28 T.C. 121">*121 These consolidated proceedings involve deficiencies in income tax and additions thereto in the following amounts:

The issues are: (1) Whether the gain realized from the sale of certain real1957 U.S. Tax Ct. LEXIS 211">*213 estate in 1951 and 1952 is taxable as a long-term capital gain under section 117 of the 1939 Code, or as ordinary income; and (2) whether the petitioners are liable for additions to tax under sections 294 (d) (1) (A) and 294 (d) (2) for the year 1952.

Some of the facts were stipulated.

FINDINGS OF FACT.

The stipulated facts are so found and are incorporated herein by this reference.

28 T.C. 121">*122 During the taxable years 1951 and 1952, the petitioners, Walter H. and Irene C. Kaltreider, were husband and wife and resided in York, Pennsylvania. They filed a joint Federal income tax return for the taxable year 1951 with the former collector of internal revenue for the first district of Pennsylvania, and for the taxable year 1952 with the director of internal revenue at Philadelphia.

Kaltreider Construction, Inc. (hereinafter referred to as the corporation), was a corporation organized under the laws of Pennsylvania on October 21, 1947, to carry on the building and construction business. The petitioners and their son, Walter H. Kaltreider, Jr., were its incorporators. During the years in issue, Walter H. Kaltreider, Jr., served as the corporation's president, petitioner Walter H. Kaltreider1957 U.S. Tax Ct. LEXIS 211">*214 as its treasurer, and petitioner Irene C. Kaltreider as its secretary. With the exception of a few shares issued equally to petitioners' two grandchildren on December 25, 1952, all of the corporation's outstanding stock was held by petitioners and their son, Walter. Throughout the taxable years in issue, the corporation was engaged in the construction of houses, garages, schoolhouses, and freight truck terminals.

In 1936, the petitioners purchased 27 acres of farmland located approximately 1 mile south of the city limits of York, Pennsylvania, at a purchase price of $ 9,500. In 1938, petitioners constructed their residence on a part of that land.

Sometime in 1948, the petitioners subdivided a 7-acre tract of that land into 15 lots at a cost of $ 6,774.05. The original cost of the land, together with the development costs, produced an average cost for each lot so developed of $ 615.80. The corporation then constructed houses on 11 of those 15 lots.

On Schedule C of their 1949 and 1950 Federal income tax returns, petitioners stated the nature of their business as "Real Estate." For the year 1949, they reported the sale of 2 of the houses, including the lots on which they stood, 1957 U.S. Tax Ct. LEXIS 211">*215 for $ 38,750, and returned the entire profit therefrom of $ 2,049.73 as ordinary income. For the year 1950, they reported the sale of 4 of the houses, including the lots, for $ 79,104.50, and returned the entire profit therefrom of $ 7,758.21 as ordinary income.

During 1951, 5 of the houses, together with the lots upon which they stood, were sold to individual purchasers. Petitioners, acting as grantors, transferred the lots to those purchasers for a total consideration of $ 13,000. On March 2, 1951, petitioners transferred to the corporation the 4 remaining lots in the development for a total consideration of $ 13,500. As a result of those transactions, the following allocation of sales price, costs, and gross profits was made by petitioners between the houses and lots sold: 28 T.C. 121">*123

On Schedule C of their 1951 Federal income tax return, prepared by their accountant, the petitioners stated the nature of their business to be the "sale of homes." 1957 U.S. Tax Ct. LEXIS 211">*216 They reported total receipts from that business of $ 79,900, from which they deducted $ 79,550 as the cost of goods sold, thereby arriving at a gross profit of $ 350, which they returned as ordinary income. On Schedule D of their return for that same year, petitioners reported the sale of a "Plot of Ground," having a basis of $ 5,542.20, at a gross sales price of $ 26,500. Of the resulting profit of $ 20,957.80, they returned $ 10,478.90 as a long-term capital gain.

