Volume 10 — Board of Tax Appeals

Amount of an accrued liability to salesmen for commissions determined.

1. A partnership made a portion of its sales on the installment basis and kept its accounts on an accrual basis. Held: that the Commissioner correctly determined the distributive shares of the partners on the accrual basis. 2. Where accounts are so kept that taxable income can be accurately computed on the accrual basis, and can only be estimated on the installment basis, the accrual and not the installment basis is to be used.

Goods shipped to fill orders taken on sample were rejected by consignees within the taxable year. Held: such shipments were not sales and the rejected goods were properly included in petitioner's closing inventory.

1. Where property and cash are turned into a new corporation by individuals in exchange for that corporation's stock, the transaction is one which may give rise to gain or loss, and is subject to the provisions of section 202 of the Revenue Act of 1918. 2. In the absence of sales or quoted prices of stock, the market value of the stock may be determined by ascertaining the value of the assets for which it was issued. 3.

In determining gain or loss upon a sale of oil properties, depreciation and depletion for the years 1913, 1914, and 1915 should be computed in the method provided by the Revenue Law of 1913.

1. Useful life of machinery and rate of depreciation determined. 2. Repairs to machinery and building allowed as an expense deduction. 3. Loss sustained through abandonment of machinery allowed.

1. Net loss determined for the year 1919. 2. Net income received by lessee from the operation of an oil well upon Osago Indian Reservation held to be taxable. 3. Actual cash value of property at time paid in for stock excluded from invested capital for want of evidence of value.

Petitioner is entitled to an annual deduction from gross income for exhaustion of casing-head gas contracts owned by it. Boynton Gasoline Co. v. Commissioner,6 B.T.A. 434.

Net income received by a lessee from the operation of an oil well upon the restricted lands of a citizen of the Cherokee Tribe of Indians, held to be taxable.

The evidence does not establish that the petitioner is entitled to a deduction from his gross income of $22,500 which he claims was a bonus paid to one of his employees for the first three months of the year 1923.

One who acquires, in the year 1921, by gift, an interest in an oil lease on a proven tract is not entitled to discovery value for depletion purposes.

The decline in the value of Imperial Russian Government bonds acquired by petitioner as an investment which were not sold or otherwise disposed of during the taxable year may not be deducted as a bad debt uncollectible in part under the provisions of section 234(a)(5) of the Revenue Act of 1921. Since the bonds have not been shown to have been worthless at the end of the taxable year 1921, petitioner is not entitled to a deduction of the cost thereof as a loss sustained.

1. The Oklahoma Producing & Refining Co., of which the petitioner was a stockholder, adopted on January 26, 1920, a resolution to liquidate and dissolve and on January 27, 1920,… Held: first, that petitioner received the cash and stock of the Oklahoma Producing & Refining Corporation of America on February 14, 1920, and, second, that on February 14, 1920, the stock so received had a value of $5 per share. 2. The amount of gain resulting from the transaction determined.

1. A transfer by decedent in trust for certain beneficiaries held to have been made in contemplation of death. 2. The amount of $4,305 interest accrued on the corpus of the trust herein held to have been made in contemplation of death, is part of the gross estate. 3. Commissioner's action in including in decedent's gross estate the value of a certain contract under which decedent was to be paid an amount in the manner set forth in the contract, approved in part. 4.

Petitioner held entitled to computation of its profits taxes under section 328 of the Revenue Act of 1918.

1. The amount of the normal tax paid by the obligor on tax-free-covenant bonds is not a part of the petitioner's gross income. 2. Held: that such rents and interest were properly a part of the gross estate subject to Federal estate tax, and when collected by the executors did not constitute income to the estate.

The respondent mailed a deficiency notice to the petitioner asserting deficiencies for 1919 and 1920. The petitioner filed its petition seeking a redetermination as to the year 1919 only. Held: that the Board has no jurisdiction to determine the deficiency as to the year 1920.

Fees received by a practicing attorney at law from subdivisions of the State of Texas for services in suits relating to separation of a railway grade crossing and the regulation of rates to be charged by public service corporations, are not exempt from Federal income tax.

Amount set aside by petitioner for perpetual care of niches, urns, and valuts held to be within gross income.

1. Where one purchased a going business intending to continue its operation as it then stood, but within a few days found it necessary to completely after and remodel the plant, which resulted in the… Held: the cost of the scrapped equipment constitutes a deductible loss under section 234(a)(4) of the Revenue Act of 1921. 2. In determining the value of such equipment the judgment of corporate officers experienced in such values is entitled to weight.

1. Where the petitioner entered all real estate transactions over a period of years in one account and charged thereto the cost of each parcel as acquired, and credited thereto all rents and profits received from such property, and in the year 1918 closed out the account, charging the balance thereof to operating costs, it is held that the gain derived from the sale of one piece of property in the year 1920, which was acquired in 1918, is to be determined upon the basis of…

Deductions for traveling, entertainment and living expenses disallowed for insufficiency of proof of amount expended for ordinary and necessary business purposes.

Amounts contributed to petitioner in 1920 and 1921 by consumers toward defraying the cost of construction of electric power lines do not constitute taxable income.

1. The March 1, 1913, value of certain tracts of land determined as a basis for determining the gain or loss from the sale of such land during the fiscal year ended March 31, 1920. 2. The fact that petitioner's books do not reflect the appreciation in the value of land owned prior to March 1, 1913, does not preclude petitioner from proving the true value on that date for the purpose of establishing the amount of gain or loss upon sale in 1919. 3.

Certain intangibles acquired by petitioner in 1898 were not acquired through the issuance of capital stock therefor, and, therefore, the limitations provided in section 326(a) with respect to intangibles paid in for stock are not applicable.

1. Invested Capital. - The respondent erred in reducing the amount of current earnings available for payment of dividends by a tentative tax. 2.

The partnership relationship is not shown by the evidence to have existed among the petitioners and their wives during the taxable years.

1. The evidence does not establish that the Commissioner erred in his determination of the closing inventory for the taxable year of the partnership of which petitioners were members. 2. Loss from fire determined.

A loss sustained by the petitioner in farming operations held to be deductible.

The deficiency herein for the year 1917 is barred by the statute of limitations.

Additional compensation held deductible.

1. Additional salary claimed as a deduction, disallowed. 2. Petitioner held to be affiliated with the Borwn-McPhee Lumber Co.

- Petitioner was a member of a copartnership which had prior to 1921 consistently charged all capital items to expense account on date of acquisition. Held: that the copartnership's capital items of equipment, machinery, furniture and fixtures in use during 1921 should be restored to its capital account and depreciation allowed thereon.

INVESTED CAPITAL. - Petitioner issued $60,000 additional capital stock and there was actually and bona fide paid in therefor demand promissory notes aggregating a face value of $60,000. The makers of the notes were solvent and at all times fully able to pay the amount of their respective notes which were subsequently fully paid in cash. Held, that the said notes should be included in petitioner's invested capital at their face value.

Under the evidence, held, that the petitioners realized taxable gain on the dissolution of the Hill Clothes Shop in 1920. Held: that the petitioners realized taxable gain on the dissolution of the Hill Clothes Shop in 1920.

The petitioner in the year 1920 in order to obtain an agency for a certain line of merchandise and to eliminate a competitor, purchased from the competitor for $7,000 its stock of goods worth… Held: that the deduction was properly disallowed.

Under the evidence, held, that the assessment involved herein, made April 13, 1925, is void and of no force and effect, and that assessment and collection of the tax are now barred by the statute of… Held: that the assessment involved herein, made April 13, 1925, is void and of no force and effect, and that assessment and collection of the tax are now barred by the statute of limitations.

Under the evidence, held, the petitioner is not entitled to have its tax liability for the fiscal years ended June 30, 1919, and June 30, 1920, computed under the provisions of sections 327 and 328… Held: the petitioner is not entitled to have its tax liability for the fiscal years ended June 30, 1919, and June 30, 1920, computed under the provisions of sections 327 and 328 of the Revenue Act of 1918.

Fees in the total amount of $18,503 paid to the executors of decedent's estate and to attorneys employed by the executors in connection with the administration of the estate, held to be proper deductions in computing the net estate subject to the Federal estate tax.

