## Facts

- Curtis Company historically operated as a real-estate developer that bought land, subdivided, built houses, and sold them for profit.
- Between 1942 and 1944, Curtis constructed about 1,098 residential units intended to be held and operated as a long-term rental project.
- The units were rented for several years before Curtis decided (around 1946) to dispose of the rental project and redirect capital into commercial rental development; that plan was later frustrated by zoning difficulties.
- From 1948 to 1950, Curtis sold the rental houses at substantial profit.
- Curtis sold the houses using its own staff and some advertising, without outside brokers.
- The houses were sold “as is,” without improvements or refurbishment; prospective buyers were not allowed to inspect interiors before purchase.
- Curtis also held multiple tracts of unimproved land; the Tax Court treated one tract as investment property and treated the remaining unimproved parcels as held for resale in the ordinary course of business.

## Issues

1. Whether the rental houses sold from 1948 to 1950 were “held primarily for sale to customers in the ordinary course of” Curtis’s business, making the gains ordinary income rather than capital gain under I.R.C. § 117 (1939).
2. Whether unimproved land parcels (other than the tract treated as investment property) were held primarily for sale to customers in the ordinary course of Curtis’s business, making gains ordinary income.

## Decision

- The Third Circuit reversed the Tax Court as to the rental houses and held the gains were entitled to capital-gain treatment.
- The court substantially affirmed the Tax Court as to the unimproved land (except the tract already treated as an investment), holding gains on those parcels were ordinary income.
- The court treated the key dispute as the legal characterization of largely undisputed evidentiary facts.

## Legal Principles

- Property is excluded from capital-asset treatment if it is held “primarily” for sale to “customers” in the “ordinary course” of the taxpayer’s trade or business; “primarily” requires a principal sale purpose, not an incidental one.
- The original and continuing holding purpose (rental/investment vs. dealer inventory) is central; a later decision to liquidate rental property does not, by itself, convert the property into dealer property.
- The method, volume, and organization of sales are relevant but not controlling when consistent with liquidation of an investment rather than ongoing dealer activity.
- Findings that unimproved land was acquired and held for resale in the taxpayer’s real-estate business support ordinary-income treatment.

## Conclusion

The court held that a systematic sale of long-held rental housing units, undertaken to liquidate an investment after a change in plans, did not make the units property held primarily for sale to customers in the ordinary course of business; the gains were capital. By contrast, gains on most unimproved land were ordinary income because the land was held chiefly for resale in Curtis’s real-estate business.


Curtis Co. v. Commissioner, 232 F.2d 167 (3d Cir. 1956)