41 T.C. 1">*1 The respondent determined deficiencies in income tax against the petitioners of $ 6,478.85 for the year 1958 and $ 11,069.33 for the year 1959. The questions are whether the gain realized on the sale of certain lots was capital gain, or ordinary income, and what was the basis of the lots sold.

41 T.C. 1">*2 FINDINGS OF FACT

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

The petitioners are husband and wife, and residents of Stockton, Calif. They filed joint income tax returns for 1958 and 1959 with the district director of internal revenue for the first district of California.

Clarence A. Luckey, hereafter referred to as petitioner, is an orthopedic surgeon and practices his profession in Stockton.

Stockton Garden Homes, Inc., sometimes referred to herein as Stockton Garden Homes, is a California corporation. Its offices are located in Stockton. Its business is that of buying and subdividing property and building and selling homes thereon. Its stock is owned equally by John Cheney, R. E. Fraser, Ferdie Sievers, and Arthur Berberian. 1963 U.S. Tax Ct. LEXIS 42">*45 Sievers is its president, and Cheney its secretary, treasurer, and manager.

On an undisclosed date in 1957, Fraser told Cheney of a tract of land located on Lake Tahoe which was for sale, and Cheney made a trip to Lake Tahoe to investigate the property and form an opinion as to the desirability of buying it. While in the area, he located and became interested in an 87-acre tract having a lake frontage of approximately 3,800 feet. It belonged to George Whittell, and could be purchased for $ 360,000. Cheney suggested to Fraser and his associates in Stockton Garden Homes that they form a group to buy and subdivide the Whittell property "and make some money." It was his estimate that in addition to the purchase price, $ 90,000 would be needed to develop the property to the point where the first of the lots would be saleable.

Lake Tahoe is a large lake located on the California-Nevada line. The elevation is around 5,000 to 6,000 feet. The lake is attractive for fishing, boating, and water skiing. On the Nevada side of the line there are various gambling and entertainment establishments. The area around the lake has also become popular for building year-round homes.

Stateline has1963 U.S. Tax Ct. LEXIS 42">*46 a population of approximately 10,000. As the name implies, it is located at the State line, but substantially, if not wholly, in the State of Nevada. On the California side, it is 50 to 60 miles from Placerville and approximately 120 miles from Stockton. In Nevada, the distance to Carson City is approximately 20 miles, and to Reno about 40 miles. The property in question herein is in Nevada, approximately 7 miles east of Stateline.

After Cheney had made his report to Sievers, Fraser, and Berberian, the four drove up to Lake Tahoe to look over the property. They decided to form a group or syndicate of 10 people, who would 41 T.C. 1">*3 put up $ 45,000 each, for a total of $ 450,000, of which $ 360,000 would be used in the purchase of the property and $ 90,000 in its initial development.

To tie up the property $ 10,000 was paid to Whittell on July 3, 1957, as earnest money. The payment was made by a check in that amount on Stockton Garden Homes. On the same date, an escrow, showing Stockton Garden Homes, Inc., by John Cheney, treasurer, and George Whittell as parties, was opened at the Washoe County Title Co. The instructions provided that immediately upon the opening of the escrow1963 U.S. Tax Ct. LEXIS 42">*47 and payment of the specified $ 10,000, Stockton Garden Homes had the right of entry for the purpose of surveying the property. A deed dated July 6, 1957, showing George Whittell, as grantor, and Stockton Garden Homes, Inc., as grantee, was placed in escrow, the deed to be delivered to Stockton Garden Homes upon payment of an additional $ 350,000 in cash to the title company before October 1, 1957.

Petitioner acquired a one-tenth interest in the venture at the invitation of Fraser, who is his neighbor in Stockton. At some time in August of 1957, he was approached by Fraser to go in with him and some other men in this development. In addition to petitioner and the four named above, C. E. Swift and Kermit Lincoln each took a share. No other individuals regarded as suitable were found, and the three remaining interests were at first carried as interests of Stockton Garden Homes. Later on the three interests were taken over by Sievers, Cheney, Fraser, and Berberian, thereby bringing the share of each of the four to 17 1/2 percent.

