Volume 11 — Tax Court Memorandum

Petitioner's husband was sole proprietor of a lumber business. Held: Income from the 11 per cent interest owned by the trust is not taxable to petitioner.

Petitioners' wives reported as their own certain income from joint ventures involving the purchase and sale of war surplus motors. Held: respondent sustained. The income was produced and earned by the husbands. On a business expense issue involving operation of an airplane, held, for petitioner after application of the Cohan rule.

1. Petitioner for several years had been one of the members of a partnership known as the Baxter Chat Company. On December 1, 1946, petitioner sold out his interest in this partnership at a loss. For the eleven months of the calendar year 1946 which had expired prior to the date of sale, petitioner had certain undistributed profits in the partnership. Held, these undistributed profits are taxable to petitioner as ordinary income and not as capital gains. Louis Karsch, 8 T.C. 1327. 2. In the sale of his partnership interest in the Baxter Chat Company petitioner incurred a loss. This loss was a long-term capital loss and only 50 per cent thereof can be taken into account under the provisions of section 117 (b) of the Internal Revenue Code. 3. Held, that the holding period of petitioner's partnership interest which was sold is to be measured from the date of the acquisition by petitioner of his partnership interest in Baxter Chat Company and not from the date or dates of acquisition by the partnership of the specific partnership assets. Allan S. Lehman, 7 T.C. 1088, affirmed 165 Fed. (2d) 383, followed.

Gross income: Constructive receipt of dividends by majority stockholder v. corporate payments for use of property. - On the facts, taxpayer's mother did not acquire any rights in any process which she licensed to the corporation and that the payments, which taxpayer claimed were bona fide payments for the use of a secret and unpatented process for the spinning of steel, were in fact, procured by taxpayer, it was held that such payments are taxable to him as dividends…

Houses built for war workers under government priorities found to be held primarily for sale to customers in the ordinary course of business.

1. Taxable income. - Petitioner prepared income tax returns for individuals who gave money to an alleged religious association; held, the amount given constituted income to petitioner. 2. Held: the amount given constituted income to petitioner. 2. Presumption. - Amount of petitioner's additional income as determined by respondent, held, to be correct upon petitioner's failure to prove error. 3.

Petitioner is a corporation engaged in furnishing clean towels and linens to business establishments. Held: during the taxable year, petitioner's earnings and profits were not permitted to accumulate beyond the reasonable needs of the business, and petitioner was not availed of for the purpose of preventing the imposition of surtax upon its stockholders.

1. Held, the wives of the petitioners were bona fide partners in two business partnerships in the years in question. 2. Held, the expense of repair work to the roof and brick of a building was deductible as business expense in determining partnership net income. 3. Held, capital expenditures made by a lessee to improve rented property were depreciable over the life of the improvements rather than the unexpired term of the lease when the lessee continues to occupy the property indefinitely. 4. Held, the fair market value of a gas station, received by a creditor as payment in full of the debt, determined for use as the basis of the property for determining gain or loss on subsequent sale. 5. Held, that properties were held primarily for sale to customers in the ordinary course of trade or business.

Petitioner, president and principal stockholder of a corporation, authorized and approved the distribution of $3,750 of corporate funds to her married daughter, who was neither a stockholder nor an… Held: petitioner constructively received as a taxable dividend the $3,750 distributed to her daughter.

Three partners purchased the entire interest of a fourth partner in a well-established business for $70,000. They also paid $5,000 attorney's fees in connection with such purchase. Held, such sums were capital expenditures and not ordinary and necessary expenses.

Upon the record, it is found that the salaries paid by petitioner to its four executive officers during the taxable years here involved constituted reasonable compensation for services rendered.

Upon the record, it is held that the petitioner's lease of property upon which it erected a building is one for a fixed term of 10 years without privilege of renewal, and the useful life of the improvement being in excess of the term of the lease, its cost to petitioner is subject to amortization over the remaining term of the lease.

The respondent has determined a deficiency and the record contains many facts supporting it. Petitioner introduced no evidence tending to show the respondent's determination to be in error. Held that the deficiency as determined is sustained.

Held, on the basis of the facts presented, of the amount ($94,725) claimed by petitioner for officers' compensation, the amount of $19,000 is excessive and unreasonable. Held: on the basis of the facts presented, of the amount ($94,725) claimed by petitioner for officers' compensation, the amount of $19,000 is excessive and unreasonable.

1. Where depreciation allowable exceeded the amount of depreciation allowed in previous years, held, in computing the adjusted basis for determining petitioner's loss on the sale of the… Held: in computing the adjusted basis for determining petitioner's loss on the sale of the store-apartment building the Commissioner did not err in using depreciation allowable under section 113(b)(1)(B) of the Internal Revenue Code. 2.

Petitioners filed an amended income tax return for the year 1945 on June 4, 1946. The notice of deficiency was mailed on April 28, 1950. Held: under all the facts, respondent has failed to sustain his burden of proof to show why the three-year statute of limitations should not apply, and, therefore, assessment of any deficiency is barred.

Held: (1) The amounts allowed by respondent as additions to petitioner's reserve for bad debts for the respective years 1942, 1943, 1944 and 1945 are reasonable and proper. Held: The amounts allowed by respondent as additions to petitioner's reserve for bad debts for the respective years 1942, 1943, 1944 and 1945 are reasonable and proper.

