                         T.C. Memo. 2001-96



                       UNITED STATES TAX COURT



                   BUD RAYMOND, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18162-99.                     Filed April 17, 2001.



     Bud Raymond, pro se.

     Andrew R. Moore, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     VASQUEZ, Judge:    Respondent determined a deficiency of

$140,981 in petitioner’s 1995 Federal income tax.   After

concessions,1 the issues for decision are (1) the amount realized


     1
        With regard to items listed in the notice of deficiency,
respondent concedes that petitioner is entitled to a $3,000
capital loss relating to the sale of baseball cards and $23,935
of deductions on Schedule A, Itemized Deductions. As to
                                                   (continued...)
                                - 2 -

by petitioner on account of receiving various promissory notes,

(2) whether petitioner is entitled to use the installment method

under section 453 to report gain realized from the sale of single

family homes, and, if so, (3) whether petitioner properly

reported his income according to that method.2

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts, stipulation of settled issues, and the

accompanying exhibits are incorporated herein by this reference.

At the time petitioner filed the petition, he resided in Atwater,

California.

     During 1995, petitioner operated as a sole proprietorship

under the name Bud G. Raymond Construction.    For three

generations, the members of the Raymond family have been involved

in the construction business.    Petitioner and his father and son

have been home builders.    Petitioner became involved in the

construction business when he helped his father build


     1
      (...continued)
subsequent determinations, petitioner and respondent agree that
petitioner must report interest income of $42,072, rental income
of $18,849 on Schedule E, Supplemental Income and Loss, income of
$1,027 on Schedule F, Profit or Loss From Farming, other income
of $4,694, and Social Security benefits of $8,462. Petitioner
and respondent also agree that computational adjustments may be
required for self-employment taxes and the deduction associated
with the self-employment taxes imposed.
     2
        All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
                                 - 3 -

approximately 30 homes.   Later on his own, as described below,

petitioner developed a subdivision consisting of homes for low

income families; in addition, he also built and sold custom

designed homes.

     In 1992, petitioner purchased a tract of land which he

subdivided into 58 lots and is now known as the Pajaro Dunes

subdivision.   Petitioner obtained financing from The Savings Bank

of Stockton to construct homes in the subdivision.    Additionally,

he hired his son’s construction company to supervise the

construction of the subdivision.    Fourteen homes were completed

in 1994, while 44 homes were completed in 1995.

     Petitioner hired Rancho Real Estate (Rancho) to market and

sell the homes.   Rancho placed advertisements in local newspapers

and posted signs to market the properties.    In 1994, Rancho

procured the sale of 14 homes.    The next year, in 1995, the

remaining 44 homes were sold.

     The purchase prices of the homes ranged from $63,900 to

$79,900.   To facilitate the sales in 1995, petitioner accepted

promissory notes for part of the purchase prices on 41 of the 44

homes sold that year and requested second deeds of trust to

secure the notes.3   The promissory notes range in principal


     3
        The typical financing structure consisted of the
following arrangement (typically known as an 80-15-5 mortgage):
(1) The Savings Bank of Stockton financing 80 percent of the
purchase price with a loan at an 8.5-percent interest rate,
                                                   (continued...)
                               - 4 -

amounts from $5,300 to $12,000, and the aggregate face value of

the 41 notes amounts to $423,770.   The typical note to petitioner

has an interest rate of 10 percent and is subject to amortization

over 30 years; after 7 years, however, a balloon payment is due

for the outstanding principal balance.    As of the time of trial,

one note was no longer secured by a second deed of trust as a

result of a foreclosure on the first deed of trust, one note had

been fully repaid, and the remaining 39 notes were outstanding.

     On his 1995 tax return, petitioner, a cash basis taxpayer,

did not use the installment method when recognizing income from

his construction business.   On his Schedule C, Profit or Loss

From Business, petitioner did not include the face value of the

promissory notes in his gross receipts because he believed that

as a cash basis taxpayer he did not have to report that income

until he actually received payment.    Additionally, on his 1996

through 1999 tax returns, petitioner did not employ the

installment method.   On his 1995 through 1999 tax returns,

petitioner, however, did report the interest income associated

with the promissory notes.   Respondent determined that the face

value of the promissory notes had to be returned as Schedule C


     3
      (...continued)
amortizable over a 30-year period, and secured by a first deed of
trust, (2) petitioner financing the next 15 percent of the
purchase price, and (3) the purchaser paying the remaining 5
percent out of his own funds. The principal benefit of this
arrangement was that the purchaser avoided the cost of private
mortgage insurance.
                                 - 5 -

gross receipts in petitioner’s 1995 tax return.

                                OPINION

Realization and Recognition of Income

     Section 1001(a) provides that the gain realized from the

sale of property shall be the excess of the amount realized over

the adjusted basis.   The amount realized consists of “the sum of

any money received plus the fair market value of the property

(other than money) received.”    Sec. 1001(b).   If the taxpayer has

a realized gain (after the calculations of the amount realized

and adjusted basis), the taxpayer must generally recognize the

entire gain as income.   See sec. 1001(c).   The tax law, however,

provides that for certain sales of property the taxpayer can use

the installment method to defer recognition of income.      See secs.

451(a), 453, 1001(c).

     Under section 453(a), a taxpayer can use the installment

method only if there has been an installment sale.     An

installment sale is a “disposition of property where at least 1

payment is to be received after the close of the taxable year in

which the disposition occurs.”    Sec. 453(b)(1).   Using the

installment method, the taxpayer recognizes a proportion of the

payment received in any given year commensurate with the

percentage that the gross profit bears to the total contract

price.   See sec. 453(c);   Wang v. Commissioner, T.C. Memo 1998-

127; Berger v. Commissioner, T.C. Memo. 1996-76.     Dealer
                                - 6 -

dispositions, however, are not installment sales; therefore, the

gains associated with those dispositions cannot be reported under

the installment method.    See sec. 453(b)(2)(A).

