Mauldin v. Commissioner

195 F.2d 714 (10th Cir. 1952)

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Nature of the Case

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Facts

In 1921, P bought property to start a cattle business. He delayed that start as that business was in a serious slump. He tried to sell the tract of land in 1924 for less than he paid for it. Eventually, with no success, a real estate agent convinced him to subdivide the land. He did so, and the land was divided into 29 tracts and 4 blocks containing 88 lots each. At the time the land was platted there was no demand for residential property in the area. In 1927, he built a home for himself near the center of the land. There were no sales of any consequence until the land was included in the city limits of Clovis in 1931. Eventually, the city started a paving program and assessed $25,000 against the property. P did not have the money and started an intense program to sell some of the lots to pay the assessments. During 1939 and 1940, P sold enough lots to liquidate the paving assessments. After the payment, P decided to hold the balance of the lots for investment purposes and after 1940 did nothing to promote sales. During the war, the city of Clovis exploded in size and the lots were in great demand. By the end of 1945, P had disposed of all but 20 acres of the original 160 acres. P filed tax returns with income from both the sale of lots and from his lumber business. The 1944 and 1945 tax returns showed the lots sold as longtime capital assets and the tax was computed accordingly. The IRS disagreed and ruled that the funds were realized from ordinary income and assessed taxes against P. P contends that after 1940 his business status changed and he was full time devoted to his lumber business from that point onward and that his lots sold only through unsolicited offers and when the price was right.