On August 1, 1946, petitioner conveyed in trust for the benefit of his wife and four children voting trust certificates which represented 800 shares of the common stock of Springfield Woolen Mills… Held: the stock had a fair market value on August 1, 1946, the date of gift, of $55 per share.

Petitioner realized no gain upon the receipt of compensation for damages to its property where the amount of the compensation was less than petitioner's adjusted basis for the property.

In December 1943 there was a ceiling price on bulk sales of wine but no regulation fixing a maximum price on sales of a winery with its inventory of wine. Held: that the substance of the transaction was a sale of the wine and the winery for a lump sum and that of the total consideration, $275,000 was paid for the wine and $75,000 for the winery.

Petitioner is a corporation which has grown from the small beginning of a predecessor in 1912 to a large business with needs for considerable amounts of working capital. Held: during the taxable years, petitioner's earnings and profits were not permitted to accumulate beyond the reasonable needs of the business; and petitioner was not availed of for the purpose of preventing the imposition of surtax upon its shareholders.

Petitioner is entitled to deduct in the taxable year 1944, as ordinary and necessary business expense, attorney's fees paid for services rendered in connection with an equity suit involving shares of petitioner's capital stock, where such stock was pledged by its president and majority stockholder at the request of petitioner in order to obtain loans which were used in the operation of its business.

Petitioner inherited a fractional interest in improved real estate as tenant in common with her sisters. The property was rented through a management agent and was sold in 1944 at a loss. Held: petitioner and her sisters were not partners in operation of the property and petitioner's loss was an ordinary loss.

Section 23 (a) (1) (A) - Claim for deduction of expenses for meals and room as traveling expense denied. - Prior to August, 1946, the petitioner, a carpenter,… Held: that expenses for lodging and meals in Minneapolis during 1947 were not traveling expenses within section 23 (a) (1) (A), I.R.C., and constitute personal expense. Held, further, that since petitioner's automobile was not used in his business, he is not entitled to any deductions for depreciation and insurance.

1. Petitioner paid $43,500 in 1939 for a 14 1/2 per cent interest in the bank-roll and profits of a gambling venture. Held: the $43,500 was returned to petitioner as part of the larger amount, constituted a return of capital, and was not taxable to him. 2. Claimed deductions for certain fees and expenses paid on behalf of the venture held disallowed. Anthony Cornero Stralla, 9 T.C. 801 followed.

Gift tax: Exclusion: Present interest: Section 1003 (b) (3). - A transfer in trust for a one-and-a-half-year-old child, the funds to be held or disbursed for necessary purposes at discretion of trustee, is a transfer of a future interest and section 1003 (b) (3) does not grant any exclusion.

On the facts, held: 1. Petitioner's gross income for 1947 was $1,110, instead of $1,263.12 as reported on her return; 2. Held: Petitioner's gross income for 1947 was $1,110, instead of $1,263.12 as reported on her return; 2. Petitioner is not entitled to deduct for one dependent on her return for she has failed to show that she contributed more than one-half of the support of her brother who was in high school in 1947; 3.

Held: 1. Petitioner, during the taxable years 1939 to 1943, inclusive, was not a corporation exempt from taxation under section 101 (6) or (7) of the Internal Revenue Code. 2. Petitioner has established that its failure to file timely tax returns for the respective taxable years was due to reasonable cause and not due to neglect, and the penalties imposed under section 291 of the Internal Revenue Code are disallowed.

Held, petitioner and the two trusts created by him for the benefit of his wife and daughter did not really and truly intend, in good faith, to join together in carrying on the business of the Calumet… Held: petitioner and the two trusts created by him for the benefit of his wife and daughter did not really and truly intend, in good faith, to join together in carrying on the business of the Calumet Pattern Works as partners.

Held: 1. Respondent did not err in determining that the net income of the Independent Beverage Corporation, transferor, should be increased by increasing sales in the amount of $2,086.39 and… Held: Respondent did not err in determining that the net income of the Independent Beverage Corporation, transferor, should be increased by increasing sales in the amount of $2,086.39 and disallowing purchases in the amount of $905.75. 2.

Petitioner elected to compute his tax upon the basis of adjusted gross income and the use of the table in Supplement T, section 400, Internal Revenue Code. Respondent's action in disallowance of deductions taken by petitioner in computing adjusted gross income and which are not allowable under section 22 (n), Internal Revenue Code, is approved.

1. Cost of repairs by the owner of rental property held to be deductible and amount thereof determined. 2. Cost of work clothing not in the nature of a uniform or of a character required by the employer, together with the cost of laundry thereon, held not subject to deduction. 3.

Petitioners filed a joint return and elected to compute the tax thereon upon the basis of adjusted gross income and the tax table of Supplement T, section 400, Internal Revenue Code. In arriving at adjusted gross income they deducted amounts representing cost of work clothing and laundry thereof, union dues and depreciation of tools. Held, that adjusted gross income is required to be computed under section 22 (n), Internal Revenue Code, the only deductions permitted to an employee being cost of travel, meals and lodging while away from home or amounts expended under arrangement for reimbursement thereof by the employer. None of the deductions taken by the petitioners were permitted under the aforesaid section and respondent is sustained in his disallowance thereof.

