26 T.C. 161">*162 The Commissioner determined deficiencies in income tax for 1950 and 1951 in the amounts of $ 6,976.66 and $ 1,793.06, respectively.

The first question is whether gains realized in the taxable years 1950 and 1951 from sales of real estate are taxable as ordinary income as determined by the Commissioner, or as capital gains as claimed by the petitioners. The second question is whether gain from two sales of lots is taxable in 1949, when two contracts of sales were executed, or in 1950, when payments were made, as determined by the Commissioner.

FINDINGS OF FACT.

The petitioners are residents of Owensboro, Kentucky. They filed joint returns for 1950 and 1951 with the collector of internal revenue for the district of Kentucky. Since the questions to be decided relate only to sales of property owned entirely by Leonna S. Yunker, she is referred to hereinafter either as the petitioner or as Leonna.

The petitioner reports her income on the cash basis.

Milton S. Yunker is a petroleum engineer. He and Leonna were married in 1940. After their marriage, Milton and Leonna resided outside of Kentucky for several years because of Milton's service in the Army and some of his business activities. 1956 U.S. Tax Ct. LEXIS 207">*209 They established a residence in Owensboro, Kentucky, in the early part of 1946. Thereafter Leonna became interested in disposing of some undeveloped farm land which she had inherited upon the deaths of her grandfather in 1928, and of her uncle in 1935.

Leonna inherited a tract of farmland consisting of one area of about 100 acres located in Jefferson County, Kentucky, near Shively, Kentucky, which is about 7 miles from Louisville. Part of the area fronts on the Dixie Highway, also known as U. S. 31. In about the center of this tract an old house is located which had been the home of Leonna's parents and grandparents. The house was remodeled and put in modern condition in 1940.

26 T.C. 161">*163 In April 1940, Leonna anticipated leaving Kentucky. She gave a deed to the entire tract of farmland to her mother, Mrs. Betty Robertson, on April 17, 1940, and the deed was recorded. No consideration passed to Leonna for the deed, and no documentary stamps were attached thereto. On January 5, 1946, after Leonna returned to Kentucky, her mother made a deed to Leonna; the deed was recorded; there was no consideration for the conveyance; no documentary stamps were attached to the deed.

While Leonna's mother 1956 U.S. Tax Ct. LEXIS 207">*210 held the deed to the tract of property, about 15 acres were subdivided into building lots, the name "Lewiston Place Subdivision" being given to this area. Part of Lewiston Subdivision faces the Dixie Highway. Improvements were made to the property in the Lewiston Subdivision by building streets and running in gas, electricity, and water. All of the lots in Lewiston Subdivision were sold during 1941 and 1942. John R. Carpenter, a real estate broker who specializes in subdivision work, sold about 90 per cent of the subdivision acting as an agent. Leonna's stepfather, B. B. Robertson, was employed in Carpenter's office in 1941 and he worked with Carpenter in selling lots in the Lewiston Subdivision in 1941 and 1942. There is very little evidence in this proceeding about the Lewiston Subdivision, or the sales of the lots therein, and the issues in this proceeding do not involve any sales of lots in the Lewiston Subdivision. The record in this proceeding does not show who received the net proceeds from the sales of lots in the Lewiston Subdivision. When Leonna's mother gave her a deed on January 5, 1946, there remained out of the entire area which Leonna had inherited and owned 1956 U.S. Tax Ct. LEXIS 207">*211 in 1940, in excess of 75 acres of undeveloped farmland.

With respect to the 75 acres of land which is involved here, there were no utilities available to the tract, except electricity. There was a dispute between the Louisville Water Company and the Louisville Extension Water District in 1946, as to which company should supply water to the property. This dispute was not settled until the latter part of 1950, when a lawsuit which petitioner initiated was decided. Also, the tract did not have a road running through it, and only a small portion of the tract fronted on the Dixie Highway.

In 1948, petitioner sold to a Louisville realtor about 4 acres in the center of the tract where the family home was located. After this sale, about 71 acres remained.

