Volume 11 — Board of Tax Appeals

1. Where one purchased an oil and gas lease and certain water rights and was unable financially to pay the purchase prices and develop the property, and where he from time to time solicited and… Held: that such an enterprise was a joint adventure. 2.

Where the income from the decedent's business was produced in part by separate property and in part by the efforts of the community, the value placed upon the decedent's services by the parties is accepted as a reasonable apportionment between community and separate income.

1. Charitable contributions are not deductible by estates in the computation of net income unless paid or permanently set aside pursuant to the terms of the will. 2. Held: that the amounts of said payments are not deductible under section 219(c) of the Revenue Act of 1921 in the computation of the net income of the estate. Appeal of Estate of W. S. Tyler,9 B.T.A. 255.

The petitioner, through his duly authorized agent, having prepared and filed a joint income-tax return for himself and wife for the year 1922, can not thereafter file a separate return under the community property laws of the State of Washington.

1. Sum paid as proportionate share of cost of maintaining baseball team held not to be deductible as an ordinary or a necessary expense, or otherwise. 2. Adjustment of invested capital on account of taxes for prior years held to be correct under section 1207 of Revenue Act of 1926. 3. Earnings available for the payment of dividends should not be reduced by the amount of a tentative tax. L. S. Ayers & Co.,1 B.T.A. 1135, followed.

Assets of a liquidating corporation held to have been received by stockholder in 1918, not 1919.

1. Where petitioner, a corporation, operated upon the basis of a fiscal year ending September 30, and it consolidated with another corporation as of December 31, 1919, the taxable period prior to consolidation for which the petitioner should file a return is the period from October 1, 1919, to December 31, 1919. 2.

1. Evidence that instruments were signed by the Commissioner or a duly authorized agent, and evidence as to time of such signing held not necessary to constitute valid consents, and 1917 tax held not barred. 2. Since the petitioner was not organized until May 1, 1917, the respondent erred in including as its income for 1917 the income of the predecessor corporation from January 1, 1917, to May 1, 1917. 3.

The petitioner and another corporation entered into a contract whereby the petitioner agreed to sell to the other corporation and the other corporation agreed to buy from the petitioner, a certain… Held: that there was a new contract made by the petitioner and the other corporation in 1921 and that the amount of the trade acceptances did not constitute income to the petitioner in 1920.

1. Upon the facts, held that the petitioner acquired certain assets by purchase rather than through a reorganization of its predecessor and that consequently the gain or loss resulting from the sale of such assets is measured by the difference between the purchase price and the sale price. 2. The respondent concedes the right of the petitioner to special assessment in accordance with the provisions of sections 327 and 328 of the Revenue Act of 1921.

Petitioners are not affiliated within the meaning of the law and, therefore, are not entitled to file consolidated income and profits-tax returns for the years 1920 and 1921.

Two corporations held not affiliated where a substantial portion of the stock of one is owned by relatives who do not own stocks in the other and who merely permit the majority to act.

Inheritance taxes paid by executors of an estate to the State of Missouri are deductible from gross income of the estate.

1. Value of assets determined as of March 1, 1913. 2. Respondent's disallowance of good will as of March 1, 1913, approved. 3. Reduction of March 1, 1913, value of property by depreciation allowed, approved.

1. Value of good will acquired for stock determined. 2. Respondent's denial of special assessment approved.

The decedent, in February, 1921, within approximately six months of his death, but while his health was about the same as it had been for a number of years, transferred stock to his wife in payment… Held: that the transfers of stock were not in contemplation of death within the meaning of section 402(c) of the Revenue Act of 1918.

1. Where petitioner alleges obsolescence or loss in useful value of cases and bottles due to prohibition legislation, and the proof of the amount of loss includes actual physical loss, no segregation of losses due to each cause being made, no deduction may be allowed. 2.

1. The fact that the Board may determine that no deficiency exists because of a failure of the Commissioner to give credit for taxes assessed and paid on the original return will not oust the Board of jurisdiction of the proceeding instituted on account of the determination of the deficiency by the Commissioner. 2.

Deficiencies approved for lack of evidence.

1. Certain deductions claimed by the petitioner in schedule A of his 1921 return held to be allocable to the operation of the business regularly carried on by him, and therefore to be used in determining his net loss for that year under section 204 of the Revenue Act of 1921. 2. Loss on worthless stock allowed.

1. Value of option paid into a corporation for stock determined. 2. Year in which certain oil wells were abandoned determined.

1. Where a corporation kept its books upon a partnership basis, and stockholders' accounts were credited with profits, appreciation of assets, contributions of capital, and were charged with losses and withdrawals, and corporate affairs were confused with stockholders' personal affairs, the debit balances against the stockholders' accounts, resulting from the establishment of the books upon a corporate accounting basis and an adjustment of their personal accounts, are not…

1. Evidence held insufficient to show that more than $5,775 should be included in invested capital on account of riparian rights. 2. Special assessment denied. 3. Deficiencies held not barred.

Evidence held insufficient to establish that certain city warrants were ascertained to be worthless in the taxable year.

Fees paid a temporary administrator and his attorney held deductible from the income of an estate as ordinary and necessary expenses.

The petitioner on January 17, 1919, acquired four properties, each consisting of land and buildings, for which it gave all of its capital stock without allocating any shares to any one of the properties. The market value of two of the properties on the above date determined herein for the purpose of computing the gain derived upon their sale in 1921 and the allowable depreciation in 1920 and 1921.

1. Determination of depreciation on mine houses, mine equipment, office furniture and fixtures, live stock, vehicles, hotel equipment, and other property. 2. Value of coal property and depletion allowances thereon based on the value on the date of discovery by the petitioner. 3.

The petitioner held to be a personal service corporation for the taxable period ended December 31, 1919.

1. Personal service classification denied. 2. Evidence held insufficient to prove the value of patents for purposes of invested capital and exhaustion.

Invested capital held to have been properly reduced by taxes of prior years.

1. Amounts paid by a corporation for patents and patent rights held to be a part of invested capital. 2. March 1, 1913, value of patent determined for purposes of an allowance for exhaustion.

Where a wife makes no return of her income and it is not reported by her husband in a joint return, and the entire personal exemption is allowed the busband, she is not entitled to claim a part of the personal exemption in a return filed for her by the Commissioner under section 3176 R.S.

The respondent's determination of deficiencies approved for lack of evidence, and the penalties for failure to file returns approved.

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

Evidence examined and value of tangible property paid in for capital stock determined as of January 24, 1919, for invested capital purposes.

A contribution to a cemetery not operated for gain is not deductible by an individual from gross income under the provisions of section 214(a)(11) of the Revenue Act of 1921.