Upon the record, respondent is sustained in his disallowance of deductions taken by petitioner John Young as representing travel expense and meals and lodging away from home, as the home maintained by this petitioner at Muskogee, Oklahoma, was for his personal convenience and not incident to or required in his employment at other points. Commissioner v. Flowers, 326 U.S. 465. Respondent is sustained in his disallowance of the deduction taken representing cost of work clothing and laundry thereof, as such clothing was not in the nature of a uniform or of a character required by the employer. Respondent is sustained in his determination of the deficiency on the basis of a joint return, as such return, although signed only by John Young, included income taxable to himself and wife and exemption was taken thereon for both of the petitioners. Louis M. and Leora R. Roth, 17 T.C. 1450 (March 7, 1952).

Petitioner performed legal services covering 1929 to 1941. Held: petitioner did not receive in 1941 at least 75 per cent of his compensation for the services and may not apply section 107, Internal Revenue Code, in computing his tax attributable to that compensation.

Petitioner was appointed counsel in 1935 for the receivers of Williamsport Wire Rope Company. Held: petitioner has not shown error in respondent's determination. Held, also, respondent has shown that petitioner's returns were fraudulent with intent to evade tax.

The petitioners are held not entitled to the deduction of the cost of clothing worn by the petitioner C. W. Strickler at work or laundry thereof, where the clothing was not in the nature of a uniform… Held: that the cost of membership was a personal expense and not required as an incident to employment, and that the Oklahoma cigarette tax did not represent a deduction to the petitioners under section 23 (c) (3), Internal Revenue Code.

1. Held, amounts received in payment for sale of rights to inventions were capital gains. 2. Held, amounts paid to purchase claims and to clear title to inventions were capital expenditures. Held: amounts received in payment for sale of rights to inventions were capital gains. 2. Held, amounts paid to purchase claims and to clear title to inventions were capital expenditures.

Petitioner expended certain sums for meals and lodging while employed in Milwaukee and Duluth in 1946 and 1947. During this period he maintained a home for his family in Mason City, Iowa. Held: the expenditures were personal or living expenses, and their deduction is prohibited by section 24 (a) (1) of the Internal Revenue Code.

Gross estate: Sec. 811(c). - Held that inter vivos gifts to decedent's children were not made in contemplation of death and the value thereof is not includible in decedent's gross estate.

A part of the mortgage debt of the petitioner was cancelled by the creditor, without donative intent. The petitioner was insolvent before and after the cancellation. Held: that no taxable income was realized as the result of the cancellation.

Held: During the taxable years involved there existed an oral agreement between petitioners and their husbands, whereby petitioners'… Held: During the taxable years involved there existed an oral agreement between petitioners and their husbands, whereby petitioners' partnership interests in Zuckerman Potato Company were acquired as, or transmuted into, community property, and respondent erred in determining that income derived from this source constituted petitioners'…

Upon the record, the respondent is sustained in his disallowance of deductions taken by petitioner representing the cost of certain ordinary work clothes not in the nature of a uniform, together with the cost of laundry thereof, the cost of attending union meetings, gifts to his superiors, and Oklahoma cigarette tax which had been paid on cigarettes prior to their purchase by him.

Upon the record, the respondent's action in the disallowance of the cost of certain work clothing and laundry thereof, cost of travel, meals and lodging and Oklahoma State cigarette tax is sustained. Petitioner is held entitled to the deduction of interest and taxes paid.

Petitioner Jack Ward, for the calendar year 1947, computed tax on his income under Supplement T, section 400, Internal Revenue Code, and is held not entitled to deduction from gross income, in arriving at adjusted gross income, of amounts claimed as the cost of work clothing and laundry, union dues and business gifts.

Capital gain: Sale of corporate assets. - Following a genuine liquidation of a corporation, the former stockholders (petitioners) sold real estate distributed to them. Held, that the sale and a gain thereon may not be imputed to the corporation. United States v. Cumberland Public Service Co., 338 U.S. 451, and Doyle Hosiery Corporation, 17 T.C. 641, followed.

1. Transfer in trust held not to have been made in contemplation of death within the meaning of section 811 (c) (1) (A), Internal Revenue Code. 2. Value of stock in family-held corporation determined.

Held: 1. Petitioner has failed to establish that she sustained a deductible loss in any amount on the sale in the taxable year 1945 of six commercial motion picture photoplays produced in 1921. 2. Held: Petitioner has failed to establish that she sustained a deductible loss in any amount on the sale in the taxable year 1945 of six commercial motion picture photoplays produced in 1921. 2.

1. Three petitioners admit their liability for any estate tax due. Held: the gifts were made from motives associated with life and not death, and were not made in contemplation of death. The Commissioner erred in including such property in the decedent's estate under section 811 (c) of the Internal Revenue Code. 2.

The cost of tuck pointing, where needed, and cleaning two exterior walls of petitioner's bank building was a repair item, deductible as an ordinary and necessary expense, and not a capital expenditure, recoverable through depreciation allowances.

