
    BERTHA BOEING, WILLIAM EDWARD BOEING, JR., AND DONALD R. DREW, AS EXECUTORS OF THE ESTATE OF W. E. BOEING, DECEASED, AND BERTHA BOEING v. THE UNITED STATES
    No. 396-56.
    Decided December 3, 1958
    
      Mr. Lowell P. Mickelwait for the plaintiffs. Messrs. Holman, Miclcelwait, Marion, Black <& Perkins and Andrew M. Williams were on the brief.
    
      
      Mr. Harold 8. Larsen, with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Mr. James P. Garland was on the brief.
   JoNes, Chief Judge,

delivered the opinion of the court:

In this suit to recover income tax deficiencies paid, plaintiffs contend that amounts realized upon the sale of certain real estate were not ordinary income, as was determined by the Commissioner of Internal Revenue, but were gains derived from the sale of capital assets within the meaning of section 117 (a) of the Internal Revenue Code of 1939.

The real estate sold was located in King County, Washington, north of Seattle. It was situated within areas known as Innis Arden Addition, Innis Arden Addition No. 2, Blue Ridge Addition, Westover Addition, Woodcrest Addition, and Sea Breeze Tracts.

The original plaintiffs in this action, W. E. Boeing and Bertha Boeing, were husband and wife and resided in King County, Washington, during the years in question. Because of W. E. Boeing’s death in September of 1956, Bertha Boeing, William Edward Boeing, Jr., and Donald R. Drew, the executors of his estate, have been substituted as plaintiffs iin his stead.

Prior to 1932 W. E. Boeing’s principal business activities were directed toward the aircraft industry. He founded the Boeing Airplane Company and its predecessor; he established Boeing Air Transport, Inc.; and for a time he acted as chairman of the board of United Aircraft and Transport Corporation. Beginning in 1930, however, Mr. Boeing began to withdraw from active participation in the industry, and by 1932 he considered himself retired. Thereafter, he devoted his attention almost exclusively to his personal investments and estate. The exception occurred during World War II when he acted in an advisory capacity for the Boeing Airplane Company.

Mr. Boeing was a man of considerable wealth. His holdings were not restricted to the real estate involved in this case. At various times he owned timberlands, mining properties, stocks and bonds, thoroughbred race horses, registered cattle, and a livestock and hay producing farm. After 1934 Mr. Boeing spent little of Ms time in the State of Washington. Attention to his racing stable and extended cruises accounted for most of Mr. Boeing’s absences. His trips were curtailed after 1944, however, because of failing-health.

In 1927 Mr. Boeing’s office employed Mr. D. B. Drew who in 1929 became executive assistant and financial secretary to Mr. Boeing. Thereafter Mr. Drew’s position carried with it the responsibility of general supervision over all of Mr. Boeing’s affairs, including the preparation and handling of correspondence, the maintaining of books of account and other records, the preparation of income tax returns, and the execution of real estate contracts and deeds. Once Mr. Boeing had established the general principles with respect to the conduct of his affairs, he then gave general authority to Mr. Drew to work out the various details.

In 1926 and 1927 Mr. Boeing began to display interest in undeveloped real estate in King County north of Seattle, Washington. Because of Seattle’s noticeable expansion to the north, Mr. Boeing felt that land in that area would be a good investment. This information was brought to his attention by Mr. A. N. Graves, a real estate broker, who subsequently negotiated purchases for him. As a result, properties were acquired during the years 1926 and 1927 which eventually became known as Blue Bidge Addition, Westover Addition, Woodcrest Addition, and a portion of Sea Breeze Tracts. The Blue Bidge tract had been partially cleared at the time it was purchased by Mr. Boeing. In September 1928, Mr. Boeing entered into a contract for the improvement and construction of streets in the proposed plat of Blue Bidge, the contract also requiring, upon Mr. Boeing’s request, the clearing and grubbing of lots in that area. Still later, in January 1929, a contract was entered into which provided for the construction of water mains in the proposed plat of Blue Bidge.

On April 4, 1929, Mr. Boeing organized the Blue Bidge Land Company, and became the corporation’s sole stockholder, except for qualifying shares issued to Mr. Drew and L. A. Belton. Mr. Graves was elected vice president of the newly formed company. All of the property referred to above was conveyed by Mr. Boeing to the Blue Ridge Land Company. In exchange for this real estate, the company gave Mr. Boeing a demand note for $321,289.48 (the total cost basis of these properties on Mr. Boeing’s books), with interest at 6 percent per annum. As part of the transaction, the new corporation assumed the development contracts relating to the Blue Ridge tract.

During its existence, the Blue Ridge Land Company, under the direction of Mr. Graves, completed the Blue Ridge development, and filed the plat of the Blue Ridge Addition. Additional real estate to the north of Seattle was purchased by the company. These land purchases, and also the completion of the development work on the Blue Ridge tract, were made possible by funds advanced by Mr. Boeing, for which he received demand notes from the corporation.

Following the stock market crash in October of 1929, buyers could not be found for any of the property. It was Mr. Grave’s belief that construction of houses on the Blue Ridge Addition would stimulate sale of the property. He convinced Mr. Boeing of the soundness of his belief. Five large and expensive houses were thereafter built. But they remained unsold for five years.

On April 30, 1932, the Blue Ridge Land Company terminated its operations. Its real estate, including that acquired from Mr. Boeing upon its incorporation as well as that later purchased with the funds advanced by him, was transferred to Mr. Boeing. Upon its termination the company was indebted to Mr. Boeing in the amount of $960,664.69. This sum represented demand notes covering Mr. Boeing’s advances for development costs and land purchases, and also office expenses and salaries for Mr. Graves and a stenographer. The real estate was transferred to Mr. Boeing at the company’s cost basis in the sum of $912,642.51. To that extent the demand notes were cancelled, and a balance of $47,904.45 was left unpaid after payment of $117.73 in cash. At the time of the transfer $164,903.31 had been expended in developing the Blue Ridge tract, exclusive of the cost basis of the five houses constructed on' the property. Further efforts of Mr. Graves to sell lands from the Blue Ridge Addition proved unsuccessful, and in December 1935, he discontinued his activities with respect to Mr. Boeing’s real estate holdings. At that time none of the properties had been sold.

The depression hit hard. Dividends on stock held by Mr. Boeing fell off, as did rentals from leased mining property. No market could be found for the sale of his timberland or other real estate. During the period from 1932 through 1934, Mr. Boeing considered his real estate holdings to be frozen assets. His financial resources were strained because of real estate taxes. He feared that untimely death would require his estate to sacrifice liquid assets to discharge the estate taxes. Faced with these difficulties, Mr. Boeing in 1932 decided to liquidate his so-called frozen assets.

