1973 U.S. Tax Ct. LEXIS 81">*91 Casalina withdrew deposits placed by the Federal Government in the District Court as follows:

The total cost bases for the three tracts was $ 6,600 and absent any evidence to the contrary we must assume it was allocable ratably to the three tracts so that petitioner's basis in tract 401 was far below the $ 6,300 withdrawn. Also, there is no evidence of record to indicate that Casalina made or accrued any expenditures on the tracts or in the condemnation proceedings prior to the times of the withdrawals which would have increased the tracts' bases to figures equal to or above the amounts withdrawn. It follows that petitioner realized parts of its gains on the dates of the withdrawals.

The withdrawals made by Casalina were not subject to any limitation on their use. Amounts so received under a claim of right and not subject to any limitation on use, are taxable to the taxpayer in the year received even though at the time of receipt conditions exist which might require the taxpayer to return all or part of such sums. North American Oil v. Burnet, 286 U.S. 417">286 U.S. 417 (1932);1973 U.S. Tax Ct. LEXIS 81">*92 United States v. Lewis, 340 U.S. 590">340 U.S. 590 (1951); R. A. Stewart & Co., 57 T.C. 122">57 T.C. 122 (1971). Thus, Casalina's withdrawals were under a claim of right and resulted in the realization of gains. ³57 T.C. 122">R. A. Stewart & Co., supra;286 U.S. 417">North American Oil v. Burnet, supra.

The realization of gains by Casalina started the running of the period within which the corporation had to reinvest the proceeds in order to qualify for nonrecognition treatment under section 1033, but no such investments were made.

Casalina1973 U.S. Tax Ct. LEXIS 81">*93 did request and was granted extensions of time to reinvest condemnation proceeds on December 13, 1968, and December 15, 1969. However, in these requests, Casalina not only failed to disclose the 60 T.C. 694">*700 withdrawals it had previously made but stated directly that no gains had been realized until final judgments were entered in 1967 and 1968. Section 1.1033(a)-2(c)(3), Income Tax Regs., requires that such requests shall contain all the details in connection with the involuntary conversion.

Respondent determined that petitioner's net gain from tract 401 was realized in 1967 and that its net gains from tracts 217 and 333 were realized in 1968.

By his determination, respondent has refused to apply (A)-2 (A)-2 (A)-2 section 1.1033 (a)-2(c)(3), Income Tax Regs., which provides in pertinent part:

[Late applications for reinvestment extensions shall not be granted] unless the taxpayer can show to the satisfaction of the district director --

(i) reasonable cause for not having filed the application within the required period of time, and

(ii) the filing of such application was made within a reasonable time after the expiration of the required period of time.

The application shall contain all of the1973 U.S. Tax Ct. LEXIS 81">*94 details in connection with the involuntary conversion. Such application shall be made to the district director for the internal revenue district in which the return is filed for the first taxable year in which any of the gain from the involuntary conversion is realized. No extension of time shall be granted pursuant to such application unless the taxpayer can show reasonable cause for not being able to replace the converted property within the required period of time.

Casalina argues that under Rev. Rul. 72-27, 1972-1 C.B. 226, ⁴ it is entitled to the benefits of this regulation. That ruling held that reliance upon the advice of an attorney and an accountant experienced in Federal tax matters is "reasonable cause" within the meaning of the regulation for not filing a timely application. Casalina maintains that it did not file a timely application because its accountant advised that such application was unnecessary. We observe, however, that the taxpayer in the revenue ruling relied on the advice of both an attorney and an accountant, and that the revenue ruling contains an express 60 T.C. 694">*701 requirement that both be experienced in Federal1973 U.S. Tax Ct. LEXIS 81">*95 tax matters. The instant record is silent as to petitioner's advising with any attorney, and the testimony of its accountant indicates that his tax experience was slight.

