Volume 12 — Board of Tax Appeals

INCOME. - For the years 1919 and 1921, petitioner, on the cash basis, actually received only a portion of the salaries credited to him on the books of a corporation and the undrawn salaries were not available to him. Held, that only the amounts received by petitioner in each of the said years may be included in his gross income for those years.

1. Dividend paid by petitioner during the taxable year held to have been paid from current earnings. 2. Where earnings of the current year to the date of payment of a dividend may not be accurately determined, the earnings of the entire year may be prorated. 3. Petitioner held not entitled to have its profits tax computed under the provisions of section 328, Revenue Act of 1918.

1. The books of the petitioner having been kept on the accrual basis, the respondent's action in computing income for the taxable year on such basis was in accordance with the provisions of section 212(b) of the Revenue Act of 1921. 2. Additional depreciation on the basis of a useful life of 18 years of the orchard of the petitioner on the amount of orchard costs used by the Commissioner in his determination of such depreciation already allowed. 3.

Decedent sustained a loss in 1922 through the liquidation of a corporation in which he was majority stockholder. Held, that such loss may not be carried forward and deducted from income for the year 1923, under the provisions of section 204 of the Revenue Act of 1921, since it was not incurred in the conduct of a regular trade or business.

1. Value of certain second mortgages on farms sold by a partnership of which the petitioners were members determined. 2. Depreciation on farm improvements determined by the Commissioner approved.

Deduction for alleged loss or bad debt disallowed.

1. Russel Wheel & Foundry Co.,3 B.T.A. 1168, followed. 2. Obsolescence deductions allowed in part and disallowed in part.

1. In computing loss from the destruction of a residence by fire the cost thereof should not be reduced by the depreciation sustained in… Held: that a deductible loss was sustained which is measured by the difference between the fair market value on March 1, 1913, properly depreciated from this date to the date of the sale, and the sales price, no adjustment to the 1910 or 1911 value being required on account of depreciation sustained from 1910 or 1911 to March 1, 1913. $3.

1. Petitioner's inventory was originally priced by one who was familiar with the cotton which he was pricing, and who was in a position to compare the respective values of similar… Held: that the inventory as originally taken was more nearly correct than any which could now be arrived at on the basis of the opinion testimony and should not be disturbed. 2. The machinery in petitioner's mill was operated in excess of the normal daytime operation during the years in question.

Deductions may not be allowed upon an estimate of the amount expended, such estimate being based upon a computation which does not exclude personal expenditures and not being substantiated in any satisfactory manner.

Acquisition cost of certain real estate on April 1, 1920, determined.

1. Held that on the evidence submitted the taxable income of a partnership of which the petitioners were members was properly computed on the accrual basis. 2.

Losses resulting from shrinkage of value of the stock of a corporation which was a going concern in the taxable years disallowed as deductions from taxable income for such years.

Petitioner's tax liability was correctly determined by the respondent under the provisions of section 1204 of the Revenue Act of 1917, amending section 8(e) of the Revenue Act of 1916.

1. Petitioner's claim for inclusion of book value of fixed assets in the computation of its invested capital for the taxable years involved disallowed by reason of lack of proof of the actual value of such assets when paid in for stock or of the cost of such part thereof as may have been acquired by expending earned surplus therefor. 2. Value of a leasehold at March 1, 1913, determined for depreciation purposes.

1. Amount of discounts not earned or collected by a banking corporation at the close of its taxable year should not be included in its taxable income for such year. 2. Special assessment denied.

1. Assessment and collection of taxes for 1917 held not barred by statute of limitations. 2. Deduction claimed for an amount paid the Oil Industry Association disallowed for lack of evidence. 3. Cost of replacing derricks damaged by fire held not deductible as expense. 4. Portion of proceeds of oil paid attorneys for legal services in defending title to property and securing land patents, held to be capital expenditures.

More than five years having elapsed between the date of filing by the petitioner of his income-tax return for 1917 and mailing by the Commissioner of notice of his final determination to the petitioner, and the petitioner and the Commissioner not having consented to a later determination, the return not being false or fraudulent with intent to evade the tax, and no suit or proceeding having been instituted for the collection of the tax, it is held that assessment and/or…

Valuation of patent applications as of March 1, 1913, determined.

1. Certain amounts invested by a corporation in outside enterprises held not to have been advances to stockholders and are therefore restored to invested capital. 2. Certain withdrawals by stockholders of a corporation held to be loans and therefore are not income to such stockholders and are accounts receivable and should be included in the invested capital of such corporation.

Deduction for claimed loss on sale of stock denied for lack of evidence either as to the cost or sales price.

Classification as a personal service corporation denied, upon the ground that petitioner's income can not be ascribed primarily to the activities of the principal stockholders.

The liability of transferees of partnership property with respect to an assessed and unpaid deficiency in income tax of one of the partners which may be assessed against such transferees under the provisions of section 280, Revenue Act of 1926, determined.

The evidence is insufficient to establish the actual cash value of a leasehold paid in for stock in 1908 or the fair market price or value thereof on March 1, 1913.

Cash value of good will and intangibles paid in to a corporation in exchange for shares of capital stock not proven by the evidence.

The disallowance of the 25 per cent credit claimed by the petitioner under Title XII of the Revenue Act of 1924, approved. Charles Colip,5 B.T.A. 123.

The disallowance of the 25 per cent credit claimed by the petitioner under Title XII of the Revenue Act of 1924, approved. Charles Colip,5 B.T.A. 123.

DEDUCTION. - Petitioner sustained a loss by canceling a contract. It accrued the liability on its books for 1918 and paid the loss in 1919. Held: that respondent's disallowance of deduction for 1918 be approved, for record does not establish if the loss was incurred and properly accrued on the books during 1918.

1. Profits derived by petitioner from the operation of a flour mill under a lease agreement which was involved in litigation as being invalid, should be included as income for the fiscal year ended June 30, 1920, in which the profits were actually received although the litigation was not concluded until 1925. 2. Deduction of expenses incurred and paid subsequent to the taxable year disallowed.

The petitioner purchased at less than their par value, a series of 12 notes payable one each month. Held: that only so much of the discount as was earned within the year 1920 is income to the petitioner for that year.

Company A owned all the capital stock of Company B, for which it had exchanged all its assets and 55 per cent of its common stock. Held: that Company B suffered no deductible loss under section 234 of the Revenue Act of 1918.

Loss. - In 1919 a bank called upon petitioner to pay $24,153.12 as guarantor for certain loans and in that year petitioner paid $4,899.58 cash and gave his note for the balance. Held: that the $4,899.58 is a proper deduction and that the amount of the note is not deductible as a loss sustained in 1919. 7 B.T.A. 557 modified.

1. A owned 52 per cent of the capital stock of a corporation, and B, C and D owned 42 per cent of the capital stock. Held: that the provision of section 331 of the Revenue Act of 1918, and section 331 of the Revenue Act of 1921, prohibits a new corporation from valuing the assets so acquired at a greater amount in computing its invested capital for the years 1920 and 1921 than the old corporation could have valued them in computing its invested capital.…

1. Notice of deficiency held to have been improperly addressed. 2. Under the circumstances in this proceeding held that the Board has not jurisdiction.