In November of 1934, Hugh H. Bussell, a real estate broker who was familiar with the real estate market in and about Seattle and knew of the Blue Bidge development in a general way, mailed to Mr. Boeing an unsolicited proposal concerning his ideas as to how the Blue Bidge property could be sold. The proposal resulted in a conference between Mr. Bussell and Mr. Boeing, with Mr. Drew in attendance. Briefly stated, Mr. Bussell’s plan called for the construction of ten low-cost, well designed houses on the Blue Bidge tract which could be sold to people who would live in the addition and develop an interest in it.

During the discussion Mr. Boeing asked Mr. Bussell what salary he would expect for carrying out the proposal. Mr. Bussell replied that he preferred not to work on a salary basis because he wished to remain free to continue with his other business activities. Instead, he suggested that if his plan for selling the Blue Bidge property was acceptable to Mr. Boeing, he wanted to be paid a retainer and commissions on sales. Following this preliminary conference, Mr. Boeing approved the proposal of Mr. Bussell. It was agreed that beginning February 16, 1935, Mr. Bussell would be paid a retainer of $150 monthly until commissions for the sale of the property were earned. Mr. Bussell thereafter worked on a commission basis during his association with Mr. Boeing. As to the proposal for the development and sale of the Blue Bidge property, Mr. Bussell was to supervise its implementation, and superintend the construction of the houses. Mr. Boeing was to pay all the development and advertising costs.

Tbe original plan to construct ten bouses on the Blue Nidge tract was modified in March 1935, at Mr. Bussell’s suggestion. The new scheme contemplated the construction of only three houses. Included within the plan was a budget of proposed expenditures and recommended prices for the houses. The modified proposal was approved by Mr. Boeing and Mr. Drew and was carried out under Mr. Bussell’s supervision.

The plan proved successful. Seven additional houses were constructed and were sold, as in the case of the first three, at prices suggested by Mr. Bussell. These sales occurred in 1935 and 1936. The real estate market in the Seattle area gave indications of improvement.

In December 1935, Mr. Bussell was given broad authority by Mr. Boeing to dispose of all of his real estate north of Seattle, with the exception of that property used for residential purposes by Mr. Boeing. Development and subdivision of the property placed in Mr. Bussell’s charge followed. Improvements made were just sufficient to meet what Mr. Bussell considered to be the demands of the Seattle real estate market. All of these additional developments were approved by Mr. Boeing (findings 17 and 18).

Acting under this increased authority, Mr. Bussell began to develop the Westover Addition in 1936. Ten houses were built which, because of their poor location, proved difficult to sell. This venture was unsuccesful. In December of 1940 development and platting of a 70-acre tract known as Innis Arden was begun. The work consisted of clearing land, constructing roads and water mains, and staking out lots. Because the real estate market tended to be inactive following the entry of the United States into World War II, sales of the Innis Arden lots were slow until 1943. In early 1945 Mr. Bussell’s proposal to develop a 150-acre tract known as Innis Arden No. 2 was initiated. Here too, improvements consisted of clearing the land, constructing roads and water mains, and staking out lots. The sale of these lots began in 1946. — a time favorable for the sale of vacant lots in the north Seattle area. Most of the lots sold during the years 1946 through 1948, and which provide the basis of this litigation, were from Innis Arden No. 2.

The development of the several tracts handled by Mr. Bussell followed a common procedure. Mr. Bussell, based upon his study and analysis, would present to Mr. Boeing a written proposal concerning the area to be covered by each program. Contained in the proposal would be a budget of expenses. Following approval of the proposal and budget by Mr. Boeing, Mr. Bussell would proceed to hire contractors to carry out the development program. Sometimes the contractors would insist that Mr. Boeing execute a written contract. But more often than not these arrangements with the contractors were oral. As work progressed and invoices were received, they passed through Mr. Bussell for his approval and then were forwarded to Mr. Boeing’s office, where checks were signed and issued by Mr. Boeing or by Mr. Drew in his behalf. The approved budgets were followed closely by Mr. Bussell. After the particular development program was underway, neither Mr. Boeing nor Mr. Drew exercised supervision over Mr. Bussell in his management of the project. Mr. Bussell kept Mr. Drew informed as to progress being made. While Mr. Bussell determined the prices of the individual lots, the proposals submitted to Mr. Boeing for his initial approval set forth the estimated total sales price for the entire tract. Mr. Bussell was free to employ salesmen of his own choice. He determined, within the limits of the approved budget, the type and extent of advertising. The advertising appeared in Mr. Bussell’s name. Mr. Boeing was not mentioned, even on signs placed on the lots or tracts. Since Mr. Bussell, and not Mr. Boeing, was bar.riling negotiations with prospective buyers, the omission of Mr. Boeing’s name avoided bothersome inquiries at his office or home.

Sales of real estate were negotiated through Mr. Bussell’s office at the tracts, Mr. Bussell and his salesmen being the only contact with the prospective buyers. Mr. Bussell would receive no earnest money or down payment from a prospective purchaser. Instead he would forward to Mr. Boeing’s office a purchase information slip which contained the name, address, and occupation of the purchaser, the lot’s description, the total price, and the agreed amount of down payment and monthly payment to be made on the balance. At Mr. Boeing’s office a formal letter to the purchaser would then be prepared which was mailed, along with copies of a real estate contract form, to the purchaser. The letter instructed the buyer to sign the contracts and return them to Mr. Boeing’s office, together with a check. Mr. Boeing’s attorney drafted the contract form, and in each instance blanks were filled in by Mr. Boeing’s office staff.

When the contracts signed by the purchaser were returned, the forms were signed in behalf of Mr. Boeing and his wife by Mr. Drew as their attorney in fact under a power of attorney. Authority was never given to Mr. Russell to sign real estate contracts in behalf of Mr. Boeing or his wife. The power of attorney was provided Mr. Drew because of the Boeings’ extended absences from Seattle and their unwillingness to be subjected to troublesome details when they were present. Books of account relating to costs of development and sales were maintained in Mr. Boeing’s office.

There were 124 sales of lots owned by Mr. Boeing during the year 1946, 41 in 1947, and 8 in, 1948. For the 1946-1948 period, between 8 and 9% of Mr. Boeing’s gross income was realized from the sale of the north King County property (finding 26). In 1946, Mr. Boeing’s investment in all north King County real estate represented 10.31% of his total investments. For the same year his investment in platted real estate in that area was 2.21%. For the ensuing two years the percentages were as follows: in 1947, 9.84% for all real estate, 1.61% for platted real estate; in 1948,11.13% for all real estate, 1.44% for platted real estate (finding 27).

The total income realized upon the sale of the King County real estate was $57,260.89 in 1946, $27,778.00 in 1947, and $33,321.09 in 1948. The Commissioner of Internal Revenue has denied treatment of these amounts as capital gains, and has assessed deficiencies on the ground that the amounts received were ordinary income.

