Volume 1 — Board of Tax Appeals

An amount was paid to the taxpayer by a corporation of which he was a director and the general superintendent. Held: that the evidence does not establish a gift and that the amount should be included in gross income.

The Board has no jurisdiction over an appeal involving only the refund to a taxpayer of a tax paid prior to the passage of the Revenue Act of 1924.

A contribution made by a corporation to a church maintained in its mill village, producing direct benefit to the corporation, is an allowable deduction under section 234(a) of the Revenue Act of 1918.

The unextinguished cost of a building or part of a building demolished during the year 1921 as an incident to the carrying on of a business is a legal deduction from the gross income of a corporate taxpayer in an income tax return made for the year 1921.

A taxpayer regularly employed on a salary, who made five purchases of securities during 1921 from brokers and one sale of securities at a loss which exceeded his income for 1921, is not entitled to a deduction in his return for 1922 on account thereof under the provisions of section 204 of the Revenue Act of 1921, such loss not resulting from the operation of a business regularly carried on by the taxpayer.

To entitle a taxpayer to deduct from gross income, as a bad debt, an item ascertained to be worthless and charged off in a given year, such a debt must have had an existence in fact. A nonexisting debt can not be ascertained to be worthless and charged off to support a deduction from gross income as a bad debt, under section 234(a)(5), Revenue Act of 1918.

The Board has no jurisdiction of an appeal based upon the denial by the Commissioner of a claim for refund of taxes paid prior to the passage of the Revenue Act of 1924. The Board has no jurisdiction of an appeal based upon the denial by the Commissioner of a claim for credit of taxes paid prior to the passage of the Revenue Act of 1924, where there has been no determination that any assessment should be made.

Deficiency to be determined in accordance with stipulation.

A lessee of chattels is not authorized by the Revenue Act of 1918 to take as a deduction amounts set aside as a reserve each year in anticipation of liability under the terms of the lease to replace the property as good as new when the lease was surrendered, canceled, or forfeited and the property returned to the lessor.

An appeal is filed with the Board of Tax Appeals only when deposited in the office of the Board at Washington, D.C., and a delay in filing caused by failure in delivery of the mail on the sixtieth day on account of that day being a Sunday or a holiday deprives the Board of jurisdiction.

The Board is without jurisdiction to consider an appeal filed after the lapse of 60 days from the date of mailing of the Commissioner's notice of deficiency.

The Board is without jurisdiction to consider an appeal filed after the lapse of 60 days from the date of mailing of the Commissioner's notice of deficiency.

An appeal must be filed within 60 days of the date of mailing of the notice of deficiency by the Commissioner of Internal Revenue, or the Board of Tax Appeals is without jurisdiction to entertain the appeal.

Exhaustion of a leasehold acquired by a corporation in 1918 for capital stock is based upon the value of the stock when issued. The value of a leasehold on a given date is a question of fact which must be determined in the light of the evidence in the record before the Board. Where the term of the life of a leasehold can be accurately determined, the deduction for its exhaustion must be computed accurately in accordance with such term.

The taxpayer was a personal service corporation within section 200 of the Revenue Act of 1918.

A corporate taxpayer operating its business for a part of its first fiscal year after organization, and sustaining a net loss therefrom, is entitled to deduct such loss from taxable income earned in the succeeding taxable year, under section 204(b) of the Revenue Act of 1921.

An individual taxpayer is entitled to deduct from gross income in his income tax return for 1918 made upon the basis of his books of account kept upon an accrual basis a contribution to a charitable organization shown by his books of account as a 1918 expense but which was not paid in cash until the succeeding year where the liability for the payment was fully incurred in 1918.

The taxpayer is entitled, under section 234(a)(1) of the Revenue Act of 1918, to deduct as an ordinary and necessary expense reasonable extra compensation to officers and employees agreed upon by the directors before the end of the taxable year.

The price paid by an individual for the controlling shares of stock in a corporation may not be added to merchandise cost and thereby claimed as a deduction by the corporation.

The reorganization of a business by dissolving a corporation and transferring its capital and surplus to a partnership the members of which have the same proportionate interest results in taxable income to the stockholder notwithstanding he in fact took nothing out of the business.

The income of a corporate taxpayer is derived principally from charges for individual instruction in swimming. The taxpayer was a personal service corporation for the year 1919 as that term is defined in Section 200 of the Revenue Act of 1918.

In computing net income subject to tax, salaries not paid or accrued during the taxable year are not deductible from gross income in that year.

The presumption that instruments made in the form and the language of debenture notes and issued by a newly organized corporation to the subscribers for its capital stock, and in an amount which, together with its authorized stock issue, equals the value of the properties turned over to the corporation at the instance of its organizers, represent borrowed capital, can be overcome, if at all, only by convincing evidence. The evidence presented by the taxpayers in these cases in support of their contention that properties equaling in value the amount of the debenture note issue are in fact paid-in surplus and not borrowed capital held insufficient to overcome the presumption.

A corporation in which invested capital is a material income-producing factor, and more than 50 per cent of whose gross income consists of gains, profits, or income derived from trading as a principal, is not entitled to classification as a personal service corporation under the provisions of Section 200 of the Revenue Act of 1918.

A taxpayer owning all of the stock of a corporation, not a personal service corporation, may not deduct under the Revenue Act of 1918, as losses sustained in the business or as debts ascertained to be worthless, advances made to such corporation in the amount of the losses actually sustained by the corporation during a year so long as the corporation has net assets from which recovery in part is possible.

Under sections 215 and 235 of the Revenue Act of 1918 a taxpayer is not entitled to deduct from gross income a portion of the original cost of erection of buildings and installation of machinery during the year.

A taxpayer who owned stock on March 1, 1913, which had a fair market price on that date in excess of the amount for which it was sold in 1920 is entitled to deduct as a loss in 1920, under section 202(a)(1) of the Revenue Act of 1918, the difference between the market value of the stock on March 1, 1913, and the price for which it was sold in 1920.

Petition dismissed as premature.

The Board has jurisdiction over an appeal involving a deficiency in tax determined by the Commissioner subsequent to the passage of the Revenue Act of 1924.

A paving contractor making its return on a cash basis and receiving the contract price upon completion of the construction work may not withhold from gross income a reserve of a portion of the price received, estimated to be the amount required to fulfill its contract obligation to maintain the pavement in good condition for five years after its construction.

The Board of Tax Appeals has jurisdiction to consider an appeal from an alleged deficiency for the year 1920 even though that deficiency is occasioned by an adjustment of its 1918 income tax return which has the effect of reducing the amount of the 1919 net loss which may be deducted under section 204(b) of the Revenue Act of 1918 from the gross income of 1920.

Appeal dismissed as premature.

Only intangible property paid in for stock is subject to the limitation of 25 per cent of capital stock outstanding provided in section 326 of the Revenue Act of 1918. In conformity with this provision of the statute the disallowance of good will in the computation of invested capital is reduced in the instant case from $85,073.27 to $8,919.55.

The cost of transportation paid by an individual living at a distance from his place of business, in going to and returning from such place of business, is not deductible as a business expense. The operating cost, including depreciation, of an automobile so used by an individual is not deductible as a business expense.

The value of theater leases, good will connected therewith, and film contracts acquired for stock should, for invested capital purposes under the provisions of the Revenue Act of 1918, be determined in the light of facts and circumstances existing at the time of the acquisition thereof.

Petition dismissed as premature.

Profits derived from sales of farming lands by a general merchant and farmer, which lands were operated by him or sold as business prudence dictated, were a part of his income derived from a trade or business within the meaning of section 201 of the Revenue Act of 1917.

Compensation for service of officers of corporations for any period is subject to modification either by corporate action or by agreement at any time or from time to time during the taxable year, and the amount at which compensation is finally adjusted at the close of the taxable year is the amount which the officer must report as compensation in his income tax return.

A corporation taxpayer which during the year 1918 paid additional compensation to its officers for services rendered in 1918 equal in amount to a reduction suffered by them in their salaries in previous years is entitled to deduct from its gross income in its income-tax return for 1918 the amount of the additional compensation paid, provided the total amount paid for compensation in 1918 does not exceed reasonable compensation for services rendered by them during that year.

In ascertaining the reasonable amount of a deduction for exhaustion, wear and tear of property used in business, the character of the properties, their location, surroundings and uses, must be given consideration and their probable life will be determined in accordance with the conditions of each individual case. The testimony in this case held sufficient to support an extimated probable life of a building at 20 years and of office equipment at 5 years.

The transfer in 1919 by a corporation of stock or other property to a stockholder, in common with other stockholders and in proportion to stock held in the corporation, for one-eighth of its value and under other circumstances revealed by the evidence is not a sale in good faith but is a taxable dividend, when received by the stockholder, as defined by section 201(a) of the Revenue Act of 1918, and must be included in his net income subject to surtax for the year in question.

A taxpayer obligated under firm sales contracts at the end of 1919 to sell merchandise for less than the then market price may not inventory merchandise on hand at the close of the year of a quality suitable for manufacture to fill its contracts, but not specifically appropriated to such contracts, at less than cost.

