Volume 11 — Tax Court Reports

1. Held, on the facts, that decedent and his wife held their property in community. 2. Held: on the facts, that decedent and his wife held their property in community. 2.

In a property settlement agreement executed in 1934, and amended in 1935, the decedent agreed to pay his wife, from whom he procured a divorce in 1935, $ 9,528 per annum, plus amounts necessary for… Held: under the provisions of sections 22 (k) and 23 (u), I. R. C., the petitioners are entitled to deduct in computing net income of decedent's estate for 1942 and 1943, premiums paid during those years on the insurance policies held in trust.

The taxpayer, a textile producer, acquired new mill machinery under agreements called leases whereby it was required to make fixed monthly payments… Held: The monthly amounts paid are not deductible as rentals because the taxpayer thereby acquired an equity interest in the machinery. Sec. 23 (a) (1) (A), I. R. C. (2) A portion of the monthly payments equal to the factor designated interest in the letters explanatory of the terms of the agreements is deductible as interest.

Under the facts, held, petitioner, who was an alien physically present in the United States, was not a resident of the United States within the meaning of Treasury regulations and applicable… Held: petitioner, who was an alien physically present in the United States, was not a resident of the United States within the meaning of Treasury regulations and applicable decisions during the year 1944 and the period January 1 to November 3, 1945.

Factory equipment constructed by petitioner in its own plant and improperly carried on books, first in inventory and later as nondepreciable capital item at constant figure, held to result in no allowable loss upon abandonment in tax year, petitioner having properly deducted cost of labor and materials when expended for manufacture of the equipment.

1. Upon the record, held, that payments made by petitioner to its two principal stockholders during 1942 and 1943 were for the use of a secret formula used by petitioner in its manufacturing business… Held: that payments made by petitioner to its two principal stockholders during 1942 and 1943 were for the use of a secret formula used by petitioner in its manufacturing business and are deductible for income tax purposes as ordinary and necessary business expense. 2.

Rodman Wanamaker died in 1928, the owner of the stock of the three Wanamaker corporations. Held: that the value as of the death of the decedent of the remaining payments provided by the agreement to be made to his widow is includible in his gross estate under section 811 (c) of the Internal Revenue Code; held, further, that the decedent's estate is entitled to an additional deduction, as representing claims against the estate,…

On the record, held: (1) The deduction of the amount of $ 14,730.28, representing officers' salaries accrued in 1935, but paid in 1936,… Held: The deduction of the amount of $ 14,730.28, representing officers' salaries accrued in 1935, but paid in 1936, by petitioner, which respondent determined was on a cash basis, and the deduction of the cost of premiums distributed by petitioner to patrons attending its theaters were not of a class abnormal to petitioner under section…

On the record, it is found that petitioner realized excessive profits as determined by respondent in the sum of $ 131,177.

Petitioner's wife is a beneficiary of a trust created by her father in 1932 and is also a beneficiary of a testamentary trust under her father's will, the father having died in 1939. Held: the Oklahoma community property law of 1945 is effective for Federal taxation purposes and the above mentioned distributions received by petitioner's wife represented community rather than separate income and are taxable one-half to petitioner and one-half to his wife.

Petitioners' airplane was, in October 1942, turned over by them to the Civil Air Patrol pursuant to its telegram assigning the plane to… Held: there was no seizure or destruction of the plane in 1942, but an orderly requisition of property, in the ordinary course of which petitioners were entitled to fair compensation, within Regulations 111, section 29.127 (a)-2, and petitioners were not entitled, under section 127 (a) (1), I. R. C., to deduct in 1943 a war loss of the…

The Court has jurisdiction to hear petitioner's claim for relief under section 721, Internal Revenue Code, on a petition for a redetermination of deficiencies in excess profits taxes, and the denial of a claim for refund of excess profits taxes is not a prerequisite to such jurisdiction.

Upon the record, held, petitioners did not appropriate their former residential property to an income-producing purpose prior to its sale in… Held: petitioners did not appropriate their former residential property to an income-producing purpose prior to its sale in accordance with section 23 (e) (1) of the Internal Revenue Code and section 29.23 (e)-1 of Regulations 111 and, therefore, are not entitled to deduct from their income the loss incurred through such sale; held,…

1. Since 1917 petitioner has owned a livestock and produce farm in Virginia. Held: the loss which petitioner incurred in the sale of his farm in 1942 was not a loss attributable to the operation of a trade or business regularly carried on by the taxpayer and can not be carried forward to 1943 and 1944. The limitations of section 122 (d) (5) are applicable. Joseph Sic, 10 T. C. 1096, followed. 2.

1. Petitioner, a mechanical engineer, entered into a certain contract of employment with Henry Disston & Sons, Inc., whereby, for an agreed… Held: the patents in question became the exclusive property of the Disston Co. under its employment agreement with petitioner. The percentage payments made by such company to petitioner in the taxable years involved constituted compensation taxable as ordinary income, and not gains from the sale by petitioner of capital assets. 2.

Respondent determined that $ 2,000 received by petitioner Charles Schall during the taxable year from the Wayne Presbyterian Church as its Pastor Emeritus, under a resolution of the session of the… Held: petitioners have here failed to meet their burden of establishing error in that determination.

Petitioner, domiciled in Florida, in April 1942 entered the military service of the United States. Held: where one is serving in the armed forces of the United States, his intention to take up a new residence must be established by clear and convincing evidence. The record does not thus indicate that petitioner had a bona fide intention to establish his legal domicile in the State of Texas.

