28 T.C. 1">*1 The respondent determined a deficiency in income tax against the petitioners for the year 1950 in the amount of $ 27,740.52. The question presented is whether the gain realized upon the sale of certain properties in 1950 was ordinary income or capital gain.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found as stipulated.

The petitioners are husband and wife, and reside in Tampa, Florida. They filed a joint income tax return for 1950 with the collector of internal revenue for Florida.

28 T.C. 1">*2 Robert Thomas, sometimes referred to as petitioner, is the son of Wayne Thomas, who lives at Seffner, Hillsborough County, Florida. On July 1, 1946, and after a period of service in the United States Navy, he returned to his father's home, where he lived until the fall of 1950. At the time of his return from the Navy he was 21 years of age. There was a close personal relationship between petitioner and his father.

Wayne Thomas was, and for many years had been, in the real estate business and had his office in Plant City, Hillsborough County, Florida, about 25 miles east of Tampa. He was or had been engaged 1957 U.S. Tax Ct. LEXIS 228">*231 in other business activities. For a considerable period of time he had been publisher and editor of one or more newspapers. He had dealt in bonds for approximately 7 years, and had interests in cattle, timber, and oil. His timber interests extended into several counties, and he had a timber cruiser attached to his office. A substantial part, if not the greater part, of his real estate activities was that of selling, on a commission basis, the properties of others which had been listed with him. He also at times bought, held, and sold property on his own account.

Hillsborough County and Polk County adjoining are or were rich in phosphate deposits, and approximately 65 per cent of the phosphate mined in the United States came from those two counties. Wayne Thomas was well informed on phosphate, and had made the "discovery, development, and sale of phosphate properties" a major part of his business. He had prospected for phosphate in many parts of Florida and had records bearing on all types of phosphate lands. He knew numerous prospectors who, as field foremen, had managed prospecting crews and he had maps, field notes, and reports of many of them showing their findings throughout1957 U.S. Tax Ct. LEXIS 228">*232 Florida. Most of these prospectors lived in Polk County. He often represented phosphate companies in buying phosphate properties. He also represented landowners in effecting sales of their phosphate lands. With International Minerals & Chemical Corporation, sometimes referred to as International, he had an understanding that he would report attractive phosphate properties that might be available. In addition, he on his own account or with others bought and sold some phosphate lands. He acquired and owned at least one tract which was or had been operated by International on a royalty basis.

Upon returning home in 1946, petitioner became the foreman of a cattle ranch belonging to his father at or near Seffner. The ranch consisted of approximately 11,640 acres. Petitioner purchased the ranch from his father on an undisclosed delayed payment arrangement in 1948, and up to the time of the trial herein, was raising cattle and conducting timber-growing operations thereon.

28 T.C. 1">*3 Toward the end of 1947, petitioner acquired a real estate broker's license, and had a desk in his father's office. A sign was placed on the front door of the office, displaying the name of petitioner as1957 U.S. Tax Ct. LEXIS 228">*233 a registered real estate broker. He continued to have the broker's license and the desk from 1947 until January 26, 1952, when he was recalled to active duty with the Navy.

In 1947 Armour & Company and in 1948 Davison Chemical Company, both being the owners of land containing phosphate and wishing to check or determine the phosphate content, employed petitioner to do the prospecting for them. They "knew" petitioner's "field and they thought [he] could arrange to have their lands prospected." ¹ Petitioner made the arrangements for a prospecting crew to do the field work, saw that the surveyors had marked the spots where the test holes were to be drilled, and delivered the phosphate samples, or arranged to have them delivered, to a laboratory specified by the particular company.

1957 U.S. Tax Ct. LEXIS 228">*234 B. B. Mitchell was regarded by petitioner as the dean of all the prospectors in the phosphate area, and he procured Mitchell to do the field work for him. Mitchell had worked, or done work, for petitioner's father over a period of approximately 20 years. He owned or had available the tools needed for the work to be done. He hired and fired his own crew. Petitioner would go to the particular company each Friday and advise them as to the cost of the work done during the week. The company would pay him the amount indicated. Petitioner in turn would pay Mitchell for the field work which had been done, and Mitchell would pay his crew. There was a set rate of pay for laborers and truck drivers. Mitchell's share of the pay would be greater.

