## Facts

- Herman and Mollie Glazer, Forrest B. Fleisher, and others were partners in Lowell Hills, a partnership constructing and selling houses in Pennsylvania.
- The partnership planned 94 single-family homes and reported house-sale profits as ordinary income as a real-estate dealer.
- By July 1959, 24 houses remained unfinished but were about 80% complete and each was subject to an executory sales contract with an ultimate purchaser.
- Glazer and Fleisher purported to sell their partnership interests to their attorney, Marvin J. Levin, for $172,000.
- At the same time, Glazer and Fleisher agreed to complete construction of the houses despite the purported transfer of their partnership interests.
- The parties agreed the transaction price would have been $6,000 less if the 24 remaining lots had not been under contract.
- Glazer and Fleisher reported the amounts received as long-term capital gain under I.R.C. § 741.
- The Commissioner determined 1959 deficiencies, asserting the amounts were taxable as ordinary income.

## Issues

1. Whether the purported sale to Levin was, in substance, a genuine sale of partnership interests producing capital gain under I.R.C. § 741.
2. If a sale occurred, whether value attributable to the 24 executory home-sale contracts was attributable to “unrealized receivables” under I.R.C. § 751, requiring ordinary income treatment.

## Decision

- The Tax Court sustained the Commissioner’s deficiencies and held the disputed amounts were ordinary income.
- The court found that, in substance, petitioners did not sell their partnership interests.
- Alternatively, the court held that the 24 executory sales contracts were “unrealized receivables” under § 751 and the consideration attributable to them was ordinary income.

## Legal Principles

- Federal income tax consequences depend on the substance of a transaction rather than its stated form; a nominal sale of a partnership interest may be disregarded where the transferors retain key benefits and burdens and continue the business activity generating the income.
- I.R.C. § 741 generally treats gain on the sale of a partnership interest as capital gain, but it applies “except as otherwise provided” in § 751.
- Under I.R.C. § 751, gain attributable to “unrealized receivables” (and similar ordinary-income items) is treated as ordinary income on a sale or exchange of a partnership interest.
- Executory contracts to sell substantially completed dealer property (here, houses held for sale to customers in the ordinary course) may be treated as “unrealized receivables” for § 751 purposes.

## Conclusion

The Tax Court treated the partners’ proceeds as ordinary income because the transaction did not, in substance, transfer the partnership interests, and, in any event, the value tied to executory home-sale contracts was recharacterized as ordinary income under § 751 despite § 741’s general capital-gain rule.


Glazer v. Commissioner, 44 T.C. 541 (1965)