Biedenharn Realty Co. v. United States

¶6GOLDBERG, Circuit Judge:

¶7The taxpayer-plaintiff, Biedenharn Realty Company, Inc. [Biedenharn], filed suit against the United States in May, 1971, claiming a refund for the tax years 1964, 1965; and 1966. In its original tax returns for the three years, Biedenharn listed profits of $254,409.47 from the sale of 38 residential lots. Taxpayer divided this gain, attributing 60% to ordinary income and 40% to capital gains.1 Later, having determined that the profits from these sales were entirely ordinary income, the Internal Revenue Service assessed and collected additional taxes and interest. In its present action, plaintiff asserts that the whole real estate profit represents gain from the sale of capital assets and consequently that the Government is indebted to taxpayer for $32,-006.86 in overpaid taxes. Reviewing the facts of this case in the light of our previous holdings and the directions set forth in this opinion, we reject plaintiff’s claim and in so doing reverse the opinion of the District Court.

¶8I.

¶9Because of the confusing state of the record in this controversy and the resulting inconsistencies among the facts as stipulated by the parties, as found by the District Court,2 and as stated in the panel opinion,3 we believe it useful to set out in plentiful detail the case’s background and circumstances as best they can be ascertained.

¶10A. The Realty Company. Joseph Biedenharn organized the Biedenharn Realty Company in 1923 as a vehicle for holding and managing the Biedenharn family’s numerous investments. The original stockholders were all family members.4 The investment company *411controls, among other interests, valuable commercial properties, a substantial stock portfolio, a motel, warehouses, a shopping center, residential real property, and farm property.

¶11B. Taxpayer’s Real Property Sales— The Hardtimes Plantation. Taxpayer’s suit most directly involves its ownership and sale of lots from the 973 acre tract located near Monroe, Louisiana, known as the Hardtimes Plantation. The plaintiff purchased the estate in 1935 for $50,000.00. B. W. Biedenharn, the Realty Company’s president, testified that taxpayer acquired Hardtimes as a “good buy” for the purpose of farming and as a future investment. The plaintiff farmed the land for several years. Thereafter, Biedenharn rented part of the acreage to a farmer who Mr. Biedenham suggested may presently be engaged in farming operations.5

¶121. The Three Basic Subdivisions. Between 1939 and 1966, taxpayer carved three basic subdivisions from Hard-times — Biedenharn Estates, Bayou DeSiard Country Club Addition, and Oak Park Addition — covering approximately 185 acres.6 During these years, Biedenharn sold 208 subdivided Hardtimes lots in 158 sales, making a profit in excess of $800,000.00. These three basic subdivisions are the source of the contested 37 sales of 38 lots.7 Their development and disposition are more fully discussed below.

¶13a) Biedenharn Estates Unit 1, including 41.9 acres, was platted in -1938. Between 1939 and 1956, taxpayer apparently sold 21 lots in 9 sales.8 Unit 2, containing 8.91 acres, was sold in 9 transactions between 1960 and 1965 and involved 10 lots.

¶14b) Bayou DeSiard Country Club Addition, covering 61 acres, was subdivided in 1951, with remaining lots resubdivided in 1964. Approximately 73 lots were purchased in 64 sales from 1951 to 1966.9

¶15c) Oak Park Units 1 and 2 encompassed 75 acres. After subdivision in 1955 and resubdivision in 1960, plaintiff sold approximately 104 lots in 76 sales. 2. Additional Hardtimes Sales. Plaintiff lists at least 12 additional Hardtimes sales other than lots vended from the three basic subdivisions. The earliest of these dispositions occurred in November, 1935, thirteen days after the Plantation’s *412purchase. Ultimately totaling approximately 275 acres, most, but not all, of these sales involved large parcels of non- . subdivided land.

¶16C. Taxpayer’s Real Property Activity: Non-Hardtimes Sales. The 208 lots marketed from the three Hardtimes subdivisions represent only part of Biedenharn’s total real property sales activities. Although the record does not in every instance permit exactitude, plaintiff’s own submissions make clear that the Biedenharn Realty Company effectuated numerous non-Hardtimes retail real estate transactions. From the Company’s formation in 1923 through 1966, the last year for which taxes are contested, taxpayer sold 934 lots. Of this total, plaintiff disposed of 249 lots before 1935 when it acquired Hardtimes. Thus, in the years 1935 to 1966, taxpayer sold 477 lots apart from its efforts with respect to the basic Hardtimes subdivisions. Biedenharn’s year by year sales breakdown is attached as Appendix I of this opinion. That chart shows real estate sales in all but two years, 1932 and 1970, since the Realty Company’s 1923 inception.10

¶17Unfortunately, the record does not unambiguously reveal the number of sales as opposed to the number of lots in-

¶18volved in these dispositions. Although some doubt exists as to the actual sales totals, even the most conservative reading of the figures convinces us of the frequency and abundance of the nonHardtimes sales.11 For example, from 1925 to 1958, Biedenharn consummated from its subdivided Owens tract a minimum of 125, but perhaps upwards of 300, sales (338 lots).12 Eighteen sales accounted for 20 lots sold between 1923 and 1958 from Biedenharn’s Cornwall property. Taxpayer’s disposition from 1927 to 1960 of its Corey and Cabeen property resulted in at least 50 sales. Plaintiff made 14 sales from its Thomas Street lots between 1937 and 1955. Moreover, Biedenharn has sold over 20 other properties, a few of them piecemeal, since 1923.

