Volume 13 — Board of Tax Appeals

1. From the evidence, held that $25,000 paid at the beginning of a lease in adjustment of the liability for the restoration of alterations to the leased premises is a capital expenditure, which is properly exhaustible over the life of the lease or the life of the building, whichever is shorter. 2. Additional construction costs incurred solely for the purpose of obtaining early occupancy of a building should be exhausted over the life of the building. 3.

Assessment and collection of the additional tax involved herein for the fiscal year ended March 31, 1921, are not barred by the statute of limitations.

Evidence held insufficient to overcome respondent's determination of a deficiency.

1. In the determination of the "invested assets" of a life insurance company under section 245(a)(5) of the Revenue Act of 1921, real estate should be included at its book value less an outstanding mortgage, and appreciation in value not shown upon the taxpayer's books but reported in the convention form of life insurance companies to state insurance departments as nonledger assets may not be included. 2. A tax on capital stock "of all kinds, including common, special, and preferred, as ascertained in the manner prescribed" not assessed upon the shareholders but upon the company and paid by it is not a legal deduction from gross income under section 245(a)(6) of the Revenue Acts of 1921 and 1924. 3. The petitioner issues certain life insurance policies carrying guaranteed premium reduction coupons. Upon each premiumpaying date a coupon matures which may be turned in to the company in payment of the premium to the amount of the face value of the coupon, or if the premium is paid in full in cash the policyholder may use the coupon to purchase nonparticipating paid-up additions to the face of the policy, to reduce the number of premium payments, or the coupon may be collected at any time with interest. The petitioner is required to include among its liabilities an amount for the payment of unsurrendered coupons together with interest thereon. Held, that the amount of the reserve which the petitioner is required to hold for the payment of unsurrendered coupons and interest is a part of the "reserve funds" of the petitioner for the purpose of computing the legal deduction from gross income under section 245(a)(2) of the Revenue Acts of 1921 and 1924.

Commissioner's denial of bad debt deduction proved where evidence fails to show whether or not he was in error.

INVENTORIES. - Petitioner took its inventories at cost or market whichever was lower. Held: that the closing inventory for 1920 of $135,712.95 as determined by the respondent should be reduced by $19,005.20 and the deficiencies for 1920 and 1921 be redetermined accordingly.

Where the Commissioner has based depreciation on an estimated life of 25 years and the petitioner maintains that an allowance based on a 10-year life is proper, the building having been continuously in use by the petitioner for a period of 12 years, the valuation for depreciation purposes will not be disturbed where no other evidence is adduced.

Bags for containing fertilizer are properly the subject of inventory at cost or market whichever is lower.

The deduction of part of the cost of unsold stock disallowed where the evidence does not show that the stock was worthless.

1. The petitioner kept its books on a fiscal year basis, but filed its returns on a calendar year basis. Held: that the period of limitations for the assessment and collection of the tax did not begin to run until returns had been filed covering the taxable periods involved. 2. Method of allocating and crediting taxes paid on a calendar year basis to tax liability on a fiscal year basis determined.

1. Where a partnership keeps its accounts and makes its returns upon the basis of a fiscal year ended June 30, 1920, a partner on the calendar year basis may not, in computing his taxable income for 1920, deduct his share of a loss of the partnership for the last six months of 1920, even though the partnership may also close its books at the end of the calendar year. 2.

Petitioner in 1920 loaned stock to several persons to enable them to pledge such stock as additional collateral in respect of debts incurred in the purchase of other stock. Collateral was not sold or forfeited in 1920. Held that deductibel loss was not established.

The value as of September 30, 1913, of two adjoining parcels of real estate determined.

The petitioners having failed to prove that the sale of certain war bonds of the Italian Government was made in 1920, the respondent's determination that a loss in the sale thereof was not sustained in 1920 is sustained.

1. Value claimed for good will at date of acquisition disallowed for lack of evidence. 2. Petitioner reduced its inventories by the percentage of loss sustained, which percentage was determined by an actual physical inspection. Held that the percentage does not represent an arbitrary estimate and that the adjustments made by respondent were erroneous. 3.

Under the evidence, held that the returns of the petitioners are false and fraudulent and were made with intent to evade taxes.

Personal service classification allowed.

1. The bequests made by the decedent to charitable institutions became vested upon the death of the testator and the present values thereof are, therefore, deductible from the gross estate in determining the net estate subject to tax. 2. The value of life insurance in excess of $40,000 taken out on the life of the decedent, in which his widow was named beneficiary, prior to the controlling revenue act, should not be included in the decedent's gross estate. 3.