1. The fair market value of stock on March 1, 1913, determined. 2. The gain derived from the exchange of stock for assets which were immediately exchanged for stock in another corporation, determined.

Real estate deeded by a husband to his wife more than two years prior to the date of his decease was improperly included in the gross estate in determining the amount of the net estate subject to estate tax.

1. Right to and amount of amortization of cost of leaseholds determined. 2. Rate of depreciation determined. 3. Held: that the transaction gave rise to taxable income.

The values of farm lands reported by petitioner for estate tax are approved.

1. Personal Service classification denied. 2. No error committed by the Commissioner in disallowing as a deduction from 1919 income, net profits alleged to have been earned in 1918.

The amounts involved herein paid by the petitioner to its stockholders in the year 1920 and 1921 held to be dividends.

1. Evidence held to be insufficient to warrant disturbing the determination of the respondent in respect to additions to gross income and as to valuation of buildings owned by the petitioner. 2. Certain deductions to which the petitioner is entitled, determined.

The petitioner's profits tax for the year 1919 should be computed with reference to invested capital as herein determined.

Basis for computing gain from the sale of certain real estate determined.

Value of corporate stock on March 1, 1913, determined.

1. INVESTED CAPITAL. - On December 31, 1916, petitioner charged off of its capital account the amount of $411,775.68, representing the cost of… Held: that the petitioner properly restored the full amount of said capital account but that following such restoration for the purposes of ascertaining invested capital for 1918 adjustments must be made for additions and subtractions made during the year 1917 and surplus must be adjusted by setting aside an addition to depreciation…

The value of a patent paid in for capital stock determined.

In the circumstances of these proceedings it is held that petitioners did not have such title to certain potash deposits in Lake Jesse, in the State of Nebraska, on March 1, 1913, as would entitle them to a deduction in the taxable years 1919 and 1920 for depletion based upon a value on March 1, 1913.

Amounts received by officers and employees from a fund created by former stockholders of a corporation, out of the proceeds of the sale of their stock, held to be taxable income.

1. Negotiable notes paid in for stock were worth their face value and should be included in invested capital for each of the taxable years. 2. Held: that the petitioner properly deducted from its gross income losses sustained and bad debts ascertained to be worthless in the fiscal year ended July 31, 1921.

1. Central & South American Telegraph Co. and Mexican Telegraph Co. held to have been affiliated for the period October 1, 1919, to December 31, 1919. 2. Held: upon the evidence, that portions of such amounts representing ordinary and necessary expenses incurred in carrying on its regular business are deductible from gross income.

A leasehold with four years to run from March 1, 1913, is not, in the circumstances of this proceeding, converted into a 14-year lease by reason of a conditional renewal clause therein.

Bad debts and traveling expenses held deductible from community income for the taxable year.

A fee received by an attorney for professional services rendered to a municipal board of education under a contract is not exempt from taxation within the meaning of section 1211 of the Revenue Act of 1926.

Valuation of lumber inventory determined by the respondent on an average cost basis, which has been used both prior and subsequent to the taxable year, should not be disturbed in the absence of clear proof that the income is not accurately reflected thereby.

Amounts voluntarily paid as beverage taxes in error of law held not deductible from gross income as losses sustained in the years in which such payments were made.

Value of inventory determined.

Where a man and wife filed a joint return and included therein the income of both, the tax liability became fixed and can not be altered by subsequently filing an amended return on an individual basis.

1. The Board is without jurisdiction to hear and determine proceedings for years in which an overassessment is found by the Commissioner. 2. Deduction from income on account of business expenses allowed. 3. Deduction from income on account of alleged bad debts disallowed. 4.

1. The provisions of section 331 of the Revenue Act of 1918 apply to the facts herein and under such section the respondent correctly computed the petitioner's invested capital for the taxable year. 2. The respondent's computation of depreciation is not shown by evidence to be erroneous. 3. The Board does not have jurisdiction over the petitioner's tax liability for the years 1920 and 1921.

The evidence does not support a claim for the deduction from gross income of losses alleged to have been sustained in the taxable year.

The petitioner, his wife, and a third person formed a business partnership in Michigan on September 30, 1920, each contributing property and services, in the profits and losses of which partnership they agreed to share in a certain ratio. The income from the business credited to the wife under the agreement of partnership was taxed to the husband, the petitioner.

Value of the gift on November 16, 1920, of an 8 per cent beneficial interest in an option for timber land determined.

1. Where a partnership, of which the petitioners are members, purchases capital stock of a corporation together with a stock dividend that has been theretofore declared but has been uncollected by the stockholder of record at the date of declaration thereof, that dividend stock is not such a dividend as to bring it within the provisions of section 31(b) of the Revenue Act of 1916, nor do the petitioners stand in the shoes of the stockholders of record at the time of the…

It is within the discretion of the board to grant additional time to the respondent for filing his answer. Petitioner's motion to vacate the order granting additional time and for judgment by default, denied.

Worthless debt allowed as a deduction from gross income for 1921.

1. Gifts of stock herein were not made by decedent in contemplation of death. 2. Deduction allowed of $10,000 authorized by the probate court for the support of dependents during the period of administration of decedent's estate.

Invested capital as determined by the respondent approved.

For failure to adduce sufficient evidence in support of the various allegations of error urged by the petitioner, the net income as determined by the respondent is approved.

1. For failure to establish the salvage value of dismantled machinery claimed to be obsolete, allowance for obsolescence can not be made. 2. No evidence having been adduced as to the value of good will, invested capital as determined by the respondent is approved.

The deficiency claimed herein by the Commissioner is barred by the statute of limitations. M. Brown & Co. v. Commissioner,9 B.T.A. 753, followed.

1. LEASES. - The March 1, 1913, value of certain leases of land and buildings owned by petitioner determined for the purpose of annual deductions for exhaustion. 2. FUTURE EXPENSES. - The cost of restoring leased premises which must be borne by the petitioner at or about the expiration of the lease may not be deducted as an expense prorated over the term of the lease.

March 1, 1913, value of real estate determined.

Husband and wife, domiciled in the community property State of Washington, each returned half the income earned from professional services performed by the husband, and each computed an earned income credit on the net income reported. Held that the earnings of the husband are not earned income of the wife.

Purchases of parts and supplies for machinery during a fiscal year determined to have been repair items rather than capital items.

Neither gain nor loss resulted from the petitioner's sale of a certain business building for shares of stock.

1. The reasonable life of automobiles used in petitioner's trade or business and value of an automobile received as part payment for land, determined. 2. Held: that such sales were closed and completed transactions and that profits therefrom were income in such years. 3.

1. The City of Cleveland, Ohio, by ordinance and regulations provided a scale of fare to be charged by petitioner predicated upon a net… Held: the petitioner is not entitled under the taxing statutes in force during the taxable years to limit the income upon which the income and profits tax should be computed each year to the 6 per cent return upon its capital stock, but was taxable, the same as any other taxable corporation, upon its net income for each year, determined in…

1. The bonus in addition to reserved royalties received by the petitioner in payment for a certain oil lease was not a return of capital. Appeal of Nelson Land & Oil Co.,3 B.T.A. 315. 2. The bonus received as set forth above is income and is not taxable under the provisions of section 206 of the Revenue Act of 1921. Henry L. Berg v. Commissioner,6 B.T.A. 1287. 3.

1. Classification as a personal service corporation denied. 2. Contention of the respondent set up in his answer that he erroneously allowed a deduction for expense is disallowed for lack of evidence.

1. Value at March 1, 1913, of certain assets owned by the petitioner at that date and the remaining useful life thereof determined for purposes of computing annual depreciation deduction from gross income for each of the taxable years. 2. Cost and useful life of certain assets acquired by petitioner subsequent to March 1, 1913, determined for the purpose of computing annual depreciation deduction from gross income for each of the taxable years. 3.

1. Net income of a trust determined for the years 1921 and 1922. 2. A certain instrument construed to be a sale and another to be a sublease or operating agreement.

1. The value of real property transferred to a corporation at the time of its organization and the amount of paid-in surplus which resulted determined. 2. Disallowance of a deduction of alleged salaries in proportion to stock ownership approved.