Held, under the facts, that petitioner Rolf Jamvold, a citizen of Norway and an officer in the Norwegian Merchant Marine during the late… Held: under the facts, that petitioner Rolf Jamvold, a citizen of Norway and an officer in the Norwegian Merchant Marine during the late war, was not a resident of the United States during 1943, under the Internal Revenue Code, although physically present in the United States during a part of that year and married to an American citizen.

Petitioner, a Belgian corporation, purchased naval stores in the United States in 1939. Held: petitioner was a nonresident corporation not engaged in a trade or business within the United States during the taxable year 1942; held, further, that neither petitioner's ownership of a controlling interest in the company which originally sold and ultimately repurchased the naval stores, nor the business relations between the two…

Trustor provided for payment of annuities to his 4 children as principal beneficiaries, and for division of the excess trust income into as many parts as the trustor had living grandchildren (or… Held: 4 trusts and not 52 were set up, and the excess income was not deductible under section 162 (b) or (c) of the Internal Revenue Code.

At the death of decedent his only property consisted of community property. Held: that decedent's gross estate is entitled to a deduction of only one-half of those expenditures consisting of the executrix's commissions and the miscellaneous administration expenses, because one-half of such expenditures was made on behalf of the surviving wife's one-half of the community property; held, further, that those…

On June 12, 1944, the date of decedent's death, certain bonds were located in a safe deposit box rented in the name of decedent and another party. Held: that petitioner had not the requisite control or command of the bonds to constitute its being in constructive receipt of the accrued interest on the bonds and possessed no election or option, the exercise of which would have enabled it to collect such interest.

1. In September 1932 petitioner orally promised to give his daughter a one-half interest in a process for moisture-proofing paper and paper… Held: as of the moment the moisture-proofing process was reduced to practice, petitioner's daughter, by virtue of the agreement of September 1932, acquired an undivided one-half equitable interest in petitioner's property and the royalty income which was realized from such interest is not includible in petitioner's gross income. 2.

1. Upon the facts, held, petitioner's wife and daughter were not partners for Federal tax purposes; held, further, that petitioner's son contributed vital… Held: petitioner's wife and daughter were not partners for Federal tax purposes; held, further, that petitioner's son contributed vital additional services and was a partner from November 1 of the taxable year and that the amount of the percentage of partnership profits allocated to him is not taxable to petitioner. 2.

In a prior proceeding in this Court the petitioner was held liable, in equity, as a transferee for unpaid taxes of a corporation of which he was sole stockholder and president, to the extent of the… Held: that such excessive salary was received by the petitioner in trust for the benefit of the corporation's creditors and is therefore not taxable to the petitioner in his individual income tax return.

Petitioner possessed the right to elect to take any part or all of the net income of a testamentary trust. Any portion of the annual trust income not withdrawn by her was to be added to corpus. Held: respondent did not err in taxing to petitioner under section 22 (a), Internal Revenue Code, the income of the trust prior to the renunciation of her right thereto.

Petitioner, a personal holding company within the meaning of section 501, Internal Revenue Code, failed to file a surtax return as such. Held, that such failure was due to willful neglect and not to reasonable cause and that accordingly petitioner is liable for the statutory penalty for failing to file such return.

Petitioner is a New York corporation with a small capital stock and is wholly owned by a parent corporation located in London, England. Petitioner's invested capital was insufficient to enable it to get started in business. In 1939, the year of its incorporation, the parent corporation made advancements to petitioner of some $ 96,000 to enable it to get started in business. Petitioner at the time of these advancements did not execute to the parent corporation any evidence of such indebtedness, but at the end of the year it wrote letters to the parent corporation acknowledging that it was indebted for the advancements. Held, the letters were not "certificates of indebtedness" as that term is used in section 719 (a) (1) and the advancements can not be included as "borrowed invested capital" under section 719, I. R. C.

Agreements known as split-check leases, by which taxpayer, operating a gold mine containing one shaft and hoist, granted to others the right for one year to mine specific blocks of ore located at various levels adjacent to the shaft and above the operations carried on by the taxpayer, without conveying to them any interest in the plant, development, or surface land, and pursuant to which agreements the grantees furnished the manpower and minor equipment for actual mining…

Held, petitioner failed to file application for a necessity certificate for an amortization deduction under section 124 (a), Internal… Held: petitioner failed to file application for a necessity certificate for an amortization deduction under section 124 (a), Internal Revenue Code, for certain drill milling machines within six months after the beginning of construction thereof as required by section 124 (f) (3), Internal Revenue Code, and, hence, is not entitled to such…

Held, under the facts, the remainder interests under two trusts created by decedent's will and bequeathed to charities are not… Held: under the facts, the remainder interests under two trusts created by decedent's will and bequeathed to charities are not deductible from gross estate under section 812 (d), I. R. C., because a valuation of such remainder interests was not possible at the date of decedent's death by reason of the probability of substantial invasion of…

During the taxable year 1942 petitioner mined coal from 3 mines and loaded it from 2 tipples. Held: under section 29.23 (m)-1 (i), Regulations 111, petitioner is entitled to treat its mining income as arising from a single property.

During the taxable year 1944 petitioner, who was a nonresident alien, was employed in New York City and spent all of her time in the city of her employment, although she continued to maintain a… Held: the expenditures were personal expenses and not deductible as traveling expenses under section 23 (a) (1) (A), I. R. C., Commissioner v. Flowers, 326 U.S. 465; held, further, that petitioner's claim to such deduction is not affected by her status as a nonresident alien.

