Before GOODRICH, McLAUGHLIN and STALEY, Circuit Judges.
Two issues are presented by these consolidated petitions to review decisions of the Tax Court. The primary issue is whether the gain realized by taxpayers on the liquidation of their corporation is capital gain, or ordinary income under the "collapsible corporation" provisions of Section 117(m) of the Internal Revenue Code of 1939, as amended, 26 U.S.C. § 117(m). A secondary issue poses the question of whether the penalty under Section 294(d) (2) for substantial underestimation of tax may be assessed in addition to the penalty under Section 294 (d) (1) (A) for failure to file a declaration of estimated tax.
In these cases the respondent Commissioner determined deficiencies in petitioners' income tax and additions for the year 1950, as follows:
Deficiencies § 294(d) (1) § 294(d)
J. D. Abbott and Kathryn $57,031.00
Carl M. Wolfe and Mary E. 12,175.26 $1,923.19 $1,153.91
The Tax Court sustained the respondent's deficiency determinations, finding that petitioners' corporation was a "collapsible" corporation within the purview of Section 117(m) of the Code, and also sustained the imposition of both additions to petitioner Wolfe's tax. 1957, 28 T.C. 795. This decision was reviewed by the full Tax Court.
In late August, 1948, petitioner Wolfe and three others organized the Leland Corporation for the stated objectives of buying, selling, mortgaging, and otherwise managing improved and unimproved land, and generally the carrying on of a building and construction business. Wolfe owned 20% of the stock of Leland. Petitioner Abbott was a named incorporator, but not an original shareholder.
Abbott was engaged in a mortgage business carried on through two corporations.
Leland Corporation acquired a little more than one hundred acres of land in four purchases from September, 1948, to March, 1950. The total of the purchase price was $75,409.55, slightly more than $752 an acre. In May, 1949, Leland, considering the development of part of its land for single family residences, contracted for the installation of streets and sewers in its Plan No. 1.
Leland's Plan No. 2 provided for apartment sites and comprised 15.82 acres. This tract was sold in late October, ...