Under the evidence held that the petitioner and his three children were partners during the years 1920 and 1921 in the operation and management of the theatres involved herein, and that there should be included in the petitioner's income only his distributive share of the partnership profits for those years.

1. Invested capital should be adjusted, on account of income and profits-tax liability for previous years, in accordance with decision in Russel Wheel & Foundry Co.,3 B.T.A. 1168. 2. Invested capital may not be reduced by dividends paid in excess of current earnings to the extent that the amount of available earnings is affected by the deduction of a tentative tax. L. S. Ayers & Co., B.T.A. 1135. 3.

1. March 1, 1913, value of petitioner's land, buildings, machinery and equipment determined. 2. The amounts of certain capital additions, made subsequent to March 1, 1913, determined.

In 1920 the petitioner determined that a portion of certain accounts receivable would never be collected and accordingly charged off to profit and loss the portions which it determined would not be… Held: that the amounts charged off are not deductible from gross income.

Profit realized on an exchange of shares of stock in one corporation for shares of stock in another corporation determined.

Debts ascertained to be worthless and charged off the taxpayer's books of account in 1920 held to be a legal deduction from gross income.

1. Where a partnership computed its net income in the year 1917 upon the basis of net worth on January 1, 1917, and net worth on December 31, 1917, and the net worth at the close of the year was… Held: that the assessment and collection of the deficiency against the partnership is not barred by the statute of limitations.

(1) Section 277(b) of the Revenue Act of 1924 applied. (2) An erroneous decision of a question of law made by an officer of the Government is not binding on his successor in office.

Valuation of a contract for the purchase, transportation, and sale of natural gas determined as a basis for invested capital and exhaustion.

Held, on the evidence that the dividends involved herein were cash dividends and not stock dividends. Held: on the evidence that the dividends involved herein were cash dividends and not stock dividends.

1. A corporation affiliated with another corporation under section 240 of the Revenue Act of 1918 does not lose its status as a taxpayer and an assessment against such corporation in the absence of an agreement that the taxes due from other affiliated corporations may be collected from it will not authorize the collection from it of taxes due from such other corporations, and a notice to it of a deficiency in taxes due from other affiliated corporations joining with it in…

Payment to president of corporation held to be a gift.

1. Held, that the deficiency for 1919 is barred by the expiration of the period of limitations prescribed by law. 2. Held: that the deficiency for 1919 is barred by the expiration of the period of limitations prescribed by law. 2. Method of computing depreciation on sawmill machinery and equipment for 1920, determined.

Commissions paid in the purchase of securities are a part of the cost of such securities and are not deductible as expense.

Petitioner held to be an employee of the State of Mississippi and his income from services performed for that State held to be exempt from Federal income tax.

1. L. S. Donaldson Co., Inc., acquired in 1913 for $200,883 noninterest-bearing promissory notes payable monthly up to the date of the expiration of the lease in… Held: that the lease had no capital value upon which a deduction from gross income in annual tax returns for exhaustion can be predicated but that the petitioner is entitled to deduct from gross income of each year as an ordinary and necessary expense the amount paid in respect of notes maturing in such year. 2.

A depletion reserve based upon discovery value substantially in excess of cost or March 1, 1913, value represents, to the extent of the excess, earnings or profits accumulated since February 28, 1913, within the meaning of section 201(a) of the Revenue Act of 1921.

Petitioner held not a building and loan association entitled to exemption from taxation during the years 1918, 1919, 1920, 1921, 1922, and 1923 in the meaning of section 231(4) of the Revenue Acts of 1918 and 1921.

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

Where a Texas corporation is dissolved and by reason of such dissolution its assets and transferred to those composing its board of directors, as trustees for the creditors and stockholders of the corporation, and where such trustees enter into no new operations, held, that the trustees neither by themselves nor in connection with the stockholders of the dissolved corporation constitute an association within the meaning of the Revenue Acts of 1918 and 1921.

Value of lease at date of acquisition and on March 1, 1913, determined.

Inventory value of 5,000 sheep at close of year determined.

1. INVESTED CAPITAL. - Each one of six corporations engaged in the same line of business, transferred its business in a particular locality to a newly organized corporation. Held: that the restriction as to invested capital under section 331 of the Act of 1918 did not apply to the purchasing corporation, in respect to the assets acquired. 2. INVESTED CAPITAL. - INTANGIBLES. - The proof held insufficient to determine the value of certain intangible assets. 3.

The fact that an estate has been administered and the administratrix discharged does not operate to defeat the right of the Government to collect within the statutory period provided by Congress such income tax as may be due upon income received by the decedent prior to his death.

1. Where the Commissioner asserted a deficiency against a taxpayer, the Board acquires no jurisdiction to redetermine the amount thereof upon petition filed by one, other than the taxpayer, who has assumed the payment of any deficiency. 2. One who acquires the assets of a corporation agreeing to pay its liabilities is not a fiduciary within the meaning of section 281 of the Revenue Act of 1926.

1. The assessment and/or collection of a deficiency in income tax for the year 1917, determined in September, 1925, is not, under the circumstances, barred by the statute of limitations. 2. The collection of an additional tax for the year 1917, assessed in November, 1919, is not, under the circumstances herein, barred by the statute of limitations.

An organization known as Julius Rosenwald Fund was organized in 1917 for charitable, scientific, educational, and religious purposes. Held: that said income is taxable to the petitioner.

1. A bonus for the year 1920 was authorized and paid to petitioner in 1921. Petitioner kept his books on the basis of cash receipts and disbursements. Held: that such bonus was income to petitioner in 1921 and taxable in that year. 2.

In the circumstances, it is held that certain certificates of the face value of $50,000 delivered to petitioners in December, 1918, for services rendered, constituted income for that year in the amount of their face value.

The petitioners were, during the period from August 1, 1919, to December 31, 1919, affiliated.

1. The transfer by decedent of certain stock in trust for his son, with reservation of the income therefrom to the donor during his life and thereafter to his widow during her life, was intended to,… Held: the value of the stock is properly included in the gross estate for estate tax purposes. 2. Upon the evidence, the valuation determined by respondent is approved.

1. An issue argued in the brief, but not raised in the pleadings, is disregarded. 2. Obsolescence of machinery set aside in 1918 and finally discarded in 1920 allowed in 1920. 3. Proper basis as well as rate of depreciation determined.

The evidence does not support the claims of petitioner for deductions from income of allowances for bad debts and depreciation in excess of the deductions allowed by respondent.

1. Various questions of fact relative to the fair values of assets are determined upon the evidence; where satisfactory evidence is lacking, respondent is sustained. 2. Deductions held allowable from the gross estate of executrices' commissions duly allowed by the court and actually paid, and also the amount of an indebtedness overlooked in preparing the return.

Decedent inherited 220 shares of stock from her husband, the value of which was found by the Estate Tax Unit to be $7,700. She had, prior to be husband's death, purchased 40 shares for $2,000. The 260 shares were valued by the Estate Tax Unit after the death of Mrs. Pennell at $3,900. Claim for deduction on account of loss denied.