Upon the facts, held, that the execution by partners of a conditional agreement, made subsequent to the close of the partnership's fiscal year, to refund a portion of the partnership… Held: that the execution by partners of a conditional agreement, made subsequent to the close of the partnership's fiscal year, to refund a portion of the partnership income received during such fiscal year does not retroactively reduce the distributed income of the partnership for that year.

Petitioner operated a contracting business as a sole proprietor. In 1942 he contracted with his son to become a general partner in his business. He failed to show, however, that during the two taxable years following the signing of the agreement, his son contributed to the partnership capital from his own funds, rendered any vital service to the partnership, or had any intention of rendering such service during the taxable years.

The Esspi Glove Corporation, from the date of its incorporation until June 15, 1943, was engaged in the business of manufacturing and selling gloves. On the latter date all of the stock of Esspi was purchased by two new stockholders, its name was changed to the Alprosa Watch Corporation, its place of business was moved, and the nature of the business was changed to the buying and selling of jewelry. Held, petitioner Alprosa Watch Corporation and the Esspi Glove Corporation constitute one and the same tax entity and that the income and expenses of the glove business for the period July 1, 1942, to June 14, 1943; the net operating losses of that business for a prior taxable year ended April 30, 1942; and the unused excess profits credits of Esspi from prior years may be included by petitioner in computing its excess profits credits for the taxable year ended June 30, 1943.

1. In 1940 and 1941 taxpayer entered into three contracts with the United States. Held: the advance payments did not constitute indebtedness of taxpayer and, therefore, it is not entitled to a credit for debt retirement under section 783 in the amount claimed. 2.

The amount of excessive profits of petitioner derived from its sales in 1942 which were subject to the Renegotiation Act, held, on the record, to be $ 125,000. Held: on the record, to be $ 125,000.

The Secretary of the Navy commenced on September 7, 1943, renegotiation of petitioner's war contracts for the year ended December 31,… Held: that commencement of renegotiation proceedings under the Renegotiation Act of 1942 as to fiscal years ending after June 30, 1943, ceased to be such commencement for such years upon the passage of the Renegotiation Act of 1943 and did not constitute the beginning date of the year within which renegotiation was required to be concluded…

Over a period of years the taxpayer, assisted by his wife, conducted hundreds of experiments for the improvement of abrasive wheels in the… Held: on the evidence a vital contribution to the development of inventions whereby the income-producing agreement was acquired. (2) The wife's contribution of her one-half interest in such agreement to the partnership, held, a contribution of capital originating with her which requires recognition of the partnership for tax purposes.

Under the facts, held, that a certain distribution made by petitioner to its stockholders in 1918 was a cash dividend and that the stock… Held: that a certain distribution made by petitioner to its stockholders in 1918 was a cash dividend and that the stock simultaneously issued to its then stockholders in proportion to their existing stock holdings in return for checks received from said stockholders was sold to the stockholders for cash and the amount thereof should be…

Petitioner on the basis of allegations in his petition, admitted by respondent in answer, asks for judgment in his favor without the submission of further evidence. Held: petitioner has not established that he is entitled to exemption as a married man.

Petitioner, on December 31, 1941, having merged with a wholly owned subsidiary, which had an excess profits credit carry-over from 1940 and 1941, held, not entitled to use this credit for the purpose… Held: not entitled to use this credit for the purpose of computing its excess profits tax for 1942.

1. On December 31, 1940, decedent and his wife, who were domiciled in Texas, transferred certain community property which they owned to a… Held: the transfer was not made in contemplation of death; held, further, the laws of Texas determined the ownership of the income of the trust and, under Texas law, one-half of the income of the trust belonged to the husband, notwithstanding it was payable to the wife, and one-half of the value of the property which decedent transferred…

1. Even though taxpayer had abnormal net income of a class within section 721 (a) (2) (A), I. R. C., held, no part thereof is excludable from excess profits net income where evidence fails to show… Held: no part thereof is excludable from excess profits net income where evidence fails to show the portion thereof attributable to prior years. 2.

Upon the facts as stipulated, held, (1) petitioners may use the tax table provided in section 400, Supplement T, chapter 1, of the Internal… Held: petitioners may use the tax table provided in section 400, Supplement T, chapter 1, of the Internal Revenue Code, as amended by section 5 (a) of the Individual Income Tax Act for 1944, in determining the tentative tax prescribed by section 108 (b) (2) (B) of the code, as amended by section 108 of the Revenue Act of 1943; and (2)…

1. Held, on the facts, that trust income was to be distributed currently and therefore was taxable to petitioner as beneficiary, under section 162 (b), Internal Revenue Code. 2. Held: on the facts, that trust income was to be distributed currently and therefore was taxable to petitioner as beneficiary, under section 162 (b), Internal Revenue Code. 2.

1. Wholly owned subsidiary's purchase of parent corporation's stock from petitioners, who were practically the sole owners of parent, held not to result in a distribution to petitioners substantially equivalent to a taxable dividend under Internal Revenue Code, section 115 (g), since the subsidiary corporation did not cancel or redeem its stock. Mead Corporation v. Commissioner (C. C. A., 3d Cir.), 116 Fed. (2d) 187, followed. 2.

