Volume 10 — Tax Court Memorandum

Held, that a consideration of all the facts shows that petitioners in good faith and acting with a business purpose intended to be partners for Federal tax purposes during the year ended December 31,… Held: that a consideration of all the facts shows that petitioners in good faith and acting with a business purpose intended to be partners for Federal tax purposes during the year ended December 31, 1945.

Where a "lift" of roofing material applied to a warehouse roof to restore the building to a useable condition had a useful life of only one year, held, the petitioner may treat the cost thereof as a repair expense and not as a capital expenditure.

On the record, petitioner held not to be entitled to a deduction of $500 on account of the asserted dependency of her mother, the latter having an income for the taxable year in excess of $500; and in addition, petitioner is shown not to have contributed more than half her support.

The fair market value as of September 1, 1945 of the real and personal property purchased by petitioner from Pancake Realty Co., in which he was the principal stockholder, was not in excess of the sum of $54,508.08, which petitioner paid therefor.

On the facts, held, that petitioner and his two children did not intend to join together in the present conduct of the hardware business… Held: that petitioner and his two children did not intend to join together in the present conduct of the hardware business either on July 1, 1942, when the partnership was formed, or at any other time during the fiscal years ended June 30, 1943 and 1944, and therefore the partnership was invalid for tax purposes during these two years.

Petitioners, husband and wife, residing in a community property state, with full knowledge they had received large amounts of income during the taxable years, grossly understated such income in their… Held: the returns were false and fraudulent with intent to evade tax.

Held, respondent is not barred by the statute of limitations from determining a deficiency for the year 1943. Z. W. Koby, 14 T.C. 1103, followed. Held: respondent is not barred by the statute of limitations from determining a deficiency for the year 1943. Z. W. Koby, 14 T.C. 1103, followed.

1. Amount of reasonable compensation for two of petitioner's officers for the years 1942, 1943 and 1944 determined. 2. Held: expenditure for replacement of windows in petitioner's plant during the year 1944 should be capitalized as the respondent determined.

Held: 1. In determining the deficiency against petitioner for 1943, under the Current Tax Payment Act of 1943, the respondent is not barred by the provisions of section 275 (a) of the Internal… Held: In determining the deficiency against petitioner for 1943, under the Current Tax Payment Act of 1943, the respondent is not barred by the provisions of section 275 (a) of the Internal Revenue Code from adjusting petitioner's income for 1942. 2.

Petitioner received rent for use of its building by a partnership composed of three of its stockholders owning over 25 per cent of its stock. Held, the rent constituted personal holding company income, following Furniture Finance Corp., 46 B.T.A. 240. Petitioner relying on the advice of an experienced practicing accountant who audited its books and prepared tax returns for it and others did not file personal holding company returns. Held, the failure to file was due to reasonable cause and not to willful neglect.

Petitioner, incapacitated physically to such extent as not to be able to use public transportation, is held not entitled to the deduction of expenses of travel by automobile from her home to her office, either under section 23 (a) (1) (A) or section 23 (a) (2) of the Internal Revenue Code.

During 1942 and 1943 Warren Newcombe paid his divorced wife, Hazel Newcombe, $18,954 and $21,060.60, respectively, pursuant to the terms of a property settlement agreement, and a divorce decree… Held: no sum was fixed by the terms of the divorce decree or the written instrument as payable for the support of minor children and respondent erred in reducing the alimony deduction by $2,400 per annum; distinguishing Robert W. Budd, 7 T.C. 413 and Warren Leslie, Jr., 10 T.C. 807.

Held, that petitioners understated their income in each of the years 1941-1944 with fraudulent intent to evade Federal income and victory taxes. Held: that petitioners understated their income in each of the years 1941-1944 with fraudulent intent to evade Federal income and victory taxes. Held, further, that the deficiencies determined by respondent for the years 1941 and 1942 are arbitrary and excessive.

Held, that income was understated in each of the taxable years with fraudulent intent to evade tax.

Royalty payments. - Petitioner orally assigned interests in patents and inventions to others who thereafter participated proportionately in royalty payments. Held, royalty payments received by the oral assignees not includible in petitioner's gross income. Carl G. Dreymann, 11 T.C. 153, followed.

Petitioner is a corporation which owns and operates a four-story building in the City of Houston, Texas. Held: the Commissioner is sustained in part and reversed in part. The amount of deductions for each of the taxable years is determined.

