Volume 12 — Tax Court Reports

On the facts, held, that the transfer of certain securities by decedent to his wife on June 18, 1941, was not made in contemplation of death. Held: that the transfer of certain securities by decedent to his wife on June 18, 1941, was not made in contemplation of death.

1. The taxpayer and his wife in 1918 began a dry cleaning business with small capital, to which each had contributed separate funds; in 1919 they began a clothing business financed by a joint loan and savings. The wife contributed vital services and shared in business management. In 1943 the taxpayer conveyed to her a half interest in the clothing business and its assets as tenant in common with him by an instrument which provided that they thereafter share equally in profits and losses. Before and after 1943 all funds were kept in bank accounts of the business, against which each could draw. Only half the profits of the business in 1944 and 1945; held, taxable to the husband, since a partnership, recognizable for tax purposes, existed between him and his wife. 2. As the taxpayer's four sons became mature, each was employed in the business, was paid a basic salary, and was given a bonus at the year's end. Three sons served in the armed forces during 1944 and 1945, but rendered some services while on leaves and after discharge. The eldest son, deferred because of dependents, continued to work for the clothing store, but also engaged in work for a lumber company during summer months. (a) On the evidence, held, that compensation paid to the eldest son, consisting of basic salary and bonus, was reasonable in amount for the services rendered by him to the clothing business and is deductible in full. (b) Equal bonus payments, representing a percentage of business profits, made to the three sons in the armed forces, held, not deductible because not representing the reasonable value of the sons' potential services and not paid as an inducement for the sons' return to the taxpayer's employ. I. T. 3417, 1940-2 C. B. 64, construed. (c) Reasonable compensation for services actually rendered by the three sons in 1944 and 1945 determined on the evidence.

Disposition by sole proprietor of laundry business, including customers' lists and good will, accompanied by an agreement not to compete, held to result only in capital gain. Toledo Newspaper Co., 2 T. C. 794; Toledo Blade Co., 11 T. C. 1079, followed.

Income Tax -- Deduction -- Travel Expense -- Home -- Temporary Employment -- Section 23 (a) (1) (A). -- A man required to be at many different places for short indefinite periods is entitled to deduct the cost of his lodging while away from his home in pursuit of his trade.

From 1916 to June 2, 1941, petitioner conducted as a sole proprietorship a pattern-making and foundry business. Held: that the four youngest children were not bona fide members of the partnership in question and that the income allocated to them during 1942, 1943, and 1944 was properly taxed by the Commissioner to the father.

Income -- Family Partnership -- Vital Services. -- Where a wife contributed vital services to a business and her husband did not, due to illness, the partnership between them is recognized for income tax purposes.

"Exclusive" listing of petitioner's former residence with real estate broker for rent, held not such appropriation to business use as to justify deduction for any loss on subsequent sale as the result of a "transaction entered into for profit," under Internal Revenue Code, section 23 (e) (2).

Nonresident -- Section 116 (a), I. R. C. -- Exclusion from Income. -- A citizen, who for many years resided in the Philippines and carried on a business there throughout the taxable year, and who was not physically present in the United States for as much as one-half of the year, was a nonresident for the purpose of section 116 (a).

Where insolvent, wholly owned subsidiary corporation transferred all its assets to its creditor parent for credit on its indebtedness, leaving an unpaid balance of indebtedness, held, that the… Held: that the provisions of section 112 (b) (6) of the Internal Revenue Code do not apply and that the subsidiary may claim a deductible loss on the assets transferred, provided that fair market value was given to transferred assets as a basis for credit on a genuine indebtedness.

In 1942 and 1943 petitioners were foreign investment corporations with an office in the United States. Held: petitioners were not engaged in business within the United States during 1942 and 1943 under section 231 (b) of the Internal Revenue Code.

1. Renegotiation Act amendment of July 1, 1943, expressly including contracts with Defense Plant Corporation, held, to have retroactive force to date of original act rendering renegotiable… Held: to have retroactive force to date of original act rendering renegotiable petitioners' contracts with Defense Corporation paid for after date of original act but prior to amendment; held, further, that such retroactive provisions do not render the amendments unconstitutional.

1. The action of the Bureau of Internal Revenue in determining the reasonableness of salaries for petitioner's officers is not binding in a renegotiation case. 2. The petitioner's excessive profits are here redetermined in the amount originally determined by the respondent, the petitioner having failed to sustain its burden to show that they were less in amount and the respondent having failed to sustain his burden to show that they were greater in amount.

Order of Secretary of War purporting to determine petitioner's excessive war profits, not with respect to any contract or fiscal period, but pursuant to, and additional to those incorporated in, a prior bilateral agreement, held insufficient to confer jurisdiction on the Tax Court.

In 1943 and 1944 petitioner received $ 750 and $ 1,500, respectively, from one of the partners of the partnership of which he was then, and had been for sometime theretofore, an employee. Held: the sums received were additional compensation and includible in petitioner's gross income under Internal Revenue Code, section 22 (a).

Pursuant to agreement between Standard and Pullman,Standard on March 1, 1930, transferred approximately 66 per cent in value of its assets to New Standard, a newly organized subsidiary of Pullman. Held: The transaction in 1930 between Standard, Pullman, and New Standard did not constitute a tax-free reorganization under section 112 of the Revenue Act of 1928.

Prior to the taxable periods involved, petitioner distributed to its stockholders property in kind not out of earnings and profits. Held: in computing petitioner's excess profits tax credit, its basis for determining the amount by which its equity invested capital is to be reduced under section 718 (b) (1) of the Internal Revenue Code is the basis of the property at the time of distribution, which in this case is the cost of acquisition.

Sale by numerous stockholders of 100 per cent of stock in petitioner corporation after unsuccessful efforts of purchaser to acquire from corporation the building occupied by purchaser, held not to result in taxable gain to petitioner corporation, notwithstanding acquisition of all of the stock was accomplished on purchaser's behalf by its nominees, followed by immediate liquidation of petitioner corporation and transfer of building through dummy corporation to purchaser.

1. Renegotiation -- Constitutionality. -- The Renegotiation Act is constitutional as applied to the petitioner for 1942. 2. Renegotiation -- Unilateral Determination -- Validity of -- Prior Bilateral Agreement. -- The unilateral determination upon which this proceeding is based is valid, since a prior proposed bilateral agreement was not agreed to by or on behalf of the Secretary of War. 3.

Petitioner was organized as a corporation in 1924. Held: that in determining petitioner's equity invested capital for excess profits tax purposes under section 718 (a) (2), I. R. C., petitioner's cost basis of such property is not in excess of $ 15,000.