After Leonna reacquired the remaining property, she had discussions with Carpenter about disposing of the entire acreage. Petitioner wanted to sell the acreage as a whole and, in 1949, Carpenter made attempts to do so. Some offers were received which, however, were not acceptable. Finally petitioner and Carpenter concluded, at some time in 1949, that it was not feasible to attempt to sell the property as a whole. Carpenter advised petitioner 1956 U.S. Tax Ct. LEXIS 207">*212 in 1949, after efforts to sell 26 T.C. 161">*164 the tract as a whole proved to be unsatisfactory, that it would be preferable to have a survey made to divide 65 acres (out of 71) into tracts of 5 acres or more, each. Carpenter pointed out that such subdivision would not come within the jurisdiction of the Jefferson County Planning and Zoning Commission and would not be subject to the commission's regulations and requirements. Accordingly, in May 1949, petitioner, through her agent, Carpenter, employed a firm of surveyors to make a survey of the property and subdivide it into sections of 5 acres or more, each. The subdivision was made in 1949; the 65 acres were subdivided into 14 parcels. One parcel, which fronted on the Dixie Highway, which is shown on the map of the survey as parcel No. 1, was further divided into 3 pieces which are designated on the map as A, B, and C. One parcel, No. 12, covered less than 5 acres.

Carpenter also advised the surveying and building of a "loop" road which would run in a semicircular direction through the middle of the 65-acre tract so as to give each parcel an outlet to a road. The petitioner adopted his suggestion and the road was laid out and constructed in 1956 U.S. Tax Ct. LEXIS 207">*213 the early part of 1950. Also, a powerline was extended along the road to make electricity available to each parcel. Carpenter paid for the surveying, engineering, and building of the road under an agreement with petitioner that he would be paid out of the proceeds of each sale. He was repaid the sums which he advanced. Carpenter acted as petitioner's agent in causing the construction of the road.

Carpenter was employed by petitioner as her agent to handle sales on a commission basis. He handled and negotiated all of the sales. In one instance, petitioner's husband inserted an ad in a Louisville newspaper which ran for 1 week, beginning October 4, 1949, and which stated, in part, as follows:

Would you like a small place in the country? Here is an opportunity. Survey work is complete. It has been divided into 11 [sic] 5 acre parcels with entry to be provided by road yet to be built.

Efforts were made to sell the property in 1949, 1950, and 1951. On December 19, 1949, a contract was executed for the sale of a 6-acre parcel to J. D. Wells. He paid the major part of the purchase price on January 17, 1950. This parcel was located on the west side of and adjacent to the area which 1956 U.S. Tax Ct. LEXIS 207">*214 is referred to herein as the 65-acre tract, and it faced on Graston Avenue. On November 14, 1949, another contract was executed for the sale of parcel 1-B, part of parcel No. 1 of the 65-acre tract, to R. E. Thoni. He paid the entire purchase price on January 6, 1950. These two sales are involved in the second issue. Contracts for the sales of all of the other parcels in the 65-acre tract were executed and the sales were completed in 1950 and 1951. Because of the division of parcel No. 1 into 3 lots, there were 16 parcels in 26 T.C. 161">*165 the 65-acre tract. All were sold before the end of August 1951. Including the 6-acre parcel on Graston Avenue, there were 17 parcels of land involved in the sales which were completed in 1950 and 1951.

Some of the purchasers, namely, Walker, Wells, Sharpe, Moreland, and the J. & F. Realty Company, were builders and developers, and they subsequently subdivided the acreage they purchased into building lots which they offered for sale. Walker bought 3 parcels of more than 11.5 acres; Wells bought 2 parcels of about 12 acres; Sharpe bought 2 parcels of about 10 acres; Moreland bought 5 acres; and J. & F. Realty bought 8 acres. A Catholic bishop bought 3 parcels 1956 U.S. Tax Ct. LEXIS 207">*215 of about 17 acres for the site of a church and school. There were 5 additional purchasers.

The following schedule shows the sales which were completed in 1950 and 1951:

17 -- Total parcels sold.

The above schedule shows that 12 sales were completed in 1950, and 5 sales were completed in 1951.