Petitioner paid an attorney's fee of $5,000 and incidental expenses of $409.10 in connection with litigation involving a trust estate of which his wife was the ultimate beneficiary. Held: the payments made by petitioner were not ordinary and necessary expenses of his insurance business under section 23 (a) (1) (A).

Amended pleadings to conform to the proof having been duly field; held, petitioner erroneously included $7,226.05 in his taxable income for 1944. Held: petitioner erroneously included $7,226.05 in his taxable income for 1944.

Petitioner maintained a home for his family in Cincinnati while he was employed by the War Department in Washington, D.C., and New York City. Held: Petitioner's living expenses during this period were personal expenses and not deductible. Section 24 (a) (1).

Entertainment expenses allowed as ordinary and necessary expenses for carrying on petitioner's individual business; and amount thereof determined in accordance with the principles of Cohan v. Commissioner, 39 Fed. (2d) 540.

Petitioners, who as stockholders received rental-dividends from a corporation in 1930, held liable as transferees for the unpaid income taxes of the transferor corporation for the year 1930. Samuel Wilcox, 16 T.C. 572, followed.

Petitioner was divorced in 1927 from his then wife, in which proceeding there was a stipulation that the wife was to receive no alimony. Held: petitioner is not entitled to deduct the aggregate of weekly payments made to his former wife pursuant to a contract entered into more than 18 years subsequent to the divorce, under the provisions of sections 22 (k) and 23 (u), I.R.C.

Upon the evidence, held: 1. Petitioner is entitled to deduct from gross income his losses sustained in certain farm operations entered into… Held: Petitioner is entitled to deduct from gross income his losses sustained in certain farm operations entered into for a profit. 2. Petitioner's family lived in Andover, Massachusetts, but under section 23 (a) (1) (A) his home place of employment was in Westbury, New York, and his meals and lodgings at Westbury are not deductible. 3.

Held, taxpayer was not, during the taxable year, a bona fide resident of Afghanistan and, accordingly, was not entitled to the exemption from taxation by the United States provided by section 116 (a)… Held: taxpayer was not, during the taxable year, a bona fide resident of Afghanistan and, accordingly, was not entitled to the exemption from taxation by the United States provided by section 116 (a) (1), I.R.C., as amended by the Revenue Act of 1942.

Petitioners, who as stockholders received rental-dividends from a corporation in 1930, held, liable as transferees for the unpaid income taxes of the transferor corporation for the year 1930. Held: liable as transferees for the unpaid income taxes of the transferor corporation for the year 1930. Samuel Wilcox, 16 T.C. 572, followed.

Held, taxpayer-husband is taxable on all of the 1945 income earned by him from his membership in certain partnerships, notwithstanding an arrangement with his wife by which he channeled such earnings… Held: taxpayer-husband is taxable on all of the 1945 income earned by him from his membership in certain partnerships, notwithstanding an arrangement with his wife by which he channeled such earnings through another entity, therein dividing the earnings with his wife.

Petitioner Accurate Tool Co., Inc., was organized in 1941, and during the taxable years 1942 and 1943 was primarily engaged in the business… Held: Respondent has failed to prove that a part of the deficiency for the year 1942 is due to fraud. 2. Respondent erred in part in the deductions which he disallowed for compensation to petitioner's officers for the years 1942 and 1943, and reasonable compensation for petitioner's officers to be allowed as deductions is determined. 3.

Petitioner, a corporation executive, bought a farm in 1937 and operated it through a farm manager until 1944, sustaining a loss in each year. Held: petitioner was not operating the farm for recreation or as a hobby but for the purpose of producing income and is entitled to deduct from other income the farm losses incurred.

During the year 1944 petitioner Tancredi was the sole manager of the Happy Doll Company and petitioner Lisi was the sole manager of the Public Doll Company, the two petitioners conducting these… Held: Petitioner Tancredi and his wife and children did not intend to join together as bona fide partners in the present conduct of the Happy Doll Company business in 1944 and therefore their subpartnership was invalid for tax purposes in that year. 2.

Held, the property in question had a fair market value in 1928 of $3,000. Held, further, this amount subject to adjustments is deductible as a capital loss in 1945. Held: the property in question had a fair market value in 1928 of $3,000. Held, further, this amount subject to adjustments is deductible as a capital loss in 1945.

The amount of petitioner's deductible loss due to theft in the year 1945 determined.

Section 23 (a) (1) (A): Travel, entertainment, and other business expenses. - Petitioner claimed deductions totaling $36,581.96 in his 1945 income tax return for travel, entertainment, and other… Held: that of the total expenses paid or incurred by petitioner during the taxable period $6,950 were ordinary and necessary business expenses and are therefore deductible.

