Volume 1 — Tax Court Reports

1. The taxpayer, a manufacturer, sold shares of corporation X to the president of corporation Y, and at the same time corporation Y by separate contract agreed to sell paper to the taxpayer at a… Held: reductions in the cost of paper and not part of the sale price of the shares. 2.

Jurisdiction -- Receivership Proceeding -- The Superintendent of Banks of the State of New York. -- Possession of the business and property of a bank by the Superintendent of Banks of the State of New York is the equivalent of a receivership proceeding before a state court within the meaning of section 274(a) of the Revenue Act of 1936, and no petition for redetermination of deficiencies may be filed with this Court after possession is so taken.

The notice of deficiency was not mailed until after three years from the filing of the income tax returns in this proceeding. Held: that the respondent, seeking to bring the assessment within the five-year limitation under section 275 (c), Revenue Acts of 1934 and 1936, had the burden of proof, that such burden was not met by showing only that the Commissioner in the deficiency notice determined that assessment had not been barred by section 275 (a) and that…

Gift Tax -- Donee Liability -- Statute of Limitations. -- Since section 510 of the Revenue Act of 1932 makes a donee personally liable for a gift tax on the gift to the extent of the value of the gift, it is immaterial whether or not there is any liability in equity on the part of the donee for the tax.

The decedent bequeathed the residue of her estate to a trustee to pay the annual income therefrom to persons in need of financial assistance, with a preference for relatives and friends of that class. Held, that the amount of the bequest is a legal deduction from the gross estate as a gift to charity.

1. Pursuant to an agreement between the petitioners, brothers, that Henry Rose would pay Jack Rosenzweig one-half of any amount recovered upon a suit for infringement of a copyright in consideration… Held: that the amount is a legal deduction from the gross income of Henry Rose under section 23 (a) of the Internal Revenue Code, as amended by section 121 of the Revenue Act of 1942. 2.

1. The petitioner makes its income tax returns upon the calendar year basis in accordance with its books of account. Held: that the amount is a legal deduction from the petitioner's gross income of 1938. 2.

1. Petitioner and his wife, residents of the State of Oklahoma, filed a declaration of intention to come under the community property law… Held: that the Oklahoma Community Property Law is to be given effect in determining Federal income tax questions and that the income of petitioner and his wife for the period November 1 to December 31, 1939, which constituted community income under the provisions of the Oklahoma statutes, may be reported in equal shares by petitioner and…

In 1936 petitioner's capital stock consisted of common stock and $ 3.25 cumulative preferred stock, the dividends on the preferred stock being in arrears to the extent of approximately $ 7.65 per… Held: That the transaction was a recapitalization of petitioner and therefore a statutory reorganization.

Interest which, being of doubtful collectibility, was not accrued on books nor reported as income by accrual basis taxpayer, held, taxable in subsequent year when actual payment was received. Held: taxable in subsequent year when actual payment was received.

Purchase by petitioner corporation of shares of its own stock pursuant to an agreement to effect permanent equal division of stock control, and resale thereof two years later at an increase over the… Held: to be a capital transaction not resulting in taxable gain to it.

1. Petitioners were stockholders of a corporation which sold a part of its capital assets for cash and distributed the cash plus a… Held: the distribution was not made in partial liquidation of the corporation as defined by section 115 (i), Revenue Act of 1936, because none of the corporation's shares of stock were completely canceled or redeemed and the distribution was not one of a series of distributions in complete cancelation or redemption of all or a portion of…

Holder of bonds received in a prior year in exchange for stock, held, entitled to a new basis for the bonds in computing gain on their subsequent… Held: entitled to a new basis for the bonds in computing gain on their subsequent disposition, rather than the previous basis for the stock, notwithstanding that, in erroneous belief that transaction was a nontaxable reorganization, no tax on prior year's gain was paid. American Light & Traction Co., 42 B. T. A. 1121; affd.

The board of directors of a corporation, of which petitioner was president, had in a prior year established a five-year plan for additional remuneration to certain executives and employees of the… Held: the $ 50,000 was constructively received by petitioner in the taxable year and was taxable income to him.

Where taxpayer set forth in a dividend schedule attached to his 1936 return two amounts which he designated Capital and omitted them from the total amount of dividends included in taxable income,… Held: such amounts were omitted from gross income within the meaning of section 275 (c), 1936 Act, and the assessment of the deficiency is not barred, the notice of deficiency having been mailed within the five-year period.

A payment made in 1938 as a lump sum settlement in compromise of a claim, presented in 1938, for a share of income received in years since 1921 under a 1921 agreement the terms of which were not clear, held deductible in 1938.

A deficit credit in computing the surtax on undistributed profits held allowable to the full extent of the adjusted net income where the taxpayer had no accumulated earnings and no earnings of the current taxable year. Revenue Act of 1942, sec. 501 (a) (3), amending Revenue Act of 1936, sec. 26.

C corporation, owner of 164,250 shares of common stock, being all the outstanding stock of G corporation, agreed to sell such stock to petitioners for 40,000 shares of its own stock valued… Held: there was no obligation on petitioners' part under the second plan to pay the $ 1,348,000 and, having received no economic benefit from the payment of the dividend by G corporation to C corporation, petitioners derived no taxable income as a result of the payment of such dividend.

1. Neither expenses incident to 77B reorganization assumed by transferee nor nominal stock interest in reorganized company accorded to stockholders of predecessor held to disqualify transaction as a… Held: further, on facts exchange of property was solely for petitioner's stock. 2.

1. In 1934 the petitioner executed an instrument reciting the assignment to his mother of all dividend income that might be derived during the term of… Held: that petitioner has failed to show a gift to the mother of a life interest in the shares as distinguished from the dividend income that might be derived therefrom and that the respondent did not err in including in petitioner's income the dividends received by the mother during the taxable years involved herein. 2.

