If You Want Capital Gains Treatment

Once again we have the deal(er) or no deal(er) question. But Sugar Land Ranch Development, LLC, Sugar Land Advisors, LLC, Tax Matters Partner, 2018 T. C. Memo. 21, filed 2/22/18 succeeds where Donald Flood failed, simply by doing nothing.

For Don’s defeat, see my blogpost “Deal(er) or No Deal(er),” 9/28/12.

Ex-Ch J Michael B (“Iron Mike”) Thornton really likes the torpid tactics of the Sugar crew. And as they’re denizens of 5 Cir, Ex-Ch J Iron Mike drinks deep of 5 Cir learning and comes up with “Frequency and substantiality of sales is the most important factor.” 2018 T. C. Memo. 21, at p. 10 (Citation omitted).

Well, due to the subprime meltdown, the Sugar crew didn’t speak to brokers, post signs or anything but testify on the trial that their land “just sat there.”

Until a fellow developer, unsolicited, approached them and bought three big tracts.

Although the Sugar crew had kickers based on sales and subdivisions, they got nothing during the years at issue, and anyway, the kickers would be ordinary even if the base sales prices weren’t.

“More particularly, when the [subject] parcels were sold, they were not sold in the ordinary course of [Sugar crew]’s business:  [Sugar crew] did not market the parcels by advertising or other promotional activities.  [Sugar crew] did not solicit purchasers for the…parcels, nor does any evidence suggest that [Sugar crew]’s managers or members devoted any time or effort to selling the property; [Fellow developer] approached [Sugar crew].  Most importantly, sale of the…parcels was essentially a bulk sale of a single, large, and contiguous tract of land (which was clearly separated from any other properties by the [Houston Light and Power?] easement and the levee) to a single seller–clearly not a frequent occurrence in [Sugar crew]’s ordinary business.” 2018 T. C. Memo. 21, at p. 11.

And that the Sugar crew were developers and conducted themselves as such in other years and other deals is irrelevant here.

Best advice to get capital gain treatment: do nothing.