Held, unpaid balance of loans made by stockholder to wholly-owned corporation not deductible as business bad debt in year of liquidation of corporation when value of corporate assets are not shown to… Held: unpaid balance of loans made by stockholder to wholly-owned corporation not deductible as business bad debt in year of liquidation of corporation when value of corporate assets are not shown to be less than the balance of the debt.

E. E. Henderson, father of petitioner Wayne Henderson, was engaged in litigation in the courts of Iowa at the time of his death. Held: petitioner failed to sustain his burden of proof.

Upon the facts, held, petitioner is not entitled to certain deductions taken on his return, representing Oklahoma cigarette tax, repairs to a personal watch, cost of work clothing and laundry… Held: petitioner is not entitled to certain deductions taken on his return, representing Oklahoma cigarette tax, repairs to a personal watch, cost of work clothing and laundry thereof, and a charge for sewer service.

Respondent is sustained upon his disallowance of deductions taken by the petitioner for state sales taxes, state cigarette taxes, city sewer tax, stolen tools, breakage of watch, and medical expenses.

On the record, the petitioners held not entitled to the deduction of an item listed as miscellaneous contributions in the absence of proof as to the amounts making up the total or identifying the… Held: that petitioners are not entitled to the deduction of an amount representing Oklahoma sales taxes in excess of the sum allowed by the respondent.

On the record, petitioners held not entitled to the deductions taken of the cost of telephone, Odd Fellows Lodge dues and assessments, Oklahoma cigarette tax and sewer service charge. Held: that petitioners are not entitled to the entire deductions made for cost of work clothing and laundry thereof and sales taxes, and the amount allowable of such deductions determined.

In 1921 petitioner and other interested parties entered into an agreement with her stepmother, the widow of petitioner's father, in order to prevent the widow from contesting the will of her… Held: neither items of income nor expenses resulting from the property held in trust are includible or deductible in petitioner's Federal income tax returns. Held, further, payments to the widow are not deductible by petitioner in the years paid as they were capital expenditures.

Payments to a graduate student under the terms of a fellowship, held, not to be a gift but to constitute taxable income.

Payment of $250,000 to sellers (including petitioners) pursuant to an agreement envisaging conveyance of a mining claim under which sellers reserved to themselves for a period of thirty years mineral rights to all ore in excess of 1,000,000 tons, and the grantee was not obligated to mine any ore, held to be proceeds of sale of a capital asset.

Income from fishing operations - Boat owned in shares. - The petitioner purported to report as his own all of the income realized from operation of a commercial fishing boat. He was the owner of only a one-fourth interest and entitled to and received one-fourth of the income. The correct amount of his income is determined. Fraud penalty. - The petitioner knowingly understated his income as a member of the crew of the fishing boat.

Upon the record respondent is sustained in his disallowance of certain deductions taken by the petitioners as representing Oklahoma cigarette and tobacco taxes, sewer taxes, cost of work clothing and dry cleaning, entertainment expense, safe deposit box rental, loss through forfeit of deposit, and cost of meals and lodging away from home.

Petitioner Marion S. Perkins during the taxable year 1947 was a traveling salesman for a flour and feed milling company in Tennessee and covered 11 counties, working on a commission basis. Held: Petitioners are not entitled to claim specific deductions of the kind embraced in the $500 standard deduction and, at the same time, claim the standard deduction of $500.

Upon the facts, held: that 61 houses sold during the fiscal year ending February 28, 1947, were held primarily for sale to customers in the ordinary course of petitioner's business, and the gains… Held: that 61 houses sold during the fiscal year ending February 28, 1947, were held primarily for sale to customers in the ordinary course of petitioner's business, and the gains realized were ordinary income, not long-term capital gains.

Respondent determined deficiencies and fraud penalties for the taxable years 1946 and 1947. Held: petitioner has failed to prove that respondent's determination for each of the years as to the amount of understatement of income was erroneous. Held, further, respondent did not err in determining that the 50 per cent fraud penalty was applicable for each of such years.

Petitioners are held not entitled to the deduction of expenditures for repairs to personal watches, a sewer charge, Oklahoma State cigarette taxes, and the cost of a midday meal taken by the petitioner Helen Rowland at her place of employment, the cost of which was deducted from her pay. Respondent is sustained, under the facts here disclosed, in determining the deficiency upon the basis of a joint return. Louis M. and Leora R. Roth, 17 T.C. 1450, (March 7, 1952).

The petitioner, a boilermaker, with residence address at Muskogee, Oklahoma, was employed during all but two days of the taxable year on construction jobs at points in Texas, Indiana and Montana. Held: that under such circumstances, the petitioner's cost of travel and living expenses while on these construction jobs was personal in character and not deductible under Section 23 (a) (1) (A), Internal Revenue Code. Commissioner v. Flowers, 326 U.S. 465.

The petitioner, a boilermaker, with residence address at Muskogee, Oklahoma, was employed during practically all of the taxable year on construction jobs at points in Texas, Illinois, and Montana. Held: that under such circumstances the petitioner's cost of travel and living expenses while on these construction jobs was personal in character and not deductible under section 23 (a) (1) (A), Internal Revenue Code. Commissioner v. Flowers, 326 U.S. 465.