1. The exemption granted a fraternal beneficiary society operating under the lodge system for the exclusive benefit of its members ceases when the society changes its form of organization and becomes a mutual legal reserve life insurance company, and income thereafter received is subject to taxation even though derived from contracts issued or assets held during the period it was entitled to exemption. 2. An insurance company, which had been in existence for several years as an exempt corporation, lost its exempt status on May 4, 1937, and filed a return of its income for the period May 4, 1937, to December 31, 1937. Held, its taxable year began on May 4, 1937, and ended on December 31, 1937, and the mean of its reserves and invested assets on these dates is to be used in computing the amount of the deductions to which it is entitled under the provisions of sections 203 (a) (2) and (a) (4) of the Revenue Act of 1936. 3. Amounts set aside in a "Premium Reduction Credit" fund, maintained by petitioner for the purpose of granting premium reductions to certain of its policyholders, are not part of its "reserve funds required by law" and may not be included in computing the mean of such reserve funds under sections 203 (a) (2) of the Revenue Acts of 1936 and 1938. 4. For lack of evidence, amounts included by petitioner in its gross income for 1937 and 1938 as rental income may not be excluded therefrom on the ground that they constituted receipts from the sale of livestock.

Petitioner sold shares of stock for a total price of $ 965,000, receiving in the year of sale a cash payment of $ 74,000 from the vendee. Held: petitioner may not report the sale upon the installment basis since the initial payments exceeded 30 percent of the selling price. Sec. 44 (b), Revenue Act of 1936.

Under an antenuptial agreement, petitioner's fiancee released all her future rights in his property in consideration for his promise to make certain provisions for… Held: her contractual rights are not shown to have had a value measurable in money or money's worth and the payment by petitioner to her in exchange therefor was a taxable gift. Revenue Act of 1932, sec. 503. Bennet B. Bristol, 42 B. T. A. 263; reversed, Commissioner v. Bristol, 121 Fed. (2d) 129, distinguished.

A forgiveness by an employee of a debt for salary for past services which had accrued and been deducted in an earlier year by the corporation on an accrual basis but not returned as income by the employee on a cash basis held taxable to the corporation as realized income in the year of forgiveness even though the employee is a shareholder.

The income of a trust which may, in the discretion of the trustees, be used for the support, maintenance, and welfare of the settlor's minor children, which in fact was not so used since the parent… Held: within the settlor's income.

Loss deductions allowed on account of worthless oil and gas royalties in the years when dry holes were drilled down to the lowest known producing formations in the areas of the royalties, and the operators making the drillings abandoned the premises as unfavorable to the production of oil or gas, and the royalties lost their sale value in the ordinary channels of trade.

Interest on gift taxes which were imposed by the Revenue Act of 1924 and determined against the executors of a decedent's estate but paid by beneficiaries of the estate after distribution of the assets of the estate is not an allowable deduction from the income of such beneficiaries.

1. Petitioners are life income beneficiaries of inter vivos trusts created by their mother in 1921. Held: the portion of the proceeds so allocated to petitioners should be included in computing the net income of petitioners under section 162 (b) of the Revenue Act of 1936. Theodore R. Plunkett, 41 B. T. A. 700; affd., 118 Fed. (2d) 644, followed. 2.

In 1939 the petitioner made a loan of $ 600,000 to a wholly owned subsidiary to enable it to acquire from the petitioner $ 600,000 par value of its stock. Held: that the amount is not a legal deduction from gross income under section 23 (k) of the Revenue Act of 1938, as amended by section 124 of the Revenue Act of 1942.

1. During the taxable year, pursuant to a plan for the readjustment of the obligations of the petitioner and the Kern Realty Corporation, the petitioner acquired leasehold estates of the realty… Held: There was not a statutory reorganization within clauses (C) and (D) of section 112 (g) (1), or a nontaxable transfer within section 112 (b) (5), Revenue Act of 1934.

The board of directors of a corporation, of which petitioners were employees, had in a prior year established a five-year plan for additional remuneration to certain executives and employees of the… Held: that the amounts thus expended were expended for petitioners' benefit and represented additional compensation to them and they are taxable thereon under the provisions of section 22 (a), Revenue Act of 1938. Raymond J. Moore, 45 B. T. A. 1073, distinguished.

In 1937 Phillips H. Lord, Inc., all of whose voting stock was owned by Phillips H. Lord, paid to the trustees of a pension trust which it had created on December 23,… Held: that the corporation is entitled to deduct from its gross income the $ 14,769 paid to the trustees of the pension trust in 1937; held, further, that petitioner Phillips H. Lord is not liable to income tax for 1937 upon any part of the amount paid by the trustees for an annuity contract in his behalf.

In 1924 and 1929 petitioner issued nontaxable preferred stock dividends based on post-1913 earnings and profits. Held: Petitioner is entitled to a dividends paid credit for the amount paid to retire the stock which is in excess of the paid-in capital standing behind such stock. The paid-in capital standing behind such stock is that portion of the capital structure represented by the ratio of the paid-in capital to the entire outstanding capital.

1. Petitioner is a corporation and during the taxable year 1937 had a net income. Held: petitioner is liable for the surtax on undistributed profits imposed by section 14 (b) of the Revenue Act of 1936, notwithstanding it was organized and operated as a social club which has never issued shares or certificates of stock of any kind or paid in cash or property any part of its income to its members. 2.

Income from oil and gas leases in the State of Texas acquired by a husband domiciled with his wife in the State of Oklahoma, then a noncommunity property state, partly with funds advanced by his law… Held: income taxable in its entirety to the husband, the decedent in these proceedings.

1. Failure to report income in petitioner's individual return in excess of 25 percent of that shown thereon, held, to make five-year statute of limitations applicable, notwithstanding that the… Held: to make five-year statute of limitations applicable, notwithstanding that the omitted income was included in an estate return filed by petitioner as executrix. Revenue Act of 1934, sec. 275 (c). 2.

The mortgagees of real estate, upon default of the mortgagor, foreclosed on the property and bid it in at public sale at a price greatly in excess of the fair market value but slightly less than the… Held: that the petitioner, one of the mortgagees, derived income to the extent of interest included in the bid. Loss allowed under regulations 77, art. 193.

1. Petitioners are a parent corporation and two subsidiaries. Held: in computing the surtax on undistributed profits under section 14 of the Revenue Act of 1936, as amended by section 501 of the Revenue Act of 1942, petitioners are not entitled to any credit under either section 26 (c) (1) or section 26 (c) (2) of the same act as amended by section 501 of the Revenue Act of 1942. 2.

Petitioner, an individual citizen of the United States, was a nonresident of the United States during three trips abroad, totaling five calendar months, and 36 days additional, in 1939. Held: that he was a bona fide nonresident of the United States for more than six months during the taxable year and that his income during the period of absence was exempt from taxation, within the language of section 116 (a) of the Internal Revenue Code.

