A group of investors acquired, through holding corporations, co-ownership interests in a property on which to construct and sell houses. The construction was never completed, and the property was sold off for a gain.
Pizzitelli J. found that the investors' activities generally had the indicia of an adventure in the nature of trade. However, the taxpayer's initial acquisition of a 6.7% interest in the property originally was intended to provide security for a loan made to one of the other investors (so that the loan would have been repaid through set-off against the sale price for a repurchase of the 6.7% interest), and the gain realized from that portion of the taxpayer's interest (which it instead retained) was on capital account.
The taxpayer's motivation for subsequently acquiring further interests (so as to increase its co-ownership interest to 33%) was to share in the profit from the venture itself. The taxpayer's director's evidence that he only meant to protect the initial investment was not compelling given that less extreme measures were available. Therefore, the remainder of the gain was on income account.