¶19Each of these parcels has its own history. Joseph Biedenharn transferred much of the land to the Realty Company in 1923. The company acquired other property through purchases and various forms of foreclosure. Before sale, Biedenharn held some tracts for commercial or residential rental. Taxpayer originally had slated the Owens acreage for transfer in bulk to the Owens-Illinois Company. Also, the length of time between acquisition and disposition differed significantly among pieces of realty. However, these variations13 in the *413background of each plot and the length of time and original purpose14 for which each was obtained do not alter the fact that the Biedenharn Realty Company regularly sold substantial amounts of subdivided and improved real property, and further, that these sales were not confined to the basic Hardtimes subdivisions.15

¶20D. Real Property Improvements. Before selling the Hardtimes lots, Biedenharn improved the land, adding in most instances streets, drainage, water, sewerage, and electricity. The total cost of bettering the Plantation acreage exceeded $200,000 and included $9,519.17 for Biedenharn Estates Unit 2,16 $56,879.12 for Bayou DeSiard County Club Addition, and $141,579.25 for the Oak Park Addition.

¶21E. Sale of the Hardtimes Subdivisions. Bernard Biedenharn testified that at the time of the Hardtimes purchase, no one foresaw that the land would be sold as residential property in the future. Accordingly, the District Court found, and we do not disagree, that Biedenharn bought Hardtimes for investment. Later, as the City of Monroe expanded northward, the Plantation became valuable residential property. The Realty Company staked off the Bayou DeSiard subdivision so that prospective purchasers could see what the lots “looked like.” As demand increased, taxpayer opened the Oak Park and Biedenharn Estates Unit 2 subdivisions and resubdivided the Bayou DeSiard section. Taxpayer handled all Biedenharn Estates and Bayou DeSiard sales.17 Independent realtors disposed of many of the Oak Park lots. Mr. Herbert Rosenhein, a local broker, sold Oak Park Unit 1 lots. Gilbert Faulk, a real estate agent, sold from Oak Park Unit 2. Of the 37 sales consummated between 1964 and 1966, Henry Biedenharn handled at least nine transactions (Biedenharn Estates (2) and Bayou DeSiard (7)) while “independent realtors” effected some, if not all, of the other 28 transactions (Oak Park Unit 2.).18 Taxpayer delegated significant re*414sponsibilities to these brokers. In its dealings with Faulk, Biedenharn set the prices, general credit terms, and signed the deeds. Details, including specific credit decisions and advertising, devolved to Faulk, who utilized on-site signs and newspapers to publicize the lots.

¶22In contrast to these broker induced dispositions, plaintiff’s non-brokered sales19 resulted after unsolicited individuals approached Realty Company employees with inquiries about prospective purchases. At no time did the plaintiff hire its own real state salesmen or engage in formal advertising. Apparently, the lands’ prime location and plaintiff’s subdivision activities constituted sufficient notice to interested persons of the availability of Hardtimes lots. Henry Biedenharn testified:

[0]nce we started improving and putting roads arid streets in people would call us up and ask you about buying a lot and we would sell a lot if they wanted it.

¶23The Realty Company does not maintain a separate place of business but instead offices at the Biedenharn family’s Ouachita Coca-Cola bottling plant. A telephone, listed in plaintiff’s name, rings at the Coca-Cola building. Biedenharn has four employees: a camp caretaker, a tenant farmer, a bookkeeper and a manager. The manager, Henry Biedenharn, Jr., devotes approximately 10% of his time to the Realty Company, mostly collecting rents and overseeing the maintenance of various properties. The bookkeeper also works only part-time for plaintiff. Having set out these facts, we

¶24now discuss the relevant legal standard for resolving this controversy.

¶25II.

¶26The determination of gain as capital or ordinary is controlled by the language of the Internal Revenue Code. The Code defines capital asset, the profitable sale or exchange of which generally results in capital gains, as “property held by the taxpayer.” 26 U.S.C. § 1221. Many exceptions limit the enormous breadth of this congressional description and consequently remove large numbers of transactions from the privileged realm of capital gains. In this case, we confront the question whether or not Biedenharn’s real estate sales should be taxed at ordinary rates because they fall within the exception covering “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” 26 U.S.C. § 1221(1).20

¶27The problem we struggle with here is not novel. We have become accustomed to the frequency with which taxpayers litigate this troublesome question. Chief Judge Brown appropriately described the real estate capital gains-ordinary income issue as “old, familiar, recurring, vexing and ofttimes elusive.” Thompson v. Commissioner of Internal Revenue, 5 Cir. 1963, 322 F.2d 122, 123. The difficulty in large part stems from ad-hoc application of the numerous permissible criteria set forth in our multitudinous prior opinions.21 Over the past 40 years, this case by case approach with its concentration on the facts of each suit has resulted in a collection of decisions not always rec*415oncilable. Recognizing the situation, we have warned that efforts to distinguish and thereby make consistent the Court’s previous holdings must necessarily be “foreboding and unrewarding.” Thompson, supra at 127. See Williams v. United States, 5 Cir. 1964, 329 F.2d 430, 431. Litigants are cautioned that “each case must be decided on its own peculiar facts. … Specific factors, or combinations of them are not necessarily controlling.” Thompson, supra at 127; Wood v. Commissioner of Internal Revenue, 5 Cir. 1960, 276 F.2d 586, 590; Smith v. Commissioner of Internal Revenue, 5 Cir. 1956, 232 F.2d 142, 144. Nor are these factors the equivalent of the philosopher’s stone, separating “sellers garlanded with capital gains from those beflowered in the garden of ordinary income.” United States v. Winthrop, 5 Cir. 1969, 417 F.2d 905, 911.

