## Facts

- C. E. Mauldin and Helen T. Mauldin, New Mexico spouses with community income, were assessed income tax deficiencies for 1944 and 1945.
- In 1920, Mauldin contracted to buy a 160-acre tract near Clovis, New Mexico, intending to use it for cattle feeding; at the time it was not considered suitable for residential development.
- Economic conditions and a highway survey rendered the tract unsuitable for Mauldin’s original purpose; he unsuccessfully attempted to sell the entire tract in 1924 for less than his cost.
- On advice of a real-estate agent, Mauldin platted the land in 1924 into multiple tracts, blocks, and lots, named it “Mauldin Addition,” and listed lots for sale.
- Over the ensuing years, Mauldin sold lots as market conditions permitted; in 1939 a significant paving assessment led him to actively sell lots to retire the obligation, and he admitted operating a real-estate business through 1940.
- After 1940, Mauldin focused on a lumber business but continued selling subdivision lots; for 1944 and 1945 he reported the profits as long-term capital gains.
- The Commissioner recharacterized the 1944–1945 lot-sale gains as ordinary income, and the Tax Court sustained that characterization.

## Issues

1. Whether the 1944 and 1945 subdivision lots were “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business” under I.R.C. § 117(a)(1), excluding them from capital-asset status.
2. Whether the Tax Court’s determination on that characterization was a factual finding binding on appeal if supported by substantial evidence.

## Decision

- The Tenth Circuit affirmed the Tax Court.
- The court held the lots sold in 1944 and 1945 were held primarily for sale to customers in the ordinary course of Mauldin’s trade or business and therefore were not capital assets under § 117(a)(1).
- The resulting gains were taxable as ordinary income rather than capital gains.
- The court treated the dealer-versus-investor characterization as a fact question and declined to disturb the Tax Court’s finding because it was supported by the record.

## Legal Principles

- Whether real property is held primarily for sale to customers in the ordinary course of a trade or business is determined from all the circumstances and is generally a question of fact.
- Property initially acquired for a non-sales purpose may change character when later conduct (e.g., platting, marketing arrangements, and repeated sales) shows a sales business.
- Frequency, continuity, and substantiality of sales activity over time are probative of dealer status; analysis is not confined to the taxpayer’s asserted intent during the specific taxable years.
- A claim of “liquidation” does not control when the overall pattern shows continuing efforts to sell subdivided lots for profit as part of a business.

## Conclusion

The court upheld ordinary-income treatment for the Mauldins’ 1944–1945 subdivision lot sales because substantial evidence supported the Tax Court’s finding that the lots remained property held primarily for sale to customers in the ordinary course of Mauldin’s real-estate sales activity, making § 117 capital-gain treatment unavailable.


Mauldin v. Commissioner, 195 F.2d 714 (10th Cir. 1952)