426 Findings of Fact No. 650. Between September 16, 1952 and April 27, 1953, notices showing the completion of the improvements on approximately 187 lots in Tract No. 650 were filed and recorded in the records of San Mateo County. 66. In September 1952, the Southern Group sold its 50percent interest in the partnership, Junior Estates Co., to one Phil Rosenberg, who purchased the interest in behalf of Hilldale Developers, Inc., a corporation. The total purchase price for the sale of the one-half interest was $204,750, payable as follows: $15,000 in cash and the balance in the form of three notes-one for $49,750 due March 5, 1953, one for $70,000 due April 5, 1953, and the third for $70,000 due June 5, 1953. Similarly, on September 25, 1952, the Northern Group sold and assigned not only its interest in the partnership but also its entire interest in the joint venture and all rights in the land owned by the venture to the Bay Area Investment & Land Development Corp. The agreement of sale contemplated that the partnership interest acquired by the vendee would be transferred to Triangle Development Co., Inc., a California corporation and that the vendee would carry on a program for the subdivision and development of the land and the construction and sale of houses thereon. 67. On February 19, 1953, Hilldale Developers, Inc., resold the half interest in Junior Estates Co. to Triangle Development Co., which had already acquired the other half interest and thus became the sole owner of Junior Estates Co. In the agreement of sale, Triangle assumed and agreed to pay the debt of Hilldale to the Southern Group. When Triangle subsequently defaulted in the payment of the indebtedness it had assumed, Triangle quitclaimed unsold houses to the Southern Group. These transactions occurred in March or April of 1954. 68. Record title to the Polhemus property was held by California Pacific Title Insurance Co. under a holding agreement for the benefit of all parties in interest. All of the houses constructed on the tract were sold by one broker and, as collections were received from the sales, the title company paid out the money to the individuals who actually owned the houses. 649-081-63-31 Findings of Fact 152 Ct. Cl. During the year 1954, David Belinkoff and Sol Goldenberg received a total of $9,203.44 from the sale of the houses. The unrecovered cost of their partnership interest in Junior Estates was $8,142.10 and the total net profit received on sales in excess of such cost was $21,471.12. The contract price, i.e., the difference between the sales prices and the indebtedness to which the sales were subject totaled $33,536.39, and the percentage of the net profit received on the sales to the contract price was 64.0233. 69. In their tax returns, the sales were reported on the installment plan, and profits based on the percentage stated amounted to $5,892.35 in 1954. $2,946.18 or one-half of the profit belonged to Sol Goldenberg. In his 1954 income tax return, he included 50 percent of that amount as long-term capital gain. In his tax return for the same year, he also reported as long-term capital gain the sum of $1,503.90, which represented one-half of the moneys received by him in that year directly from Triangle Development Co. Inc., prior to the time it defaulted in the payment of the purchased money notes it had assumed. 70. In the joint venture of December 4, 1951 (finding 64), it was contemplated that the remainder of the Polhemus tract (after the 76 acres were separated for Junior Estates Co.) would be subdivided and developed by the construction and sale of homes, the subdivision to be known as Baywood Park. On September 21, 1952, the Southern Group entered into a written agreement with Baywood Park Development Co., a California corporation, by which the Southern Group sold to the corporation "subject to the consents of the Bay Area Investment and Land Development Corp.", the entire interest of the Southern Group in the joint venture of December 4, 1951, (reduced by the land included in Junior Estates Co.) and also the entire interest of the Southern Group in two parcels of land out of the Polhemus tract. One of these was an unsubdivided area and the other consisted of eight lots. As consideration for the transfer, the corporation agreed to pay the Southern Group $225,000, payable $500 upon the sale of each lot from the first parcel and $1,000 from the sale of each house in the second parcel. 426 Findings of Fact However, $50,000 was to be due and payable 12 months from the date of the contract; $62,000 not later than 18 months from the date of the contract, and the balance of $112,000 not more than 30 months from the date of the contract. During the year 1954, Sol Goldenberg realized the sum of $856.74 from the transaction described above and included $428.37, or 50 percent thereof, in his 1954 tax return as longterm capital gain. 71. As stated in finding 54, the Commissioner of Internal Revenue held that the income which Sol Goldenberg received from the Junior Estates and Baywood Park ventures was ordinary income, rather than long-term capital gain as reported by the taxpayer. Also as stated in finding 57, the claim for refund filed by Sol and Anna Goldenberg stated that the Commissioner had erred in treating the amounts received as ordinary income. 