¶28Assuredly, we would much prefer one or two clearly defined, easily employed tests which lead to predictable, perhaps automatic, conclusions. However, the nature of the congressional “capital asset” definition and the myriad situations to which we must apply that standard make impossible any easy escape from the task before us. No one set of criteria is applicable to all economic structures. Moreover, within a collection of tests, individual factors have varying weights and magnitudes, depending on the facts of the case. The relationship among the factors and their mutual interaction is altered as each criteria increases or diminishes in strength, sometimes changing the controversy’s outcome. As such, there can be no mathematical formula capable of finding the X of capital gains or ordinary income in this complicated field.

¶29Yet our inability to proffer a panaceatic guide to the perplexed with respect to this subject does not preclude our setting forth some general, albeit inexact, guidelines for the resolution of many of the § 1221(1) eases we confront. This opinion does not purport to reconcile all past precedents or assure conflict-free future decisions. Nor do we hereby obviate the need for ad-hoc adjustments when confronted with close cases and changing factual circumstances. Instead, with the hope of clarifying a few of the area’s mysteries, we more precisely define and suggest points of emphasis for the major Winthrop delineated factors22 as they appear in the instant controversy. In so doing, we devote particular attention to the Court’s recent opinions in order that our analysis will reflect, insofar as possible, the Circuit’s present trends.

¶30III.

¶31We begin our task by evaluating in the light of Biedenharn’s facts the main Winthrop23factors — substantiality and frequency of sales, improvements, solicitation and advertising efforts, and brokers’ activities — as well as a few miscellaneous contentions. A separate section follows discussing the keenly contested role of prior investment intent. ' Finally, we considér the significance of the Supreme Court’s decision in Malat v. Riddell24

¶32*416A. Frequency and Substantiality of Sales

¶33Scrutinizing closely the record and briefs, we find that plaintiff’s real property sales activities compel an ordinary income conclusion.25 In arriving at this result, we examine first the most important of Winthrop’s factors — the frequency and substantiality of taxpayer’s sales. Although frequency and substantiality of sales are not usually conclusive, they occupy the preeminent ground in our analysis. The recent trend of Fifth Circuit decisions indicates that when dispositions of subdivided property extend over a long period of time and are especially numerous, the likelihood of capital gains is very slight indeed. See United States v. Winthrop, 5 Cir. 1969, 417 F.2d 905; Thompson v. Commissioner of Internal Revenue, 5 Cir. 1963, 322 F.2d 122. Conversely, when sales are few and isolated, the taxpayer’s claim to capital gain is accorded greater deference. Cf. Gamble v. Commissioner of Internal Revenue, 5 Cir. 1957, 242 F.2d 586, 591; Brown v. Commissioner of Internal Revenue, 5 Cir. 1944, 143 F.2d 468, 470.

¶34On the present facts, taxpayer could not claim “isolated” sales or a passive and gradual liquidation. See Gamble, supra;Dunlap v. Oldham Lumber Company, 5 Cir. 1950, 178 F.2d 781, 784; Brown, supra.Although only three years and 37 sales (38 lots) are in controversy here, taxpayer’s pre-1964 sales from the Hardtimes acreage as well as similar dispositions from other properties are probative of the existence of sales “in the ordinary course of his trade or business.” See Levin, Capital Gains Or Income Tax on Real Estate Sales, 37 B.U.L.Rev. 165, 170 & n.29 (1957). Cf. Snell v. Commissioner of Internal Revenue, 5 Cir. 1938, 97 F.2d 891. As Appendix I indicates, Biedenharn sold property, usually a substantial number of lots, in every year, save one, from 1923 to 1966. Biedenharn’s long and steady history of improved lot sales at least equals that encountered in Thompson v. Commissioner of Internal Revenue, 5 Cir. 1963, 322 F.2d 122, where also we noted the full history of real estate activity.26Supra at 124 — 25. There taxpayer lost on a finding that he had sold 376V2 lots over a 15 year span — this notwithstanding that overall the other sales indicia were more in taxpayer’s favor than in the present case.. Moreover, the contested tax years in that suit involved only ten sales (28 lots); yet we labeled that activity “substantial.” Supra at 125.

¶35The frequency and substantiality of Biedenharn’s sales go not only to its holding purpose and the existence of a trade or business but also support our finding of the ordinariness with which the Realty Company disposed of its lots. These sales easily meet the criteria of normalcy set forth in Winthrop, supra at 912.

¶36Furthermore, in contrast with Goldberg v. Commissioner of Internal Revenue, 5 Cir. 1955, 223 F.2d 709, 713, where taxpayer did not reinvest his sales proceeds, one could fairly infer that the income accruing to the Biedenharn Realty Company from its pre-1935 sales helped support the purchase of the Hardtimes Plantation. Even if taxpayer made no significant acquisitions after Hardtimes,27 the “purpose, system, and *417continuity” of Biedenharn’s efforts easily constitute a business. See Snell, supra at 893; Brown, supra at 470. As we said in Snell, supra:

The fact that he bought no additional lands during this period does not prevent his activities being a business. He merely had enough land to do a large business without buying any more.