The issue before the court is thus whether the income realized by plaintiffs upon the sale of the King County real estate represented a capital gain from the sale of capital assets, or, as defendant contends, ordinary income received upon the sale of property beld primarily for sale to customers in the ordinary course of a trade or business conducted by Mr. Boeing. The answer to this question must turn upon the facts of the case. Rollingwood Corp. v. Commissioner, 190 F. 2d 263 (1951); Mauldin v. Commissioner, 195 F. 2d 714 (1952). We have indicated that no one factor is determinative of the issue. Garrett, et al., v. United States, 128 C. Cls. 100 (1954). Instead, consideration is usually directed to a number of factors, such as the extent of the development and improvement of the property; the frequency and continuity of sales; the purpose for which the property was acquired; and the activities of the taxpayer, or his agents, in promoting sales. See McConkey v. United States, 131 C. Cls. 690 (1955).

Development and improvement of the north King County property was extensive. Costs for the Blue Ridge Addition were incurred in clearing the land, grading of streets, installation of complete water and sewer systems, staking of lots, and construction of houses. At the time the Blue Ridge Land Company had terminated its operations in 1932, $164,903.31 had been expended in developing the Blue Ridge tract, exclusive of the costs of the houses constructed on the property. During the years 1935 to 1940, $6,407.35 was expended in advertising the Blue Ridge Addition. Additional houses were erected on the property during that period. Ten low-priced houses were built on the Westover Addition. The later development undertaken with respect to Innis Arden and Innis Arden No. 2, which consisted of dealing the land, constructing roads, and water mains, and staking of lots, carried with it a cost estimate of $69,948 (finding 25). Efforts to sell the King County real estate were continuous, beginning in 1929 and extending through the years 1946-1948. For the years we are here concerned with, 124 lots were sold in 1946, 41 in 1947, and 8 in 1948. Without question, the extent of these activities point to the probable existence of a real estate business.

The intent or purpose underlying the acquisition of the King County real estate by Mr. Boeing in 1926 and 1927 appears to have been guided by the prospects of profitable sale of the land. We cannot agree with plaintiffs that subsequent events undermined that purpose and committed Mr. Boeing to the liquidation of an unwanted investment. Counsel for plaintiffs argue that our decision permitting capital gain treatment in Gordon v. United States, 141 C. Cls. 883 (1958), turned on the following language appearing at page 892:

Where sales are made by a taxpayer in the process of liquidating property received by bequest, devise, or inheritance, the taxpayer is ordinarily entitled to treat such sales as the disposition of capital assets. * * *

The fact that Mr. Boeing did not receive the King County real estate by “bequest, devise, or inheritance” does not weaken plaintiffs’ reliance on the Gordon decision, argue counsel. That decision, we are told, essentially stands for the proposition that if a taxpayer acquires property by bequest, devise, or inheritance, or under other circumstances not of his own choosing, and thereafter takes measures reasonably necessary to liquidate the property, he will be entitled to treat its sale as the sale of a capital asset. Here, continues the argument, Mr. Boeing in 1932 received from the Blue Nidge Land Company the property he had originally transferred to it, along with the additional properties it had acquired, under conditions not of his own choosing: he was compelled to acquire the property because the company owed him approximately one million dollars, and his advances were tied up in company-owned property for which there was no market.

Our answer to this contention is that plaintiffs stress too greatly the corporate form of the Blue Nidge Land Company. Except for qualifying shares, the company was wholly owned by Mr. Boeing. He did not relinquish control over the property when he transferred it to the newly-formed company in 1929. Mr. Boeing’s ownership in the Blue Bidge Land Company also effectively brought within his control that additional property acquired by the corporation during its existence. The real estate development activities initiated in early 1929 by Mr. Boeing were thus continued by him under the guise of the Blue Bidge Land Company during the period April 4, 1929, through April 30, 1932. To speak of the transfer of the properties which immediately followed the demise of the corporation as involving an involuntary acquisition of the real estate by Mr. Boeing is to completely ignore the substance of what had preceded. Furthermore, to refer to the real estate transactions occurring after 1932 as part of a general liquidation of Mr. Boeing’s so-called frozen assets does not preclude the existence of a trade or business, Heiner v. Mellon, 304 U. S. 271 (1938), Home Co. v. Commissioner, 212 F. 2d 637 (1954), particularly where the liquidation is accompanied by extensive development and sales activity, White v. Commisioner, 172 F. 2d 629 (1949).

In Western and Southern Life Insurance Company v. United States, 143 C. Cls. 460, we accorded capital gain treatment to income realized from the sale of real estate that had been acquired as a result of mortgage foreclosures. The sales, which extended over a period of six months, were pursuant to a liquidation program ruidertaken by a corporation in the process of liquidation. There was no showing of extensive development or improvement to the land by the taxpayer in that case. Clearly, that case is distinguishable from the situation now before us.

The parties to this action seem to agree that the activities required in promoting the sale of the real estate were substantial. Beginning in September of 1928, and extending through the tax years 1946-1948, intensive efforts were made to sell the property. Initially, Mr. A. N. Graves was charged with responsibility for developing and selling the real estate. Thereafter, Mr. Bussell was retained for the same purposes, and was so acting during the three-year period giving rise to plaintiffs’ claim.

It is one of plaintiffs’ contentions that if this court should find that the promotional activities present in this case are characteristic of a real estate business, they are to be attributed to Mr. Bussell, and not Mr. Boeing. It is urged that Mr. Bussell was not an employee or agent of Mr. Boeing, but was rather an independent real estate broker. That this distinction may prove significant is apparent from cases cited by plaintiffs. See Smith v. Dunn, 224 F. 2d 353 (1955); Fahs v. Crawford, 161 F. 2d 315 (1947); Garrett v. United States, supra, dissenting opinion at p. 106; Gordon v. United States, supra. The facts of the instant case, however, would seem to require us to look with greater emphasis to Mr. Boeing himself, and the manner in which he conducted his affairs, in deciding the question of whether the real estate activities were those of Mr. Boeing or Mr. Bussell.

It was the practice of Mr. Boeing, perhaps dictated by the magnitude of his financial and business activities, to transact his affairs through others. Thus, when Mr. Drew became executive assistant and financial secretary to Mr. Boeing in 1929, he was given general supervision of all of Mr. Boeing’s affairs. While Mr. Boeing established general principles to be observed in carrying out his activities, it was Mr. Drew who was given the task of looking after the various details. Consistent with this manner of operation was the retention of Mr. Graves, who negotiated real estate purchases for Mr. Boeing during the years 1926 and 1927. Thereafter, the Blue Bidge Land Company was organized by Mr. Boeing. It can scarcely be contended that the company, in its management of the north King County real estate, was free from the general direction of Mr. Boeing. He subscribed to 998 shares of its authorized one thousand shares of capital stock (finding 8), and periodically advanced funds to it for land purchases and development work on the Blue Bidge tract.