Held, petitioner's wife, as trustee for their four minor children, can not be recognized for income tax purposes as a member of a certain partnership dealing in real estate. Held: petitioner's wife, as trustee for their four minor children, can not be recognized for income tax purposes as a member of a certain partnership dealing in real estate.

Held, salary paid to practical nurses employed to care for child, his mother having died in childbirth, the child being normal in every way and having no unusual illness, is not deductible as medical expense under section 23 (x), I. R. C.

1. The decedent created an inter vivos trust under which his then wife, the petitioner, was to receive trust income during his life,… Held: that the life estate of the petitioner in the trust was a contingent interest which was in suspense until the grantor's death and was, therefore, an interest which was intended to take effect in possession and enjoyment at or after death within the meaning of section 811 (c), I. R. C. The value of the life estate is includible in the…

Remote possibility that a deecdent-settlor of a trust might survive stepchildren and their issue, named by her as trust beneficiaries, and thus result in trust property reverting to her prior to her death, held to require the inclusion in her gross estate of the value of the trust property at the time of her death. Estate of Spiegel v. Commissioner, 335 U.S. 701, and Commissioner v. Estate of Church, 335 U.S. 632 (both Jan. 17, 1949).

In 1893 William and John Kiser inherited, in equal shares, property which was managed as a joint business and not partitioned until 1936. Held: respondent erred in including in William's income for 1936 interest on John's excess withdrawals and commissions as executor of John's estate.

Petitioner, a Minnesota corporation engaged in the business of selling grain and seed on commission, for some time prior to 1944 had been indebted to a number of its shippers. Held: that as no valid delivery of the notes was effected by petitioner to the payees and the notes did not constitute evidence of the indebtedness, amounts owing by petitioner to its shippers did not qualify as borrowed capital within the meaning of section 719 (a)(1) of the Internal Revenue Code.

Decedent and his wife, incident to a divorce, entered into a property settlement agreement dated July 16, 1942, which provided that the wife was to receive alimony payments of $ 125 per week for a… Held: the payments made by decedent to his divorced wife in the taxable years 1942, 1943, and 1944 were installment payments within the meaning of section 22 (k) and were therefore not deductible under the provisions of section 23 (u) of the Internal Revenue Code.

Upon the facts, held, the credit balances of an open account in petitioner's accounts payable ledger did not constitute equity invested capital within the meaning of section 718 (a) of the Internal… Held: the credit balances of an open account in petitioner's accounts payable ledger did not constitute equity invested capital within the meaning of section 718 (a) of the Internal Revenue Code prior to April 18, 1942.

Held, petitioner corporation did not dissolve during the taxable year and hence is not required to place its excess profits net income for such year on an annual basis as required by section 711 (a)… Held: petitioner corporation did not dissolve during the taxable year and hence is not required to place its excess profits net income for such year on an annual basis as required by section 711 (a) (3) of the Internal Revenue Code. United States v. Kingman, 170 Fed. (2d) 408.

Family Partnership -- Wife Recognized. -- A husband who managed a business but who contributed only a small percentage of the capital, is not taxable on his wife's share of the partnership income where the wife's mother contributed most of the capital and dictated the terms of the partnership agreement, including the provision that his wife should have a one-fourth interest and where the wife contributed more capital than the husband and took an active part in partnership…

The petitioner and her husband, a marital community in the State of Washington, sold the business owned by them for a lump sum consideration. Held: that insufficient evidence was introduced to establish a selling price for good will and other intangibles, and the respondent's determination is sustained.

The decedent conveyed to herself as trustee for her four adult children certain farm lands, subject to mortgages on which she was primarily liable, reserving to herself the right as trustee to pay off the mortgage notes "out of income that may be derived from said lands, or in such manner as she deems to the best interest of the beneficiaries," and the further right to withhold income from the beneficiaries and add it to corpus. The trust was to continue for the life of the grantor, except that she reserved the right to terminate it at any time during her lifetime, and upon termination the corpus was to go to the beneficiaries or their heirs at law. Held, that the value of the trust property is includible in the decedent's gross estate.

1. Gifts of life insurance policies made in 1944 by taxpayer in trust for the benefit of his wife, son, daughter, and two grandsons, held,… Held: gifts of future interests. 2. Gifts of securities made at the same time by taxpayer in trust for the benefit of two granddaughters, with direction to trustees to pay net income to each beneficiary quarterly or to her guardian or other designated person until 18 years of age, at which time the beneficiary was to receive the corpus,…

Petitioner was divorced from his wife on July 12, 1944. Held: the alimony payments provided for under both court orders constituted installment payments within the meaning of section 22 (k) and are therefore not deductible by the petitioner under section 23 (u) of the Internal Revenue Code.

1. Family Partnership -- Husband not a Partner -- Income Taxable to Wife. -- The taxpayer was not a member of and had no interest in two partnerships formed by his wife and others and is not taxable on his wife's share of the income therefrom, even though she performed no vital services for the partnerships and the capital which she contributed to the one partnership was given to her by the taxpayer shortly before the formation of the partnership. 2.

Upon the facts, held petitioners paid state income taxes on December 29, 1944, and, as they filed their returns on the cash basis, such payments are deductible from their gross income for the taxable year 1944.

Income -- Accrual -- Year. -- The profit from a casual sale of real estate can not be reported until all of the factors essential to the computation of the gain are accruable, and where the expenses of the sale have not become fixed, the gain can not be reported or even computed.

Credit for Dependents. -- A taxpayer filing separate rather than joint returns in 1944 and 1945 is not entitled to dependency credits in those years under section 25 (b) for the support of his wife's niece, whom he and his wife had not legally adopted.

The decedent in 1914 transferred property to himself and a bank as trustees, directing that the trust income be paid to himself for life, thereafter to his wife for life, if surviving, and then… Held: includible in gross estate, since by the settlor's reservation of income for his life the transfer did not take effect in possession or enjoyment until his death. Sec. 811 (c), Internal Revenue Code; Commissioner v. Estate of Church, 335 U.S. 632 followed.

The respondent's action in disallowing a deduction from income for 1942 claimed on account of an alleged loss from the transaction involved herein, sustained.

Petitioner, a private corporation, made a gift proposal to a city, which was accepted by the latter, wherein it agreed to execute a conveyance for the transfer of its toll bridge to the city; to… Held: Net income derived by the corporation from operation of the bridge and applied to payment of interest and principal on bonds is income within the meaning of that term as used in the Sixteenth Amendment and the Internal Revenue Code.