Petitioner, who left husband in Ohio to reside in Texas, and there returned only half of her income for tax purposes on the theory that it was governed by the community property law of Texas, held,… Held: individually taxable on her entire income. (Herbert Marshall, 41 B. T. A. 1064; Paul Cavanagh, 42 B. T. A. 1037; affd. (C. C. A., 9th Cir.), 125 Fed. (2d) 366, distinguished.)

The petitioner, as beneficiary, was entitled to income from trust property, which was not paid in the taxable years because the trustee feared surcharge under decisions of the state court to the… Held: further, that it does not follow that the petitioner is taxable upon the unreceived income.

1. The additional capital stock tax (defense tax) imposed by section 205 of the Revenue Act of 1940, approved June 25, 1940, and applicable to the capital stock tax year beginning July 1, 1939, did… Held: that the debts recovered in 1939, which were deducted in such earlier years, did not result in a reduction of the taxpayer's income tax in the earlier years and are to be excluded from the petitioner's gross income for 1939. Sec. 116, Revenue Act of 1942.

1. Income. -- Recovery on bad debt, deducted in prior year without reduction of petitioner's tax for such prior year, held, not taxable income. Held: not taxable income. Citizens State Bank, 46 B.T.A. 964; sec. 22 (b), Internal Revenue Code, as amended by sec. 116 of the 1942 Act. 2.

1. Petitioner, a corporation which in its inception was not organized for profit, constructed approximately 100 houses and leased them to a milling company at a rental sufficient to amortize… Held: petitioner is not exempt from tax under section 101 (7) or (8) of the 1936 Act and corresponding sections of the 1934 and 1932 Acts; held, further, petitioner was not engaged in carrying on or doing business during the years 1933 to 1936, inclusive. 2.

The taxpayer reported a loss from the sale of a lease and took a deduction for the loss in its return through an innocent mistake of law. Held: that section 275 (c) of the Revenue Act of 1934 is applicable and, therefore, there is no bar of the statute of limitations against the deficiencies. Estate of C. P. Hale, 1 T. C. 121, followed.

1. The unjust enrichment tax upon net income from reimbursements, under section 501 (a) (2) and (d) of the 1936 Revenue Act, is imposed upon the total reimbursements, less expenses and fees reasonably incurred to obtain them, regardless of whether or not the reimbursements are includible in net income under Title I of the act. 2.

The word beneficiaries appearing in the description of constructive ownership of stock in a personal holding company means those persons who have present interests in a trust holding the shares and excludes those who have a remainder or other remote interest, whether vested or contingent.

In December 1936, the W corporation declared certain dividends payable on December 31, 1936. Held: as the dividends declared in December 1936 were not paid during the taxable year, the corporation was not entitled to a dividends paid credit in 1936 under section 27 (a) of the Revenue Act of 1936.

Petitioner corporation was organized by a group of bondholders of an insolvent joint stock land bank for the purpose of acquiring its… Held: that the transaction constituted a reorganization under section 112 (i) of the Revenue Act of 1932 and that petitioner is entitled under section 113 (a) (7) to the basis of the transferor as to the assets acquired in computing gain or loss on their disposition. Palm Springs Holding Corporation v. Commissioner, 315 U.S. 185, followed.

The petitioner is a citizen and a resident of the United States and his wife is a citizen and resident of the Philippine Islands. Held: that the petitioner is entitled to a credit of the amount claimed, namely, $ 152,055.04.

Petitioner's decedent, the sole owner of the formula of a yeast compound and of its trade-mark, organized a Georgia corporation and… Held: that decedent's assignment of the royalty contract was not to be considered for all substantial and practical purposes as a completed gift, by reason of his retained control over the contract through his control of the other party to the contract, the corporation, and the income from the contract was therefore taxable in full to him.

Dividend irrevocably set aside and made available to all preferred stockholders upon conversion of their shares pursuant to a recapitalization, even though not all the stockholders had surrendered their shares and received the dividend by the end of the tax year, held not a preferential distribution within the meaning of section 27(g) of the Revenue Act of 1936, where, under state law, the recapitalization was binding upon all stockholders.

Petitioner obtained a divorce in 1929 in Texas. The divorce decree did not partition the property of the spouses, award custody of minor children, or provide for the support of the children. Held: Under Texas law petitioner was under continuing duty to support his children after the divorce, the trust income which was required to be used for that purpose discharged petitioner's obligation, and he is taxable on one-half of the trust income.

Petitioner created a trust, the income of which was payable to his wife for life. Held: following Howard Phipps, 47 B. T. A. 357, that the length of the term is not decisive but is merely one of the factors to be considered in determining whether the settlor has retained the substance of full enjoyment of the property and is therefore taxable upon the income of the trust.

Petitioners are residents of Pennsylvania and are the beneficiaries of an inter vivos trust created in that state. Held: that in the absence of a clear rule of local law in Pennsylvania and of any determination by a local court, the terms of the trust govern the amount of the currently distributable income for purposes of section 162(b) of the Revenue Act of 1936.

Petitioner in 1937 issued 20 year 8% income debentures, having a maturity date, bearing interest to be paid out of earnings and not cumulative, subordinate to the claims of all creditors, superior to… Held: payments made to debenture holders are deductible as interest.

Petitioner, which was on an accrual basis, was a book broker, acting as a depository and distributor of school books. Held: the commissions payable to petitioner on account of school books sold to the State of Georgia were properly accruable to it in the years in which the sales were made.

The amount forgiven by a shareholder of interest in arrears on debentures of the corporation held by him, which interest, in common with all the other interest on the debentures, had been deducted by the corporation on its returns for the years when it accrued, is properly included within the corporation's income in the year of forgiveness.

Prior to its taxable year 1936 the petitioner set up a reserve, principally out of surplus, to provide for the payment of Federal taxes, including additional income and excess profits taxes for the… Held: that in computing its undistributed adjusted net income for the purpose of the personal holding company surtax for the taxable year 1936 the petitioner is not entitled to deduct the additional income and excess profits taxes paid for the years 1932 and 1933.

Cash distributed as part of a tax-free exchange of stock under section 112 (b) (3) of the Revenue Act of 1936 pursuant to a plan of recapitalization, held taxable as a dividend under section 112 (c) (2) where the corporation, disregarding charges to surplus account upon the issuance of nontaxable stock dividends in prior years (see section 115 (h)), had sufficient earnings and profits accumulated since February 28, 1913, to cover the cash distribution.