The seven individuals signed similar agreements showing Stockton Garden Homes as first party and the particular individual as second party. The instruments1963 U.S. Tax Ct. LEXIS 42">*48 in question recited the execution of the agreement for the purchase of the Whittell tract, that the purchase price was to be $ 360,000, and that $ 90,000 would have to be expended for the development of the lakefront lots and overhead expenses of first party for a period of 1 year. It was also recited that the second party desired to advance the sum of $ 45,000 to be used on account of the purchase and development of the property on the understanding and agreement that the said advance be repaid "solely and exclusively by the conveyance" as thereinafter provided of lake frontage lots in the manner and at the time provided, and that the advance was to be evidenced by a "non-assignable, non-negotiable, non-interest bearing note executed" by the first party. On these premises, it was agreed that $ 45,000 in cash was to be paid by the second party, who would accept the described note executed by first party "as evidence of said advance."

The facts relating to the opening of the escrow and the terms thereof were set forth, and it was agreed that if, for any reason, the 41 T.C. 1">*4 said transfer of title should not be effected, the agreement should be at an end, and the second party should1963 U.S. Tax Ct. LEXIS 42">*49 be entitled to the return of the "said sum of $ 45,000.00." The first party agreed that within a reasonable time after the close of the escrow, it would have the lake frontage portion of the property subdivided into lake frontage lots and upon completion of the engineering work to have the subdivision map approved and recorded. It was recited as understood that the location and size of the lake frontage lots and "all other matters with relation to the engineering and development of said property" should be determined "in and by the sole and exclusive discretion of First Party."

It was agreed that after the subdivision work of the lake frontage lots had been completed, first party should "at its sole and absolute discretion place a valuation upon each of said lake frontage lots," and in so doing, should "consider the total cost of all of the land purchased pursuant to the contract * * * plus all estimated costs of engineering and subdivision development of all of said lake frontage property so purchased plus the estimate of the overhead expense of the operation of said corporation for a period of one year plus the estimated cost of the development of said lake frontage lots." It was1963 U.S. Tax Ct. LEXIS 42">*50 further provided that the aggregate total of all of said costs, including the original purchase price of all the land purchased, should be divided between the total number of feet of lake frontage and that first party would consider such aggregate total cost per lake frontage footage as an element in arriving at the value to be fixed and assigned by it to each of the lake frontage lots. After the value of each lake frontage lot should be determined, first party, in its absolute discretion, was to assign and allocate the lake frontage lots to the second parties, to the end that the second parties should receive lake frontage lots in value so fixed not to exceed $ 45,000. Thereupon, first party was to have the absolute right and was to be under obligation to discharge and pay in full the indebtedness of first party to the second party, by conveyance of the assigned and allocated lake frontage lots. Should the values as fixed for the lake frontage lots assigned not equal the sum of $ 45,000, the second party should be entitled to receive the differential in cash.

In paragraph 8 of the agreement, it was provided that first party reserved at all times the absolute right to sell all 1963 U.S. Tax Ct. LEXIS 42">*51 or any portions of the land in the remainder of the tract, at such price or prices and on such terms and to such person or persons as first party should determine in its absolute discretion. It was further provided that first party should have the right to develop the remainder of the 87 acres into lots and sell all or any portion of the lots at such price or prices and on such terms as it, in its absolute discretion, should determine.

41 T.C. 1">*5 The concluding paragraph of the agreement was as follows:

9. Second Parties shall be entitled to receive, if, as and when all of the remaining of said real property has been disposed of by First Party, ten per cent (10%) of the resulting net profit, if any, from the sale of said land after the deduction of all debts, expenses, salaries and costs of all kind and nature which may be incurred by said corporation in connection with its operations relating to the lands which are the subject matter of the contract of purchase and sale hereinabove referred to, it being the spirit and intention of this agreement that Second Parties shall participate in the ultimate net profit, if any, on the ultimate disposition of said properties. Second Parties may1963 U.S. Tax Ct. LEXIS 42">*52 be accorded the privilege, in the absolute discretion of First Party, of purchasing portions of said lots if, as and when and under such terms and conditions as may be determined upon by First Party.