Stockholders of a closely held corporation agreed insurance would be purchased on the lives of certain of the stockholders, which insurance was paid for by the corporation. It was further agreed to apportion the insurance proceeds among surviving stockholders so as to provide them with funds to purchase deceased stockholders' shares. Decedent was the largest stockholder. On decedent's death proceeds of insurance on his life were used by the surviving stockholders to buy his shares from his estate. Decedent's shares were included in his gross estate and tax paid thereon. Held, respondent erred by including the insurance proceeds in decedent's gross estate.

Held, where the facts fail to trace the insurance funds into the replacing property, taxpayer fails to establish his case under section 112 (f), I.R.C.

Petitioner, George H. Cohn, sold jewelry, much of his business being credit sales. Books were kept on an accrual basis, but credit sales were reported on a cash basis. Held, accounts receivable resulting from credit sales of prior years are not includible in income for the taxable year.

Petitioners owned and operated a hotel, a part of their business involving purchase and sale of merchandise. Held: respondent was correct in requiring petitioners to use inventories in reporting income for tax purposes, but petitioners can take into account opening as well as ending inventories for the taxable year.

On motion of respondent, the Court reconsiders its Memorandum Findings of Fact and Opinion entered August 10, 1950 [9 TCM 669], and changes its findings of fact as to the amounts of compensation claimed by the taxpayer as deductions on its returns for each of the taxable years 1942, 1943, 1944, and 1945, by increasing the amounts claimed for each year by $6,240 over the amounts contained in the findings of fact in the memorandum opinion of August 10, 1950.

Petitioner in the taxable years 1945 and 1946 was engaged as a salesman in the business of selling shirts and other articles of dry goods on commission. Held: the Commissioner is sustained in part and reversed in part as to these additional commissions.

The payments of $60 per month made by petitioner Jason R. Swallen to his former wife, petitioner Leona Smith Swallen, were intended by the parties as payments for the support of their minor child and, consequently, the husband is not entitled to their deduction under section 23 (u) of the Internal Revenue Code, and they are not includible in his wife's income under section 22 (k) of the Internal Revenue Code.

1. Petitioners' eldest son reached the age of 19 years in 1941, and had his minority disabilities removed in that year under the laws of the State of Texas. Held: that a valid and legal partnership was formed January 1, 1942, between petitioner Joe D. Harris, Jr., and his son, Robert Harris, and this partnership continued through the years 1944 and 1945, and was not interrupted because of Robert Harris' service in the United States Army. 2.

Petitioner is not entitled to the deduction in 1945 of the cost of certain construction in that year claimed as the cost of leasehold improvements.

Family partnerships: Assessment and collection of tax: Burden of proof. - The Commissioner failed to meet his burden of proof that the taxpayer had omitted from gross income an amount in excess of 25% of the gross income stated in the return, where a bona fide partnership was established.

A petition filed by a dissolved Ohio corporation is a valid petition since, under Ohio law, a corporation continues in existence subsequent to dissolution for the purposes of winding up affairs and of prosecuting and defending suits for or against it. Verification by an officer of such a corporation is sufficient to comply with Tax Court Rules of Practice.

Held, petitioner is liable as a transferee of a certain corporation for taxes, including additions to the tax or penalties, determined against such corporation. Held: petitioner is liable as a transferee of a certain corporation for taxes, including additions to the tax or penalties, determined against such corporation.

Held: Alleged debt evidenced by a note for $7,500 was, under the circumstances here present, worthless at the time of execution in 1932 and deduction for same in 1947 was correctly disallowed.

1. Petitioner has failed to sustain the burden of establishing that respondent did not correctly compute his taxable net income for the calendar year 1946. 2. The imposition of the negligence penalty of five per centum, under section 293 (a), Internal Revenue Code, is approved.

Where taxpayer made a loan to another individual for use in his business and as a condition to the loan taxpayer required that 30 per cent of the profits of the business were to be paid over to two… Held: respondent did not err in including such profits in taxpayer's taxable income.

Amount of expenses incurred while traveling, determined.

Petitioner, engaged in the hotel and tavern business, reported his income and kept his books on a cash basis. Held: since petitioner's books failed to clearly reflect income, opening inventory should not be considered in computing income for 1945. Held, further, petitioner failed to sustain his burden of proof that respondent erred in increasing petitioner's sales income for 1945 in the amount of $6,000.

