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Biedenharn Realty Co. v. United States

United States Court of Appeals for the Fifth Circuit
526 F.2d 409 (1976)


Biedenharn Realty Company (Biedenharn) (plaintiff) was formed to hold and manage family investments, including commercial and residential real estate, farm properties, and a substantial stock portfolio. Biedenharn acquired a 973-acre property as a farming investment. Biedenharn farmed the property and leased some of it to farmers. After being approached by buyers interested in building homes on the property, Biedenharn subdivided the land and sold the resulting lots. Biedenharn improved the property with streets, water, sewer, and electricity, and hired brokers to market the lots. Biedenharn continued to farm a large part of the land while the lots were being sold. On its federal tax returns, Biedenharn reported 60 percent of its gains as ordinary income and 40 percent as capital gains. The federal tax commissioner issued a notice of deficiency against Biedenharn, determining that all of Biedenharn’s gains were ordinary income. Biedenharn sued the United States government (government) (defendant) in federal district court for a tax refund, claiming that all of Biedenharn’s gains were capital gains. The district court entered judgment in favor of Biedenharn. The government appealed to the United States Court of Appeals for the Fifth Circuit.

Rule of Law


Holding and Reasoning (Goldberg, J.)

Dissent (Gee, J.)

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