In 1947, while engaged in prospecting as above described, petitioner was sought out by Frank L. Holland who owned 60 acres of land at or near Homeland, in Polk County. Holland wanted petitioner to put down some prospect holes for him on the said property. Petitioner sunk three such holes and the samples of phosphate taken therefrom were analyzed at a commercial laboratory. Holland was encouraged by the results and discussed with petitioner 1957 U.S. Tax Ct. LEXIS 228">*235 the feasibility and possibility of obtaining sufficient acreage to interest a phosphate-mining company. Holland paid the laboratory and actual prospecting costs, but petitioner received nothing for his services.

Petitioner thereafter, and pursuant to his understanding with Holland, talked to Susie A. Snell, who owned approximately 103 acres abutting the Holland tract on the east and south, explaining the situation 28 T.C. 1">*4 and suggesting that she join her property with that of Holland. On petitioner's suggestion, and at her expense, she permitted her property to be prospected for phosphate. Petitioner billed Mrs. Snell for $ 484 for "[prospecting] labor" and "analytical work" done. This amount was later paid in full by her. Petitioner also reached an agreement with Mrs. Snell that he should represent her in the event of sale of the property for a commission of 10 per cent of the selling price.

Petitioner also talked to Lewis L. Gassett, the owner of 8 acres which abutted on the Snell property. From Gassett he obtained an option to purchase. The option was dated June 1947, and by its terms was to expire by January 1, 1948. Petitioner sunk 2 test holes on Gassett's land, but after1957 U.S. Tax Ct. LEXIS 228">*236 obtaining the results, told Gassett that he would not exercise the option. He suggested, however, that Gassett join with Holland and Mrs. Snell looking to future developments. He obtained from Gassett an agreement that he should receive a commission of 10 per cent if and when the Gassett property was sold.

Thereafter petitioner and Holland attempted to interest the Virginia-Carolina Chemical Company in the purchase of the above three properties, but were not successful. The United States Phosphoric Corporation was next contacted, with the same result.

After their unsuccessful efforts to interest these companies in the properties then at hand, petitioner and Holland agreed that the situation was at an impasse, and that "nothing could be done unless other property could be added to achieve an acreage of sufficient size to be saleable for phosphate purposes to a phosphate company." One factor of importance was that the acreage be connected with or adjacent to existing holdings of such a company. To that end, petitioner and Holland set about the doing of those things necessary to acquire or assemble such phosphate acreage. Holland first attempted to find an investor to purchase some1957 U.S. Tax Ct. LEXIS 228">*237 of the additional properties, or someone to lend him and petitioner the money therefor, or both. They succeeded in arousing the interest of M. C. Peters, of Lake Alfred, Florida, an officer of a citrus-canning plant. Peters agreed to join with them, and individually purchased 40 acres, known as the Watson tract, which adjoined the Holland and Snell tracts on the north and on which petitioner had procured an option. This property, as in the case of the other parcels, was prospected by petitioner. The Watson or Peters tract of 40 acres became parcel No. 4 in what was to become known as the Homeland Assembly. The Holland tract was designated parcel No. 1, the Snell tract parcel No. 2, and the Gassett tract parcel No. 3.

On February 17, 1948, an option was obtained on a tract of approximately 50 acres, belonging to the C. F. Crum Estate. This land adjoined 28 T.C. 1">*5 the Holland property along part of the northern boundary of the latter. After the property had been prospected, it was purchased jointly by petitioner, Holland, and Peters, Peters' interest being 25 per cent and the interests of petitioner and Holland 37 1/2 per cent each. The purchase price was $ 15,000, and conveyance1957 U.S. Tax Ct. LEXIS 228">*238 was made under date of July 15, 1948, to a trustee for the 3 purchasers. The money for the purchase was supplied by Peters, petitioner and Holland becoming indebted to him for the amounts representing their shares of the purchase price. They were to pay interest on their loans at the rate of 4 per cent. There was no specified payment date, but Peters "did have the right, if he were tired of the arrangement, to demand payment." ² The Crum Estate tract was designated as parcel No. 7 of the Homeland Assembly.