Various deductions disallowed by respondent are not shown on the record to have been allowable in the taxable years.

Amount of expenditures allowable as a loss deduction in the taxable year on the abandonment of a project in the photographic field, determined.

Disallowance by respondent of certain expenses sustained for failure of proof.

Respondent's determination that petitioner's parents were not properly to be classified as petitioner's dependents sustained for failure of proof.

Petitioner and Arthur A. Keil were principal stockholder-officers in a wholesale jewelry corporation, each owning 50 per cent. Keil became incapacitated and unable to continue in the business. Held: Petitioner realized a long-term capital gain based on the difference between the original cost of his 50 per cent of the stock and the fair market value of a 50 per cent interest in the corporate assets as established by the price paid for such stock.

Petitioner was in the lumber business, and a large part of his sales were credit sales. His books were kept on an accrual basis, but only actual cash received was reported for tax purposes. Held: accounts receivable in the sum of $80,000 resulting from credit sales in prior years are not includible in income for the taxable year.

Decedent, at the time of his death, was the owner of all the stock of a small corporation which had been engaged in the business of installing intercommunication systems in military… Held: the valuation of the corporation's shares of stock which decedent owned at the time of his death for estate tax purposes must be largely made from the valuation of the corporation's assets at the date of decedent's death. This valuation is determined herein from the evidence in the case.

Petitioner was in the hotel and tavern business and the purchase and sale of merchandise was an incomeproducing factor. Held, respondent did not err in requiring petitioner to change from a cash to an accrual basis of reporting income, but that opening as well as closing inventory should be taken into consideration in determining taxable income for the year.

Petitioner, a business broker, received commissions for services rendered in sale of a drop forge plant. The parties disagreed as to when these services began and when they were completed. Held, the services began April 7, 1943, and were completed in July, 1946. Since they covered a period of more than 36 months, respondent erred in refusing to permit the computation of tax on income from such services under section 107 (a) of the Internal Revenue Code.

The decedent reported as his only income for the years 1943 to 1946, inclusive, $11,400 received by him as wages he earned as a card dealer in gambling establishments. No returns for prior years were ever filed by him. During the period January 1944 through February 1947 he made investments, bank deposits and incurred expenses totaling over $48,000, approximately $28,000 of which were made out of capital. Respondent determined deficiencies for the taxable years 1944 to 1946, inclusive. Held, that the decedent received additional income in 1944, 1945 and 1946 to the extent of the amount that his investments, bank deposits and expenses during each year, including an estimate of reasonable living expenses, exceeded the total of his reported income plus any capital expended by him in each year.

Petitioner, his wife, daughter and son entered into a partnership agreement to carry on a wholesale jewelry business. Held: under all the facts that petitioner, his wife and daughter were bona fide partners during the taxable years in question. Held, further, petitioner's son was not a bona fide partner during the taxable years in question and respondent did not err in including his share in petitioner's income.

Petitioner made two gifts, each consisting of a large number of shares of stock in a corporation. Held: the per share value of the stock was $7. As a factor to be weighed, along with the other facts, is the testimony of witnesses as to amount that would be realized from the sale of the blocks of stock. Helvering v. Maytag, 125 Fed. (2d) 55.

Upon the basis of the facts presented, held, that the members of the Cochran family did not intend to join together as partners with either of the two daughters of the petitioner, Joseph E. Cochran, and the decedent, Mabel Cochran, in the present conduct of the automobile dealership business, either when the partnership was formed in 1937 or at any other time during the years 1942, 1943 and 1944.

Petitioners, Ernest Ingold and his wife, Gene Ingold, pursuant to a transaction entered into between them and a corporation wholly owned by them, sold to the corporation securities which they had… Held: the losses sustained are unallowable as deductions, pursuant to section 24 (b) (1) (B) of the Internal Revenue Code, and can not be offset against the gains realized.

During the taxable periods involved petitioner was a business league exempt from tax under the provisions of section 101 (7) of the Internal Revenue Code.

Petitioner's evidence fails to establish that his niece and parents were dependents under section 25 (b), I.R.C.

During the period 1942 to July 1944, petitioner's decedent received payments from a corporation in discharge of that corporation's obligation to return to decedent a contribution made in 1935 in… Held: that portion of the payments equal to the contribution the corporation was obligated to return constituted a return of capital, and the balance constituted interest income.

Rental "required" to be paid for dairy property determined.

Respondent determined that $6,000 of the $26,150 deducted by petitioner as salaries of its officer-stockholders was unreasonable in amount, or, in the alternative, was a dividend. Held: under all the facts, the $6,000 was not unreasonable in amounts as compensation, nor was it a dividend.