A taxpayer which in 1942 and 1943 computed its excess profits credit by the income method discontinued a contracting branch of its business in 1929,… Held: Such abnormality was not a consequence of an increase in the taxpayer's gross income for 1937, but a result of the worthlessness of the account of X, whose purchases diminished in 1937. (2) Such abnormality was not a consequence of the taxpayer's change in business in 1929, but of an overextension of credit to a customer.

Petitioner in 1932, with other officers of a corporation, in order to assist in strengthening the financial position of the company, donated certain stock, with the agreement, shown on minutes of a… Held: the $ 30,130 was not a taxable dividend under section 115 (a) and (b) of the Internal Revenue Code.

Estate Tax -- Gross Estate -- Survivorship Annuity -- 811 (c) I.R.C. -- The decedent, the absolute owner of an annuity contract paid for… Held: that the arrangement was a transfer within section 811 (c) and the value of a survivorship annuity as of the date of the decendent's death was includible in his gross estate, following Commissioner v. Wilder's Estate, 118 Fed. (2d) 281; Commissioner v. Clise, 122 Fed. (2d) 998; and Mearkle's Estate, 45 B. T. A. 894; affd., 129 Fed.

1. Petitioner received from its Canadian subsidiary dividend distributions of $ 337,841.25, $ 108,109.20, and $ 108,109.20 on July 13, July… Held: in the absence of proof that the earnings for 1940 of the Canadian subsidiary at the time of the dividend distributions were less than the amounts distributed by it, petitioner is not entitled to an exclusion from gross income for excess profits tax purposes under the provisions of section 721 (c), I. R. C., of any amount as net…

In 1941 the son and daughter of William E. Benjamin, the former employer for many years of Richard C. McAdow, transferred to McAdow securities valued at $ 75,981.25, describing the transfer as a gift and filing gift tax returns. Under the evidence it is held that the transfer of the securities by these two individuals to McAdow constituted a gift and was not intended as compensation for services. Bogardus v. Commissioner, 302 U.S. 34.

Petitioner Charles E. McCartney received a payment from Lomita Gasoline Co. in 1944 upon release to that company of its contract made in 1935 to pay him monthly sums based upon sales of gas to… Held: the payment received in 1944 was ordinary income to petitioners.

1. Petitioner received a salary of $ 20,000 from Countess Mara, Inc., in 1943 and on her income tax return for that year claimed the benefits of section 107 to allocate this compensation over five… Held: petitioner does not come within the provisions of section 107 because the salary she received in 1943 was in compensation for services rendered in that year alone. 2. A deduction for the payment of state income tax is not permissible in computing victory tax net income.

1. Renegotiation -- Sales to Post Exchanges, Etc. -- Sales to post exchanges, ship service stores, officers' clubs, company funds and the like are not subject to renegotiation, since they do not involve funds appropriated by Congress. 2. Id. -- Purchase Orders. -- Direct sales to Army and Navy on purchase orders are subject to renegotiation, since purchase orders are contracts. 3.

Deductions -- Losses -- Taxpayer on Cash Basis, Business on Accrual Basis. -- A taxpayer, filing his returns upon a cash basis, is not entitled to deduct from his gross income in 1942 and 1943 his share of the payments made in those years on notes given in 1940 for the purchase of oil property which was sold at a loss in 1940, where the books for the operations of that and other oil properties were kept upon an accrual basis and the taxpayer properly claimed the loss in 1940…

The proceeds of fire insurance policies taken out and paid for by the lessee, covering improvements placed on the property by the lessee under a lease agreement which gave the petitioner absolute… Held: taxable to the petitioner at capital gain rates under section 117 (j), Internal Revenue Code.

1. A judicial decision that a taxpayer did not acquire a property in the course of a statutory reorganization and is not entitled to use of the predecessor owner's basis, held, not to render the… Held: not to render the amount of such property's cost to it, which cost the Commissioner had determined and used as basis, res judicata. 2.

Petitioner filed no excess profits tax returns until March 1946, when its secretary-treasurer was informed that a return was due for 1945. Held: on the evidence, reasonable cause did not exist for petitioner's failure to file timely excess profits tax returns for 1943 and 1944.

In 1942 testamentary trusts and/or the estate of decedents paid state income taxes assessed against decedents covering periods before their… Held: such deductions were not available under the provisions of section 134, Revenue Act of 1942; held, further, interest on inheritance taxes paid to the State of California by the estate of a decedent was not interest on an obligation of the estate, and the estate may not deduct such payment from gross income under section 23 (b),…

Commissions received by petitioner as trustee in the taxable year 1944 amounting to less than 80 per cent of total commissions on same trust received in that, as well as prior and subsequent years, held not subject to apportionment under section 107, notwithstanding that they were more than 80 per cent of commissions paid up to and including 1944, when petitioner rendered his first intermediate account.

Decedent, as beneficiary of three insurance policies on the life of her husband, became entitled to proceeds thereof upon his death in 1934. Held: the proceeds are includible in decedent's gross estate as a transfer of property under section 811, Internal Revenue Code.

1. A wife furnished capital to purchase approximately the first one-third of corporate stock purchased in husband's name, the remainder being purchased later from profits. Held: no partnership has been established. 2. Husband, on cash basis, left part of his remuneration with corporation as operating capital and did not report it as income. Later, in the taxable year, it was distributed to him when the corporation was dissolved.

Held, commissions paid by way of compensation to a sales agent for services rendered were deductible by the petitioner taxpayer,… Held: commissions paid by way of compensation to a sales agent for services rendered were deductible by the petitioner taxpayer, notwithstanding the fact that part of the commissions was paid to petitioner's president under an oral contract for his services as a salesman, the arrangement being a customary one in the trade, there being no…

Held, expense of travel, board and room, and miscellaneous items at two resort hotels in New Jersey and at a ranch in Arizona incurred by… Held: expense of travel, board and room, and miscellaneous items at two resort hotels in New Jersey and at a ranch in Arizona incurred by petitioner and his wife, who had suffered a coronary occlusion approximately two years before, did not constitute deductible expense as medical care under section 23 (x), I. R. C., as amended.

Petitioner was employed in 1944 by a chain of grocery stores as manager of a grocery store in Independence, Kansas, where he resided. Held: petitioner is entitled to the deduction of expenses incurred in the operation of the automobile, under the provisions of section 22 (n) (2) of the Internal Revenue Code.

Life Insurance. -- Under certain life insurance contracts which matured and became payable by reason of death of the insured, petitioner elected to receive, for a period of years and so long thereafter as she lived, periodic payments computed with reference to her life expectancy.

An unincorporated association of fire and casualty insurance agents, organized for the recited purpose of promoting members' business interests, ethical standards, and efficiency, disseminating… Held: on the evidence, not to have sufficient resemblance to a corporation to render it taxable as such.