The action of the respondent in denying a loss of good will in the sale of a business, approved.

1. Where a corporation takes over, from an original lessee, a lease of gravel-bearing land, which gravel deposits have been discovered and examined by test borings made by the original lessee, held,… Held: such corporation is not entitled to depletion deductions on the basis of discovery value. 2. Evidence held insufficient to disturb respondent's determination as to the proper rate of deduction for depreciation of plant.

Where the value of shares of stock in a going corporation must be determined by the net worth of the corporation as of a certain date, held, the company's own inventory taken shortly after the date… Held: the company's own inventory taken shortly after the date in question more truly reflects the net worth than does an estimated liquidation value.

Exchange of bonds of one corporation for capital stock of another, which was a reorganization company, on a 40 per cent basis, where neither bonds nor stock had any readily realizable market value, held not to entitle one to deduct as a loss the difference between the debt represented by the bonds, and the par value of the stock.

1. The city and county taxes involved herein paid by the petitioner in 1920 were obligations of the petitioner and not of its stockholders, and the amount thereof is properly deductible in computing the petitioner's net income for 1920. 2.

The value for invested capital purposes of a 5,140-acre tract of coal lands, acquired in 1902 in exchange for petitioner's capital stock, determined.

1. Depletion on coal mined under lease during the year 1920 denied, due to lack of showing of the cost of lease. 2. A deduction based upon the extraction of 89,000 tons by unlawful trespass by adjoining coal-mining company, and the loss of 40,000 tons additional which became unminable because of such trespass, denied.

Where a perpetual inventory is kept at cost and adjusted at the end of each year to cost or market, whichever is lower, in such adjustment depreciated or obsolete merchandise may be included at its actual value as determined by officials of the taxpayer experienced in the business and thoroughly familiar with the merchandise and its value.

Held, that petitioner has failed to establish that alleged bad debts were ascertained to be worthless in the taxable years in which they were charged off. Held: that petitioner has failed to establish that alleged bad debts were ascertained to be worthless in the taxable years in which they were charged off.

1. Upon the evidence, held that petitioner is not on a long-term contract basis. 2. The parts of the accounting records introduced in evidence do not enable a revision of the books to more accurately compute the cost of various grades of lumber purchased on a log-run basis.

Where the evidence shows no basis for a petition for a redetermination of a deficiency filed by one other than the taxpayer, save an assumption of the liabilities of the taxpayer, the proceeding will be dismissed for lack of jurisdiction. Bisso Ferry Co.,8 B.T.A. 1104, and Bond, Incorporated,12 B.T.A. 339.

Value of mining claim at March 1, 1913, determined as basis for profit or loss on the sale.

1. Method of computing tax for a fiscal year ending in 1921 under section 205(a) of the Revenue Act of 1921. 2. The fair market values of certain real estate on March 1, 1913, and November 18, 1920, determined.

1. Fixed salaries and additional compensation based on profits authorized and paid to officers during the years 1918 and 1919 allowed as an expense deduction where such compensation was for personal services actually rendered and was reasonable in amount. 2. A notice of a deficiency sent to one of two affiliated corporations which does not show a determination of any additional tax liability on behalf of the other affiliated company does not, in the absence of any agreement between the companies, authorize the filing of an appeal with the Board by the corporation to which no notice of a deficiency has been sent. American Creosoting Co., et al.,12 B.T.A. 247.

A marine insurance company incorporated under the laws of the State of New York and doing business in that State reinsured a portion of its risks in companies not authorized or qualified to do… Held: that irrespective of the requirements of the superintendent of insurance the premiums earned during the year and the actual losses sustained which were not compensated for by insurance or otherwise should be used in computing Federal income-tax liability.

Where decedent by will creates a life estate in her daughter, with remainder over to the issue of her daughter, and at the same time provides for a power of appointment in the daughter, and thereafter the daughter dies leaving issue surviving her but devising to her issue by her will whatever property she has under the provisions of her mother's will, the issue takes under and by virtue of their grandmother's will and not because of a power of appointment attempted to be exercised by their mother, and the value of such property should not be included in the gross estate of the daughter.

1. A corporation dissolved in 1918 and distributed to its stockholders in that year profits earned during 1917. Held that the amount of the distribution received by each stockholder constituted taxable income of such stockholder for 1918. 2. In 1918 the petitioners received a ruling from the then Commissioner that where a corporation dissolves and distributes its assets in kind, and not in cash, no taxable income is received from the transaction by its stockholders.