Mr. Boeing’s later association with Mr. Bussell did not work a change in this practice of operating through others. Mr. Boeing approved in each case the development projects submitted by Mr. Bussell and the accompanying budgets of proposed expenditures. The expenses incurred in the projects were invoiced to Mr. Boeing and paid by his office. Books of account were maintained in' Mr. Boeing’s office. Where written agreements were insisted upon by contractors engaged in a development project, the contracts were entered into and signed by Mr. Boeing. Though it had been Mr. Boeing’s original intention to pay Mr. Bussell a salary for his services, it was at the latter’s request that he was retained on a commission basis. However, it was later agreed that Mr. Bussell would be paid a monthly sum in. addition to the commissions earned (finding 15). Furthermore, additional control residing in Mr. Boeing was apparent from the fact that real estate contracts were prepared in his office and payments by the purchasers were directed to be made there.

We think the facts as outlined above indicate that Mr. Boeing made it a practice to transact his affairs through others, and to the extent that the activities culminating in the 1946-1948 sales were the outgrowth of a real estate business, that business is to be attributed to him and not Mr. Bussell. An arrangement with a real estate broker similar to that which existed with Mr. Bussell has been held to involve the taxpayer in the business of selling real estate. See Achong v. Commissioner, 246 F. 2d 445 (1957). Additional support for the proposition that one may conduct his business through others is found in Snell v. Commissioner, 97 F. 2d 891 (1938) and Welch v. Solomon, 99 F. 2d 41 (1938).

Upon a consideration of the various relevant factors, we are of the opinion that Mr. Boeing’s activities with regard to his real estate holdings subjected that property to treatment as being held primarily for sale to customers in the ordinary course of his trade or business, and is therefore not a capital asset as defined in section 117 (a) of the Internal Bevenue Code of 1939.

The petition will be dismissed.

It is so ordered.

McLaughliN, District Judge, sitting by designation; MaddeN, Judge; and Whitaker, Judge, concur.

FINDINGS OF FACT

The court, haying considered the evidence, the briefs and argument of counsel, and the report of Trial Commissioner Boald A. Hogenson, makes the following findings of fact:

1. At all times hereinafter mentioned W. E. Boeing and Bertha Boeing, the original plaintiffs in this action, were husband and wife, citizens of the United States and residents of King County, Washington. W. E. Boeing died on September 28, 1956, and Bertha Boeing, William Edward Boeing, Jr., and Donald B. Drew, the executors of his estate, have been substituted as plaintiffs in his stead.

2. On March 15,1947, W. E. Boeing filed his separate individual income tax return for the calendar year 1946 with the then Collector of Internal Bevenue at Tacoma, Washington. This return disclosed net income of $124,578.56, including $57,260.89 which was reported as long-term capital gain and which was the amount of the gain which he realized in that year from the sale of certain real estate. The real estate so sold was located in King County, Washington, north of Seattle, and was included within areas which are hereinafter referred to as Innis Arden Addition, Innis Arden Addition No. 2, Blue Bidge Addition, Westover Addition, Woodcrest Addition, and Sea Breeze Tracts, acquired by Mr. Boeing as hereinafter related.

3. On March 15, 1948, W. E. Boeing filed his separate individual income tax return for the calendar year 1947 with the then Collector of Internal Bevenue at Tacoma, Washington. This return disclosed net income of $166,011.06, including $27,778 which was reported as long-term capital gain and which was the amount of the gain which he realized in that year from the sale of certain real estate. The real estate so sold was located in King County, Washington, north of Seattle, and was included within Innis Arden Addition, Innis Arden Addition No. 2, Blue Bidge Addition, and West-over Addition.

4. On March 15, 1949, W. E. Boeing and Bertha Boeing filed their joint income tax return for the calendar year 1948 with the then Collector of Internal Bevenue at Tacoma, Washington. This return disclosed net income of $446,372.59, including $33,321.09 which was reported as long-term capital gain and which was the amount of the gain which W. E. Boeing realized in that year from the sale or repossession of certain real estate. The real estate so sold was located in King County, Washington, north of Séattle, except for a one-half interest in a tract of land situated in Burlington, Washington, the sale of which produced a gain of $462.85, and was included within Innis Arden Addition, Innis Arden Addition No. 2, Blue Bidge Addition, and Westover Addition.

5. Prior to 1932, W. E. Boeing’s principal business and occupation had been in the fields of airplane manufacturing and air transportation, having organized and developed the Boeing Airplane Company and its predecessor, as well as Boeing Air Transport, Inc., and having been chairman of the board of United Aircraft and Transport Corporation. About 1930 he commenced to withdraw from active participation in the aircraft industry, ceased drawing salaries from the aircraft companies at the end of 1930, and eventually severed his association with them by 1934. Mr. Boeing considered himself retired from 1932. From and after 1934, Mr. Boeing’s business activities concerned only the management of his personal investments and estate, with the exception of services rendered by him in an advisory capacity at top-level staff meetings of Boeing Airplane Company during World War II. Mr. Boeing was a man of substantial means, and in addition to the real estate involved in this case, owned timberlands, mining properties, and stocks and bonds. From 1936 until 1949, he owned a stable of thoroughbred race horses, which he raced in California, New York, Florida, and elsewhere; and from 1942 to the time of his death he owned a registered Hereford herd of cattle at Aldarra Farm which he purchased and used as his home property and which he operated as a livestock and hay producing farm.

From 1934 on, Mr. Boeing was absent from the State of Washington a majority of the time, and some years he was away from 75 to 90 percent of the time. The activities of his racing stable accounted for many of his absences, and in several years he leased a residence in California. He also made extended cruises in British. Columbia waters, sometimes as much as two months at a time. The frequency of his trips declined after 1944 when a series of operations left him in failing health, and thereafter he spent more time at his home on Aldarra Farm, but came to his office less than he had before.

6. From 1929 until 1934, Mr. Boeing maintained an office at the Boeing Airplane Company, from which he conducted his personal financial affairs, and in 1934 this office was moved and thereafter maintained by him in a Seattle office building.

Mr. D. B. Drew was employed in the office of Mr. Boeing in November 1927, and in March 1929 he became executive assistant and financial secretary to Mr. Boeing. Thereafter Mr. Drew managed Mr. Boeing’s personal office both at the Boeing Airplane Company and after its removal to the Seattle office building, and had general supervision of all of Mr. Boeing’s affairs, including preparation and handling of correspondence, maintaining books of account and other office records, preparation of income tax returns, execution of real estate contracts and deeds, and any activity required in connection with Mr. Boeing’s affairs. Mr. Boeing established the general principles with respect to the conduct of his affairs and gave general authority to Mr. Drew to work out the various details.

7. In 1926 and 1927 Mr. Boeing became interested in the purchase of undeveloped real estate in King County north of Seattle. He had observed that Seattle was showing considerable growth to the north, and concluded that land in that area was a good investment. Mr. A. N. Graves, a real estate broker, brought the properties to his attention and negotiated purchases for him.

On December 10, 1926, and October 13,1927, Mr. Boeing purchased in his own name 11% acres of undeveloped lands comprising part of the Sea Breeze Tracts.

On April 11,1927, Mr. Boeing purchased in his own name undeveloped land which later became designated as West-over Addition. An additional acre was purchased by him on February 27, 1945, to complete the ownership of the tract.