Petitioner, on accrual basis, in 1936 acquired fee title to a building and part of land on which it was erected, at which time real estate taxes on the property were… Held: under the facts, respondent's action is approved, as there was practical extinguishment of petitioner's liability for delinquent taxes as a result of the various court proceedings and the general practice, and such extinguishment was not voluntary and gratuitous cancellation of its indebtedness.

A partnership furnished equipment to the Government during 1941 for use at construction work to which the Government took title during 1942. The value of each item of equipment was agreed upon. Held: that the monthly payments accrued in 1941 did not constitute rent under section 22 (a) of the code; and that the partnership was not obligated to report part of the payments as profit in 1941 under I. T. 3533, C. B. 1942-1, p. 87.

Gift Tax. -- Taxpayer and his wife were residents of California, and each month he paid to his wife one-half of his salary as received. Held: that, under the community property laws of California, the title to one-half of his salary as earned vested in his wife and payments of same to her were not subject to gift tax within the purview of section 1000 (d), Internal Revenue Code. (Sec. 453, Revenue Act of 1942.) Section 86.2 of Regulations 108 disapproved in part.

1. Transferee Liability -- Address for Notice. -- A notice of transferee liability was not shown to have been improperly addressed to a deceased transferee. 2. Abatement of Tax -- Section 421. -- The transferee liability of an individual dying in 1944 while in active service as a member of the military forces of the United States is not abated under section 421 of the Internal Revenue Code. 3.

Renegotiation -- Royalties. -- The recipient of royalties under a licensing agreement is subject to renegotiation where the licensee, a contractor or subcontractor, manufactured under the agreement.

1. Decedent transferred all funds held as community property to the separate bank account of his wife in order to avoid his own generosity in making unfortunate loans and injudicious investments. Held: management and control of the property by the wife is insufficient, standing alone, to effect such transmutation. 2.

The petitioner, a domestic mutual fire insurance company doing business in Canada, paid taxes in 1942 and 1943 to Canada, measured by the net premiums received in Canada, less premiums paid for… Held: the taxes paid upon the net premiums were not taxes in lieu of a tax upon income as those terms are used in section 131 (h), I. R. C., and petitioner is not entitled to a credit for income taxes paid to a foreign government under section 131, I. R. C.

On the record, held, that the transaction in 1936, whereby certain properties were exchanged for all of petitioner's capital stock and the assumption of certain liabilities, constituted a nontaxable… Held: that the transaction in 1936, whereby certain properties were exchanged for all of petitioner's capital stock and the assumption of certain liabilities, constituted a nontaxable exchange under section 112 (b) (5) of the Revenue Act of 1936, as amended.

Petitioner, or its trustee under a supplemental mortgage agreement, purchased in the taxable year ended December 31, 1940, certain of its bonds at less than their face value. Held: the difference between the face amount of petitioner's bonds and the lesser amount paid by either petitioner or its trustee under the mortgage for their purchase is includible in its gross income for Federal income tax purposes. Commissioner v. Jacobson, 336 U.S. 28.

Petitioners' decedent, in December 1942, drew and delivered two checks for contributions to organizations qualifying under section 23 (o) (2) of the Internal Revenue Code. Held: that under section 23 (o), payment of the contributions or gifts was made in 1942 and denial of deduction of the amounts in that year was error.

Petitioner W. H. Armston Co., a family corporation, owned in 1943 certain heavy equipment then being used in performing its contracts for the construction of air fields for the armed forces. During 1943 petitioner W. H. Armston Co. entered into an arrangement with Catherine G. Armston, its chief stockholder, under which it purported to sell certain of such equipment to her upon the condition it was to be leased back to the corporation at certain rental fixed by OPA.

Petitioner is the transferee of KQV Broadcasting Co., a Pennsylvania corporation. On February 28, 1945, as the sole stockholder of KQV, it took over all the assets of that corporation by transfer and thereafter operated it. KQV continued its existence throughout 1945 and was engaged in winding up some of its affairs, particularly in securing certain clearances of tax liabilities from the Department of Revenue of the Commonwealth of Pennsylvania.

Petitioner, upon the facts, held not to be entitled to deduct, as ordinary and necessary business expenses, the cost of furnishings, equipment, and fixtures it installed in hotels it operated under an oral understanding with the owner thereof.

1. Decedent's employer, for the purpose, inter alia, of providing additional compensation to decedent and other employees, took out a group life insurance policy providing for the insurance of the… Held: the entire proceeds of the policies are includible in decedent's gross estate. Estate of Judson C. Welliver, 8 T. C. 165, followed. 2.

During 1941 petitioner, as lessor, executed a number of oil and gas leases upon which it received bonuses or advance royalties on account of which petitioner was allowed percentage depletion… Held: that under Regulations 111, section 29.23 (m)-10 (c), petitioner must restore to its gross income in 1942 the depletion deducted in 1941 on the bonuses or advance royalties received from the leases surrendered in 1942.

Petitioner's five-year-old daughter, who had experienced various respiratory ailments throughout her infancy, early in November 1944 suffered… Held: that the expense incurred in connection with the transportation to, and the maintenance of petitioner's infant daughter at, a boarding school in Arizona, exclusive of expenses attributable to her education, is deductible as expense for medical care under section 23 (x) of the Internal Revenue Code, and that portion of the total…

The petitioner, as to 1941, filed applications for relief under section 722, stating that the excess profits tax had been paid, when in fact it was paid later. Held: the Court has jurisdiction under section 732.

1. Jurisdiction -- Second Notice of Transferee Liability. -- The Commissioner on April 22, 1943, mailed the petitioner a first notice of transferee liability of $ 8,979.89, including tax and penalty,… Held: that the second notice was prohibited, under section 272 (f), Internal Revenue Code, and that this Court is without jurisdiction in the proceeding based thereon. 2.

Excess Profits Tax -- Relief Under Section 722 (b) (4). -- The taxpayer corporation is not entitled to relief under section 722 (b) (4) since it has failed to establish that a fair and just amount representing normal earnings to be used as a constructive base period net income would exceed its average base period net income as determined under the growth formula.

1. Petitioner is a manufacturer of plumbing fittings. Held: that a part of petitioner's gross income from the sale of bushings received in 1944 falls within class (C) income from research and development under section 721 (a) (2) (C). 2. Amount of net abnormal income of taxable year to be attributed to prior years determined, giving due effect to all factors contributing to the income.

In 1931 the decedent created a trust, reserving to herself all income therefrom in excess of $ 7,500 per annum which was to be distributed $ 2,500 each to her three children. Held: the value of the trust corpus at her death is to be included in her gross estate under section 811 (c), Internal Revenue Code, as interpreted by Commissioner v. Church, 335 U.S. 632, and Spiegel v. Commissioner, 335 U.S. 701, decided January 17, 1949.