1. Petitioner, Ben A. Puente, in the course of his employment by a dairy firm in the year 1943 was required to purchase and wear certain types… Held: the cost of the types of clothing which petitioner was required to purchase and wear in the course of his employment, and which were not adaptable to general and continued wear to the extent that they replaced petitioner's regular clothing, was deductible as an expense pursuant to section 23 (a) of the Internal Revenue Code. 2.

During the period 1914-1919 decedent acquired certain real property in the City of Cincinnati. Held: Decedent, in 1914, did not enter into the transaction for profit within the meaning of section 23 (e) (2), I.R.C. Held, further, on the vacation of the property by Jacobs in 1931, immediately followed by decedent's attempts to rent or sell and to have rezoned for commercial purposes, the property was appropriated to business…

In the estate tax return of the decedent, petitioner reported the value of the stock shares held by decedent as $123,420 or $255 per share. Held: Respondent's valuation of stock approved for failure of proof of error.

In October, 1946, petitioner entered into a written lease by which The New York Central Railroad Company leased to him certain real property in West Springfield, Massachusetts. Held: The expenditures made by petitioner in 1947 to renovate the building he held as lessee, including his payments to Nathan S. Scully and Harry R. Ehrlich, constitute a capital investment to be recovered through a deduction for depreciation based upon the useful physical life of the improvements.

Deduction: Rent. - Respondent's disallowance of a portion of amounts claimed as rentals paid for the use of properties held in name of the wife of petitioner's principal stockholder, sustained. Penalties. - For failure to file excess profits tax returns, sustained.

1. Petitioner's decedent at the time of her death was the owner of 2,666 2/3 shares of beneficial interest out of a total of 10,000 issued shares of a business trust. These shares had a fair market value at the time of decedent's death of $395 per share and should be included at such value in decedent's estate for estate tax purposes. 2. Respondent did not err in including in decedent's estate certain fraternal insurance on her life under a policy issued to her and payable to her children upon her death and held by her at her death.

On October 4, 1946, petitioner gave to his son 15,000 shares of Anderson, Clayton & Co. common stock. On the same date he gave to each of his two daughters 10,000 shares of the same stock. Held: the evidence shows that so large a block of stock as 35,000 shares could not have been sold on the date in question or during any reasonable period thereafter for $58 5/8 per share.

Property used in business: Loss. - Held, that since the property sold in the taxable year was used in petitioner's business, it was not a capital asset and the loss sustained is deductible in full… Held: that since the property sold in the taxable year was used in petitioner's business, it was not a capital asset and the loss sustained is deductible in full under section 23 (e), Internal Revenue Code.

1. During the years 1943 and 1944, petitioner's board of directors authorized a salary of $12,000 a year for petitioner's president. Held: the $2,000 is deductible as an ordinary and necessary business expense in 1945. Lucas v. Ox Fibre Brush Co., 281 U.S. 115. 2. In 1945 petitioner filed its capital stock tax return for the period July 1, 1944 to June 30, 1945 and paid the tax due. Held, the capital stock tax liability accrued in the year the return was filed.

E. J. Hyland died testate February 3, 1937. Petitioner and her sister qualified and were appointed executrices of his estate. Held: The period of administration and settlement of the estate had not expired prior to December 31, 1945. The petitioner and her sister were acting as executrices in 1945 and were under no obligation to pay income from the estate to the testamentary trust beneficiaries. Estate of Peter Anthony Bruner, 3 T.C. 1051, followed.

Upon reconsideration of the issues in these cases in the light of Commissioner v. Culbertson, 337 U.S. 733, we reaffirm our previous conclusions; distinguishing Ginsburg v. Arnold, 185 Fed. (2d) 913; Joseph Middlebrook, Jr., 13 T.C. 385; and Edward A. Theurkauf, 13 T.C. 529.

Partnership between father and son recognized as valid for tax purposes.

Held, respondent properly determined that petitioner sustained no deductible loss on the sale of certain shares of stock in the taxable year involved. Held: respondent properly determined that petitioner sustained no deductible loss on the sale of certain shares of stock in the taxable year involved.

Held: (1) The shares of the capital stock of the United States Savings Bank of Washington, D.C., became worthless prior to the taxable year 1946; (2) in the taxable year 1946 petitioner realized net taxable income in the amount of $7,433.88, or the difference between the amount he paid certain creditors of the United States Savings Bank for an assignment of their respective claims and the amount he received from the Comptroller of the Currency in that year in payment of such claims.