During the taxable years, petitioner paid substantial salaries to its president and its executive vice-president both of whom were executives in another brewery. Held: the compensation paid its executives was a reasonable allowance for the personal services actually rendered. During 1942, petitioner's treasurer made unauthorized withdrawals of petitioner's funds for his own use.

On the record, the petitioners are held to be not entitled to the deduction of certain items representing the cost of work clothing and… Held: that petitioners are not entitled to the deduction of the cost of gifts voluntarily made to superior officers, nor to the deduction of the amount of Oklahoma State cigarette taxes paid by the vendor upon cigarettes sold by him to the petitioners, nor to the deduction of a sewer service charge collected by the City of Muskogee,…

On the record, petitioners are held not to be entitled to the deduction of the cost of certain work clothing and laundry thereof, such clothing not being in the nature of a uniform or of a type… Held: that respondent was correct in his disallowance of the cost to petitioners of a telephone, the deduction of Oklahoma cigarette taxes paid by the vendor and damage incident to the breaking of a personal watch not required or necessary to his employment.

Statute of limitations: False or fraudulent return. - Omission from 1943 income tax return of substantial receipts from sales of potatoes, most of which were grown by the petitioners, held not the result of intent to evade tax where the petitioners kept records to the best of their ability, which records were turned over to their tax advisor upon whom they had relied for a number of years in the preparation of their returns.

Petitioners failed to introduce any evidence as to cost or other applicable basis of property lost by theft. Held: that petitioners have not maintained their burden of proof as to an essential element of their case. 2. Rule of Cohan v. Commissioner, 39 Fed. (2d) 540, applied in determining the petitioners' right to a deduction for entertainment expenses. 3. Federal excise taxes held to be nondeductible for income tax purposes.

The respondent, in changing petitioner's method of reporting income from cash to accrual basis, erroneously adjusted taxable income for 1945 by including accounts receivable as of January 1, 1945, representing sales for prior years. The addition of the five per cent negligence penalty under section 293(a), Internal Revenue Code, disallowed for each of the taxable years in question.

Surtax on corporation improperly accumulating surplus. - Surplus of over $181,000 for one year and over $104,000 in the next, after Federal taxes and cash dividends, held to be accumulations beyond the reasonable needs of the business, and the corporate income was properly subject to tax under Code section 102.

Code Section 1000: Gift tax. - Profits earned by wife and trusts held not the subject of a gift from decedent-husband even though the profits be taxable to him.

Petitioners, upon the record, held not entitled to the deduction of the cost of (a) travel, board and lodging, (b) state cigarette tax, and (c) special work clothing. Further held that respondent not shown to be in error in reducing the amount claimed by petitioners as a deduction for state sales tax.

On the record, petitioners are held not entitled to deductions taken by them in computing net income for (a) interest, (b) state cigarette tax, (c) damages to a personal watch, and (d) cost of work clothing and laundry thereof. Further held that petitioners have failed to sustain the burden of proof for the deduction of an alleged bad debt. The amount of petitioners' expenditures for medical expense determined as the basis for the claim for deduction of such expense.

The petitioner Carl Flaherty, a railroad brakeman, held, not entitled to the deduction of the cost of meals consumed while away from home performing his duties under directions by… Held: not entitled to the deduction of the cost of meals consumed while away from home performing his duties under directions by his employer where such duties consisted of continuous service on a run to a designated point and back to his local station. Fred Marion Osteen, et al., 14 T.C. 1261.

The amounts of $1,800 and $1,500 which petitioner contributed in the respective taxable years 1947 and 1948 to the National Tax Equality Association, an exempt corporation, organized and primarily operated in such years for the carrying on of propaganda with the ultimate objective being a revision in tax structure, are not properly deductible under either section 23(a)(1)(A) or 23(q)(2) of the Internal Revenue Code.

On the record, respondent is sustained in his disallowance of certain items of deduction for repairs to watch, medical expenses, cost of travel and meals, cost of work clothing, and the cost of the laundry of such clothing.

For lack of evidence, respondent is sustained upon his disallowance of certain deductions taken by petitioners representing cost of meals, union dues, rental of safe deposit box, state sales tax, state cigarette tax, and casualty loss.

1. Petitioner in 1947 and in prior years owned and operated as a sole proprietorship a used car business. It was a prosperous business. Held: that petitioner being on the cash basis is only entitled to deduct this $9,746.56 instead of the $11,701.62 which he deducted on his return.

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

Successive trusts for the benefit of the petitioners' minor children were created by the husband-petitioner. Held: that the settlor did not have sufficient control over the trusts to make the income taxable to him. Helvering v. Clifford, 309 U.S. 331, distinguished. Held, further, that the trusts were bona fide partners in the partnership and their distributive shares of partnership income are not income of the petitioners.

On August 4, 1944, Emma Mathieu, mother of John, endorsed, in blank, certificates for 276 shares of stock to facilitate the sale of Mathieu & Sons Foundry Company. Held: there was no gift of the stock, and it belonged to Emma at the date of her death. Emma's will divided her property equally between her two living sons, John and Nicholas, and the children of her two deceased sons.