On April 11, 1927, Mr. Boeing purchased in his own name undeveloped land which later became designated as Woodcrest Addition.

On December 19, 1927, Mr. Boeing purchased in his own name a 170-acre tract of land known as Blue Ridge. This was the only remaining large piece of undeveloped view property close to Seattle. Some clearing had been done on this land. On September 28, 1928, Mr. Boeing entered into a contract with R. E. Moore who agreed to do all work, furnish all materials, and do all other acts necessary for the improvement and construction of streets in the proposed plat of Blue Ridge, and in addition, upon Mr. Boeing’s request, do the clearing and grubbing of lots in said proposed plat.

On January 2, 1929, Mr. Boeing entered into a contract with the same Mr. Moore who agreed to improve the proposed plat of Blue Ridge by constructing water mains therein. On January 14, 1929, Mr. Boeing also entered into a contract for the purchase of iron pipe from Pacific Waterworks Supply Company.

8. On April 4,1929, at which time the clearing of the land and the grading of streets were in progress on the Blue Ridge tract, Mr. Boeing organized the Blue Ridge Land Company, a corporation. One thousand shares of non-par capital stock were authorized. Mr. Boeing subscribed for 998 shares, with the other two shares being issued to Mr. Drew and L. A. Pelton to qualify them as directors. Mr. Graves was elected vice president of the company.

On April 16, 1929, Mr. Boeing conveyed to the Blue Ridge Land Company the real estate referred to as Blue Ridge, Westover, Woodcrest and 11% acres of what was to become known as Sea Breeze Tracts. These lands were unimproved and undeveloped, except for the commencement of work on Blue Ridge, as above described. Blue Ridge Land Company gave Mr. Boeing a demand note for $321,239.48 for these properties, with interest at 6 percent per annum. The principal amount of the note represented the total cost basis of the properties on Mr. Boeing’s books. The Blue Ridge Land Company assumed the development contracts entered into by Mr. Boeing on the Blue Ridge tract.

9. The period of operation of the Bine Ridge Land Company was from April 4,1929, to April SO, 1932.

Under the management of Mr. A. N. Graves, this company completed the development of Blue Ridge and filed the plat of Blue Ridge Addition. This development included clearing of the land, grading of streets, installation of complete water and sewer systems, staking of all of the lots, and construction of five houses.

Blue Ridge Land Company also purchased in 1929 certain additional real estate to the north of Seattle, including 227% acres acquired May 22, 1929, which was divided into Innis Arden Addition and Innis Arden Addition No. 2; 50 acres acquired in September 1929, which became Parkview Tract; and 10 acres acquired November 4,1929, which together with the 11% acres previously mentioned in these findings, comprised the total of the Sea Breeze Tracts.

Blue Ridge Land Company did no development woxk on any of its lands other than Blue Ridge Addition, except some clearing on Innis Arden Addition for the purpose of eliminating fire hazard.

Mr. Boeing advanced funds to the Blue Ridge Land Company for its development work on Blue Ridge and also for its land purchases, and took demand notes of the company for these advances.

10. The stock market crash occurred in October 1929, and after the Blue Ridge Addition plat had been filed in February 1930, Mr. Graves was unable to find a buyer for any property. As a means of developing interest in the Blue Ridge lots, Mr. Graves convinced Mr. Boeing that the previously mentioned five houses should be built, and they were. They were large and expensive, priced each at $20,000 or more. They stood empty and unsold for five years, except for the occupancy of one of them by Mr. Graves.

11. On April 30, 1932, the Blue Ridge Land Company transferred to Mr. Boeing all of its real estate holdings, including the real estate originally transferred by Mr. Boeing to the company, as well as that acquired by it with funds advanced by Mr. Boeing.

By that date, the Blue Ridge Land Company had become indebted to Mr. Boeing in the total sum of $960,664.69 on demand notes covering advances by Mr. Boeing for development costs and land purchases, as well as ordinary office expenses and salaries for Mr. Graves and a stenographer.

The transfer of its real estate holdings was made to Mr. Boeing by Blue Ridge Land Company at the company’s cost basis in the sum of $912,642.51, canceling the demand notes to that extent and leaving a balance unpaid of $47,904.45 after payment of $117.73 in cash.

Mr. Graves thereafter continued his efforts to sell property in Blue Ridge Addition without any success, and in December 1935 disassociated himself entirely from any activities with respect to any of the properties. There were no sales of any of the properties up to the time of departure of Mr. Graves. None of the properties other than Blue Ridge Addition had been placed on the market for sale. Blue Ridge Addition was the only tract in salable form. By April 30, 1932, $164,903.31 had been expended in the development of the Blue Ridge tract, exclusive of the cost basis of the five houses constructed thereon.

12. After October 1929 and through 1935, dividends received by Mr. Boeing on his stock holdings decreased, and rentals received by him on leases of his mining properties in Minnesota declined to the point where he received only minimum royalty payments on those leases which were not terminated by the lessees. There was no market for the sale of his timberlands or other real estate. In the period from 1932 through 1934, Mr. Boeing’s real estate holdings, including among the others the real estate involved in this case, were considered by him to be frozen assets. Considerable strain existed upon his financial resources to pay the real estate taxes and avoid loss of the properties. He further recognized that in the event of his untimely death, his estate would be forced to sacrifice the liquid assets to pay the estate taxes, leaving only frozen assets for distribution, still subject to taxes.

In 1932, Mr. Boeing determined to liquidate all of his so-called frozen assets. The real estate market was dead, and by the end of 1934, Mr. Boeing had been required to reduce his office staff and his staff of employees at his home, as well as the wages and salaries of those remaining, and had become discouraged and desperate as to how he could liquidate his real estate holdings.

13. In late November 1934, Hugh H. Bussell mailed to Mr. Boeing an unsolicited proposal or brief concerning his ideas as to how the Blue Bidge property could be sold. Mr. Bussell knew in a general way of the development that had taken place on the Blue Bidge tract, but was a complete stranger both to Mr. Boeing and to Mr. Drew.

Mr. Bussell had been engaged in the real estate business in Seattle as a broker since 1923, and had held a real estate broker’s license issued by the State of Washington since 1924. He had handled several real estate subdivisions in the Seattle area and was familiar with the real estate market in and about Seattle. He was a member of the Seattle Beal Estate Board, being its president in 1939, and from June 1941 to June 1942 was president of the Washington Association of Beal Estate Boards. He served a term as vice president of and for several years as a director of the National Association of Beal Estate Boards.