1973 U.S. Tax Ct. LEXIS 81">*96

Section 1033 leaves the matter of an extension to the discretion of the respondent. Accordingly, it is not the prerogative of this Court to grant or deny an extension, but rather we are limited to a determination of whether respondent abused his discretion in denying the extension. Fort Hamilton Manor, Inc., 51 T.C. 707">51 T.C. 707, 51 T.C. 707">721 (1969), affd. 445 F.2d 879">445 F.2d 879 (C.A. 2, 1971); Boyce v. United States, 405 F.2d 526">405 F.2d 526, 405 F.2d 526">532 (Ct. Cl. 1968). The taxpayer has the heavy burden of proving that respondent's action was plainly arbitrary. Kolstad v. United States, 276 F. Supp. 757">276 F. Supp. 757, 276 F. Supp. 757">761 (D. Mont. 1967).

We find no abuse of discretion in the instant case. Even if Casalina relied on the erroneous advice of its accountant, it did not file applications requesting extensions until several years after the reinvestment period had lapsed. ⁵ Cf. James E. Latimer, 55 T.C. 515">55 T.C. 515 (1970); 405 F.2d 526">Boyce v. United States, supra.

1973 U.S. Tax Ct. LEXIS 81">*97 Section 1.1033(a)-2(c)(3)(ii), Income Tax Regs., requires that the application for an extension be filed within a reasonable time after the expiration of the allowed period of time. This was not done, and in addition, Casalina's applications not only failed to state all the details concerning the involuntary conversion, as required by this regulation, but made misstatements of fact.

We therefore hold that Casalina is not entitled to the nonrecognition provisions of section 1033. Accordingly, the gains realized on the condemnation awards, less the 1961, 1963, and 1966 withdrawals, are taxable at the times final judgments were entered by the District Court. Covered Wagon, Inc. v. Commissioner, 369 F.2d 629">369 F.2d 629, 369 F.2d 629">636-637 (C.A. 8, 1966), affirming, but remanding for computations, a Memorandum Opinion of this Court; William Justin Petit, 8 T.C. 228">8 T.C. 228, 8 T.C. 228">233 (1947); Baltimore & Ohio Railroad Co., 29 B.T.A. 368">29 B.T.A. 368, 29 B.T.A. 368">373 (1933), affd. 78 F.2d 460">78 F.2d 460 (C.A. 4, 1935).

The second issue for our decision is whether gains realized on1973 U.S. Tax Ct. LEXIS 81">*98 the condemnation awards are taxable as ordinary income or as capital gains. ⁶ Respondent argues that the tracts were held for sale to customers in the ordinary course of business, while Casalina contends that they were held for investment.

Unfortunately, the record in the instant case is woefully sparse as to petitioner's various business activities, although it does suggest that 60 T.C. 694">*702 it did subdivide and sell some other properties. However, even if we were to assume that petitioner's sole activity was the holding of land for appreciation, respondent would not be aided, for as we have recently held in William B. Howell, 57 T.C. 546">57 T.C. 546 (1972), a corporation may hold, as its only property, investment assets. Also cf. Biedenharn Realty Co. v. United States, 356 F. Supp. 1331">356 F. Supp. 1331 (W.D. La. 1973).

If we assume, on the other hand, that petitioner's ordinary1973 U.S. Tax Ct. LEXIS 81">*99 business was the subdivision and sale of properties, this also would not prohibit capital gains treatment of these condemnation gains if these tracts were held as investments. Eline Realty Co., 35 T.C. 1">35 T.C. 1 (1960); Walter R. Crabtree, 20 T.C. 841">20 T.C. 841, 20 T.C. 841">846 (1953); D. G. Bradley, 26 T.C. 970">26 T.C. 970, 26 T.C. 970">978 (1956); Pasadena Investment Co. v. Phinney, 223 F. Supp. 639">223 F. Supp. 639 (S. D. Tex. 1963). Rather the determination of whether the condemned tracts were capital assets held for investments is a question of pure fact which we must resolve on the basis of all the evidence before us. Cohn v. Commissioner, 226 F.2d 22, 24 (C.A. 9, 1955); John D. Riley, 37 T.C. 932">37 T.C. 932, 37 T.C. 932">938 (1962), affd. 328 F.2d 428">328 F.2d 428 (C.A. 5, 1964). As we stated in 35 T.C. 1">Eline Realty Co., supra at 5:

It is well established that a dealer in real estate may occupy a dual role: He may be a dealer with reference to some of his properties, and an investor as to others. Charles E. Mieg, 32 T.C. 1314">32 T.C. 1314, 32 T.C. 1314">1321;1973 U.S. Tax Ct. LEXIS 81">*100 D. L. Phillips, 24 T.C. 435">24 T.C. 435; Walter R. Crabtree, 20 T.C. 841">20 T.C. 841; Nelson A. Farry, 13 T.C. 8">13 T.C. 8. The characterization of any particular asset as one held for sale or as an investment is a question of fact, which is resolved with the aid of certain well recognized tests, among which are: The intent of the seller with respect to the particular asset in question; the purpose for which the property was acquired, held, and sold; the volume, frequency, continuity and substantiality of the sales; the proximity of sale to purchase; and the extent of sales activity on the part of the seller or his agents. These factors must be viewed in light of all the facts; no single factor is controlling. W. T. Thrift, Sr., 15 T.C. 366">15 T.C. 366; Boomhower v. United States, 74 F. Supp. 997">74 F. Supp. 997. Moreover, while the purpose for the acquisition must be given consideration, intent is subject to change, and the determining factor is the purpose for which the property is held at the time of sale. Carl Marks & Co., 12 T.C. 1196">12 T.C. 1196; Richards v. Commissioner, 81 F.2d 369">81 F.2d 369;1973 U.S. Tax Ct. LEXIS 81">*101 Mauldin v. Commissioner, 195 F.2d 714; Raymond Bauschard, 31 T.C. 910">31 T.C. 910, 31 T.C. 910">917, affd. 279 F.2d 115.

Upon consideration of all the relevant facts in the instant case, we are of the opinion that these tracts were held by Casalina as investment properties. Hewlett Lewis, the secretary-treasurer and one of the three principal owners of petitioner, so testified and we believed him. Furthermore, the relevant objective factors all support his subjective statement.

At the times of these condemnations in 1953, 1958, and 1959, Casalina had owned these tracts for periods of 11, 16, and 17 years. Holding a property for several years indicates an intention to hold for investment rather than sale. Merchants National Bank of Mobile, 14 T.C. 1375">14 T.C. 1375 (1950), affd. 199 F.2d 657">199 F.2d 657 (C.A. 5, 1952). The tracts had a combined area of 1,340 undeveloped acres and during the entire period 60 T.C. 694">*703 Casalina owned them it made no expenditures or improvements of any kind to the properties. This lack of activity by the owner is another indication of investment intent. 1973 U.S. Tax Ct. LEXIS 81">*102 Charles E. Mieg, 32 T.C. 1314">32 T.C. 1314, 32 T.C. 1314">1321 (1959); Scott v. United States, 305 F.2d 460">305 F.2d 460 (Ct. Cl. 1962); cf. Walter H. Kaltreider, 28 T.C. 121">28 T.C. 121, 28 T.C. 121">125 (1957), affd. 255 F.2d 833">255 F.2d 833 (C.A. 3, 1958); Estate of M. A. Collins, 31 T.C. 238">31 T.C. 238 (1958). Finally, Casalina made no attempt to sell any of the properties prior to the condemnations. This absence of sales activity further vitiates respondent's contention that the tracts were held for sale in the ordinary course of business. Frieda E. J. Farley, 7 T.C. 198">7 T.C. 198, 7 T.C. 198">203 (1946).

We resolve this issue for petitioner.

Casalina contends that the legal and related expenses incurred in the condemnation proceedings should be allocated between the condemnation awards and the interest received thereon. Respondent contends that these expenses are deductible solely from the condemnation awards.