Petitioner held not entitled to deduct in 1944, either as a loss allowable under section 23 (e) or a bad debt allowable under section 23 (k), Internal Revenue Code, the amount of a claim for alleged overpayment of income tax for 1929, merely upon a showing that he filed suit in 1933 in the United States District Court for the alleged overpayment, which suit was dismissed in 1937 for lack of prosecution and in 1941, upon motion filed in 1940, restored to the calendar, heard,…

Held, the partnership agreement entered into by written instrument on February 2, 1945, between petitioner, his wife Maggie Sue Parks,… Held: the partnership agreement entered into by written instrument on February 2, 1945, between petitioner, his wife Maggie Sue Parks, Third National Bank of Nashville as trustee for Charles C. Parks, Jr., Third National Bank of Nashville as trustee for Dorothy Sue Parks, William A. Parks, and W. E. Harris was entered into by the parties…

Held, the overstatement of cost of goods sold and consequent understatement of gross income on a corporate return results in omission of an amount properly includible in gross income. Held: the overstatement of cost of goods sold and consequent understatement of gross income on a corporate return results in omission of an amount properly includible in gross income.

Held, the expenses incurred in obtaining loans to finance the construction of houses are not deductible in the year that the owner of the houses enters into contracts for their sale, which sales… Held: the expenses incurred in obtaining loans to finance the construction of houses are not deductible in the year that the owner of the houses enters into contracts for their sale, which sales remain executory during the year.

Held: Petitioner fraudulently understated his taxable income. Held: Petitioner fraudulently understated his taxable income.

On February 1, 1945, petitioner transferred by gift a five per cent interest in The Harvey Co. to a trust for his son. Held, the value of this gift at the date of transfer was $40,000. Held: the value of this gift at the date of transfer was $40,000.

Gift taxes. - Value of shares of closely held stock on dates of gifts, determined. Held: that the 1934 gifts of income from the trusts were completed taxable gifts notwithstanding the fact the grantor remained taxable on such income under the doctrine of the Clifford rule. Lockard v. Commissioner, 166 Fed. (2d) 409, followed.

Upon the record it is held that the granting to the petitioner by his employer of an option to purchase 2,500 shares of its common stock at a fixed price was not done with intent to compensate petitioner for services rendered or to be rendered but to permit him to acquire a proprietary interest in the corporate employer which would tend to induce a continuance of his service.

Held, the evidence of fraud produced by respondent is not such as to be clear and convincing. Accordingly, fraud penalties are not sustained.

On the basis of the facts presented, held, that petitioner has not established the existence of a bona fide partnership between him and his two sons during the period January 1 to April 30, 1946. Held: that petitioner has not established the existence of a bona fide partnership between him and his two sons during the period January 1 to April 30, 1946.

Decedent's employer, after dismissing him, agreed to pay decedent, in monthly installments, one year's salary as termination payment, and in the event of his death within… Held: the value of the right to receive the termination payments was properly included in decedent's gross estate; held, further, the $15,000 paid to decedent's widow was taxable income to her and was not a gift. In 1946 decedent purchased a home in which he and his wife resided until his accidental death.

Petitioner is a cooperative corporation organized under the laws of Michigan. Held: petitioner was legally obligated to make such payments and they should be excluded in computing petitioner's net income subject to tax.

In 1947, petitioner received from his former employer a certain sum attributable to overtime services he performed for the employer… Held: that the sum in question is not back pay within the meaning of section 107 (d) (2) (A) (ii) or (iii), since the payment for the services in question was not prevented either by the intervention of a dispute as to the liability of the employer to pay such remuneration determined after the commencement of court proceedings or any event…

Members of a partnership imported sugar syrup from Cuba in a joint venture with other persons in 1944. Held: The partners and employee, rather than their wives and relatives, are taxable upon the partnership's share of the profits.

Vacant lots acquired by petitioner upon liquidation of an unsuccessful corporation found not to have been held primarily for sale to customers in the ordinary course of business.

During 1946, petitioner Hibbard E. Broadfoot was a member of a joint venture with one William B. North to exploit an invention of North's for applying shingles to roofs, including slate roofs. Held: petitioner is entitled to deduct the $3,007.68 in question either as his distributive share of a partnership loss under section 182(c) of the Internal Revenue Code, or as a loss in a transaction entered into for profit under section 23 (e) of the Code.

The petitioners, husband and wife, furnished more than one-half of the support of their mother, brother, sister and two children of another sister, and are entitled to claim them as dependents under section 25 (b), Internal Revenue Code.

1. Sums spent for gratuities made in violation of state law disallowed as ordinary and necessary business expense. 2. Portion of rental and redecoration costs allocable to business use of apartment determined. 3. Reasonable salary allowance for services rendered to petitioner by his wife determined.

1. Held, respondent's determination that additions to partnership's reserve for bad debts were unreasonable, not shown to be an abuse of respondent's discretion. 2. Held: respondent's determination that additions to partnership's reserve for bad debts were unreasonable, not shown to be an abuse of respondent's discretion. 2. Held, advances by taxpayer to his brother were loans and nonbusiness bad debt deduction allowed in the year the brother died insolvent. 3.

Statute of limitations: Fraud penalties. - After World War I the petitioner, a lawyer, recovered for his clients properties that had been vested in the Alien Property Custodian. Held: that the returns filed were false and fraudulent with intent to evade tax and assessment is not barred. Held, further, that the deficiencies are due to fraud with intent to evade tax and the fraud penalty is properly imposed.

