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H-H Ranch Inc. v. Commissioner of Internal Revenue

March 16, 1966

H-H RANCH, INC., AN ILLINOIS CORPORATION, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT



Schnackenberg, Knoch and Kiley, Circuit Judges.

Author: Schnackenberg

SCHNACKENBERG, Circuit Judge.

H-H Ranch, Inc., an Illinois corporation, petitioner (taxpayer), seeks review of a decision of the Tax Court of the United States, which decided that there is a deficiency in federal income tax due from taxpayer for the taxable years 1958 and 1959 amounting to $7,586.37 and $15,568.91, respectively.

The decision of the Tax Court is based upon its findings, the essentials of which, in summary, follow.

All of taxpayer's stock outstanding is held by William W. Heise, Sr., his wife Marjorie, and two sons, William W. Heise, Jr., and Theodore Heise. During the taxable years the corporation officers were the father, as president, and Marjorie (also known by her maiden name of M.I. Brain), as secretary.

Taxpayer acquired the Elgin Farm on June 30, 1950 from Heise, Sr., and wife, in exchange for its common stock.

Heise, Sr. had been in the building business since 1914. In 1959, the father and mother owned all the authorized capital stock of Blackhawk Builders (Blackhawk), an Illinois corporation, formed in 1941. She was president and he was vice-president thereof. Its business had been the building and selling of houses to the public. It was used as the father's "building corporation" from 1950 through 1959.

Heise Brothers Realty, Inc., an Illinois corporation, engaged in the sale of real estate. At the time of the trial, its sole stockholders were the same as those of taxpayer.

In January 1953, Blackhawk acquired from taxpayer about 22 acres of the Elgin Farm and subdivided it into 77 lots designated as Blackhawk Manor Subdivision.

In 1954 and again in 1956, taxpayer conveyed more of the Elgin Farm acreage to Blackhawk which had completed buildings on said 77 lots.

On September 27, 1957, taxpayer contracted with Blackhawk to sell real estate, which corresponds to the Third Addition to Blackhawk Manor, for $2,000 per lot. The property was so conveyed.

The agreement provided in part that any lots remaining unsold or unpaid for by Blackhawk after five years should be reconveyed to taxpayer, clear of all encumbrances.

Taxpayer did not report in its return for 1957 any profit from the sale of real estate constituting the Third Addition to Blackhawk Manor, although it did report as income the amount received from a sale of real estate to the Illinois Tollroad Commission.

The Tax Court received in evidence the books of account of taxpayer for the years 1958 and 1959, showing relevant transactions pertaining ...


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