After petitioner was approached by Fraser, he was furnished with a copy of the instrument which was thereafter executed by each of the seven participating individuals as second party and Stockton Garden Homes as first party. Before signing the agreement, he sought legal advice, and was told by his lawyer that paragraph 9 was not desirable because it "inferred the possibility of a partnership." At the signing of the agreement with Stockton Garden Homes on September 9, 1957, petitioner voiced his objections to paragraph 9, and inquired if it could be altered or deleted. He was advised by Cheney that that might be done if it could be done without affecting or altering the rights and interests of the other parties. His attorney was away at the time, and without deletion or alteration of the paragraph, petitioner and his wife, as second parties, signed the instrument. On the same date, petitioner made his payment of $ 45,000 to Stockton Garden Homes and received in return the following1963 U.S. Tax Ct. LEXIS 42">*53 writing:

$ 45,000.00 Stockton, California, September 9th, 1957

On or before One (1) year after date the undersigned promises to pay to C. A. Luckey and Juanita F. Luckey, his wife, at Stockton, California, the sum of Forty-Five Thousand ($ 45,000.00) Dollars, for value received.

This note is issued pursuant to the terms and provisions of written contract dated on or about September 9th, 1957, by and between the undersigned and C. A. Luckey and Juanita F. Luckey, his wife, and this note is expressly made subject to all of the terms and provisions of said written agreement.

This note is non-negotiable, non-assignable and non-interest bearing, and is payable solely out of certain real property as in said contract specifically provided.

Stockton Garden Homes, Inc., a California corporation

By Ferdie Sievers

By John Cheney

On an undisclosed date or dates in September of 1957, the other six participating individuals executed similarly worded agreements 41 T.C. 1">*6 and made payments of $ 45,000 each to Stockton Garden Homes, bringing the total amount so paid in to $ 315,000. Also in September of 1957, Stockton Garden Homes, on a note personally guaranteed1963 U.S. Tax Ct. LEXIS 42">*54 by Sievers, Cheney, Fraser, and Berberian, borrowed $ 150,000 from the Bank of America branch in Stockton. On September 23, 1957, Stockton Garden Homes purchased a cashier's check for $ 351,813.33, which it delivered to Washoe County Title Co., pursuant to the escrow agreement, and on September 26, 1957, received the deed to the Whittell property. ¹

The development or subdivision was to be known as Skyland Subdivision. Stockton Garden Homes was to hold title to the property and would do the developing and subdividing, for which it would receive a fee or service charge for all moneys handled. The cost of the developing and subdividing was to be covered by the amounts paid in and to be paid in1963 U.S. Tax Ct. LEXIS 42">*55 for that purpose by the members of the venture. One reason for placing title to the property in Stockton Garden Homes was to facilitate the paperwork by eliminating the necessity for numerous signatures of the individual members of the venture and their wives. It was usual practice to refer to the venture and its members as the syndicate. Cheney was made manager for the syndicate and his compensation for his services as manager was allocated and charged to the syndicate or venture in toto.

For the purposes of development and disposition, the land acquired from Whittell was divided into three parts, designated units 1, 2, and 3. Unit 1 was to consist of the "lake frontage" lots and the next succeeding row of lots away from the lake.

By September 20, 1957, unit 1 had been surveyed and the lots therein marked out by stakes, and on that date a drawing was had by members of the venture or syndicate for the unit 1 lots. The numbers representing what were regarded as the best 10 lots were put in a hat, with the holder of each one-tenth interest drawing one of the numbers. This procedure was repeated until all of the lots had been drawn. Petitioner drew lots 1, 11, 20, 36, 45, 1963 U.S. Tax Ct. LEXIS 42">*56 55, and 65. Of these lots, Nos. 1, 11, 20, and 36 were "lake frontage" lots specifically referred to in the participating agreements. Lots 45, 55, and 65 did not border on the lake and were not "lake frontage" lots. Most, if not all, of the development work on unit 1 remained to be done and the deeds to the lots were not delivered until substantial progress had been made. Petitioner received a deed or deeds to his lots on June 3, 1958, and with the exception of three lots theretofore deeded to Swift, the other members of the venture received the deeds to 41 T.C. 1">*7 their lots at or about the same date. The development work on unit 1 was completed in the fall of 1958.

