Bramblett v. Commissioner
United States Court of Appeals for the Fifth Circuit
960 F.2d 526 (1992)
A partnership, Mesquite East (plaintiffs), bought land purely as an investment, never hired a broker, kept no office, developed nothing, and its partners spent minimal time on its affairs; it held its remaining tract for years before selling it to a related corporation, Town East, which then resold the land to third parties with payments spread across later years. Mesquite East reported the resulting income as capital gains, but the IRS (defendant) argued that because of the relationship between the two entities, Mesquite East was really in the business of selling land, making the income ordinary; the Tax Court agreed with the IRS, and the partners appealed.
Whether profits from a land sale are taxed as ordinary income, rather than capital gain, when the taxpayer was not itself engaged in the business of selling land, did not hold the land primarily for sale in such a business, and did not contemplate the sale in the ordinary course of that business.