1. The evidence is insufficient to show that petitioner is entitled to a greater allowance for exhaustion, wear and tear than was allowed by the Commissioner. 2.

1. COMPENSATION OF OFFICERS. - A salary of $25,000 for the services of petitioner's president during the year 1919 held to be reasonable… Held: that reasonable depreciation upon petitioner's cost of such building is greater than would be allowed upon the same building new. Petitioner also acquired brewing machinery in 1917, the average age of which was 15 years, and upon this machinery is entitled to a greater rate of depreciation than upon similar machinery purchased new.

1. INVENTORIES. - Evidence produced to support petitioner's claim for a modification of the pricing of the closing inventory of 1919 held to be too indefinite and uncertain to warrant a modification thereof. 2.

Appeal of Boyne City Lumber Co.,7 B.T.A. 36, followed.

An amount paid by the petitioner to his lessee as consideration for the cancellation of a lease held to be a capital expenditure recoverable through deductions spread over the unexpired term of the lease acquired.

1. The expenses incurred by the petitioner while in Europe on business for his employer, which are clearly in addition to the cost of maintaining his usual place of abode in the United States, are allowable deductions within the meaning of section 214(a)(1) of the Revenue Act of 1918. 2.

The amounts charged to the undivided profits account of the Leland Mercantile Co., under the evidence adduced, are not dividends within the meaning of section 201 of the Revenue Act of 1918 and the respondent erred in so holding.

Amounts of reserves (1) to meet contingent bonuses for employees which might accrue in a subsequent year, and (2) to meet expenses of an audit of petitioner's books arranged for but not performed until the following year; disallowed as deductions from income.

Amounts levied and collected from the petitioner in 1920, 1921, and 1922 for the maintenance of the Depositors Guaranty Fund are ordinary and necessary business expenses and as such are proper deductions for the year in which paid. First State Bank of Brackettville,9 B.T.A. 975, followed.

1. Proper allowance for depletion for the year 1921 determined. 2. The evidence fails to establish that petitioner is entitled to a deduction for 1921 by reason of an alleged loss of coal in place.

The petitioner's share of partnership profits which was paid to his partner in consideration for said partner's interest in the business was taxable to the petitioner and was property included in the computation of his net income by the respondent.

The actual cash value of abstract books acquired by the petitioner for capital stock at the time of organization was $25,000, which amount should be used in the computation of invested capital.

1. An inventory loss sustained under a contract performed partially in 1916 and partially in 1917, is not deductible in its entirety in 1917, where it appears that a portion of the loss occurred in 1916, even though the amount of the loss was not definitely ascertained until 1917. 2. In the absence of evidence of the amount of loss that occurred in each year, the total loss is apportioned to the respective years upon the basis of the contract period falling within each year.

Where a portion of a building is destroyed by fire and is thereafter restored to its original condition, the owner's loss is not to be measured by the difference between the cost of restoration and the amount of insurance received, but cost or March 1, 1913, fair market value, properly depreciated to the date of the fire, is to be used as a basis in computing the loss.

Where the decedent, more than two years before her death, transferred, conveyed and delivered real and personal property to her daughter and son, who agreed to pay a stipulated annuity to her for the remainder of her life and to deposit a portion of the property as security for such payments, it is held that the transfer was complete and took effect in possession or enjoyment immediately, and that no part of the property should be included in the decedent's gross estate.

The evidence submitted is insufficient to establish a proper basis for the determination of a reasonable allowance for exhaustion.

JURISDICTION. - On March 7, and July 28, 1925, the respondent notified the petitioner by registered mail that the latter's abatement claim filed on March 6, 1924, was rejected. Held: the Board has jurisdiction, under the provisions of section 283(f) of the Revenue Act of 1926.

Petitioner in 1920 sold certain improved real estate which was a part of the trust of which it was trustee. In determining the gain derived from the sale thereof, the Commissioner reduced the March 1, 1913, value of the property sold by the amount of depreciation sustained from March 1, 1913, to the date of sale. The petitioner, as fiduciary, did not in its return for any year claim depreciation on the property. Held, that the Commissioner's determination must be approved.

1. DEPRECIATION. - Petitioner operated its plant during the fiscal years 1919, 1920, and 1921 at maximum capacity and with insufficient time, because of demand for… Held: that depreciation on machinery and equipment during such period was greater than in normal operation, and the amount of such increase determined. 2. OBSOLESCENCE. - Held, not to be determinable in view of the lack of evidence of the original or depreciated cost of the assets upon which it was claimed. 3.

Determination of Commissioner that two corporations were affiliated affirmed.

Discovery value of oil properties denied for lack of evidence of value.

The Commissioner's determination is approved for lack of sufficient evidence to show error.

Upon the facts submitted, it is held that collection of the tax determined by the Commissioner to be due for the years 1917 and 1918 is not barred by the statute of limitations.

1. Determination of Commissioner denying loss and obsolescence on machinery approved due to lack of evidence. 2. Increase in invested capital determined.

Personal service classification denied.

Stock held by petitioner was worthless in 1921, and the cost thereof was a deductible loss in that year.

Evidence not sufficient to overcome respondent's original determination of the cost in 1911 and the value at March 1, 1913, of certain stock sold by the petitioner in the taxable year.

The petitioner at the close of the taxable year set up on its books as a reserve for the breach of a contract of employment the amount which would have become due under such contract as commissions… Held: that the petitioner was not entitled to deduct in the taxable year the amount so set up as a reserve.

1. A reserve set aside in 1919 to meet losses which might occur in future years was restored to surplus in 1922. Held: that petitioner realized no taxable income in 1922 from such bookkeeping transaction. 2. Where petitioner seeks to deduct an addition to a reserve for bad debts, part of which has been disallowed by the Commissioner, the burden is on the petitioner to establish that the amount claimed is reasonable. 3.

1. The taxpayer received a letter from the office of the Commissioner of Internal Revenue stating that an examination disclosed an additional tax and, under section 250(d) of the Revenue Act… Held: that such letter does not constitute an assessment. 2. The provisions of the Revised Statutes, so far as applicable, govern the assessment of taxes. Under section 3182 an assessment of tax must be the act of the Commissioner. 3. March 1, 1913, value of stocks and bonds determined.

A debt is not ascertained to be worthless within the meaning of section 234(a)(5) of the Revenue Act of 1918 where the petitioner's only effort toward such ascertainment was an investigation which showed the debtor to be in an unsatisfactory financial condition and the collection of the debt doubtful.

1. Money advanced by one brother to another with the understanding and expectation of both that repayment would be made held to be a loan and not a gift. 2. Held: the amount of such loan is properly deductible as a bad debt for the year in which it was ascertained to be worthless and written off.

Reasonable allowance for exhaustion, wear and tear of laundry machinery and equipment determined.

The petitioner and other stockholders of a corporation sold all of the capital stock and assets of the corporation in the year 1920, the purchaser paying therefor $325,000 in cash and its promissory… Held: that the sale was a completed transaction in 1920 and that the entire profit realized by the stockholders was taxable income for that year.

Method of computing income from certain real estate transactions herein determined.

The amount deducted by the petitioner on account of the exhaustion, wear and tear, including obsolescence, of its physical assets, held to be reasonable.

A retrospective appraisal based upon reproduction cost less theoretical depreciation is not a sound or reliable basis for the valuation of property and is not acceptable as a measure of value for invested capital and depreciation purposes.

The Commissioner's determination of the value of gravel deposits approved in the absence of satisfactory evidence showing a different value.

Evidence not sufficient to show that respondent was in error in computing cost of sales of merchandise.

1. Cost and useful life of depreciable assets determined. 2. Petitioner took an inventory by actual count of items on December 21, 1919. Held: that the inventory so taken is the correct closing inventory for the year 1919.

Payments by petitioner in 1921 to three individuals for services rendered to petitioner by such individuals and by a corporation which they controlled held ordinary and necessary expenses.

1. Where profit realized from sale of land was not included in a return for the calendar year 1919, held, upon the facts shown, that there was no false or fraudulent understatement with intent to… Held: upon the facts shown, that there was no false or fraudulent understatement with intent to evade the tax. 2. Assessment on November 21, 1925, of taxes for the calendar year 1919 held barred by the statute of limitations, the return having been filed on March 14, 1920.