The taxpayer trust acquired by devise in 1920 land and building subject to lease until 1967 under a contract which permitted the lessee, who had constructed the building at his own expense, to recover its cost, plus interest, by retention of the rentals due under the lease. The trust paid off the unreimbursed cost in 1932 and sold the property in 1941. (1) The value of the "property" at the time of acquisition by devise, which value was the trust's basis, held, to be the value of the leased land and building without diminution on account of contract provisions permitting the lessee's retention of rentals for cost reimbursement, Crane v. Commissioner, 331 U.S. 1, and such value determined on the evidence. (2) The probable useful life of the building, held, on the evidence, to be 50 years. (3) Proper allocation of sale proceeds of the property between land and building, held, on the evidence, to be 60 per cent and 40 per cent, respectively.

1. The taxpayer, in computing excess profits tax for 1943 and 1944, sought disallowance of abnormal bad debt deductions for 1938 and 1940. Held: the bad debt deductions for both years should be disallowed as abnormal in amount. Welch Grape Juice Co., 9 T. C. 786, distinguished. 2. Under the facts, deductions for bad debts, dues, and subscriptions, and fees for professional services taken during base period years, held to be abnormal in amount.

On June 2, 1936, petitioner was incorporated and on June 3, 1936, acquired capital assets subject to $ 219,099.83 of liabilities plus $ 500 in cash in exchange for… Held: on the facts presented, that this was a nontaxable exchange under section 112 (b) (5) of the Revenue Act of 1936 and the proper basis for depreciation of those capital assets for the taxable years 1942 and 1943 is their basis in the hands of the transferors, as provided in section 113 (a) (8) of the code.

Petitioner acquired 58 per cent of the outstanding stock of another corporation in exchange for its own 3 per cent 15-year collateral… Held: the principal purpose of petitioner's acquisition of control of another corporation was not, within the meaning of section 129 of the Internal Revenue Code, the evasion or avoidance of Federal income or excess profits tax by securing the benefit of a deduction, credit, or allowance, which it would not have otherwise enjoyed; held,…

On the record, held: 1. Where petitioner purchased at less than face value certain of its bonds with accrued interest coupons attached, which bonds had been issued at a discount, the gain realized on the principal of the bonds is to be determined by a proportionate allocation between principal and interest. 2.

Arrangement between petitioner and other interests for participation by means of jointly owned corporation in operation of vessels under War Shipping Administration general agency agreement, held to… Held: further, taxable to her as ordinary income.

Petitioner corporation was a personal holding company. Its president, an intelligent business man but unfamiliar with Federal tax laws, turned over to a public accountant, upon whom he relied, the preparation of petitioner's tax returns. The accountant was not an expert in Federal tax law. After consulting with one of his associates, the accountant decided that petitioner was not a personal holding company, and he prepared no personal holding company returns for it to sign and file. The question of whether petitioner was a personal holding company was never discussed by its officers and was never brought to their attention by the accountant. Held, under facts, failure of petitioner to file personal holding company returns was not due to reasonable cause. Tarbox Corporation, 6 T. C. 35.

1. Activities of one engaged in promoting the purchase of privately owned electric power facilities by public utility districts, prior to the creation of said districts… Held: the promoter's services constituted services rendered within the contemplation of section 107, I. R. C. 3. Petitioner has not proved that he is resident of the State of Washington, and, as such, entitled to file his returns and report his income for the taxable years on the community property basis. 4.

Petitioner set up two trusts, with his wife and children as beneficiaries, respectively, and himself as trustee. Held: on the facts, that he retained such broad powers that he is taxable on the trust income, under Helvering v. Clifford, 309 U.S. 331.

Sale of apartment house to which petitioner held title during negotiations by its president, who was not a stockholder, held to have been made by petitioner, and not by its stockholders after liquidation, resulting in gain taxable to petitioner. Commissioner v. Court Holding Co., 324 U.S. 331; Fairfield Steamship Corporation, 5 T. C. 566, followed.

1. X and Y partnership was engaged in the business of drilling oil wells. It agreed to drill wells for Z in return for an oil payment of $ 52,000. Held: partnership held a depletable interest in oil in place. T. W. Lee, 42 B. T. A. 1217; affd., 126 Fed. (2d) 825. 2. Other issues disposed of on facts.

Corporation engaged in portrait photography, held, exempt as a personal service corporation as defined in section 725, I. R. C. Held: exempt as a personal service corporation as defined in section 725, I. R. C.

Deductions -- Bad Debts -- Business or Nonbusiness -- Section 23 (k). -- Loans which became worthless were business bad debts rather than nonbusiness bad debts where made by individuals to one of a number of corporations which they had organized and which they owned and operated.

1. A corporation, before liquidating in connection with a reorganization with P corporation, transferred certain funds to B corporation subject to liability for pensions. The reserve set up was continued through corporations B, C, and D, and 12 years later D disbursed $ 5,000 to the petitioner, who had been an employee of A but not a pensioner and had received payment in full when his employment ceased at time of the reorganization. Held, following Bogardus v. Commissioner, 302 U.S. 34, that the $ 5,000 was a gift, not compensation for past services. 2. Held, on the facts, that real estate was of such value that sale resulted in loss; and that depreciation be computed accordingly.

In computing the amount of executors' commissions for purposes of the deduction allowed under section 812 (b), I. R. C., a question arises whether the… Held: that, since the bequest of the stock constitutes a specific legacy under New York law, upon which executors' commissions are withheld under the above act, the amount of the executors' commissions to be allowed as a deduction from the gross estate shall be computed without regard for the value of the specific legacy.

1. Section 102 -- Improper Accumulation of Corporate Surplus. -- The taxpayer has shown reasonable business needs for its accumulated earnings. It was not formed or availed of in 1942 or 1943 for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its earnings or profits to accumulate instead of being divided or distributed. 2.

