## Facts

- Gregory and Melanie Boree, through Glen Forest, LLC, acquired 1,892 acres of vacant land in Baker County, Florida in 2002, largely financed by debt.
- In early 2003, Glen Forest pursued a planned residential subdivision (West Glen Estates), sought and obtained rezoning, and proceeded with phased development planning.
- From 2002–2006, Glen Forest sold numerous subdivided “perimeter” lots and undertook development activities associated with marketing and improving the property.
- County land-use changes increased projected infrastructure costs; Glen Forest sought regulatory relief and pursued rezoning strategies for higher density.
- In 2007, Glen Forest sold 1,067 acres to a developer at a substantial gain and soon withdrew a pending rezoning application.
- The Borees reported the 2007 gain as long-term capital gain; the IRS reclassified it as ordinary income under I.R.C. § 1221(a)(1), asserted a deficiency, and imposed a 20% accuracy-related penalty under I.R.C. § 6662.
- The Tax Court sustained both the ordinary-income characterization and the penalty; the Borees appealed.

## Issues

1. Whether the 2007 gain was capital gain or ordinary income because the land was “held primarily for sale to customers in the ordinary course of” a trade or business under I.R.C. § 1221(a)(1).
2. Whether the 20% accuracy-related penalty for substantial understatement under I.R.C. § 6662 applied, or was avoided under I.R.C. § 6664(c) due to reasonable cause and good-faith reliance on a tax professional.

## Decision

- Affirmed the Tax Court’s determination that the property was held primarily for sale to customers in the ordinary course of a real-estate business; the gain was ordinary income.
- Reversed the Tax Court’s imposition of the § 6662 penalty because the Borees established reasonable cause and good faith through reliance on their accountant.
- Disposition: affirmed in part and reversed in part.

## Legal Principles

- Whether property is excluded from capital-asset treatment under I.R.C. § 1221(a)(1) is a fact-intensive inquiry commonly evaluated through multiple considerations, including acquisition purpose, sales frequency/continuity, development/improvement activity, marketing efforts, holding period, and the taxpayer’s business operations.
- Subdivision planning, rezoning, phased lot sales, and ongoing development-related conduct may support a finding that land is dealer property held primarily for sale to customers, producing ordinary income.
- The I.R.C. § 6662 penalty does not apply if the taxpayer proves reasonable cause and good faith under I.R.C. § 6664(c).
- Reasonable cause and good faith can be shown by reliance on a competent tax professional when the taxpayer provides complete and accurate information, receives advice that appears to be professional tax advice, and actually relies on it in good faith.

## Conclusion

The Eleventh Circuit held that the Borees’ 2007 land-sale gain was ordinary income because the land was treated as dealer property under § 1221(a)(1), but it set aside the substantial-understatement penalty because the Borees reasonably and in good faith relied on their accountant after providing complete and accurate information.


Boree v. Commissioner, 837 F.3d 1093 (11th Cir. 2016)