1. Receipt of proceeds of sale by taxpayer's agent constitutes receipt by a taxpayer on a cash receipts and disbursements basis. 2. Value of land determined. 3. Loss incurred on account of destruction of grapevines allowed in part. 4. Value of stock determined. 5. Rate of depreciation of petitioner's orchard determined.

1. Where real property is purchased in 1906 for the purpose of resale at a profit the petitioner is entitled to deduct a loss sustained by him in 1920 resulting from the sale thereof. 2. The petitioner is entitled to deduct lawyers' fees paid in 1920 and 1921 for the conduct of litigation against his father growing out of their business relationship.

Where an opening inventory was taken at cost and in the closing inventory certain articles were inventoried at market which was higher than cost and the inventory otherwise was taken at cost, the closing inventory should be reduced by the difference between market and cost of the items inventoried at market.

March 1, 1913, value of certain patents determined. L. S. Ayers,1 B.T.A. 1135, and Russel Wheel & Foundry Co.,3 B.T.A. 1168, followed.

Where an attorney rendered services in connection with the petitioner's personal affairs and also in connection with certain business affairs, and he is not able to allocate his fee between the two classes of services, and where no ground for allocation is shown, the Commissioner's action in denying the entire amount as a deduction from income is approved.

Interest accrued to the date of the decedent's death on securities owned by him, a pension due for a period preceding his death, salary for a period preceding his death, and dividends declared prior to his death, but payable after his death on stocks owned by him, all of which were received by his estate after his death, where both the decedent and the estate were on the cash receipts and disbursements basis, are not taxable income to the estate, where the amount finally…

Held that the petitioner did not sustain a deductible loss in 1920 with respect to the stock in a corporation.

The amount of the opening inventory for 1920 determined.

The March 1, 1913, value of real estate determined.

Held, that the petitioner is entitled to a deduction in 1924 on account of stock becoming wholly worthless in that year. Held: that the petitioner is entitled to a deduction in 1924 on account of stock becoming wholly worthless in that year.

Petitioner, in the year 1921, purchased some of its own bonds for less than their face or par value. Held, that it realized no taxable gain from such transaction. Held: that it realized no taxable gain from such transaction.

1. Where a petitioner, who owned certain shares of stock which had cost less than $250 a share, sold the shares of stock at $300 a share, he is not relieved from tax liability on the profit represented by the difference between $250 and $300 a share by the fact that a short time before the sale he told certain individuals that they should have all that he realized from the sale of the stock over and above $250 a share. 2.

Debts charged off in 1920 were ascertained to be worthless prior to that year and petitioner is not entitled to a deduction on account thereof in 1920.

Petitioner was not a personal service corporation in 1920.

The evidence fails to show that the Commissioner erred in his determination of gain resulting from the exchange of assets for stock.

Value of sheep in inventory at December 31, 1918, determined upon the evidence.

1. The Board has no jurisdiction to redetermine the tax for a year for which no deficiency has been found. Revenue Act of 1926, section 274(g); Appeal of Cornelius Cotton Mills,4 B.T.A. 255.

1. A corporation which is shown to have derived nearly all of its gross income from trading as a principal is expressly excluded in section 200 from the exemption provided under section 218(a)(e) of the Revenue Act of 1918. 2. Where compensation for the personal services of stockholders was neither authorized, paid, nor accrued, no allowance therefor can be estimated and allowed as a deduction from income. 3.

Petitioners' valuation of ewes and lambs at $9 and $5 per head, respectively, as used in closing inventory for the year 1919, is approved.

Appeal dismissed for lack of jurisdiction.

1. The evidence establishes that respondent erred in increasing the value of the closing inventory of materials and product, but error is not shown with reference to supplies. 2. Current earnings available for dividends should not be reduced by a tentative tax. L. S. Ayers & Co.,1 B.T.A. 1135.

It appears from the evidence that two accounting periods of a partnership of which petitioners were members ended within the taxable year of petitioners. Held: section 218(a) of the Revenue Act of 1918 applies and petitioners' shares of the partnership income for both periods should be included in the taxable year.

The amount received by an attorney for professional services rendered to the Commonwealth of Kentucky under a contract is not exempt from income tax.

The petitioner held to be a personal service corporation for the fiscal year ended August 31, 1920.

The petitioner held to be a personal service corporation for the year 1921.

Disallowance by the respondent of a deduction from gross income on account of a worthless debt sustained.

The petitioner, in his income-tax return for 1918, falsely or fraudulently understated his income with intent to evade the income tax.

Purported sale of stock held not bona fide.

1. The Board has jurisdiction of a proceeding instituted as the result of a denial of a claim for abatement even though the claim relates to taxes shown on a return of the petitioner where such return was filed under protest by the petitioner and to comply with rulings by the Treasury Department, a prior return for the same year having shown a much smaller amount of tax due. 2. Deduction for exhaustion of a contract allowed. 3. Deductions for exhaustion of leases allowed. 4.

1. Inclusion in invested capital of certain assets acquired at organization for capital stock disallowed for lack of evidence as to value. 2. Amounts expended for labor in resurveying and remarking boundaries of petitioner's property held deductible expenses. 3.

Losses held to have been sustained in the years of sale.

1. Where a taxpayer has died, the Commissioner has the right to determine a deficiency against his personal representative. 2. The assessment and collection of the tax is not barred by the statute of limitations.

1. Where the petitioner determines its income upon the basis of completed contracts and has performed all of the work required under the contract and received all payments under the contract in 1920, notwithstanding a provision giving one of the contracting parties the right to make an audit within two years, and notwithstanding certain work of rearranging the plant, the contract is completed in the year 1920, according to its terms and income therefrom must be reported…

Findings made in 1922 by the State Banking Commissioner as to the financial condition of petitioner and the decree of the State court approving such report and declaring the bank insolvent are not res adjudicata of the questions involved here and certified copies thereof are not competent evidence to establish the invested capital of petitioner for 1920 and prior years, or to prove that petitioner is entitled to additional deductions in 1920 for bad debts which it had not in…

A judgment for damages for loss of property which became binding on the taxpayer in one year and was paid the following year, is not deductible in the first year, when taxpayer's accounts are kept on the basis of cash receipts and disbursements.

1. Respondent's determination of amounts of merchandise purchased approved. 2. Deficiency held not barred.

1. Deduction for loss in trading on exchange allowed. 2. Deduction for loss on sale of automobile disallowed.

Petitioner's inventory approved.

Upon the evidence held that petitioner failed to establish the basis for the determination of the gain derived or loss sustained upon the sale, in 1920, of assets which it acquired at organization.

Fair market value of farm property determined as of March 1, 1913.

Promissory notes executed by the five stockholders of a corporation, made payable to the corporation but held by the bank as security for the bonded indebtedness of the corporation and the indebtedness of the corporation to the bank, which were returned and canceled after the corporation had become self-supporting, and upon which no payment on account of principal or interest was ever paid, held properly excluded from invested capital of the corporation.