It is now well settled that interest received on a condemnation award is not part of the award, but rather represents compensation for the delay in1973 U.S. Tax Ct. LEXIS 81">*103 payment. Kieselbach v. Commissioner, 317 U.S. 399">317 U.S. 399 (1943). It is also well settled that a property owner's expenses in connection with a condemnation were incurred to increase the award for the loss of its property, and were therefore capital expenditures. Williams v. Burnet, 59 F.2d 357">59 F.2d 357 (C.A.D.C. 1932); Isaac G. Johnson & Co. v. United States, 149 F.2d 851">149 F.2d 851 (C.A. 2, 1945).

It follows that the expenses in the instant case were capital and are deductible solely from the condemnation awards. In William Justin Petit, 8 T.C. 228">8 T.C. 228, 8 T.C. 228">236-237 (1947), in dealing with this precise question we said:

What petitioner now wants to do is to use only $ 2,388.50 of the attorney fees in the above manner and then have allowed as a separate deduction $ 8,878.36 of the attorney fees and thus offset to that extent respondent's addition to petitioner's income of the $ 17,756.73 interest. There is no warrant in law for this. The attorney fees * * * were for their entire services in the condemnation proceeding and there is no basis for allocating $ 8,878.36 of the fee1973 U.S. Tax Ct. LEXIS 81">*104 for the collection of interest. The entire amount paid the attorneys for their services must be treated as capital expenditures. 149 F.2d 851">Johnson & Co. v. United States, supra.Cf. Williams v. Burnet, 59 Fed. (2d) 357; Washington Market Co., 25 B.T.A. 576">25 B.T.A. 576; Mary W. T. Connally, 32 B.T.A. 920">32 B.T.A. 920. Of course, if petitioner's gain from the condemnation award were ordinary income it would make no difference in the tax liability whether petitioner was allowed the deduction of the attorney fees as a capital expenditure in the computation of gain from the sale or whether he was allowed the fees as a business expense deduction. However, petitioner's gain from the condemnation award is taxable as a capital gain and only 50 per cent thereof is taken into account. Therefore, the manner in which these attorney fees are treated does make a difference in petitioner's tax liability. For reasons already stated, petitioner's contention on this point can not be sustained. * * *

60 T.C. 694">*704 These same considerations apply in the instant case and we sustain respondent on this issue.

Casalina received interest in the total amount of $ 229,349.12 on the condemnation awards. It contends that this interest should be accrued over the 15-year period of the condemnation, while respondent determined that it is only accruable when awarded.

While the right to receive income and not actual receipt is the criterion for income inclusion in gross income for the accrual basis taxpayer, this right must be fixed reasonably in fact and amount. Baltimore & O.R. Co. v. Commissioner, 78 F.2d 460">78 F.2d 460 (C.A. 4, 1935); Spring City Co. v. Commissioner, 292 U.S. 182">292 U.S. 182 (1934); William Justin Petit, 8 T.C. 228">8 T.C. 228, 8 T.C. 228">233 (1947). As stated in the Petit case (8 T.C. 228">8 T.C. 233) --

in order for items to be accrued as income the event must occur which determines the amount due. When the amount to be received depends upon a contingency or future events, it is not to be accrued until such contingency or the events have occurred and fixed with reasonable certainty the fact and amount of income. U.S. Cartridge Co. v. United States, 284 U.S. 511">284 U.S. 511.1973 U.S. Tax Ct. LEXIS 81">*106

In the instant case, both the amount of the awards and the interest thereon were uncertain until the condemnation litigation was concluded and final judgments were entered in 1967 and 1968. We sustain respondent on this issue and hold that the interest was income when awarded by the District Court. Baltimore & Ohio Railroad Co., 29 B.T.A. 368">29 B.T.A. 368, 29 B.T.A. 368">373 (1933), affd. 78 F.2d 460">78 F.2d 460 (C.A. 4, 1935); Winter Realty & Construction Co., 2 T.C. 38">2 T.C. 38 (1943), modified on appeal on other issues 149 F.2d 567">149 F.2d 567 (C.A. 2, 1945), certiorari denied 326 U.S. 754">326 U.S. 754 (1945); 8 T.C. 228">William Justin Petit, supra at 233.