Respondent's disallowance of deductions for bad debts approved.

Amounts of business expenses, losses and depreciation determined and allowed as deductions from income for calendar year 1921.

March 1, 1913, value of farm property determined.

1. The basis and rate of depreciation for the year 1919, on property of an electric company determined. 2. Held: no loss is deductible from income for the year 1919.

A contracting partnership keeping its books on the closed-job basis should deduct operating expenses from gross income when such expenses are taken into profit and loss on its books.

The petitioner's treasurer embezzled its funds in the year 1914. The petitioner discovered the embezzlement in 1916, and brought suit to recover the amount embezzled. Held: that the amount of the embezzlement constituted a loss in 1914, and that it is not deductible as a bad debt in the year 1921.

1. Terms of a trust instrument construed to require distribution of net income, as used in the Revenue Acts, to the beneficiaries. 2. In computing net income for the purpose of distribution to beneficiaries, the trustees, under the facts in this case, may deduct amounts for depreciation and depletion of an oil-producing property comprising part of the trust, and the amounts so deducted are neither distributable nor taxable to the beneficiaries in the proportionate shares. 3.

1. Where the Commissioner made a jeopardy assessment in March, 1925, and the taxpayer, within 10 days after notice and demand, filed a claim in abatement but did not accompany it with a bond, and… Held: that the Board has jurisdiction to determine the deficiency although the Commissioner did not in terms refer to the claim in abatement. 2.

Certain dividends declared and credited in 1922, of which the petitioner did not receive notice until 1923, and certain dividends declared and credited in 1923, of which the petitioner did not receive notice until 1924, were, in the circumstances of this proceeding, income to the petitioner, employing the cash receipts and disbursements method of accounting, in the year in which he received notice of the dividends.

Petitioner held entitled to personal service classification.

1. The petitioner was neither entitled to have its profits tax for the year 1917 computed under section 209 of the Revenue Act of 1917 as a trade or business having no invested capital or not more than a nominal capital nor to be classed as a personal service corporation for the years 1919, 1920, and 1921 under section 200 of the Revenue Acts of 1918 and 1921. 2.

Upon liquidation in 1922 of a corporation in which petitioner was a stockholder, he sustained a loss of $14,165.24 upon his investment. Held: that such loss was not incurred by him in a trade or business regularly carried on and may not be carried forward and deducted from income for the year 1923 under the provisions of section 204 of the Revenue Act of 1921.

Under the evidence, held that the petitioner expended during the fiscal year ended Amrch 31, 1921, $4,236.98 for repairs to a certain trestle, coal bins, scale and driveway, and that it is entitled to deduct that amount, in computing its net income, as an ordinary and necessary business expense.

In the year 1917 the petitioner was indebted to one of its stockholders for timber purchased, which indebtedness was evidenced by promissory notes. Held: that the amount of the notes should not be included in the petitioner's invested capital for 1917.

Where an assessment was made in 1921 within the five-year period of limitation provided by section 250(d) of the Revenue Act of 1921, and the Revenue Act of 1924 was enacted prior to the expiration of that five-year period, respondent has six years from the date of assessment within which to begin a suit or other proceeding for the collection of such tax under section 278(d) of the Revenue Act of 1924. Collection held not barred.

Loss on sale of securities allowed.

1. The petitioner was an actual resident of the State of, new York during 1919 and 1920. Held: that he was not domiciled in Texas during the same years. 2. The petitioner filed on March 12, 1920, by his agent, an income-tax return for the calendar year 1919, reporting therein his individual income including community income, if any. The petitioner and his wife filed separate returns for the calendar year 1920.

1. Value of good will acquired by D.N. & E. Walter & Co., Inc., at date of organization, determined for the purpose of invested capital. 2. Intangible property may not be included in invested capital as a paid-in surplus. Appeal of Herald-Despatch Co.,4 B.T.A. 1096. 3.

The crediting of certain amounts on the corporation's books to its sole stockholder constituted distributions of profits.

Value of land received as part consideration for the sale of real estate determined. Certain costs of sales allowed and others disallowed on account of lack of evidence.

1. Income derived by a non-Indian lessee from a leasehold on the unallotted tribal lands of the Choctaw and Chickasaw tribes of Indians is not exempt from Federal taxation. 2.

1. Commissioner's action in including in petitioner's taxable income for the year 1919 the difference between the reserve for unearned discount as of December 31, 1918, and as of December 31, 1919,… Held: that the amount accrued in 1918 was improperly reported as income for that year; Held, further, that the amount paid to and received by petitioner in 1919 constituted income for that year although erroneously reported as income for the prior year.

Market price of raw cotton as used by the petitioner in valuing its inventory of raw cotton, goods in process and finished goods approved.

1. Royalty income from certain oil and gas leases held not to be capital gain as defined in section 206 of the Revenue Act of 1921. 2. Profit derived from the sale by petitioner of his interest in oil and gas underlying land owned by him for more than two years prior to the date of sale was a capital gain as defined in section 206 of the aforementioned Revenue Act.

The Commissioner's determination of the amount of a liquidating dividend received by the petitioner during the taxable year is approved.

In determining the gain or loss upon the sale of depreciable property in 1923, due allowance must be made for depreciation actually sustained for which deductions could have been taken, whether or not deductions therefor had been taken by the taxpayer in prior years.

1. EXPENSES, COMPENSATION FOR SERVICES. - The petitioner authorized two bonuses of $25,000 each to be paid to its president, a 51 per… Held: that the payments made in accordance with such authorization constitute compensation for the year 1920 and are deductible from gross income in that year. 2. INVESTED CAPITAL. - Earned surplus may be reduced by the amount of the preceding year's income and profits taxes prorated. Appeal of Russel Wheel & Foundry Co.,3 B.T.A. 1168. 3.

Petitioner and another party employed a geologist to investigate the oil possibilities of a certain tract of land. After investigation the geologist advised the acquisition of a lease on such land. Held: that the amounts so paid were capital expenditures.

1. The Board has no jurisdiction to redetermine the tax liability for a year for which the Commissioner has determined no deficiency, the only action of the Commissioner being the rejection of claims… Held: not to be such a receivership as will deprive the Board, under section 282(a) of the Revenue Act of 1926, of jurisdiction of a proceeding brought before it subsequent to the action of such superintendent.

1. Year of sale determined for taxation purposes. 2. The determination of the Commissioner as to value of stock received in payment of debt, approved.

Determination of Commissioner that the total premiums received were includable in petitioner's gross income and that no part of such premiums represented loans made by policyholders to the petitioner, approved.

Taxes paid by the executors to the State of New Jersey under the transfer tax statute are legal deductions from gross income of the estate for the taxable period.

Amounts paid by a corporation under an agreement entered into in settlement of a dispute among the stockholders, which settlement resulted in the acquisition by one set of stockholders of the shares of stock owned by another set, held not deductible by the corporation as ordinary and necessary expenses.

1. The Board has no jurisdiction of this proceeding for the years 1914 to 1917, inclusive. 2. The evidence herein is insufficient to show that the Commissioner erred in his determination of the deficiencies for the years 1919 and 1920.

1. Where a partnership agreement provides for the crediting of interest on the capital contributed by the partners, the so-called interest credited is not a business expense to be deducted from gross income in arriving at net income, but, under the facts in this case, is a part of the distributive share of the partners in the net income of the partnership. 2.

1. The March 1, 1913, value of certain shares of stock determined. 2. Held: that she realized taxable gain even though she and the other party to the exchange had prior to March 4, 1923, agreed to make such exchange.

Inventory. - Part of petitioner's inventory of raw materials adjusted from cost to market in accordance with testimony respecting wholesale selling prices existing in December, 1920.

INCOME. - Petitioner, the proprietor of an automobile business and the owner of certain real and personal property not connected with said business, decided to form a corporation and transfer to it… Held: that the income derived from said business and other property during the period from July 1, to August 22, 1919, was the income of this petitioner under authority of the Board's decision in Peter W. Rouss,4 B.T.A. 516.