The amounts reserved by the petitioner for self-insurance pursuant to resolution of the Industrial Commission of Utah are not deductible in computing net taxable income.

1. A valuation of stock as of March 1, 1913, made by the Commissioner's predecessor in office at the request of a taxpayer before any sale had been consummated, does not preclude the Commissioner from placing a different valuation on the stock as of that date in determining tax liability resulting from the sale thereof. James Couzens,11 B.T.A. 1040; Rosetta V. Hauss,12 B.T.A. 755. 2. Upon the authority of the cases cited above, held that shares of stock of the Ford Motor Co. sold by the taxpayer had a fair market value on March 1, 1913, of $10,000 per share. 3. A waiver of the time prescribed by law for the assessment of Federal income and profits taxes executed by an administrator pursuant to the provisions of the Federal revenue laws, is not rendered invalid by provisions of state law or the decision of state courts prohibiting executors or administrators from waiving the running of the statute of limitations as to claims against the estate. 4. Where the Commissioner, after the enactment of the Revenue Act of 1924, determines a deficiency in taxes imposed by prior revenue acts, section 280 of the Act of 1924 requires that the taxes be assessed and collected in the same manner as taxes imposed by the Act of 1924, and the mailing of a notice of a deficiency pursuant to section 274(a) of that Act, prior to the expiration of the statute of limitations against assessment, operates under section 277(b) to extend the period within which assessment and collection might be made. 5. In determining whether a contribution by a taxpayer was made within the taxable year the facts, rather than the manner in which the transaction was treated on the taxpayer's books, are controlling. 6. The act of drawing a check to the order of a charitable organization is nothing more than an attempt to make a gift, and the gift is not completed until the check is paid, accepted, or certified by the bank. 7. A check does not operate as an assignment of any part of the fund against which it is drawn, and is subject to revocation, either by the act of the drawer, or by operation of law in the event of the death of the drawer, prior to acceptance or certification by the bank; and, where checks were drawn to the order of charitable organizations during the taxable year, and some were presented in the following year before the death of the drawer, and some were presented in that year after the death of the drawer, held that the contributions were not completed and therefore were not deductible in the taxable year. 8. The value of real estate conveyed to a charitable organization held deductible as a contribution made in the taxable year where the deed was executed and delivered during that year to a third person with instructions to record and deliver it to the grantee, and the Commissioner, who raised the issue whether the gift was completed within the taxable year, failed to prove that delivery of the deed to the third person was insufficient to pass title to the grantee. 9. A stockholder gave an option to purchase his stock and thereafter consented to a sale of the option in consideration of an agreement by the holder thereof to divide the purchase price between himself and certain third parties. The option was thereupon sold and the purchase price was divided pursuant to the agreement. Held that the stockholder realized no income from the sale of the option.

1. A valuation of stock as of March 1, 1913, made by the Commissioner's predecessor in office at the request of a taxpayer before any sale had been consummated, does not preclude the Commissioner… Held: that the stockholder realized no income from the sale of the option.

A corporation in which petitioner was a stockholder issued rights to subscribe to stock of another corporation. Held, the rights so received by petitioner constitute taxable dividends. Held: the rights so received by petitioner constitute taxable dividends.

The petitioner was a personal service corporation during the calendar year 1920.

The petitioner's wife executed a valid deed of trust conveying certain personal property, none of which belonged to the petitioner, to the petitioner as trustee with the power, inter alia, to invest… Held: the Commissioner was in error in determining that certain bank deposits in the trustee's account, representing the amounts realized by him from a sale of the trust property, were income to the petitioner as an individual.

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

Valuation of capital stock for estate-tax purposes determined.

1. The assessment of taxes for the years 1918 and 1919 is not barred by the statute of limitations. 2. Depreciation rate determined.

The fact that estate tax paid in the taxable year exceeds the income of the estate does not render a beneficiary's distributive share nontaxable.

The petitioners have failed to prove that certain transfers made by the decedent within two years prior to his death were not made in contemplation of death.

1. The fact that exhaustion of machinery is accelerated under unusual conditions of operation is not sufficient evidence of the rate at which such exhaustion should be measured. 2. The rate of exhaustion must be based on facts in evidence and is not proven by opinions of witnesses whose judgment is not shown to be authoritative or convincing. 3. Expenditures for paving streets of petitioner's mill village are capital, and the fact that they are occasioned by the necessity to attract competitive labor does not make them deductible as ordinary and necessary expenses. 4. The fact that such streets are used by the public does not establish them as deductible business donations. 5. An inconsistency in the Commissioner's treatment of an item as between its exclusion from invested capital for 1917 and its inclusion in invested capital for 1918 and 1919 does not, in the absence of evidence as to the facts in respect thereof, require its inclusion for 1917. 6. In considering whether an agreement exists under section 240(a), Revenue Act of 1918, for the apportionment of consolidated tax liability, all the circumstances are to be considered, and if an agreement can reasonably be inferred the Board is not bound to believe oral testimony that no such agreement was made.