Where petitioner applied in 1911 for a patent and at the same time assigned his rights to his invention and to the patents when secured, and where he was to receive as compensation what his patent… Held: that in the absence of proof of value on March 1, 1913, the whole of said payment constituted taxable income.

Gifts of shares of stock made by decedent to his brothers within two years prior to his death held not to have been made in contemplation of death.

In the case of a loss arising from the destruction of property by fire in 1922, where the property so destroyed was acquired subsequent to March 1, 1913, the deduction on account of such loss, under section 214(a)(6) of the Revenue Act of 1921, shall be computed upon the basis of the cost of such property. Loss disallowed for lack of evidence as to cost.

The date of payment of a dividend, rather than the date of declaration, is controlling in determining the extent to which a stockholder is to be taxed by reason of the payment thereof.

The respondent is not barred from assessing and collecting the deficiency under the facts presented.

From the evidence we are unable to determine that the income of the petitioners is exempt from income tax.

Noninterest-bearing demand promissory notes, bona fide paid in for treasury stock, included in invested capital in an amount equal to their actual cash value at the time turned in for stock.

Petitioner, a beneficiary under a testamentary trust, held not entitled to deductions for depletion on account of the removal of ore from property forming a part of the corpus of the trust. Fleming v. Commissioner,6 B.T.A. 900, followed.

Petitioner, a beneficiary under a testamentary trust, held not entitled to deductions for depletion on account of the removal of ore from property forming a part of the corpus of the trust. Fleming v. Commissioner,6 B.T.A. 900, followed.

Neither the petitioner nor her husband filed income-tax returns for the years 1917 to 1921, inclusive. Held: that the petitioner had no income for the taxable years in excess of the specific exemption to which she was entitled and which she claims.

Under the evidence, held that a part of the deficiency for each of the years involved was due to fraud with intent to evade tax.

1. The value of the intangible property acquired by the petitioner from a partnership determined. 2. Held: the petitioner is not entitled to include in invested capital a leasehold acquired for cash at a greater amount than cost. 3. Held, that the action of the respondent in reducing the petitioner's invested capital for 1918 by the amount of 1917 taxes prorated is correct. 4. The value of a leasehold on March 1, 1913, determined. 5.

1. DEDUCTION. - In 1919 petitioner paid $1,670 taxes assessed against it by Los Angeles County, Calif., upon escrow deposits. Petitioner was not reimbursed therefor by the parties of the escrows. Held: that the said amount of taxes paid by petitioner is a proper deduction from its gross income for the year 1919 under section 234(a)(3) of the Revenue Act of 1918. 2.

1. Interest accrued to the date of the decedent's death on securities owned by him and dividends declared prior to his death but payable after his death on stocks owned by him were a part of the corpus or principal of his estate. 2.

1. Commissioner's determination that petitioner's profits tax as computed under section 301 of the Revenue Act of 1918 was not in excess of the average profits tax computed with reference to representative corporations, as specified in section 328, is, in the absence of evidence as to representative corporations, approved. 2.

Taxes imposed by Houston County Levee District No. 1 of the State of Texas for the construction and maintenance of a levee, which were levied against and paid by petitioners in 1923, are not deductible from gross income.

Under the facts in this case no such abnormal conditions as contemplated by the provisions of section 327 of the Revenue Act of 1918 existed which entitle petitioner to special assessment as provided in section 328.

Petitioner made monthly balance sheets which did not take into account such matters as bad debts, depreciation, etc., and made such a balance sheet for the closing month of the year, which the… Held: that the balance sheet last made is the one that properly shows surplus.

The petitioner during the years 1918 and 1919 was not a personal service corporation as defined by Section 200 of the Revenue Act of 1918.

1. Under the circumstances herein, it is held that the sale in 1920 of certain of petitioner's assets, comprising both realty and personalty, for $1,500,000, constituted a lump-sum sale rather than a separate sale of personalty and realty. 2.

1. A partnership, of which the petitioners are members, is engaged in general shorthand reporting and does reporting for the Public Service Commission of Pennsylvania… Held: that no part of the income received is exempt from income tax. 2. Several of the petitioners received both tax-exempt and taxable income and had expenses connected with the earning of such income which, for the years 1919 to 1923, were deducted from the taxable income alone in their individual returns.

1. The petitioner's 1917 income and profits-tax return was filed March 29, 1918. The period within which taxes for said years might be assessed and collected was extended by consents in writing. Within the time as extended assessments were made. Held that the respondent has six years from the date of assessment in which to collect the taxes. 2. Held that the petitioner was subject to the excess-profits tax in 1917 with respect to the income from oil leases.

Under the evidence in this case, certain certificates held to be preferred stock rather than evidences of indebtedness.

For want of proof of the value of an intangible asset in the nature of a going business on March 1, 1913, as well as of its value at date of sale, the action of the Commissioner is approved.

Income received by the petitioner during the year 1919 from the sale of gun mounts to the Navy Department held, on the facts, not to be attributable to a Government contract or contracts made between April 6, 1917, and November 11, 1918, and therefore not taxable under section 301(c) of the Revenue Act of 1918.

1. After starting operation of a sulphuric acid manufacturing plant, purchased as a secondhand plant as a whole, some of its units were destroyed by excessive corrosion from subjection to unusual… Held: that under the circumstances, a deduction for loss rather than depreciation is allowable. 2. Under the circumstances of this case, the method of determining the amount of the loss of the destroyed units, determined.

Consolidated income and profits-tax returns were filed on behalf of the petitioner on June 16, 1919, and on March 15, 1920, for the years 1918 and 1919, respectively.

Value of estate's interest in two corporations determined.

The beneficiary of a trust who receives the income for life and has the power of appointment by will of the remainder has no right to deduct a loss sustained by the trustee in the sale of part of the corpus of the trust.

1. A corporation engaged in buying and selling lands is not entitled, under section 203, Revenue Act 1918, to have its income determined by the use of inventories where the Commissioner has by regulation ruled generally that such inventories are not required and the proof does not indicate that such use is in conformity with the best accounting practice but tends rather to show such use to be impractical. 2. The discrimination in this respect as between taxpayers dealing in land and those dealing in merchandise is not unlawful.

A dividend declared by a corporation from its profits at the same time the stockholders resolved to dissolve the corporation and to form a partnership to continue its business, and paid to the stockholders at the time the corporation distributed all its assets, held to be a liquidating dividend subject to both normal and surtax under section 201(c) of the Revenue Act of 1918.

Held, that the property in question belonged to the corporation and should be included in its invested capital and the income therefrom should not be taxed to the individual, Livermore.