In the joint returns for 1950 and 1951, petitioner reported the gain from sales of the property as long-term capital gain. The Commissioner determined that the gain is properly includible in income as ordinary income derived from a trade or business. Accordingly, he increased the amount of taxable income from sales of realty in each of the years 1950 and 1951.

The parties are agreed that the basis for all of the property involved here was used and exhausted for income tax purposes prior to 1950.

With respect to the sale of parcel 1-B to R. E. Thoni, Thoni executed a sales and purchase contract 1956 U.S. Tax Ct. LEXIS 207">*216 on November 14, 1949, with 26 T.C. 161">*166 John Carpenter Co., under which he agreed to pay in cash $ 5,000 for the lot and improvements. The following is written in the sales contract: "This offer is subject to my being able to use this lot for a service station and being able to get water connection." Thoni did not make any deposit upon the execution of the sales contract. He paid the full purchase price of $ 5,000 on January 6, 1950, at which time he received the deed. Petitioner incurred and paid expenses in making this sale in the amount of at least $ 510.50.

With respect to the sale of the 6-acre parcel of land (at the edge of the 65-acre tract) to J. D. Wells, Wells executed a sales and purchase contract with Carpenter on December 19, 1949, in which he agreed to pay $ 4,400 in cash. Wells made a deposit of $ 100 at the time he executed the sales contract and it was provided in the contract that the deposit would be applied on the purchase price upon the passing of deed or refunded if title proved to be uninsurable or if the offer was not accepted. On January 17, 1950, Wells paid in cash the balance of the price, $ 4,300, and received the deed. Petitioner incurred and paid expenses in making 1956 U.S. Tax Ct. LEXIS 207">*217 this sale in the amount of at least $ 691.43.

With respect to the sale to Thoni and Wells, petitioner reported long-term capital gain in the amount of $ 6,734.07 in her income tax return for 1949. In the deficiency notice which gives rise to this proceeding, the Commissioner determined that the gain from these two sales was taxable in the year 1950 and he determined further that the gain amounted to $ 9,400. During the trial of this case, the parties stipulated that the gain from the sale of these two lots amounted to $ 8,179.07.

Petitioner's activities during 1949, 1950, and 1951, directly and through her real estate agent, in preparing for sale and in selling 71 acres of land (including the 65-acre tract) constituted the carrying on of a business. All of the parcels of land were held by the petitioner primarily for sale to customers in the ordinary course of her trade or business.

The gain realized from the sales of parcels to Thoni and Wells is taxable in the year 1950.

OPINION.

The petitioner contends that all of the parcels making up 71 acres of land were capital assets within the meaning of section 117 (a), 1939 Code, so that gains realized from the sale thereof are entitled to 1956 U.S. Tax Ct. LEXIS 207">*218 capital gain treatment. The Commissioner has determined that petitioner's efforts to dispose of the property in question constituted the carrying on of a trade or business and that the petitioner, in the taxable years, held the parcels of land primarily 26 T.C. 161">*167 for sale to customers in the ordinary course of her trade or business so that the property cannot be treated as capital assets and comes within the exception set forth in section 117 (a) (1) (A), and within the meaning of section 117 (j). The respondent has determined that the gains from the sales of the parcels are taxable as ordinary income.

The petitioner argues that she was attempting to liquidate an unprofitable investment by the most expeditious and least sacrificial method; that sales were made in rather large individual parcels rather than as a single tract because that was the best and perhaps the only method of liquidating the entire "investment"; that petitioner did none of the things which the courts ordinarily associate with the conduct of the real estate business; and that there was not the degree of frequency and continuity of sales which are usually evidence of carrying on a real estate business. The petitioner refers 1956 U.S. Tax Ct. LEXIS 207">*219 to cases which have stated the standards to be applied in the consideration and decision of the issue such as ; and .