14. In early December 1934, a few days after Mr. Bussell’s proposal had been mailed and received by Mr. Boeing, Mr. Boeing caused a conference to be arranged and held between them at his office, with Mr. Drew in attendance. Basically Mr. Bussell’s proposal was that ten low-cost, well-designed houses should be constructed on the Blue Bidge tract and sold to people who would start living in the addition and develop interest in it. At the conference Mr. Boeing asked Mr. Bussell what salary he would expect for carrying out the proposal if accepted. Mr. Bussell replied that he did not want a salary because he desired to be free to continue his management of two Seattle buildings, to complete some appraisal work for the Home Owners Loan Corporation, and to continue his business relations with other clients. Mr. Bussell proposed that he be paid a retainer and commissions on sales. During Mr. Bussell’s association with Mr. Boeing, he continued to handle real estate matters for other clients, and commencing in 1944, devoted a considerable amount of time to their affairs. He was never asked by Mr. Boeing to devote full time or any particular amount of time to Mr. Boeing’s affairs, and determined that matter for himself.

15. Mr. Bussell’s, proposal was approved in principle by Mr. Boeing, and it was agreed that commencing February 16, 1935, Mr. Bussell would be paid a retainer of $150 per month until commissions for the sale of properties were earned, and that he would receive a 5 percent commission on any sale of a Blue Bidge lot improved by a house, and a 10 percent commission on the sale of any vacant lot. It was further agreed that Mr. Bussell would supervise the carrying out of his proposal and superintend the construction of houses, with Mr. Boeing to pay all development and advertising costs. During the five-year period from 1935 to 1940, the sum of $6,407.35 was expended in advertising for the Blue Bidge Addition.

The commission agreement remained in effect throughout Mr. Bussell’s association with Mr. Boeing. No retainer was paid to Mr. Bussell from July 1935 until January 1936, when its payment was resumed. At some time it was reduced to $100 per month, with the understanding that the commissions would be in addition thereto, and this latter arrangement continued until 1954 or 1955.

16. In March 1935, Mr. Bussell presented a modification of his original proposal, suggesting that three houses be constructed on Blue Bidge to test the real estate market, instead of the ten- first proposed. This plan included a budget of expenditures and suggested prices for the houses, and was approved by Mr. Boeing by correspondence and telephone communication between him at Pebble Beach, California, and Mr. Drew at Seattle, and was carried out under Mr. Bussell’s supervision. Bussell was in full charge of the project, including contacts and arrangements with the architect, the construction company and material men, and handled all details from commencement through the sales program. The first house was completed and opened for sale on June 2, 1935, and was sold in late August, with the other two being sold thereafter. Because this first venture was a success, Mr. Boeing authorized and Mr. Bussell supervised the construction of seven additional houses, and a total of ten bouses were completed in the years 1935 and 1936, which were sold at the prices suggested by Mr. Bussell. With the same arrangements being involved, a second group of ten houses, somewhat higher in price and quality, were constructed on Blue Bidge in 1937 and 1938, and were sold by early 1939. By this time, the sales of vacant lots in the Blue Bidge Addition had begun to move slowly, and the real estate market in the Seattle area was showing signs of improvement. However, four of the five expensive houses built by the Blue Bidge Land Company had not been sold until their prices were reduced by about 50 percent.

17. Until the departure of Mr. Graves in December 1935, Mr. Bussell’s associations with Mr. Boeing concerned only the Blue Bidge Addition, and his knowledge of Mr. Boeing’s real estate holdings was limited to that tract. In December 1935, Mr. Boeing requested and Mr. Bussell agreed to take charge of all of the real estate north of Seattle, with instructions to liquidate these properties. At this time and until 1942, Mr. Boeing’s house was located in the Highlands north of Seattle, and his home site together with wooded lands contiguous thereto were not placed in charge of Mr. Bussell because Mr. Boeing had planned to develop his Highlands area and contiguous lands as a residential estate. Mr. Bussell made studies and analyses of all of these properties assigned to him, and presented proposals to Mr. Boeing from time to time. He recommended against placing all of the tracts on the market at the same time to compete against one another. There was no market for large unimproved tracts of land, as far north of Seattle as these were, and some development and subdividing were necessary to accomplish any sales. Mr. Bussell proposed and accomplished only what he deemed to be the minimum amount of development work necessary. The smaller tracts were placed on the market with little or no development work, some of them being staked out into lots without further work and with no plat being filed, and the Sea Breeze and Parkview Tracts being-developed only to the extent of construction of a rough gravel road and cheap water mains. In the case of each tract, Mr. Bussell submitted a proposal which Mr. Boeing considered and approved, and Mr. Bussell was then fully charged with its accomplishment. Development work proceeded on a small scale in one subdivision at a time in accordance with the recommendation and proposals of Mr. Bussell.

18. In 1936 Mr. Bussell submitted a proposal approved by Mr. Boeing, for construction of low-priced houses on a portion of the Westover Addition. In accordance therewith, Mr. Bussell supervised construction of ten houses, commencing in 1937. Two years were required to sell all ten houses because they were too remote from Seattle. This Westover venture was unsuccessful.

.19. On December 4, 1940, Mr. Bussell submitted to Mr. Boeing a detailed written proposal concerning the development of a 443-acre area of lands which together comprised Innis Arden, Innis Arden No. 2, and some of the timbered lands that Mr. Boeing had considered to be included in his residential estate. Mr. Bussell, however, recommended that the 70-acre tract known as Innis Arden be developed first to test the market. This tract was adjacent to two main highways on the east and north, and was in such condition that development costs would be less than on other portions of the entire 443-acre area. Approval for the 70-acre Innis Arden development was given by Mr. Boeing, and Mr. Bussell on an approved budget supervised the clearing of the land, construction of roads and water mains, and staking out of lots. The real estate market was sluggish following the entry of the United States into World War II in December 1941, and the sale of these vacant lots was slow until 1943.

20. In early 1945 Mr. Boeing approved Mr. Bussell’s proposal to develop the 150-acre tract known as Innis Arden No. 2, and as in the case of other land development work involved in this case, Mr. Boeing advanced the funds on an approved budget for the clearing of the land, construction of roads and water mains, and staking of lots, all of which was done under the management of Mr. Bussell. The sale of lots in Innis Arden No. 2 commenced in 1946. The market for sale of vacant lots was very good that year. Of the 124 sales of lots made in 1946, 41 in 1947, and 8 in 1948, most were in Innis Arden No. 2.

21. Innis Arden No. 2 at its southern end included a portion of the timbered areas which Mr. Boeing had purchased in various parcels between 1922 and 1929 and always held in his own name. They were a natural extension to his home site in the Highlands, acquired in 1920. Mr. Boeing had made studies and planned to build a new home in the midst of the timbered lands, and his request to Mr. Bussell to liquidate his real estate holdings north of Seattle did not include this residential estate property. In the early 1930’s, he abandoned his original idea of building a new residence there, and about 1939 changed his mind and began to regard these timbered lands adjacent to his home site as something other than a part of his residential property. When he purchased Aldarra Farm and made his home there in 1942, it is reasonable to conclude that he had finally abandoned the idea that the timbered areas were part of his Highlands home property.