On February 6, 1948, an option was obtained on 60 acres of land belonging to A. P. and Mary Weaver Hamans. This property was due north of and adjacent to parcel No. 7, which had been purchased from the C. F. Crum Estate. It likewise was prospected for phosphate by petitioner. The purchase price was $ 21,000, and the property was conveyed to petitioner 1957 U.S. Tax Ct. LEXIS 228">*239 and Holland jointly under date of December 15, 1948. Petitioner had obtained part of his share of the purchase money from Moss T. Lockman, Jr., it being understood that Lockman would participate in petitioner's share according to the percentage supplied by Lockman of the total purchase price of such share. The 60 acres so acquired was designated as parcel No. 6 of the assembly.

By conveyance dated October 21, 1948, and for a purchase price of $ 1,475.75, petitioner individually acquired 11 or 12 acres of land known as the Wirt tract. This land was in the form of a right triangle and was located along part of the northern boundary of parcel No. 1, along part of the western boundary of parcel No. 4, and with the hypotenuse adjoining parcel No. 7 to the northeast. It was designated as parcel No. 8 of the assembly, and as in the case of the other properties comprising the assembly, petitioner had prospected this tract for phosphate.

The last acquisition of the 8 parcels making up the Homeland Assembly was the J. T. and Annie M. Page tract. It was located due north of parcel No. 4, and consisted of 20 acres. This land was acquired by petitioner and Holland jointly. The conveyance1957 U.S. Tax Ct. LEXIS 228">*240 bore date of January 17, 1949, and the price paid was $ 9,000. This property had been prospected for phosphate by petitioner, and had been under option since late in 1947 or early in 1948. It became parcel No. 5 of the assembly.

The Homeland Assembly, consisting of the above 8 parcels of land, 28 T.C. 1">*6 was considered by petitioner as good, salable phosphate property. Neither petitioner nor any of the owners of the other parcels or interests therein had any intention of mining phosphate. The properties were acquired or assembled with the intent and purpose of selling them to a phosphate-mining company.

The Homeland Assembly was adjacent to and adjoined operating properties of the International Minerals & Chemical Corporation, and on October 7, 1948, Wayne Thomas wrote a letter to Franklin Farley, vice president of International, at his office in Chicago, as follows:

On several occasions you and Mr. Ware have indicated that whenever additions to Noralyn became available you would like to have them presented to you.

We have an assembly adjoining your lands in Section 32, Township 30 South, Range 25 East, on the south, and including 359 acres in Sections 31 and 32, Township 30 South, 1957 U.S. Tax Ct. LEXIS 228">*241 Range 25 East, and Sections 5 and 6, Township 31 South, Range 25 East, which you have seen before briefly and in a general way. The property contains 3,600,000 tons, averaging about 75% B. P. L. under 14 feet overburden on 320 minable acres.

It is advisable for us to present these lands for your consideration at this time because they are held in several ownerships, some of which insist on a quick sale. For this reason and because of competitive ownership on the south and to the west it is unlikely that the tract can be held very long in its present status. It can be secured now, however, on a favorable deferred payment plan.

With this in mind, could I (or my son, Robert Thomas) see you and Mr. Ware in Chicago next week, on either the twelfth, thirteenth, or fourteenth, at your convenience?

A copy of the above letter was sent to International's representative, R. B. Fuller, who was in charge of the company office at Mulberry, in Polk County, a short distance from Plant City.

On October 8, 1948, Wayne Thomas received a telegram from Farley, suggesting a preference for a meeting in November, at which time he expected to be in Lakeland, Florida. Wayne Thomas answered, by telegram, 1957 U.S. Tax Ct. LEXIS 228">*242 that a conference in Lakeland during the week of November 8 would serve adequately. On or about November 8, petitioner conferred with Farley and Fuller ³ relative to the purchase by International of the Homeland Assembly. International desired to prospect the properties on its own account, and required options to purchase each of the parcels in the assembly, pending such prospecting. On November 22, on his father's stationery, petitioner wrote Fuller, enclosing a form of option which had been drawn by or for him. Copies of the letter and the option were sent to Farley in Chicago.