Where the liability of a taxpayer for an assessed but uncollected income tax for the calendar year 1917 was extinguished by section 1106(a) of the Revenue Act of 1926, there is no liability assessable under the provisions of section 280 of the Revenue Act of 1926 against a transferee of such taxpayer in respect of the tax for the year 1917.

1. COMMUNITY PROPERTY, CALIFORNIA. - Petitioner's wife was granted a divorce during the taxable year in question, and, by the decree entered, the community property as it then existed was divided in… Held: that petitioner, having received this income, was taxable with the same notwithstanding the fact that the effect of the decree entered transferred a portion of it to his wife. 2.

The petitioner held to be a personal service corporation during the years 1918 to 1921.

Petitioner entered into a contract with the United States for certain dredging work. Held: that the amount of the judgment was income in 1920.

Action of respondent in excluding from invested capital promissory notes received by petitioner in exchange for its capital stock, approved for lack of evidence.

The amount of the deductible loss sustained from the exchange of preferred stock for real estate determined.

The fact that the property in question was "single purpose property" is not sufficient, in and of itself, to prove that it has no fair market value.

An individual keeping his books of account on the accrual basis, and setting aside on those books amounts to be held by him in trust and to be paid to his sons at a future date, under the circumstances stated herein, is not entitled to deduct such amounts from gross income in income-tax returns as ordinary and necessary expenses.

1. Intangibles acquired by petitioner at organization for capital stock excluded from invested capital because of failure to prove value at acquisition. 2. Where petitioner fails to prove that its proposed method of arriving at inventory at cost more clearly reflects income than the method employed by the respondent, the holding of the respondent will not be disturbed.

1. The book reserve set up by the petitioner for the removal of uncompleted hulls from its premises is not an expense paid or incurred, within the meaning of section 234(a)(1) of the Revenue Act of 1918, and, therefore, is not an allowable deduction in the computation of net income for 1919. 2. Respondent's allocation of amortization allowance approved.

1. The petitioner is not a personal service corporation within the meaning of the Revenue Act of 1918. 2. Reduction of invested capital by an amount of 1919 income and profits taxes approved.

Held, on the evidence, that the petitioners are not entitled to a depletion deduction based on the discovery value of a gravel deposit. Held: on the evidence, that the petitioners are not entitled to a depletion deduction based on the discovery value of a gravel deposit.

1. Liquidating dividends held subject to the normal tax. 2. The amount of liquidating dividends determined by the respondent approved.

Loss on sale of business disallowed as a deduction under section 202(a) of the Revenue Act of 1921 because of petitioner's failure to show basis for ascertaining gain or loss.

Losses sustained by the petitioner upon sales of certain stocks in 1921 allowed as deductions from income.

1. Provisions of section 331 held applicable and no increased amount can be included in invested capital either for tangibles or good will. 2. No deduction can be taken for a loss in the absence of facts showing ownership of the property by the petitioner. 3. Deduction for exhaustion of cost of building on leased property determined. 4. Deduction of legal expenses and disbursements allowed in part and disallowed in part.

1. Transaction between stockholders and corporation held to constitute a taxable distribution to the stockholders. 2. Respondent's valuation of assets received approved, except as to fixtures and machinery.

Invested capital for the year 1918 should not be reduced by the amount of an alleged deficiency for the year 1917, which under a prior proceeding was held to be barred by the statute of limitations, and the liability therefor extinguished under section 1106 of the Revenue Act of 1926.

1. Amount of depreciation deductible in 1921 determined. 2. Held: it appearing from the evidence adduced that the amounts advanced were regarded as mere loans up to the time when capital stock was issued therefor, the balance of advances shown in the books of account at December 31, 1921, should not be included in invested capital for that year.

The fair market value as of March 1, 1913, of petitioner's sand and gravel deposit determined for depletion purposes.

1. An amount contributed under the facts herein represents an ordinary and necessary business expense. 2. Expenditures for rearranging and improving the electrical wiring system in petitioner's hotel should be capitalized.

Transaction between corporation and principal stockholders construed and held to be contributions to capital rather than reductions of salary.

1. The determination of the Commissioner as to depreciation and profit on the sale of furniture and fixtures is approved, in the absence of sufficient evidence to show that he committed error. 2. This Board has not jurisdiction to consider alleged error of Commissioner with respect to application of credit for overassessment and overpayment of taxes.

Upon the evidence, Commissioner's determination that petitioner derived a profit of $45,000 from the sale of an interest in real estate, is approved.

1. On the evidence, it is held that the value determined by the Commissioner of certain shares of stock in the Penberthy Injector Co., of Detroit, as of the date of decedent's death, is excessive and the proper valuation thereof is determined. 2.

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

The California state franchise tax for 1921, which was based upon gross receipts for 1920 and was due and payable in 1921, may not be deducted from income of 1920, even though taxpayer is on the accrual basis.

1. Disallowance of a deduction for an alleged loss approved. 2. An amount paid in connection with an increase in the capital stock of the petitioner to the State of Wisconsin in accordance with the law of that State held deductible as a tax under section 234(a)(3) of the Revenue Act of 1921. 3. Attorneys' fees paid in the same connection were not ordinary and necessary expenses within the meaning of section 234(a)(1) of the Revenue Act of 1921. 4.

A disposition of stock under the circumstances of this appeal held to have been a sale under the provisions of section 202(a) of the Revenue Act of 1918 and not an exchange of stock for stock under… Held: further, that the fair market value of the right to subscribe for stock of another corporation received as a part of the consideration for the stock sold should be included in determining the gain or loss upon such sale.

1. In the years 1920 and 1922 the petitioner received cash gifts from his father in the respective amounts of $2,550 and $8,800. Held: that the respondent erroneously added the amounts thereof to taxable income for such years. 2. For normal-tax purposes, interest on Liberty bonds should be eliminated from taxable income for each of the years involved. 3.

1. Petitioner sold building lots under contracts by which he agreed to grade the street and lay a sidewalk in front of each lot. Held: on the particular facts disclosed, that the expense actually incurred in the grading of streets and laying of sidewalks should be included in the basis for determining gain resulting from sale of such lots. 2. Penalty for negligence allowed. 3. Penalty for fraud disallowed.

A vendee paying in 1921 an excise tax imposed by section 902, Title IX, of the Revenue Act of 1918, upon the purchase of paintings, is not entitled to deduct from gross income in his income-tax return for 1921 the amount of the tax paid.