¶37Citing previous Fifth Circuit decisions including Goldberg v. Commissioner of Internal Revenue, 5 Cir. 1955, 223 F.2d 709, 713, and Ross v. Commissioner of Internal Revenue, 5 Cir. 1955, 227 F.2d 265, 268, the District Court sought to overcome this evidence of dealer-like real estate activities and property “primarily held for sale” by clinging to the notion that the taxpayer was merely liquidating a prior investment. We discuss later the role of former investment status and the possibility of taxpayer relief under that concept. Otherwise, the question of liquidation of an investment is simply the opposite side of the inquiry as to whether or not one is holding property primarily for sale in the ordinary course of his business. In other words, a taxpayer’s claim that he is liquidating a prior investment does not really present a separate theory but rather restates the main question currently under scrutiny. To the extent the opinions cited by the District Court might create a specially protected “liquidation” niche,28 we believe that the present case, with taxpayer’s energetic subdivision activities and consummation of numerous retail property dispositions, is governed by our more recent decision in Thompson v. Commissioner of Internal Revenue, supra at 127—28. There, the Court observed:

The liquidation, if it really is that, may therefore be carried out with business efficiency. Smith v. Commissioner of Internal Revenue, 5 Cir. 1956, 232 F.2d 142, 145. But what was once an investment, or what may start out as a liquidation of an investment, may become something else. The Tax Court was eminently justified in concluding that this took place here. It was a regular part of the trade or business of Taxpayer to sell these lots to any and all comers who would meet his price. From 1944 on when the sales commenced, there is no evidence that he thereafter held the lots for any purpose other than the sale to prospective purchasers. It is true that he testified in conclusory terms that he was trying to “liquidate” but on objective standards the Tax Court could equate held solely with “held primarily.” And, of course, there can be no question at all that purchasers of these lots were “customers” and that whether we call Taxpayer a “dealer” or a “trader”, a real estate man or otherwise, the continuous sales of these lots down to the point of exhaustion was a regular and ordinary (and profitable) part of his business activity.

¶38See Ackerman v. United States, 5 Cir. 1964, 335 F.2d 521, 524-25; Brown, supra at 470.

¶39B. Improvements

¶40Although we place greatest emphasis on the frequency and substantiality of sales over an extended time period, our decision in this instance is aided by the presence of taxpayer activity — particularly improvements — in the other Winthrop areas. Biedenharn vigorously improved its subdivisions, generally adding streets, drainage, sewerage, and utilities. These alterations are comparable to those in Winthrop, supra at 906, except that in the latter case taxpayer built five houses. We do not think that the construction of five houses in the context of Winthrop’s 456 lot sales significantly distinguishes that taxpayer from Biedenharn. In Barrios Estate v. Commissioner of Internal Revenue, 5 Cir. 1959, 265 F.2d 517, 520, heavily relied on by plaintiff, the Court reasoned that improvements constituted an integral part of the sale of subdivided realty and were therefore permissible in the context of a liquidating sale. As discussed above, *418Biedenham’s activities have removed it from any harbor of investment liquidation. Moreover, the additional sales flexibility permitted the Barrios Estate taxpayer might be predicated on the forced change of purpose examined in section IV. Finally, in Thompson, supra,the plaintiff’s only activities were subdivision and improvement. Yet, not availing ourselves of the opportunity to rely on a Barrios Estate type “liquidation plus integrally related improvements theory,” we found no escape from ordinary income.

¶41C. Solicitation and Advertising Efforts

¶42Substantial, frequent sales and improvements such as we have encountered in this case will usually conclude the capital gains issue against taxpayer. See, e. g., Thompson, supra.Thus, on the basis of our analysis to this point, we would have little hesitation in finding that taxpayer held “primarily for sale” in the “ordinary course of [his] trade or business.” “[T]he flexing of commercial muscles with frequency and continuity, design and effect” of which Winthrop spoke, supra at 911, is here a reality. This reality is further buttressed by Biedenham’s sales efforts, including those carried on through brokers.29 Minimizing the importance of its own sales activities, taxpayer points repeatedly to its steady avoidance of advertising or other solicitation of customers. Plaintiff directs our attention to stipulations detailing the population growth of Monroe and testimony outlining the economic forces which made Hardtimes Plantation attractive residential property and presumably eliminated the need for sales exertions. We have no quarrel with plaintiff’s description of this familiar process of suburban expansion, but we cannot accept the legal inferences which taxpayer would have us draw.

¶43The Circuit’s recent decisions in Thompson, supra at 124-26, and Winthrop, supra at 912, implicitly recognize that even one inarguably in the real estate business need not engage in promotional exertions in the face of a favorable market. As such, we do not always require a showing of active solicitation where “business . . . [is] good, indeed brisk,” Thompson, supra at 124, and where other Winthrop factors make obvious taxpayer’s ordinary trade or business status. See also Levin, supra at 190. Plainly, this represents a sensible approach. In cases such as Biedenharn, the sale of a few lots and the construction of the first homes, albeit not, as in Winthrop, by the taxpayer, as well as the building of roads, addition of utilities, and staking off of the other subdivided parcels constitute a highly visible form of advertising. Prospective home buyers drive by the advantageously located property, see the development activities, and are as surely put on notice of the availability of lots as if the owner had erected large signs announcing “residential property for sale.”30 We do not by this evaluation automatically neutralize advertising or solicitation as a factor in our analysis. This form of inherent notice is not present in all land sales, especially where the property is not so valuably located, is not subdivided into small lots, and is not improved. Moreover, inherent notice represents only one band of the solicitation spectrum. Media utilization and personal initiatives remain material components of this criterion. When present, they call for greater Government oriented emphasis on Winthrop’s solicitation factor.