28 T.C. 1">*7 Petitioner had several conferences with the representative of International, and at some undisclosed date, a form of option was approved. Options were executed by all of the parcel owners, giving International the right of purchase, 1957 U.S. Tax Ct. LEXIS 228">*243 and on December 31, 1948, petitioner wrote Fuller to that effect.

Petitioner and Holland had negotiated for a ninth tract of land, known as the J. Wilhite Crum tract. In the letter of December 31, 1948, petitioner advised Fuller that it might take several weeks to obtain a binding legal option on that tract, but that they felt certain the option would be procured and that International might proceed with its prospecting of that tract, as well as the 8 tracts making up the Homeland Assembly. This property was adjacent to one or more parcels of the Homeland Assembly and was sometimes referred to as parcel No. 9.

The option agreements on the 8 tracts comprising the assembly were similar, and provided, among other things, that they should expire on April 15, 1949; that in the event of election to purchase, International would notify the respective owners in writing, "c/o Robert Thomas, Plant City, Florida"; the respective purchase prices, in the event of purchase, and the terms of payment; and further, that if the company did not purchase the property, it should furnish each owner with the prospecting information International had acquired in its prospecting operations.

International1957 U.S. Tax Ct. LEXIS 228">*244 was delayed in its prospecting operations, and the options were extended by the owners of the various parcels to July 15, 1949, with the exception of the Snell tract, in respect of which the option was extended to August 15, 1949.

On June 7, 1949, petitioner wrote Fuller, urging that the owners of the assembly have International's decision as soon as convenient, and at any rate by July 15. Note was taken, however, of the fact that the option on the Snell property ran to August 15. He also advised Fuller that although title clearance work on the J. Wilhite Crum property had been going on for over a year, it was still not completed, and further, that it would be "to our mutual advantage to delay closing on this particular tract until six months after title is perfected. We suggest, therefore, that there will be plenty of time to complete prospecting on this piece." A copy of this letter was sent to Farley in Mulberry.

At the option expiration dates, International did not have all of the metallurgical data and information regarded as necessary to conclude the purchase of the properties, and Farley and Ware, another key official, were abroad, Ware in South Africa, and Farley in Italy. 1957 U.S. Tax Ct. LEXIS 228">*245 International was definitely interested in the properties, however, 28 T.C. 1">*8 and it was Fuller's view at all times that it would proceed with the acquisition of the Homeland Assembly in due time. There was no renewal of the written options, but there was an understanding between petitioner and Fuller that the matter would be extended until the officials of International returned from abroad. ⁴

On March 3, 1950, International concluded the purchase of the 8 parcels of land comprising the Homeland1957 U.S. Tax Ct. LEXIS 228">*246 Assembly, for amounts slightly less than were set out in the option agreements. The consideration paid, the consideration shown in the option agreements, and the net receipts of petitioner for his various interests in the 8 parcels, were as follows:

In the joint return of petitioners for 1950, petitioner reported the commissions received in respect of the sale of the Snell and Gassett parcels as ordinary income. He reported his other gains, amounting in the aggregate to $ 85,976.11, as long-term capital gain.

The work of clearing the title to the J. Wilhite1957 U.S. Tax Ct. LEXIS 228">*247 Crum property, sometimes referred to as parcel No. 9, was completed and the property was purchased by petitioner and others on August 10, 1950. It was sold to International on May 31, 1951. Petitioner's interest was 37 1/2 per cent. His net gain on the sale was $ 25,115.55, which was reported by him in a joint return for 1951 as long-term capital gain.

On February 2, 1950, petitioner acquired a 37 1/2 per cent interest in a parcel of phosphate-bearing land located approximately 1 mile from the Homeland Assembly. Holland and Peters acquired the remaining interests. On April 30, 1952, they sold the property, petitioner receiving a net profit of $ 22,303.66 for his interest therein.