Petitioner, a manufacturer of plastic-coated materials, engaged in research and development of particular processes and products, commencing in 1931, primarily to meet needs of the armed forces,… Held: a portion of such income resulted from improvement in business, and the remainder is attributable to other years under section 721 (b), and is allocable to the years during which this research and development program was in operation.

1. The Tax Court made a finding of fact not in issue in the pleadings nor material to the Court's conclusions of law. Held: such finding is obiter dicta and can not be used to affect Rule 50 computations. 2.

Expenses for meals and lodging at petitioner's post of duty in Texas, where he worked about 330 days in the taxable year, held not deductible as traveling expenses, notwithstanding petitioner maintained his family residence in Iowa, and was engaged there the remainder of the year in other businesses from which he received almost half of his combined salaries. Ney v. United States (C. C. A., 8th Cir.), 171 Fed. (2d) 449, followed.

1. Deduction -- Unpaid Expense -- Salary -- Section 24 (c). -- A taxpayer is not allowed to deduct from his gross income for 1941 certain bonuses which were merely accrued on his books in 1941 and were paid in September 1942 to his brothers and sister in his employ. 2.

1. Renegotiation -- Constitutionality. -- The Renegotiation Act is constitutional as applied to the petitioner for the fiscal year 1942. 2. Renegotiation -- Jurisdiction. -- The Court has jurisdiction to consider sales subject to renegotiation in an amount greater than that determined by the Secretary, for purposes of redetermining the amount of excessive profits derived therefrom by a subcontractor. 3.

Decedent created a testamentary trust, directing the trustee to pay annually specified amounts to named beneficiaries for life, and to use principal if… Held: properly deemed to comprise taxable and tax-exempt income in the same proportions as the total trust income available for distribution. (2) That part of an amount of trust income distributable to a beneficiary which is deemed tax-exempt, held, not deductible by the trust under section 162 (b), Internal Revenue Code.

By a trust indenture dated December 30, 1935, petitioner transferred to himself, as trustee, certain shares of the capital stock of the Fruehauf Trailer Co., of which he was the president. Held: the trust income for the year 1941 is not includible in petitioner's gross income under section 22 (a), 166, or 167 of the Internal Revenue Code.

Gross Income -- Gift -- Payable at Intervals -- Income From Property -- Section 22 (b) (3). -- Monthly payments to be made to a widow from the estate of her deceased husband, regardless of the availability of income, pursuant to a prenuptial agreement and will of the husband, constitute a gift, bequest, or devise of income from property within section 22 (b) (3) of the code to the extent that such payments were in fact made out of income from the property held by the estate.

1. The excess of the value of partnership inventories at the date of deceased partner's death, which was used for estate tax purposes, over the value of the inventories based on cost or market,… Held: not deductible in determining the share of partnership income payable to deceased partner's estate after his death. 2.

1. The taxpayer filed a 1934 tax return for his corporation based on falsely kept books, and in 1942 was convicted of filing a fraudulent return and served a jail sentence. Held: false and fraudulent and the determined deficiencies presumptively correct. 2. On the evidence, held, that the wife was sole owner of the lease and that petitioner was transferee in respect of it and proceeds of its assignment. 3.

Attorneys' fees received by petitioners in the taxable year 1943 as counsel for receivers, being less than 80 per cent of their total compensation, including amounts received in prior and subsequent years for continuous legal services in the same receivership, held not subject to apportionment under section 107. Ralph E. Lum, 12 T. C. 375, followed.

Petitioner deducted from his gross income for 1942 a war loss in accordance with the provisions of section 127, Internal Revenue Code. In a "third amended return" filed almost three and one-half years after the due date of the return for 1942, petitioner eliminated the war loss deduction taken for that year. If respondent had permitted petitioner to withdraw the war loss deduction involved he would not be required to include in his gross income the amount of the recovery of the war loss for the year of recovery to the extent required by section 127 (c), Internal Revenue Code. Held, to protect the system of the annual accounting period and the orderly administration of the tax laws, petitioner's election to take the war loss deduction from his income for 1942 is treated as binding.

In 1933 the Marine Bancorporation owned about 90 per cent of the stock of petitioner and six smaller banks. Held: that the decision in the prior proceeding is not res judicata in the instant proceeding and petitioner is entitled to raise the issue of the applicability of section 22 (b) (12), I. R. C.; held, further, that, since petitioner and the transferor banks were separate entities, the petitioner is not entitled to the recovery exclusion…

Statute of Limitations -- Request for Prompt Assessment -- Section 275 (b). -- A letter asking for an early determination of income tax liability held not a request within section 275 (b) limiting the assessment period for income, excess profits, and declared value excess profits taxes to 18 months.

For a number of years prior to and during the taxable years in issue, petitioner depreciated its printing equipment on the straight line basis. Held: that, where the taxpayer employs the straight line method of depreciation, evidence of increased usage and other unusual operating conditions does not, in the absense of a showing that such factors actually resulted in a shortening of the remaining useful life of the depreciable assets, warrant an allowance for abnormal or…

Petitioner failed to file a personal holding company surtax return in 1941 and 1942, though it was a personal holding company within the meaning of section 501 during those years. Held, that such failure was due to willful neglect and not to reasonable cause and that accordingly petitioner is liable for the statutory penalty for failing to file such returns.

Trustees of trust created by grantor for benefit of his two minor daughters distributed $ 4,067.71 of the income of trust for 1943 to the guardian of children for their support, education, and… Held: under the provisions of section 167 (c), the entire amount distributed is includible in the taxable income of grantor.

1. Decedent in 1942 and in all prior years after opening business books in 1920 kept his books on the accrual basis of accounting. Held: that respondent erred in so doing. Greene Motor Co., 5 T. C. 314, followed. 2. Decedent, a member of a partnership with a fiscal year June 1, 1943, to May 31, 1944, died December 1, 1943.

Transfer of decedent's funds to commercial insurance companies prior to 1931 for purchase with her younger sister of joint and survivor annuities, held to be a transfer intended to take effect at… Held: further, respondent's determination not shown to be erroneous that the amount to be included is replacement cost charged by commercial companies for comparable contracts. Estate of William J. Higgs, 12 T. C. 280.

1. Petitioner, a corporation engaged in the grain business, paid $ 20,000 to a nonprofit research corporation to carry on research and development work for two years for petitioner, pursuant to… Held: respondent did not err in determining that the $ 20,000 paid by petitioner was a capital expenditure and that petitioner was not entitled to deduct the sum of $ 7,942.04 as ordinary and necessary business expense. 2.

