goodman and Mabel “agency” account from which mortgage, tax and water, and other payments were made, including a pro rata share of rental income to the joint venturers in the property. The number of times the partnership so acted varied from as many as T5 in 1950 to as few as 7 in 1956 and 1957. The partnership received no fees for this service. A special checkbook was kept for the agency account.
22. Proceeds received by the partnership from the sale of its interests in real estate were held in a “real estate” account *687for tibe purpose of purchasing new real estate properties. The partnership also maintained a “regular” bank account to segregate plaintiffs’ real estate assets from law partnership assets. It also had a “special” account for funds entrusted to the law partnership in escrow.
23.Clients and co-owners with plaintiffs in real estate were not only sponsors of such ventures but sometimes held real estate brokers’ licenses. During the years 1953,1954 and 1955 these individuals included the following:
Murray Adler
A. B. and B. B. Block
Joseph Cinich
Maurice Greenstein
Reuben Horowitz
Albert Klein
David Lieberman
Irving Pepper
Louis Silverman
Charles Walzer
24. Plaintiffs rendered legal services for the real estate ventures in which they participated and received fees therefor when another of the members of the venture received a finder’s fee, a brokerage fee or a commission for management. Brokerage fees were based on a percentage of selling price and exceeded legal fees paid.
25. During the period 1950-1958 plaintiffs owned stock in 4 to 11 realty corporations. They held from 35 to 57 different interests in realty partnerships and from 6 to 21 realty mortgages. In some cases the mortgages were acquired by plaintiffs upon the sale of their real estate interests when a purchase money mortgage was taken in part payment of the sales price. As of the first of each year the plaintiffs held the following number of interests in real estate:
26.The adjusted cost basis of the plaintiffs’ total ownership of real property interests between 1950 and 1958 exceeded $397,000. The adjusted cost basis for these years as *688of January 1, for each, type of ownership and their total basis in all real property held for that year, was as follows:
The fair market value of the foregoing interests in real estate was far in excess of the above-stated adjusted cost basis.
27. Plaintiffs’ activity in purchasing and disposing of real estate interests during the period 19'50 through 1958 is further shown by the following table of transactions:
28. The volume of plaintiffs’ activities in the real estate market was such that their disposal of realty interests was motivated by a wide variety of factors to be expected in addition to or concurrent with a desire to make money or to avoid losing money. Some of these factors were as follows:
(a) Neighborhood deterioration.
(b) Need for extensive repairs.
(c) Death of a co-owner.
(d) Inability of co-owners to get along.
(e) Property could not be developed for purpose for which acquired.
(f) Building not well located for commercial purposes.
(g) Problems with tenants.
(h) Refinancing difficulties.
*689(i) Misrepresentation by seller as to income and expenses.
(j) Poor rental income.
(k) Inability to obtain finances necessary to close contract and obtain title.
(l) Zoning difficulties.
29.During the period relevant herein the firm of Goodman and Mabel received the following net taxable income from the following sources:
Net income from practice of law Net ordinary-income from other sources1 Net income from the sale or disposal of interest in real estate
1950.. $38,266.43 $75,943.62 $91,392.63
1951.. 47,324.87 50,008.95 68,154.41
1952., 25,498.58 47,987.84 26,647.05
1953., 40,296.46 44,035.18 29,300.89
1954-, 21,266.10 46,728.60 26,648.68
1955-, 30,722.05 11,718.93 64,921.91
1956. 41,643.34 38,012.69 30,863.93
The total yearly net taxable gain for federal income tax purposes received by Goodman and Mabel from the sale or disposal of interests in realty corporations, partnerships and mortgages, for the years shown above, was substantially less for interests held 6 months or less than for such interests held more than 6 months.
30. A bank account entitled “Goodman and Mabel Investments” was established in 19'56 after the death of Herbert Goodman. The purpose of this account was to differentiate all purchases of real estate made after his death from those properties in which his estate had an interest. The latter were described as Goodman and Mabel “realty holdings.”
31. Herbert Goodman owned interests in real estate held outside the firm of Goodman and Mabel, some of which he received through his father. At the time of his death he held interests in over 40 parcels of real estate, including unimproved property, located in New York City and throughout the nation. Some of these properties had mortgages on them and in some he owned only fractional interests. The values of these properties, without allowance for any encumbrances thereon, ranged from $40,000 to approximately $7,000,000.
*69032. Plaintiffs filed timely joint income tax returns for the years 1953, 1954 and 1955 and paid the tax shown as due thereon. The law partnership of Goodman and Mabel filed timely federal partnership income tax returns for the same 3 years.
33. The Commissioner of Internal Revenue audited the returns for the years 1953, 1954 and 1955 and assessed deficiencies against each individual taxpayer. The resulting deficiencies were paid by plaintiffs who filed timely claims for refund therefor. All of these claims were denied. The amounts of taxes paid, deficiencies assessed and refunds sought are stipulated by the parties and are not in dispute here.
34. The basis of the determination by the Commissioner was that the amounts reported as capital gains arising from the sale by Goodman and Mabel of certain interests in realty constituted ordinary income and that the distributive shares to plaintiffs of the net gains from the sales during the years 1953-1955 of interests in real properties owned and held for more than 6 months by the partnership was subject to tax as ordinary income, on the grounds that the firm of Goodman and Mabel was deemed to be a dealer in realty and said interests in real property were held primarily for sale to customers in the ordinary course of a trade or business.
35. No action on the claims for refund for the years 1953, 1954 and 1955 filed by David B. Goodman and Theresa L. Goodman, the estate of Herbert S. Goodman and Gladys C. Goodman (Dubin), or Harry Mabel and the estate of Florence Mabel has been taken by the Congress or any of the departments of the United States Government, other than as outlined above, or in any judicial proceeding other than the instant action which was timely filed.
Ultímate FwdiNG
36. For approximately 30 years, including the years 1953-1955, inclusive, plaintiffs participated extensively in the purchase and sale of real estate. Because plaintiffs bought few tracts of vacant land they devoted little time and money to the purpose of making improvements thereon. Due to the manner in which they operated ventures through client-*691sponsors (who were often realty brokers and with whom they were co-owners), plaintiffs personally were usually involved to a limited extent in managing or selling said properties, though such activities had their consent and approval. However, the weight of -the credible evidence shows that they bought and held the subject property primarily for sale during the years in issue and during other relevant years. This is evidenced by the magnitude of their holdings, the extensive, frequent and continuous sales of the same, frequent short holding periods, the large amounts of money involved in these transactions, segregation of proceeds of sales for purchase of other real estate interests, and the profits derived from such ownership and sales as compared to plaintiffs’ other income from the practice of law. Their testimony that their ventures in real estate were motivated primarily by interest in rental income and not in sales, is uncorroborated by the testimony of other co-owners and is contrary to the weight of the evidence. The evidence establishes, through the totality of their actual purchases and sales, that plaintiffs held the subject real estate primarily for sale in the ordinary course of their business.
CONCLUSION OK LAW
Upon the foregoing findings of fact and opinion which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiffs are not entitled to recover and their petition is dismissed.
(a) Interest on realty mortgages, (b) Dividends and salaries from realty corporations, (c) Income from realty partnerships.