The petitioner inherited about 100 acres of farmland, of which the 71 acres involved here is a part, and she held the land which is involved in this proceeding for over 10 years. In order to liquidate a holding of real estate, it is necessary to make sales, and the frequency and substantiality of sales, standing alone, do not put the vendor in the real estate business. ; and . Where the liquidation of an asset is not accompanied by active elements of development and sales activity, the fact of liquidation is not to be disregarded. However, in cases where it has been held that sales of property were not made in such way as to constitute the carrying on of a trade or business, the evidence showed that the sales were essentially in the nature of a gradual and passive liquidation of an asset

In deciding the issue consideration must be given to the actions of the petitioner, and whether the acts of selling unimproved real estate 1956 U.S. Tax Ct. LEXIS 207">*220 support a finding that the petitioner held the property in question in the taxable years for sale to customers in the ordinary course of a trade or business. In the case of , we stated:

Although property is sold to liquidate an investment, the manner in which it is sold or disposed of can constitute a trade or business. , affd. (C. A. 9) ; , affd. (C. A. 9) , certiorari denied . The foregoing cases indicate that, if a liquidating operation is conducted with the usual attributes of a business and is accompanied by frequent sales and a continuity of transactions, then the operation is a business and the proceeds of the sale are taxable as ordinary income. Or, as we have said, "It is undoubtedly true that where liquidation of an asset is accompanied by extensive development 26 T.C. 161">*168 and sales activity, the mere fact of liquidation will not be considered as precluding the existence of a trade or business. Where, however, the active elements of development and sales activities are absent, the fact of liquidation is not, in our opinion, to be disregarded." .

In 1956 U.S. Tax Ct. LEXIS 207">*221 this case the sales of parcels of real estate were handled and made by Carpenter, a real estate agent. But this fact cannot be taken as proof that the petitioner was not engaged in a business. Engagement in business through an agent is equally as effective as personal participation. ; ; .

Upon consideration of all of the evidence, the following factors emerge as important. There was some developmental activity which consisted of the construction of a road into the property and the running of an electric power line around the road, both of which were done so as to give each parcel in the 65-acre tract an outlet to a road which would lead to the Dixie Highway, and would also make electricity available. A real estate agent was engaged to handle and make sales. Also, there was some advertising of the tract which, in one instance, was handled by petitioner's husband. Also, the 65-acre area was surveyed and subdivided into parcels of 5 acres or more. Beginning in the latter part of 1949 up until August 1954, by which time all of the acreage had been sold, there were frequent sales and 1956 U.S. Tax Ct. LEXIS 207">*222 there was a continuity of transactions. The sales were made for cash.

The Commissioner has determined that the petitioner carried on activities which constituted the carrying on of a trade or business in which she held the property in question primarily for sale to customers. Upon the petitioner is the burden of proving that this determination is in error. There is an element of failure of proof present in this proceeding. For example, the petitioner has not shown that Carpenter did not make offers of the property to prospective buyers, that Carpenter did not advertise the property for sale or did not let it be known that it was on the market for sale. The petitioner has not shown that her subdivision was made only to meet the requirements of a selected group of buyers pursuant to their request and to an agreement with them as was shown in .

We do not think that the fact that the property was subdivided into parcels of 5 acres or more rather than into smaller parcels or into building lots is decisive. A taxpayer can hold property primarily for sale to customers in the ordinary course of a trade or business even if the property involved is held 1956 U.S. Tax Ct. LEXIS 207">*223 in parcels as large as 5 acres each. Customers may be either builders and developers who intend to further subdivide the parcels they purchase for sale to their customers, or customers may be the individuals who purchase individual 26 T.C. 161">*169 lots in a subdivision. The determinative facts are whether the manner in which property is sold or disposed of constituted a trade or business.

We recognize that no one test is controlling, that there is no rule of thumb to use, and that the question must be decided upon consideration of all of the material facts of an individual case. Each case presents its particular facts and circumstances and the activities of one taxpayer will be relatively different than the activities of another taxpayer. One taxpayer's property and activities may be larger and more extensive than those of another taxpayer. Differences in activities are relative matters and the trier of the facts must, as fairly as possible, weigh the differences of degree in applying the recognized tests to a particular set of facts in an individual case. We have endeavored to do that here.