The petitioner as of June 30, 1920, charged off an a debt ascertained to be worthless $94,619.03 owed to it by the Maxwell Motor Co. The debtor was ascertained to be in financial difficulties… Held: that the amount charged off was not a legal deduction from gross income for the fiscal year ended June 30, 1920.

Respondent's valuation of a chromic iron ore deposit approved for lack of evidence of error.

Action of respondent affirmed for lack of evidence of error.

A corporation affiliated with the petitioner in 1921 turned over its assets to a stockholder owning all of the preferred stock. Held: upon the evidence, that the petitioner sustained no loss from the transaction which is deductible from gross income.

1. Where the Commissioner made an additional assessment of taxes for the year 1917 in 1920, and the taxpayer and the Commissioner executed a written consent on December 19, 1925, extending the period… Held: that the assessment and collection of a deficiency determined for 1917 are not barred by the statute of limitations. 2. The petitioner in 1917 paid $1,000 to each of four directors, who were stockholders, for services performed in 1917.

- Petitioner filed a motion to set aside a final order redetermining deficiencies and for leave to file an amended petition setting up… Held: that the motion was defective in that it failed to allege facts which constitute a legal ground for the granting of a rehearing and was not supported by affidavits or other proof of such facts, and that the conditions in connection with the ascertaining by petitioner of the new facts alleged in the amended petition failed to meet the…

1. The petitioner filed its income-tax return for the fiscal year ended July 31, 1920, on October 14, 1920. Held: that the assessment and collection of the deficiency is not barred by the statute of limitations. 2.

The Lake School for Girls was during the year 1920 a corporation organized and operated exclusively for educational purposes. A contribution of $5,000 made thereto in 1920 by the petitioner is an allowable deduction from gross income.

Payments received in 1919 by a taxpayer under an agreement canceling a war-supply contract made between April 6, 1917 and November 11, 1918, constituted income attributable to a Government contract within section 301(c), Revenue Act of 1918. A. B. Kirschbaum Co.,5 B.T.A. 65.

Fair market price or value of a certain farm at March 1, 1913, determined.

Value of physical inventory established by evidence.

1. Value of good will at the time acquired by the petitioner from a predecessor corporation determined. 2. Evidence insufficient to show that the petitioner is entitled to have the amount of its invested capital as determined by the respondent increased by amounts representing cash paid in for common stock, assessments paid in on common stock and an amount alleged to have been erroneously eliminated from surplus by petitioner on its books.

1. Petitioner held taxable upon gain from the sale in 1919 of certain shares of stock alleged to have been previously conveyed as a gift to her daughter. 2. Held: that such transfer did not constitute an absolute gift inter vivos. 3. The exchange of stock of one corporation for debenture bonds of another corporation held to have resulted in taxable gain under section 202 of the Revenue Act of 1921. Amount of such gain stipulated by the parties.

The Commissioner's determination that the petitioner was not entitled to have any amount included in the computation of its invested capital from any date prior to the date of its charter is approved.

Where an officer of a corporation during a taxable year returns to the corporation part of a salary received for the year in pursuance of an agreement on his part to accept less salary if the business does not warrant his regular salary, the amount of salary so returned should not be included in his gross income.

Certain amounts paid by a corporation to its president during his lifetime and to his estate after his death in pursuance of the terms of an agreement for the sale to the corporation of the business owned by the president, as an individual, are disallowed as ordinary and necessary expenses.

The exchange of certain assets by the petitioner for the total outstanding capital stock of a new corporation resulted in no gain or loss.

Commissioner's determination of value of capital assets for purposes of invested capital and depreciation approved.

1. Petitioner made an oral gift of land to his son. Soon thereafter and before the donee entered into possession the tract was sold. Held: that under the law of the State of Nebraska petitioner was owner of the land on the date of sale and that profit derived therefrom was properly included in his gross income for the taxable year. 2. In August, 1918, petitioner made an oral gift of land to certain of his children.

Petitioner conducted a fire and tornado insurance agency and loaned money, partly from its own funds and partly with funds of certain life insurance companies, on improved real estate. Held: that petitioner is not entitled to part personal service classification under section 303 of the Revenue Act of 1918.

A national bank desiring to form a trust company to perform certain functions which were prohibited by its charter, secured agreements from a majority of its stockholders that in the event of the… Held: that the dividend constituted taxable income to the stockholders.

Since it does not appear that debts were ascertained to be worthless and charged off within the taxable year, as prescribed by section 234(a)(5) of the Revenue Act of 1921, the disallowance by the Commissioner of such bad debts as a deduction in 1921, approved.

1. In computing the amount of dividends paid from surplus during the years 1918 and 1919, the respondent first deducted from current earnings the amount of a tentative tax accrued for each of said… Held: that the petitioner's invested capital for said years may not be reduced to the extent that the amount of the dividends paid from surplus is affected by the deduction of the tentative taxes. L. S. Ayers & Co.,1 B.T.A. 1135. 2.

1. Value of lease on coal lands at March 1, 1913, determined. 2. No part of minimum royalties paid under a lease of coal property may be added to invested capital in the absence of proof that a portion of such royalties applied to inactive lands, and that such advance royalties might apply against any future shipments. 3. Electric locomotives, mine cars, steel rails and mining machines in this case are capital items and not deductible as expense. 4.

Under the evidence, held, that the petitioner is not entitled to include in its invested capital for the years 1919 and 1920 any amount as paid-in surplus. Held: that the petitioner is not entitled to include in its invested capital for the years 1919 and 1920 any amount as paid-in surplus.

Deductions claimed on account of certain losses disallowed.

1. The determination of fair market value is largely a matter of judgment and various theories of valuation are useful only in so far as they support a result that comports with sound judgment. 2.

1. The decedent acquired 82 shares of stock of Stott & Son, Inc., in 1918 at a cost of $38,592.16. Held: that such cost is the basis to be used in computing gain realized or loss sustained upon the liquidation of the corporation in 1920. 2.

The petitioners received nominal salaries for the management of an individual business owned by their mother prior to her death in 1913, and thereafter by her estate, and in addition advances for… Held: that the petitioners derived no income from the book entries made in 1921.

1. MARCH 1, 1913, FAIR MARKET VALUE. - Determined upon the facts and evidence of record. 2. Held: petitioner realized no taxable gain or deductible loss from the transaction.

1. NET INCOME. - In computing net income for each of the taxable years the allowable deductions for depletion and depreciation under the 1918 and 1921 Revenue Acts should be found by applying a unit based upon the March 1, 1913, values after giving effect to additions thereto and applied to the value of production in each of said years. 2.

Loss suffered by a partnership in connection with one branch of its business held to be a proper deduction from income where one member of the partnership agreed with the other member that any losses sustained should be charged to the former's share of the partnership profits.

