(about 40 per cent) in the Southeast State Bank of Kansas City, Missouri, and he was a director of the Mercantile Bank and Trust Company of Kansas City, Missouri.

Beginning as early as 1913, James followed a policy of buying for the partnership pieces of real estate, mostly in and around Jackson County, Missouri, and Kansas City, and generally the property consisted of scattered parcels of vacant property, with some industrial property, a few farms, and a few residences. Some of the property was acquired from estates, some at mortgage foreclosures, some at land auctions, some at sheriffs' sales, and some at sales of tax-delinquent land. Generally, the property was not improved and it would be held for a long period of time (sometimes as long as 20 years) and then sold. Sometimes realty in the partnership would be turned over to James at book value and he would sell it. Occasionally the parcels would be temporarily used by Hoover Brothers or some of James' business enterprises or for the storage of construction machinery and equipment.

During the years 1945 through 1955, Hoover Brothers acquired. 46 pieces of vacant property, about a third of which cost less than $1,000 each; 15 farms, 10 of which cost less than $6,000 each; 5 residences at a cost ranging from a low of $6,574.69 to a high of $13,612.64; and 2 buildings, 1 costing $3,058.80 and the other $15,574.23.

James owned no real estate in the years 1949, 1950, and 1951. In 1952 he acquired 2 houses at a total cost of $16,801.62. He acquired no property in 1953 and on January 1, 1954, Hoover Brothers transferred to James the following real properties:

During the years 1954 through 1957 James G. Hoover acquired the following property:

During the years 1945 through 1955 Hoover Brothers made the

following sales of real property:

During the years 1953 through 1957 James G. Hoover sold the following parcels of real property:

1 Acquired from Federal Construction Company, a corporation controlled by James G. Hoover (99.5 per cent of the stock). Federal Construction Company acquired this property about 1940. The rest of the properties were acquired from Hoover Brothers.

Acquired by Hoover Brothers in 1950.

Acquired by Hoover Brothers in the same year.

Acquired by Hoover Brothers in 1951.

Acquired by Hoover Brothers in 1952.

Acquired by Hoover Brothers in 1949 and 1951.

Most of the properties sold by James G. Hoover and Hoover Brothers during the years 1953, 1954, and 1955 were vacant land and produced no rental income.

Hoover Brothers, on its partnership return filed for the year 1953, reported ordinary net income of $70,148.94 and, in addition, reported from the sale of real property a net short-term capital gain of $409.10 and a net long-term capital gain of $13,754.16. Included in the net capital gains was the amount of $1,641.32 which represented profits realized on sales made in prior years and reported on the installment basis. The ordinary net income included $10,294.08, mostly from equipment rental and rock royalties, $10,182 received as a distribution from another partnership (Hoover & Lewis) engaged in the sale of grain and livestock, $35,508 as dividends, $6,544.46 as interest, $1,919.41 as rents, and $5,700.81 as net profit from the operations of the Junction City Sanitation Agency. In its partnership return filed for the year 1954 Hoover Brothers reported ordinary net income of $29,785.93 and, in addition, reported a net short-term capital gain of $157.49 and a net long-term capital gain of $6,110.49.2 Included in the net capital gains was the amount of $4,703.65, which represented profits realized on sales made in prior years and reported on the installment basis. The ordinary net income included $17,680.42

1 In 1953 Hoover Brothers sold a filling station and a farm for a net long-term capital gain of $13,333.60. These two sales were reported on the installment basis. Consequently, only $2,784.61 of the realized gain was reported in 1953.

2 One of the real property sales, on which a net long-term capital gain of $4,069.19 was realized, was reported on the installment basis. Consequently, only $208.34 of the realized gain was reported in 1954.

from equipment rental, $5,032.07 from the Junction City Sanitation Agency, $1,198.55 from the Hoover & Lewis partnership, $9,124 in dividends, $7,315.95 in interest, and $1,610.05 in rents. In its partnership return filed for the year 1955 Hoover Brothers reported a loss of $883.05 and, in addition, reported a net short-term capital gain of $61.84 and a net long-term capital gain of $5,349.98. Included in the net capital gains was the amount of $2,598.84, which represented profits realized on sales made in prior years and reported on the installment basis.