In the year 1952, a second section of the 27-acre tract of land, consisting of another 7 acres, was developed at a total land and development cost of $ 13,951.93. That tract was subdivided into 13 lots, having a basis of $ 1,073 each. The corporation then constructed houses on 7 of those lots. During 1952, those 7 houses, with their respective lots, were sold to individual purchasers. Petitioners, acting as grantors, transferred the lots to those purchasers for a consideration of $ 21,000. As a result of those transactions, the following allocation of sales price, costs, and gross profits was made by petitioners between the houses and lots sold:

1957 U.S. Tax Ct. LEXIS 211">*217 On Schedule C of their 1952 Federal income tax return, prepared by their accountant, petitioners described their principal business activity as "Contractor," and their principal product as "Homes." They reported total receipts from that business of $ 92,650, from which they deducted $ 87,500 as the cost of goods sold, thereby arriving at a gross profit of $ 5,150, which they returned as ordinary income. On Schedule D of their return for that year, they reported the sale of "7 Lots of Ground" having a basis of $ 7,511 for a gross sales price of $ 21,000. Of the resulting profit of $ 13,489, they returned $ 6,744.50 as a long-term capital gain.

At the request of one of petitioners' attorneys, amended returns for the taxable year 1952 were prepared and filed for the petitioners 28 T.C. 121">*124 and the corporation. The income realized from the sale of houses in that year was eliminated from the petitioners' amended return and was included in that of the corporation.

During the years in issue, petitioners' returns were prepared for them by their accountant from memoranda which they supplied him. He had been engaged in business as a public accountant since 1945. Prior to that time he was1957 U.S. Tax Ct. LEXIS 211">*218 employed as an investigator for the United States Department of Labor.

Petitioners filed no declaration of estimated tax for the taxable year 1952.

Respondent determined that the gains which petitioners realized from the sale of real estate during 1951 and 1952 were taxable to them as ordinary income. He further determined that the petitioners were liable for additions to tax in 1952 for failure to file a declaration of estimated tax and for substantial underestimate of estimated tax under section 294 (d) (1) (A) and (d) (2) of the 1939 Code.

During the years in issue, the petitioners were engaged in the business of subdividing, improving, and selling real estate. The lots sold by them during the taxable years under consideration constituted property held primarily for sale to customers in the ordinary course of their trade or business.

Petitioners' failure to make and file a declaration of estimated tax for the year 1952 was not due to reasonable cause.

OPINION.

Section 117 (a) of the 1939 Code excludes from the definition of those assets entitled to capital gains treatment property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. 1957 U.S. Tax Ct. LEXIS 211">*219 Therefore, in deciding whether the gain from the real estate sales in issue was taxable as ordinary income or as a capital gain, we must first decide whether the activities performed by petitioners with relation to the development and sale of the acreage constituted a trade or business within the meaning of the statute.

As has often been noted, what constitutes a trade or business is essentially a question of fact. Among the many tests devised by the courts as an aid to the decision of that question, no one of which is conclusive, are: The continuity and frequency of the sales and the sales-related activities; the extent and substantiality of the transactions; the purpose for which the property was held during the years in question; and the activity of the seller or those acting in his behalf. With regard to the latter of these, it is an accepted principle of law that one may conduct a business through agents, and that because others may bear the burdens of management, the business is nonetheless his. (C. A. 9, 1938).

28 T.C. 121">*125 In the instant proceeding, respondent determined that the activities engaged in by petitioners1957 U.S. Tax Ct. LEXIS 211">*220 in relation to the property in question constituted the carrying on of the trade or business of subdividing, improving, and selling real estate, and that that property was held by them primarily for sale to customers in the ordinary course of their business. We agree.

But the petitioners claim development of the acreage under consideration was undertaken only after an agreement had been reached with the corporation that they would sell it land so long as it was able to construct houses thereon and profitably sell them. They further maintain that they engaged in no advertising or sales activities, and entered into no contracts of sale solely as individuals. According to their testimony, upon settlement of a contract the corporation received that portion of the purchase price allocable to the house, and they received that portion allocable to the tract of land upon which it stood. As we have noted, an individual may conduct his business through agents. We are convinced that whatever was done here by the corporation was done at the instance and for the benefit of the petitioners as their agent.