Held: The proof does not sustain petitioner's contention that certain stock became worthless during the taxable year. Held: The proof does not sustain petitioner's contention that certain stock became worthless during the taxable year. Accordingly, petitioner may not deduct the cost of the stock in 1945 as a long-term capital loss under section 23 (g) (2), I.R.C.

During the taxable year, petitioner made payments of $260 to his former wife under a support order issued by a competent Pennsylvania court. Held: such payments are not deductible by petitioner since they are not alimony incurred by petitioner under the divorce decree or under a written instrument incident thereto.

On December 21, 1936, B. J. Rowekamp Sons, Inc. was indebted to the Fifth-Third Union Trust Company of Cincinnati, in the amount of $7,000. Held: The payment of $2,300 to each of the petitioners by the Corporation was from its accumulated earnings and profits and constituted a taxable dividend within the meaning of section 115, I.R.C.

Held, real estate sold in 1944 and 1945 was not held primarily for sale to customers and petitioner is entitled to capital gains treatment under section 117 (a), I.R.C. Held: real estate sold in 1944 and 1945 was not held primarily for sale to customers and petitioner is entitled to capital gains treatment under section 117 (a), I.R.C.

A railway mail clerk, who from personal choice, resided at a point distant from his principal place of employment, is not entitled to deduct as traveling expenses under section 23 (a) (1) (A) the cost of his personal living expenses consisting of meals and lodging at his principal place of employment.

Deduction: Loss - Corporate officer not entitled to deduct payment required to be made to corporation under section 16(b), Securities Exchange Act of 1934. William F. Davis, Jr., 17 T.C. -, followed.

Petitioner, a transferee of a corporation's assets, contested liability of corporation. Held, respondent did not err in determining reasonable salaries of officers of corporation. Held: respondent did not err in determining reasonable salaries of officers of corporation. Held, further, that amount of overdraft charged to president's account at date of his death, he being insolvent, was deductible as a bad debt.

Section 22 (k) - Decree of a German court and agreement incident to the decree within scope of section 22 (k). - Petitioner was married to… Held: Lily Parsons elected to have the annulment treated as a divorce, exercising her right under section 1345 of the German Code, and the decree of the German court is properly treated as a decree of divorce under section 22 (k), I.R.C.(2) The Berlin contract was incident to the decree of the German court, and payments thereunder were…

Throughout the taxable year 1944, Beulah K. Bassine, wife of petitioner, was a bona fide member of the partnership conducted under the name of Mylan Manufacturing Co., and respondent erred in taxing to petitioner her share of the partnership income for that year.

In 1943, petitioners, stockholders in a corporation, received certain assets upon dissolution and liquidation of the corporation, which each reported as a long-term capital gain in his 1943 income… Held: payments made during 1945 by petitioners as a result of such transferee liabilities are deductible in that year as ordinary losses.

The petitioners' decedent, Mary Douglas, effected certain common and preferred stock transfers in 1932 and 1939 to petitioners, Cora D. Metz and John F. Douglas. Mary Douglas died on June 23, 1945. Held: The stock transfers were not made in contemplation of death within the meaning of section 811 (c), I.R.C.

Decedent, in a partnership with two sons, had $40,000 of his own capital account transferred to each son. He retained the same percentage interest in the profits that he had prior to such transfer. Held: none of the gifts were made in contemplation of death, nor were they gifts intended to take effect at or after death.

Partner or employee. - Upon the evidence, it is held that the petitioner was an employee of a partnership in the period from March through September, 1945; that he was not a partner therein; and that he reported all of the compensation that he received.

Held, housing units sold by petitioner in 1946 were property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business, and not property held for investment or… Held: housing units sold by petitioner in 1946 were property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business, and not property held for investment or used in the trade or business, as defined in section 117 (j) (1), I.R.C.

Over a period of years, petitioner's increase in net worth plus non-deductible expenditures were far in excess of his income as reflected in his income tax returns for those years. Held: under all the facts, the respondent was justified in using a net-worth method to compute petitioner's income for such period and that some part of the deficiency for 1937, 1938, 1939, and 1941 through 1944, inclusive, was due to fraud with intent to evade tax.

Deduction of losses cannot be allowed in a proceeding before this Court where petitioner presents no proof of error by respondent.