Held: (1) That certain property constituted a capital asset and not real property used in taxpayer's trade or business. Held: That certain property constituted a capital asset and not real property used in taxpayer's trade or business. (2) Where taxpayer claims a specific deduction of taxes paid he may not also claim the standard deduction of $ 500. (3) A certain bad debt proven to be worthless in the taxable year allowed as a deduction.

While a divorce action was pending the taxpayer and his wife, through attorneys, entered into protracted negotiations, resulting in a general agreement for maintenance and support, the division of… Held: not a gift made in the absence of an obligation of support, but an undertaking supported by full and adequate consideration, i. e., the taxpayer's release from marital claims. E. T. 19, 1946-2 C. B. 166, not followed.

1. On October 14, 1938, beneficiaries of a liquidating trust of certain realty assigned to petitioner the right to receive all proceeds from the… Held: that the $ 114,878.77 constitutes compensation to petitioner for services rendered in behalf of the beneficiaries of the trust and is taxable as ordinary income under section 22 (a), Internal Revenue Code. Of this amount only the $ 84,878.77 which petitioner actually received in 1941 is taxable income to him for that year. 2.

Petitioner is a Minnesota corporation. Its president died on July 7, 1939. Held: payments made by the petitioner subsequent to November 30, 1941, were not deductible by it as ordinary and necessary business expense under section 23 (a) of the Internal Revenue Code or the provisions of section 29.23 (a)-9 of Regulations 111.

Issue 1. -- Upon reconsideration of the question of whether a trust for the son of the decedent was created in contemplation of death within section 811 (c), I. R. C., it is held that the trust was created in contemplation of death. See Estate of James E. Frizzell, 9 T. C. 979.

Petitioner having established that commissions received in taxable year 1940 on performance bonds of five years duration on Navy construction constituted net abnormal income, and that such income was not all attributable to increased demand, improved business, or higher prices, held entitled, under section 721, I. R. C., to special relief on its excess profits tax for 1940, allocation of such income being made between taxable year and remaining term of the bonds.

On May 7, 1945, respondent assessed a deficiency in excess profits tax for the year 1941, theretofore determined against petitioner, and two days later this assessment was paid. Held: under facts alleged, section 509 (a) of the Revenue Act of 1943 does not apply, and time for filing is that provided by section 322 (b) (1), I. R. C.

Where the record shows that the cost of abandoned tools was charged to cost of sales and that no deduction was claimed for losses in petitioner's tax return, such costs may not be disallowed under section 711 (b) (1) (E), I. R. C.

1. In 1936 taxpayer's predecessor deducted $ 79,421.15 as officers' compensation. Held: taxpayer is not entitled to adjustment of such deductions under section 711 (b) (1) (J) and (K), I. R. C., for failure of proof required thereunder. 2.

Income -- Community Property -- Estate During Period of Administration -- Section 161 (a) (3). -- Following Barbour v. Commissioner, 89 Fed. Held: that all of the income from the entire Texas community property is taxable to the estate of a deceased member of the community during the period of administration of that spouse's estate. Sec. 161 (a) (3).

Certain individuals organized a corporation to engage in the manufacture of crystals for radio and radar sets under renegotiable war contracts. Held: the compensation paid such individuals was unreasonable in view of the services rendered by them and respondent correctly determined the corporation's excessive profits for the taxable year to be $ 60,000.

1. Held, that the Tax Court has jurisdiction under the Renegotiation Act of 1943 to consider petition filed with it to redetermine the… Held: that the Tax Court has jurisdiction under the Renegotiation Act of 1943 to consider petition filed with it to redetermine the determination by the Secretary of excessive profits on a completed contract basis under the Renegotiation Act of 1942, notwithstanding the time of contract performance covered not only the fiscal year ended…

Held, that payments received by stockholders for their stock in a corporation constituted the purchase price of the stock by the payor rather than payment of an aggregate amount to the corporation. Held: that payments received by stockholders for their stock in a corporation constituted the purchase price of the stock by the payor rather than payment of an aggregate amount to the corporation.

In the tax year 1941 the Pennsylvania Investment & Real Estate Corporation made a cash distribution to petitioners as stockholders. Petitioners did not return such distribution as taxable income. Respondent determined that it was a taxable dividend in the hands of petitioners and determined deficiencies in income tax against them accordingly.

Bondholders of a previous corporation, pursuant to a plan for organization of a new corporation and exchange of preferred stock for bonds,… Held: that, under section 718 (a) (2) of the Internal Revenue Code, petitioner's equity invested capital is an amount equal to the fair market value of the preferred stock exchanged for bonds, that being the cost of the assets to petitioner, plus liabilities of the former corporation assumed by the petitioner, and not the value of the…

Under the facts, held, that during the taxable year 1943 petitioner was, by virtue of a valid written partnership agreement entered into… Held: that during the taxable year 1943 petitioner was, by virtue of a valid written partnership agreement entered into in August 1942, a partner with his son in the department store business in Portsmouth, Virginia, and three-fourths of the net profits of the business belonged to petitioner and were taxable to him and one-fourth of the…

Where prior to the close of the taxable year 1942 the petitioner entered into an agreement with the other officers and directors of the corporation of which he was president, limiting his salary and… Held: that the petitioner is not taxable in 1942 on that portion of the compensation which, prior to the close of the taxable year, he agreed to return to the corporation.

