## Facts

- John D. Byram and his wife sought a federal income tax refund based on 1973 sales of seven parcels of real property and claimed additional interest deductions tied to a loan to Byram’s corporation.
- In 1973, Byram sold seven parcels and reported the gains as long-term capital gains.
- From 1971–1973, Byram sold 22 parcels, with gross proceeds exceeding $9 million and net profit of approximately $3.4 million.
- Byram was not a licensed real-estate broker, had no separate real-estate office, and was not associated with a real-estate firm.
- He did not advertise any of the seven properties, did not list them with brokers, and did not develop, plat, or subdivide them.
- Each of the seven 1973 transactions was initiated by the purchaser or someone acting for the purchaser.
- Byram devoted minimal time to the sales and primarily managed rental properties; his income included substantial rental and interest income.
- Six of the seven 1973 parcels were held for roughly six to nine months (slightly beyond the then-applicable long-term holding period), and one was held for about two and a half years.
- The IRS recharacterized the 1973 gains as ordinary income on the theory that the properties were held primarily for sale to customers in the ordinary course of a real-estate business.
- The district court found the seven parcels were held for investment and granted capital-gain treatment, but denied Byram’s claimed personal interest deductions for payments associated with a corporate loan.

## Issues

1. Whether the district court correctly determined that the seven parcels sold in 1973 were capital assets held for investment rather than property held primarily for sale to customers in the ordinary course of a trade or business.
2. Whether the investor/dealer classification is a factual determination reviewed for clear error or a legal question reviewed de novo.
3. Whether Byram could deduct, on his personal return, interest associated with a loan obligation of his corporation when he made payments related to that obligation.

## Decision

- The Fifth Circuit held that the investor/dealer classification turned on the taxpayer’s intent and was a factual finding reviewed under the clearly erroneous standard of Federal Rule of Civil Procedure 52(a).
- The court affirmed the district court’s finding that the seven parcels were held for investment, so the gains qualified for capital-gain treatment rather than ordinary income.
- The court rejected the view that frequent or substantial real-estate sales, standing alone, require ordinary-income treatment.
- The court affirmed the denial of Byram’s personal interest deduction because the debt obligation was the corporation’s, and any interest deduction belonged, if at all, at the corporate level.

## Legal Principles

- Whether real property is held primarily for sale to customers in the ordinary course of a trade or business is a fact-intensive determination centered on the taxpayer’s purpose in holding the property.
- Appellate review of that determination is for clear error when made by a district court after a bench trial.
- No single factor controls the investor/dealer inquiry; relevant considerations include the taxpayer’s acquisition and holding purpose, sales-related efforts, development activity, frequency and continuity of sales, and the taxpayer’s other business activities.
- Substantial and frequent sales activity alone does not automatically convert investment property into dealer property.
- Short holding periods may be considered but are not dispositive where other indicators of a sales business (development, advertising, broker use, active solicitation) are minimal.
- An individual generally may not claim a personal interest deduction for payments on a corporation’s loan obligation merely because the individual funded or made the payments.

## Conclusion

The Fifth Circuit affirmed capital-gain treatment for Byram’s 1973 real-estate sales because the district court permissibly found an investment purpose based on minimal marketing and development activity, and it affirmed denial of a personal interest deduction where the underlying debt was the corporation’s obligation.


Byram v. United States, 705 F.2d 1418 (5th Cir. 1983)