Certain deductions to which the petitioner is entitled in computing his net income for the year 1922, determined.

The respondent's determination of the reasonableness of compensation paid by the petitioner to its officers, approved.

A corporation was organized under the laws of Illinois in 1890, its charter expiring by limitation July, 1915. The officers of the corporation did not become aware of that fact until several months later. On February 24, 1916, the petitioner was organized under the laws of Illinois under the same name, with the same capitalization and with the same stockholders, officers and directors as the corporation the charter of which had expired. On the same day the petitioner issue all of its capital stock to the corporation whose charter had expired, in exchange for all of the assets subject to the liabilities of that corporation. Held, that the petitioner may include the assets so acquired in its invested capital at their actual cash value at the date of acquisition.

Under the evidence held, that the petitioner in computing its net income for the fiscal year ended February 28, 1919, is entitled to deduct the amount of $4,858.82 involved herein. Held: that the petitioner in computing its net income for the fiscal year ended February 28, 1919, is entitled to deduct the amount of $4,858.82 involved herein.

1. Petitioner filed returns for calendar years 1921 and 1922, and subsequently filed amended returns pursuant to permission granted to change… Held: that the amounts shown on the calendar year returns were no part of the amounts shown on those for the fiscal period, and that the respondent's finding of taxes due for the fiscal periods greater than the amounts reported and assessed for those periods is a determination of deficiencies and that the Board has jurisdiction. 2.

1. The sale by a corporation of all of the capital stock of an affiliated corporation results in neither a taxable gain nor a deductible loss. 2. The Baker-Vawter Co., making its return for the calendar year 1920, and being affiliated with the Commercial Stationery & Loose Leaf Co. from January 1 to February 28, 1920, included in its invested capital the surplus of the subsidiary company for the entire year.

1. The petitioner's inventories of oil at the beginning and close of the fiscal year ended May 31, 1917, determined both for the basis of computing net income and invested capital. 2.

The sum of $6,000 paid to the petitioner in 1919 and 1920, by the partnership of which he was a member, and entered in the firm books as salary, was a distribution of anticipated profits and not compensation for services performed for the partnership as determined by the respondent.

- In January, 1920, Leo Pockwitz transferred to the petitioner corporation all the assets of his individual insurance brokerage business and received therefor practically all of petitioner's capital… Held: petitioner's invested capital must be computed subject to the limitations of section 331 of the Revenue Acts of 1918 and 1921.

1. During the taxable years the petitioners carried on a business established by their father many years prior to his death on March 5, 1920. Held: that the portion of the profits payable to their sisters in accordance with the provisions of the will did not constitute taxable income of the petitioners. 2. In 1920 the petitioners received $3,360 in compensation for services rendered by them in negotiating a sale of merchandise, which sale was not consummated.

Respondent's action sustained because of failure of petitioner to adduce sufficient evidence to show error.

1. The Commissioner's determination, under the provisions of section 331 of the Revenue Act of 1918, of the invested capital of the petitioner, which, in exchange for stock, acquired certain assets from an individual, is approved. 2. Value of a leasehold acquired on January 7, 1918 for stock, determined for the purpose of deductions for exhaustion thereof.

1. On the evidence, it is held that the petitioners and the Robbins Construction Co. were, during the year 1920, affiliated. 2. Petitioners and the Robbins Construction Co. were affiliated during 1918 and 1919 and in the year 1919 sustained a consolidated net loss. The consolidation having no net income for 1918, it is held that the consolidated net loss of 1919 should be applied against the consolidated net income for 1920.

1. For want of evidence in regard to vital elements in the computation, a computation of depreciation based on unit of production of an oil mill can not be used, and the determination of the Commissioner is approved. 2.

Under the facts in this case, a transfer of land by petitioner to his son-in-law to the end that the son-in-law might handle the land conveniently in the payment of petitioner's debts, was not a sale of that land, but rather a trust agreement which resulted in no profit as on the disposition of capital assets.

The facts in this case fail to establish that a loss sustained by reason of corporate stock becoming worthless was sustained in 1923.

1. For the year 1920, petitioner is permitted at the close of the year to change the basis of taking inventory from cost, to cost or market, whichever is lower, as authorized by article 1582 of Regulations 45, which article is authorized by section 203 of the Revenue Act of 1918. 2. Money used by petitioner held to be borrowed money, and not paid-in surplus, for invested-capital purposes.

Evidence held insufficient to show that Commissioner committed error in reducing petitioner's invested capital by amounts withdrawn by principal stockholder, and in reducing allowance for depreciation.

1. In 1919 petitioner purchased certain stock which it sold in 1920. Under the circumstances, it is held that petitioner suffered a deductible loss of $17,550. 2. The Commissioner's action in disallowing as a deduction from gross income for the year 1920 the amount of $8,050 as a business expense is reversed.

Value of patent acquired in consideration of stock of a corporation determined both for invested capital, and exhaustion purposes.

1. The evidence rebuts the presumption that a transfer in October, 1921, of certain bonds by the decedent to his wife, the executrix of his estate, was made in contemplation of death. 2. Bequests to charities deductible from the gross estate of the decedent should not be reduced by taxes paid out of such bequests to the State of Pennsylvania. Howard K. Walter et al., Executors,2 B.T.A. 453.

Value of gravel pit for depletion purposes, which was acquired by a corporation in consideration of stock, determined.

In an exchange, without reserve or contingency, of valuable capital stock, decedent acquired the right to an annuity for life. Held, the transaction was not a transfer to take effect at or after death and the gross estate should not be increased by a value attributable thereto.

1. FRAUD. - Petitioner maintained an inadequate set of books of accounts but did not wilfully file a false and fraudulent return with intent to evade tax. 2. STATUTE OF LIMITATIONS. - There having been no fraud and, the statute having run, there is no deficiency for the year under review.

1. NONRESIDENT ALIEN. - A nonresident alien individual who, in association with others, derives gains and profits from the sale, within the United States, of merchandise manufactured without the United States is liable to the United States for income tax upon such gains and profits. Richard L. Birkin,5 B.T.A. 402. 2.

Petitioner sold, delivered and received payment for certain eggs in 1918. The eggs were guaranteed to be good merchantable stock. In 1919 the eggs were found defective. Held: that the amount paid in 1919 did not constitute the payment of a rebate as contemplated by section 234(a)(14)(a) of the Revenue Act of 1918.

1. Certain payments received by the partnership of which the petitioners were members were income as determined by the respondent. 2. Claim for deduction of cost of certain repairs held not to affect tax liability for the years in controversy. 3. Action of the Commissioner in refusing to allow the deduction of an alleged bad debt from gross income of the partnership of which the petitioners were members for the year 1921, approved.