Outstanding obligations evidenced by certificates of deposit issued by petitioner bank, not subject to check, bearing interest, and payable only at maturities of 6 months and 1 year, held includible in borrowed capital under section 719, Internal Revenue Code, for purposes of computing petitioner's excess profits credit. Economy Savings & Loan Co., 5 T.C. 543.

Petitioner was a member of a partnership doing business as manufacturers' representatives. Held: such payments are excludable from petitioner's income.

Petitioner, on the accrual basis of reporting income and on the reserve system of accounting for bad debts, filed claim for refund of its 1941 tax payments on the basis that… Held: that petitioner is not entitled to the deduction of $ 475,000 or any part thereof as an addition to its bad debt reserve in 1941; held, further, that petitioner must accrue and include in its income for the years 1941, 1942, and 1943 the unpaid interest due on its open loan account in these years.

Section 107 (a) -- Effect of Section 23 (x) -- Adjusted Gross Income. -- The medical care deduction for 1944 under section 23 (x) must be recomputed each time a different amount is taken to represent adjusted gross income in the computations required under section 107 (a).

A corporation, financially distressed, paid a creditor $ 500 in full settlement of notes for $ 26,000. Held: not excludable from gross income as a gift under section 22 (b) (3), Internal Revenue Code. Commissioner v. Jacobson, 336 U.S. 28. (2) On the evidence, held, that the corporation was insolvent before and after the compromise settlement, and hence no taxable income resulted from it.

Petitioner in 1941 acquired real estate in Chicago improved with a theatre building, against which there were outstanding tax liens and penalties exceeding $ 120,000. Held: petitioner's basis for purposes of depreciation prior to the year of purchase of the liens should include the full amount of such liens and penalties. Crane v. Commissioner, 331 U.S. 1.

1. Petitioner held not entitled to deductions for losses or bad debts in the amount of $ 5,250 for 1944 and $ 5,200 for 1945. 2. The respondent committed no error in determining deficiency for the taxable year 1945, by reason of his failure to allow a credit for the amount of tax withheld from wages.

Petitioner, member of a brokerage partnership, undertook personally to assure other partners certain minimum drawing accounts each year, whether or not there were sufficient profits. Held: petitioner incurred a deductible loss in 1942; held, further, petitioner received taxable income in 1943 in the full amount of his distributable share of partnership profits.

In 1935 8 individuals transferred individually owned stock in two corporations in trust and directed the trustees to pay their pro rata share of trust income to themselves for life,… Held: the trust created herein was a valid trust under the laws of California, following Bixby v. California Trust Co., 190 Pac. (2d) 521, and Gray v. Union Trust Co., 154 Pac. 306; Held, further, sections 22 (a), 166, and 167, supra, are inapplicable, following Commissioner v. Bateman, 127 Fed.

Petitioner was organized in 1930 and acquired all the assets and business of F. E. Mojonnier and his wife, the transferors. Held: Since the transferors owned less than 80 per cent of the petitioner's stock after the transfer of the assets, the exchange was a taxable transaction and petitioner, in determining property * * * paid in for stock in the computation of its equity invested capital, is entitled to include the property paid in by the transferors at its…

Petitioner was a member of a joint venture which in 1942 and 1943, under a contract with the Government, constructed buildings at an Army base. Held: That the respondent, in determining the income of the joint venture for the fiscal year ended March 31, 1943, and the petitioner's distributable share thereof, erred in reallocating contract costs to years other than the year in which they were actually paid.

Petitioner, a solvent corporation on an accrual basis of accounting, issued and delivered its promissory notes worth their face amounts to an employees' trust which was tax-exempt under section 165,… Held: petitioner was not entitled to deduct the amount of the notes in the year of issuance, under section 23 (p), I. R. C.

Petitioner was incorporated in 1903, for the principal purpose of engaging in the logging and lumber business. Held: on the facts, that the petitioner was availed of in the taxable year 1943 for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its earnings or profits to accumulate instead of being distributed to its shareholders, and it is liable for the surtax imposed by section 102 of…

Petitioner, a farmer, in 1945 and 1946 sold certain stock from his dairy and hog-breeding herds. Held: that the livestock sold by petitioner in 1945 and 1946 from his dairy and hog-breeding herds, with the exception of the two sows sold in 1945 which had not been held for a period of six months, were capital assets within the meaning of section 117 (j) of the Internal Revenue Code, and the profits realized from such sales are taxable…

Prior to World War II, petitioner, a foreign corporation not engaged in trade or business within the United States, purchased roller bearings from an American company which it… Held: that the amounts received by petitioner in the years 1940 to 1943, inclusive, as a result of the arrangement between it and the American company were from sources without the United States and are not taxable to the petitioner under the provisions of section 231 (a) of the Internal Revenue Code.

The petitioner, engaged principally in the business of managing, leasing, and selling real estate, and in other businesses, from all of which he earned at least about $ 17,000 per year, was also… Held: on the facts, that the $ 873.24 and $ 600 were not deductible expenses of trade or business within section 23 (a) (1) (A) of the Internal Revenue Code.

In 1935 petitioner acquired from its predecessor corporation certain assets through a bankruptcy proceeding, within section 121 of the Revenue Act of 1943. Held: that in computing unused excess profits credits for 1941 and 1942, to be carried forward and used in computing its 1943 tax, the petitioner properly used its predecessor's basis, as provided in section 121, Revenue Act of 1943.

Profit derived from the sale by a partnership of certain securities, held, capital gain, since the securities sold did not fall within the exceptions of section 117 (a) (1), I. R. C. Held: capital gain, since the securities sold did not fall within the exceptions of section 117 (a) (1), I. R. C.

Held, section 127, I. R. C., added by section 156 of the Revenue Act of 1942, is an exclusive provision, and a casualty loss due to wartime seizure of property, therefore, is not deductible in a… Held: section 127, I. R. C., added by section 156 of the Revenue Act of 1942, is an exclusive provision, and a casualty loss due to wartime seizure of property, therefore, is not deductible in a year subsequent to the declaration of war against Germany under section 23 (e), I. R. C.

The deceased died on February 23, 1947. Prior to his death he had filed, with intent to evade tax, false and fraudulent income tax returns for each of the taxable years 1941, 1942, 1943, and 1944. Held: that for each of the taxable years involved the decedent's estate is liable for the 50 per cent addition to the tax imposed by section 293 (b) of the Internal Revenue Code.