1. The petitioner, engaged in long term contracts, kept its books and prepared its Federal income tax returns upon a basis of billing clients, in most cases, in accordance with engineers' determinations of percentage of work completed, and deducting therefrom expenses actually incurred. Compensating adjustments were made in the year of completion of contract. Held, that petitioner's method clearly reflected income and that the statute of limitation had run, as to one taxable year, upon the assessment made. 2. Held that petitioner has not shown error in computation of depreciation.

Executors of an estate had discretion to determine what amount in each year during administration of estate properly could be paid or credited to petitioner. Held: that $ 32,749.16 was paid to petitioner out of 1937 income of the estate for the purpose of determining her income tax liability under section 162 (c) of the Revenue Act of 1936. Ethel S. Garrett, 45 B.T.A. 848, distinguished.

Petitioner transferred to a corporation a minor portion of the stock which it had issued. A part was transferred for cash prior to any decision by the corporation as to disposition of the stock. Held: there was sale of stock and not distribution in partial liquidation.

Petitioner, on an accrual basis, while under contract, as to borrowing funds with the Reconstruction Finance Corporation, to limit compensation to each of two officers to $ 4,000 per… Held: that the liability for compensation above $ 4,000 per year for each officer was contingent and no accruable liability, and that denial of deduction of the amount unpaid in the taxable years was not error. Deduction approved as to amount of compensation actually paid during taxable years.

The owner of some shares in a building and loan association gave the shares, together with certain credited accumulated dividends thereon, to her son and daughter 15 days prior to the maturity date… Held: the donor is taxable on so much of the dividends as had been credited to the shares prior to the time of the gift. Helvering v. Horst, 311 U.S. 112.

Petitioner was created as a new corporation on December 31, 1936, by the consolidation of four predecessor companies, one of which had paid dividends during 1936 in excess of its adjusted net income. Held: petitioner is a taxable entity separate and distinct from its predecessors and is not entitled in 1937 to a dividend carry-over credit for dividends paid by the predecessor.

The corpora of two trusts created by decedent in 1923 and 1929, respectively, decedent having retained the power to designate who should receive the income therefrom during his lifetime, though by amendment of the first trust he had excluded himself as an income recipient, held not includible in decedent's gross estate, following May v. Heiner, 281 U.S. 238. Estate of Mary H. Hughes, 44 B. T. A. 1196, overruled.

Petitioner was organized by producers of clay sewer pipe to promote the use and sale of such pipe. Held: petitioner's sole contention, which is that the excess of receipts over expenditures for the taxable year is not includible in its taxable income, is denied.

1. Estate Tax. -- The decedent and the executrix of her estate were sisters. Held: decedent did not renounce any portion of her share of her deceased sister's estate, but instead transferred her share in excess of the bonds to her surviving sister in consideration for the latter's promise of support; held, further, no part of the transfer is includible in decedent's gross estate under section 811 (c) of the…

1. Its reserves failing to qualify as true life insurance reserves, petitioner, held, not a life insurance company within the applicable law. 2. Held: not a life insurance company within the applicable law. 2. Premiums received by petitioner in ordinary course, although partly dedicated to the payment of claims under its policy contracts, held, income to it.

Corporate stock transferred during her life by decedent, accompanied by immediate retransfer by the donees as security to insure retention by decedent of rights of control of the corporation and to a… Held: properly included in decedent's estate. Prior opinion, 47 B.T.A. 807, modified. Estate of Edward E. Bradley, 1 T.C. 518, distinguished.

Petitioner created identical trusts for each of his three daughters. The income from the trusts was to be paid to his daughters for life and on their death to their issue. Held: income from the trusts during 1935 and 1936 was not taxable to petitioner under sections 22 (a), 166, or 167 of the Revenue Acts of 1934, and 1936.

The income of a New York trust created by a father for the maintenance, support, and welfare of his two children, who were minors, in which the trustees were required to pay over the net income to or for the benefit of the settlor's children, is within the gross income of the settlor, even though the father provides for the children and none of the income of the trust is used for their support but all of it is distributed to the guardian for accumulation for them.

The taxpayer endorsed stock certificates for transfer to his minor children with the declaration, in the presence of a witness, that he was making a gift of the shares to the children. Held: that there were no valid gifts of the shares to the children.

Decedent opened a bank savings account with his own funds in the name of himself and/or his wife as trustees for each of their four minor children. Held: such amounts were properly included in decedent's gross estate because, (a) valid trusts were not created, and (b) the transfers or gifts, if any, of the funds so added to the estate were to take effect in possession or enjoyment only at or after the death of decedent.

Held, under the evidence, that petitioner made a gift of stock in trust, rather than one directly to the beneficiary of the trust and is not entitled to the exclusion provided by section 504 (b) of… Held: under the evidence, that petitioner made a gift of stock in trust, rather than one directly to the beneficiary of the trust and is not entitled to the exclusion provided by section 504 (b) of the Revenue Act of 1932 as amended by section 505 (a) of the Revenue Act of 1938.

The three taxpayers inherited all the shares of an insolvent corporation and a claim against it. Dissolution was then considered. Held: the amount received by the taxpayers is not a liquidating distribution, of which only a percentage would be taxable, but the gain is ordinary income, of which all is taxable.

Gift Tax -- Transfer of Property -- Donative Intent. -- No taxable gift to the corporation resulted where the sole preferred stockholder executed a document waiving her right to undeclared dividends in arrears at that time on the 6 percent cumulative preferred stock.

Where during the taxable year 1935 the evidentiary facts clearly show a sale by some of the second preference stockholders of a corporation… Held: each sale must be recognized as a separate, independent, and completed transaction for tax purposes; held, further, the gain recognized on the first transaction is to be taken into account in computing net income at the percentages mentioned in section 117 (a) of the Revenue Act of 1934 rather than at 100 percent as provided for…

Petitioner is a corporation engaged in the business of producing oil. Held: petitioner could not deduct in 1938 intangible drilling costs which were incurred in 1937 in drilling a well which was not completed and brought in as a producer until in January of 1938.

In carrying out a sale of property owned by the executors of decedent's estate, corporation X was organized at the instance of corporation A, which was interested in… Held: The serial notes were evidences of indebtedness of the purchaser, corporation X, and the sale was an installment sale. (2) The distribution of a portion of the notes by the executors to themselves as trustees accelerated taxation of the gain represented by those notes. Sec. 44 (d), Revenue Act of 1936.