Instrument construed and held to be an assignment of profits to be earned; the assignor and not the assignee being taxable thereon as earned.

1. Valid consents in writing having extended the time for assessment of 1918 taxes beyond the time this appeal was filed, February 22, 1926, assessment and collection held not barred in view of section 278(d), Revenue Act of 1924. 2. Where petitioner in 1923 paid damages for infringement of a patent in 1918, no fund being set aside for payment of such in 1918, and liability having been contested, held that this payment is not deductible as a loss for the year 1918.

A will covering certain real property located in Tennessee provided: All my other property, real, personal, or mixed, I give, bequeath and devise unto my said wife, * * *. Held: that the wife, under the will, gained an absolute estate subject to be defeated only by her selling the property, and since she did not sell it, at her death she owned the property in fee simple and the same should be included in her gross estate for purposes of the estate tax.

1. Petitioners sold stock on March 11, 1916, for more than cost and for more than the March 1, 1913, value. Held: that the contract received had a determinable fair market value at the date of receipt. 2. Deferred payments under the contract were based upon the number of tons mined annually from the Mahoning Mine, the mineral content of which was susceptible of accurate determination.

1. The effect of section 23 of the Merchant Marine Act is to give to those who comply with its terms an additional deduction in computing net income subject to excess-profits and war-profits taxes. 2.

The petitioner, upon the evidence, held not to be a building and loan association within the meaning of section 231(4) of the Revenue Act of 1921.

1. The petitioner operated as an individual a number of moving picture theatres which he owned or rented. In addition he operated a moving picture business which was conducted as a partnership in which he owned a one-half interest. He also operated other moving picture theatres conducted by corporations in which he owned 50 per cent of the stock. Held, that the petitioner's operation and management of motion picture theatres and his ownership of an interest in the partnership and the corporations constituted his trade or business within the provisions of section 229 of the Revenue Act of 1921. 2. Held, that the petitioner's distributive share of certain partnership profits and a certain dividend received in 1921 are not taxable to him under section 229 of the Revenue Act of 1921. 3. Held, that the amount of a dividend received by the petitioner and withdrawn by him on December 31, 1921, from his business which he was operating in an individual capacity and for a portion of which amount he gave a note payable to the business, constituted an amount distributed under section 229 of the Revenue Act of 1921.

1. Patents are exhaustible assets and the mere fact that during the life of the patents a good will value comes into existence does not prevent the elimination of the patents from the asset account upon the expiration of their life. 2. Restoration to invested capital of the cost of patents the life of which had expired, denied. 3. Petitioner has followed the consistent policy over a long period of years of charging the cost of drawings to expense.

1. Deduction claimed by the petitioner, president of a corporation, on account of a loss of the corporation for which he accepted responsibility and agreed to reimburse the corporation, denied for lack of evidence as to date of payment. 2. The entire loss sustained on a margin-trading account extending from 1921 to 1923 and claimed as a deduction in 1923 when paid, denied.

1. ASSETS EXCHANGED FOR STOCK. - Stock received by petitioner in exchange for assets held to have no fair market value in exdess of cost of such assets and consequently no taxable gain to accrue from… Held: that respondent was in error in determining a deficiency for the month of February, 1918 which was the first month of that fiscal year, the deficiency, if any, being for the whole fiscal year.

- Three corporations involved herein were affiliated within the meaning of section 240(b)(2) of the Revenue Act of 1918, and should file consolidated returns for the periods under consideration.

1. WORTHLESS DEBT. - Where a debt was ascertained to be worthless in 1920, but was not actually charged off by an entry on the books until April, 1921, it is allowable as a deduction for 1920, if made for the year 1920, and before the books for that year were closed. 2. CREDITS. - The fact that credits were applied to the note after 1920, but before the charge-off, is immaterial if the credits had the same value as on December 31, 1920.

1. LIMITATION. - Where an assessment was made in 1924 within the five-year period provided by section 250(d) of the Revenue Act of 1921, and the Act of 1924, was enacted prior to the expiration of that five-year period, respondent has six years from the date of the assessment to begin a suit or other proceeding to collect the tax under section 278(d) of the Act of 1924. 2. INSURANCE DEBIT. - Evidence examined and fair market value as of March 1, 1913, determined. 3. RELEASED RESERVE. - Where an insurance company set aside a reserve in 1918, and it was released for the general purposes of the company in 1919, it is taxable as income in 1919.

(1) The ability, skill and experience of certain incorporators of a corporation which had no predecessor, held not to constitute good will. (2) Certain services and contracts held not to have been paid in for capital stock. (3) Respondent's action in reducing invested capital by the amount of taxes for previous years prorated from the due date of each installment approved.

Charles Colip,5 B.T.A. 123, followed.

Commissioner's determination of an earned income credit of a partner approved.

F. W. Matthiessen, Jr.,2 B.T.A. 921, followed.

Respondent sustained in computing tax on the salary actually received by petitioner in 1921.

Respondent's determination of invested capital sustained.

Collection of deficiency for 1917 held barred by the statute of limitations.

Deduction allowed for notes aggregating $46,000, which were ascertained to be worthless and charged off in the taxable year.

1. Transfers of stock made by deceased were not made to take effect in possession or enjoyment at or after death. 2. Value of stock determined for estate-tax purposes.

1. No loss is sustained by a corporation from the sale of its own capital stock. 2. A corporation which acquires its own capital stock is none the less the owner thereof because it causes stock to be issued in the name of a nominee. 3. A purchase by one corporation of the assets of another for capital stock does not constitute a reorganization, consolidation or merger under section 202(b), Revenue Act of 1918.

The amount paid by two partners to a third partner, in excess of such partner's interest in the capital and undivided proflt in the partnership, to secure his withdrawal from the partnership, such partner taking with him that portion of the business of the partnership which he had secured and the payment resulting in the acquisition of no capital asset by those making the payment, held to be deductible in computing net taxable income.

- Company B was organized in 1912, with a paid-in capital of $60,000. It operated at a loss until August 1, 1919, when its stockholders sold all of their stock to Company A for $15,000 cash. Held: that Company B should be included in the consolidated invested capital for the year 1919 at $45,000.

Compensation paid to trustees of the Boston Elevated Railway Co. held exempt.

Deficiency for fiscal year ended January 31, 1921, held barred from assessment and collection.

1. ADDITIONAL SALARY. - Where the president of a corporation was overpaid or overdrew his salary account $1,400 during the taxable period, and after the close of the taxable period this overpayment was canceled, the deduction is not allowable for the taxable period. 2. DEPRECIATION - INVESTED CAPITAL. - Claim for additional depreciation and increased invested capital determined. 3.

1. VALUATIONS. - Value of leasehold for invested capital purposes as of the date of transfer to the corporation determined. 2. INVESTED CAPITAL. - Section 331 of the 1918 Act does not apply where an individual after March 3, 1917, obtains a leasehold and transfers it to a newly organized corporation and after the transfer is the owner on only 20 per cent of the corporation's stock.

Evidence held insufficient to overthrow respondent's determination.

