Curtis Co. v. Commissioner

Prior to 1942, Curtis Co. (plaintiff) purchased land, divided it, built houses, and sold the houses for profit. Between 1942 and 1944, Curtis built 1,098 units of housing for rental purposes. In 1946 Curtis decided to sell the houses and put money toward shopping-center development for rental purposes, which eventually failed due to zoning restrictions. Between 1948 and 1950, Curtis sold the houses and made a large profit. In selling the houses, all sales were made by Curtis’s staff, there was some advertising, all houses were sold in the condition they were in, no efforts were made to improve the properties, and inspection was not permitted; in this way, Curtis saved money over commissions it would have paid to real estate brokers. The commissioner of the Internal Revenue Service (the commissioner) (defendant) determined that Curtis was not entitled to capital-gain benefits, and Curtis sued. The United States Tax Court held that the sales were conducted in the ordinary course of business of selling real estate and thus Curtis was liable for ordinary income tax. The tax court found that one piece of unimproved land was acquired for investment purposes and was entitled to capital-gain benefits; however, the remaining pieces of unimproved land were acquired for resale purposes and were held primarily for sale to customers in the ordinary course of business. Curtis appealed.