Bynum v. Commissioner
United States Tax Court
46 T.C. 295 (1966)
S.O. Bynum and his wife (plaintiffs) ran a commercial nursery on a heavily mortgaged farm that began losing money by 1959, prompting them to subdivide part of the farm into housing lots, agreeing to pay their lender a percentage of each lot sale (needing only 26 sales to fully retire the mortgage). While continuing to primarily run the nursery, the Bynums invested substantially in improving and advertising 38 lots, with advertising touting an eventual 233-lot development, and sold 20 lots for large gains in 1960 and 1961, reporting the profits as capital gains. The Commissioner (defendant) determined the gains were ordinary income instead, and the Bynums petitioned to challenge that determination.
Whether a federal taxpayer's gains from the sale of property are taxable as ordinary income if the property was held primarily for sale to customers in the ordinary course of trade or business.