Held: Petitioner has not proved that certain notes became worthless in 1945. Held: Petitioner has not proved that certain notes became worthless in 1945.

The petitioner operated a garage business owned by him as sole proprietor. Held: that the respondent has failed to prove fraud with intent to evade tax and the deficiencies for the years 1941, 1942, 1943 and 1944 are barred by the statute of limitations.

Upon the record, held, that the petitioners did not receive income consisting of alleged black market commissions in the amount of $72,370, or any part thereof; and… Held: that the petitioners did not receive income consisting of alleged black market commissions in the amount of $72,370, or any part thereof; and that the respondent failed to prove by clear and convincing evidence that the petitioner, Herman Leiser, understated his income with fraudulent intent to evade tax.

Respondent disallowed all amounts deducted by petitioner as expenses, contributions, and bad debts on his returns for the taxable years 1944 and 1945. Held: respondent's action is approved due to petitioner's failure to prove that the items were deductible. During 1944 and 1945, one of petitioner's employers advanced expense moneys pursuant to a written contract. Respondent included such sums in petitioner's taxable income for each year.

While the emergency price control laws were in effect, petitioner, a dress manufacturer, illegally raised its selling price from $3.50 to $3.75 per dress. Held: such amount is not deductible as an ordinary and necessary business expense, since the overcharges were due to a willful disregard of the price control laws and regulations issued thereunder.

1. The Finnie Company of Memphis, Tennessee, formed by partnership agreements entered into on September 1, 1943, performed certain war contracts. Held: the respondent erred in his determination, and the partnership income for the years 1943, 1944, and 1945 is taxable to the petitioners in accordance with the terms of the partnership agreement. 2.

Held, on the facts, petitioner's predecessor Development Company, was engaged during 1938 in a business of buying and selling real estate, and… Held: on the facts, petitioner's predecessor Development Company, was engaged during 1938 in a business of buying and selling real estate, and that a particular property sold in 1938, which had been acquired in 1935 at a foreclosure sale, was held by Development primarily for sale to customers in the ordinary course of its trade or…

The petitioners filed their joint income tax return for 1948 on short Form 1040 and computed their tax under Section 400, Supplement T, of the Internal Revenue Code. They claimed deductions for union dues and technical data on page 1 of the return. In 1951, subsequent to the disallowance of the claimed deductions, they filed a purported amended return. Held, the petitioners' election to report their income under section 400, Supplement T, is irrevocable and the petitioners are not entitled to any page 1 deductions on the short Form 1040 because the income reported was earned as an employee.

Upon the record it is held that the value at the time of death of decedent of certain property transferred by him in trust is not includible in his gross estate under Section 811 (c) and (d) (2), Internal Revenue Code.

Held, that in the taxable year 1945, the partnership of William Teres Company, engaged in the conversion of textiles, was composed of petitioner, his wife, Sadie, and his son, Howard, and that their respective interests in the profits were as fixed in the partnership agreement. Held, further, petitioner is not taxable upon the distributable share of Howard in the profits of the partnership.

Held, that the assets of a corporation of which decedent was the sole stockholder and which were distributed to him in 1945 in complete liquidation of the corporation had a value as follows:… Held: that the assets of a corporation of which decedent was the sole stockholder and which were distributed to him in 1945 in complete liquidation of the corporation had a value as follows: value of tangible assets, $43,087.94, value of intangible assets, including good will, $15,000.

Income: Ordinary or capital gain: Sec. 117 (j), I.R.C. - During 1945 petitioner completed construction of twenty-five residential defense houses with the purpose of immediately selling one-third and… Held: that eight houses held for more than six months and sold during the period of October 1945 to the close of fiscal year ending June 30, 1946, were held primarily for sale to customers in the ordinary course of business and the gain was taxable as ordinary income.

Reasonable rates of depreciation of a building and equipment therein determined.

On the evidence, held, petitioner failed to prove that he contributed over half the support of his two minor sons during the taxable year, and consequently is not entitled to the exemption provided… Held: petitioner failed to prove that he contributed over half the support of his two minor sons during the taxable year, and consequently is not entitled to the exemption provided by Section 25 (b) (1) (C), Internal Revenue Code.

Petitioner, one of 17 companies affiliated with the Illinois Agricultural Association, a state farm bureau, filed its income tax return for the fiscal year ended September 30, 1947 on January 22,… Held: on the evidence, the Commissioner correctly determined petitioner had not shown reasonable cause for failure to file its income tax return on or before the due date, December 15, 1947.

Taxable income for the years 1946, 1947 and 1948 determined.

During 1948, petitioner claimed his foster parents as dependents. They were not blood relations of petitioner nor had there ever been a legal adoption. Held: foster parents are not dependents within Section 25 (b) (3) and respondent did not err in disallowing such dependency credits.

Held, profits derived from the sale of defense housing units originally built for rental purposes but held primarily for sale during the taxable year are taxable as ordinary income. Held: profits derived from the sale of defense housing units originally built for rental purposes but held primarily for sale during the taxable year are taxable as ordinary income.