The Parties’ Disagreements

     Petitioner and respondent disagree over whether petitioner

may use the installment method to report income.     Before we

evaluate whether petitioner is entitled to use the installment

method, we deal with petitioner’s assertion at trial that he

would have been “lucky” to receive 25 percent of the face value

of the promissory notes.    Based on the evidence before us, we

have found that petitioner received 41 promissory notes (with a

total face value of $423,770) secured by second deeds of trust.

Petitioner has not introduced any evidence other than his self-

serving testimony indicating that the fair market value of the

notes was less than the face value.     Because petitioner has

failed to do so, we conclude that the amount realized includes

the total face value of the promissory notes.     See Estate of

Silverman v. Commissioner, 98 T.C. 54, 61-62 (1992); McShain v.

Commissioner, 71 T.C. 998, 1003-1005 (1979); see also Wood v.

Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C.

593 (1964); Tokarski v. Commissioner, 87 T.C. 74, 76-77 (1986).

     Petitioner claims that pursuant to section 453, he is

entitled to defer the gain relating to the sale of the 41 homes

until the promissory notes are converted into cash.     Respondent
                                 - 7 -

argues that because petitioner’s sales are dealer dispositions,

the installment method is unavailable to petitioner pursuant to

section 453(b)(2)(A).   Petitioner counters that the definitions

of a dealer as listed in Black’s Law Dictionary 399 (6th Ed.

1990) and Webster’s Encyclopedic Unabridged Dictionary of the

English Language 371 (1989) lead to the conclusion that one who

makes property to sell is not a dealer.    Because he constructs

homes, petitioner argues that he is not a dealer, and therefore

the sales cannot be categorized as dealer dispositions.     For the

following reasons, we agree with respondent.

Dealer Dispositions

     Section 453(b)(2)(A) prohibits the use of the installment

method with regard to income from a “dealer disposition”.     See

also sec. 453(a)(1), (b)(1).   The term “dealer disposition”

includes “any disposition of real property which is held by the

taxpayer for sale to customers in the ordinary course of the

taxpayer’s trade or business.”    Sec. 453(l)(1)(B).   Because

Congress has provided the meaning of a dealer disposition, we are

precluded from resorting to a dictionary definition of the word

“dealer” in deciding the issue in dispute.    We therefore analyze

whether petitioner falls within the context of section

453(l)(1)(B).

     To establish whether a taxpayer has held property for sale

to customers in the ordinary course of his trade or business, we
                                - 8 -

look to the taxpayer’s intent at the time he disposes of the

property.4    See Cottle v. Commissioner, 89 T.C. 467, 487 (1987).

Generally, we look to the following factors when making such

evaluation:    (1) The taxpayer’s purpose for initially acquiring

the property; (2) the purpose for which the property was

subsequently held; (3) the extent to which the taxpayer made

improvements to the property; (4) the frequency, number, and

continuity of sales; (5) the extent and nature of the taxpayer’s

efforts to sell the property; (6) the character and degree of

supervision or control exercised by the taxpayer over any

representative selling the property; (7) the extent and nature of

the transactions involved; and (8) the taxpayer’s everyday

business and the relation of realty income to total income.      See

id. at 487; Neal T. Baker Enters., Inc. v. Commissioner, T.C.

Memo. 1998-302; Nadeau v. Commissioner, T.C. Memo 1996-427;

Tollis v. Commissioner, T.C. Memo. 1993-63, affd. without

published opinion 46 F.3d 1132 (6th Cir. 1995).    Although no

single factor is determinative, the combination of several

factors supporting a particular result is sufficient for us to

decide whether a taxpayer held property for sale to customers in

the ordinary course of a trade or business.    See Cottle v.

Commissioner, supra at 488.


     4
        We may, however, consider earlier events to decide what
the taxpayer’s purpose was at the time of the sale. See Cottle
v. Commissioner, 89 T.C. 467, 487 (1987).
                               - 9 -

     In the instant case, petitioner purchased land with the

intention of subdividing it into residential lots and

constructing single family residences thereon.    By doing so,

petitioner substantially improved the property.    Furthermore,

petitioner listed the property with Rancho, and through Rancho,

petitioner advertised the property in newspapers and on posted

signs.5   Over a 2-year period, petitioner sold the 58 homes built

in the subdivision.   After adjusting for concessions by the

parties, petitioner had gross receipts of $2,750,130 (not

including the $423,770 in notes subject to the present dispute),

cost of goods sold of $2,680,990, and expenses of $133,119 from

his construction business.   Based on the record before us, we

conclude that petitioner held the homes in Pajaro Dunes primarily

for sale to customers in the ordinary course of his business;

therefore, the sales were on account of dealer dispositions and

do not qualify as installment sales.   Accordingly, petitioner

must include the face value of the notes in his 1995 income.6

     In reaching our holdings herein, we have considered all

arguments made by the parties, and to the extent not mentioned



     5
        We note that in California an “agent may be authorized to
carry forward any ordinary business transaction, the agent's act
becoming the act of his principal.” Whittaker v. Otto, 10 Cal.
Rptr. 689, 692 (Ct. App. 1961); see also Channel Lumber Co., Inc.
v. Simon, 93 Cal. Rptr. 2d 482, 486 (Ct. App. 2000).
     6
        As a result, we need not evaluate whether petitioner
correctly applied the installment method.
                             - 10 -

above, we find them to be moot, irrelevant, or without merit.

     To reflect the foregoing,

                                      Decision will be entered

                                 under Rule 155.