28 T.C. 1">*9 On his income tax returns for the years 1948 through 1952, petitioner stated his occupation variously, as follows:

1957 U.S. Tax Ct. LEXIS 228">*248 In his determination of deficiency for the taxable year herein, the respondent determined that the gain derived by petitioner upon the sale of his various interests in the parcels of land comprising the Homeland Assembly was ordinary income.

In acquiring his interests in the various parcels of land comprising the Homeland Assembly, it was petitioner's intention to hold, and in fact he did at all times hold, such interests primarily for sale to a customer or customers, and his activities in acquiring, holding, and selling his interests in such properties were such as to constitute the carrying on of a business, and his interests were held primarily for sale to a customer or customers and they were sold by him in the ordinary course of such trade or business.

On June 30, 1948, by a tax deed and at a cost of $ 60.95, petitioner acquired some unimproved real estate near the city limits of Plant City. The land was non-phosphate land and was being used "in a cow pasture." In 1950 petitioner was approached by Moss T. Lockman, Jr., who expressed a desire to acquire the land as a homesite. Petitioner sold the property to Lockman under date of July 31, 1950, for $ 150. In the 1950 joint 1957 U.S. Tax Ct. LEXIS 228">*249 return, petitioner reported $ 89.05 as long-term capital gain on that sale.

On November 9, 1949, petitioner acquired 40 acres of unimproved property for $ 200. A man by the name of Lane purchased a dairy adjoining the property, and desired the 40 acres in connection with that operation. On November 27, 1950, he purchased the 40 acres from petitioner for $ 1,000. After deducting $ 155 as expenses of the sale, petitioner reported in the 1950 joint return a long-term capital gain of $ 645 from the sale of this property.

The respondent in his determination of deficiency determined that the gain realized on the sale of the 2 parcels of property just described was ordinary income.

OPINION.

The primary question is whether or not petitioner's interests in the lands comprising the Homeland Assembly were property 28 T.C. 1">*10 held by him "primarily for sale to customers in the ordinary course of his trade or business," under the provisions of section 117 (a) of the Internal Revenue Code of 1939. ⁵ If they were not so held, the gains realized by him on their sale in the taxable year were properly reported as long-term capital gain, and the respondent was in error in determining otherwise.

1957 U.S. Tax Ct. LEXIS 228">*250 On the evidence of record, we have set out in our Findings of Fact a fairly detailed picture of petitioner's activities relating to the assembly properties and to their ultimate sale, including the facts leading up to the planning of the venture with Holland, the testing of the various properties for phosphate, the steps necessary to obtain needed or necessary financing, the purchasing of various of the individual properties making up the assembly, negotiations looking to their sale, and the actual sale. And, in our opinion, the facts so found lead to and require the conclusion reached, namely, that petitioner acquired and at all times held his interests in the said properties primarily for sale to a customer or customers; that his activities in acquiring, holding, and selling those interests were such as to constitute the carrying on of a business by him; and that the sales were made in the ordinary course thereof.

We have not overlooked the stated conclusions of petitioner as to his purpose and intent, or as to the amount of time required of him in the activities involved, nor the fact that a much greater portion of his time may well have been consumed in his cattle ranch and timber-growing1957 U.S. Tax Ct. LEXIS 228">*251 ventures. Suffice it to say, that after the failure to sell the Holland, Snell, and Gassett properties, on the last two of which petitioner was to receive a broker's commission, and the first planning of the assembly by him and Holland, his activities extending over more than 2 years of time in the doing of those things required to examine and prospect the properties, to raise the money necessary for their acquisition, to negotiate and make actual purchase of the properties needed to round out the assembly, and to conduct and carry on the negotiations which ultimately resulted in sale, were such as to convince us that those activities must be regarded as the carrying on of a business, within the meaning of section 117 (a), even though the hours, days, or weeks actually consumed were relatively small when compared with the over-all lapse of time from the beginning of the venture until it was closed.

