Byram v. United States

1983)[1] is a Fifth Circuit Court of Appeals decision that helps determine when a sale of land will result in a capital gain for purpose of the U.S. Federal income tax.

[3] Were the properties held for investment purposes (allowing capital gains treatment) and not primarily for sale to customers in the ordinary course of his trade or business?

The properties were held for investment purposes and not primarily for sale to customers in the ordinary course of his trade or business and therefore warranted capital gains treatment under Internal Revenue Code sections 1201 and 1202.

• The court determined that the standard for review from the district court’s finding must be accepted unless it is clearly erroneous • The district court did not clearly err in determining that 22 sales in 3 years were not sufficiently frequent or continuous to compel an inference of intent to hold the property for sale rather than investment • Substantial and frequent sales activity standing alone has never been held to be automatically sufficient to trigger ordinary income treatment • A court should avoid placing too much weight on duration of ownership where other indicia of intent to hold the property for sale are minimal in order to follow Congressional intent.

The takeaway from this case, and the reason it is important to everyday investors, is that Byram demonstrated that if you want to sell property AND obtain favorable capital gains treatment, it is essential that you consider the 7 Pillars of Capital Gain Treatment and attempt to stay on the “Byram” Side of the line.