¶44D. Brokerage Activities

¶45In evaluating Biedenharn’s solicitation activities, we need not confine ourselves to the Thompson-Winthrop theory of brisk sales without organizational efforts. Unlike in Thompson and Winthrop where no one undertook overt solicitation efforts, the Realty Company hired brokers who, using media and on site advertising, worked vigorously on *419taxpayer’s behalf. We do not believe that the employment of brokers should shield plaintiff from ordinary income treatment. See Gamble v. Commissioner of Internal Revenue, 5 Cir. 1957, 242 F.2d 586, 592; Brown, supra at 470; Snell v. Commissioner of Internal Revenue, 5 Cir. 1938, 97 F.2d 891, 892-93; Cf. McFaddin v. Commissioner of Internal Revenue, 5 Cir. 1945, 148 F.2d 570, 571. See also Levin, supra at 193-94. Their activities should at least in discounted form be attributed to Biedenharn. To the contrary, taxpayer argues that “one who is not already in the trade or business of selling real estate does not enter such business when he employs a broker who acts as an independent contractor. Fahs v. Crawford, 161 F.2d 315 (5 Cir. 1947); Smith v. Dunn, 224 F.2d 353 (5 Cir. 1955).” Without presently entangling ourselves in a dispute as to the differences between an agent and an independent contractor, see generally Levin, supra, we find the cases cited distinguishable from the instant circumstances. In both Fahs and Smith, the taxpayer turned the entire property over to brokers, who, having been granted total responsibility, made all decisions including the setting of sales prices.31 In comparison, Biedenharn determined original 32 prices and general credit policy. Moreover, the Realty Company did not make all the sales in question through brokers as did taxpayers in Fahs and Smith.33Biedenharn sold the Bayou DeSiard and Biedenharn Estates lots and may well have sold some of the Oak Park land.34 In other words, unlike Fahs and Smith, Biedenharn’s brokers did not so completely take charge of the whole of the Hardtimes sales as to permit the Realty Company to wall itself off legally from their activities.

¶46E. Additional Taxpayer Contentions Plaintiff presents a number of other contentions and supporting facts for our consideration. Although we set out these arguments and briefly discuss them, their impact, in the face of those factors examined above, must be minimal. Taxpayer emphasizes that its profits from real estate sales averaged only 11.1% in each of the years in controversy, compared to 52.4% in Winthrop. Whatever the percentage, plaintiff would be hard pressed to deny the substantiality of its Hardtimes sales in absolute terms (the subdivided lots alone brought in over one million dollars) or, most importantly, to assert that its real estate .business was too insignificant to constitute a separate trade or business.35

¶47The relatively modest income share represented by Biedenharn’s real property dispositions stems not from a failure to engage in real estate sales activities but rather from the comparatively large profit attributable to the Company’s 1965 ($649,231.34) and 1966 ($688,840.82) stock sales. The fact of Biedenharn’s holding, managing, and selling stock is not inconsistent with the existence of a separate realty business. If in the face of taxpayer’s numerous real estate dealings this Court held otherwise, we would be sanctioning special treatment for those individuals and companies arranging their business activities so that the income accruing to real estate sales represents only a small fraction of the taxpayj|ig entity’s total gains.

¶48*420Similarly, taxpayer observes that Biedenham’s manager devoted only 10% of his time to real estate dealings and then mostly to the company’s rental properties. This fact does not negate the existence of sales activities. Taxpayer had a telephone listing, a shared business office, and a few part-time employees. Because, as discussed before, a strong seller’s market existed,36 Biedenham’s sales required less than the usual solicitation efforts and therefore less than the usual time. Moreover, plaintiff, unlike taxpayers in Winthrop, supraand Thompson, supra,hired brokers to handle many aspects of the Hardtimes transactions — thus further reducing the activity and time required of Biedenham’s employees.

¶49Finally, taxpayer argues that it is entitled to capital gains since its enormous profits (74% to 97%) demonstrate a return based principally on capital appreciation and not on taxpayer’s “merchandising” efforts. We decline the opportunity to allocate plaintiff’s gain between long-term market appreciation and improvement related activities. See generally S. Surrey, W. Warren, P. McDaniel, H. Ault, 1 Federal Income Taxation 1012 (1972). Even if we undertook such an analysis and found the former element predominant, we would on the authority of Winthrop, supra at 907—908, reject plaintiff’s contention which, in effect, is merely taxpayer’s version of the Government’s unsuccessful argument in that case.37

¶50IV.

¶51The District Court found that “[tjaxpayer is merely liquidating over a long period of time a substantial investment in the most advantageous method possible.” 356 F.Supp. at 1336. In this view, the original investment intent is crucial, for it preserves the capital gains character of the transaction even in the face of normal real estate sales activities.

¶52The Government asserts that Biedenham Realty Company did not merely “liquidate” an investment but instead entered the real estate business in an effort to dispose of what was formerly investment property. Claiming that Biedenharn’s activities would result in ordinary income if the Hardtimes Plantation had been purchased with the intent to divide and resell the property, and finding no reason why a different prior intent should influence this outcome,38 the Government concludes that original investment purpose is irrelevant. Instead, the Government would have us focus exclusively on taxpayer’s intent and the level of sales activity during the period commencing with subdivision and improvement and lasting through final sales. Under this theory, every individual who improves and frequently sells substantial numbers of land parcels would receive ordinary income.39