At some point during development of unit 1, it became necessary for the holders of each of the 10 shares to contribute an additional $ 1,440 toward the cost of development, thus bringing the total payments per share or interest at that point to $ 46,440. Petitioner prorated the entire $ 46,440 so paid in by him as the costs of the seven unit 1 lots received by him, as follows:

At the request of Swift, three of 1963 U.S. Tax Ct. LEXIS 42">*57 his unit 1 lots had been conveyed to him on February 3, 1958. He had decided to build a home in Skyland and did not desire to wait until the development work on unit 1 had been completed. Entries covering these conveyances were made on the books of Stockton Garden Homes indicating that the three lots had been sold by Stockton Garden Homes for its own account and that it had realized gain thereon. When the accountant prepared the Stockton Garden Homes return for the fiscal year ended May 31, 1958, he included the indicated gain in income. Cheney discovered what had been done when at or about the time the return was due to be filed it was presented to him for signature. He and the accountant agreed that the reporting of the gain as that of Stockton Garden Homes was in error. Stockton Garden Homes had never theretofore engaged in transactions which were not for its own account. After the discussion, it was decided to file the return as it had been prepared, rather than "upset the whole thing that late." The matter was discussed with Sievers, Fraser, and Berberian. The Arthur Andersen accounting firm was consulted and it advised that an amended return be prepared and filed. No1963 U.S. Tax Ct. LEXIS 42">*58 amended return has since been filed. ²

Except for the three lots conveyed to Swift on February 3, 1958, the entries relating to the conveyances of the Skyland lots to syndicate members have been made to clear the lots, the nonnegotiable notes evidencing the initial advances of $ 45,000 per share and the moneys paid in by the syndicate members from the Stockton Garden Homes books of account so as not to reflect any realization of gain by Stockton Garden Homes thereon.

41 T.C. 1">*8 The development of unit 2 and its subdivision into lots followed that of unit 1. The original 10 payments of $ 45,000 plus the additional $ 1,440 each had been consumed in the purchase of the tract of land, the development of the unit 1 lots and overhead related thereto, and each participant was accordingly called on to make further payments from time1963 U.S. Tax Ct. LEXIS 42">*59 to time to cover the costs of developing unit 2 and the overhead relating thereto.

Instead of selling the lots and distributing the resulting net profits 10 percent to each, as paragraphs 8 and 9 of the participating agreements provided might be done, it was decided that the lots in unit 2 be distributed to the participants in kind, as had been done with the lots in unit 1. The drawing was conducted in the same manner as in the case of the unit 1 lots, and was held on January 14, 1959. Some payments had already been made by the participants toward the cost of development and overhead, and it was concluded that the total of the payments which would be required therefor would amount to $ 2,000 per lot.

In a letter to petitioner, signed by Cheney and bearing date of January 23, 1959, the lots in unit 2 as drawn by or for each of the participants were listed. The lots shown under petitioner's name were 86, 140, 113, 134, 72, 107, and 128. Following the listing of the lots as drawn, the letter concluded as follows:

The lots will be sold for $ 2,000.00 each with payment to be cash for the deeds.

Lot 98 was held for the syndicate.

The Corporation received two extra lots and will be short1963 U.S. Tax Ct. LEXIS 42">*60 two lots in Unit No. 3.

During the course of the development of unit 2, petitioner made payments from time to time toward the cost of such development and overhead, as did the other participants. In September 1959, petitioner received a deed from Stockton Garden Homes, Inc., as grantor, to lots 72, 91, 106, 107, 114, 126, 132, and 138 in unit 2. ³ At the same time he received a statement showing that the charges against him in respect of the unit 2 lots so received amounted to $ 2,000 per lot and as paid in full.

There were few, if any, meetings of all of the participants in the Skyland Subdivision venture. All were present or represented at the meeting at1963 U.S. Tax Ct. LEXIS 42">*61 which the drawing of the lots in unit 1 was had, and the same may have been true when the lots in unit 2 were drawn. There were discussions from time to time by the participants in the venture relating to the conduct of the operation, and if the views or 41 T.C. 1">*9 ideas expressed were regarded by the others as "good and sound," Cheney, as manager for the syndicate, would give effect to them.

Insofar as appears, petitioner did not participate in any of the decision-making discussions. He attended the drawing for the unit 1 lots and possibly two other meetings. On one occasion, he walked with Cheney over the property at the lake and "viewed the Second and Third Units."