During the taxable year petitioner paid out $ 1,881 as court costs, attorney fees, and other expenses in connection with three libel suits that he brought against certain newspaper publishers for alleged libelous statements made against him as a candidate for circuit judge. Petitioner deducted the $ 1,881 as ordinary and necessary expenses of his law office. Held, the expenditures did not constitute ordinary and necessary expenses of carrying on his trade or business.

Petitioner corporation, on an accrual basis, reported on Form 1118 the amount of income tax for 1938 paid to the Government of Jamaica in 1940 in an amount in excess of the amount for which it… Held: such deficiency is barred by limitation provisions of the Internal Revenue Code.

1. Under the evidence, held, petitioner and his wife were partners in the operation of the Brentwood Coal & Coke Co. from September 1, to December 31, 1943. Held: petitioner and his wife were partners in the operation of the Brentwood Coal & Coke Co. from September 1, to December 31, 1943. Each partner was entitled to one-half the income from the partnership and the Commissioner erred in taxing petitioner with the one-half of the income which belonged to his wife. 2.

Petitioner filed a claim for refund of excess profits tax for 1940, claiming that it is entitled to relief under section 722 of the Internal Revenue Code because it was forced by circumstances… Held: petitioner may not have any relief under section 722 (a) or (b) (5) because the application of subsection (b) (5) to petitioner's case would be inconsistent with the provisions of section 722 (b) of the code.

1. Deduction -- Expense -- Compensation -- Salary Stabilization. -- Reasonable allowance for salaries or other compensation for personal services actually rendered determined. 2.

Payments made by petitioner to the United States Government by reason of claims for liquidated damages for child labor violations under the Walsh-Healey Public Contracts Act, held not deductible as an ordinary and necessary business expense.

Indebtedness originally incurred by decedent's son and evidenced by note upon which decedent eventually became maker, held, on the facts, to have… Held: on the facts, to have continued to be son's indebtedness and, decedent being in the position of surety, held, further, not a deductible claim against petitioner estate, the son having acquired sufficient means by inheritance from another estate at decedent's death. Estate of Charles H. Lay, 40 B. T. A. 522, followed.

Exempt -- Section 101 (9) -- Automobile Club. -- An automobile club, rendering services to its members at less than they could be obtained elsewhere, which services are of the kind rendered by others for the profits to be earned thereby, is not exempt under section 101 (9), I. R. C.

1. The petitioner owned certain railroad property in the State of New Jersey, on which the state imposed a tax for each of the years 1932-1940. Held: the amount unpaid and then in controversy accrued in the respective years when the litigation was terminated either by final action of the court or by discontinuance of the appeals. 2.

Gross Income -- Bequest -- Annuity -- Payable at Intervals -- Income from Property -- Section 22 (b) (3). -- An annuity payable quarterly and actually paid entirely out of income from property of the testamentary trust is taxable to the beneficiary under section 22 (b) (3), I. R. C.

Petitioners in 1943 formed a syndicate to buy and sell several tracts of land, intending to subdivide one tract. They authorized their agent to sell any parcel and to fix the price and terms of sale. Held: these were not sales of capital assets.

Payments to petitioner to continue for her life and resulting from surrender during his lifetime of insurance policies on her husband's life of which she was beneficiary, held annuities which respondent did not err in taxing to her under the 3 per cent annuity provision of Internal Revenue Code, section 22 (b) (2).

Petitioner, an automobile club deriving its income principally from membership dues and rendering to its members various travel services, including low cost insurance, safety promotion, touring advice, and the procurement of emergency repairs, held not exempt from tax under section 101 (9), Internal Revenue Code. Chattanooga Automobile Club, 12 T. C. 967, followed.

Estate Tax -- Power of Appointment -- Section 811 (f). -- Decedent had created an inter vivos trust, with retained power to alter or revoke; his wife left her residuary estate to the trust; after her… Held: decedent had and exercised a general power of appointment over his wife's residuary estate within the meaning of section 811 (f).

Gross Income -- Exemption -- Compensation for Injury or Sickness. -- The exemption allowed in section 22 (b) (5) of the Internal Revenue Code of amounts received through accident or health insurance as compensation for personal injuries or sickness is not applicable to amounts received from such policies purchased and held as investments.

Gain or Loss -- Nonrecognition -- Reorganization -- Recapitalization. -- 5 per cent bonds were surrendered pursuant to a court approved plan whereby fixed interest of 3 1/2 per cent and contingent… Held: a recapitalization and a reorganization under section 112 (g) resulted, and no gain or loss was recognized under section 112 (b) (3).

Petitioner was employed by the American Red Cross on September 29, 1942, to serve as a club director abroad. Held: petitioner was not a bona fide resident of a foreign country during the period of his employment by the American Red Cross in England, and his salary is not exempt from tax under section 116 of the Internal Revenue Code.

Petitioner's tax for 1942, as computed under section 6 (a) of the Current Tax Payment Act of 1943, was less than his income and victory tax for 1943. In the taxable year 1942, petitioner was entitled to a foreign tax credit in the amount of $ 808.81 under section 131 of the Internal Revenue Code. Held, that in computing petitioner's tax liability for 1943 under the Current Tax Payment Act, the foreign tax credit for 1942 must be applied in reduction of the tax for 1942, and may not be applied against the tax for 1943.

From 1930 to 1941 petitioner's decedent acted as an administrator of an estate. Held: that the activities of petitioner's decedent in the administration of the estate were not sufficient to constitute a trade or business and therefore the amounts expended by petitioner's decedent in connection with the suit brought by the heirs are not deductible as ordinary and necessary business expense under section 23 (a) (1) (A)…

Petitioners on their income tax return for 1945 gave an address in Brooklyn, New York. Held: notice was given to petitioners' last known address and was sufficient under section 272 (k) of the Internal Revenue Code, and respondent's motion to dismiss for lack of jurisdiction is sustained.

Family Partnership -- Husband and Wife -- Services -- Capital. -- A wife who contributed some capital and fully participated in a business carried on under a written partnership agreement is recognized as a partner for income tax purposes and her share of the partnership profits is not taxable to her husband.

The petitioners' returns designated one address as that of the petitioners. A power of attorney, later executed, designated another address for the petitioners and directed that all correspondence, documents, warrants, or other data in connection with the taxation be sent in care of their attorney, whose address was also given in the power of attorney.

On or before October 14, 1943, petitioners and their associates had loaned $ 65,000 to the United Tube Corporation in consideration of the corporation's promissory notes and 6,500 shares of new no… Held: that petitioners and their associates acquired a beneficial interest in the 6,500 shares of stock on October 14, 1943, and the capital gain realized by each of the petitioners is a long term capital gain within the meaning of section 117 of the Internal Revenue Code.