In considering a deduction under section 403(a)(3), Revenue Act of 1921, where by will a remainder is left to a municipality after the death of a daughter without issue, it will be assumed that issue may at any time be born to the daughter to defeat the charitable remainder.

1. A taxpayer who entered into a transaction prior to March 1, 1913, by which he acquired certain rights at a certain cost, but who offers no proof of the March 1, 1913, value of the rights or of its comparison with cost has not established the basis for a loss on the final disposition of those rights in 1920 or 1921 for a certain amount. 2.

Special assessment denied.

The Commissioner's decision on a question of law which results in the allowance of a claimed loss does not estop him from reversing such opinion and asserting a deficiency based upon the disallowance of the deduction claimed.

Gain from the sale of real estate subject to a mortgage determined.

Opinion in Kahuku Plantation Co.,12 B.T.A. 977, modified upon rehearing.

1. A limited partnership of New York is a partnership under section 218, Revenue Act of 1921. 2. The failure of such a partnership to comply with statutory requirements of recording and publication does not take from the limited partner his liability for income tax as a partner.

1. Where petitioner's personal living expenses are included in deductions claimed for ordinary and necessary business expenses, the respondent's disallowance of the deductions is approved in the absence of evidence showing what portion of such amounts was business expenses. 2. The deficiency for the year 1922 is not invalidated by respondent's failure to comply with section 1005 of the Revenue Act of 1924.

Held, that certain payments and credits on notes owing by the petitioner to a corporation of which he was a stockholder were dividends of a domestic corporation and subject to surtax in the taxable… Held: that certain payments and credits on notes owing by the petitioner to a corporation of which he was a stockholder were dividends of a domestic corporation and subject to surtax in the taxable year.

Value of a certain tract of Iowa farm land at May 7, 1924, determined for estate-tax purposes.

Deduction from income on account of debts alleged to have become worthless in the taxable year disallowed.

Deduction from closing inventories for 1918 and 1919, and from opening inventory for 1919 on account of average cash discounts allowed by vendors of merchandise not consistent with the accounting practice of the petitioner and did not reflect true taxable income for such years. The respondent's action in adding such deduction to taxable income for the several years involved is approved.

1. Deductions for alleged losses through joint investment disallowed. 2. Loss sustained through compromise of a loan constitutes an allowable deduction for the taxable year in which final payment was made.

Deduction for alleged losses through joint investment disallowed.

Personal service classification denied.

Decedent's will bequeathed the residue of his estate to an educational institution. Held: that the entire residue was permanently set aside by the terms of the will for the educational institution and the income is deductible by the executors.

1. The petitioner held not entitled to special assessment under section 328 of the Revenue Act of 1918 for the fiscal years ended July 31, 1918, and July 31, 1919. 2. Held: further, that the assessment and collection of a further deficiency for the fiscal year ended July 31, 1918, is barred.

1. The Revenue laws do not prescribe arbitrary methods of accounting and in computing net income a taxpayer may use the method employed in keeping its books, providing it clearly reflects income. 2. On the evidence, held that petitioner's method of accounting did not clearly reflect income.

1. Under the facts in this case, petitioner held to be entitled to assessment of profit taxes for 1917, under section 209 of the Revenue Act of 1917. 2. Petitioner held entitled to personal service classification for the years 1918 and 1920.

1. A corporation in 1905 acquired a business and in addition to stock issued to former owners it agreed to pay them a sum equal to 12 1/2% of the net profits throughout its existence. Held sums so paid in 1920, 1921 and 1922 were not deductible as ordinary and necessary expenses. 2. The disallowance of such deductions in computing net income does not carry with it the necessity of including the amount thereof in invested capital.

Where citizens of the United States reside in a foreign country, the laws of which give to a wife a vested interest in community property, held, under section 1212 of the Revenue Act of 1926,… Held: under section 1212 of the Revenue Act of 1926, separate income-tax returns filed by husband and wife are proper, and the respondent may not tax the entire income to the husband.