Following the return of his lawyer and within a period of months after he had signed the agreement on September 9, 1957, petitioner advised his attorney that the agreement as signed was in its original terms. Thereafter, over a period of 2 years or more, he and his attorney undertook to persuade the other members of the venture to alter or delete paragraph 9. It was their purpose to alter or delete any part of the provision which might supply a basis for a holding that the venture was a partnership or joint venture, 1963 U.S. Tax Ct. LEXIS 42">*62 for Federal income tax purposes, or might result in a holding that petitioner was a dealer in real estate. Petitioner's attorney talked with Cheney and various others of the members of the venture, and in so doing, advanced the proposition that under the agreement as it existed a holding might be made which would result in very substantial income tax liabilities on the part of the participants and of Stockton Garden Homes. To review the matter for the group, Cheney employed the Arthur Andersen accounting firm, which advised them that there would be no such abnormal tax liabilities. Petitioner's attorney was again advised that the six members of the syndicate other than petitioner would agree to no change or alteration of the agreement if their interests or rights were changed or affected. The attorney then inquired of Cheney if a change would be agreed to if he, with Oefinger from the Arthur Andersen office, would work out a revised agreement that would not affect or change the interests of the other members, and was advised that if he and Oefinger worked out a revised agreement they would consider it. Petitioner's attorney returned later with an agreement, stating that Oefinger1963 U.S. Tax Ct. LEXIS 42">*63 thought it would not harm the other members. After study of the revised agreement it was rejected.

The six members of the venture other than petitioner being in agreement that the participation of Stockton Garden Homes in the development of Skyland Subdivision was for the account of the syndicate or venture, and not for its own account, concluded and agreed that the members of the venture should indemnify Stockton Garden Homes for any income tax determined against it on gain realized on the development. Of the six so agreeing, Swift and Lincoln were not stockholders of Stockton Garden Homes. Each of the participants other than petitioner accordingly signed an agreement to so 41 T.C. 1">*10 indemnify and hold Stockton Garden Homes harmless of any and all such liability. They regarded any such liability as the liability of the syndicate, and not that of Stockton Garden Homes.

Under date of January 16, 1961, J. Calvert Snyder, of a Stockton law firm, directed a letter to petitioners, attaching a copy of the agreement to assume any liability for income tax which might be determined against Stockton Garden Homes with respect to gains realized by the Skyland Subdivision, and requesting that1963 U.S. Tax Ct. LEXIS 42">*64 petitioners sign such agreement to indemnify and hold Stockton Garden Homes harmless "from 10% of any and all such liability."

Snyder's letter also requested that petitioners make "a further advance" of $ 5,000 toward the cost of development of unit 3 and improvement of the streets therein. The letter also advised that an additional sum of $ 10,000 would be needed from petitioners on or before March 15. The concluding paragraph of the letter was as follows:

Of course if you do not sign the memorandum and return it to Stockton Garden Homes, Inc. or if you fail to make the advances requested, Stockton Garden Homes, Inc. of necessity will be required to dispose of any possible interest you may have in the remaining lots under the contract in order to cover the expenses mentioned. The right to do this is reserved by the corporation under paragraph 7 of the contract of September 9, 1957. Further, if the memorandum is not executed or the advances made as requested, it will be understood that you waive and forfeit any right to share in any ultimate net profit. So that you may know, this same general form of letter is being sent to all of the persons that were interested in the joint1963 U.S. Tax Ct. LEXIS 42">*65 venture.

Petitioner did not sign or return the agreement to indemnify Stockton Garden Homes as suggested, and did not send the $ 5,000 requested toward development costs of unit 3, or respond to the letter of January 16, 1961, in any manner.

Although Cheney and other members of the venture, except Fraser, were not aware of it, petitioner, under date of May 20, 1960, for a recited consideration of $ 1, had executed an agreement stating that he transferred, sold, quitclaimed, and assigned to Fraser "all his right, title and interest in any and all properties and rights of any kind, tangible or intangible, now held by him directly or indirectly, whether in his own name or by any agency or trusteeship of any other owner of land in Skyland Subdivision, including Stockton Garden Homes, Inc., save and except his past or present interest in Parcels 1 and 2 of said Subdivision."

By further terms of the instrument, Fraser assumed the liabilities of petitioner relating to Skyland Subdivision, including any amounts due or which might become due to Stockton Garden Homes, its stockholders, or any person with respect to Skyland. Expressly excluded from the liabilities assumed by Fraser were personal1963 U.S. Tax Ct. LEXIS 42">*66 tax 41 T.C. 1">*11 liabilities or any other liabilities against petitioner on account of lots in units 1 and 2. Petitioner Juanita F. Luckey was not a party to the May 20, 1960, agreement. At the time the J. Calvert Snyder letter was written on January 16, 1961, neither petitioner nor Fraser had informed Cheney or other members of the syndicate of the assignment by petitioner to Fraser. ⁴

The lots in unit 3 were not sold, but were distributed to the participants in kind, as had been done with the lots in units 1 and 2. The unit 3 lots which would have been distributed to petitioner under the agreement of September 9, 1957, were deeded to Wilford Evans, Fraser's son-in-law.