A contribution to a fund raised by business organizations to purchase land upon which a naval ordnance plant is to be erected is not an ordinary and necessary expense in carrying on a wholesale shoe business. Inventories used in computing the cost of goods sold must be computed both at the beginning and end of each year on substantially the same basis. Discounts, held here to be trade discounts, if deducted in one such inventory, must be deducted in both.

The sale by a taxpayer in 1920 of trust certificates in a fund consisting of stock and its accumulating dividends, where the taxpayer has no right or control over the trust res, at a price in excess of cost, results in tax upon such excess as a profit in 1920 and not as part profit in 1920 and part dividends for earlier years.

Taxpayer is entitled to a deduction from gross income of the amount of a promissory note ascertained to be worthless in the fiscal year 1920 and charged off as a bad debt in that year.

A lessee of property for a term longer than its estimated life with no obligation on lessee to reconstruct, and where lessee has made no capital investment therein, is not entitled to a deduction for exhaustion, wear and tear thereof.

A corporate taxpayer which during the year 1918 spent a large amount for the improvement of a building which it did not own upon the condition that it should be permitted to occupy it for a period of five years at a stipulated monthly rental is not entitled to deduct from the gross income shown in its annual tax return for 1918 the entire cost of the improvements.

An assessment made prior to the enactment of the Revenue Act of 1924 through mistake, and while an appeal was pending before the Commissioner, undetermined, is not such a determination that any assessment should be made as will deprive the Board of jurisdiction of an appeal based upon a letter of the Commissioner mailed after the enactment of said Act, disposing of the case on the merits.

In accordance with the decision in Appeal of Ormsby McKnight Mitchel,1 B.T.A. 143, it is held that the entire distributive share of the taxpayer in the net income of Power, Son & Co. in the years 1917, 1918, and 1919 should be included in computing his individual net income for those years.

Interest paid or accrued by a corporation within the taxable year on its indebtedness incurred or continued to purchase or carry stock in a domestic corporation is an allowable deduction under section 234(a)(2) of the Revenue Act of 1918. Debts charged off but not ascertained to be worthless during the taxable year are not allowable deductions in determining net income.

The Board has jurisdiction to consider an appeal presenting questions affecting the correct tax liability which were not presented to the Commissioner before his determination.

The Board of Tax Appeals has jurisdiction to hear and determine appeals from determinations of deficiencies arising under the provisions of sections 327 and 328 of the Revenue Acts of 1918 and 1921.

A sale of real estate on which $8,500 cash is paid of a total purchase price of $15,000, the remainder of purchase price secured by a second mortgage and payable $100 monthly, is not a sale under the installment plan and a gain therefrom is taxable in full in the year in which the sale is made.

A leasehold is property and its cost and increase in value prior to March 1, 1913, are properly capital. The owner of the leasehold is entitled to take deductions for exhaustion of such leasehold in the same manner as he would with any other exhaustible property.

An individual taxpayer, making returns on a cash receipts and disbursements basis, can not be charged with additional salary income from a corporation by which he was employed during the year 1920 on account of supplemental entries made in that corporation's books in the year 1924.

Under section 326(a)(4), of the Revenue Act of 1918, the taxpayer is not entitled to include in invested capital an amount claimed to represent the value of good will, in the absence of sufficient evidence to establish such value.

Taxpayer's deficiency in tax for the year 1920 determined at $1,761.27.

The New York State income tax levied upon the income of 1919 but payable and paid in 1920, is not an allowable deduction from gross income in the taxpayer's return for Federal income tax for the year 1919.

License agreements authorizing the licensees to make and use certain patented machines for refining ores, acquired for stock by a corporation, are intangible property for invested capital purposes and as such are subject to the limitation on intangibles contained in the Revenue Act of 1917. The value of assets acquired by a corporation for stock should be determined on the basis of facts known at the time of the acquisition, or facts reasonably anticipated.

A payment made by a taxpayer to secure to himself the management of a trust estate, of which he was sole beneficiary, during the balance of the life of the trust is not deductible as an expense in the year of its payment but should be written off and deducted ratably over the period of the control so secured. The par value of the entire stock of a corporation issued in exchange for property is not evidence of the value of the stock nor of the value of the property.

A corporation making its returns on a fiscal year basis may not deduct income or excess-profits taxes imposed by the Revenue Act of 1917 for the portion of its fiscal year 1917 within the calendar year 1917, as having accrued at December 31, 1916. State, county, and municipal taxes paid or accrued within the fiscal year are allowable deductions from gross income in that year.

A corporation may not deduct the value of securities transferred by it to its principal stockholder in consideration of his agreement to transfer at the request of the corporation from time to time, portions of the capital stock owned by him directly to employees of the corporation. The corporation may deduct as salaries paid the value of its stock transferred to such employees at the time when such transfers take place.

The Board has no jurisdiction to determine appeals from deficiencies in tax imposed by statutes prior to the Revenue Act of 1916.

Appeal dismissed for want of prosecution under the provisions of rule 18.

A liability to respond in damages for the breach of a contract occurring in the regular course of the taxpayer's business is a liability incurred at the time of the breach, and an approximately accurate estimate of such damages, set up on the taxpayer's books as a reserve to meet such damages, may be properly claimed as a deduction from gross income for the taxable year within which the breach occurred, although the exact amount required to liquidate such damages may not be…

The allegations of the petition must be proven by evidence at the trial. Since the evidence introduced was insufficient to show that the determination of the Commissioner was incorrect, it is approved.

The successful bidder at a judicial sale held on February 28, 1913, which sale was confirmed by the court and the deed executed and delivered subsequent to March 1, 1913, did not acquire the property prior to March 1, 1913, within the meaning of section 202(a) of the Revenue Act of 1918, and can not value the property as of that date for the purpose of determining gain or loss upon the subsequent sale or disposition thereof.

The Board has no jurisdiction to entertain an appeal from a determination by the Commissioner of a deficiency in income tax for the year 1915, levied under the provisions of the income tax act of 1913.

The expense of defending an indictment for perjury growing out of the taxpayer's business held, upon the facts, not to be a deductible ordinary and necessary business expense. Held: upon the facts, not to be a deductible ordinary and necessary business expense.

1. Depreciation for 1918 and 1919 computed upon the average balance of depreciable property during each year rather than upon the balance at the close of each year was correctly so computed. 2.

A corporation organized in March, 1912, and thereafter engaged principally in manufacturing electric starting and lighting devices for automobiles was in 1918 not carrying on the same trade or business as a preceding partnership which for mahy years prior to March, 1912, had been engaged entirely in manufacturing nonelectric carriage and automobile lamps, and is not within the provisions of section 330, Revenue Act of 1918.

The earned surplus of a taxpayer as shown by its books will be accepted as correct in the absence of affirmative evidence to the contrary. No evidence having been introduced in this appeal to show that inadequate depreciation had been taken in prior year, the earned surplus should not be reduced on that account.

Where an agreement, under which an interest in a leasehold is transferred, describes the transaction as a sale and the Commissioner assesses a profit tax on the money received in payment for such interest, the transaction will be treated as a sale and the tax approved in the absence of clear and convincing proof of another intent of the agreement.

This corporate taxpayer is a personal service corporation as defined by section 200 of the Revenue Act of 1918.

The Board has jurisdiction to determine whether or not an assessment of a deficiency in tax against a taxpayer is barred by the statute of limitations contained in section 250(d) of the Revenue Act of 1921 and section 277(a)(2) of the Revenue Act of 1924. The filing of an amended return does not toll the statutes of limitations contained in section 250(d) of the Revenue Act of 1921 and section 277(a)(2) of the Revenue Act of 1924.

1. A taxpayer appealing to this Board may set up as a ground of appeal from a proposed additional assessment of income and profits taxes a right to a deduction from gross income not claimed in the original return or at any hearing before the Commissioner. 2. Upon the facts before the Board in this case it is held that the Commissioner is not entitled to demand a bill of particulars. 3.

Losses computed on taxpayer's stock-market transactions in 1920.

The Board may not review a determination that interest is due unless such determination is made subsequent to June 2, 1924.

The evidence does not warrant a finding that an alleged account receivable of $39,526.67 should be included in invested capital for the years 1920 and 1921.

A deduction from gross income, based upon an alleged exhaustion or depreciation of claimed capital values, can be allowed only when such capital values are capable of being definitely determined and expressed in terms of dollars.

Evidence held insufficient to prove that actual value of accounts receivable and inventory were less than book value at time of dissolution of corporation.

A taxpayer upon taking a lease of land agreed to raze the existing building and erect a new one, paying the necessary cost in the first instance, which cost, with the exception of an amount equal to the stipulated value of the old building, was to be repaid by the landlord over a period of years. Held that the stipulated value (less salvage) of the old building was not a loss to the taxpayer in the year of execution of the lease.

A taxpayer who did not claim a deduction in its original return for 1918 on account of the exhaustion of its patents due to the fact that it had claimed in its 1917 return what was considered a sufficient deduction therefor is not, if a portion of the deduction claimed in the 1917 return is disallowed, deprived of the right at a subsequent time to claim a reasonable deduction on that account for 1918.

The Board is without jurisdiction to consider an appeal where the Commissioner has taken no action since June 2, 1924.

Unless usual and reasonable means have been used and exhausted in unsuccessful attempts to collect amounts due it a corporate taxpayer may not deduct such amounts from its taxable income for the year during which it wrote them off its books as bad debts.

