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Bramblett v. Commissioner

United States Court of Appeals for the Fifth Circuit
960 F.2d 526 (1992)


Facts

In 1979, Baker, Bramblett, Walker, and Sexton (plaintiffs) formed a partnership called Mesquite East Joint Venture and a corporation called Town East Development Company. In 1979 and 1980, Mesquite East bought several tracts of land for investment purposes. The partnership did not hire a broker, maintain an office, or develop the properties. Further, the partners spent only a minimal amount of time on the partnership. In 1981, Mesquite East sold much of the land to Town East. Town East then sold the properties to third parties. In 1982, Mesquite East sold its remaining tract of land to Town East. Town East sold this land to third parties, with payments coming to Mesquite East in 1983 and 1984. Mesquite East reported the income from this last sale as capital gains. The Internal Revenue Service (IRS) (defendant) ruled that, given the relationship between Mesquite East and Town East, Mesquite East was in the business of selling land and the income should thus be taxed as ordinary income. The United States Tax Court affirmed the decision. The plaintiffs appealed.

Rule of Law

Issue

Holding and Reasoning (Jolly, J.)

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