72. At the time they entered into the joint venture and the partnership involving the Junior Estates and Baywood Park, the business of subdividing, developing, and selling real estate was not the principal business or occupation of David Belinkoff or Sol Goldenberg. As previously stated, Mr. Belinkoff was the head of an accounting firm and Mr. Goldenberg was then the president of Golden West Rubber Products, Inc. However, when they entered into the venture and also when they formed the partnership known as Junior Estates Co., it was with the purpose and intention that the acreage of the Polhemus tract would be developed and subdivided into residential lots and that houses would be constructed on the lots and sold to the public. Additional Factors Affecting Tax Computation 73. Plaintiffs Sol and Anna Goldenberg had an adjusted gross income for the year 1954 of $29,830.72, exclusive of the money received from the Foundation pursuant to the Purchase Agreement and the amounts received from the ventures in Junior Estates and Baywood Park. In 1954, they received the following amounts under the Purchase Agreement and from the joint venture: Findings of Fact (1) Under the Purchase Agreement-$63,213.36 (2) Amounts received from Junior Estates 152 Ct. Cl. (a) Amount received from Triangle Development Co., Inc., prior to its default (finding 69) — $3,007.79. (b) Amount received from the sale of houses (computed as stated in finding 68)—$2,946.18. (3) Amount received from the vendee under the sale of December 4, 1951 (finding 70)-—$856.74. In 1954 Sol and Anna Goldenberg had medical expenses of $7,615.97, other deductions of $4,379.36, and personal exemptions of $2,400. 74. Jerome and Helena Goldenberg had an adjusted gross income for the year of 1954 of $8,159.02, exclusive of $4,200.91, the full amount which they received under the Purchase Agreement. In that year, they also had medical expenses of $1,509.25, other deductions of $550.56, and exemptions of $2,400. 75. Ida Goldenberg had an adjusted gross income in 1954 of $10,603.68, exclusive of the amount which she received under the Purchase Agreement. This amounted in total to $60,882.48. In the same year, she also had medical expenses of $2,610.45, other deductions of $2,557.26, and a personal exemption of $600. 76. In arriving at the foregoing amounts the taxpayers received in 1954 pursuant to the Purchase Agreement, a deduction is made for expenses of $17,000 which they incurred in connection with the Purchase Agreement. In the deficiency notices sent to the taxpayers in these three cases, however, the defendant ignored the expense deduction of $17,000 and treated the gross amount received by the taxpayers as ordinary income. Defendant also treated the amount received by Sol Goldenberg from the Junior Estates and Baywood Park ventures as ordinary income. The defendant's disallowance of the medical expenses claimed by the taxpayers in 1954 resulted from an increase in their adjusted gross income through defendant's determination that the amounts received under the Purchase Agreement, and in the case of Sol Goldenberg the amounts received from the joint venture, should be treated as ordinary income. 426 Syllabus CONCLUSION OF LAW Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiffs are entitled to recover and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Rule 38 (c). In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amounts due thereunder, it was ordered on May 5, 1961, that judgments for plaintiff's be entered as follows: [No. 115-56. Decided January 18, 1961. Plaintiff's motion for rehearing and reconsideration denied July 19, 1961. tion for relief from judgment denied April 4, 1962] * ON THE PROOFS Plaintiff's mo Taxes, income; exemption; religious, charitable, etc., organizations.— In an action by plaintiff, a publishing business dealing with religious books and pamphlets, to recover income taxes alleged to have been erroneously assessed and collected, on the ground that it was operated exclusively for religious and educational purposes within the meaning of section 101 (6) of the Internal Revenue Code of 1939 and was entitled to be tax exempt, it is held that the sales activities of the plaintiff were too substantial to reflect a predominately religious or educational purpose for the organization's existence and it is not entitled to tax exemption as a religious or educational organization. The fact that at one time the Commissioner of Internal Revenue had issued a ruling that plaintiff was tax exempt did not preclude his later revocation of that ruling. Plaintiff's petition is dismissed insofar as it claims an exemption under section 101 (6) Plaintiff's petition for writ of certiorari denied by the Supreme Court, 368 U.S. 985. |