Evidence held insufficient to establish invested capital based upon the alleged value of a leasehold in 1906, or deduction for exhaustion based upon either the alleged value of the leasehold in 1906 when acquired by the taxpayer or upon the alleged value as of March 1, 1913.

The Board has no jurisdiction of an appeal based upon the rejection in part of a claim for the abatement of additional assessments of income and profits taxes for the fiscal years ended September 30, 1917, and September 30, 1918, which assessments were made in 1923 under the provisions of section 250(d) of the Revenue Act of 1921.

A corporation owning shares of stock in a number of different domestic corporations and in 1919 receiving dividends from some of them and profits from the sale of some of them is entitled to include in admissible assets for 1919 such part of the capital invested in the shares as the profit from the sales bears to the total income from all inadmissible assets.

The taxpayer is not entitled to deduct depreciation on used cars that constituted a part of its stock in trade. The taxpayer's invested capital is the cost to the predecessor partnership of the assets transferred by it to the corporation less the liabilities.

The legal distinction between a corporation and its stockholders can not be disregarded merely because the entire capital stock of the corporation is owned by one stockholder; and no part of the earnings or surplus of a corporation can accrue to its sole stockholder as such, other than by way of dividends.

Taxpayer held a fifteen-payment life insurance policy containing tontine features by which it might become an endowment and be payable prior to his death. Some of the premiums were paid prior to and some subsequent to March 1, 1913, and the policy matured and the face amount thereof with a small additional sum was paid to the taxpayer in 1920.

A debt may not be charged off as worthless until the taxpayer has taken all reasonable steps to determine that there is no probability of payment or collection thereof and has prima facie evidence to prove that the debt has no value. Under section 234(a)(5) of the Revenue Act of 1918 a part of a debt may not be written off as worthless and the other part maintained on the books of the taxpayer as having a value.

The appeal of the taxpayer from a denial by the Commissioner of its application for assessment of excess and war profits taxes under the provisions of section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918 for the taxpayer's fiscal year ended January 31, 1918, denied because of lack of evidence.

A taxpayer who keeps his accounts on a cash receipts and disbursements basis may not deduct from gross income, as for a bad debt, an item of accrued interest which he had not at any time previously treated as income or reported as taxable income.

A deduction for a bad debt properly determined to be worthless and written off as such should not be disallowed merely because the creditor thereafter advanced other moneys to the debtor for a new venture.

The fact that assessment has been made is not sufficient ground for dismissal regardless of whether abatement claim has been filed.

In the absence of any evidence whatever respecting the capital cost of natural resources acquired after March 1, 1913, the Board will not undertake to review the reasonableness of a depletion unit established by the Commissioner.

1. The motion of the Commissioner to dismiss the petition for lack of jurisdiction in this Board to hear and determine appeals from deficiencies arising out of the application of the provisions of section 210 of the Revenue Act of 1917, is denied in accordance with the decision and opinion in the Appeal of Oesterlein Machine Company,1 B.T.A. 159. 2.

Taxpayer's occupation was that of race-track bookmaking. He operated his handbook on a modification of the parimutual system. Held: The gross income derived from such bookmaking operations is determined by applying against the total receipts therefrom, the sum of the amounts paid to bettors on his handbook plus amounts returned to bettors by erason of scratches, called-off bets, and "lay-off" bets.

A corporate taxpayer may not restore to its surplus in invested capital for 1917 and subsequent years an amount representing the unextinguished cost of a building demolished during the year 1912, which amount was charged off its books of account and claimed as a deduction from gross income in its tax return for that year.

Taxpayer's depreciation allowance computed for the year 1920.

Losses sustained in illegal gambling operations are not deductible under section 214(a) of the Revenue Act of 1918.

A deficiency determined by the Commissioner on the basis of a report of an examining revenue agent which is erroneous on its face, will be disallowed notwithstanding the rule of this Board that the taxpayer must bear the burden of proof on his appeal.

A corporation twenty-nine-thirtieths of whose capital stock is owned by an individual who is not regularly engaged in the active conduct of the affairs of the corporation is not entitled to be classed as a personal service corporation under the Revenue Act of 1918.

Under the Revenue Act of 1918 a partner is taxable upon his distributive share of partnership income whether distributed or not.

Under the Revenue Act of 1918 a partner is taxable upon his distributive share of partnership income whether distributed or not. Held: in the circumstances, to be a gift and not income to the recipient.

1. Worthless debts arising from unpaid rents and similar items of taxable income are not properly deductible as bad debts unless the income such items represent has been treated as income and included in the return of income for the year in which the deduction as a bad debt is sought to be made or in a previous year. 2.

No appeal lies to this Board from a decision by the Commissioner which does not constitute a determination of a deficiency.

Due allowance must be made, in ascertaining gain or loss upon the sale of capital assets, for exhaustion, wear and tear and obsolescence occurring during the period of ownership, whether or not deductions have been taken therefor in prior tax returns. The Revenue Act of 1918 does not give a taxpayer the right to elect whether to take deductions in the years in which the facts justifying them occur or to waive them and make later returns as if such facts had not occurred.

The taxpayer acquired certain patents in 1913, and licensed several manufacturers to operate thereunder on a royalty basis. Thereafter, in 1919, the holders of other and senior patents secured court decrees enjoining the manufacturers from infringing their patents. Arrangements were made whereby the holders of the older patents licensed the manufacturers to continue their business, which they did, paying the taxpayer reduced royalties until 1921.

The lessee of coal lands is entitled under the Revenue Act of 1916 to the deduction of a reasonable allowance for exhaustion of leasehold based upon March 1, 1913, value or for depletion upon the same basis, either deduction being computed proportionately with the amount of coal mined in the taxable year.

1. A lessor taxpayer who kept his books and made his income-tax returns for 1918 and 1919 on a cash receipts and disbursements basis is not legally entitled to file amended returns showing income upon the basis of royalties which should have been paid to him by the lessee in accordance with the terms of the lease, but which, in fact, were not paid during the year when they became due and payment of which could not have been demanded by reason of an oral agreement between the…

A taypayer must introduce sufficient evidence to make a prima facie showing that the Commissioner committed errors in determining a deficiency before the Board can disallow such deficiency.

The reorganization of a business by dissolving a corporation and transferring its assets to a copartnership in which the partners are identical in person and interest with the stockholders of the corporation results in taxable income to the stockholder whose liability is limited by agreement but whose interest is not limited, notwithstanding that he took nothing out of the business.

A taxpayer who has sustained a net loss in the calendar year 1920 may not deduct that loss from the net income of 1921, because the Revenue Acts of 1918 and 1921 do not contemplate such a right.

A corporation which, after the close of its fiscal year ended October 31, 1919, voted additional compensation to its president any principal stockholder in an amount equal to undrawn salary payable to the president for the preceding fiscal year alleged to have been voluntarily released to the corporation after the close of such fiscal year is not entitled, upon the evidence introduced, to deduct from its gross income for the fiscal year ended October 31, 1919, the additional…

The purchase of retail milk and dairy routes, the price for which is measured by the number of former customers of the vendor obtained and retained for a specified period, results in the acquisition of a capital asset, and the amount paid therefor can not be deducted as an ordinary business expense. Cattle purchased for use in the dairy business may be accounted for by the inventory method, and should be included in the inventory from the time the title passed.

An alleged liability of the taxpayer in 1920 for a failure to fulfill a condition precedent to the other party's performance of a contract must be clearly established and must be then recognized by the parties in order to result in an accrued deductible loss in the year of such alleged breach. The bringing of suit in 1922 and payment in settlement in 1923 do not under the circumstances of the record entitle the taxpayer to deduction of loss in 1920.

A taxpayer holding patents and exercising the rights under them in the conduct of its business is entitled to a deduction for their exhaustion under the Revenue Act of 1918. Failure by the taxpayer to claim such deduction in its original return does not constitute the exercise of an election or option and does not preclude the claiming of such deduction later.

An individual taxpayer is not entitled to deduct from gross income in his income tax return for 1920 an amount expended by him in 1920 for repairs to his residence which were intended to prepare the house for his personal occupation.

The capital of the taxpayer as of June, 1914, which can be considered in fixing the invested capital for the calendar year 1919, was $165.000.

The Board has jurisdiction, in reviewing a deficiency determined by the Commissioner, to review his determination of tax due from the taxpayer under the Act entitled 'An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes,' approved August 5, 1909, the Act entitled 'An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes,' approved October 3, 1913, the Revenue Act of 1916,…

The taxpayer herein is held to have been a joint venture from January 1, 1917, to May 28, 1917, and is taxable as a corporation from and after May 28, 1917.

The failure of the Commissioner to follow a ruling published by the Internal Revenue Bureau does not constitute a ground for appeal to this Board where there has been no violation of statutes or regulations.

The taxpayer availed itself of cash discounts on merchandise purchased and carried its merchandise purchase account at the net cost of the merchandise after deducting such cash discounts. Held: such cash discounts should not be added to net income without out increasing merchandise purchases in a similar amount.

Upon the facts disclosed this taxpayer is held to have made returns upon the installment plan, as provided by Article 117, Regulations 33 (Rev.), and subsequent similar regulations.