Petitioner is a Massachusetts corporation which for many years has been engaged in the chain store grocery business in Springfield and… Held: during the taxable years 1943 and 1944, the earnings and profits of petitioner were not permitted to accumulate beyond the reasonable needs of the business and petitioner was not availed of for the purpose of preventing the imposition of the surtax upon its stockholders through the medium of permitting its earnings and profits to…

Petitioner operated a restaurant and bar; bought, sold, and rented real property; loaned money on mortgages; and furnished bail for persons arrested. Held: petitioner failed to prove error in respondent's computations of net worth and determinations of deficiencies. Held, further, respondent has established that at least part of the deficiency for each year was due to fraud with intent to evade tax.

1. Held, notes issued by a corporation in exchange for preferred stock of that corporation constituted indebtedness, and the interest paid thereon was deductible. 2. Held, attorney's fees which were paid as ordinary and necessary business expenses were deductible. 3. Held, interest paid on uncontested additional assessments of State and Federal taxes could be deducted by a corporation on the accrual basis in the year to which the tax related.

As of September 30, 1946, petitioner had an accumulated surplus of $842,983.60. During its fiscal year ended September 30, 1947, it had a net income of $211,328.02. Held: Petitioner was not availed of, in the fiscal year ended September 30, 1947, for the purpose of preventing the imposition of surtax on its stockholders by permitting gains and profits for that year to accumulate beyond the reasonable needs of the business.

The association of the petitioner-husband and two foster sons in the cattle business, held, to be a valid partnership for Federal income tax purposes. Held: to be a valid partnership for Federal income tax purposes.

On July 16, 1945, petitioner paid $11,000 to the United States in an agreed settlement of a claim by the O.P.A. that petitioner had made overcharges on the sale of some of its manufactured products, to wit, chairs and stepstools, covering the years 1944 and part of 1945. Petitioner, in calculating its ceiling prices for these products under Maximum Price Regulation 188, took practicable precautions and its actions were in good faith and not the result of an unreasonable lack of care. Held, the payment of $11,000 is deductible under section 23 (a) (1) (A) of the Internal Revenue Code. Pacific Mills, 17 T.C. -, promulgated October 26, 1951, followed.

1. Petitioner and his wife owned a beach home as tenants by the entireties on the New Jersey Coast. It and its contents were extensively damaged in a storm on September 14, 1944. The amount of loss was determined. 2. Petitioner and his wife owned the realty as tenants by the entireties; and petitioner, individually, owned the personalty. Held, petitioner is entitled to deduct only one-half of the loss sustained to the realty but may deduct the total loss to the personalty.

Amount of casualty loss suffered as a result of a hurricane, determined.

Petitioner, in the year 1926, acquired by inheritance a 10-family tenement house. In the year 1941 the city authorities ordered the building closed because of structural defects. Held: that since petitioner has failed to prove basis she has not shown that she suffered a loss on the sale of real property and, accordingly, she is not entitled to a 1947 capital loss deduction carried over from the year 1946.

Petitioner Paul J. Stuermer, computing income under Supplement T. Chapter 1, of the Internal Revenue Code, held to be entitled to the deduction in arriving at adjusted gross income of the sum of $600 allowed him as living expenses by his employer, the State of Illinois. Petitioners held not to be entitled to deduct items totaling $458.62 in arriving at adjusted gross income.

1. Respondent's determination of deficiencies in 1942, 1943 and 1944 modified. 2. Fraud penalties for 1943 and 1944, and negligence penalty for 1942, approved. Fraud penalties for 1942 disallowed.

Bona fide partnership found to exist in year 1945 between petitioner, his wife, and two other persons.

Petitioners' decedent was engaged individually in the business of exploiting patents either by organizing, financing, and actively participating in the management of companies organized to acquire or… Held: a loan of $14,627.48 by decedent to the Pullenlite Company was attributable to such business and is deductible in full as a business bad debt.

Petitioner purchased a block of partially improved real property, made improvements such as grading and subdividing into lots, and then sold the lots. Held: income to the petitioner from the sale of the lots was ordinary income.

Held, a certain distribution by a corporation was not made at such time and in such manner as to be essentially equivalent to a taxable dividend. Held: a certain distribution by a corporation was not made at such time and in such manner as to be essentially equivalent to a taxable dividend.

Petitioner entered into a partnership agreement on January 2, 1945 with his two sons, then aged 28 and 22. The partnership succeeded a corporation and the income of the business was received from personal services rendered its clients by the partners and some sixty or more employees. During the taxable year 1946 petitioner's elder son rendered services throughout the year and his younger son rendered part-time services thereafter. Each partner withdrew his respective share of income from the business and the sons spent or invested these sums without accounting to their father. The Commissioner contends the younger son was not a bona fide partner during the first eight months of the taxable year. Held, the younger son was a member of the partnership throughout the entire taxable year, Commissioner v. Culbertson, 337 U.S. 733,.