Petitioner's wholly owned subsidiary sold all its assets in the taxable year, dissolved, and distributed the cash resulting from the sale (together with other cash), by distributions extending over… Held: any loss resulting to petitioner from the transaction is not recognizable, under section 112 (b) (6) of the Internal Revenue Code. Stimson Mill Co., 46 B. T. A. 141, no longer to be followed.

Upon the facts, held, that J. P. Denison Co. did not constitute a valid partnership between petitioner and his wife for tax purposes during 1942 and 1943, and that all of its net income for those… Held: that J. P. Denison Co. did not constitute a valid partnership between petitioner and his wife for tax purposes during 1942 and 1943, and that all of its net income for those years is includible in the income of petitioner.

1. Petitioner's wife and two sons made no contributions of capital originating with them to the business, did not aid in its management and control… Held: income of business taxable in full to petitioner, notwithstanding purported family partnership arrangement. Commissioner v. Tower, 327 U.S. 280, and Lusthaus v. Commissioner, 327 U.S. 293, followed. 2. Respondent mailed a notice of deficiency to petitioner within three years from time he filed his return for taxable year.

1. Held, under facts of record, retroactive payment of so-called royalties made for taxable year by petitioner to its controlling stockholders was not, in reality, an ordinary and necessary business… Held: under facts of record, retroactive payment of so-called royalties made for taxable year by petitioner to its controlling stockholders was not, in reality, an ordinary and necessary business expense. 2.

H died testate. Among the assets of her estate were notes executed by T and G and by G and his wife, some of which were secured by stock. Held: the value of notes includible in decedent's gross estate is the value of the interest of decedent which ceased at her death, viz., the value of the assets held as security for the notes plus the net worth of the makers.

Corporation organized April 1942 and dissolved 4 months later, having no actual business history for any 12-month period, held not entitled to use actual experience method prescribed in Internal Revenue Code, section 711 (a) (3) (B), for computing its excess profits tax.

Amounts actually paid by purchaser for oil sold at petitioner's well, held to be gross income from property for computation of percentage depletion under Internal Revenue Code, section 114 (b), without adding back to such amounts payments deducted by purchaser pursuant to sales agreement in order to cover charges attributable to transportation of oil by purchaser from well to refinery. Consumers Natural Gas Co., 30 B. T. A. 1263; affd. (C. C. A., 2d Cir.), 78 Fed.

1. Where, under the terms of the will of decedent, contributions were directed to be made to four designated Canadian institutions, which were organized and operated exclusively for charitable and… Held: such contributions are allowable as a deduction to the fiduciary under the or to be used exclusively, etc., clause of section 162 (a), I. R. C. 2.

Estate Tax -- Citizen of the United States and Puerto Rico -- Section 802, I. R. C. -- The petitioner, who was born a citizen of the United States and never lost his United States citizenship, but… Held: not a citizen of the United States within the meaning of section 802, I. R. C., for Federal estate tax purposes.

Under the stipulated facts, held, certain amounts of oil royalties received by petitioner H. L. Brown from Sun Oil Co. August 15, 1944, following a judgment of a… Held: certain amounts of oil royalties received by petitioner H. L. Brown from Sun Oil Co. August 15, 1944, following a judgment of a Louisiana court, were not acquired by gift, bequest, devise or inheritance and were not exempt from taxation under section 22 (b) (3) of the Internal Revenue Code, as amended.

Deductions -- Pension Trust -- Section 23 (p) (1) (A), I. R. C. -- Held that, under 23 (p) (1) (A) (i) and (ii), the taxpayer is entitled to deduct in full the amount paid to an employees' pension… Held: further, section 29.23 (p)-6 of Regulations 111 so applied as to limit the deductibility of such amount under 23 (p) (1) (A) (ii) is null and void.

1. Renegotiation Act is constitutional as applied to petitioner. 2. Held: petitioner is not entitled to use as its cost the allowance provided in section 403 (i) (3) of the Renegotiation Act. 4.

Deductions -- Ordinary and Necessary Business Expense -- Army Officer -- Section 23 (a) (1) (A), I. R. C. -- An Army officer whose duties consisted of assisting in the efficient distribution of machine tools and keeping in constant contact with manufacturers of production equipment, various Government agencies, and representatives of foreign countries, held to be entitled to deduct as ordinary and necessary business expenses under section 23 (a) (1) (A) the cost of…

1. On January 1, 1943, petitioner and another individual who had been conducting a contracting business as partners entered into an agreement with their wives whereby the latter became equal partners. Held: a gift of a one-fourth interest in the partnership was made by petitioner to his wife on January 1, 1943. 2. Value of gift determined.

Corporate stockholders gave options on their corporate stock to a syndicate, at varying prices and as a result of individual contracts. Held: the sale to West Virginia was not made by the corporation and the corporation was not subject to a tax on the capital gain involved.

1. Held, petitioner, on the accrual basis, in computing its excess profits credit under the invested capital method for the taxable year 1943, may include as a part… Held: petitioner, on the accrual basis, in computing its excess profits credit under the invested capital method for the taxable year 1943, may include as a part of its accumulated earnings and profits the amount of its postwar credit to be refunded for the year 1942. Altschul's, Inc., 9 T. C. 697, followed. 2.

Decedent, an officer in a bank, was required to contribute to a pension fund, to which the bank also contributed. Held: that there should be included in decedent's gross estate only an amount equal to decedent's contributions, plus 4 per cent interest computed half-yearly.

