Per Curiam:
This case was referred to Trial Commissioner Marion T. Bennett with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in a report filed on February 2, 1965 and an opinion filed on February 15, 1967. Exceptions to the commissioner's findings and recommended conclusion of law were filed by the plaintiffs, and the case has been submitted to the court on oral argument of counsel and the briefs of tbe parties. Since the court is in agreement with the findings, opinion, and the recommended conclusion of law of the commissioner, with modifications, it hereby adopts the same, as modified, as the basis for its judgment in this case, as hereinafter set forth. Plaintiffs are, therefore, not entitled to recover and the petition is dismissed.
Chief Commissioner Bennett's opinion, as modified by the court, is as follows:
After oral argument on the findings of fact of the trial commissioner and the submission of supplemental briefs, the court, on May 16,1966, acceded to plaintiffs' request that this case be remanded for reconsideration in light of the decision of the Supreme Court in Malat v. Riddell, 383 U.S. 569 (1966), which was announced after the commissioner's findings were filed. The order of remand authorized the commissioner "to the extent appropriate, to make new or additional findings in the light of that decision, with leave to the trial commissioner, if he deems it necessary or desirable, to allow the parties to present further evidence."
On December 1, 1966, the court entered a further order directing the commissioner to submit recommendations for conclusions of law. Thereafter, the commissioner directed the parties, within a time stated, to make such submissions as they wished him to consider before he complied with the orders of the court. Plaintiffs, on January 3,1967, filed a motion for leave to present further evidence. Plaintiffs subsequently requested and were granted oral argument on the motion. After hearing counsel and considering the motion and defendant's objections thereto, it was concluded that plaintiffs had failed to show that the extensive record already made did! not contain an adequate presentation of their case. It was also concluded that plaintiffs had no newly discovered evidence or evidence that could not have been presented at the trial already held, and the motion was denied by order entered January 31, 1967. This order also precluded the parties from making any further submissions to the commissioner on the grounds that all that could usefully be said had already been said, and undue delay would otherwise result. The considerations advanced by plaintiffs in their motion and oral argument and in their briefs and exceptions to the court will be considered hereafter.
The facts and the law clearly demonstrate, as indicated in the ultimate finding heretofore made, that plaintiffs held real estate principally for sale in the ordinary course of business and are not entitled to capital gains treatment of their profits, which thus bars them from recovery in this suit.
There is little disagreement about the basic facts, many of which are stipulated. From 1929 through the relevant years of 1953, 1954, and 1955, David and Herbert Goodman and Harry Mabel were law partners practicing in New York City under the firm name of Goodman & Mabel. They specialized in real estate law. Such practice led to opportunities to buy and sell realty and to place mortgages on real estate for their own interests, as well as for clients and associates. They were not licensed real estate brokers nor did they hold themselves out as such.
Plaintiffs always participated in real estate ventures together. They typically participated as part of a group or syndicate. The sponsor of the venture was usually a client. Sometimes these clients and sponsors were real estate brokers. On occasion, plaintiffs acted as agent for a venture and collected rents and made disbursements for expenses. They kept a separate "real estate" bank account for these activities.
Plaintiffs' real estate holdings were extensive, their value considerable, and the turnover constant. The cash flow, representing income generated by properties and return of capital, shows that in the year 1953 cash receipts were $220,-730.61; in 1954 they were $191,183.35; and in 1955, $245,-897.25. During the years 1950-58, plaintiffs owned stock in 4 to 11 realty corporations and held from 35 to 57 different interests in realty partnerships and from 6 to 21 realty mortgages. Their ownership interest normally ranged between 15 and 25 percent. The adjusted cost basis of plaintiffs' total ownership of real property interests between 1950 and 1958 exceeded $397,000, and the fair market value of their interests was much more. During the period 1950-58, plaintiffs averaged 36 transactions annually, comprising purchases and sales of interests in realty, realty corporations or realty mortgages.
