## Facts

- Hyman and Henrietta Podell, Brooklyn residents, filed joint federal income-tax returns for 1964 and 1965.
- Hyman Podell entered an oral arrangement with Cain Young, a Brooklyn real-estate operator.
- Podell advanced funds for Young to purchase and renovate residential properties; Young managed acquisitions, renovations, refinancing, and sales.
- The parties agreed to share equally in profits and losses on each property sold.
- In 1964, the arrangement involved purchasing, renovating, and selling nine buildings; in 1965, five buildings.
- Podell’s share of net gain was $4,198.03 (1964) and $2,903.41 (1965), reported as capital gains.
- The Commissioner determined deficiencies for 1964 ($1,277.99) and 1965 ($506.48), recharacterizing the gains as ordinary income from a real-estate sales business conducted through a joint venture or partnership.

## Issues

1. Whether Podell’s share of profits from repeated purchase-renovation-sale real-estate transactions was ordinary income under I.R.C. § 61 or capital gain from the sale of capital assets.

## Decision

- The Tax Court held for the Commissioner.
- The gains were ordinary income, not capital gain.
- The deficiencies for 1964 and 1965 were sustained.

## Legal Principles

- Property held primarily for sale to customers in the ordinary course of a trade or business is excluded from “capital asset” treatment; gains from its sale are ordinary income.
- Frequent, continuous buy-improve-sell transactions and short holding periods support classification of real estate as dealer property rather than investment property.
- A taxpayer who contributes capital to a profit-and-loss-sharing arrangement engaged in systematic real-estate resales is treated as participating in the business producing ordinary income, regardless of asserted personal or civic motives.

## Conclusion

Because the properties were acquired, improved, and sold repeatedly as part of an ongoing profit-sharing real-estate operation, they were treated as held for sale in the ordinary course of business, making Podell’s distributive gains taxable as ordinary income rather than capital gain.


Podell v. Commissioner, 55 T.C. 429 (U.S. Tax Ct. 1970)