An interest-bearing demand promissory note of a responsible and solvent maker actually and in good faith paid in for stock of a New York corporation, constitutes invested capital, to the extent of its actual cash value at the time paid in, within the meaning of section 326(a)(2) of the Revenue Act of 1918, notwithstanding the provision of section 29 of the New York Stock Corporation Law, that a note may not be received in payment of any installment, or any part thereof, due…

The Board has jurisdiction to consider an appeal involving the determination of invested capital in a year in which the Commissioner has determined a deficiency, even though to do so it is necessary to determine the correctness of a claimed deduction from gross income in a year in which there appears no deficiency.

1. The corporation taxpayer transferred certain assets to a new corporation organized to receive them and received in exchange therefor a percentage of the capital stock issued by the new… Held: that under the Revenue Act of 1918 the only taxable profit realized by the taxpayer was that from the sale of such portion of the assets as is represented by the ratio existing between the number of shares of stock sold to the public and the entire number of shares issued. 2.

An interest in the good will of a partnership, acquired under the partnership agreement, by virtue of the death of the partner to whom, during his lifetime, under the terms of the partnership agreement the good will belonged, and disposed of by retirement from the partnership at an agreed price, represents an interest acquired by a transfer intended to, and taking effect an death and only the excess received on retirement over the value at the time received, if any, is…

Commissioner's determination approved because of taxpayer's failure to adduce competent evidence in support of its contentions.

Commissioner's determination approved because of taxpayer's failure to adduce competent evidence in support of its contentions.

Where a credit is claimed by reason of payment of an income tax in a foreign country, the amount thereof should be computed at the current rate of exchange.

Section 213(b)(8) of the Revenue Act of 1918, which provides for a $3,500 exemption for those in the military and naval forces, is repealed by section 1400(a) of the Revenue Act of 1921, as of January 1, 1921, and a soldier is not entitled to exemption for salary received between January 1, 1921, and March 3, 1921, the date on which the World War was declared at an end by Act of Congress.

A deficiency notice is mailed within the meaning of section 274(a) of the Revenue Act of 1924 when it is delivered into the custody of the post-office officials, or placed in a Government letter box, for transmission by mail. The 60 days within which an appeal may be filed under section 274(a) begins at the expiration, at midnight, of the day on which the deficiency notice is mailed and ends at the expiration, at midnight, of the sixtieth day thereafter.

Where the taxpayer presents satisfactory proof of the value of tangible assets as of the time of their acquisition by the corporate taxpayer, which assets constitute the paid-in surplus of the taxpayer for purposes of invested capital, the determination of the Commissioner to assess under sections 327 and 328 of the Revenue Act of 1918 is disallowed.

Bank discount neither received nor accrued within the taxable year does not constitute income for that year. A bank which, by the method of bookkeeping employed, includes in income discount neither received nor accrued within the year, should be permitted to change its method of accounting so as to correctly reflect its income, and proper adjustments should be made in the returns for prior years not barred by the statute.

Accelerated depreciation of special machinery due to war conditions, allowed for the years 1918 and 1919. Where an accelerated allowance for exhaustion, wear, and tear of property is allowed as a deduction, the cost of replacement of such property may not be taken as a deduction in subsequent income-tax returns, but must be charged against the depreciation reserve to the extent of such acceleration allowance.

Capital stock of a corporation received by an individual in 1920 as compensation for services rendered is subject to tax as income on the basis of the fair market value of such stock.

The Canyon Lumber Company in 1917 owned 50 per cent of the stock of the Johnson-Dean Lumber Company. The remaining stock was owned by the W. W. Johnson Lumber Company. Held: Tat the corporations were not affiliated during 1917.

The value of property purchased by decedent through investments of proceeds of sale of securities acquired by decedent as a share in the estate of a prior decedent who died within five years and on whose estate an estate tax was paid, was acquired in exchange within the meaning of section 403(a)(2) of the Revenue Act of 1918 and such value is not properly to be included in the value of decedent's gross estate.

Income received in 1919 from the United States Shipping Board Emergency Fleet Corporation for the construction of ships requisitioned in 1917 under authority of the act of June 15, 1917, is income from a Government contract within the maning of section 301(c)(1) of the Revenue Act of 1918.

A contractual privilege to share in the profits resulting from a sale of real property is not such a property right as to entitle a taxpayer to deduct, as a loss sustained from the sale or other disposition of property, the amount of the profits which he had hoped to realize had the contract continued in force and a sale been made.

In applying section 219 of the Revenue Acts of 1918 and 1921 and determining whether the income of a trust is taxable to the fiduciary or the beneficiary all the facts and circumstances must be considered. The income has in fact and without question since the creation of the trust and for many years been distributed periodically, held not taxable to the fiduciary.

A taxpayer which kept its books on an accrual basis but which did not actually accrue interest, but carried as surplus from 1909 to 1919 an estimated amount and treated on its books interest as… Held: not entitled to include in invested capital as earned surplus for the year 1919 and amount representing accrued interest as of December 31, 1918.

Net taxable income computed in accordance with evidence submitted.

The taxpayer acquired one farm prior to 1917 and during that year acquired an oral option to purchase another. Before the close of the calendar year 1917 he sold the farm which he owned and all his right, title and interest in the other to a corporation. In that year he received the entire purchase price for both farms except the amount actually required to be paid out in acquiring the one on which he had the option.

Lease construed to provide for rental payments in sums set forth in the opinion.

Under section 234(a) of the Revenue Act of 1918 a corporate taxpayer may not deduct as an ordinary and necessary expense more than a reasonable amount for compensation for its president.

Under the facts disclosed by this appeal the income of the taxpayer was that of a corporation in the calendar years 1918 and 1919 and properly taxable as such; for the year 1920 the income of the taxpayer was that of a copartnership and should be apportioned among the partners according to their interests and taxed accordingly.

A taxpayer reporting on an accrual basis must report items of income at the time they accrue without regard to the time they are paid.

A transfer of the entire capital stock of a corporation and a complete new management will not relieve the corporation from its liability to pay an income tax and penalties subsequently assessed by reason of fraudulent returns of the former officers of the corporation, even though the new management is entirely innocent and blameless in the matter.

A corporation which increases its book inventory to agree with a physical inventory, offsetting such increase by a Reserve for invoices not received, has not thereby received additional income under such circumstances as are herein stated.

The additional income tax of 4 per cent imposed by the Revenue Act of 1917 upon the proportion of net income of a fiscal year ending in 1917 which the number of months in 1917 is to twelve months is computed upon the proportion of the net income of the fiscal year after applying the credit of profits tax to the whole fiscal year's income and not by applying the credit to the 1917 proportion of the fiscal year's income.

Under section 202(b) of the Revenue Act of 1918, negotiable promissory notes of a responsible and solvent maker received in 1919 as part payment for one-half interest in a partnership business should be included in the computation of the gain or profit from the sale to the extent of their fair market value, the same in this case being the face value of the notes.

A payment made by a corporation in the year 1918 under the circumstances set forth herein held to be an ordinary and necessary expense of its business and deductible as such in that year.

A corporation preparing to reorganize under the laws of another state transferred all of its assets to its four stockholders by… Held: that the transfer of its assets by the old corporation to its stockholders as trustees did not constitute a distribution in liquidation of their interests therein, but was merely a step in the reorganization of the old corporation, and any gain which may have been derived by the stockholders through the reorganization is taxable for…

Worthlessness of debts must be proven in fact.

Real property was sold in 1920 for part cash, part notes and part the assumption of an existing first mortgage. Held: the entire profit from the transaction is taxable in 1920.

In determining the value as of March 1, 1913, of bulk freight vessels in use on the Great Lakes, where the method of valuation is the cost of reconstruction new less depreciation from the date the vessel was built, the rate of depreciation to be applied should be based upon the history of the particular vessel prior to the basic date; and where a formula for computing depreciation or a flat rate of depreciation is alleged to represent the amount of depreciation sustained,…

The taxpayer had a balance in a deposit account in a bank closed by the State authorities. Evidence respecting the condition of the closed bank held sufficient to justify the taxpayer in charging off this account as a bad debt.

An expenditure by a corporation for the erection of a substantial brick building for the use of its employees as a clubhouse is a capital expenditure and is not deductible as an oridinary and necessary expense.

On the evidence, held: That taxpayer did not willfully make a false or fraudulent return for 1917. Held: That taxpayer did not willfully make a false or fraudulent return for 1917. To render the statute of limitations contained in section 277(a)(2) of the Revenue Act of 1924 inoperative, a return must have been intentionally false or fraudulent and made with intent to evade tax.

Commissioner's determination allowed because taxpayer has failed to adduce competent evidence tending to prove certain valuations which constitute the basis of its position in its appeal.

No evidence having been introduced in support of the taxpayer's position, the determination of the Commissioner is approved.

1. Amounts paid for the purchase and installation in a mine of electric motors, storage batteries and accessories, mining machines, and a track scale, having a useful life of a number of years are not ordinary and necessary expenses deductible from gross income in income-tax returns. 2. The evidence presented does not warrant the allowance of a greater amount for depreciation and depletion for the year 1920 than has been allowed by the Commissioner. 3.

