In Si Boo LLC, the Tax Court denied capital gain treatment and assessed self-employment taxes on three taxpayers who regularly sold real properties acquired by tax deed.  The court held that, although the taxpayers bought the tax liens primary to profit from redemptions of the liens, the repeated sales of properties forfeited to them as lien holders constituted ordinary income as a dealer in real estate.

The court found that the taxpayers’ intent was not to hold onto the properties for appreciation in value but rather to sell the properties quickly to recover their investment costs and/or to make a profit. Although the sales of real estate may not have been the primary source of taxpayer income (with the main goal that the tax liens be repaid), the court found the sales of these real properties were integral components in their respective trades or businesses, permitting them to profit from both the acquisition of the certificates of purchase of tax lien and the sales of properties if those certificates were not redeemed.  The court also supported its dealer determination based on the the regular sales as well as the fact that the taxpayers had employees act for and on behalf of their businesses in acquiring tax deeds, preparing the properties for sale, and maintaining accounting and other records in the course of their trades or businesses.