Before HASTINGS, Chief Judge, and SCHNACKENBERG and KNOCH,*fn1 Circuit Judges.
SCHNACKENBERG, Circuit Judge.
In actions which were consolidated, plaintiffs sought recovery in the district court of income taxes claimed to have been erroneously collected for the years 1953, 1954 and 1955 for the reason that profits made by a law partnership consisting of Benjamin F. March and Lyle H. Rossiter, from the sale of vacant real estate, were taxed as ordinary income instead of long-term capital gains. The case was tried by the court without a jury and the evidence consisted of oral testimony and documentary exhibits.
The district court made findings of fact from which the following controlling facts appear:
Lyle H. Rossiter and Marjorie E. Rossiter, his wife, filed joint income tax returns for the years in question, and Benjamin F. March and his wife, Isabel March, did likewise for the years 1953 and 1954. Following Mrs. March's death, her husband filed a return for the year 1955.
Until October 1, 1954 Rossiter and March practiced law as partners in Chicago. Neither was a licensed real estate broker. They purchased vacant lots in Du Page County, Illinois, which were subject to delinquent real estate taxes. They then cleared the titles to the properties and thereby acquired tax deeds at auctions held by the county treasurer or at judicial sales, all of which resulted in the titles becoming marketable.
About three-fourths of the purchases made by March & Rossiter were in joint venture with licensed real estate brokers, the firm contributing about fifty per cent of the capital and the real estate brokers, the balance. When the property was sold the profits were divided equally between the firm and the joint venturers.
The legal activities in clearing title were performed by March & Rossiter and the sales activities were conducted by the broker joint venturers.
March & Rossiter held the lots for sale to their customers in the ordinary course of their business.
The district court concluded that March & Rossiter and their joint venturers held the lots primarily for sale to customers in the ordinary course of business, as defined in the exclusion from capital assets provisions, section 117(a)(1)(A) of the Internal Revenue Code of 1939 and section 1221(1) of the Internal Revenue Code of 1954, and that the profits were therefore taxable as ordinary income. The court also concluded that the Commissioner of Internal Revenue lawfully assessed and collected the income taxes which plaintiffs here seek to recover.
26 U.S.C.A. (Revenue Act of 1939 as amended), § 117(a) provided:
Definitions. As used in this chapter -
"(1) Capital assets. The term 'capital assets' means property held by the taxpayer (whether or not connected with his trade or business), but does not include -
"(A) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to ...