¶53While the facts of this case dictate our agreement with the Internal Revenue Service’s ultimate conclusion of taxpayer *421liability, they do not require our acquiescence in the Government’s entreated total elimination of Winthrop’s first criterion, “the nature and purpose of the acquisition.” Undoubtedly, in most subdivided-improvement situations, an investment purpose of antecedent origin will not survive into a present era of intense retail selling. The antiquated purpose, when overborne by later, but substantial and frequent selling activity, will not prevent ordinary income from being visited upon the taxpayer. See, e. g., Ackerman v. United States, 5 Cir. 1964, 335 F.2d 521; Thompson v. Commissioner of Internal Revenue, 5 Cir. 1963, 322 F.2d 122; Galena Oaks Corp. v. Scofield, 5 Cir. 1954, 218 F.2d 217; Brown v. Commissioner of Internal Revenue, 5 Cir. 1944, 143 F.2d 468. Generally, investment purpose has no built-in perpetuity nor a guarantee of capital gains forever more. Precedents, however, in certain circumstances have permitted landowners with earlier investment intent to sell subdivided property and remain subject to capital gains treatment. See, e. g., Cole v. Usry, 5 Cir. 1961, 294 F.2d 426; Barrios Estate v. Commissioner of Internal Revenue, 5 Cir. 1959, 265 F.2d 517; Smith v. Dunn, 5 Cir. 1955, 224 F.2d 353.

¶54The Government, attacking these precedents, argues that the line of cases decided principally in the 1950’s represented by Barrios Estate, supra; Goldberg v. Commissioner of Internal Revenue, 5 Cir. 1955, 223 F.2d 709; Ross v. Commissioner of Internal Revenue, 5 Cir. 1955, 227 F.2d 265 and including United States v. Temple, 5 Cir. 1966, 355 F.2d 67, are inconsistent with our earlier holdings in Galena Oaks Corp., supra; White v. Commissioner of Internal Revenue, 5 Cir. 1949, 172 F.2d 629; Brown, supra,and the trend of our most recent decisions in Ackerman, supra, Thompson, supraand including Judge Wisdom’s dissent in Temple, supra.Because of the ad-hoc nature of these previous decisions and the difficulty of determining in each instance the exact combination of factors which placed a case on one side or the other of the capital gains-ordinary income boundary, we are loath to overrule any of these past decisions. In a sense, we adhere to our own admonitions against efforts at reconciling and making consistent all that has gone before in the subdivided realty area. But in so avoiding a troublesome and probably unrewarding task, we are not foreclosed from the more important responsibility of giving future direction with respect to the much controverted role of prior investment intent, nor are we precluded from analyzing that factor’s impact in the context of the present controversy.

¶55We reject the Government’s sweeping contention that prior investment intent is always irrelevant. There will be instances where an initial investment purpose endures in controlling fashion notwithstanding continuing sales activity. We doubt that this aperture, where an active subdivider and improver receives capital gains, is very wide; yet we believe it exists. We would most generally find such an opening where the change from investment holding to sales activity results from unanticipated, externally induced factors which make impossible the continued pre-existing use of the realty. Barrios Estate, supra, is such a case. There the taxpayer farmed the land until drainage problems created by the newly completed intercoastal canal rendered the property agriculturally unfit. The Court found that taxpayer was “dispossessed of the farming operation through no act of her own.” Supra at 518. Similarly, Acts of God, condemnation of part of one’s property, new and unfavorable zoning regulations, or other events forcing alteration of taxpayer’s plans create situations making possible subdivision and improvement as a part of a capital gains disposition.40

¶56*422However, cases of the ilk of Ackerman, supra, Thompson, supra,and Winthrop, supra,remain unaffected in their ordinary income conclusion. There, the transformations in purpose were not coerced. Rather, the changes ensued from taxpayers’ purely voluntary responses to increased economic opportunity — albeit at times externally created41 —in order to enhance their gain through the subdivision, improvement, and sale of lots. Thus reinforced by the trend of these recent decisions, we gravitate toward the Government’s view in instances of willful taxpayer change of purpose and grant the taxpayer little, if any, benefit from Winthrop’s first criterion in such cases.

¶57The distinction drawn above reflects our belief that Congress did not intend to automatically disqualify from capital gains bona fide investors forced to abandon prior purposes for reasons beyond their control. At times, the Code may be severe, and this Court may construe it strictly, but neither Code nor Court is so tyrannical as to mandate the absolute rule urged by the Government. However, we caution that although permitting a land owner substantial sales flexibility where there is a forced change from original investment purpose, we do not absolutely shield the constrained taxpayer from ordinary income. That taxpayer is not granted carte blanche to undertake intensely all aspects of a full blown real estate business. Instead, in cases of forced change of purpose, we will continue to utilize the Winthrop analysis discussed earlier but will place unusually strong taxpayer-favored emphasis on Winthrop’s first factor.

¶58Clearly, under the facts in this case, the distinction just elaborated undermines Biedenharn’s reliance on original investment purpose. Taxpayer’s change of purpose was entirely voluntary and therefore does not fall within the protected area. Moreover, taxpayer’s original investment intent, even if considered a factor sharply supporting capital gains treatment, is so overwhelmed by the other Winthrop factors discussed supra, that that element can have no decisive effect. However wide the capital gains passageway through which a subdivider with former investment intent could squeeze, the Biedenharn Realty Company will never fit.

¶59V.