Commissioner sustained in the disallowance of claimed bad debt deduction on account of money spent by petitioner for the care of his father in a sanitarium.

1. A member of a partnership is taxable upon his distributive share of partnership income whether distributed or not. 2. Depreciation allowed by the Commissioner on the law library of petitioner sustained. 3. Amount paid to petitioner annually for maintenance of law library used by partnership but title to which was in petitioner properly held to be income to him.

1. The Commissioner erroneously added to income amounts representing bad debts which have never been deducted from income. 2. The Commissioner denied the right of the petitioner to use inventories and the include certain accrued items in the computation of its invested capital and for lack of evidence his determination is approved.

1. Distributions served to reduce invested capital below the amount paid in for stock or shares since the distribution exceeded the surplus and profits of the petitioner. 2. Taxes for prior years reduce invested capital to the amount paid in for stock or shares, but can not reduce invested capital below this amount.

1. L. S. Ayers & Co.,1 B.T.A. 1135, followed. 2. The Commissioner was not in error when he excluded from surplus the amount paid as a commission by the petitioner for the sale of its capital stock.

A claim was filed against petitioner in 1919 for a shortage in his accounts for the collection of Liberty bond subscriptions. Held: that the amount expended in settlement of the claim was, under the circumstances, a loss sustained in 1920.

Salaries accrued during the taxable year, reasonable in amount, are deductible in computing net income.

1. Computation of the excess-profits tax of the Crescent Theatres, Inc., for the year 1920 under section 302 of the Revenue Act of 1918, approved. 2. Deductions for exhaustion, wear and tear of property used in the trade or business allowed.

Under the evidence, held, that the partnership of Rose Brothers, of which the petitioners were members, did not sustain any loss on the sale of the real estate involved herein. Held: that the partnership of Rose Brothers, of which the petitioners were members, did not sustain any loss on the sale of the real estate involved herein.

Held, under the facts, that the respondent correctly determined the petitioner's tax liability on a fiscal year basis. Held: under the facts, that the respondent correctly determined the petitioner's tax liability on a fiscal year basis.

The petitioner kept its books on a fiscal year basis but filed its return on a calendar year basis. Held: that the return filed on the calendar year basis, which did not include the full taxable period, did not start the running of the statute of limitations.

1. The Commissioner was authorized to determine the value of petitioner's stock in Ford Motor Co. James Couzens,11 B.T.A. 1040, followed. 2. The fair market price or value of such stock determined. 3. A dividend received in 1919 by petitioner, a stockholder of Ford Motor Co., as a result of the decree of a state court requiring distribution of surplus on hand in 1916, held to be within petitioner's taxable income of 1919.

The amount of gain from the sale of mineral rights determined.

1. Petitioner is not entitled to exemption from taxation for the years 1920 and 1921 as a domestic building and loan association. 2. Dividends on paid-up and running stock held not deductible from income as a business expense or as interest on borrowed money.

1. Petitioner filed its income and profits-tax return for 1919 on or before March 15, 1920; thereafter on or about January 26, 1924, it entered into a consent in writing extending the time within which assessment of the tax for that year might be made until December 31, 1925; a deficiency notice was mailed to the petitioner on August 24, 1925, and on October 22, 1925, it filed an appeal with this Board. Held, the collection of the deficiency for 1919 is not barred by the statute of limitations. Following Sunshine Cloak & Suit Co.,10 B.T.A. 971. 2. Commissioner Williams held that the petitioner and parent company herein were affiliated for 1917 and 1918; Commissioner Blair, who took office on May 27, 1921, advised the parent company on August 19, 1921, that it was affiliated with the petitioner for the year 1919, which ruling the later reversed. Held, the respondent committed no error in reversing a former ruling made by him with respect to the same taxable period. 3. The petitioner and the parent company were not affiliated in 1919 within the meaning of the statute.

1. In 1922 the respondent assessed against the petitioner additional income and excess-profits taxes for 1917 and 1918; the five-year period, provided for by section 250 (d) of the Revenue Act of… Held: that the collection of the 1917 tax is barred by the statute of limitations, but that the collection of the 1918 tax is not barred. 2. The respondent's disallowance of a bad debt deduction approved.

For failure on the part of the petitioner to adduce sufficient evidence in support of its allegations in the petition, the respondent's disallowance of a deduction for exhaustion of an alleged leasehold is sustained.

The petitioner entered into an agreement with his wife for her separate maintenance and support, agreeing to pay her a specified sum monthly. Held: that the income from the securities so deposited is taxable to the husband.

1. Loss from fire determined. 2. A debt must be ascertained to be worthless and charged off before it may be deducted in computing net taxable income under the Revenue Act of 1918. It is not sufficient that it may be knwon to be worth less than its face amount or that a reserve shall be set up for the portion estimated to be uncollectible.

The petitioners and the Howes Great London Shows Co. were affiliated during the fiscal years ended January 31, 1921, and January 31, 1922.

The petitioner is entitled to deduct from gross income for 1920 as a debt ascertained to be worthless and charged off in that year, the amount of $7,041.12 involved herein.

1. The corporation, Robert C. Rogers Co., Inc., was not engaged in business after July 31, 1919, when the petitioner took over its assets, and he is not liable under section 280 of the Revenue Act of 1926 as the transferee of the assets of the corporation for taxes asserted against it by the respondent for the calendar year 1919, and the period January 1, to August 18, 1920. 2. Petitioner did not receive a liquidating dividend from said corporation in the calendar year 1920.

1. Compulsory contributions to a pension fund which do not create any vested or contractual right in the contributor to a pension, do not amount to an insurance whose present value would be subject… Held: not to have been made in contemplation of death.

The value of certain securities involved herein owned by the decedent at the date of her death held to be a proper deduction in determining her net estate subject to the Federal estate tax, under section 403(a)(2) of the Revenue Act of 1921.

In November, 1916, the petitioner acquired a certain leasehold and issued its capital stock of the par value of $300,000 in payment therefor. Under the evidence, held that the leasehold at the time it was acquired by the petitioner, had a fair market value of $300,000, and that the petitioner is entitled to include said leasehold in its invested capital at $300,000, and to compute the annual allowances for the exhaustion of the leasehold on that basis.

An operating loss sustained by a taxpayer, incorporated during the calendar year 1919, from the date of incorporation to December 31, 1919, is not a legal deduction from gross income in an income-tax return for the calendar year 1920.

1. Evidence held insufficient to show that the respondent's determination of deficiencies resulted from errors alleged as to inclusion of certain amounts in income. 2. Evidence held insufficient to prove loss upon transfer of stock to petitioner's wife in 1921.

Expenses paid by the petitioner in defending himself against a criminal charge are not deductible as ordinary and necessary business expenses.

The Commissioner's denial of special assessment for the year 1918 approved.

The Commissioner's determination that a hotel leasehold had no value when assigned to the petitioner in exchange for $200,000 par value of its capital stock is approved.