Upon consideration of all of the evidence we are unable to conclude that the sales of the property in 1956 U.S. Tax Ct. LEXIS 207">*224 question were casual and isolated sales; we think the sales were not casual or isolated and that there was the regularity and continuity of sales which ordinarily constitute the carrying on of a business. We are unable to distinguish this case in principle and in determinative facts from the following authorities: ; , certiorari denied ; ; ;; , affirming ; ; ; , affirming ; and , affd. . It is concluded that the facts here support the determination of the respondent that the parcels of real estate in question were held primarily for sale to customers in the ordinary course of a business. The petitioner has not overcome the prima facie correctness of the respondent's determination.

Although petitioner does not rely upon , consideration has been given to 1956 U.S. Tax Ct. LEXIS 207">*225 that case because there are some similarities in the facts. However, the Thrift case is distinguishable because there are not present here facts which make that case controlling. In the Thrift case the property in question was never listed with a real estate agent and no effort was made to sell to the general public. Those facts are not present here.

It must be concluded that petitioner's activities in disposing of the property in question had the attributes of a business and that there was the frequency and continuity of transactions which constitute the carrying on of a business. The evidence, in our opinion, shows that the petitioner, in the taxable years, intended that the parcels in her 26 T.C. 161">*170 subdivision should be offered for sale to customers. We conclude that the parcels of property were held in the taxable years primarily for sale to customers in the ordinary course of a business. The respondent's determination is sustained.

The next question to be decided relates to two transactions which were entered into at the end of 1949, one with Thoni and one with Wells. The question is whether, in each instance, the gain was realized in 1949, as petitioner contends, or in 1950 as respondent 1956 U.S. Tax Ct. LEXIS 207">*226 has determined.

The purchase price of the parcel sold to Thoni was $ 5,000 which he paid on January 6, 1950, when he received the deed. The sales price of the parcel sold to Wells was $ 4,400. He made a deposit of $ 100 when he executed the sales contract in 1949, and he paid $ 4,300 on January 17, 1950, when a deed was delivered to him; the deposit was applied to the purchase price. Neither purchaser gave a note. The expense of the sale to Wells exceeded $ 100. There is no proof that the sales contracts had a fair market value or were in any respect the equivalent of cash.

The petitioner contends that the sales were completed transactions in 1949, and, therefore, that the gains are taxable in 1949.

The determination of the question depends not, as the petitioner argues, on whether the sales were completed sales in 1949, but rather upon the fact that petitioner reports income on a cash basis. Cf. . In , we said:

An agreement, oral or written, of some kind is essential to a sale. If payment is made at the same time that the obligation to pay arises under the agreement, then the profit 1956 U.S. Tax Ct. LEXIS 207">*227 would be reported at that time no matter which method [of accounting] was being used. However, the situation is different when the contract merely requires future payments and no notes, mortgages, or other evidence of indebtedness such as commonly change hands in commerce, which could be recognized as the equivalent of cash to some extent, are given and accepted as a part of the purchase price. That kind of a simple contract creates accounts payable by the purchasers and accounts receivable by the sellers which those two taxpayers would accrue if they were using an accrual method * * *. But such an agreement to pay the balance of the purchase price in the future has no tax significance to either purchaser or seller if he is using a cash system. The petitioner may not thus adopt, for this limited purpose, a feature of an accrual method, but, having always used a cash receipts method of reporting his income, he must adhere consistently to the general rule of that method, which is that no gain is realized until the "amount realized" by receipt exceeds the basis for the property being sold. * * *

It is held that the contractual obligations of Thoni and Wells did not constitute amounts 1956 U.S. Tax Ct. LEXIS 207">*228 realized in 1949 by the petitioner who reports income on a cash basis. The only "amount realized" by petitioner in 1949 was the $ 100 deposit paid by Wells, and in that transaction 26 T.C. 161">*171 such payment did not give rise to any gain because it was less than the expense of the sale. The expense of a sale enters into the computation of gain or loss. , affd. . See also ; ; . The respondent's determination is sustained. The gains from these two sales are taxable in 1950. Because of our holding under the first issue, the gains are taxable as ordinary income rather than as long-term capital gains.

Because the respondent now concedes that the total amount of the gain realized from the sales to Thoni and Wells is less than he determined, there must be a Rule 50 recomputation.

Decision will be entered under Rule 50.