¶60The District Court, citing Malat v. Riddell, 1966, 383 U.S. 569, 86 S.Ct. 1030, 16 L.Ed.2d 102, stated that “the lots were not held . . . primarily for sale as that phrase was interpreted . . . in Malat . . . .” 356 F.Supp. at 1335.42 Finding that Biedenharn’s primary purpose became holding for sale and consequently that Malat in no way alters our analysis here, we disagree with the District Court’s conclusion. Malat was a brief per curiam in which the Supreme Court decided only that as used in Internal Revenue Code § 1221(1) the word “primarily” means “principally,” “of first importance.” The Supreme Court, remanding the case, did not analyze the facts or resolve the controversy which involved a real estate dealer who had purchased land and held it at the time of sale with the dual intention of developing it as rental property or selling it, depending on whichever proved to be the more profitable. Malat v. Riddell, 9 Cir. 1965, 347 F.2d 23, 26. In contrast, having substantially abandoned its in*423vestment and farming43 intent, Biedenharn was cloaked primarily in the garb of sales purpose when it disposed of the 38 lots here in controversy. With this change, the Realty Company lost the opportunity of coming within any dual purpose analysis.44

¶61We do not hereby condemn to ordinary income a taxpayer merely because, as is usually true, his principal intent at the exact moment of disposition is sales. Rather, we refuse capital gains treatment in those instances where over time there has been such a thoroughgoing change of purpose, see, e. g., Thompson, supra,as to make untenable a claim either of twin intent or continued primacy of investment purpose.45

¶62VI.

¶63Having surveyed the Hardtimes terrain, we find no escape from ordinary income. The frequency and substantiality of sales over an extended time, the significant improvement of the basic subdivisions, the acquisition of additional properties, the use of brokers, and other less important factors persuasively combine to doom taxpayer’s cause. Applying Winthrop’s criteria, this case clearly falls within the ordinary income category delineated in that decision.46 In so concluding, we note that Winthrop does not represent the most extreme application of the overriding principle that “the definition of a capital asset must be narrowly applied and its exclusions interpreted broadly.” Corn Products Refining Co. v. Commissioner of Internal Revenue, 1955, 350 U.S. 46, 52, 76 S.Ct. 20, 24, 100 L.Ed. 29, 35. See also Commissioner of Internal Revenue v. Lake, 1958, 356 U.S. 260, 265, 78 S.Ct. 691, 694, 2 L.Ed.2d 743, 748. Accord, Winthrop, supra at 911.

¶64We cannot write black letter law for all realty subdividers and for all times, but we do caution in words of red that once an investment does not mean always an investment. A simon-pure investor forty years ago could by his subsequent activities become a seller in the ordinary course four decades later. The period of Biedenharn’s passivity is in the distant past; and the taxpayer has since *424undertaken the role of real estate protagonist. The Hardtimes Plantation in its day may have been one thing, but as the plantation was developed and sold, Hardtimes became by the very fact of change and activity a different holding than it had been at its inception. No longer could resort to initial purpose preserve taxpayer’s once upon a time opportunity for favored treatment. The opinion of the District Court is reversed.

¶65APPENDIX I

¶66(Plaintiff’s Answers to Interrogatory 26)

¶67YEAR GROSS SALES NUMBER LOTS

¶681923 1.900.00 4

¶691924 1.050.00 2

¶701925 7,442.38 18

¶711926 11.184.00 29

¶721927 9,619.25 52

¶731928 49,390.55 37

¶741929 35,810.25 55

¶751930 8.473.00 24

¶761931 5.930.00 18

¶771932 none none

¶781933 520.00 2

¶791934 5.970.00 8

¶801935 2.639.00 7

¶811936 2.264.00 3

¶821937 14.071.00 8

¶831938 1.009.00 3

¶841939 5.558.00 10

¶851940 3.252.00 4

¶861941 2.490.00 3

¶871942 6.714.00 9

¶881943 6.250.00 12

¶891944 9.250.00 38

¶901945 15.495.00 20

¶911946 12,732.58 29

¶921947 38.310.00 169

¶931948 23.850.00 22

¶941949 8.830.00 26

¶951950 9.370.00 19

¶961951 55,222.99 16

¶971952 38,134.29 16

¶981953 123,007.22 17

¶991954 235,396.04 10

¶1001955 76.805.00 20

¶1011956 100,593.25 61

¶1021957 133,448.10 36

¶1031958 110,369.00 27

¶1041959 44.400.00 12

¶1051960 130,610.19 21

¶1061961 48,729.60 25

¶107NUMBER YEAR GROSS SALES LOTS

¶1081962 6,720.00 1

¶1091963 7,475.00 1

¶1101964 77,650.00 10

¶1111965 75,759.00 10

¶1121966 155,950.00 20

¶1131967 75,380.00 9

¶1141968 89,447.50 10

¶1151969 31,010.00 3

¶1161970 none none

¶1171971 130,000.00 139

¶167RONEY, Circuit Judge

¶168(specially concurring):

¶169I concur with the result and the analysis in Judge Goldberg’s opinion with this comment: as I understand the holding in United States v. Winthrop, 417 F.2d 905 (5th Cir. 1969), and Judge Goldberg’s opinion here, the Court does not deviate from strict application of the statute to determine whether property is excluded from capital asset — capital gains treatment because it is “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” 26 U.S.C.A. § 1221(1). As I understand the various factors set forth in Withrop and discussed in Judge Goldberg’s opinion here, the statutory test is still paramount and the factors serve only to aid in the determination of whether the statutory characteristics of non-capital assets are present. Under § 1221(1) it must first be determined that the property is held “primarily for sale;” and if so, that the sales are made in the ordinary course of taxpayer’s trade or business. This statutory standard is strictly followed in both Winthrop and in this case. The various indicia which courts have delineated are useful in applying the § 1221(1) test to the facts of a case, but should not be regarded as a substitute for the statutory test.

¶170GEE, Circuit Judge, with whom BELL, COLEMAN, AINSWORTH and DYER, Circuit Judges, join, dissenting.