1. Where the petitioner in purchasing tangible property in January, 1917, paid certain cash and preferred stock to the owner thereof and certain common stock to a third party for an assignment of its option to purchase the property, and the actual cash value of the property is shown by the evidence to be in excess of the total amount of the cash and the par value of the preferred and common stock paid out by the petitioner, upon computation of the petitioner's invested…

1. PERSONAL SERVICE CLASSIFICATION. - The petitioner corporation, during the years under review, had a paid-in capital stock and an undivided surplus; carried assets such as real estate, stocks and… Held: that this corporation is not entitled to a personal service classification. 2.

The evidence establishing that the returns filed by petitioner were not false or fraudulent, section 3176, Rev. Stats., as amended by section 1003 of the Revenue Act of 1924, was not applicable.

1. Traveling and entertainment expenses incurred by members of a partnership and their employees in carrying on its business are deductible in computing the partnership's taxable income when such expenses are shown to have been ordinary and necessary business expenses. 2. The evidence does not establish that the Commissioner erred in including in I. Goldman's income for 1920 and 1921 certain deposits made in his savings bank account.

Held, collection of the deficiency for 1918 is not barred by the statute of limitations. Art Metal Works,9 B.T.A. 491.

Amount of deduction determined and allowed for loss on account of indebtedness ascertained to be worthless and charged off within the taxable year 1917, under section 12(a) of the Revenue Act of 1916, as amended.

1. Where a corporation issued bonds at a discount and afterwards consolidated with other corporations, whereby a new corporation was formed, held that the new corporation should not be permitted to deduct from gross income an amortized part of such discount. 2.

1. SPECIAL ASSESSMENT. - Under section 327(d) of the Revenue Acts of 1918 or 1921, a petitioner before the Board must first establish by competent proof that there are abnormal conditions affecting its capital or income before it becomes entitled to have considered the question of exceptional hardship as evidenced by gross disproportion between the tax computed without benefit of the special assessment provisions and the tax computed by reference to representative…

Value of stock of Ford Motor Co. on March 1, 1913, determined. James Couzens,11 B.T.A. 1040, followed.

Value of stock of Ford Motor Company on March 1, 1913, determined. James Couzens,11 B.T.A. 1040, followed.

1. Under the Revenue Act of 1918, held, a taxpayer is entitled to make its returns of income upon the basis on which its accounts are kept, if such accounts accurately… Held: a taxpayer is entitled to make its returns of income upon the basis on which its accounts are kept, if such accounts accurately reflect its income. 2. The petitioner was engaged in raising and marketing sugar cane. The planting, cultivation, and marketing of its crop extended over three taxable years.

1. INVESTED CAPITAL - ADVERTISING. - Where a corporation spent large sums in advertising over a long series of years and charged same to expense, and now seeks to restore said expenditures to capital… Held: that no part thereof should be allowed as invested capital.

There was an agreement between the petitioner and its affiliated corporation as to how the tax liability of the two corporations should be apportioned between them.

At the request and direct of the administratrix the attorneys for an estate filed a written request under section 250 of the Revenue Act of 1921 signed with the firm name, asking the Commissioner to… Held: that such notice was sufficient to start the running of the statute of limitations.

1. Amounts contributed to petitioner by prospective patrons towards the cost of constructing extensions of existing power lines to the premises of the contributors, held not to be taxable income. Further held that the amount contributed in 1920 may not be included in invested capital for the year 1921. 2.

In the year 1916 the petitioner purchased the assets of a partnership and issued shares of its capital stock therefor in the amounts of $1,553,688.59 for the tangible assets and $325,000 for the good will.

Where respondent determined that petitioner sustained a net loss in 1919, but later determined that his prior determination was erroneous, and no net loss was actually sustained, held that his action in refusing to allow as a deduction against 1920 income a portion of a net loss previously determined was correct.

The action of the petitioner in determining the cost of goods by reducing the invoice price by 5 per cent, representing discounts, is approved.

1. March 1, 1913, value of patents determined. 2. Certain development costs and capital expenditures restored to surplus and included in computation of invested capital. 3. Excessive depreciation charged off in prior years restored to surplus and included in computation of invested capital. 4. Value of certain assets acquired in 1910 for stock determined for purposes of invested capital and depreciation. 5. Income computed upon installment sales basis for certain years. 6. Special assessment allowed. 7. Deficiencies held not barred by statutes of limitation.

The petitioner, having failed to introduce sufficient evidence to enable us to base our decision on section 703 of the Revenue Act of 1928, the fiduciary under the will of the decedent is the only one entitled to deduct Pennsylvania inheritance and Federal estate taxes in the computation of net income for 1921, notwithstanding the decedent specified in his will that the petitioner should pay the tax upon his share of the estate.

The March 1, 1913, value of certain lands sold by the petitioner in 1920 determined.

1. Corporation - Income - Individual. - Where a corporation held a lease upon and operated a theatre and all expenses were paid from box office receipts, and where subsequently one of the stockholders became the owner of all except two qualifying shares of capital stock, but the corporate entity was still maintained to avoid personal liability and the business was conducted substantially as before by the corporation holding the lease and paying all expenses of operation,…

Income. - Entries in books of account when at variance with actual facts shall not be taken as basis for determination of income.

An amount paid in 1921 in excess of the amount of insurance received in rebuilding a structure partially destroyed by fire in 1920 is not a legal deduction from gross income in an income-tax return for 1921.

The cash value of an application for a patent paid into the petitioner corporation in 1907 in exchange for shares of stock and cash determined.

1. Salaries paid to officers of the petitioner corporation for the fiscal years ended October 31, 1918, and October 31, 1919, held to be only reasonable compensation for services rendered and therefore legal deductions from gross income. 2. Petitioner's liquors on hand at October 31, 1919, were inventoried on the basis of cost or market, whichever was lower. Held that such basis was proper. 3.

(1) Disallowance of traveling expense and selling cost approved. (2) Inventory adjustments approved.

(1) Disallowance of traveling expense and selling costs approved. (2) Increases to petitioner's income derived from partnership interests approved for lack of proof of error.

1. The Commissioner was authorized to determine the value of petitioner's stock in the Ford Motor Co. James Couzens,11 B.T.A. 1040, followed. 2. The fair market price or value of such stock determined.

1. A nonresident alien engaged in the business of selling in foreign countries goods purchased in the United States and maintaining in New York City an office for the purchase of such… Held: that under the Revenue Act of 1921 the manager of the New York office is liable to income tax in respect of his pro rata share of the profits of the partnership, but that the nonresident alien partner is exempt from income tax in respect of his share of the profits of the partnership.

A corporation declared a dividend of $12,000 and paid such dividend to its stockholders by the delivery to them of Liberty bonds which cost it $12,000 but which had a fair market value of $10,636.80… Held: the corporation sustained a loss of $1,363.20.

1. The Commissioner was authorized to determine the value of petitioner's stock in Ford Motor Co. James Couzens,11 B.T.A. 1040, followed. 2. The fair market price or value of such stock determined. 3. A dividend received in 1919 by petitioner, a stockholder of Ford Motor Co., as a result of the decree of a state court requiring distribution of surplus on hand in 1916, held to be within petitioner's taxable income of 1919. Rosetta v. Hauss,12 B.T.A. 755, followed. 4.