Where members of a syndicate proportionately advanced a total of $140,000 which was intended to be and in fact was used to purchase property of a corporation, which property, when purchased, was transferred to another corporation, for which the syndicate received $240,000 in cash and preferred stock: Held, a purchase and sale of property in which each member of the syndicate realized a profit of the difference between the amount advanced for the purchase and the amount received from the syndicate upon sale.

Where two corporations became affiliated July 1, 1919, because the same persons owned all the stock of both in equal proportions, a consolidated return should be filed covering the period beginning on that date.

Under Section 214(a)(6) of the Revenue Act of 1921 a deductible loss caused by storms must be of such a character that it can be definitely ascertained and measured in terms of money values. The evidence presented in this appeal held insufficient to support a deduction from gross income growing out of damage to a natural woodland caused by an ice storm.

The allegations of a petition must be supported by competent evidence.

Two corporations in which two brothers own 92.30 per cent of all the voting stock of one, and 92 per cent of all the voting stock of the other, and in which 7.70 per cent of such voting stock of one and 8 per cent of such voting stock of the other is owned by three employees of the corporations who have purchased, or have agreed to purchase, such stock and to pay for the same with the dividends which may be declared and distributed, come within the statutory definition of…

The deficiency is determined in accordance with stipulation filed by counsel.

The Board is without jurisdiction to hear and determine an appeal in which the petition was filed on the sixty-first day after mailing of statutory deficiency letter, even though the sixtieth day thereafter fell on a Sunday. (Satovsky's Appeal,1 B.T.A. 22, cited and approved.)

In the absence of evidence as to inventory value on March 1, 1913, or whether the cost of goods was paid and deducted as an expense prior to the change, a taxpayer changing from a cash receipts and disbursements basis to an accrual basis will take up in income in the year for which such change is made the inventory as of the beginning of the year.

The deficiency is determined in accordance with stipulation filed by counsel.

The six stockholders of the taxpayer corporation owned all the stock of another corporation. Held: Substantially all of the stock of both corporations is owned by the same interests within the meaning of section 240(b)(2) of the Revenue Act of 1918, and said corporations are required to make a consolidated return of net income and invested capital for the purpose of having their tax liability determined under Titles II and III of…

The value of buildings voluntarily removed from land in preparation for the future use of such land for other business purposes, is not such a loss as is deductible from gross income under the Revenue Act of 1918, even though the plans and expectations of the taxpayer respecting the future use of the land may fail of realization.

Net income of the taxpayer corporation is to be computed as set forth in the opinion.

An assessment made prior to the date of approval of the Revenue Act of 1924, while an appeal was pending before the Commissioner, undetermined, is not such a determination as will deprive the Board of jurisdiction of an appeal based upon a letter of the Commissioner mailed after the enactment of said Act, disposing of the case on its merits.

1. Taxpayer may deduct from gross income an allowance for exhaustion, wear and tear of its property used in its business, based on the cost to it of such properties when acquired subsequent to March 1, 1913, and measured by the useful life of such properties. 2.

A corporation which kept its books of account upon a calendar year basis for 1918 is required to make a return of net income for the calendar year 1918, even though it advised the collector in September, 1918, that it would thereafter make returns for a fiscal year ended April 30.

Taxpayer shown to have kept its books on a fiscal year basis which clearly reflected its income and is therefore entitled to file its returns on that basis.

In the absence of evidence as to inventory value on March 1, 1913, or whether the cost of goods was paid and deducted as an expense prior to the change, a taxpayer changing from a cash receipts and disbursements basis to an accrual basis, will take up in income in the year for which such change is made the inventory as of the beginning of the year.

The 25 per cent limitation provision of section 326(a)(4) of the Revenue Act of 1918 is only applicable after proof that the intangible assets in question were paid in for stock or shares.

Reasonable and necessary expenses incurred by a traveling salesman are proper deductions from gross income.

Upon the evidence, held, that taxpayer and subsidiary are affiliated within the meaning of section 240 of the Revenue Act of 1918. Held: that taxpayer and subsidiary are affiliated within the meaning of section 240 of the Revenue Act of 1918. Upon the evidence, held, that taxpayer is not entitled to include in invested capital items of undrawn salary and uncollected rents credited by it to its stockholders but not drawn by them.

Under section 234(a)(5) of the Revenue Act of 1918, a part of a debt may not be written off as worthless and the other part maintained on the books of taxpayer as having a value. (Appeal of Steele Cotton Mill Company,1 B.T.A. 299.) A taxpayer holding collateral security for the payment of a debt may not write off as worthless, under section 234(a)(5) of the Revenue Act of 1918, the difference between the amount of the debt and the estimated value of the security.

A taxpayer may not change the basis of reporting income without complying with the regulations prescribed by the Commissioner pursuant to statutory authority.

During the year 1918, Isse Koch owned all the capital stock of the Norko Realty Corporation and 84.4 per cent of the capital stock of Isse Koch & Company,… Held: That the control, whether legal control or otherwise, is control within the meaning of section 240(b)(2) of the Revenue Act of 1918, and that, as Koch owned or controlled all the capital stock of the two corporations, they were affiliated during the year 1918 and should be permitted to file a consolidated return.

Evidence held insufficient to support assessment under section 328.

A taxpayer keeping its books of account upon a cash receipts and disbursements basis for 1921 is not entitled under the provisions of section 234(a)(1) of the Revenue Act of 1921 to deduct from gross income in its tax return for 1921 any part of a bonus or advance rental paid by it under an agreement of lease upon premises which it was to occupy on and after January 1, 1922.

A corporation, by resolution of its board of directors, authorized its general manager to fix the salaries of all employees. Held: that action by the general manager fixing the amount of additional salaries, which action was communicated to the president of the corporation during the taxable year, constituted a valid obligation of the corporation to pay such additional salaries without formal action on the part of the board of directors, and the amount thereof…

Depreciation computed on taxpayer's building.

A theoretical inventory computed by an examining agent held, under the facts in the case, not to be properly used by the Commissioner in the adjustment of net income. Held: under the facts in the case, not to be properly used by the Commissioner in the adjustment of net income. Income and invested capital otherwise adjusted in accordance with findings of fact.

The taxpayer operates a general insurance agency. A large part of its income for 1919 and 1920 consisted of commissions received by it upon policies written by subagents. Stockholders owning 48 per cent of the shares of capital stock were not regularly engaged in the active conduct of the business. Evidence held not to warrant classification as a personal service corporation for 1919 and 1920.

The evidence adduced by taxpayer at the hearing of this appeal sustains its contentionas to the value of tangible property bona fide paid in for its capital stock of the par value of $202,000. The values so established should be used as a basis for the computation of taxpayer's invested capital and of its depreciation deductions.

Sufficient affirmative evidence has been presented by the taxpayer to substantiate its claim as to the value of its inventory at December 31, 1920.

1. The New York State franchise tax accrues on November 1 and the Federal capital stock tax on July 1 of each year. 2. Compensation paid by a corporate taxpayer to its officers in the year 1919 allowed.

The taxpayer corporations were affiliated.

The evidence does not show that the good will paid into the corporation in exchange for shares of stock had an actual cash value.

Held: That the taxpayer failed to prove that certain debts were ascertained to be worthless during the year 1920. Held: That the taxpayer failed to prove that certain debts were ascertained to be worthless during the year 1920.

Taxpayers reporting income upon the basis of cash receipts and disbursements may not deduct the estate tax upon the accrual basis.

Losses sustained by the taxpayer on sale of stock, determined.

In computing net income for the purpose of the excess-profits tax under the Revenue Act of 1917, a partnership taxpayer is entitled to deduct… Held: That $10,000 was a reasonable allowance for compensation of each member of the taxpayer firm for services rendered during the calendar year 1917, such compensation being inclusive of expenses. Taxpayer held not to have proven itself entitled to special assessment under the provisions of section 210 of the Revenue Act of 1917.

The surplus and undivided profits of a corporation, which must be included in invested capital under the provisions of section 326 of the Revenue Act of 1918, can not be reduced by the elimination of any gains or profits of such corporation which may have been exempt from income taxes.

A loss resulting from a dispute over the correctness of book charges and credits in connection with business transactions is deductible in the year in which settled by compromise or otherwise. A single item of inventory may not be taken at market where the usual method of pricing the inventory is cost. Evidence held to justify certain deductions.

Evidence held sufficient to support the taxpayer's claim that two corporations were, during the year 1919, affiliated within the meaning of section 240 of the Revenue Act of 1918.

When the determination by the Commissioner to reject a claim for abatement of a tax theretofore assessed was made prior to the enactment of the Revenue Act of 1924, no appeal lies to this Board from such determination.

Good will growing with a business, capitalized upon reorganization and excluded from invested capital, held, not a case within section 327 to justify special assessment.

A taxpayer sold property for $139,500, receiving $45,100 in cash and a mortgage for $94,400. Held: that, except to the extent of the interest and costs realized through application to the purchase price, the taxpayer derived no taxable gain in the year of reacquisition.

This Board has no jurisdiction to consider an appeal from a determination of a deficiency in tax imposed by Title VIII of the Revenue Act of 1921 and Title V of the Revenue Act of 1924.

The taxpayer, owner in fee of land, leased the same for approximately $1 per acre for the purpose of exploration for oil and gas. Held: Commissioner committed no error in disallowing the deduction claimed by taxpayer.