¶171Viewing as incorrect the en banc majority’s restatement of facts and law, I must respectfully dissent. I would ad*425here to the panel opinion, reported at 509 F.2d 171, which attempted to apply existing, controlling precedent in our circuit to the facts of this very close case as they were found by the district court. To obtain a different result, the majority has found it necessary to revise the law and refind the facts in important respects, as though the obtaining of capital gains treatment by this taxpayer in the three years in question were a catastrophe to be avoided at all costs.1

¶172First, in setting out the facts of this case, the majority summarily discounts a critical trial court factfinding without ruling it clearly erroneous.2 The majority rejects the district court’s finding that taxpayer “is still farming a large part of the land,” 356 F.Supp. at 1336,3 refinding the facts as being that taxpayer’s tenant farmer “may” presently be farming the land, supra at 411, and that neither plaintiff nor the lower court claimed any dual purpose, id. at 423 n. 43. But the record affirmatively shows that the land has been and continues to be farmed,4 and the lower court specifically found multi-purpose use of the land.5

¶173Second, although insisting at one point that it only “resummarizes” the relevant case law, id. at 415 n. 23, the majority revises the old test by placing pre-eminent emphasis on sales activity and improvements, effectively eliminating the other factors enunciated in United States v. Winthrop, 417 F.2d 905 (5th Cir. 1969).6 It is true that, to justify its emphasis on sales, the majority claims to detect in our earlier cases an overriding tendency toward finding ordinary income as the frequency and substantiality of sales increase. But that the strength of one factor, if it is a factor, can affect the outcome is self-evident, and as the panel opinion recognized in discussing a different one: “[I]f this factor is to be included in the seven other than as a sham there must be instances imaginable in which it will be critical, perhaps dis-positive.” 509 F.2d at 175. To bolster its reasoning, the majority points to Thompson v. Commissioner of Internal Revenue, 322 F.2d 122 (5th Cir. 1963), which held against the taxpayer, and asserts that the other sales indicia favored the taxpayer more in that case than here. Not so: in Thompson the taxpay*426er earned 48.8% of his income from the real estate sales in question, as compared to 11.1% here. More significantly, once Thompson’s sales began, “there is no evidence that he thereafter held the lots for any purpose other than the sale to prospective purchasers.” Id. at 128 (emphasis in original). Here, however, taxpayer still farms the land.

¶174To explain its emphasis on improvements, the majority stresses the similarity between taxpayer’s improvements and those present in Winthrop. Supra at 417. But this comparison, too, is mistaken. The Winthrop court emphasized that property does not cease to be a capital asset merely because its increase in value was due in part to the taxpayer’s efforts in making improvements, 417 F.2d at 907—09, quoting the same portion of Barrios’ Estate v. Commissioner of Internal Revenue, 265 F.2d 517 (5th Cir. 1959), that the panel in this case cited:

The idea of selling a large tract of land in lots embraces necessarily the construction of streets for access to them, the provision of drainage and the furnishing of access to such a necessity as water. It is hardly conceivable that taxpayer could have sold a lot without doing these things.

¶175Id. at 520, quoted with approval in Winthrop, 417 F.2d at 909, and Biedenharn, 509 F.2d at 174 (panel opinion). Furthermore, the Winthrop situation was shot through with facts not here present supporting the conclusion that the land was “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business”: (1) taxpayer used the land for nothing but subdividing and selling, and “[t]here were, therefore, no multiple, dual, or changes of purpose during the relevant years . . . . The taxpayer, long before the tax years in question, had as his sole motivation the sale of [the property],” 417 F.2d at 911 (emphasis added)— i.e., the property was held “primarily for sale”; (2) as in Thompson, the taxpayer’s primary activity was substantial and continuous real estate sales, from which she earned 52.4% of her income — i.e., this activity was a “business”7; and (3) the taxpayer began selling shortly after he acquired the land, never using it for any other purpose8 — i.e., the sales were “ordinary in the course of this business.”

¶176Thus, to the extent that I agree with the majority that “[o]ne need not go beyond Winthrop in order to decide the present dispute,” supra at 423 n. 46, I think Winthrop, in thé form in which it stood at the time this taxpayer was presumably arranging its affairs in reliance on that opinion requires a different result in this case — that reached by the panel, 509 F.2d 171 (1975).

¶177In the course of “resummarizing” the relevant test, the majority adds a wholly new element, volition or the lack of it, in cases such as this involving an initial investment purpose followed by substantial and continuous sales activity. But to permit a finding of continuing investment purpose in the face of major sales activity only (or as the majority says, .supra at 421, “most generally”) when that activity “results from unanticipated, externally induced factors which make impossible the continued pre-existing use of the realty,” id. at 421, makes impossible any voluntary disposition of investment property at capital gains rates, exalts one factor — sales activity — over all others, and changes the law as de*427clared in Thompson and Winthrop, if not their results. This drcuit’s longstanding indusion of factors other than sales activity in the capital gains/ordinary income calculus implicitly recognized that an investor could engage in a voluntary liquidation and begin selling property without a change of purpose. Holding that property is not part of a business only so long as it is sold in large blocs, but not if it is sold in small parcels, discriminates irrationally against an investor who decides on liquidation but cannot locate purchasers interested in large acquisitions.9

¶178And so, under the guise of emphasiz-' ing certain factors, the majority appears to have completely changed the Winthrop test to eliminate all factors but one. And while I entirely agree with the majority’s redundant warning that “once an investment does not mean always an investment,” id. at 423, I would also suggest that once a sale does not mean always a business.