1. A personal holding corporation issued its outstanding stock in exchange for certain securities transferred to it by two of its stockholders. Held: that the provisions of said section 501 (a) are applicable and respondent's determination is approved. 2. Section 501 (a), Second Revenue Act of 1940, applied to a liquidation completed in 1938, is not violative of the Fifth Amendment of the Federal Constitution as being confiscatory in effect. 3.

1. Petitioner in its estate tax return elected under section 302 (j) of the Revenue Act of 1926, as added by section 202 (a) of the Revenue Act of… Held: since the return was not sworn to until after the expiration of the period during which the election could be made, the election was improperly exercised and petitioner was bound by the valuation as of date of decedent's death. 2. Respondent's determination of 5 percent penalty for filing of delinquent return is sustained.

Petitioner, in 1928, acquired an Accumulative Investment Certificate under the terms of which the issuing company agreed to pay him, at the expiration of ten years if the payments provided for therein were made, an amount substantially greater than the aggregate of the payments made. The certificate was in registered form. During the taxable year it was retired by payment.

Held, that deductions from gross estate on account of a revocable inter vivos trust for charitable purposes, should be reduced by the amount of Federal estate taxes and state inheritance taxes paid… Held: that deductions from gross estate on account of a revocable inter vivos trust for charitable purposes, should be reduced by the amount of Federal estate taxes and state inheritance taxes paid on such transfer. Section 301 (a) (3), Revenue Act of 1926, as amended, construed.

These proceedings were reversed and remanded to the Board in Commisioner v. Boeing, 123 Fed. Held: the Court has already decided on the facts which are in the record that the gifts were of future interests and petitioner was not entitled to any $ 5,000 exclusions; held, further, that, the Commissioner having duly amended his answers prior to the rehearing to ask for increased deficiencies, is entitled to a decision for such…

1. Amounts paid in redemption of shares originally issued as stock dividends held, upon the facts, essentially equivalent to the distribution of taxable dividends, section 115 (g), Revenue Acts of… Held: upon the facts, essentially equivalent to the distribution of taxable dividends, section 115 (g), Revenue Acts of 1936 and 1938; held, further, nonresident alien stockholders are subject to tax upon amounts treated as dividends under section 115 (g). 2.

1. Deduction -- Bad Debts -- Additions To Reserve. -- The petitioner shows on its opening balance sheet, as of the date of its organization in 1924, certain accounts receivable against which it set… Held: that the petitioner realized gain from the disposition of the property to the extent that the $ 300,000 exceeded its basis for gain or loss on the property.

Petitioner transferred certain property in trust and empowered the trustees in their sole and absolute discretion to either hold and accumulate the trust income or distribute it among the… Held: the gifts in trust were gifts of future interests and petitioner is not entitled to any $ 5,000 exclusions under section 504(b), Revenue Act of 1932.

In 1937 petitioner had a transaction with the Humble Oil & Refining Co. by which it received from that company $ 300,000 in cash and… Held: that the transaction was a sale by petitioner to Humble of its mineral rights and previously reserved royalties contained in the instrument of assignment and petitioner is taxable on the $ 300,000 received in 1937, petitioner having no cost basis for the interest transferred; held, further, that, the $ 300,000 being the proceeds of a…

Under the facts it is held that petitioner sustained a loss in a transaction entered into for profit which is deductible under section 23 (e) (2) of the Internal Revenue Code. Robert Lyons Hague, 24 B.T.A. 288, distinguished.

Petitioner Clifford H. Goldsmith is author and playwright. He wrote a play Enter to Learn and copyrighted it July 7, 1936. Held: that the money which petitioner received from Paramount by virtue of this assignment and transfer was not from the sale of a capital asset as defined in section 117, Revenue Act of 1938, and the gains resulting to petitioner are not taken into account at the percentages provided in that section, but are taxable as ordinary income.

1. Petitioner gave $ 1,000 a month for the promotion of Lumia, the art of light in motion. The money was placed in a bank account called the Light Fund. Held: that the contributions were to an individual and not to a trust, or * * * fund within the meaning of section 505 (a) (2) (B), Revenue Act of 1932 as amended. 2. Petitioner transferred certain policies of insurance upon the life of her husband to a trust.

The amendment of Treasury regulations defining trusts and associations to correspond with views expressed by the Supreme Court, held, not to destroy the validity of petitioner's plea of res judicata where the parties, facts, and question presented are the same as in a prior adjudication. Pryor & Lockhart Development Co., 34 B. T. A. 687, followed.

Funds originally belonging to decedent and deposited by him in California banks in accounts carried in his and his wife's names, became the property of such persons as joint tenants. The withdrawal of the funds by the wife three days before decedent's death while he was in a coma and the deposit of the funds in accounts carried in her name only, did not change the character of the tenancy in the absence of an agreement of the parties.

Decedent received oil bonuses during the years 1937 and 1938. She deducted and was allowed percentage depletion. Decedent died May 21, 1939, and at that time no oil had been produced. Held: that the depletion claimed in 1937 and 1938 should not be restored to income in the year of decedent's death since the leases did not expire or terminate, nor were they abandoned, in the taxable year. See Regulations 103, section 19.23 (m)-10 (c).

Petitioner was appointed judge to fill an unexpired term. At the ensuing primary and general elections, he ran for election to a full term. Held: petitioner is not entitled to a deduction under section 23 (a) (1), (A) or (a) (2), as amended, or section 23 (e) (2) of the Internal Revenue Code.

Debenture preferred stock issued in exchange for preferred shares; bearing interest at 4 percent, payable semiannually; subordinate to the claims of bank creditors; and payable at the expiration of corporate existence, held, not to represent an indebtedness of the company and payments thereon held not deductible as interest.

1. In 1937 petitioner, owning a three-fourths interest in an oil and gas lease, assigned its interest therein to an oil company for a cash payment of $ 120,000 and (a) an overriding royalty of 1/24… Held: that the $ 120,000 received in 1937 was not personal holding company income within the meaning of section 353 of the Revenue Act of 1936 (added by section 1 of the Revenue Act of 1937). 2.