1. The term "reorganization" in section 202(b), Revenue Act of 1918, is general and does not exclude reorganizations resulting from proceedings in equity on a creditors' bill for the appointment of a receiver. 2. The payment by a shareholder of cash, together with the deposit of shares, for all of which he receives new securities in the reorganization, held to be an exchange under section 202(b), Revenue Act of 1918.

1. Section 331 of the Revenue Acts of 1918 and 1921 held to apply only to invested capital and not to the basis for computing allowances for the exhaustion, wear and tear of assets. 2. The cost of alterations of the petitioner's building, made pursuant to orders of city authorities, which bettered the working conditions of the petitioner's employees, held to be a capital expenditure and not deductible as an ordinary and necessary expense.

1. The petitioner is not entitled to exemption from taxation under section 231 of the Revenue Acts of 1918 and 1921. 2. The petitioner is not entitled to any greater deductions on account of additions made to its reserve funds in the years 1920 and 1921 than have been allowed by the respondent.

1. Under the evidence, held that assessment and collection of the additional tax involved herein are not barred by the statute of limitations. 2. Invested capital of a corporation may not be reduced, in determining the extent to which a dividend is paid from current earnings of a year, by a tentative tax theoretically set aside out of such earnings pro rata over such years.

1. Buildings and machinery and equipment valued for depreciation purposes. 2. The rate used by respondent for exhaustion, wear and tear, approved in the absence of competent evidence that the amount is insufficient.

1. The release by a corporation of an employee from a debt in consideration of the retention of his services held deductible from gross income under section 12(a) of the Revenue Act of 1916. 2. Cost of assets for the purpose of restoring surplus to invested capital and fair market value of assets as of March 1, 1913, determined.

1. Respondent's determination of March 1, 1913, value of certain shares of stock sold sustained for lack of evidence proving error. 2. Held: the petitioners are not entitled to report the profit realized on the transaction on an installment basis.

Contribution to the civic fund of the City Club of New York held not deductible.

The petitioner, having failed to adduce sufficient evidence to bring it within section 327(d) of the Revenue Act of 1918, may not have its taxes computed under section 328 of that Act.

Petitioner is entitled to deduct any loss sustained in 1923 in the sale of residential property constructed by him in 1906-1907 to sell at a profit.

1. Taxes paid by the executors to the State of New Jersey under the transfer tax stature are legal deductions from gross income of the estate for the taxable period. 2. The Commissioner correctly used the fair market price or value of securities at the date of death of the decedent in determining gain or loss on subsequent sale thereof by the executors.

1. In the absence of evidence as to facts upon which debts were ascertained to be worthless, and as to the time of such ascertainment, held that no deduction is allowable in 1919 and 1920. 2. Alleged loss upon the sale in 1921 of a commercial law practice disallowed for lack of evidence as to the cost and the March 1, 1913, value thereof. 3.

Deduction claimed by petitioner for worthless debt allowed.

1. GAIN OR LOSS. - Capital investment and value of assets distributed at liquidation and dissolution determined. 2. Held: the distribution is subject to both normal and surtax as a liquidating dividend.

1. Where a partnership kept its books on an accrual basis and where the partners kept their books on a cash receipts and disbursements basis, held that such partners were entitled to the credits provided by section 222 of the Revenue Act of 1918 for all foreign income taxes which were not paid, but which were accrued on the books of the partnership and which were the obligations of the partnership; but that such partners were not entitled to accrue such foreign taxes where…

The petitioner held to be an unincorporated association and subject to tax as a corporation.

The petitioner, in 1912, owning 3 farms in Kansas, entered into an agreement with his sons whereby each of the sons was to receive one-fourth of the real estate and one-fourth of the profits realized, and all were to devote their time and labor to the business and share the losses. Another farm was purchased in 1912 in the name of the petitioner. In 1919 certain oil royalty interests and oil runs were sold.

Notes canceled and surrendered in 1920 held to be proper deductions from gross income in that year.

Decision in Kahuku Plantation Co.,12 B.T.A. 977, followed.

- The filing of a bond with an abatement claim does not satisfy the provision of section 250(d) of the Revenue Act of 1921 requiring a consent in writing by both the Commissioner and the taxpayer as a condition precedent to the postponement of the collection beyond five years after the date the return was filed.

Held that the petitioner comes within the scope of section 327 of the Revenue Act of 1918.

The determination of the respondent that the petitioner is taxable as a corporation for the taxable years in question approved.

1. The evidence establishes that the Commissioner erred in refusing to allow the petitioner deductions from gross income in the years 1920 and 1921 of losses sustained upon the sale of securities. 2. The returns of the petitioner for the years 1920 and 1921 were not willfully false or fraudulent with intent to evade the tax and the 50 per cent fraud penalty should not be imposed.

A purported sale by a corporation to its majority stockholders of stock at less than one-fourth of its market value, held not to have been a bona fide sale, but rather a distribution of profits.

Before considering the question whether an affiliated group may have a deduction for alleged loss of one of the corporations in disposing of the stock of another, there must be proof of the requisite elements of loss; and where the evidence indicates that the stock disposed of was without value on March 1, 1913, no deduction may be taken.

1. Upon the evidence, held that the allowance for exhaustion, wear and tear, claimed by petitioner, was reasonable. 2. There has been a failure to show abnormalities within the purview of section 327, therefore, assessment under section 328 of the Revenue Act of 1921 is denied.

1. An amount accrued and paid in 1920 as insurance premium, although refunded in the following year on the cancellation of the contract, is a proper deduction as an expense in 1920. 2. Evidence held insufficient to redetermine the amount of depreciation on automobiles. 3. Club membership dues of the president of petitioner, paid by it, allowed as a deduction as an ordinary and necessary expense under the circumstances of this case.

1. REVERSAL OF RULING BY COMMISSIONER. - The Commissioner has authority to reverse a ruling of a predecessor in the office, involving a question of law. Estate of W. S. Tyler,9 B.T.A. 255; Yokohama Ki-Ito Kwaisha, Ltd.,5 B.T.A. 1248, followed. 2.

Inheritance taxes paid by the executors to the States of New York and New Jerseyheld deductible from gross income of the estate.

1. Value of coal lands for invested capital and for depletion determined. 2. Profits on the sale of lands determined. 3. A corporation purchased its own stock at par during 1917. Held: that such purchase was a capital transaction and that invested capital should be reduced by prorating each purchase for the effective portion of the year thereafter, regardless of the amount of current earnings available at each date of purchase. 4.

1. Where a corporation is engaged in liquidating its assets in part and operating in part, and makes distributions to the stockholders, the surplus earned since March 1, 1913, must be distributed as an ordinary dividend before liquidating payments are made. 2. Depreciation rates determined. 3.