Sales of lots in that part of Innis Arden No. 2, which included a portion of the timbered areas purchased as an extension of the Highlands residential property, resulted in gains in 1946 in the sum of $6,590.94, in 1947 of $7,833.66, and in 1948 of $12,130.69.

22. As to each of the tracts handled by Mr. Bussell, the procedure was for Mr. Bussell to make his independent study and analysis and present for consideration by Mr. Boeing a written proposal concerning the area to be included in each program, the character of the improvement or development, the location of roads, whether the area should be platted, the size and location of lots and estimated sales price of the total tract. Each proposal contained a budget of expenses under various classifications of cost.

After approval of the proposal and budget, Mr. Bussell proceeded to employ the various contractors. Usually the arrangements were orally made by him and the contractors, but occasionally on the larger contracts, the contractors insisted that Mr. Boeing enter into and sign a written contract. As the invoices were received, made out in the name of Mr. Boeing, they were approved by Mr. Bussell and forwarded to Mr. Boeing’s office where they were paid by checks signed and issued by Mr. Boeing or by Mr. Drew in his behalf. Mr. Russell adhered closely to his approved budgets.

After approval of the proposed program and the budget in connection therewith, neither Mr. Boeing nor Mr. Drew exercised any supervision over Mr. Russell in his full management of the project. Occasionally Mr. Drew visited a development project to acquaint himself with the area, but usually relied upon Mr, Russell for advice as to the progress being made.

Mr. Russell had full authority in dealings with public officials and others concerning the real estate developments. He fixed the prices on the individual vacant lots, although each of his proposals to Mr. Boeing contained the estimated total sales price for the entire tract. Mr. Russell employed salesmen of his own choice, and their compensation was based on his agreements with them to share his commissions on the sales in which they participated.

Mr. Russell within the limits of his approved budget determined the type and extent of advertising which always appeared in his name, without mention of Mr. Boeing, as was true in the case of signs erected on the lots or tracts. Mr. Russell, not Mr. Boeing, was handling negotiations with prospective buyers, and the omission of Mr. Boeing’s name prevented bothersome inquiries at his office or his home.

23. All of the sales of real estate were made through Mr. Russell’s office at the tract. He and his salesmen had the only contacts with prospective purchasers. When a purchaser indicated his willingness to buy a lot, Mr. Russell collected no earnest money or down payment, but forwarded to Mr. Boeing’s office a purchase information slip containing the name, address and occupation of the purchaser, the description of the lot, the total price, agreed amount of down payment, and monthly payment to be made on the balance. Mr. Boeing’s office would then prepare a form letter to the purchaser, with which three copies of a real estate contract form would be mailed to the purchaser, with instructions to sign them and return them to Mr. Boeing’s office, together with a check made payable to W. E. Boeing in the amount of the agreed down payment or full price of the lot. The contract document was a printed form, the terms of which had been prepared by Mr. Boeing’s attorney, and the blanks in each case were appropriately filled in by Mr. Boeing’s office staff. The transmittal letter was typed on Mr. Bussell’s letterhead, and either signed by him personally or in his name by a member of Mr. Boeing’s staff in accordance with a standing arrangement.

After the purchaser had signed and returned the contract in triplicate, the forms were signed in behalf of Mr. Boeing and his wife by Mr. Drew as their attorney in fact under a power of attorney. Following receipt of the down payment, one copy of the executed contract was returned to the purchaser, one retained in the files in Mr. Boeing’s office, and the third delivered to a Seattle bank which thereafter handled the collection of payments on the contract. Mr. Russell never had any authority to sign real estate contracts in behalf of Mr. Boeing or his wife, who provided Mr. Drew with the power of attorney to act for them in that respect because of their extended absences from Seattle and to avoid troublesome details when they were available. Mr. Drew’s power of attorney was specifically limited to the real estate which Mr. Russell prepared for sale, was limited to duration of one year, but renewed from year to year.

In case of a default in payments on a contract, a registered letter of notice of repossession was prepared by Mr. Drew as attorney in fact and mailed to the purchaser. Mr. Russell was paid his commission when the down payment on a sale had been received.

Books of account were maintained in Mr. Boeing’s office both as to the costs of development and as to sales. Mr. Russell maintained no record of development costs.

24. Neither Mr. Boeing nor Mr. Drew held or had ever held a real estate broker’s license. Neither ever came into any contact with any of the purchasers. Because of Mr. Boeing’s extended absences from Seattle, Mr. Russell seldom met Mr. Boeing, with 6 or 7 months elapsing sometimes between their meetings, and at one time an entire year. No sales of real estate were negotiated in Mr. Boeing’s office, and Mr. Boeing had no personal contacts or dealings with respect to any phase of the sale of the properties. Mr. Drew spent a relatively small amount of time on the real estate matters as contrasted to bis handling of the other affairs of Mr. Boeing.

25. The total estimated cost of development of the 443-acre tract, as proposed by Mr. Bussell, which tract is mentioned in finding 19, was $109,032. The estimated cost of developing the north and middle portions of the entire area, which portions correspond to the areas actually developed as Innis Arden and Innis Arden No. 2, amounted to $69,948.

26. In the years 1946,1947, and 1948, Mr. Boeing received gross income from the following sources, with the income for each source stated in the percentage of the total income for the year, as follows:

sources or GROSS INCOME percentage of gross income

Community Income_ 0. 011 0. 046 0. 030

Interest Received, Taxable_ 5. 117 3. 690 2. 226

Interest Received, U. S. Bonds_ _ _ . 178

Interest on Municipal Bonds_ 16. 930 14. 754 12. 799

Dividends Received_ 58. 321 69. 707 73. 602

Rents and Royalties_ . 175 . 441 . 142

Profits on Sales of Stocks, Bonds or Timberlands_ 6. 651 5. 361 4. 606

Profits on Real Estate and Installment Sales_ 12. 795 5. 972 6. 417

Miscellaneous Income_ _ .029 _

1946 1947 1948

Total 100. 000 100. 000 100. 000

27. In 1946, Mr. Boeing’s investment in platted real estate in north King County was 2.21% of his total investments. His investment in 1946 in all north King County real estate, whether platted or unplatted, and excluding only the property on which his personal residence in the Highlands was situated, was 10.31% of his total investments. Similar percentage relationships of investment in north King County real estate to total investments were, for 1947, 9.84% for all real estate and 1.61% for platted real estate. For 1948, all real estate was 11.13% of total investments and platted real estate was 1.44%. The percentage relationships of these years are rather typical of the relationships existing in prior years. Mr. Boeing made no purchases of north King Comity real estate after 1932, except for one acre bought in 1945 to round out the northeast corner of the unplatted portion of Westover.