Charles A. Hoover's only income was his distributable share of the partnership income of Hoover Brothers. The deficiency in his case results from the Commissioner's determination that the gains realized from the partnership's sales of realty in the years 1953, 1954, and 1955 represent ordinary income rather than capital gains as reported. Part of the deficiencies in James' case results from the same determination and part from the Commissioner's determination that the gains realized from James' sales of realty in the years 1953, 1954, and 1955 represent ordinary income rather than capital gains as reported. During the years 1953, 1954, and 1955 James and his wife reported ordinary gross income of $99,073.99, $103,051.16, and $95,558.56, respectively.

None of the properties sold by Hoover Brothers or by James G. Hoover was ever advertised for sale, except for signs on a few parcels owned and sold by James G. Hoover, in early years. James G. Hoover has never held a real estate license. No real estate agents or brokers were ever engaged on a permanent basis to sell property for Hoover Brothers or for James G. Hoover. There were no signs indicating that James G. Hoover or Hoover Brothers was in the real estate business. None of the properties was subdivided by James G. Hoover or by Hoover Brothers. Some of the properties acquired by Hoover Brothers over the years, and later sold, were used in the partnership's activities such as office space or for the purpose of storing some of the partnership's construction equipment, or as rental property. On the properties described as 8600-8618 Highland, acquired by Hoover Brothers in 1950, several houses were constructed, and after these houses were rented for a time, they were sold by James (in 1953), to whom these properties had been transferred in 1952. Sales of real property made by Hoover Brothers and by James during the years 1953, 1954, and 1955 were often made reluctantly and after direct and repeated solicitation by the buyers themselves. Several of the sales made by Hoover Brothers and James in the years 1953, 1954, and 1955 were made to personal friends or business acquaintances of James. One of the properties sold by James in 1955 was to his daughter. A sale of a house made by James in 1953 was to

the former lessee. A sale of a lot made by Hoover Brothers in 1953 was to the president of a bank in which James G. Hoover was a stockholder. Another sale in 1953 made by Hoover Brothers was to James G. Hoover's attorney.

Concordia Stock Loss Issue.

The Concordia Industrial Development Company was organized to construct a building for a garment factory to be located in Concordia, Missouri. In 1948 James G. Hoover bought 5 shares of stock in this corporation at a cost of $512.50. All the business people in Concordia subscribed to this stock in order to construct the building. The purpose of this building was to induce more industry to come to Concordia. At the time of his purchase, James G. Hoover was a majority stockholder in the Concordia Bank. He still held the 5 shares of stock in the development corporation at the time of the trial. In the joint return filed by James G. Hoover and his wife in 1953, he claimed a loss deduction due to worthless stock in the amount of $512.50. His explanation on the return was that the cost of stock "cannot be recovered." Respondent disallowed this loss deduction.

Deductibility of Certain Payments Made in 1953 and 1955
to an Employee of the Land Trust.

The Land Trust of Jackson County, Missouri, is a commission created by the laws of the State of Missouri for the management, sale, and other disposition of delinquent lands. During the years 1948 through 1956 Granville Richart, now deceased, was the land commissioner, and as such he was a salaried employee of the Land Trust. Granville Richart was also a real estate broker and sheriff of Jackson County, Missouri. The land commissioner is the administrative and executive officer of the Land Trust and it is his duty to interest prospective purchasers of its real property. He does not have the authority to sell any of the properties but merely accepts bids from prospective purchasers. Authority to sell the properties rests solely with the three trustees of the Land Trust.

During the years 1948 through 1952 James G. Hoover, for himself or on behalf of Hoover Brothers, acquired five parcels of real property from the Land Trust for a total cost of $9,530. These properties were sold by James G. Hoover and/or Hoover Brothers in the years 1953 and 1955 for a total selling price of $40,250. When the properties were sold, payments totaling $12,997.86 were made to Granville Richart.

The payments to Granville Richart were deducted as expenses of sale on the returns filed by James G. Hoover and/or Hoover Brothers for the years 1953 and 1955. By an amendment to his answer the