For computation of petitioner's tax on account of the sale of property belonging to the estate, the gain or loss is the difference between the sale price and the value at the date of the death of the owner, increased or diminished by proper allowances for capital expenditures, exhaustion, wear and tear and depletion which have accrued during the interim between the date of death and the date of sale.

Petitioner is the president and general manager of a hotel corporation. In the taxable year he was supplied with rooms and meals for himself and wife without charge. Held: that the Commissioner did not err in adding the reasonable value of such rooms and meals to the income of the petitioner.

The worthlessness of a certain note had not been ascertained when it was charged off the books of the petitioner.

Held, that the Commissioner correctly applied the provisions of section 218(a) of the Revenue Acts of 1918 and 1921 in computing the individual incomes of petitioners… Held: that the Commissioner correctly applied the provisions of section 218(a) of the Revenue Acts of 1918 and 1921 in computing the individual incomes of petitioners resulting from their respective shares of the distributive net profits of a partnership of which they were members in the taxable year.

1. Salaries not authorized by corporate action not deductible as ordinary and necessary expense. 2. Proof insufficient to establish right to relief under sections 327 and 328 of the Revenue Act of 1918.

1. Loss sustained in 1919 from the disposition of capital assets which were acquired for use in petitioner's regular business and which were disposed of during the continuation of this business and… Held: that no depreciation was sustained thereon during this period.

1. Amount paid in to a so-called strike fund by a partnership of which petitioner was a member held deductible as an expense and petitioner's distributive share of… Held: the assignment by petitioner of an interest in property of a partnership of which he was a member did not operate to exclude from his income his distributive share of the partnership income. 3. The Commissioner's application of the provisions of section 226(c) of the Revenue Act of 1921 approved.

1. Petitioner maintained a minimum inventory which it priced each year at a figure which represented market in 1916. The inventory in excess of this minimum was valued at cost or market, whichever was lower. The respondent has recomputed the inventory value at market, disregarding the fixed minimum inventory. The determination of the respondent is approved. 2. Alleged loss in inventory under section 214(a)(12) disallowed in the absence of evidence to show that materials included in the inventory at the close of the taxable year 1918 were disposed of at a loss during the succeeding taxable year or that such materials remained in the inventory at the close of the taxable year 1919, at which time their value was materially below the value at which they were inventoried at the close of the taxable year 1918.

Where on account of prohibition laws, a brewery is forced to abandon the making of beer and for that reason a part of its machinery and equipment is discarded and another part is diverted to and used in another business, obsolescence is not allowable on the part so used, in the year in which the change of business occurred, even though such new business, on trial, proves unprofitable.

1. Petitioner owned 92,500 shares of stock of the Copper Mountain Mining & Smelter Co., which stock on March 1, 1913, had a fair market value of 11 cents per share. In 1919 the board of directors resolved to abandon the corporate property and dissolve the company. The petitioner first learned of the corporate action in the year 1920, and in his return for that year deducted as a loss the amount of $10,175, being the March 1, 1913, fair market value of the stock.

The Commissioner's determination of petitioner's invested capital for the years in question is approved.

A waiver executed subsequent to the expiration of statutory period of limitation is effectual in preventing a bar to the assessment and/or collection of taxes. Joy Floral Co.,7 B.T.A. 800, followed.

1. In the computation of profit or loss upon the sale of petitioner's assets, allowances for wear and tear sustained and properly deductible from income in prior years should be considered. United States v. Ludey,274 U.S. 295, and Even Realty Co.,1 B.T.A. 355, followed. 2.

Upon the evidence it is held that petitioner is a personal service corporation subject to the provisions of section 218(d) of the Revenue Act of 1921.

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

Invested capital may not be reduced in determining the extent to which a dividend is paid from current earnings of a year by a tentative tax theoretically set aside out of earnings pro rata over such year.

1. Held that the collection of the deficiency for 1917 is barred, but the deficiency for 1919 is not barred by the statute of limitations. 2. Held that no deduction is allowable on account of a bad debt in the taxable year claimed. 3. The inventory value of cotton as determined by the petitioner approved on the evidence.

The amount of the deduction on account of exhaustion, wear and tear of property as determined by the respondent approved.

Reserves for bad debts disallowed.

The rate of depreciation of buildings and machinery determined.

1. In 1917 a copartnership purchased certain intangible assets for $161,526 and certain tangible assets for $13,474. Held: that the Commissioner's action must be approved. 2. Under the circumstances herein, petitioner has established its right under section 327 of the Revenue Acts of 1918 and 1921 to have its profits tax computed under section 328 of those Acts.

1. The portion of the cost of war facilities acquired by the petitioner which was assumed by the Government should be treated as a return of capital and does not constitute taxable income. 2. Certain contracts held on the facts, to be Government contract within the purview of section 301(c) of the Revenue Act of 1918, and the net income attributable thereto is taxable under said section.

1. The taxable profits realized from the sale of capital assets, including depreciable farm improvements, determined in conformity with Even Realty Co.,1 B.T.A. 355. 2. Claim for additional deductions from operating income disallowed.

1. March 1, 1913, value of petitioner's printing machinery and equipment held to be $35,000, which is the proper basis upon which depreciation should be computed. 2. Held: that the amount of reserve allowed by the Commissioner is fair and reasonable for the year 1921, such reserve as allowed being above petitioner's average for several years of the percentage of bad debts to accounts receivable and also bad debts to gross income. 4.

1. Reduction of invested capital on account of accrued depreciation prior to December 31, 1916, approved for lack of evidence. 2. Loss on furnace alleged to have been abandoned denied.

Claims for compensation for services rendered by decedent prior to his death are not taxable income when collected by his estate.

Under the terms of a five-year contract of employment expiring January 31, 1923, providing for the payment of a certain bonus based upon final net profits of the entire contract period in excess of a certain amount, which final net profits could not be accurately computed, and where the bonus was not paid before the termination of the contract, the Commissioner's disallowance of a claimed deduction of a certain part of the 2 per cent bonus as an ordinary and necessary…

Petitioner and others received a bond for title to property in 1917. Two portions of the tract were sold and deeds therefor were received from the vendor. Held: that a taxable gain resulted from the sale in 1922 determined by an allocation of the purchase price to the portion sold in that year.

Held, that the Wilson Family Partnership for the years 1919 and 1920 was composed of the three petitioners and their respective wives. Held: that the Wilson Family Partnership for the years 1919 and 1920 was composed of the three petitioners and their respective wives.