Petitioner is engaged in the business of digging plastic loam, excavating and processing molding sand, and marketing both products. Held: petitioner failed to sustain his burden of proof of showing that the tracts were not proved before purchase; held, further, that he failed to show a proper and adequate basis for computing the probable content of molding sand in such tracts.

1. A petition separately filed by petitioner wife challenging, as to her, deficiencies and fraud penalties determined by respondent in a joint deficiency notice addressed to petitioner and her husband, and based upon her asserted several liability on account of tax returns filed by the husband as joint returns, held proper to institute separate proceeding within the jurisdiction of the Tax Court. 2.

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

All of petitioner's tax liability asserted in a letter purporting to be a notice of deficiency having been paid before the mailing thereof, held that the absence of any deficiency within the meaning of Internal Revenue Code, section 271 (a), deprives this Court of jurisdiction, requiring dismissal of the proceeding.

During 1936 and prior to the liquidation of Standard Oil Export Corporation, petitioner and the other guarantors of this corporation's… Held: any claim petitioner had against Export for reimbursement of its share of the final dividend which it paid in 1936 was worthless in 1936; held, further, petitioner is entitled to deduct, either as an expense or loss in the taxable year 1936, that part of the amount paid in 1936 for which it was liable under its contract of guaranty,…

Decedent bequeathed the residue of her estate to a corporate trustee, directing that the income be paid to her husband for life and the corpus thereafter… Held: that the amounts of the remainder bequests to charity can be computed with reasonable accuracy as of the time of decedent's death, and they are hence deductible under section 812 (d), Internal Revenue Code, since the possibility of corpus invasion was remote. Ithaca Trust Co. v. United States, 279 U.S. 157, followed.

Petitioner, on the cash basis, in 1918 and 1933 executed two mortgage notes on his individual properties. Held: the respondent's disallowance of the claimed deductions, either as bad debts or business losses, is sustained.

1. The trustees of a testamentary trust established for the benefit of petitioner received in 1937 as a dividend on certain shares of… Held: the 1,591 shares of Phelps Dodge stock, under the provisions of the trust instrument and New York law, were properly allocated by the trustees to trust principal and did not constitute currently distributable income taxable to the beneficiary, Margaret T. Biddle, within the meaning of section 162 (b) of the Revenue Act of 1936. 2.

A trust created by a husband for the benefit of his wife, son, and daughter provided that the wife should receive $ 2,500 per year, payable in monthly installments, together with any additional sums… Held: the amounts received by the wife from the trustee are not taxable to the grantor of the trust under doctrine of Douglas v. Willcuts, 296 U.S. 1.

Petitioner, as a member of an affiliated group of corporations which filed a consolidated return for the year 1930, under section 141 of the 1928 Revenue Act, was severally liable for the tax upon… Held: that the interest was paid upon an obligation of the petitioner upon which there was no right of contribution after the agreement between the members of the group, and that petitioner is entitled to deduction in 1940 for the interest which it paid.

Decedent in 1922 created a trust which he later amended in 1923. Held: The value of the remainder interests transferred is includible in decedent's gross estate under section 811 (d) (2) of the code, decedent's wife having no substantial adverse interest in remainders.

1. Prior to October 15, 1940, corporation A held a demand note of the face value of $ 621,000 and all of the capital stock of corporation B.… Held: that the value of the stock and notes did not constitute income to the petitioner in 1941 and that the $ 152,515.51 paid to petitioner upon the dissolution of corporation B in 1942 constituted a payment by corporation B on its indebtedness on the note then held by petitioner and was taxable to petitioner as ordinary income…

1. Petitioners are husband and wife, domiciled in Texas. Held: under the principles enunciated in Lehman v. Commissioner, 109 Fed. (2d) 99, these four trusts are reciprocal trusts and the net income therefrom is taxable to petitioners under section 167 (a) (2) of the Internal Revenue Code and as community income under the laws of Texas. Commissioner v. Porter, 148 Fed. (2d) 566. 2.

1. Income from the sale of machinery manufactured for export held not accruable in 1940 when the work was substantially completed, but in 1941, when the sale was consummated and the liability of the purchaser to pay became fixed and definite. 2. Compensation paid or accrued to petitioner's president in 1941 held not excessive. 3.

Income -- Cash Basis -- Receipt -- Year of -- Purchase Price Withheld. -- That part of the profit from the sale of stock represented by a portion of the purchase price which was, in accordance with the contract of sale, returned to the buyer at the time of the sale in order to guarantee him against loss from accounts receivable and contingent liabilities of the corporation the stock of which was being purchased, was not income to the seller on cash basis in the year of sale,…

In 1943 petitioner, which was engaged in the business of selling coal at retail and was on an accrual basis, received deposits from customers on contracts to sell and deliver coal at retail prices… Held: respondent erred in determining these deposits of $ 11,000 constituted taxable income to petitioner in 1943.

1. Estate Tax. -- Held, that the value of the corpus of a trust of which the decedent was grantor is includible in the decedent's gross… Held: that the value of the corpus of a trust of which the decedent was grantor is includible in the decedent's gross estate under section 811 (d) (2), Internal Revenue Code, where at the time of his death the decedent as donor had the power to remove the trustee and appoint himself successor trustee and in the latter capacity had the…

Community property consisting of ranch land in Texas was divided into two halves by husband and wife in order to make possible the procurement of a large loan… Held: At the time of his death the south half of the ranch, which had been deeded to the wife, was community property and includible in the gross estate of the decedent. (2) Livestock located on the south half of the ranch was community property on the date of the decedent's death, and includible in his gross estate.