Amounts deducted by the affiliated corporations herein as officers' salaries for the year 1918, held to have been reasonable compensation for personal services actually rendered during that year.

No appeal lies from the determination of a deficiency for the year 1914.

A balance remaining in a capital account representing the cost of an exclusive business privilege may be deducted from gross income as a loss in the year in which the privilege is terminated and in accordance with a consistent practice of writing down such account ratably over the years from the time when the account began.

An individual interior decorator having a library and some cash, held to be engaged in a trade or business having no invested capital, and hence taxable in 1917 under section 209 of the revenue act of 1917.

Under all the facts and circumstances of the case, held, that the first corporation owned and controlled through closely affiliated interests substantially all of the stock of the second corporation… Held: that the first corporation owned and controlled through closely affiliated interests substantially all of the stock of the second corporation within the meaning of section 240 of the revenue act of 1918.

A liquidating dividend is income to the stockholder, irrespective of the fact that the corporation may have outstanding obligations.

1. A corporate taxpayer, which acquires patents under a written agreement to pay for them a reasonable sum each year based upon the profits therefrom, and at the same time increases its capital stock without any reference in its records to the patents and distributes the increased stock pro rata to its shareholders, is not entitled to include in its statutory invested capital any amount representing the estimated value of the patents; nor is it entitled to deduct from gross income for the years 1917, 1918, and 1919, any amount representing depreciation on the estimated value of the patents. 2. A taxpayer, which has consistently charged to expense over a series of years the cost of the manufacture or purchase of molds and patterns having a life of from a few days to three to five years, is not entitled to amend its books of account, charge the cost of such molds and patterns to capital account, include the depreciated cost thereof in invested capital, and deduct depreciation from its gross income for the years 1917, 1918, and 1919, in respect of the cost of them.

A written instrument on its face an absolute conveyance of property can be shown to be a mortgage only by clear and conclusive evidence. Held: that the property involved was not given as security for an indebtedness.

The deficiency is determined in accordance with stipulation filed by counsel.

The Board has jurisdiction of an appeal involving a deficiency in tax determined by the Commissioner subsequent to the enactment of the Revenue Act of 1924.

Deduction for debt charged off as worthless allowed on evidence offered. The unextinguished useful value of a dredge boat abandoned as wortheless in 1920 was properly deductible as a business loss of that year. A taxpayer operating a business as an individual may deduct business expenses paid by checks on his personal bank account in making his income-tax returns.

Salary credited to an employee on the books of a corporation is not taxable income unless it is available for the use of such employee.

The Board is without authority to require the Commissioner to permit the filing of returns and the computation of income and profits taxes, under the provisions of article 42 of Regulations 45, since such returns, if filed, would not clearly reflect the income of the taxpayer and the method of computing income provided in that article does not conform to section 200 of the Revenue Act of 1918.

An appeal properly filed and pending lapses when the taxpayer pays the amount of a jeopardy assessment subsequently made.

Evidence held insufficient to support appeal.

Where no notice of deficiency is sent under subdivision (a) of section 274 of the Revenue Act of 1924, but only a notice is sent of assessment under subdivision (d) of that section, appeal will not lie until the taxpayer is notified of the Commissioner's action on a proper claim in abatement.

From the evidence submitted, held, that stock received as part consideration upon a sale of real estate had a readily realizable market value in excess of the amount determined by the Commissioner. Held: that stock received as part consideration upon a sale of real estate had a readily realizable market value in excess of the amount determined by the Commissioner.

Funds advanced to the taxpayer corporation by a stockholder and evidenced by the taxpayer's promissory notes, which notes are later exchanged for certificates of preferred stock of the taxpayer company, can not, in the absence of evidence concerning the character of the transaction, be included in invested capital for any period prior to the issuance of the certificates of preferred stock.

The taxpayer is not entitled to be classified as a personal service corporation for 1919.

A deduction of $625 claimed in 1920 for exhaustion of a lease on 65 acres of coal land purchased in 1919 at a cost of $5,000, allowed. Twenty-five per cent depreciation for 1920 allowed by Commissioner on an automobile truck used seven months of that year, approved. A debt which the evidence does not show was determined to be worthless and charged off within the year can not be allowed as a deduction from gross income.

A deed absolute on its face will be held to be a mortgage only when the evidence to that effect is clear and convincing; and a deed will not be construed to be a mortgage where there is no… Held: to be insufficient to show that the deed in question was intended to be a mortgage.

The determination of the Commissioner herein is approved on authority of Appeal of Bernard Long,1 B.T.A. 792.

1. Evidence held not to prove that the actual cash value of the assets of a predecessor partnership paid in to the taxpayer corpotion for $55,000 par value capital stock was in excess of $55,000. 2.

1. Expenses properly chargeable to capital account include those which are incurred in the original construction of the work and in the subsequent enlargement and improvement thereof. 2. Held: this was a capital transaction and did not result in a realized loss to the taxpayer.

A resolution of the board of directors of a corporation directing that a surplus fund be placed to the credit of the stockholders, to be paid to the stockholders when and as directed by the officers or directors, constitutes a dividend at the time the resolution was passed.

Under section 403(a)(3) of the Revenue Act of 1921, a residuary bequest to a consistory of the Ancient and Accepted Scottish Rite is not a bequest to a corporation organized and operated exclusively for religious and charitable purposes, and may not be deducted from the gross estate in determining the value of the net estate subject to the tax.

In the absence of proof of value on March 1, 1913, the admitted cost of assets acquired in 1902 is the basis for computing unextinguished useful value on December 31, 1916.

Under the evidence in this case, certain payments made from the profits of the taxpayer corporation purporting to be for good will, were, in fact, a distribution of profits and as such are neither deductible as expenses nor addition to invested capital.

Salaries paid by the taxpayer to its officers in the fiscal year ended July 31, 1918, held to have been paid for personal services actually rendered in that year, and to have been reasonable in amount.

Depreciation on plant and equipment based on a rate of 10 cents a case on bottled coca cola taken during the war period on account of increased costs and heavy losses of bottles in distribution to an Army camp was not justified after the close of the war and the return of normal conditions.

Under section 326(a) of the Revenue Act of 1918, interest-bearing demand promissory notes of solvent and responsible makers, actually and bona fide paid in for common and preferred stock of a Pennsylvania corporation, constitute invested capital of such corporation at the time paid in to the extent of their actual cash value.

The letter from which this appeal was taken does not constitute such a final determination of a deficiency in tax, on the part of the Commissioner, as to confer jurisdiction on this Board to hear and determine the appeal on its merits.

On the evidence, held, that the taxpayer did not take its inventory at December 31, 1918, on a basis of cost or market whichever is lower. Held: that the taxpayer did not take its inventory at December 31, 1918, on a basis of cost or market whichever is lower.

A corporation, on September 1, 1912, acquired, at a cost of $11,000, a leasehold interest for a term of 10 years at an annual rental which was greater for the first than it was for the second 5 years. Held: The allowance for exhaustion of the leasehold should be spread evenly over the term of the lease, without regard to the varying rentals.

An operating loss sustained by a taxpayer, incorporated during the calendar year 1919, from the date of incorporation to December 31, 1919, is not a legal deduction from gross income in an income-tax return for the calendar year 1920.

Held, that the evidence submitted does not establish a deductible loss on a sale of property.

Evidence held insufficient to sustain the claim of the taxpayer for a deduction on account of a debt alleged to have been ascertained to be worthless and charged off.

The Board is without authority to require the Commissioner to permit the filing of returns and the computation of income and profits taxes, under the provisions of article 42 of Regulations 45, since such returns, if filed, would not clearly reflect the income of the taxpayer and the method of computing income provided in that article does not conform to section 200 of the Revenue Act of 1918. Appeal of B. B. Todd, Inc.,1 B.T.A. 762, cited and approved.

Where the taxpayer's sole witness admits that a portion of his testimony was false, the Board may regard all of his testimony as having no weight in establishing error on the part of the Commissioner in determining a deficiency in tax.

Evidence concerning the inventory values of securities owned by an investment broker and dealer held sufficient to show that such values were the fair market value of the securities owned.

Upon discovery of the embezzlement of corporate funds by an officer, the owner of 50 per cent of the stock of a corporation paid to the secretary and treasurer who was the holder of the remaining 50… Held: that the payment of $6,000 and the release of rights to earnings of $5,000 constituted a reimbursement to the corporation. Under the circumstances in this case, it is held that the salaries paid officers in 1919 and 1920 were reasonable.

Evidence of the capital value of leaseholds held to be insufficient to support a claim for a deduction of any amount from gross income based upon the exhaustion of such leaseholds. Such property rights as leaseholds and good will acquired by a corporation for stock can be included in invested capital only when the actual cash value of such properties at the time paid in for stock is definitely proven.

Where a corporation, upon its organization, acquired the business and assets of a partnership, consisting of tangible and intangible property, and paid one-half of the purchase price to one partner in cash and one-half to the remaining partner in stock, held that, for the purpose of computing invested capital of the corporation and applying the 20 per cent limitation of section 207 of the Revenue Act of 1917 relating to intangibles, the transfer is to be regarded as one made…

Traveling expenses actually incurred by a taxpayer are deductible in computing net income under the Revenue Act of 1921.