1. GAIN OR LOSS. - Petitioners sold oil stock for $500,000 cash and 200 oil and gas income certificates which had a fair market value. Held: that such certificates should be treated as the equivalent of cash to the extent of their fair market value and the profit returned on a closed transaction basis rather than a return of capital basis. 2.

Petitioner held not a building and loan association entitled to exemption from taxation during the years 1918, 1919 and 1920, within the meaning of section 231(4) of the Revenue Act of 1918.

Respondent's refusal to include in invested capital any amount for good will and patents approved, because of lack of satisfactory evidence as to their value at the time acquired by the petitioner.

Respondent's exclusion of notes from invested capital approved because of failure to prove bona fides of payment or value of notes.

1. A letter written to the petitioner by the respondent, in which claims for abatement were rejected, held to evidence a final determination of a deficiency in tax within the meaning of section 273 of the Revenue Act of 1924. 2. Petitioner held not a building and loan association entitled to exemption from taxation during the year 1921, under section 231(4) of the Revenue Act of 1921.

Where petitioners, individuals, filed income tax returns for 1921, upon a calendar year basis, held that under section 218(a) of the Revenue Act of 1921 they are entitled to deduct as losses for 1921 their proportionate shares of the loss sustained during the fiscal year June 1, 1920, to June 1, 1921, by a partnership of which they were members.

Petitioner held not a building and loan association entitled to exemption from taxation during the years 1917 to 1921, within the meaning of the Revenue Acts of 1916, 1918 and 1921.

1. A national bank which has been liquidated, continues in existence for the purpose of settling its affairs and is a proper party to bring this proceeding involving its tax liability. 2. Board held to have jurisdiction over years 1918 and 1919, as to which the petitioner was advised that claims for abatement had been denied. 3. Deficiencies held not barred by statute of limitations.

1. DEDUCTION. - C. H. Fuller and Nellie A. Held: that the annuity amounting to $15,000 per annum constituted a part of the purchase price for the property acquired by petitioner and is not deductible from gross income as an expense in the nature of rent for the use of the property during the life of C. H. Fuller and/or his wife, Nellie A. Fuller. 2.

An arbitrary charge-off in order to balance books is not sufficient in and of itself to entitle petitioner to a deduction as a loss.

On the cash basis the petitioner did not receive taxable income to the extent of commissions deducted from the principal in making loans until the commissions were actually paid.

The assessment of the deficiency herein is not barred by the statute of limitations.

1. The function of the Board is not primarily to declare a rule but to determine the issues presented in each case in the light of the evidence therein, to the end that the present tax liability of each petitioner may be settled. 2.

1. JURISDICTION. - When the facts of determination of a final deficiency by the Commissioner and his mailing of a statutory notice thereof exist, although inadequately pleaded in a petition filed by the taxpayer within the 60-day limit for appeal, the Board has jurisdiction of the appeal and may allow a correction of the omission or mistake by amendment which, when made, relates back and becomes effective as of the date of the original pleadings.

1. Legal and accounting fees paid in connection with organizing a corporation held not to be deductible as ordinary and necessary expenses in computing income of the year when paid. 2. Taxes paid in connection with the organization of a corporation and the issue of its capital stock held to be deductible in computing net income for the year when such payment was made. 3. Under section 331 of the Revenue Acts of 1918 and 1921, assets acquired by a corporation from an individual who retains ownership of more than 50 per centum of its stock may not be included in its invested capital at more than their cost to such individual. 4. Good will which cost such individual nothing, which grew up in his business over a period of years, and which was acquired by the corporation for its stock, may not be included in invested capital at its value when acquired by such corporation as an allowance for development. 5. The allowance for development permitted by section 331 to be added to the cost of assets refers to amounts expended in development of the assets and not recovered by exhaustion or otherwise. 6. The purpose of section 331 was to exclude unrealized appreciation from invested capital, where a reorganization or change of ownership of a business took place after March 3, 1917, and an ownership or interest of 50 per centum or more continued in the same persons. 7. Intangible assets, which were the principal factor contributing to the production of the income, were excluded from invested capital. Held, that the Commissioner committed error in refusing to compare petitioner with representative concerns under sections 327 and 328 of the Revenue Acts of 1918 and of 1921.

Petitioner, who was under contract in 1921 to play baseball with a ball club at Pittsburgh, Pa., paid traveling expenses of his wife and child from their home to Pittsburgh, his own traveling… Held: the amounts so expended are not deductible as business expenses.

Action of respondent disallowing deduction of additional salaries for the year 1917 approved for lack of evidence of error

1. Claim for deduction from income of the petitioner on account of salary due a financial secretary at date of decedent's death disallowed. 2. Tax attorneys employed by the decedent. Held: that such fee should not be deducted from the income of the petitioner for the period here involved.

Value of corporate stock on February 9, 1917, and March 5, 1919, determined.

1. The value of a mixed aggregate of tangibles and intangibles paid in for stock at date of organization determined.

1. Value of assets acquired by petitioner determined for invested capital purposes. 2. Commissions paid by a corporation for the sale of its own capital stock held to have been erroneously deducted from invested capital.

1. JURISDICTION. - The respondent determined overassessments to be due for the years 1917 and 1918. Under section 274(g) of the Revenue Act of 1926 the Board does not have jurisdiction to redetermine the tax liability with respect to those years. Appeal of Cornelius Cotton Mills,4 B.T.A. 255. 2.

1. Petitioner having failed to prove by competent evidence that not less than 30 per centum of its total net income was derived from a separate branch of its business, it is not entitled to have its tax determined under the provisions of section 303 of the Revenue Act of 1918. 2.

Commissioner's determination that the taxpayer had not charged off sufficient amounts in former years to represent actual depreciation sustained will not be disturbed where the taxpayer's method of charging off depreciation was clearly wrong and there is no showing that the Commissioner's method reached an incorrect result.

Transfer held not in contemplation of death or intended to take effect in possession or enjoyment at or after death.

1. The petitioner contends that the respondent erred in excluding from invested capital of the partnership for 1917 the cost of inactive timber lands in the amount of $224,430.04, and proved that… Held: that the account receivable in the amount of $150,000 should be restored to the partnership's invested capital for 1917. 2.

The Commissioner's action in including in petitioner's taxable income his distributive share of the profits of the Bankers Audit & Appraisal Co., a personal service corporation, of which he was a stockholder, is approved.