The purchase of the 87 acres of land from Whittell and its improvement and development into Skyland Subdivision was the enterprise of the seven individuals joining together1963 U.S. Tax Ct. LEXIS 42">*67 therein, and such purchase and development was the conduct of business by the syndicate or venture.

Petitioner sold lots 1 and 11 of unit 1 in 1958, and lots 36 and 55 in 1959. In his 1958 and 1959 returns, he reported his gain on the sale of the said lots as capital gain, and in computing the amount of such gain he used as his basis, $ 9,900 for lot 1, $ 8,900 for lot 11, $ 8,900 for lot 36, and $ 3,800 for lot 55.

The respondent in his determination of deficiencies treated the gain on the sale of the said lots as ordinary income, and determined that the cost basis of unit 1 lots should be based on an allocation of 75 percent of the cost of the entire 87 acres to unit 1 lots, rather than 100 percent of the cost of the entire 87 acres. He determined that the cost basis of lot 1 was $ 7,569.60; that of lot 11 as $ 6,802.69; that of lot 36 as $ 6,806.25; and that of lot 55 as $ 2,904.28.

OPINION

By section 761(a) of the Internal Revenue Code of 1954, the term "partnership" is defined as including "A syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, 1963 U.S. Tax Ct. LEXIS 42">*68 within the meaning of this title, a corporation or a trust or estate." By subsection (b) of section 761, a partner is defined as meaning a member of the partnership. By section 735(a)(2) of the Code, it is provided that "Gain or loss on the sale or exchange by a distributee partner of inventory items * * * distributed by a partnership shall, if sold or exchanged within 5 years from the date of the distribution, be considered gain 41 T.C. 1">*12 or loss from the sale or exchange of property other than a capital asset."

The facts show that the purchase of the acreage on Lake Tahoe and its improvement and development into Skyland Subdivision was the joint venture or enterprise of the seven individuals who joined together therein and that such purchase and development was the conduct of business by the syndicate of the seven individuals. We have so found. The venture and its operations are within the definition of partnership in section 761(a) of the Code. The lots of the Skyland Subdivision were inventory items of the venture within the meaning of the statute, and petitioner so concedes. The lots sold by petitioner in the taxable years 1958 and 1959 were such inventory items which had 1963 U.S. Tax Ct. LEXIS 42">*69 been distributed to him on June 3, 1958. They were sold by him in less than 2 years from the date of their distribution. The gain realized is accordingly gain from the sale of property other than a capital asset.

In their petition, the petitioners alleged that the respondent erred in his determination of the basis of the lots sold, for the purpose of arriving at the gain realized by them on the sale of the lots.

The facts show that petitioner made an initial payment of $ 45,000 to the venture for a one-tenth interest; that similar payments of $ 45,000 were made for the other nine interests; and that of the $ 450,000 so paid in, $ 379,813.33 was paid for 87 acres of land bordering on Lake Tahoe. For the purposes of development, the acreage was divided into three units and the remainder of the $ 450,000 after payment for the land, plus $ 1,440 from each of the 10 interests, was expended in the development of unit 1 and for overhead, the petitioner's total payment at that point being $ 46,440. The facts further show that when the deeds for the seven unit 1 lots distributed to petitioner were received, he allocated the entire $ 46,440 which had been paid in by him up to that point 1963 U.S. Tax Ct. LEXIS 42">*70 as the cost of the unit 1 lots so received, leaving no amount as the basis for his interest in the remainder of the land which had been in part paid for by his initial payment of $ 45,000.

The respondent in his determination of the deficiencies for the taxable years has determined that only 75 percent of the cost of the entire 87 acres of land should be allocated to the unit 1 lots, and has determined the cost basis of the individual lots in that manner.

The petitioner has offered no evidence to indicate or demonstrate that respondent's allocation of petitioner's payments to the individual lots is unrealistic, or in error, but merely argues, on brief, that on the facts the petitioner's allocation was correct. The argument is neither persuasive nor convincing, and the respondent's determination is sustained.

Decision will be entered for the respondent.