The record in the instant case is rather confused and the briefs of the parties are similar, however it appears that respondent has determined that $ 30,269.92 of the interest is taxable in 1967, the year final judgment was entered on tract 401, and that the entire amount of the interest, $ 229,349.12, is taxable in 1968, the year final judgments were entered on the two remaining tracts and the year in which Casalina received all the money. 1973 U.S. Tax Ct. LEXIS 81">*107 Such a determination, of course, would be inconsistent and erroneous. We have held that the interest is taxable when awarded by the District Court. Accordingly, the interest on tract 401 is taxable in 1967, and the balance is taxable in 1968. If in fact respondent included the full amount of the interest in 1968, a proper adjustment will be made in the Rule 50 computation.

In 1953 Casalina gave a mortgage as part of the purchase price for land it acquired from its three shareholders. It made no accruals or 60 T.C. 694">*705 payments of the interest due on the mortgage in the years 1953 through 1965. In the years 1966 through 1968, it made interest payments on the mortgage in the total amount of $ 24,100, and contends that it is entitled to deduct these interest payments when they were made. In other words, petitioner is asking for the benefits of "cash basis" status in this one instance.

On brief petitioner seems to make a vague argument that here was some sort of a reformation of its contractual obligation to pay this interest which moved the due dates from the earlier years up to 1966, 1967, and 1968. The record fails entirely in this regard. Perhaps1973 U.S. Tax Ct. LEXIS 81">*108 the clearest statement of relative fact is the testimony of Hewlett Lewis, "We decided to let the mortgage run on since we didn't want the land back. We knew at some point there would be some money to pay it." It is obvious that this doesn't cut the mustard.

Interest accrues during the taxable year on a fixed and unconditional obligation, and it is deductible as it accrues and not when it is paid if the taxpayer is on the accrual basis. Miller & Vidor Lumber Co., 15 B.T.A. 948">15 B.T.A. 948 (1929), affd. 39 F.2d 890">39 F.2d 890 (C.A. 5, 1930), certiorari denied 282 U.S. 864">282 U.S. 864 (1930); Francis R. Hart, 21 B.T.A. 1001">21 B.T.A. 1001, 21 B.T.A. 1001">1006 (1930). Cf. Burlington-Rock Island Railroad Co. v. United States, 321 F.2d 817">321 F.2d 817 (C.A. 5, 1963).

In Miller & Vidor Lumber Co., 15 B.T.A. 948">15 B.T.A. at 949, we said:

Interest is an expense which accrues ratably over an elapsed period of time. Cumberland Glass Mfg. Co., 2 B.T.A. 1122">2 B.T.A. 1122; Saner-Ragley Lumber Co., 3 B.T.A. 927">3 B.T.A. 927. A taxpayer on the accrual basis may not deduct1973 U.S. Tax Ct. LEXIS 81">*109 from the gross income of any one year interest paid in that year which accrued and became a liability but which was not accrued on its books in a preceding year. McIntosh & Seymour Corporation, 2 B.T.A. 953">2 B.T.A. 953. Interest is deductible as it accrues and not when paid by a taxpayer on the accrual basis. North Wayne Tool Co., 2 B.T.A. 366">2 B.T.A. 366; Comstock-Castle Stove Co., 4 B.T.A. 114">4 B.T.A. 114; Higginbotham-Bailey-Logan Co., 8 B.T.A. 566">8 B.T.A. 566.

In the instant case, Casalina's interest obligation was fixed and definite. It is an accrual basis taxpayer and therefore is entitled to deduct only accrued interest as opposed to interest paid.

Decision will be entered under Rule 50.