1. A written consent signed by the president of a corporation to a later determination, assessment, and collection of such tax as may be determined to be due operates to suspend the running of the statute of limitations notwithstanding the board of directors of the corporation did not specifically authorize the execution of such consent. 2. The evidence is insufficient to show that certain stock acquired by one of the petitioners for its stock had a cash value of $95,000. 3. Earnings available for the payment of dividends within the year should not be reduced by a tentative tax computed upon the income for the entire year prorated to the date of the dividend payments.

1. Community property laws of Texas. - (a) Funeral expense of a deceased spouse, in its entirety, is deductible from the gross estate of such deceased in determining the net estate. (b) A loan made by the wife to the husband, during coverture, out of her separate funds, is a personal and not a community debt, and the total amount of such loan is deductible from the gross estate of the deceased in determining net estate. 2. The alleged purchase by decedent's two employees of certain securities held not to be a bona fide purchase.

1. In the absence of an agreement to the contrary the earnings of both husband and wife in California are community property and are taxable to the husband. 2.

The repayment during the taxable years of monies borrowed on behalf of petitioner in prior years for expanding and carrying on his business, held not to constitute deductible losses.

1. The market value of public improvement bonds issued by the City of Livingston, Mont., determined. 2. Amount of allowable deduction for depreciation and obsolescence on machinery and equipment, under extraordinary circumstances, determined.

1. Where an individual owner of a business incorporated the business on April 24, 1917, and the corporation in filing its return for the fiscal year ended January 31, 1918, reported the full amount of earnings of the business from February 1, 1917, to January 31, 1918, it is held that the Commissioner's action in prorating the earnings for the year, so as to determine the amount of earnings from February 1, 1917, to April 24, 1917, the date of incorporation, and in…

The Commissioner's action in disallowing as a deduction from gross income for the years 1921 and 1922 of losses alleged to have been sustained in those years, is approved.

1. Executors' commissions and attorney's fees, the amounts of which were fixed and ordered paid by a court having jurisdiction of the estate, are deductible items from the gross estate. 2. The fair market value of certain property owned by decedent at time of his death and included in his gross estate, determined pursuant to stipulation.

On March 1, 1913, a partnership of which petitioners were members was, under an oral lease for a term of 15 years, engaged in mining coal from certain land situated in Pennsylvania. The oral lease was, on April 21, 1913, reduced to writing. Under the law of Pennsylvania the members of the partnership were, under the oral lease, only lessees at will.

Petitioner who kept his books and made his return on a cash receipts and disbursement basis should include deductible foreign taxes in his return for the year in which such taxes were paid.

1. Property purchased by petitioners for cash should be valued for invested capital purposes at cost. 2. The computation of deductions from income for wear and tear of property involved in this proceeding should be based on cost. 3.

INCOME. - The value of a purchase money note and mortgage on the date received by petitioner, determined and also gain derived from sale of farm determined.

1. Promissory notes given in 1921 by the vendees to the vendors, in consideration of which all claims and rights reserved under a contract of sale entered into in 1920 were mutually released and satisfied, constitute income for 1921, and not for 1920. 2. The respondent's action in eleminating the balance of an improvement account from invested capital approved. 3.

1. The Mercer Motor Syndicate was not a closed and completed transaction within the taxable year 1919 and, therefore, the respondent erred in taxing the alleged profits therefrom in that year. 2. The several acts of acquiring stock of the Invincible Oil Corporation constituted an inseparable transaction which was closed and completed in the year 1919. 3. Fair market value of Invincible Oil shares determined.

1. Under a deed executed in 1907, the petitioner was granted a one-half undivided remainder interest in certain real estate in Anderson, S.C., upon the condition that he survive the life tenant. Held: that the interest in the real estate acquired by the petitioner under the deed was property within the meaning of the taxing statute and capable of definite valuation on the basic date. 2. Fair market value of petitioner's interest at March 1, 1913, determined. 3.

The petitioner made income-tax returns for the estate of which she was administratrix upon the basis of the calendar year. Held: that the liability of the estate to income tax may not be determined upon the basis of a fiscal year merely for the purpose of enabling the estate to get the greatest benefit from the deduction of such taxes.

1. The petitioner commingled funds of the estate derived from the sale of prior-taxed property with funds derived from other sources, and made expenditures therefrom deductible under paragraph 1 of section 403(a) of the Revenue Act of 1921. The funds from other than prior-taxed property were not sufficient to meet all such expenditures as made, but the present estate at decedent's death, and at all times thereafter, was of sufficient value to cover all charges against it, deductible under paragraphs (1) and/or (3) of said section. Held, that the deduction allowable under paragraph 2 of said section for prior-taxed property should not be reduced to any extent on account of deductions allowed and allowable under paragraph (1). 2. The amounts of additional deductions determined and allowed under section 403(a)(1) of the Revenue Act of 1921.

The respondent's computation of the allowance for the exhaustion of a certain leasehold which the petitioner is entitled to deduct in computing its net income for the year 1923, approved.

TRANSFEREE - LIABILITY - SECTION 280, REVENUE ACT OF 1926. - A taxpayer sustained losses in 1921 and 1922 rendering it insolvent. In 1923 it conveyed all of its assets to petitioner, a new corporation organized by certain of its stockholders, together with other parties not previously identified with it, the consideration of the sale being the assumption by petitioner of certain specified debts of the taxpayer and being all of its then known liabilities. In 1924 respondent determined a deficiency for the year 1920, later assessed same against the taxpayer, and in 1926 proposed assessment of same against petitioner under section 280 of the Revenue Act of 1926. On the facts, held, that petitioner is not liable at law or in equity as transferee of the assets in question, such transfer having been made in good faith without intent to hinder or defraud creditors of the transferor and for a good and sufficient consideration, the debts assumed and paid by petitioner being in excess of the value of the property received.

1. A certain contract of employment between a corporation and its manager covered a term of three years, the entire remuneration was paid, and 80 per cent of the services were… Held: that the Commissioner was not in error in deducting an aliquot part of such remuneration from the petitioner's income for the taxable year. 2. The evidence does not sustain the claim that certain second mortgages on real estate had no actual cash value at date of their receipt by the petitioner.

The assessment and collection of additional taxes for the years 1918 and 1919 are not barred by the statute of limitations.

1. INVESTED CAPITAL. - The respondent erred in reducing the amount of current earnings available for payment of dividends by a tentative tax. Appeal of L. S. Aycrs & Co.,1 B.T.A. 1135., 2. ID. - The petitioner is not entitled to include as a part of its invested capital its depletion reserve. 3. INVENTORIES. - The respondent erred in increasing the petitioner's closing inventory from cost to market where the alleged market was higher than cost. 4. DEPLETION. - Depletion should be computed on the number of pounds of copper sold during the year rather than on the number of pounds produced.