28. W. E. Boeing paid, on account of his 1946 tax liability, the following amounts on the following dates:

June 14, 1946_$1,562. 65

September 16, 1946_IS, 922.26

January 15, 1947_ 61,743.45

March 15, 1947_ 7,084.07

Total_84,312.42

The Commissioner of Internal Revenue determined that the said gain of $57,260.89, realized in 1946 as stated in finding 2, was ordinary income taxable in full rather than long-term capital gain. Pursuant to this determination, the Commissioner of Internal Revenue assessed a deficiency in income tax for the year 1946 in the amount of $16,115.78. On December 20, 1950, W. E. Boeing paid the deficiency, together with interest thereon in the amount of $3,611.70. In the determination of the deficiency the Commissioner made certain other adjustments not involved in this action, including the allowance of a $26,281.85 credit for W. E. Boeing’s overpayment of his 1945 income tax. Giving effect to these adjustments, the total additional tax paid by W. E. Boeing on account of the Commissioner’s treatment of the gain as ordinary income was, exclusive of interest paid, the sum of $48,641.64.

29. On December 14, 1951, W. E. Boeing filed with the Collector a claim for refund of income taxes for the year 1946. The amount to be refunded as set forth in this claim was $48,641.64, or such greater amount as is permitted by law, together with interest. This claim insofar as is material set forth the following facts and contentions in support of its allowances:

The taxpayer is entitled to capital gain treatment with respect to the amounts received in 1946 on the sale and installment sale of the above described property for the reason that such property constituted a capital asset. That property was not held primarily for sale to customers in the ordinary course of a trade or business, or under any other circumstances such as to exclude it from the definition of capital assets contained in Section 117 of the Internal Revenue Code. All of the property involved was acquired during or prior to 1932 for investment or personal residence purposes and was not acquired or held, primarily or at all, for purposes of resale to anyone, except to the extent that the liquidation of this investment at a future date could be anticipated.
The sale of this property during 1946 constituted the liquidation of an investment, and not the conduct of a real estate business. The sale of this property was preceded by subdivision into lots for the reason that as a practical matter it could not be sold in any other manner. The size and value of the property virtually _pre-cluded the sale of all or any major part of it to an individual purchaser, and its location made appropriate its subdivision into lots and the sale of such lots for residence purposes.
The taxpayer retired from active business many years ago, prior to which retirement he was principally connected with the aircraft business. The taxpayer personally devoted little if any time or attention to the development or promotion of sales of this property. His gains from sales of this property, as shown by the 1946 return, represent a minor percentage of his income for that year from all sources. The taxpayer was not engaged in the real estate business, but rather in the conservation, management and liquidation of his investments, of which the real estate involved formed a relatively minor part.

30. By letter dated September 28,1954, the Commissioner notified W. E. Boeing that the claim for refund for the year 1946 was disallowed in full. The date of mailing this letter is less than two years prior to the filing of the petition in this action.

Except for the amount credited as set forth in finding 28 above, no part of the .taxes paid for 1946 have been refunded or credited to W. E. Boeing or the plaintiffs.

31. W. E. Boeing paid, on account of his 1947 tax liability, the following amounts on the following dates:

March 15, 1947_$21,250

June 16, 1947_ 21,250

September 14, 1947_ 21,250

January 15, 1948_ 50, 000

March 15, 1948_ 4,985.71

Total_ 118, 735.71

The Commissioner of Internal Bevenue determined that the gain of $27,778 realized in 1947, as stated in finding 3, was ordinary income taxable in full rather than long-term capital gain. Pursuant to this determination, the Commissioner assessed a deficiency in income tax for the year 1947 in the amount of $29,424.27. On December 20, 1950, W. E. Boeing paid this deficiency, together with interest thereon in the amount of $4,828.80. In the determination of this deficiency the Commissioner made certain other adjustments not involved in this action, and the portion of this deficiency ¡and the interest paid thereon which is attributable to the Commissioner’s treatment of the gain as ordinary income was $21,742.81 of principal and $3,355.05 of interest. Therefore, the total additional tas and interest paid by W. E. Boeing on account of the Commissioner’s treatment of the gain as ordinary income was $25,297.86.

32. On December 15, 1952, W. E. Boeing filed with the Collector a claim for refund of income taxes for the year 1947. The amount to be refunded, as set forth in this claim was $25,297.86, or such greater amount as is permitted by law, together with interest. The claim set forth substantially the same reasons in support of its allowance as were set forth in the claim for 1946.

33. By letter dated September 28, 1954, the Commissioner notified W. E. Boeing that the claim for refund for the year 1947 was disallowed in full. The date of mailing of the letter is less than two years prior to the filing of the petition in this action.

No part of the taxes paid for 1947 have been refunded or credited to W. E. Boeing or the plaintiffs.

34. W. E. Boeing and Bertha Boeing paid, on account of their 1948 tax liability, the following amounts on the following dates:

March 15, 1948_$50,000,

June 15, 1948_ 50,000

September 15, 1948_ 50, 000

January 15, 1949_ 163, 000.

Less refund of overpayment indicated on 1948 tax return _ 6, 879. 77

Total_ 306,120.23

The Commissioner of Internal Eevenue determined that the gain of $33,321.09, realized in 1948, as stated in finding 4, was ordinary income taxable in full rather than long-term capital gain. Pursuant to this determination, the Commissioner assessed a deficiency in income tax for the year 1948 in the amount of $15,705.47. On December 20, 1950, W. E. Boeing paid the deficiency together with interest thereon in the amount of $1,635.09. In the determination of this deficiency the Commissioner made certain other adjustments not involved in this action, and the portion of the deficiency and of the interest paid thereon which is attributable to the Commissioner’s treatment of the gain as ordinary income was $15,173.08 of principal and $1,578.75 of interest. Therefore, the total additional tax and interest paid by W. E. Boeing on account of the Commissioner’s treatment of the gain as ordinary income was $16,751.83.

35. On December 15,1952, W. E. Boeing and Bertha Boeing filed with the Collector a claim for refund of income taxes for the year 1948. The amount to be refunded as set forth in this claim was $16,751.83, or such greater amount as is permitted by law, together with interest. The claim set forth substantially the same reasons in support of its allowance as were set forth in the claim for 1946.

36. By letter dated September 28,1954, the Commissioner notified W. E. Boeing and Bertha Boeing that the claim for refund for the year 1948 was disallowed in full. The date of mailing the letter is less than two years prior to the filing of the petition in this action.

Except for the refund referred to in finding 34 of this report, no part of the taxes paid for 1948 have been refunded or credited to W. E. Boeing or Bertha Booing or the plaintiffs.

37. W. E. Boeing was, and the plaintiffs are, and since the death of W. E. Boeing, always have been the sole owners of the claims herein referred to, and neither the claims nor any interest therein have been assigned or transferred in whole or in part. Plaintiffs have at all times borne true allegiance to the Government of the United States and have not in any way aided, abetted or given encouragement to rebellion against the Government.

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 not entitled to recover, and the petition is therefore dismissed. 
      
       Internal Revenue Code of 1939:
      § 117. Capital gains and losses — (a) Definitions.
      As used In this chapter—
      (1) Capital assets.
      The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business), but does not include—
      (A) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; * * • [26 U. S. C. (1952 ed.) § 117.]
     