1. Year of loss on stock of a corporation determined. 2. Loss incurred in certain mining operations held to be a net loss under section 204 of the Revenue Act of 1921. 3. Held: that a loss was not sustained in the year the building was razed, but that in computing the gain from the sale, the depreciated value of the old building, less one ninety-nineth of the depreciated value recovered, was a part of the cost of the property.

Salary and fees of petitioner, a resident of California, are taxable to him notwithstanding the fact that he had agreed to divide them with his wife.

The petitioner corporation held not to be exempt from taxation as a building and loan association.

The owner, now deceased, of the right to receive royalties of an oil and gas lease unconditionally assigned certain undivided interests therein to his children. Held: that the income resulting from such production is not taxable to the assignor.

1. A life insurance company which forecloses a mortgage upon which both principal and interest are due and unpaid and buys in the mortgaged property for the face value of the nortgage, has received thereby no gross income within the meaning of section 244(a) of the Revenue Act of 1921. 2. Commissioner's disallowance of a deduction of certain real estate taxes upon the property, paid by the petitioner after the foreclosure sale, approved.

- Decedent bequeathed a portion of her residuary estate to charity and the Commissioner in fixing the amount of the charitable deduction to be allowed in determining the net taxable estate,… Held: that the charitable bequests deductible from the gross estate in determining the net taxable estate should be deducted without diminution on account of any State inheritance or transfer taxes.

The seizure by the Alien Property Custodian of the United States of securities of American citizens in 1918 under the facts of this case constituted a loss which was at least equal to the amount of dividends received in 1918.

1. GAIN OR LOSS. - Petitioners in 1920 disposed of all their stocks and bonds in two corporations and all their bonds in a third company for… Held: that where such securities were acquired prior to March 1, 1913, the basis for determining gain is the value on the date of death or on March 1, 1913, whichever is higher, and the basis for determining loss is the value on the date of death or on March 1, 1913, whichever is lower; and that where such securities were acquired…

Commissioner's disallowance of a deduction under section 234(a)(5) of the Revenue Act of 1921, approved.

1. JURISDICTION. - The Board has no jurisdiction to redetermine decedent's tax liability for the year 1920 for which year respondent has not determined a deficiency, under authority of Cornelius… Held: the sale was consummated and profit therefrom derived in year 1921.

Under the facts and circumstances of this case the dividends received by the petitioner in the years 1919 and 1920 constitute stock dividends and are not taxable within the meaning of the taxing statute.

1. The valuation of merchandise inventory by petitioner is approved with relation to cash discounts deducted. 2. The amount of deductible bad debts determined. 3. Improvements of assets having useful lives longer than the taxable year are not deductible from gross income as current repairs. 4. The amount of deductible depreciation of automobile trucks determined.

Land was purchased by ten persons, three of whom held the title in trust and managed the property under an agreement for a specific purpose. Held: the trust was not an association within the meaning of the Revenue Acts of 1918 and 1921.

Certain expenditures made by the executors of an estate during the taxable year allowed as a deduction from gross income of the estate as ordinary and necessary expenses.

- Petitioner in 1919 transferred a mixed aggregate of real and personal property and cash to a corporation which he had caused to be organized and received in exchange for such property and cash… Held: that the fair market value of the shares of stock received was not in excess of the value of the property and cash exchanged.

Held, that amounts expended by a wholesale liquor dealer in entertaining customers in 1918 were deductible as ordinary and necessary business expenses. Right to deduct certain other amounts denied. Held: that amounts expended by a wholesale liquor dealer in entertaining customers in 1918 were deductible as ordinary and necessary business expenses. Right to deduct certain other amounts denied.

1. That it would have cost a corporation more to have sold its products through brokers than it did cost to sell them through its own organization does not create an abnormality of income within section 327 of the Revenue Act of 1918. 2. The proceeding before the Board is de novo. The Board has before it only such evidence as the parties produce.

1. Stock received by the petitioner in exchange for patents for which stock there was no market held to have no fair market value. 2. Where the conditions in the securities market were such that junior issues of stock could not have been marketed for more than a nominal amount, such stock can not be said to have a fair market value equivalent to its intrinsic value.

1. An amount set up out of earnings as a reserve for bonus, to be paid to employees who continued as such at the time when payment should be made in the succeeding year, the amount of the reserve being based on the pay roll of the year when set up, and the amount of payment to be made being based upon the pay roll of the succeeding year, held to be a reserve to meet a liability not yet incurred. 2.

1. Where petitioner's books and accounts have been lost, work sheets and office copies of reports of accountants who made a monthly audit of such books during the taxable year held to establish the business income. 2. Evidence to establish March 1, 1913, value of real estate held insufficient to overcome respondent's determination. 3.

The value of good will determined for estate tax purposes.

Respondent's determination of taxable income approved.

Salaries of officers claimed by the petitioner as deduction from its gross income for the taxable year were authorized and paid or accrued within the year and were no more than reasonable compensation for services rendered.

LOSSES. - The petitioner who was in the business of examining and guaranteeing real estate titles did not sustain any loss in 1921 as contended by it on account of a certain policy of title insurance issued to the Lederer Realty Corporation in 1911.

The Commissioner's determination, that two organizations were associations within the meaning of section 1 of the Revenue Act of 1918, rather than partnerships, reversed.

Return for 1921 was filed March 15, 1922, and jeopardy assessment was made on February 3, 1926, the assessment resulting from a reduction of the amount of a claimed loss on the sale of property by… Held: deficiencies are identifiable as to amounts and not as to items out of which they arise, and the assessment having been made before the statute had run and after the passage of the Revenue Act of 1924, may, by virtue thereof, be collected within six years after assessment.

1. The respondent was correct in allowing invested capital from October 28, 1918, when subscription to stock of the Mead Manufacturing Co. and indebtedness of its stockholders were recorded in books of account of the petitioner. 2. The action of the respondent in reducing the invested capital of the petitioner for the year 1918 on account of 1917 income taxes was correct and complies with section 1207 of the Revenue Act of 1926. 3. Taxes accrued in the fiscal year ended October 31, 1918, to the government of Great Britain and later paid to that government are allowable as a credit against taxes paid to the United States for the year ended October 31, 1918. 4. Petitioner is entitled to deduct in the taxable year in question, as exhaustion, a proportionate part of the March 1, 1913, value of his leasehold. 5. The value of good will acquired by the petitioner for stock determined. Said good will having been charged to profit and loss although still existing in fact, will be included in invested capital to the extent of the statutory amount. 6. Petitioner is entitled to have its tax determined as provided in section 328 of the Revenue Act of 1918, the recomputation thereof to be under Rule 62(c) of the Board's Rules of Practice.

Deficiency held not barred.

1. The evidence fails to prove that intangible property consisting of a patent, trade-marks, and secret processes, had value on Januay 28, 1901, when paid in for stock. 2. The evidence does not establish that sums expended for advertising between 1904 and 1915 result in an asset which would justify including the expenditures in invested capital.

Gains from illegal transactions constitute taxable income.

The loss of the investment in stock in a corporation held not to be a loss resulting from a trade or business regularly carried on.

Commissioner's determination approved where it appears to have been based upon the best available records of the petitioner's transactions as disclosed in poorly kept books and accounts.

The right to deduct an addition to a reserve for bad debts denied, where the evidence fails to show that he reserve was to anticipate a loss rather than to insure future profits.

1. The respondent reduced the amount of a deduction taken by the petitioner by insurance recovered in the taxable year, on the theory that he deduction was for a loss arising from fire. For lack of sufficient evidence to overcome the prima facie correctness of the respondent's determination, his action is approved. 2. For failure on the part of the petitioner to adduce sufficient evidence in support of its contention that its depreciation rate on greenhouses should be 10 per cent instead of 7 1/2 per cent as allowed by the respondent, the rate found by the respondent is approved. 3. The petitioner having failed to adduce sufficient evidence to bring it within the purview of section 327 of the Revenue Act of 1918, it is not entitled to a determination of its taxes under the provisions of section 328 of that Act.

Decedent's distributive share of commissions earned during his lifetime by a partnership of which he was a member is not income to his estate when received by it.