Where petitioner, as a surviving partner, during the taxable year 1937 received a single check in payment of an attorney's fee for services rendered partly by a partnership which terminated in 1929… Held: Retroactive effect will be given to this agreement in determining petitioner's income tax liability for 1937. Lillie C. Pomeroy et al., Executors, 24 B. T. A. 488, affd., 68 Fed. (2d) 411, followed.

The executor of the estate of a deceased resident of California, pursuant to court order made in conformity with the state statutes (providing that the court might, in its discretion, set apart to… Held: that under the facts she was liable as a transferee.

Decedent died suddenly in 1937 from coronary thrombosis at the approximate age of 80 years and 7 months. Held: the transfers to the trusts were not intended to take effect in possession or enjoyment at or after decedent's death, Commissioner v. Kellogg, 119 Fed. (2d) 54; held, further, on the facts, none of the transfers to the trusts, nor the gift to the son, was made in contemplation of death.

Petitioner's father created an inter vivos short term trust on May 16, 1924, which he extended several times. Held: that section 113 (a) (5) of the Revenue Act of 1936 applies; that the grantor reserved the right to revoke the trust; that the basis of the securities received by petitioner is the fair market value at the date of the grantor's death, under section 113 (a) (5); and that the date of the grantor's death is the date of acquisition for…

Gift Tax -- Fiduciary of Transferee -- No Exclusion on Future Interest. -- Donor and petitioner, the trustee, executed an irrevocable trust agreement in 1932, under which the right to change the… Held: the gift was completed in 1936, (2) trustee, as fiduciary of transferee, is liable for unpaid gift tax of donor but payment thereof is limited to the trust property, and (3) the gift to the son-in-law is of a future interest and no exclusion allowable.

The phrase income which would be returnable, prescribed in section 44 (d) of the Internal Revenue Code as a factor to be used in determining the basis for computing gain or loss upon the satisfaction of installment obligations at less than face value, held to mean the entire profit that would result if the obligations were satisfied in full, and not merely the percentage of such profit that would be taken into account by an individual under section 117 (b) in computing net…

Petitioner is a personal holding company and its stockholders, in an informal meeting held prior to the end of the year 1935, agreed that the corporation should not distribute its profits for the… Held: this second amended return came too late, and was not a compliance with section 351 (d), Revenue Act of 1934, and the Commissioner is sustained in his imposition of the personal holding company surtax. Automobile Loans, Inc., 36 B. T. A. 809, followed.

The petitioner, as grantor, created a trust, the income of which is payable to his wife for life and then to the petitioner's children, with remainders over to the descendants of the said children… Held: that the income of the trust is the income of the petitioner under section 22 (a) of the Revenue Act of 1936. Helvering v. Clifford, 309 U.S. 331.

Petitioner in 1938 delivered to his wife and a bank as trustees a policy of insurance on his life. The trustees were named beneficiaries and no power to change the beneficiaries was reserved. Held: that petitioner in computing his net income for 1939 is entitled to deduct the amount of the premium paid. Sec. 23 (o) (2), Revenue Act of 1938.

Taxpayer corporation issued certificates, called preferred stock certificates, providing for redemption thereof on a definite maturity date,… Held: the relationship of corporation and stockholder was unaffected by the separate guaranty, and that payments made by taxpayer of amounts referred to as dividends were, in fact, payments of dividends, rather than interest * * * on indebtedness, and were, therefore, not deductible from taxpayer's gross income for the taxable years.

The petitioner's father by will provided for the creation of certain trusts the income of which was to be paid to petitioner and her two brothers. Held: that the amounts so paid in the taxable year in lieu of further payments under the agreement constituted taxable income to the petitioner.

Amounts received by the holder of municipal improvement bonds, designated penalties for the debtor's failure to pay installments of principal or interest at maturity, held not to constitute interest… Held: further, a bonus or premium paid upon the redemption of bonds before maturity does not constitute tax-exempt interest.

Held, exclusion of $ 5,000 from amount of gifts in trust denied where gift was of future interest because of discretion in trustees as to… Held: exclusion of $ 5,000 from amount of gifts in trust denied where gift was of future interest because of discretion in trustees as to paying income to donee; held, further, a contingent remainder interest to charity not deductible from amount of gift, where too contingent at date of gift to have ascertainable value, although prior to…

The petitioner, the wholly owned subsidiary of Fulton, a corporation organized by an insolvent bank to liquidate its slow assets, received certain assets of the bank and issued debentures against… Held: no error in denial of immunity from collection of tax under section 818, Revenue Act of 1938, as amended.

Processing Tax -- Jurisdiction. -- A petitioner had all of its hogs slaughtered for it and, therefore, was not liable as a first processor for the processing tax. Held: that its petition filed with the Board of Review should not be dismissed for lack of jurisdiction.

Personal Liability under Section 3467 of the Revised Statutes. -- The petitioner took possession of the assets of a taxpayer for the benefit of creditors. The Commissioner gave the petitioner notice of a claim for income taxes for 1934. The petitioner held cash of the estate of the taxpayer.

The petitioner's income and excess profits tax liabilities for 1935 were settled by a decision of the Board of Tax Appeals entered June 25, 1938. Held: that the respondent was not precluded from making such a determination by section 272 (f), Internal Revenue Code, or this Court from determining that there is a deficiency in such tax.

1. Where transferee of property assumes payment of expenses of reorganization effected under section 77B of the National Bankruptcy Act, held, transaction is… Held: transaction is not thereby disqualified as a reorganization either under section 112 (g) (1) (B) of the Revenue Act of 1936, as amended by section 213 (g) of the Revenue Act of 1939, or under section 112 (g) (1) (B) of the Internal Revenue Code, as amended by section 213 (b) and (e) of the Revenue Act of 1939. 2.

Petitioner received patent royalties from its wholly owned subsidiary, an English company. Held: petitioner is not entitled to a credit for taxes paid or accrued to a foreign country within the meaning of section 131 (a) (1) of the Revenue Act of 1934.

1. Where petitioner, a corporation, was in the process of reorganization under section 77B of the National Bankruptcy Act, and by order of the Federal court having jurisdiction was allowed to remain in possession of its property and to continue its business as a corporate principal, it was carrying on or doing business during that period within the meaning of section 601 of the Revenue Act of 1938 and, accordingly, was subject to excess profits taxes under section 602 of the…

Association Taxable as a Corporation -- Trust. -- A trust created to execute a lease on a tract of coal deposit land and pay royalties to a group of beneficial owners was not taxable as a corporation.