Income -- Joint Venture -- Evidence of Participation. -- One who willingly or through indifference allows others to use his funds and then acknowledges that he was a joint venturer with them, entitled to a share of the remaining assets of the joint venture, must be recognized as a joint venturer despite his protestations of ignorance of the whole situation.

Petitioners, husband and wife, are engaged as partners in the general contracting and coal-mining business. Held: The payments of the so-called royalties and rentals to the trusts were in fact merely gifts of partnership income to the trusts and therefore constituted neither royalties, nor rentals, nor ordinary business expenses of the partnership within the meaning of section 23 (a) (1) (A) of the Internal Revenue Code.

1. Petitioner maintained its own books and those of other corporations operated by the same family. Held: under the facts, petitioner is not entitled to a deduction therefor under any subdivision of section 23, I. R. C. 2.

Petitioner's payment of debts of subsidiary which had undergone 77B reorganization, the name, business, and creditors of subsidiary being closely related to petitioner, which was concerned with restoring its credit standing, held deductible either as an ordinary and necessary business expense or as a loss. Scruggs-Vandervoort-Barney, Inc., 7 T. C. 779, followed.

Deduction -- Ordinary and Necessary Expense -- Defense Against Indictment -- Section 23 (a) (1). -- A lawyer, indicted for conspiracy to obstruct justice, paid attorneys' fees and other expenses in… Held: the expenses of the proceedings were deductible as ordinary and necessary expenses under section 23 (a) (1), I. R. C.

Petitioner paid $ 14,518 to decedent's former divorced husband in settlement of a claim which he asserted against her estate. Held: the proof does not establish that there was adequate and full consideration in money or money's worth for the agreement upon which the claim is based within the meaning of section 812 (b) (3) of the Internal Revenue Code, and accordingly the claimed deduction was properly disallowed.

Petitioner's subsidiary was the owner of a theatre property in Pittsburgh, Pennsylvania, on which it had executed a first mortgage to… Held: that petitioner was never obligated to pay the $ 2,400,000 of its subsidiary bonds; it did not assume or agree to pay them when it took over the property. All that it agreed to do was to issue its own bonds of $ 2,160,000 in exchange for $ 2,400,000 of its subsidiary's bonds. In doing so it fulfilled its obligation and had no gain.

Petitioner, a meat packer, slaughtered, processed, and marketed its meats through various intrarelated departments. Held: that, as so determined, petitioner's renegotiable profits were overstated. Excess profits redetermined by proper adjustments of interdepartmental accounts.

1. The gains realized by petitioner from the sale of cattle from its breeding herd in the taxable year 1943 are to be considered long-term capital gains, pursuant to the provisions of section 117 (j) of the Internal Revenue Code, as added by the Revenue Act of 1942. 2. I. T. 3666 and I. T. 3712, as applied to the facts here involved, are invalid. Albright v. United States, 173 Fed. (2d) 339, followed.

Depositors in an insolvent bank as defined in section 3798 (b), I. R. C., accepted preferred stock, together with 51 per cent of the common stock of the bank, for 50 per cent of their claims as… Held: The redemption provision in the preferred stock certificate did not give such certificate holders an equitable lien on the future earnings of the bank.

Petitioner, an automobile club, deriving its income principally from membership dues and the sale of insurance and rendering to its membership various services, including emergency road service,… Held: not exempt from tax under section 101 (8) or (9) of the Internal Revenue Code. Chattanooga Automobile Club, 12 T. C. 967, followed.

In 1938 decedent advanced $ 25,700 to his wife to enable her to purchase a home, taking in return her demand promissory note in that amount, secured by 280 shares of a cooperative apartment house,… Held: That the transaction between decedent and his wife did not give rise to a bona fide debt within the meaning of section 23 (k), and, therefore, the deduction claimed by decedent for a bad debt in 1942 was properly disallowed.

1. Discretion of trustees, of which decedent-grantor was one, held not so limited by trust provisions that it be used for best interest of the beneficiary as to render section 811 (c) and (d) inoperative. 2. Right to transfer principal to beneficiaries after they become 30 years of age, none of the beneficiaries having reached that age at the time of decedent's death, held not a power in decedent to alter or amend within Internal Revenue Code, section 811 (d).

1. Capital Expenditure or Expense. -- Where a judgment awards a certain amount for the partnership interest of a retiring partner and another amount in lieu of interest, the former amount is to be treated as in payment for a capital asset and the latter amount represents ordinary income of the recipient and an ordinary and necessary expense of the payor. 2.

A taxpayer, having elected to report gains from sales of lots on the installment basis, repossessed certain lots after default by the purchaser. Held: warranted by section 44 (d), Internal Revenue Code, and section 29.44-3, Regulations 111.

1. Deduction -- Bad Debt. -- Held, that a debt due petitioner from a deceased stockholder and his estate became worthless in 1942 and constituted an allowable deduction for that year. 2. Held: that a debt due petitioner from a deceased stockholder and his estate became worthless in 1942 and constituted an allowable deduction for that year. 2.

Petitioner, a dealer in foreign securities, transferred all of its domestic securities and certain of its foreign securities out of its inventory to an investment account on December 29, 1941. Held: that the securities so transferred were thereafter held for speculative or investment purposes only and that the profits from the sale of the securities involved are taxable in accordance with sections 117 and 711 (a) (1) (B) of the Internal Revenue Code.

Since 1941 annual retail liquor vendors' licenses have been issued by the city of Jacksonville, Florida, to a limited number of licensees and have been renewed to the holders thereof. Held: the sum of $ 7,250 was a capital expenditure for an asset having an indeterminate useful life beyond the taxable year and was not deductible in 1944.

1. Income from Government construction contract awarded to petitioner and assigned by it to its president, held, on facts taxable to petitioner as income earned by it. 2. Held: on facts taxable to petitioner as income earned by it. 2. Payment to petitioner's president by architect employed to work on contract held not taxable to petitioner.

Petitioners are architects operating in partnership. Held: This Court has jurisdiction of this proceeding. George M. Wolff et al. v. Macauley, 8 T. C. 146, followed. (2) Section 403 (c) (6) of the Renegotiation Act of 1942, as amended, provides a jurisdictional limit on the amounts received by a contractor or subcontractor with governmental departments of $ 100,000.

Prior to March 15, 1944, petitioners, members of a partnership, with intent to evade tax, filed false and fraudulent partnership and… Held: That the petitioners, having originally filed fraudulent income tax returns, may not by the subsequent filing of amended returns and the payment of the taxes due, eliminate the fraudulent elements from their original returns and thereby bar the respondent from assessing in respect thereto 50 per cent additions to the tax for fraud…