Where petitioners' decedent, on a cash receipts and disbursements basis, received in January, 1922, and in January, 1923, certain amounts for services rendered to a corporation in 1921 and 1922, respectively, it is held that the amount so received in 1922 and 1923 constitutes income for the year in which actually received.

1. Commissioner's disallowance of depreciation on patents, is, in the absence of proof as to their cost or use within the taxable year, approved. 2. Petitioner received 545 shares, par value $100, of Niagara Sales Corporation stock for which it paid $25,000 in cash and assigned to that corporation the right to sell the products which petitioner manufactured. The Commissioner determined that petitioner derived a profit of $29,500 from the transaction. On the evidence it is held that the stock of the Niagara Sales Corporation had no fair market value, at the time of its receipt by petitioner, in excess of $25,000, the amount of cash paid therefor by petitioner, and that the petitioner derived no taxable gain from the transaction. 3. Commissioner's determination that petitioner and Niagara Sales Corporation were not affiliated is approved.

Claimed deductions for obsoleteness of brewery plant and equipment allowed in part and disallowed in part.

1. Invested capital as determined by the respondent approved. 2. Respondent's action in allowing deduction for 1921 instead of 1920 as contended for by petitioner, approved for lack of evidence.

1. Losses, claimed to have been sustained by reason of the scrapping of facilities, disallowed for lack of evidence of cost. 2. Amounts paid an electric light and power company pursuant to contract to reimburse it for the cost of constructing rural extensions held not to be taxable income.

1. Amounts expended in prior years for materials and labor in the manufacture of tools, dies, etc., charged off to expense, are to be restored to capital account for the purposes of computing invested capital. 2. In computing cost of such items, overhead expenses, such as unproductive labor and taxes, which are properly taken as deductions in computing taxable income for the year when expended, are not to be included.

Union Collieries Co.,3 B.T.A. 540, followed.

1. Russel Wheel & Foundry Co.,3 B.T.A. 1168, followed. 2. A loss alleged to have been sustained upon the sale of a portion of assets purchased as a whole for cash, bonds and stocks disallowed because of lack of satisfactory evidence as to the cost of the assets sold. 3.

Amounts paid by a partner of a portion of the insurance premiums on policies on the lives of himself and his partners under a partnership agreement, held not deductible as business expenses.

Personal service classification denied.

A certain partnership of which the petitioner was a member held not to be entitled to any deduction for the exhaustion of the leasehold and contract involved herein.

(1) The respondent's determination of the amount of the decedent's net estate subject to the Federal estate tax, approved. (2) The petitioner's failure to file an estate-tax return for the decedent's estate held to be due to reasonable cause and not to willful neglect.

1. L. S. Ayers & Co.,1 B.T.A. 1135, followed. 2. A determination of a profit upon the sale of land and turpentine rights within about a month after acquisition of a fee simple title, which determination makes an arbitrary allocation of the respective values of the land, timber, and turpentine rights which is at variance with the known facts, must be disapproved.

Petitioner, an advertising agency, held to be a personal service corporation.

The petitioner filed its return for the fiscal year 1918 on June 15, 1919. Held: that the assessment and collection of the tax is not barred by the statute of limitations.

1. Petitioner was not an officer or employee of the City of Baltimore, and is not entitled to the benefits of section 1211 of the Revenue Act of 1926. 2. Penalties for delinquency affirmed.

1. INVESTED CAPITAL. - Paid-in surplus allowed in an amount by which the proved value of coal property paid in for stock exceeds the par value of the stock issued therefor. 2. DEPLETION. - Value of coal lands determined for depletion purposes.

1. Determination that salaries of $15,000, each, for the four active executive officers of the petitioner were reasonable. 2. Hatzel & Buehler and Russum & Co. held to have been affiliated corporations in 1919 and 1920. 3. Certain losses and bad debts held not deductible.

Market value of automobiles at December 31, 1920, determined for inventory purposes.

Under the evidence held that the land involved herein had a fair market value of $35 per acre on March 1, 1913, and that the petitioner neither realized taxable gain nor sustained a deductible loss from the sale of her interest in said land in the year 1918.

Section 331 held to apply to the facts.

The value of a leasehold acquired for stock determined for invested capital and depreciation purposes.

1. Petitioner purchased renewal rights to saloon licenses in the City of Chicago, assignment of such rights being made in the name of its employees. Held: that the cost of these renewal rights was a proper item to be included in invested capital, and held, further, that petitioner sustained a loss in the fiscal year ended September 30, 1919, measured by the cost of the property to it. 2.

1. Amounts expended for labor determined and allowed as a deduction. 2. A grant of a perpetual easement and right of way to a levee improvement district, by which the owner was deprived of practically all beneficial interest therein and was merely the holder of the bare legal title, will be considered a sale for the purposes of this proceeding.

Intangible assets acquired by petitioner at organization in exchange for its capital stock had a value of at least $18,875, the maximum amount at which they may be included in invested capital.

Taxes paid by the executor to the State of New York under the transfer tax statute and legal deductions from gross income of the estate for the taxable period.

1. The distributive shares of the taxable income of the continuing partners in a partnership (exclusive of salary adjustment on account of deceased partner) were not affected by the retirement at the end of the year of one partner and death during the year of another partner where the articles of copartnership provided for the same distribution to the retiring partner and to the estate of the deceased partner as if retirement and death, respectively, had not occurred. 2.

1. The Revenue Act of 1918 does not permit the deduction as a bad debt of a part of an account or debt, the remainder being considered collectible. 2. A debt due to the decedent at the time of his death passes to his estate as capital or corpus of the estate, and the subsequent payment thereof, not in excess of the value of the debt at the date of decedent's death, is not taxable income to the estate. 3.

1. Where the property of a decedent who died within five years prior to the death of decedent was acquired by decedent by conveyance from the heirs of the prior decedent, held, that the value of such… Held: that the value of such property was not deductible from the gross estate of the decedent for the purpose of computing his net estate. 2.

1. Statute of Limitations. - held, that where, on the pleadings, a prima facie showing is made that collection of a deficiency is barred by… Held: that where, on the pleadings, a prima facie showing is made that collection of a deficiency is barred by the statute of limitations provided in section 250(d) of the Revenue Act of 1921, the burden of pleading and proving any existing exception which would remove the case from the operation of the statute is on the respondent. 2.

Upon an admission by respondent that $300,000 par value of stock was issued and the presumption that the petitioner has kept within the law requiring that capital stock may be issued only for money, petitioner has made out a prima facie case, and in the absence of evidence in rebuttal, is entitled to this amount as paid-in invested capital.

1. During the year 1919 the Superintendent of the Five Civilized Tribes received for the petitioners interest on deposits of money and United States Victory bonds, which deposits and bonds had been… Held: that such interest is subject to tax under the Revenue Act of 1918. 2. Since the income from the petitioner's allotted land is exempt from taxation, no deduction may be made from the petitioners' other income on account of depletion of the oil and gas underlying said land.

1. The actual cash value of notes bona fide paid in to a Wisconsin corporation for its stock may be included in invested capital from the date so paid in. 2. Actual cash value of said notes determined. 3. The value which may be included in invested capital is the value of the notes at the time received by the corporation.

The petitioner is a member of a contracting partnership that keeps its accounts on the accrual basis. Held: that the respondent correctly determined the partnership income for 1920 on the same basis.

Bonds were acquired by petitioners through inheritance in 1914, the market value at such time being less than the par value of the bonds. In 1922, pursuant to a recommendation of a bondholders' protective committee, which recommendation was accepted by the petitioners, 30 per cent of the face value of the bonds was canceled. Held that the evidence fails to establish that a deductible loss was sustained.

Petitioner and his wife, residents of California, agreed to contribute all their separate funds to a joint account and to divide the profits from investments equally as separate property, but that… Held: that the agreement should be given effect and the profits and compensation received by the wife should not be included in the petitioner's taxable income.

Susie M. Root, Executrix,5 B.T.A. 696; George R. Dyer et al.,5 B.T.A. 711; and Provident Trust Co. et al.,5 B.T.A. 1004, followed.