In 1938 petitioner, a resident alien, made a contribution to the First Church of Christ, Scientist, Berne (Switzerland), a Swiss corporation. The Berne Church is a branch of The First Church of Christ, Scientist, in Boston, Massachusetts, a Massachusetts corporation. Petitioner claimed the contribution as a deduction on her 1938 income tax return, under section 23 (o) of the Revenue Act of 1938. Held, that the contribution is not deductible as a contribution to a domestic corporation organized and operated exclusively for religious purposes.

1. Where petitioner, a person of means, transferred in 1939 certain property to herself and husband as trustees, the income to be accumulated for about three years until their only child reached the… Held: the income from the trust is taxable to petitioner under section 22(a) of the Internal Revenue Code. Commissioner v. Buck, 120 Fed. (2d) 775. 2.

Petitioner's minor daughter and son were the respective life income beneficiaries of two trusts created by her during the tax year. Held: the income of the trusts is not taxable to petitioner, under section 22 (a), 166, or 167 of the Internal Revenue Code, with the exception of dividends that had been declared payable to stockholders of record on or before June 28, 1940, the date the trusts were created.

The income of an Illinois trust which may, in the discretion of the trustees, be used for the support, maintenance and welfare of the minor children of the settlor, who was their mother, which in fact was not so used, held within the settlor's income since, under Illinois law, the obligation of the mother and father to furnish that support, maintenance, and welfare was equal.

The X Corporation, which was on an accrual basis, deducted from its gross income for the taxable year 1938 a salary item payable to its president, who, with his wife, owned all of X's stock. Held: such salary item not deductible by X Corporation pursuant to section 24 (c), Revenue Act of 1938.

1. In December 1920 petitioner increased its authorized capital stock to provide for the issuance of $ 1,000,000 of preferred stock. Held: the certificate represented preferred stock and not an indebtedness owing by the corporation, and the payments accrued thereon in the taxable years, as well as the redemption premiums paid, are not deductible from gross income as interest. 2.

Held, an amount received in compromise of a suit for damages under the Federal antitrust laws not shown to have constituted restoration… Held: an amount received in compromise of a suit for damages under the Federal antitrust laws not shown to have constituted restoration of capital; held, further, that the Commissioner erred in allowing deduction of a part of the recovery as unamortized cost of patents involved in a licensing arrangement between the parties to the action.

Decedent, who died a resident of Pennsylvania in 1937, executed a deed of trust in 1919, under the terms of which the income was to be paid… Held: the terms of the trust instrument were in violation of the Pennsylvania rule against perpetuities and void, except as to the life interest in income of the daughter; held, further, the value of the trust property at the optional valuation date, less the value of the life estate of the daughter, is includible in decedent's gross…

1. In 1935 petitioners created five irrevocable trusts for the benefit of their five children and upon certain conditions their… Held: petitioners made completed gifts of the properties transferred, with the exception of the value, if any, of the possibility of reverters; held, further, that the possibility of reverters is so remote that there is no basis upon which they can be valued, Robinette v. Helvering, 318 U.S. 184; held, further, the gifts to the 1935 trusts…

1. Petitioner was married prior to 1919, and has resided continuously since that time in Texas. In 1924 he obtained a policy of life insurance upon his own life, payable to his estate. Held: under Texas law, the cash surrender value of the policy was community property and thus the gift to the wife was only one-half of the value of the policy. Berdoll v. Berdoll, 145 S. W. (2d) 227. R. L. Blaffer, 38 B. T. A. 632; affd. 103 Fed. (2d) 489, not followed. 2.

Jurisdiction -- Second Notice. -- Where the Commissioner mails a valid notice and a petition is filed with this Court pursuant thereto, he has no authority, at any time after mailing the first notice, to send a second notice to the same addressee relating to the same tax liability.

Decedent was obligated to pay a life annuity to a woman who was 79 years of age at the date of decedent's death. Held: petitioner has failed to prove that the method used or the result reached by respondent is erroneous, and his determination is accordingly sustained.

Where income of a trust is payable to a divorced wife to be used for her support and the support and education of children of the husband-grantor, the husband having no continuing obligation under… Held: only so much of the trust income as is actually used for the support and education of the minor children is taxable to the grantor. Helvering v. Stuart, 317 U.S. 154, distinguished.

Assignability of Construction Contract -- Recognition of Separate Corporate Entity. -- Petitioners are husband and wife, residing in Texas. Held: the contract was not for personal services of such character as to render it nonassignable under Texas law, and the profits earned by the corporation constituted income taxable to it, not to petitioners; held, further, on the facts, the corporate entity may not be disregarded in determining tax liability.

Income from part of petitioner's interest in family partnership of which he was managing and controlling partner, held, taxable to him notwithstanding assignment to trust for his minor children over… Held: taxable to him notwithstanding assignment to trust for his minor children over which he had broad powers of control. Helvering v. Clifford, 309 U.S. 331.

Income of part interest in family partnership held by petitioner in a trust created by him and his wife for the benefit of minor sons, over which he had large powers of control, including authority… Held: taxable in part to petitioner and also in part to his wife in view of their community property status. Helvering v. Clifford, 309 U.S. 331; Helvering v. Stuart, 317 U.S. 154.

Petitioner's net payment for 1936 foreign income tax was less than the amount of the foreign tax credit taken in its return for 1936, as a result of a refund in 1939 of part of the foreign tax paid.

Processing Tax -- Jurisdiction -- Inadequate Claim. -- The Court has no jurisdiction where the claims relied upon fail to set forth any of the information called for by the law, the regulations, and Form P. T. 79.

W. W. Fondren and wife created separate, irrevocable trusts for the benefit of each of their seven minor grandchildren. Each trust instrument provided that the trust income, and thereafter trust corpus, if it be necessary, should be used for the proper maintenance, support, and education of each grandchild. If the trust income was not needed for these purposes it was to be accumulated and added to corpus and distributed in stated percentages upon each beneficiary arriving at the age of 25, 30, and 35, with remainder over in case of death. Held, as the obligation to support the beneficiaries rested on the parents, who were able to and did support them, and as the gifts to the beneficiaries were dependent on survivorship and were limited by the discretionary power vested in the trustee, the gifts in trust were of future and not present interests.

