Before GOODRICH and KALODNER, Circuit Judges, and WOOD, District Judge.
This is an appeal from a decision of the Tax Court which refused the taxpayers*fn1 long term capital gain treatment on a transaction concerning real estate in Plainfield, New Jersey. 31 T.C. 611 (1958).
The transaction out of which this litigation arises occurred in 1951. Louis Blick is a real estate broker with an office in Elizabeth, New Jersey. Around 1948, he entered into agreements with the owners of four lots at the corner of East Front Street and Elm Place, Plainfield, New Jersey. Although in the form of contracts to purchase, these documents relinquished, on the part of the seller, any claim to specific performance and limited damages on nonperformance by Blick to the amount of down payment made. The parties have called the agreements "options" and that term will be used in discussing the case, regardless of whether it is exact in description or not. These "options" were renewed periodically. Mr. Blick had also secured in 1948 and 1949 similar "options" on other lots in this area, but these had expired and were not renewed. At the time of the transaction in question Blick had unexpired options on the four corner lots.
In 1951 taxpayer was approached by a representative of a large real estate firm representing R.H. Macy & Co. which was considering opening a branch of its Bamberger division in Plainfield. The purchaser was interested in the corner lots just described and also the lots adjacent to them. A price of $850,000. for the full parcel was agreed upon. On May 9, 1951, Blick and Mrs. Blick executed with Macy a written agreement. In this the taxpayers appear as sellers and Macy appears as purchaser. By the terms of the document the Blicks were to convey to Macy not only the four lots on which Blick had an option at the time but the surrounding lots as well so as to make up the parcel of land which Macy wanted for its business. This agreement is set out in its entirety in the opinion of the Tax Court, 31 T.C. at page 612.
Following the execution of this agreement, Blick went to work and secured agreements to convey from the owners the remainder of the lots in the desired parcel. The closing took place August 1, 1951. Deeds from the owners were made directly to Macy. The owners were all paid the agreed selling prices and the taxpayer was paid his commission. The four corner lots already described had been held under option by the taxpayer for more than six months. The other pieces of property had not.
The taxpayer claims that his profit on the transaction should be taxed as a long term capital gain under Section 117(b) of the Internal Revenue Code of 1939,*fn2 by allocating all profit from the transaction to the sale of the four lots on which he held options at the time of the agreement with Macy and by considering the sale as one of the "options" rather than of the land. The Tax Court denied long term capital gain treatment. We agree.
The theory of the taxpayer is that he sold the options to Macy for the given price and that everything he did thereafter in securing the agreements from the other lot owners was gratuitous. But the Tax Court pointed out that the agreement in May was not the be all and end all of what the taxpayer had to do. This contract, be it remembered, ...