1. An admitted allegation that a trust company during 1924 collected taxable income consisting of profit from the sale of securities, made a return as an individual and took the earned income credit of 25 per cent which was disallowed by the Commissioner, is not sufficient to defeat the deficiency. 2. The Board does not abstractly consider or determine the provisions of the Revenue Act.

A man and a woman, not husband and wife, contributed in approximately equal proportions to the purchase of real estate in California, and erected buildings thereon. Held: this was not community property under the California law.

LOSSES - BAD DEBTS - INHERITED PROPERTY - PROMISSORY NOTES. - Decedent was an accommodation endorser of certain notes secured by second mortgage on property of the maker. After decedent's death these were paid by his executor with estate funds, the notes being taken over and thereafter treated as an asset of the estate and no deduction taken on account of the expenditure in determining the gross estate for Federal tax purposes. In 1918 the administration of the estate was concluded and title to the notes in question taken by petitioners as distributees. In 1919, the maker of the notes having died, his estate was administered and its only asset, the property covered by the second mortgage securing the notes, was sold at foreclosure for less than the amount of the first mortgage. Held, that any loss to petitioners as a result of the happenings in 1919 must be measured by the value of the notes at the time distributed to them in 1918, and, there being no proof of such value, no deduction either as a loss or as a bad debt can be allowed.

Held, That a deficiency in income tax for the year 1920 was properly asserted against the petitioner under the provisions of section 240(b) of the Revenue Act of 1921. Held: That a deficiency in income tax for the year 1920 was properly asserted against the petitioner under the provisions of section 240(b) of the Revenue Act of 1921.

A member of a marital community in the State of Washington whose duties are solely those of housewife and housekeeper is not engaged in carrying on a trade or business within the meaning of the Revenue Act of 1921, and it is held that a loss sustained in connection with the purchase of household supplies is not deductible from the income of the members of the community.

Assessment under section 210 of the Revenue Act of 1917 denied on the ground that the tax asserted against the petitioner does not exceed that paid by representative corporations engaged in a like business.

The evidence is insufficient to show the existence of abnormalities which would bring the petitioner within the scope of section 327, Revenue Act of 1918.

1. Decision in Kahuku Plantation Co.,12 B.T.A. 977, as modified in 13 B.T.A. 292, followed. 2. March 1, 1913, value of leasehold interest in sugar cane lands determined.

Legal expenses incurred by petitioner in defending its title to lands against adverse claimants are not deductible as ordinary and necessary expenses paid or incurred during the taxable year in carrying on its business.

Credit claimed by petitioner on account of inheritance taxes paid to the State of Nebraska in respect of property included in the gross estate for estate-tax purposes should be allowed in an amount not to exceed 25 per cent of the estate tax.

Petitioner's return for 1919 held to have been false with intent to evade tax, and additional tax and penalty asserted by respondent are not barred.

1. Amount of deduction for executors' commissions, attorneys' fees and miscellaneous administration expenses determined. 2. A pledge of decedent upon condition held not a debt of decedent where the condition was not met before her death. 3. Certain school property held properly included in decedent's gross estate. 4. Transfer to trust held not in contemplation of death or intended to take effect in possession or enjoyment at or after death.

Under the facts of this case, held, that petitioner was not an officer or employee of the State of Georgia or political subdivision thereof, and that the compensation received by him,… Held: that petitioner was not an officer or employee of the State of Georgia or political subdivision thereof, and that the compensation received by him, under certain contracts for the collection of delinquent taxes is not exempt from taxation under section 1211 of the Revenue Act of 1926.

1. The petitioner kept its books on a fiscal year basis, but filed its returns on a calendar year basis. Held: that the period of limitations for the assessment and collection of the tax did not begin to run until returns had been filed covering the taxable periods involved. 2. Method of allocating and crediting taxes paid on a calendar year basis to tax liability on a fiscal year basis determined.

Held, the during the year 1920, the petitioner was a personal service corporation, as that term is defined by section 200 of the Revenue Act of 1918, and was therefore exempt from taxation under the… Held: the during the year 1920, the petitioner was a personal service corporation, as that term is defined by section 200 of the Revenue Act of 1918, and was therefore exempt from taxation under the provision of section 218(e) of said Act.

The petitioner made its income and profits-tax returns for 1921 and prior years on a cash receipts and disbursements basis. It made no material change in its bookkeeping in 1921. Held: that a return on the cash receipts and disbursements basis reflected its true net income for 1921.

Taxable gain is not realized where, as part of an agreement of settlement between individuals, an obligation of a corporation of which the taxpayer was the principal stockholder is released to the corporation.