Where the stock of a corporation is closely held so that it can not be valued upon the basis of sales in an open market, its value, for estate tax purposes, will be determined upon the basis of the assets underlying the capital stock and the earnings of the corporation.

Under the evidence in this appeal the taxpayer is not entitled to classification as a personal service corporation.

Under the evidence in this appeal the taxpayer is not entitled to classification as a personal service corporation under section 200 of the Revenue Act of 1918.

The determination of the Commissioner that the taxpayer and Atlanta Theatre Co. are affiliated is approved.

The evidence establishes the worthlessness of debts charged off within the taxable years.

Where one corporation owns the entire capital stock of other corporations, they will be treated as separate legal entities, except only in extraordinary or fraudulent instances.

Where a corporate taxpayer purchased all of the stock of another corporation and took over the assets and business thereof after the acquisition of the stock, held that under the Revenue Act of 1918 the transaction resulted in an affiliation of the two corporations, and that no deductible loss resulted therefrom.

A petition must be received by the Board within the statutory period in order to give the Board jurisdiction thereof, and a delay caused by mailing it to the Commissioner deprives the Board of jurisdiction.

Evidence held insufficient to establish a value in 1907 of good will paid in for stock for the purpose of computing invested capital for the years 1917 and 1918. Held: that the debt was discovered to be worthless in 1917 and should have been written off entirely in that year.

On the evidence, held, that the taxpayer did not acquire good will of any value upon taking over the business of a certain other corporation. Held: that the taxpayer did not acquire good will of any value upon taking over the business of a certain other corporation.

An organization claiming exemption from tax must prove clearly that it is within the provisions of section 231 of the Revenue Act of 1918. Such provisions must be strictly construed. A business league, to be exempt, must be one not organized for profit and also one no part of the net earnings of which inures to the benefit of any private stockholder or individual. Both tests must be met with evidence. The intendment of subdivision (6) also applies to subdivision (7).

Upon the evidence, held, that during the years involved in this appeal the taxpayer kept its books of account on the accrual basis. Held: that during the years involved in this appeal the taxpayer kept its books of account on the accrual basis.

Upon the evidence, held that the taxpayer kept its books of account on an accrual basis, and that the method of calculation employed to ascertain the amount of unearned discount correctly shows the amount thereof.

A paper addressed to the Commissioner of Internal Revenue which requested his consideration of certain facts and which contained no expression of an intention to appeal from the Commissioner's action until after his consideration thereof, can not, when filed with the Board, be considered an appeal and can not be made the basis of an amended petition.

The Board is without authority to require the Commissioner to permit the filing of returns and the computation of income and profits taxes, under the provisions of article 42 of Regulations 45, since such returns, if filed, would not clearly reflect the income of the taxpayer and the method of computing income provided in that article does not conform to section 200 of the Revenue Act of 1918.

A corporation engaged in street paving and receiving upon the accrual basis the contract price upon completion of the construction work may not withhold from gross income in the taxable year, through reserves, a portion of the contract price estimated to be the amount required to fulfill its contract obligations to maintain the pavement in good condition for a period of three, five, and ten years, and for possible future expenses of obtaining new paving contracts.

Depreciation at the rate of two per cent on a reinforced concrete building approved. A value in excess of that determined by the Commissioner allowed for depreciation and invested capital.

The evidence is insufficient to show that advances to stockholders by a corporation during the period from 1903 to 1906 in cash and notes payable to them, on which no interest was charged and which remained unpaid for a period of fourteen, thirteen, twelve, and eleven years, respectively, constituted invested capital as accounts receivable for excess profits tax purposes in 1917, 1918, and 1919.

in 1920 a private stock of liquors owned by the taxpayer, who was not engaged in the buying and selling of liquor, was seized by police officers of the District of Columbia. Held: that the taxpayer is not entitled to deduct from gross income of 1920 expenses of litigation paid during that year for the recovery of the liquors or an estimated amount for the value of the liquors not returned to him in 1921.

Upon the evidence, held, that the taxpayer is not entitled to classification as a personal service corporation. Held: that the taxpayer is not entitled to classification as a personal service corporation. Taxpayer's claim for special assessment under section 328 of the Revenue Act of 1918, on the ground of abnormality within the provisions of section 327, denied in the absence of any evidence of abnormality.

The Board has jurisdiction to consider an appeal from a denial by the Commissioner, subsequent to June 2, 1924, of a claim for abatement of estate taxes assessed on May 11, 1923.

Under the provisions of the reveune Act of 1918 a so-called bad debt is an allowable deduction from gross income only when ascertained to be worthless and charged off within the taxable period. The charging off of bad debts should, in the case of a taxpayer keeping regular books of account, be evidenced by such book entries as will effectually eliminate the amount of the bad debt from the book assets of the taxpayer.

Where the stock of a subsidiary company was acquired with the stock of the parent company, the amount to be included in the consolidated invested capital in respect of the company acquired shall be computed in the same manner as if the assets had been acquired instead of the stock.

A corporation conducting a general insurance agency business, a large portion of whose gross income comes to it by reason of its association and close business relations with two other substantially capitalized corporations, owning or controlling large property interests, is not entitled to classification as a personal service corporation under the provisions of the Revenue Act of 1918.

The Commissioner having disallowed certain salary deductions claimed by the taxpayer for the year 1918, granted it special assessment under the provisions of sections 327 and 328 of the Revenue Act… Held: that the taxpayer is not estopped to make this claim.

In determining the taxable gain on the sale of patents which had been developed by the taxpayer, expenditures in such development work may be capitalized and added to costs of patents. Held: that the taxpayer is not entitled to a deduction on account of an alleged bad debt.

Estimated reasonable compensation of officers which has neither been paid nor accrued upon the books of a taxpayer corporation can not be allowed as an expense deduction. Depreciation of advertising signs painted on roofs of buildings on the basis of a six-year life of such signs held to be a reasonable allowance.

An individual who places her property in trust under an agreement by which she may have paid over to her a portion of the principal upon written request therefor and is to receive the income of the fund for life in excess of an annuity payable to her mother is not entitled to deduct from gross income in her individual income-tax return a loss of a portion of the principal realized by the trustee upon the sale of a part of the assets of the fund.

The evidence in this appeal is not sufficient to enable the Board to determine the value of the patents for invested capital and depreciation purposes.

Upon the evidence in this appeal, held, that taxpayer is entitled to depreciation on machinery in excess of that allowed by the Commissioner. Held: that taxpayer is entitled to depreciation on machinery in excess of that allowed by the Commissioner.

Commissioner's determination approved because of taxpayer's failure to produce competent evidence in support of his contention.

In the absence of evidence upon which a reasonable allowance can be predicated, a deduction on account of the obsolescence of tangible assets used in the manufacture of malt is not permitted.

On the evidence, the corporations involved in this appeal are affiliated.

Additional compensation for services of corporate officers disallowed.

Where a corporation acquired from its predecessor tangible property of the actual value of $107,200 and a stamp business valued and set up on its opening books at $10,000, for all of which it issued $112,200 capital stock, $15,000 of which thereafter was retransferred to the corporation and credited to its surplus account, the stamp business account remaining unchanged, held that, in computing the invested capital of the corporation, the sum of $10,000, representing the…

Upon the evidence produced the taxpayer is not entitled to classification as a personal service corporation.

1. The stockholders of a corporation, to secure additional capital, entered into a contract with one Dollings, pursuant to which the… Held: the interest or control in the trade or business of the taxpayer remained in the stockholders of the old corporation to the extent of 50 per cent or more after the reorganization, within the meaning of section 331 of the Revenue Act of 1918, limiting the valuation, for invested capital purposes, of assets transferred in cases of…

A taxpayer is not entitled to deduct as an ordinary and necessary business expense the cost of automatic attachments for hand-fed looms having a useful life of more than one year.

When closing inventories disclose damaged merchandise, the bona fide selling prices less cost of selling, within thirty days after the inventory date, may be used in valuing such goods for inventory purposes.

The amount of the normal tax paid by a debtor corporation on bonds containing a tax-free covenant clause is not a part of the taxable income required to be included in the bondholder's income-tax return under the provisions of the Revenue Act of 1918.

1. Upon the evidence it is held that salaries accrued upon the taxpayer's books of account for the years 1917 and 1918, but actually paid during the years 1919 and 1920, are not legal deductions from… Held: that the taxpayer sustained a loss of $39,875 in the year 1920 from its transaction in the purchase and disposition of 110,000 pounds sterling.

A corporation changing its accounting period from fiscal year to calender year in 1919, held not entitled to benefits of section 204(b) of the Revenue Act of 1918.

Where a railroad corporation holds 44 per cent of the shares of stock and is lessee under a ninety-nine year lease of all the properties of another railroad corporation, held, that such circumstances… Held: that such circumstances do not create such a control of substantially all of the stock of the second corporation as to entitle it to claim affiliation for the purpose of filing consolidated returns.

1. Upon the facts it is held that the amount of depreciation deductible from gross income in income-tax returns must be computed on a straight-line basis rather than on the basis of appraisals of depreciable property at the beginning and close of the taxable period. 2.