During the years 1953,1954, and 1955 involved in this suit, plaintiffs sold 32 different realty interests. Of these, 15 had been held less than 6 months and only 5 had been held as long as 5 years. In the 7 years 1950-56, plaintiffs' net income from the sale or disposal of their interests in real estate averaged $48,261.33 per year, and in 1 year exceeded $91,000. This may be contrasted to their $35,001.12 average annual net income from the practice of law during the same years. Their net income from other sources related to real estate is represented by interest on realty mortgages, dividends and salaries from realty corporations, and income from realty partnerships. Such income for the years 1950-56 averaged $44,919.39 per year. It is apparent that during these years profits on purchases and sales of interests in real property constituted plaintiffs' largest single source of income. Plaintiffs treated this income from sales of property held more than 6 months as capital gains but it was held to be ordinary income and taxable as such by the Internal Revenue Service. The amounts of taxes paid, deficiencies assessed and paid, and refunds sought are stipulated by the parties and are not in dispute here.
The statutory test and issue in this case is whether the real property sold by plaintiffs was held "primarily for sale to customers in the ordinary course of [their] trade or business." If it was so held, the profits were taxable as ordinary income. Otherwise, the lower capital gains rate applies. Such a problem is basically one of fact to be decided on the particular circumstances of the case, Browne v. United States, 174 Ct. Cl. 523, 356 F. 2d 546 (1966), and no one circumstance or factor is controlling. Bauschard v. Commissioner 279 F. 2d 115 (6th Cir. 1960).
In Malat v. Riddell, supra, the Supreme Court resolved conflicts among certain Courts of Appeals with regard to the meaning of the term "primarily" as used in the Internal Revenue Code of 1954. The Court said: "We hold that, as used in § 1221(1), 'primarily' means 'of first importance' or 'principally.' " The courts below had incorrectly construed primarily as meaning that a purpose may be "primary" if it is a "substantial" one.
In the instant case, the ultimate finding states, in part:
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. [Emphasis added.]
Individuals may conduct more than one business at a time and each will be taxed accordingly. Crosswhite v. United States, 177 Ct. Cl. 671, 369 F. 2d 989 (1966), collecting cases. Clearly, buying and selling realty was one of the businesses of the partners. Moreover, it was their biggest business, and the primary purpose of it was not investment but sales for profit in the ordinary course of business. We emphasize in particular the frequency and continuity of sales in reaching this conclusion. See, e.g., Brown v. Comm'r, 143 F. 2d 468, 470 (5th Cir. 1944); Ehrman v. Comm'r, 120 F. 2d 607, 610 (9th Cir. 1941), cert. denied, 314 U.S. 668. The fact that plaintiffs also practiced law and had income from investments and other sources does not disturb the character of their real estate activity as a separate business, nor does it affect the tax treatment to ¡be given that separate business.
Plaintiffs argue that there are several activities generally associated with the holding of real estate for sale and that the absence of a finding of these activities in the instant case should operate to negate the conclusion that there was a holding for sale. These activities include soliciting and advertising for sale, and the development, subdivision, and/or extensive improvement of the property. In support of this argument plaintiffs cite Miller v. United, States, 168 Ct. Cl. 498, 339 F. 2d 661 (1964) ; Scheuber v. Comm'r, 371 F. 2d 996 (7th Cir. 1967) ; Victory Housing No. 2, Inc. v. Comm'r, 205 F. 2d 371 (10th Cir. 1953). It is true that these activities are factors often considered by the courts in determining whether property is being held for investment or sale, and the cited cases so indicate. However, a careful reading of these cases makes it equally clear that these activities are, as Miller pointed out, merely "helpful" factors to aid in the court's deliberation, and, as the Victory opinion cautioned, "none of them are determinative. Neither is the presence nor absence of any of these factors conclusive." 205 F. 2d at 372. Clearly, there is no one formula for determining whether property is held for sale or investment. Each case presents its own unique set of facts, all of which must be considered, and the absence of no one factor or set of factors is necessarily dispositive.
Also, it has been found that plaintiffs' contention that the circumstances surrounding each sale indicate that the properties were held only for rental income purposes is uncorroborated by the testimony of other co-owners and is contrary to the weight of the evidence.
