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Malat v. Riddell

United States Supreme Court
383 U.S. 569 (1966)


Malat (plaintiff), as part of a joint venture, acquired a parcel of land. The joint venturers encountered difficulties in obtaining zoning. As a result, they decided to end the venture and sell the parcel. Malat characterized the proceeds from the sale as a capital gain. According to Malat, the profits were entitled to capital gains treatment because the joint venturers purchased the land with the intent to develop it for rental. Riddell (defendant) disagreed with Malat’s characterization. Riddell argued that the joint venturers had a dual purpose in acquiring the land. They intended to either develop the land for rental or for sale, depending on which option proved more profitable. Riddell determined that Malat held the property primarily for sale in the ordinary course of business and that therefore, the proceeds from the sale must be treated as ordinary income. The District Court sustained Riddell’s determination, agreeing that the joint venturers had a dual purpose in purchasing the property and that Malat failed to demonstrate that the property was not held primarily for sale in the ordinary course of business. The Court of Appeals affirmed. The United States Supreme Court granted certiorari.

Rule of Law


Holding and Reasoning (Per curiam)

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