1. Held, that the decision redetermining income tax deficiency in a former proceeding between the same parties for prior taxable years is not res… Held: that the decision redetermining income tax deficiency in a former proceeding between the same parties for prior taxable years is not res judicata of the present proceeding, since the causes of action of the two proceedings are different and the decision in the former did not determine the issues of the present proceeding. 2.

Petitioner, owner of a 50 percent stock interest, and others, stockholders and nonstockholders, made advances from time to time to a corporation… Held: the advances made by petitioner were loans and not capital contributions, the unpaid balance of the principal amount of said advances was properly ascertained to be worthless and charged off in 1937, and the nonrecognition provisions of section 112 (b) (5), as amended, and 112 (b) (3), Revenue Act of 1936, are not applicable.

Petitioner had the right to receive during her life all of the income of four trusts which her husband created in 1928 for the benefit of… Held: that petitioner made a gift to the settlor in 1932 of her life interest in the trusts; held, further, that in his valuation of petitioner's life interest the respondent properly took into account the annual increases in the trust corpora which would result from the receipt in the future of one-half of the renewal commissions under…

1. Deduction from Income -- Accrual -- Interest. -- The petitioner, in December 1936, called its bonds for payment on February 1, 1937, and… Held: that the amount accrued and paid on bonds actually surrendered and canceled in 1936, representing interest to February 1, 1937, was deductible in 1936. But where the bonds were not surrendered and canceled and payment was not received by the bondholder until 1937, the interest for January 1937 was not accruable until 1937. 2.

Petitioner leased his home and temporarily rented another. Held: rent paid by the petitioner is nondeductible family living expense, under section 24 (a) (1) of the Internal Revenue Code, and may not be deducted as expense of production of income, under section 121 (a) (2) of the Revenue Act of 1942.

A corporation is not entitled to an undistributed profits tax credit under section 26 (f) of the Revenue Act of 1936, as amended by section 501 (a) (3) of the Revenue Act of 1942, merely because it has a deficit in lieu of accumulated earnings and profits at the beginning of the taxable year.

The petitioner was restricted by contract executed prior to May 1, 1936, from paying dividends, other than stock dividends, on its common stock, and was required to pay in cash or bonds on November 1 following the close of its taxable year, which ended on July 31, an amount equal to 20 percent of its sinking fund earnings during the taxable year. Held, on the facts, that the petitioner is not entitled to credit under section 26 (c) (1) or (c) (2), Revenue Act of 1936.

Petitioners, as stockholders, purchased stock from the corporation for $ 35.52 per share less than the agreed fair market value thereof, pursuant to a directors' resolution, with the knowledge and… Held: that under the facts herein the difference between the fair market value and the purchase price was in effect a distribution of corporate earnings and profits taxable as a dividend.

1. Petitioner, domiciled in California, entered into an agreement with his wife, from whom he was separated, providing that each might conduct, carry on, and engage in any employment, business, or trade for his or her own, sole or separate use and benefit, free from any control, restraint, or interference, direct or indirect, by the other, in all respects as if each were unmarried.

Interest on special tax bills issued by the city of Kansas City, Kansas, which was levied and assessed by the city as a tax and was payable to the holders of the tax bills by the city but was not… Held: tax exempt as interest upon the obligations of a political subdivision of the state.

1. The limit of the credit for foreign taxes allowable under section 131, Revenue Acts of 1936 and 1938, being based, under subsection (b), upon a ratio of net income from foreign sources to entire net income, held foreign income must be reduced by identifiable expenses, losses, or other deductions, and a ratable proportion of unallocable expenses, as provided in section 119, although the foreign tax was withheld at source and allegedly imposed upon the foreign income or…

An attorney received a power of attorney providing for a fee for his services of 40 percent of any recovery made upon his client's claim for compensation because of expropriation of certain ships and… Held: that the attorney's fee is taxable as ordinary income, and not as capital gain upon a capital asset assigned.

Petitioner, a foreign insurance company doing business in the United States (other than life or mutual) incurred British income taxes and business expense at its London office, connected with income from sources within the United States, but not definitely allocable thereto. Held, that in arriving at the ratio between total income and income from sources within the United States, in determining the deduction, the Commissioner did not err in excluding nontaxable interest and 85 percent of dividends from domestic corporations for which credit had been allowed; held, further, that, where interest was paid upon indebtedness incurred and used to purchase stock in three foreign corporations which had no income from sources within the United States upon which they paid any dividends to petitioner, such interest was not properly deducted; held, further, that the petitioner may not deduct taxes paid the British Government laid upon the basis of the income and profits from subsidiaries incorporated in and doing business in the United States, but not laid upon the basis of dividends received from the American securities; such income and profits being held not income to the petitioner from sources within the United States.

Contracts were made, inside the United States, by nonresident aliens, not to perform within the United States acts competitive in nature with the business of the petitioner, which paid certain amounts as consideration for such contracts. Held, the income so paid to the nonresident aliens was from sources within the United States, under section 119 of the Revenue Act of 1938, and subject to the withholding tax under sections 143 (b) and 144 of the Revenue Act of 1938.

Petitioner, being in need of bank credit in the conduct of its business, negotiated for a line of credit in 1935 with a Cincinnati, Ohio, bank. Held: the letter in question, coupled with its acceptance by the bank, constituted a written contract executed by petitioner prior to May 1, 1936, which expressly dealt with dividends and prohibited petitioner from the payment of any dividends in 1936 and 1937. Chess & Wymond, Inc. v. Glenn, 40 Fed. Supp. 666; affd., 132 Fed.

1. Income of a trust created by husband two weeks before divorce held taxable to wife-beneficiary where the Nevada divorce decree was silent as to alimony and the husband was under no continuing obligation, statutory or contractual, to support her. Helvering v. Fuller, 310 U.S. 69. 2.

The petitioner's business was buying, selling, trading, or exchanging real property on his own individual account. Held: that the property is not a capital asset within the meaning of section 117 of the Internal Revenue Code because held primarily for sale to customers in the ordinary course of his trade or business and the profit realized upon the sale of lots from the property is taxable to the petitioner in full.

Petitioner, a resident of Nevada, was separated from his wife and, as a preliminary to his suit for divorce, his attorneys negotiated a complete settlement of her claims for support and maintenance… Held: that such conveyance by petitioner was made without donative intent in an arm's length business transaction settling her right to maintenance and support from petitioner and is not subject to gift tax.