BIEDENHARN REALTY CO. V. UNITED STATES
526 F.2d 409 (5th Cir.), cert. denied, 429 U.S. 819 (1976)
NATURE OF THE CASE: This was a dispute over property held for sale primarily to customers
in the ordinary course of business or trade.
FACTS: Biedenharn (P) was organized in 1923 to hold and manage family investments held in
commercial real estate, a stock portfolio, motel, warehouses, a shopping center, residential
real property and farm property. A plantation was purchased for $50,000 in 1935 totaling 973
acres and was bought for farming. It was farmed for a few years and then leased. From 1939
to 1965 three residential subdivisions were carved from the plantation. The profit on the
sale of the lots was $800,000. In a pre-1964 settlement with the government it was agreed
that 60% of the gain would be reported as ordinary and 40% as capital. P then reported its
gains from 1964 to 1966 on the same basis. The IRS asserted a deficiency arguing that all
the gains were ordinary income. P paid the monies and asserted a refund claiming the gains
to be capital. P also sold 275 acres of the plantation in sales other than subdivision sales
in 12 separate sales starting in 1935. P sold a total of 934 lots from other property that
it owned and made improvements in the plantation subdivisions costing $200,000 for streets,
drainage, water, sewage and electricity. The District Court held that the plantation was
bought for investment and the intent to subdivide was prompted by the expansion of the city
of Monroe and that sales resulted from unsolicited offers by individuals and that from 1964
to 1966 75% of the sales were induced by independent brokers.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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