Where one of three partners sells his partnership interest to the other two partners, who thereby acquire all the partnership assets in equal proportion and the remaining partners then sell… Held: the income of the partnership during the base period years prior to the withdrawal of one partner can not be included in the base period income of the corporation for excess profits tax purposes. Regulations 112, section 35.740-4, approved.

For the purpose of determining its excess profits tax liability for the taxable years 1943 and 1944 petitioner elected to compute its excess profits credit under section 713 of the Internal Revenue Code. By virtue of section 713 (f) (6) the amount of petitioner's average base period net income is limited to its excess profits net income for 1940. In ascertaining its excess profits credit petitioner seeks to correct the net income it reported in 1940 by eliminating that part of the depreciation deduction alleged to be excessive. Upon the facts, held, that the depreciation taken on certain assets in both 1939 and 1940 was excessive, and petitioner is entitled to recompute its net income for 1940 by taking the correct depreciation on these assets; (2) respondent is entitled to a corresponding correction of petitioner's income tax liability for 1939 and 1940 by an adjustment of petitioner's excess profits tax liability under section 734 of the code.

Deductions -- Depreciation -- Section 23 (l) -- Renewal. -- Where a lease or franchise is renewed or a new lease or franchise obtained before the expiration of the existing lease or franchise, the period over which the remaining basis of depreciable property is to be recovered is not limited to the remainder of the existing lease, but may include, if the life of the assets justifies, all or a portion of the new term.

A husband and wife contemplating divorce and desirous of settling their property rights without resort to a court for that purpose, divided California community property by an instrument conveying to… Held: the transfer thus effected to the wife of one-half interest in the community property was not a gift by the husband under sections 1000 (d) and 1002 of the Internal Revenue Code.

Upon the facts, held, respondent improperly disallowed part of the compensation which petitioner paid to one of its officers during the taxable year 1942. Held: respondent improperly disallowed part of the compensation which petitioner paid to one of its officers during the taxable year 1942.

1. Renegotiation Act of 1942 is constitutional as applied to petitioner. 2.

1. Deductions -- Percentage Depletion -- Economic Interest -- Heavier Hydrocarbons in Gas in Place. -- The petitioners are entitled to percentage depletion deductions because they owned, under written assignments, economic interests in heavier hydrocarbons contained in gas in place. 2. Income -- Completed Contract Basis -- Accrual -- Year of -- Lack of Evidence. -- The petitioner, on a completed contract basis, is required to accrue in the year of completion of a contract a portion of a fee connected therewith because of failure of proof that collection of that fee was subject to any reasonable uncertainty at the end of that year. 3. Income -- Cash Basis -- Receipt -- Year of. -- Nonnegotiable notes which were subject to many complicated agreements and conditions are not the equivalent of cash and not income to the petitioner, on a cash basis, in the year the notes were given.

Petitioner and wife agreed to separate, and that he pay her $ 350,000 cash, plus $ 5,000 per annum for approximately one year and thereafter one-fourth of his spendable income, as defined, until she… Held: that the payment of $ 350,000 to the wife was a transfer for an adequate and full consideration in money or money's worth and was not a gift.

From 1935 to 1943 petitioners served as officers and employees of a corporation which was organized as a result of a corporate reorganization incident to financial difficulties of a predecessor… Held: petitioners are not entitled to the benefits of section 107, Internal Revenue Code, since the stock payments did not constitute 80 per cent of the compensation received for acting as officers, directors, or employees in the taxable year.

Petitioner's husband was the grantor of five trusts of which petitioner is the income benficiary. Held: that the trust indentures are properly construed to mean that whatever trust income of each year of the trusts is distributable to petitioner, as determined by the trustees within five days after the close of a trust's year, was to be distributed to her early in the following year; and that it became payable to petitioner within the…

Income -- Cost of Goods Sold -- Excess Paid Over O. P. A. Price. -- The cost of goods sold is not a deduction, but must be subtracted from gross receipts to determine gross income, even though it includes an excess over the prices fixed by O. P. A.

1. Interest paid on debentures issued by wholly owned subsidiary corporation to its parent corporation, along with new shares, in exchange for the… Held: deductible by the subsidiary corporation. 2. Amortization deductions of the alleged cost of a restrictive covenant in a contract for the acquisition of all the intangible assets of a rival newspaper disallowed where the contract was not divisible as between the covenant and the other assets, which are not amortizable.

1. Excess Profits Tax -- Equity Invested Capital -- Property Paid in -- Distribution in Stock -- Section 718 (a). -- Equity invested capital was not created either through property paid in for stock or a distribution in stock of earnings and profits within the meaning of section 718 (a) where, as a part of an integrated plan, a dividend was declared and the stockholders agreed to its immediate use as a subscription for stock. 2.

Income -- Alimony Payments -- Section 22 (k). -- An agreement, entered into in 1941 by the petitioner and her former husband, from whom she had been divorced in 1928, settling litigation and providing that he should make periodic payments to her, was not incident to the decree of divorce and the payments were not taxable to the petitioner under section 22 (k). Benjamin B. Cox, 10 T. C. 955; Frederick S. Dauwalter, 9 T. C. 580, followed.

1. Held, the businesses operated under the name of L. L. Briden & Co. and Clinton Dye Works, respectively, were wholly owned by decedent and were not partnerships in the years involved. 2. Held: the businesses operated under the name of L. L. Briden & Co. and Clinton Dye Works, respectively, were wholly owned by decedent and were not partnerships in the years involved. 2.