The best that can be said for plaintiffs' contention is that there are some facts in the record consistent with both a purpose to buy rental real estate and to sell it at a profit. But, this does not help plaintiffs. It is possible to be both in the business of renting and selling the same kind of property and to be taxed at ordinary income rates. " if the entrepreneur holds out his wares either for sale or for rental, the taxation of Ms business gain from sales does not depend upon a comparison of sales to rentals in the particular year." Recordak Corp. v. United States, 163 Ct. Cl. 291, 300, 325 F. 2d 460, 463 (1963). A dual or multiple purpose in buying real estate has not been outlawed nor do these other purposes mean that the property was not held, developed, and disposed of primarily in the ordinary course of trade or business. Bauschard v. Commissioner, supra. One must look to all the facts to find the primary purpose from which the tax consequences flow.
In plaintiffs' motion for leave to present further evidence, plaintiffs relied on Municipal Bond Corp. v. Commissioner, 341 F. 2d 683 (8th Cir. 1965), and the decision of the Tax Court on remand of that case in 46 T.C. 219 (1966), and say that under these authorities it is necessary for the trier of the facts, in applying the statutory test, to make specific findings of fact and conclusions of law with respect to each of the separate properties disposed of by taxpayers. Requested findings were not submitted upon this basis. What happened in Municipal Bond Corp. is that the Court of Appeals, noting that the court below had used an erroneous interpretation of the word "primarily," was uncertain as to whether, at least with respect to some of the properties, the lower court's decision might have been based on wrongful interpretation of that word. So, the Court of Appeals directed the lower court to make findings with respect to each individual property sold and to consider the purpose for which it was acquired, the purpose for which it was held, the motive at the time of sale, and the method of sale. The Court of Appeals also observed that the operations of petitioner's other corporations would have no probative force in establishing its purpose for holding the real estate, except to the extent that it might be shown that the other corporations were acting as its agents.
The circumstances in Municipal Bond Corp. do not exist here. The Court of Claims has not misinterpreted the word "primarily" in the several cases it has decided where the statute with this word of art appears. This is not to say that in finding the facts the individual properties are ignored. Tibbals v. United States, 176 Ct. Cl. 196, 362 F. 2d 266 (1966). On the contrary, as in the instant case, each is identified and all relevant factors have been considered with regard to each, including the purposes for which the land was acquired, the motive for selling, the method employed in selling, the income from the sales as compared with taxpayers' other income, the extent of improvements made to facilitate sales, the frequency and continuity of sales, and the time and effort expended by taxpayer in promoting sales. No one factor standing alone is conclusive, but rather all are taken into consideration. Bauschard v. Commissioner, supra; Cross-white v. United States, supra. It is noted, also, that property initially purchased as an investment can later change from a capital asset to that which comes within the ambit of section 1221(1) of the Internal Bevenue Code. Thompson v. Commissioner, 322 F. 2d 122, 127-28 ( 5th Cir. 1963). The reverse is also true. Tibbals v. United States, supra.
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 properties 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. As was said in Nadalin v. United States, 176 Ct. Cl. 1032, 364 F. 2d 431 (1966):
The isolation of and emphasis upon certain individual factors which constitute only threads in a complex situation should be guarded against, for it is the "total background of the transactions" and "the entire factual pattern of the case" that must govern.
Plaintiffs have not sustained their burden of proving as a fact that their real estate transactions in 1953,1954, and 1955, which are in issue here, fell outside the broad scope of property held "primarily for sale to customers in the ordinary course" of their trade or business.
Tie opinion, findings of fact, and recommended conclusion of law are submitted under the order of reference and Rule 57(c).
Plaintiffs' reply brief filed September 15, 1965, states: "Tbe testimony during trial and taxpayers' briefs accompanying its requested findings of fact carefully, and in great detail, reviewed every sale of real estate made by taxpayers during the years in issue."
The relevant statutory provisions are, with respect to 1953, § 117(a)(1) (A) and 117 (j) (1) (B) of the Internal Revenue Code of 1939, and with respect to 1954 and 1955, §1221(1) and 1231(b)(1)(B) of the Internal Revenue Code of 1954. These provisions of the 1939 and 1954 Internal Revenue Codes are Identical Insofar as pertinent to this case.
Plaintiffs observe in tbeir reply brief that their co-venturers were often their legal clients and in oral argument said it would embarrass plaintiffs to call them as witnesses because of the lawyer-client relationship. Plaintiffs say the defendant could have called them. But, plaintiffs had the burden of proof. Crosswhite v. United States, supra.