Petition to Review a Decision of the United States Tax Court.
Before L. HAND, AUGUSTUS N. HAND, and FRANK, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
The petitioner, Robert M. Harriss, and his deceased wife Abbeline C. Harriss, filed joint tax returns for the years 1933 and 1934. The Tax Court held that there was a deficiency in income taxes on the part of Robert M. Harriss and his deceased wife of $31,759 for the year 1933 and $32,606.83 for the year 1934; and from the order to that effect Robert M. Harriss individually and as administrator of the estate of his wife, who died April 28, 1938, has appealed to this court. We think that the order of the Tax Court was right and should be affirmed.
The taxpayer claims that the Tax Court was in error as to three items involved in his income tax returns.
(1) In holding that a loss of $49,100.41 sustained by the taxpayer in 1933 upon the sale of his interest in a Texas farm was not deductible in full as a loss incurred in the ordinary course of business, but only to the extent of 12 1/2% as a capital loss.
(2) In holding that certain cotton futures transactions resulting in profits to the taxpayer of $36,373.50 in the year 1934 were taxable profits though they were not available as such and could not have been withdrawn in that year or until the year 1935.
(3) In holding that the taxpayer was not entitled to the deduction of a loss of $43,935.22 in the year 1934 sustained on an investment in a parcel of real property at Forest Hills, New York.
Since 1915, with the exception of an interval of two years, taxpayer was a partner in the firm of Harriss & Vose, New York City, engaged in the cotton business, both "spot" and futures. This firm also traded in other commodities. He formerly lived in Oklahoma and Texas and through the years since 1910 has made a number of purchases of improved and unimproved real estate there and in many other parts of the country. Some of these were sold shortly after their purchase, others were held for long periods of time and then sold and others are still owned by petitioner.
In 1920 the taxpayer and his four brothers purchased a farm in LaSalle County, Texas, at a cost of $234,402.15 which they owned in equal shares. Baylis Harriss, one of the brothers, was put in charge of the property. Shortly thereafter the brothers undertook the improvement and development of the tract, clearing part of the land for farming. Tenant houses were built, a commissary store was installed, a church was built and a manager's home erected. Many other improvements to the farm were made and the necessary equipment for its operation was purchased. The cost of all this was borne equally by the five brothers. The operation of the farm did not prove successful and in 1926, on the death of Baylis Harriss, it was leased to others. In 1933 the taxpayer sold his one-fifth interest to one of his brothers for $10,000, sustaining a loss of $49,100.41. Upon finding the above facts the Tax Court decided that the taxpayer's interest in the farm constituted a capital asset and his loss a capital loss and as such allowable only to the extent of 12 1/2%. It is contended on his behalf that it was a loss "incurred in * * * business" and, therefore, deductible in full under Section 23 of the Revenue Act of 1934, 26 U.S.C.A.Int.Rev. Acts, page 675.
Section 101(c) of the Revenue Act of 1932, c 209, 47 Stat. 169, 26 U.S.C.A. Int. Rev. Acts, page 505, defines capital loss and capital assets as follows:
"(2) 'Capital loss' means deductible loss resulting from the sale or exchange of capital assets.
"(8) 'Capital assets' means property held by the taxpayer for more than two years (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business. * * * "
Because the taxpayer acquired interests in some twenty-one other pieces of real estate in different parts of the country, between the years 1910 and 1936, completely disposed of ten of them and sold a part of the acreage of three of the remaining tracts, it is argued that he was in the business of buying and selling, rather than of merely investing in real estate. Many of the properties hhowever were held for long periods of time, averaging a holding of about thirteen years in the case of all the properties. In our opinion the Tax Court was fully justified in concluding that these properties were not subjects of active trading, that they were not to be regarded as "held * * * primarily for sale in the course * * * of business" but, on the contrary, the purchases and sales were capital transactions. In respect to the taxpayer's interest in the Texas farm, with which we are concerned, he held it for about thirteen years before disposing of it and even then sold it to his brother so that it still remained a family investment. In other words, it was in every fair sense an investment, and not a mere ...