Income: Net worth basis: Living costs: Medical expenses. - The petitioner established that he incurred liabilities in the taxable years which are not reflected in the respondent's net worth… Held: that there are no deficiencies and no liability for a fraud penalty.

Throughout the taxable years involved, Marian M. Calloway and her husband, Hasson Calloway, daughter and son-in-law of petitioners, were bona fide members of the partnership business conducted under the name of Lester Maxwell Furniture Co. During the taxable years 1945 to 1947, Delphia E. Maxwell, wife of Lester Maxwell, was not a bona fide member of the partnership business conducted under the name of Lester Maxwell Furniture Co.

When petitioner fails to appear and contest respondent's determination of deficiencies and penalties (other than the penalty under section 293 (b), I.R.C.), as to which petitioner had the burden of proof, such deficiencies and penalties will be affirmed for failure of proof of error. The charge of fraud, as to which respondent had the burden of proof, is sustained on evidence adduced by respondent.

Where a grandmother furnished more than 50 per cent of the support of four minor grandchildren she is entitled to statutory exemption on account of the four grandchildren.

Petitioner owned practically all the stock in a corporation to which he owed about $130,000. Held: under all the facts the transaction did not occur at such time and in such manner as to be essentially equivalent to a taxable dividend.

The petitioner, over a period of time, loaned money to a partnership in which McCauley, the owner of all of its stock, was a partner. Held: that the unpaid portion of the debt owing to the petitioner by reason of its advances to such partnership did not become worthless in 1945, and that the petitioner is not entitled to the bad debt deduction claimed.

Held, that where the only evidence fixing the value of a gift of certain jewelry is the cost thereof paid by the donor to a retail jeweler, such value must include the amount of Federal retailer's… Held: that where the only evidence fixing the value of a gift of certain jewelry is the cost thereof paid by the donor to a retail jeweler, such value must include the amount of Federal retailer's excise tax paid. Estate of Frank Miller Gould, 14 T.C. 414.

1. For the taxable year 1945 petitioner and his corporate employer agreed that in addition to petitioner's regular salary the employer would reimburse him for… Held: that since the amount of the reimbursable expenses has not been proven and the amount of the additional compensation is unknown, a reasonable estimate of such expenses is $13,200, for which petitioner was fully reimbursed, and the remainder of the $19,000 paid, or $5,800, constitutes additional compensation. 2.

Petitioner, the managing partner in a wholesale liquor business, had four nonresident partners who invested in the partnership but performed no services for it. Held: under all the facts, petitioner's wife was a valid partner in the business for the years in question.

Petitioner was managing partner and owner of a fifty per cent interest in a partnership with three other individuals. He conveyed to himself and his wife, as trustees, a portion of his interest. Held: the trust created by petitioner was not a partner for federal income tax purposes and respondent did not err in determining that petitioner is taxable on fifty per cent of the distributive partnership income.

1. During the taxable years involved, petitioner and his wife in good faith intended to and did actually join together in the conduct of a partnership business under the name of Cherokee Motor Coach Co. 2. Petitioner has failed to establish that the rates of depreciation which the respondent allowed in 1942 on certain equipment acquired in that year were not proper and ample.

The decedent, at three different times after the age of 74 years, pursuant to promises made and long established plan, transferred properties to his children, in two out of three instances at… Held: under all of the facts, that his controlling motive in making the transfers was associated with life, and was not contemplation of death.

Held: That petitioner's war loss, if any, was controlled by section 127, I.R.C. and that petitioner may not predicate such loss on section 23 (e), I.R.C. Held: That petitioner's war loss, if any, was controlled by section 127, I.R.C. and that petitioner may not predicate such loss on section 23 (e), I.R.C.

The Commissioner disallowed deduction, from decedent's estate, of claims alleged to be founded on decedent's promise or agreement. Held: for lack of proof, that no error by Commissioner is shown in denying deduction.

1. Petitioner's use of the corporation's funds to the extent of $37,500 to purchase, in 1944, certain shares of its capital stock which he later surrendered for cancellation and retirement, held, on… Held: on facts, essentially equivalent to the distribution of a taxable dividend within the purview of section 115 (g), Internal Revenue Code. 2.