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Malat v. Riddell

Citation. Malat v. Riddell, 383 U.S. 569, 86 S. Ct. 1030, 16 L. Ed. 2d 102, 66-1 U.S. Tax Cas. (CCH) P9317, 17 A.F.T.R.2d (RIA) 604 (U.S. Mar. 21, 1966)
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Brief Fact Summary.

Petitioner bought a tract of land as part of a joint venture. The original intent was to develop it with an apartment building. After failing to receive financing and other reasons, Petitioner sold out his interests.

Synopsis of Rule of Law.

Capital gains treatment may not be given to profits received from the sale of property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.


Petitioner participated in a joint venture wherein he acquired a 45-acre tract of land. He contends it was bought with the intention of developing it with an apartment project. Respondents contends the property was for either rental or selling. The interior lots of the tract were sold and reported and taxed as ordinary income. The joint venture fell through for various reasons and Petitioner sold of his interests. He contends he is entitled to treat the profits as capital gains. Respondent contends that it is ordinary income.


Was the sale of the property by Petitioner primarily for sale in the ordinary course of his trade or business?


In a per curiam option from the Supreme Court of the United States remanding for further consideration after holding that primarily means of first importance or principally.


The Supreme Court found that issue was what was meant by primary. The Court found that primary means “of first importance” or “principally.” Since the lower court applied an incorrect legal standard, it was remanded for further consideration.

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