28 T.C. 1">*11 The fact that the whole venture, at least insofar as the properties sold in 1950 were concerned, was closed out by their simultaneous sale to a single customer, is apparently regarded by petitioner's counsel as providing strong support for a contrary conclusion. Possibly the 1957 U.S. Tax Ct. LEXIS 228">*252 thought back of the argument is that in so many of the land venture cases, wherein the question was the same as that in the present case, the controlling activities were directed to the platting and subdividing of a single parcel of land and the selling, by many sales, of the individual units resulting from such platting and subdividing.

Here, of course, we do have a reverse situation, but in the circumstances of this case, that fact does not indicate or require a conclusion that what was done did not constitute the carrying on of a business. The lands here were mineral-bearing lands, but their value and marketability as such called for their assembly into a unit or group sufficiently large to attract the best and most obvious customers, namely, the phosphate-mining companies. In either instance, the question presented must turn on the same considerations, namely, whether the activities in the platting, subdividing, and selling of a property in smaller units, on the one hand, and the examining, prospecting, assembling of the properties into a unit or group, and the selling of the properties as a group, on the other hand, were such as to constitute the carrying on of a business, the1957 U.S. Tax Ct. LEXIS 228">*253 answer to which in the instant case we have already stated above. ⁶

We have examined the cases cited and relied upon by petitioner, and in none of them do we find support for the conclusion sought herein. On first impression, Isaac S. Peebles, Jr., 5 T.C. 14, might be regarded as somewhat comparable to the instant case and to support the petitioner's position. In that case, it was held that the profits realized from the sale of timber from an acreage of approximately 2,000 acres, which1957 U.S. Tax Ct. LEXIS 228">*254 had been acquired in parcels over a period of 5 years, constituted capital gain, for the reason that the sale of the timber was not made in the ordinary course of a trade or business carried on by the taxpayer. No point was made, however, that the acquisitions of the various parcels over the 5-year period were other than casual acquisitions, the contention being that the activity in harvesting the timber and the fact that it was paid for only as harvested made of the selling of the timber the conduct of a trade or business, under the statute. In short, aside from the harvesting of the timber, which was the activity of the purchaser, not of the taxpayer, and of the terms under which he was 28 T.C. 1">*12 to pay for the timber harvested, there was no suggested basis for any claim that the taxpayer, namely, the seller, was carrying on a trade or business with respect to the timber, rather than a passive investor therein realizing on his investment through the sale. In holding that the sale of the timber was not made in the ordinary course of a trade or business carried on by the taxpayer, it was pointed out that the harvesting operation was that of the purchaser of the timber, and not that1957 U.S. Tax Ct. LEXIS 228">*255 of the taxpayer, and could not be so regarded as to bring him within the provisions of section 117 (a) as carrying on a trade or business in respect of the property. Similarly, Warner Mountains Lumber Co., 9 T.C. 1171, and Estate of M. M. Stark, 45 B. T. A. 882, are not in point. Other cases from which petitioner seeks support are even more remote, and reference to them would in our opinion serve no useful purpose.

In the instant case, the facts as we view them very clearly refute any suggestion that petitioner's purchases of his various interests in the properties making up the Homeland Assembly were casual purchases, or that he acquired, held, and sold such properties as a passive investor, or otherwise stated, merely as an investor.

In addition to his profits from the sales of the phosphate-bearing lands, petitioner realized gain from the sale of 2 other and separate parcels of land, which gain he likewise reported as long-term capital gain. The respondent in his determination of deficiency determined that those gains also constituted ordinary income. The petitioner, as in the case of the gains from the phosphate-bearing1957 U.S. Tax Ct. LEXIS 228">*256 lands, alleged error on the part of the respondent in that determination. At the trial, it was the understanding of the Court and of petitioner's counsel that respondent conceded error as to the gain realized on the 2 parcels indicated, and we regard the record as justifying that understanding. The respondent, on brief, argues that the said gain is still at issue and that he was only conceding the correctness of the amount of gain reported. Whether the issue be regarded as conceded, or not, the facts are sufficiently clear, and we conclude and hold, that these 2 parcels of land were not in any way connected with any business carried on or conducted by petitioner, and he was justified in reporting the gain on their sale as long-term capital gain.

Decision will be entered under Rule 50.