In 1948 and again in 1952, one of the tax years in issue, the petitioners incurred considerable1957 U.S. Tax Ct. LEXIS 211">*221 expense in subdividing the acreage in question into some 28 lots for residential purposes. They then caused their closely held family corporation to construct houses on 18 of those lots, 12 of which were sold to individual purchasers during the taxable years under consideration. The record does not disclose what motives underlay the original purchase of the 27-acre tract. However, even were to make the gratuitous assumption that petitioners acquired that land solely for investment purposes, nothing of merit would be added to their case. When they embarked upon the development, construction, and sales program which we have outlined, they acquired the status of "dealers" in relation to the property in issue and thereupon became engaged in the real estate business. (C. A. 5, 1938), affirming a Memorandum Opinion of this Court dated October 5, 1936. Accordingly, we have found as a fact that during the years in issue the petitioners were engaged in the business of subdividing, improving, and selling of real estate, and that they held the property in question for sale in the ordinary course of that business. We1957 U.S. Tax Ct. LEXIS 211">*222 therefore conclude that the gain realized upon its sale was taxable as ordinary income.

Moreover, we do not understand why, if as the petitioners maintain the corporation was acting on its own behalf in constructing and selling the houses, they found it advisable to include on their joint tax returns not only the income realized on the sale of the land, but that from the sale of the houses as well. Such a procedure would seem to be an open admission that the corporation was acting solely on their 28 T.C. 121">*126 behalf. Through their accountant's testimony they claim the original returns were in error; that the sums realized from the sale of houses represented income of the corporation and should have been returned as such; and that for the year 1952 that error was corrected through the filing of amended returns. We are not convinced. The alleged filing "error" was indulged in throughout 4 filing periods by petitioners and their accountant, and was only corrected at the request of their counsel at, as best we can discern, some point after the docketing of the instant case. We consider the original returns to be more truly representative of the relationship maintained between petitioners1957 U.S. Tax Ct. LEXIS 211">*223 and their corporation during the years in issue than the amendments thereto. At best the amended returns are no more than self-serving declarations made in an attempt to present petitioners' case in the most favorable light.

The second issue concerns the additions to tax for the year 1952 made by the respondent because of petitioners' failure to file a declaration of estimated tax and their substantial underestimation of tax. Petitioners maintain that they relied solely on their accountant to file such declaration of estimated tax; that he failed to do so for the year in question; and that therefore their failure to file was due to reasonable cause and not willful neglect.

In , we said at 148-149:

Petitioner also relies on the fact that he turned over to an accountant all financial affairs, including the preparation of his tax returns, contending that this fact shields him from the penalty imposed by respondent. For such fact to be a defense against the consequences of the failure to file a return, certain prerequisites must appear. It must appear that the intervening person was qualified to advise or represent 1957 U.S. Tax Ct. LEXIS 211">*224 the taxpayer in the premises and that petitioner relied on such qualifications.

Here, as there, no proof has been presented that petitioners' accountant was qualified to advise them concerning tax matters. As revealed by the record he had been a public accountant since 1945, and prior thereto was employed as an investigator in the United States Department of Labor. No other qualifications have been shown. Though petitioners may have relied upon him in the preparation and filing of their returns, there is no evidence that their reliance was well placed. We therefore conclude that the petitioners' failure to file the declaration required by the statute was not due to reasonable cause.

Where no declaration of estimated tax has been filed, the estimate is deemed to be zero and the addition to the tax provided in section 294 (d) (2) for substantial underestimate of estimated tax is mandatory. , modified ; , affirmed on other grounds 1957 U.S. Tax Ct. LEXIS 211">*225 (C. A. 10, 1954).

Decisions will be entered for the respondent.