1. Held: The taxpayer, engaged in research work as part of his employment by a corporation, was not in the trade or business of conceiving… Held: The taxpayer, engaged in research work as part of his employment by a corporation, was not in the trade or business of conceiving and selling patentable ideas, his inventions either belonging to the corporation without additional compensation or being subject to the corporation's option to acquire them at a predetermined price. 2.

During 1944 and 1945, petitioner was engaged in selling textiles at prices above O.P.A. ceilings. Held: petitioner has failed to sustain his burden of proving that respondent erred in determining the amounts of deficiencies for the taxable years. Held, further, that 25 per cent penalties are owing for the taxable years in question for failure to file Federal income tax returns for such years.

During the year 1944, petitioner, H. W. Lancaster was one-half owner of the partnership H. W. Lancaster and Company of Memphis,… Held: that $76,500.02 of its contract price with S. & W. Construction Company for work performed did not accrue as income until its fiscal year ending June 30, 1945, and the partnership was correct in accruing this $76,500.02 as part of its income for that fiscal year and the Commissioner erred in determining that the amount accrued in the…

Held, that of $1,857.50 which petitioners deducted on their joint income tax return for the year 1948 as debts which became worthless… Held: that of $1,857.50 which petitioners deducted on their joint income tax return for the year 1948 as debts which became worthless in that year, $7.50 did not become worthless in 1948 but became worthless in a prior year; held, further, that $1,850 which petitioner loaned W. E. Richburg in 1944 and for which he took his three promissory…

Petitioners raised and registered cattle for developing a breeding herd and sold some during the years 1944, 1945 and 1946 from the farm or at cattle shows. Held: sales to be treated as sales of property used in the taxpayers' business, within Section 117 (j), I.R.C., may be determined in accordance with the case of Walter S. Fox, 16 T.C. 854, affirmed 198 F. 2d 719.

Where the decedent made transfers of stock in two closely held corporations to his son and daughter-in-law, together with credit balances on the books of one of these corporations, held, on the facts, the transfers were substitutes for testamentary disposition made in contemplation of death.

Held, on the facts, that a valid partnership, for income tax purposes, did not exist between petitioner and his son Leonard during the period from January 1, 1944 to April 9, 1945, but that such a partnership did exist on and after April 9, 1945.

Held, the payments of $3,000, which petitioner made to his divorced wife in each of the taxable years 1946 and 1947, were not payments which were taxable to… Held: the payments of $3,000, which petitioner made to his divorced wife in each of the taxable years 1946 and 1947, were not payments which were taxable to her under subsection 22(k) of the Code and are, therefore, not deductible by petitioner under subsection 23(u) of the Code. J. B. Steinel, 10 T.C. 409, followed.

Pursuant to a separation agreement incident to a divorce decree, the former husband of petitioner paid during each of the years 1942 and 1943, $8,000 in alimony which petitioner concedes is taxable… Held: the parties to the separation agreement intended that the life insurance premiums be in addition to the other alimony of $8,000. The amount of the premiums is taxable income to petitioner under Section 22(k) of the Code.

Reasonable salaries for petitioner's officers, in the several taxable years, determined.

In 1934, petitioner entered into a joint venture with one Cardoza, for the patenting, development, and sale of Cardoza's invention. Held: under all the facts, petitioner has failed to prove that he abandoned his interest in the patent in 1946 and that the patent was in fact worthless in 1946.

Whitworth was a partner in an old and well established accounting firm. Held: These payments were distributions of income to the retired partner, are taxable to him as ordinary income, and were not part of the purchase price of his interest in the partnership.

Petitioner was a partner in an old and well established accounting firm. Held: These payments were distributions of income to the retired partner, are taxable to him as ordinary income, and were not part of the purchase price of his interest in the partnership.

Upon remand, held, petitioner's son was, during the years in question, a bona fide partner of a family partnership. Held: petitioner's son was, during the years in question, a bona fide partner of a family partnership.

Held: The value of an interest in real property made the subject of a gift does not include the value of a second mortgage lien against the property when the gift is… Held: The value of an interest in real property made the subject of a gift does not include the value of a second mortgage lien against the property when the gift is expressly made subject to the lien of the mortgage and it is specifically provided the mortgage shall not, on assignment, merge with the fee.

1. Held: The respondent is sustained in his determination of deficiencies in income taxes for the year 1943 and his determination that all or part of the deficiency of Fred R. Gray for this year was… Held: The respondent is sustained in his determination of deficiencies in income taxes for the year 1943 and his determination that all or part of the deficiency of Fred R. Gray for this year was due to fraud with intent to evade tax. 2.

Held: On the facts found, the debt owed petitioner by its president and largest stockholder, became uncollectible, i.e., worthless, and was properly deductible in the year 1944, pursuant to Section… Held: On the facts found, the debt owed petitioner by its president and largest stockholder, became uncollectible, i.e., worthless, and was properly deductible in the year 1944, pursuant to Section 23 (k) (1), I.R.C.

Petitioner, a railway mail clerk, resided in Waycross, Georgia, and worked on trains running between Waycross and Albany, Georgia. Held: such expenditures were not traveling expenses within the meaning of section 23 (a) (1) (A) of the Internal Revenue Code.