- An amount contributed by the petitioner towards the maintenance of the village baseball team during the year 1920 held not to be an allowance deduction as an ordinary and necessary expense, or otherwise. Climax Spinning Co.,8 B.T.A. 970.

During the years 1918 to 1921, inclusive, the petitioner made remittances to the Railway Share Trust Co., Ltd., of London, England, trustee under a mortgage upon property which the petitioner owned… Held: that the petitioner is liable to income tax equal to 6 per cent upon the amounts remitted in 1918 and equal to 10 per cent upon the amounts remitted in 1919, 1920, and 1921.

Where one transfers the assets of a business owned by him to a corporation in consideration of cash and stock of the corporation; and where the cash so used was paid in and paid out by the… Held: that the invested capital of the corporation should be computed subject to the limitations of section 331 of the Revenue Acts of 1918 and 1921.

In 1916 the petitioner, by assignment, became the lessee of an amusement park. The lease had a life of 15 years. Held: that the payments so made to such creditors were capital investments in permanent improvements and should be prorated and deducted over the remaining life of the lease.

The two corporations herein were affiliated within the meaning of section 240(b) of the Revenue Act of 1918, and, therefore, entitled to file a consolidated return for the period under consideration.

An amount of money assessed against and paid by the petitioners in 1922 as a state inheritance tax under a law, which was later held to be unconstitutional, which money was refunded to the petitioners in 1925, is not a legal deduction from gross income in the income-tax return of petitioners for 1922.

The petitioner is entitled to a deduction on account of debts ascertained to be worthless and charged off during the taxable year.

Damages paid by petitioner on account of personal injuries to other persons resulting from the operation of his automobile are not allowable as a deduction under section 214(a)(6) of the Revenue Act of 1924.

1. INVENTORIES. - The alleged inaccuracies in opening or closing inventories can not be presumed merely because by their use a high proportion of merchandise gain as compared with sales is disclosed. 2. SPECIAL RELIEF. - The record of this case does not disclose any such abnormal conditions affecting the capital or income of the petitioner as to make a prima facie case requiring the assessment of profits taxes under the provisions of section 328 of the Revenue Act of 1918.

1. Commissioner's adjustment of depreciation claimed on beer kegs, and on machinery and equipment in unit of brewery discontinued in 1918, sustained for lack of proof that errors were committed. 2. Amounts paid to employees during Christmas season for additional services rendered, allowed as deduction from gross income. 3. Sum paid Lager Beer Board of Trade held to be an ordinary and necessary business expense. 4. The evidence is insufficient to prove loss on fixtures. 5.

March 1, 1913, value of undeveloped coal lands determined.

Amount received under the War Minerals Relief Act, as partial reimbursement for losses sustained, does not constitute income.

Cost of certain stock acquired in 1915 ascertained for the purpose of determining gain upon the sale of such stock in the year 1917.

The evidence does not indicate that the petitioner actually ascertained debts to be worthless as provided in section 214(a)(7) of the Revenue Act of 1924.

1. The Board has jurisdiction of a proceeding instituted within 60 days after the mailing of a letter to the petitioner from the office of a collector of internal revenue, when such letter is the notification of the rejection of a claim in abatement and constitutes a final determination of a deficiency. 2.

1. Jurisdiction. - The Board has no jurisdiction to determine appeals from deficiencies in tax imposed by statutes prior to the Revenue Act of 1916. Appeal of David B. Mills,1 B.T.A. 199. 2. Held: that the invested capital for 1919 shall not be reduced in any amount by reason of an outlawed deficiency for 1918.

BONUS. - After several years' employment as cashier of a bank, petitioner resigned, and on the same day received from the directors a bonus of $2,500. Held: that on the record such amount was additional compensation.

GOOD WILL. - Value of good will paid in for stock determined for purposes of invested capital.

Payment of a jeopardy assessment prior to filing petition for redetermination does not deprive the Board of jurisdiction.

1. Loss incurred in hot water bottle branch of petitioner's business allowed as a deduction. 2. Charges totaling $5,458.60, either incurred or paid in 1919 but not entered in corporate books until 1920, are deductible items from gross income for 1919, since petitioner kept its books on the accrual basis and made its returns in accordance therewith.

Deficiency held barred from assessment.

Upon withdrawal of petitioner from the copartnership of which he was a member he received, in addition to a return of his capital investment, a sum equal to 2 per cent of gross sales from the date of… Held: that the amount represents a payment in lieu of actual profits of the firm and is taxable as income derived from partnership profits.

Debts not ascertained to be worthless and not charged off during the taxable year held not to be deductible.

1. The amount allowable as a deduction for depletion determined. 2. Held: that petitioner is entitled to include as a part of the cost of goods sold an amount representing the purchase price of certain lumber.

An amount charged off in order to balance books not allowable as a deduction in the absence of evidence that a loss was sustained during the taxable year.

Under the facts of this case, the petitioner is not entitled to a paid-in surplus with respect to leases.

The amount of traveling expenses determined and allowed as deduction from gross income.

Deductions by trustees from interest received on bonds purchased with trust funds are not income to taxpayer beneficiary, inasmuch as under the laws of the State of New York, the trustees were required to create a sinking fund out of interest paid to them on bonds, sufficient to make good upon their maturity the premium paid therefor, to the end that the principal of the trust fund might be preserved intact.

Cash value and cost of assets determined for purposes of invested capital.

An amount equal to one year's pay allowed an officer of the United States Army honorably discharged, or eliminated, under the provisions of the Act of Congress of June 30, 1922, ch. 253, 42 Stat.… Held: such bonus is taxable income.

Collection of the deficiency involved in this proceeding is barred by the statute of limitations.

The Commissioner's determination of the March 1, 1913, value of property approved.

1. March 1, 1913, value of various parcels of real estate determined as a basis for determining the gain or loss from the sale of such real estate during the calendar year 1920. 2.

1. If the petitioner's predecessor were still in existence, its invested capital could not reflect any greater amount on account of good will built up by it than the cost of that good will and therefore, since section 331 of the Revenue Act of 1918 applies, the petitioner's invested capital can not reflect any greater amount on account of this same good will than the cost of that good will to the predecessor. 2.

1. The net profit derived from the sale of the petitioner's assets, held, under the evidence, to constitute taxable income to the petitioner for the year 1925.… Held: under the evidence, to constitute taxable income to the petitioner for the year 1925. 2. No return having been filed by the petitioner for the year 1925, the respondent determined that a 25 per cent penalty for failure to file the required return should be assessed. This action of the respondent is approved. 3.

The value of an option acquired by the petitioner for its capital stock, determined for purpose of computing gain or loss on the sale of real estate covered by said option.

Additional compensation paid to employees of Crocker Lake Logging Co. for services actually rendered prior to the close of December 31, 1919, are deductible expenses incurred within that year.

Where in construing the decedent's will the court held that the accumulation of income under a tesatmentary trust was invalid and that the beneficiaries were entitled to the income of the trust from the date of the decedent's death, held that said income is taxable to the beneficiaries for the years 1918, 1919, and 1920, and to the petitioners for the year 1917.

A wife's compensation for personal services, where an agreement exists between herself and her husband, under the laws of the State of California that such compensation shall be her separate income and separate property, and where she has made separate income-tax returns, may not be added to and taxed as income of the husband.

1. Wife's Separate Income. The petitioner and his wife were each owners of shares of stock in a Michigan corporation. Held: that the distributable portion of the partnership gains attributable to the wife's property interest were her separate income and can not be included in the petitioner's gross income where both husband and wife have made separate income-tax returns. 2. Fraud Penalties.

The earnings of petitioner, a resident of California, are taxable to him even though he assigned one-half of them to his wife.

1. Loss. - The facts in this proceeding establish that petitioner was engaged in the business of ranching and farming for profit. Held: that the loss sustained in 1921, in the operation of his ranch, is a deductible loss. 2. BONUS. - Held that the amount of the bonus paid by petitioner as additional compensation to his bookkeeper in 1921, is a proper deduction from gross income.