1. Where stockholders of a corporation leave in the business moneys placed to their credit in separate accounts representing the accumulation of salaries, and profits, income from other sources, and dividends, if some of the stockholders withdraw the entire amount of their credits or if withdrawals are not made in proportion to stock ownership, the amounts left to the credit of the stockholders on the books of the corporation represent moneys belonging to the stockholders,…

1. Four persons holding all the stock of the two affiliated corporations exchanged it, share for share, for stock of a new corporation, effective October 1, 1920. Held: that the new corporation could not join the other two in an affiliated return for the entire year 1920 on the theory that ownership and control of the entire business remained in the same persons throughout the year. 2.

1. Debts of German nationals discharged by payment of the amounts thereof in 1918 to the Treuhander, held deductible in 1918 as losses under section 214(a)(4) and (5) of the Revenue Act of 1918 and not in 1920 as bad debts. 2. Where practically all of the facts claimed to be determinative of worthlessness were ascertained in a prior year, and, furthermore, the debts were but partially charged off within the taxable year, deduction in the taxable year is not authorized by section 214(a)(7) of the Revenue Act of 1918.

1. The Commissioner's determination that a contract to purchase stock had a readily realizable market value in the taxable year 1921, sustained. 2. Determination of the March 1, 1913, value of shares of stock of Commonwealth Shoe & Leather Co. sustained.

The evidence adduced is held insufficient to enable a valuation of interests in coal deposits conveyed by quitclaim deeds without consideration other than friendship.

1. TRANSFEREE - LIMITATION ON ASSESSMENT. - Petitioners, as distributees of an estate, were refunded by respondent the amount of a prior assessment of estate taxes paid by the executor. Held: that the periods of limitation, in respect to assessment, of four years as against the executor and of one year additional as against a transferee, having elapsed before the deficiency was determined, assessment is barred. 2.

1. Amounts distributed in 1919 in liquidation of corporations out of earnings and profits accumulated since February 28, 1913, are payments in exchange for its stock subject to both normal and surtax under section 201(c) of the Revenue Act of 1918. 2. An erroneous construction of the laws by the Treasury Department does not preclude nor estop the Government from collecting a tax which is legally due.

The statute of limitations prescribed by the Revenue Act of 1921 is applicable to a return filed for the fiscal year ending in 1921, although filed prior to the passage of the 1921 Act, where the taxpayer is subjected to no additional tax under the provisions of that Act for such fiscal year.

A deficiency in personal income taxes due from the decedent for a taxable year prior to his death and assessed against his estate after his death, is a claim against the estate and an allowable deduction in computing the net estate subject to the estate tax.

The fact that a bank writes down or charges off against bonds owned by it reductions in the market value thereof upon the orders of the State Banking Department is not sufficient to establish that such amounts so charged off are debts ascertained to be worthless, in whole or in part, within the taxable year.

1. INSTALLMENT SALE. - Where the petitioner leased property to another and the lease contained an option to purchase, which was exercised by acceptance by the optionee, and it was provided that deed… Held: an installment sale and proportionate part of profit should be reported each year in accordance with section 212(d), Act of 1926, and article 44(2), Regulations 69. 2.

Loss. - As a part of purchase price of its own capital stock petitioner sold stock and bonds of other corporations for less than cost. Held: this was not a capital transaction which gave rise to neither gain nor loss.

The petitioner having failed to adduce sufficient evidence to bring it within the purview of section 327 of the Revenue Act of 1918, it is not entitled to have its profits tax computed by reference to corporations specified in section 328 of that Act.

Where the respondent makes affirmative allegations in support of an issue which he raises, his contention will not be sustained where the evidence merely discloses an error, unless sufficient facts appear to enable the Board to know what should be done to improve the situation.

Commissioner sustained in the disallowance of a claimed deduction.

March 1, 1913, value of stock determined.

Personal service classification denied petitioner for years 1919 and 1920, since it was not shown that during those years its income was to be ascribed primarily to the activities of the principal stockholders, or that capital was not a material income-producing factor.

Petitioner's deductions for losses and bad debts approved.

Fixed dividends paid by a cooperative corporation are not deductible from its gross income.

For the purpose of determining the individual excess-profits tax of 1917, a partner is properly regarded as having received as salary from the partnership the amount claimed by and allowed to the partnership as deductible by it as salary to him.

1. Evidence of a national bank that an asset account representing Russian bonds was in 1921 reduced by amounts charged off by order of a national bank examiner held insufficient to established a deductible loss or bad debt. 2. No deduction in respect of reduced value of Russian Imperial bonds may be taken unless the loss provision of the statute is fulfilled. First National Bank of St. Paul,10 B.T.A. 32, followed.

Precatory clause in decedent's will held not to create a trust in favor of charitable organizations named in a letter which was not a part of the will.

1. The evidence fails to establish that the Commissioner's determination of profit derived by petitioner upon collection of accounts receivable acquired for stock, was erroneous. 2. Value of intangible assets for invested capital purposes, and the value of patents for exhaustion, determined.

Petitioner, an employee of a corporation, relinquished his claim against the corporation for underdrawn salary and a share of the profits credited to him and received in cash an amount less than the… Held: that the transaction did not result in a statutory net loss under the Revenue Act of 1921.

On August 13, 1923, petitioner executed and filed a consent agreement, unlimited as to time, for the assessment of taxes for the years 1910 to 1917, inclusive. Held: that the consent agreement of February 2, 1924, did not supersede the one dated August 13, 1923, and that assessment and collection are not barred.

1. L. S. Ayers & Co.,1 B.T.A. 1135, followed. 2. Increase in ordinary and necessary expense deduction over amount allowed by Commissioner denied. 3. Increase in invested capital over amount allowed by Commissioner, on account of the issuance of capital stock as a bonus for services, denied.

The action of the respondent in adding to income of petitioners the amount deducted by the trustees herein for the exhaustion of the trust interest in certain patents, disapproved.

1. Jurisdiction. - The Board is without jusidiction to redetermine the tax liability for a year for which the respondent has determined no deficiency. 2. Partnerships. - Respondent's determination that the Marine Oil Co. was a partnership sustained for lack of evidence. Petitioner's profit from sale of an interest in the partnership determined. 3. Partnerships. - Petitioner's fractional interest in the partnership of T. B. Noble & Co. determined. 4.

1. SURPLUS ADJUSTMENTS ON ACCOUNT OF DEPRECIATION. - In respect of the depreciable properties here involved the application of a flat rate of depreciation of 4 per cent of cost of such properties held to be reasonable and to be a proper basis for the adjustment of surplus and depreciation reserve. 2. GAIN FROM SALE OF ASSETS. - A corporation in 1917 and 1919 disposed of capital assets acquired prior to March 1, 1913, at their cost. Commissioner determined that profits were realized on the sale in an amount equal to the depreciation sustained from date of acquisition to date of sale, and that, for the purpose of taxes to be imposed upon a liquidating dividend declared in 1922, this amount should be considered as earnings accumulated subsequent to March 1, 1913. No sufficient proof was offered to establish the March 1, 1913, value of the assets sold. The Commissioner's action sustained.

The interest of the surviving wife in community property of the deceased husband and herself, both domiciled in California, is subject to the Federal estate tax imposed by the Revenue Act of 1921. Talcott v. United States, 23 Fed.(2d) 897, and Mary Brent, Executrix,6 B.T.A. 143.