A corporation reporting on a calendar year basis, having a fractional calendar year in 1918 due to its organization and a fractional calendar year in 1919 due to its dissolution, may deduct its 1919 net loss from its 1918 net income.

Distributions made in 1917 by a corporation in liquidation are within the provisions of section 31(b) of the Revenue Act of 1916 (added by section 1211 of the Revenue Act of 1917), and to the extent… Held: that the sale was nugatory and did not establish a loss.

1. The Board has jurisdiction of an appeal from a determination of the Commissioner, made subsequent to the enactment of the Revenue Act of 1924, denying a claim in abatement of estate taxes assessed prior to the date of such enactment. Appeal of Peter Reinberg Estate,1 B.T.A. 953, cited and approved. 2.

On the evidence, held that the taxpayer is not a personal service corporation.

A foreign corporation is subject to assessment under the provisions of section 328 of the Revenue Act of 1918.

Where property is acquired prior to March 1, 1913, and sold in 1918 for an amount greater than cost, but less than March 1, 1913, market value, no profit or loss is sustained. March 1, 1913, value of land determined upon the evidence.

A taxpayer who acquires property by virtue of the last will and testament of a deceased testator, free and clear from any restrictions or qualifications, and thereafter sells one parcel of such property for an amount less than its appraised value, realizes a loss sustained from the sale or other disposition of the property as defined in section 202(a)(3), and the amount of such loss is a deduction from gross income under the provisions of section 214(a)(5) of the Revenue Act…

A corporation keeping its books of account on an accrual basis must take its interest deductions in the periods within which the liability to pay interest accrues, although the interest is not paid until later periods. Deductions for alleged operating expenses disallowed by the Commissioner will not be restored in the absence of any evidence supporting the right to claim a deduction for such alleged expenses.

Where the issue between the Commissioner and the taxpayer is the March 1, 1913, value of property, the taxpayer must prove the value by competent evidence.

On the evidence, held, that the taxpayer was not a personal service corporation. Held: that the taxpayer was not a personal service corporation.

Under the facts stated, held, that the worthlessness of a debt was not ascertained in the taxable years in question. Held: that the worthlessness of a debt was not ascertained in the taxable years in question.

Upon the evidence held: (1) That patents paid in for stock on December 12, 1910, had a value at that time for invested capital, and on… Held: That patents paid in for stock on December 12, 1910, had a value at that time for invested capital, and on March 1, 1913, for exhaustion; (2) That under section 1331 of the Revenue Act of 1921 the two corporations were not affiliated in 1917 but, under section 240 of the Revenue Act of 1918, were affiliated during the years 1918,…

1. The invested capital of a corporation may not be reduced, in determining the extent to which a dividend is paid from current earnings of a year, by a tentative tax theoretically set aside out of such earnings pro rata over such year, because the income and profits tax does not become due and payable, and, therefore, does not accrue, until the following year. 2.

1. The entire cost of expenditures for improvements upon leased buildings, made by taxpayer as a condition precedent to procuring at nonprohibitive rates insurance upon such buildings necessary to the continued operation of its business, may not be deducted from gross income for the fiscal year in which they were made and paid for, but should be distributed over the remainder of the term of the lease. 2.

A depreciation rate of 4 per cent upon the cost of a combination warehouse and wharf and of 10 per cent upon the cost of an extension of the wharf into deep water, held to be a reasonable allowance for exhaustion, wear and tear.

Advances to an operating corporation, which corporation is not terminated by bankruptcy proceedings or otherwise, may not be deducted as worthless debts in the absence of definite and convincing proof of worthlessness.

Credit balances in the accounts of the stockholders of a corporation which remain in the businessAnd which are recognized by the corporation as a liability, can not be included as a part of surplus for the purpose of computing invested capital.

Under the evidence, held, that contributions or gifts made to the Long Island Chapter Knights of Columbus War Camp Activities Committee are not deductible under the Revenue Act of 1918. Held: that contributions or gifts made to the Long Island Chapter Knights of Columbus War Camp Activities Committee are not deductible under the Revenue Act of 1918.

Upon the evidence, held, that the amount received by the taxpayer in 1920 from A. G. Spalding & Brothers, Inc., was compensation, and not a gift. Held: that the amount received by the taxpayer in 1920 from A. G. Spalding & Brothers, Inc., was compensation, and not a gift.

By the Federal Control Act and the compensation agreement pursuant thereto the Director General of Railroads was required to and did bear the income tax on the taxpayer's income up to 2 per cent. The amount so borne by the Director General was not income of the taxpayer. The United States in levying taxes and in assuming the obligations of Federal control was the same sovereign entity.

Evidence presented in this appeal held insufficient to warrant the Board in determining the definite capital value of patents in controversy.

The amount of depreciation sustained in respect of buildings, machinery, equipment, or other facilities acquired on or after April 6, 1917, may not be included in an allowance for amortization of war facilities and deducted from gross income in a tax return for the calendar year 1918.

1. A stock subscription agreement of itself is not property, can not be regarded as such under the invested capital provisions of the Revenue Act of 1918, and a corporation may not include in… Held: in the absence of evidence of actual value, that the bonus stock, charged on the taxpayer's books as good will, may not be included in its invested capital at par value. 4.

When a city proposes to take private property for the widening of a public street by the exercise of eminent domain and an affected property owner negotiates an arrangement and agreement with the city whereby he secures certain reimbursements of expenses and other special privileges in lieu of an award for damages and there is no convincing evidence either of the amount of damages or the value of the special privileges, it must be assumed that the benefits of the special…

In the circumstances, additional salaries disallowed.

A corporation established for religious purposes is not entitled to exemption from income tax unless its business operations and income are exclusively for religious purposes.

Subdivision (b) of section 211 of the Revenue Act of 1918 doesnot provide for a separate surtax upon profits from the sale of mines, oil and gas wells, but for the limitation of a ratable proportion of the tax (computed in the ordinary manner), attributable to such profits, to 20 per cent of the sale price.

A dividend duly declared by the directors of a corporation creates the relation of debtor and creditor between the corporation and its stockholders and reduces the corporate surplus and invested capital to the extent of the dividend. Where a dividend is duly declared and payable and is permitted by the stockholders to remain in the business, it constitutes borrowed capital of the corporation and can not be included in invested capital.

Numerous advantageous intercompany transactions and the ownership of 50 per cent of the stock, together with the employment of the owner of the other 50 per cent, held not to establish affiliation. Potential control without a showing of actual exercise of the potentialities, held insufficient to established affiliation. Appeal of Isse Koch & Co., Inc.,1 B.T.A. 624, cited and distinguished.

Upon the evidence, held, that the American Institute of Accountants is not a corporation organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the… Held: that the American Institute of Accountants is not a corporation organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the prevention of cruelty to children or animals.

Taxpayer purchased real estate in 1917 for $15,000 and in 1919 conveyed it to another, and on the same day there was conveyed to her by a third person other real estate, both deeds reciting a… Held: that taxpayer realized a profit of $15,000 because (1) if the transaction was a sale by taxpayer, a gain unquestionably was realized, and (2) if it was an exchange, the cash consideration of $30,000 clearly established the fair market value of the property received by taxpayer.

1. There is a distinction between a gift and a payment made by one person in recognition of a moral obligation to reimburse another for a loss arising out of a business transaction in which both were… Held: that the taxpayer was entitled to deduct the loss sustained on account thereof from his income for 1920, the year in which the note was paid

1. Where, in prior taxable years, a taxpayer failed to deduct a reasonable allowance for the depreciation of property used in its business, it may not accumulate the additional depreciation sustained in those years and deduct it in the taxable year, in addition to the depreciation sustained in that year, if the property has a further useful life. 2.

On the evidence, held, that Drake & Company was a partnership during the years in question. Held: that Drake & Company was a partnership during the years in question. Under the Revenue Act of 1918, the net income of a taxpayer who keeps no books shall be computed on the basis of a calendar year.

Held, that an expenditure in 1921 under the facts in this appeal is not deductible as a loss from other casualty under section 214 (a)(6) of the Revenue Act of 1921. Held: that an expenditure in 1921 under the facts in this appeal is not deductible as a loss from other casualty under section 214 (a)(6) of the Revenue Act of 1921.

1. Under section 326, Revenue Act of 1918, tangible property, other than cash, purchased at foreclosure sale and thereafter bona fide paid in to a corporation for stock, must be included in invested capital at its actual cash value at the time paid in; it is immaterial that such value exceeds the price paid at the foreclosure sale. 2.

A reserve set up for self-insurance equal to the estimated premiums payable to an insurer is not deductible as an ordinary and necessary business expense.

The Board will not inquire into the basis for the Commissioner's belief that jeopardy exists as provided in section 274(d) of the Revenue Act of 1924. The fact that a taxpayer against whom a jeopardy assessment has been made is unable to make the bond provided by section 279(a) can not serve to authorize an appeal not otherwise provided by the statute.

A taxpayer corporation, which, upon its organization, issues its entire capital stock for tangible property and intangible property consisting of a patent and a contractual right to future additions thereto and improvements by the inventor, may not include such intangible property in invested capital at a value equal to the difference between the total stock issue and the proven value of the tangible property, where the only evidence produced to sustain the alleged value of…

The taxpayer is not a personal-service corporation.