AFFILIATED CORPORATIONS. - The petitioner was organized as a local selling agency of the lumber products of the Charles Nelson Co. One Masterson, formerly engaged in the retail lumber business, was procured to become associated with the petitioner and 83 shares of petitioner's stock was assigned to him for which he gave his note, reassigning the stock to The Charles Nelson Co., where it was retained. This arrangement continued from 1912 to July, 1918. Masterson made no payment on the principal of the note and in July, 1918, by consent of all parties, the arrangement was discontinued. Held, that throughout the year 1917 and until July, 1918, The Charles Nelson Co. and Masterson were closely affiliated interests, owning and controlling all of the stock of the petitioner.

Loss ON SALE OF PROPERTY. - The March 1, 1913, value of certain real property determined upon the evidence to be in an amount less than cost and greater than the sale price of the same property in… Held: that the difference between the 1913 value decreased by allowable depreciation and the selling price is the measure of the loss sustained by the petitioner.

1. DEDUCTION FOR BAD DEBT. - Held, that the facts establish the debt charged off by petitioner in August, 1920, was ascertained to be worthless during the fiscal year ending August 31, 1920, and… Held: that the facts establish the debt charged off by petitioner in August, 1920, was ascertained to be worthless during the fiscal year ending August 31, 1920, and should be allowed as a deduction for that year under section 234(a)(5) of the Revenue Act of 1918. 2.

1. Evidence examined and value of tangible property paid in for capital stock determined as of September 1, 1912, for invested capital purposes. 2. Where the taxpayer, owing to a change in business conditions, discarded a dry press brick plant in 1918 and never used same thereafter, there should be deducted from the gross income for that year the difference between the depreciated cost of the plant and the salvage value thereof, if any. 3.

1. Where the petitioner incurred expense incident to the installation and equipment of a saw mill and electric motor in the year 1919, but continued to use same during 1919 and part of the year 1920, and then abandoned and discontinued its use, such expenditure can not be deducted as a loss from 1919 income. 2. Loss resulting from the destruction by fire in 1920 of a warehouse not allowed as a deduction for lack of evidence. 3.

1. Deduction allowed for machinery discarded and abandoned in the year 1919. 2. An amount paid in the year 1926, for patent infringement covering prior years, not allowed as a deduction in 1919, for the reason that no liability existed during the year to pay the same.

Certain purchases of notes by a bank held to create a debt dating from the transaction and, therefore, the amounts of such notes or debts, even though there may have been fraud in connection with their negotiation, are not deductible from gross income for tax purposes until the worthlessness thereof has been ascertained.

1. The evidence is not sufficient to enable the Board to determine what portion of the expenses incurred by petitioners' decedent during the years 1919, 1920, and 1921, in maintaining and operating an automobile was applicable to the use thereof in carrying on his business during the respective years. 2.

1. SECRET PROCESSES. - The petitioner is a consolidation of three former companies using the then newly discovered methods of so-called three-color printing. Held: that under the circumstances the consolidated company acquired an intangible asset of substantive value of a nature includable in invested capital under the provisions of section 326(a)(4) and (5) of the Revenue Act of 1918. 2. ID.

Petitioner's claim for the determination of net income on the basis of a six-year period of operations denied.

1. INVESTED CAPITAL. - The true cash value of proved clay lands acquired for stock determined for the purposes of invested capital. 2. DEPRECIATION. - The respondent has allowed upon petitioner's plant construction account a composite rate of depreciation of 5 per cent. The record fails to show the original cost of items in this account as well as whether replacements have been charged to capital or deducted from depreciation reserves.

1. Inventory methods used consistently and uniformly for many years, that substantially reflect the true income, should not be disturbed by adjustments that result in distortion of actual income. 2. Discrepancies appearing upon petitioner's books should, if possible, be so adjusted as to disclose the actual income.

Amounts necessarily paid out of his personal funds by a naval officer appointed the Governor of American Samoa for official entertainment of representatives of foreign governments held deductible as ordinary and necessary expenses.

Where, on the pleadings, a prima facie showing is made that the return for the fiscal year ended in 1921 was filed more than four years prior to the determination of the deficiency, and the… Held: assessment and collection are barred.

1. The petitioner and the Bristol Machine Tool Co. were affiliated during the year 1919. 3. Amounts expended by the petitioner in the year 1919 in rearranging its plant for peace-time production held not to be proper deductions in computing the petitioner's net war income for that year.

The petitioner was a personal service corporation during the year 1920.

1. The cost to the donor of property deeded to petitioner in 1920 held not to constitute income. 2. Invested capital may not be increased because of donations by nonstockholders. 3. Deductions for depreciation may not be taken for 1918, 1919 and the first half of 1920 on property to which petitioner did not have title. 4. Rate of depreciation to be applied determined.

1. A deduction for amortization of the building erected and used by petitioner in the production of articles contributing to the prosecution of the war is only allowable within the amortization… Held: petitioner does not come within the provisions of section 303 of the Revenue Act of 1918. 3. Amounts of taxes paid but not assessed should be considered in computing the statutory deficiency.

The petitioner moved for judgment of no deficiency on the ground that the assessment and collection of a tax was barred by the statute of limitations and that a consent to the assessment of the tax… Held: that the consent was valid. The motion for judgment of no deficiency is denied.

Where it is shown that the true surplus of a corporation is not overstated on the books of a corporation as of the beginning of a year, all of that surplus (whether paid in or earned) must be included in the corporation's invested capital for the beginning of the year.

The earnings of the wife of petitioner were separate property by oral agreement between husband and wife under sections 158, 159, and 160 of the Civil Code of California, and she filed a separate… Held: that respondent erred in adding the wife's earnings to the income reported by petitioner.

1. The evidence fails to establish that the petitioner, R. A. Patout & Co., is entitled to deduct from gross income for the year 1918 certain alleged bad debts. 2. The amount of $23,552.75, constituting earnings and profits accumulated since March 1, 1913, distributed in 1919 to Mr. and Mrs. R. A. Patout in liquidation of R. A. Patout & Co., is subject to tax under section 201(c) of the 1918 Act, at both normal and surtax rates. See Hellmich v. Hellman,276 U.S. 233.

1. Prior to the taxable year in question merchandise belonging to the petitioner's customers was destroyed by fire in the petitioner's plant and a contract between the customers and the petitioner was executed providing a means of payment to the customers and the avoidance of possible litigation by the petitioner. Payments and allowances made under such contract during the taxable year held not a deductible expense in that year. 2. Special assessment denied. 3.

1. The value of coal mine leasehold and plant, equipment and development on same as of March 1, 1913, and also the amount of coal reserves on said leasehold as of that date, determined. 2. Method of computing depletion and depreciation deductions and also deductions for invested capital purposes stated. 3. The income derived by a non-Indian lessee from leaseholds on the unallotted tribal lands of the Choctaw and Chickasaw tribes of Indians is not exempt from Federal taxation.

INCOME. - Petitioner and his wife, domiciled in the State of California, entered into an agreement that the wife's salary should be her separate property. Held: that the wife may report her individual income in a separate return and that the Commissioner erred in including the wife's salary in petitioner's net income.

The Commissioner's determination in respect of petitioner's closing inventory for 1918 approved for lack of sufficient evidence to show error.

In the circumstances of this proceeding, it is held that petitioner received no taxable income from a payment made under a contract in 1919 to sell certain land.

The testator created a trust of his residuary estate and directed the trustees to pay to certain individuals for life the income from certain stocks or the income from the reinvested proceeds… Held: that the amount so derived was permanently set aside for corporations described in section 219(b) of the Revenue Act of 1918, and is exempt from taxation.

Petitioner held not to have been an officer or employee of the City of Fall River, Mass.

1. The liability for the additional taxes for the fiscal years ended May 31, 1917, and May 31, 1919, involved herein, is extinguished by section 1106(a) of the Revenue Act of 1926, and there are no deficiencies for those years. 2. The fair market value of the petitioner's property on March 1, 1913, determined.

1. Under the evidence, held that the petitioner is entitled to deduct in each of the years 1919, 1920, and 1921, a reasonable allowance for obsolescence of its banking building. 2. The amount at which the building should be included in invested capital for the years 1919, 1920, and 1921, and the basis and rate for computing allowances for exhaustion, wear and tear, including obsolescence of the building, in those years, determined.

Gain or loss arising from the sale of certain pipe determined.