Where the petitioner in the year 1921 charged off on its books the amount of an investment in Imperial Russian Government bonds purchased in prior years, but did not during the taxable year dispose… Held: that no deductible loss was sustained.

1. The March 1, 1913, value of depreciable property determined. 2. Additional taxes due for the years 1917, 1918, and 1919 are not barred from assessment and collection by any statutes of limitation.

In 1920 the petitioner entered into a land contract for the sale of real estate in Detroit, Mich., under which it received $50,000 cash and was to receive in 1923 a final payment of $100,000 additional. The cost of the real estate to the petitioner was $141,306.01. The fair market value of the obligation of the purchaser to pay $100,000 in 1923 was not in 1920 in excess of $91,306.01. The petitioner realized no taxable profit from the transaction in 1920.

The petitioner is entitled to take as a deduction as an ordinary and necessary expense of its business in the year 1920, $28,901.38 for which amount the Interstate Commerce Commission in that year finally determined that the petitioner was liable to certain railroads as demurrage for failure to unload certain freight cars in 1919 without fault on the part of the petitioner, where petitioner disputed liability from the beginning and until said final decision by the Interstate…

During the lifetime of the decedent he executed and delivered to his wife a deed of gift transferring to her certain shares of stock but reserving to himself voting and other privileges and further… Held: that such stock was no part of his estate at the time of his death.

Invested capital of the petitioner was determined by the respondent at the beginning of the year without making any deduction for a deficit caused by operating losses. Held: that the invested capital as computed at the beginning of the year should not be further reduced by reason of the payment of such dividends.

1. Where one exchanged his property for the whole of the capital stock of a corporation except two qualifying shares, and where the market value of the shares received was in excess of the cost of the property, held, that such excess constituted taxable gain. 2. Where the owner of all the capital stock of a corporation, except two qualifying shares, exchanged a part of his stock holdings for property and then exchanged such property for a part of the assets of the same corporation and where the market value of such assets was in excess of the market value of the stock so exchanged, held, that such excess constituted taxable gain.

The income of a husband and of a wife, both residents of California, derived from separate estates and individual earnings is taxable to the spouse owning the estate or earning the income, irrespective of an antenuptial agreement to the effect that such income should be used for the common benefit of both and any surplus invested in property the joint property of both.

1. During December, 1920, petitioner was designated by the Attorney General of Pennsylvania as special counsel to represent said Commonwealth in the matter of inheritance taxes due by the Frick and… Held: that, under the circumstances disclosed, petitioner was not an employee of the Commonwealth of Pennsylvania, and that the compensation paid to him for said legal services is subject to the Federal income tax. 2.

1. Written consents filed with the Commissioner but approved by the Commissioner subsequent to the expiration of the statutory period of limitation are effectual in preventing a bar to the assessment and/or collection of taxes. Joy Floral Co.,7 B.T.A. 800, followed. 2. The evidence is insufficient to warrant deduction for obsolescence of tangible property. 3.

In 1920 the petitioner entered into agreements with certain of its employees for the sale of shares of its capital stock to them, the agreements requiring the employee to pay a percentage of the… Held: that the amount of the unpaid stock subscriptions may not be included in invested capital. Held, further, that interest accrued on the unpaid stock subscriptions constitutes taxable income of the petitioner.

1. The value of shares of stock received in part payment for the sale of property in 1920 determined. 2. The Commissioner's affirmative claim that he erred in his determination that petitioner was taxable as a trust and that he should have taxed him as a corporation, is not sustained by the evidence.

In January, 1922, petitioner authorized additional salaries for its officers and employees for the years 1920 and 1921 and paid such additional compensation in… Held: that in the absence of proof that the combined regular and additional salaries paid in 1922 and 1923 were no more than reasonable compensation for personal services rendered, the payments so made are not deductible from petitioner's income in the respective years as ordinary and necessary operating expenses.

1. The affirmative allegation of the Commissioner that the petitioner realized gain in 1920 on the sale of certain stock acquired in 1911, is not sustained by the evidence. 2. Claim for loss on sale of cotton, conceded by respondent, allowed. 3. Claims for losses on forfeited leaseholds held not sustained by the evidence.

Action of the petitioner held to have been sufficient to effect substantial compliance with the statute with respect to charging off certain worthless accounts.

1. Amounts received by decedent in the nature of a cash bond as security for the performance of a 99-year lease do not constitute taxable income when recieved. 2. The deficiencies for the years 1919 and 1920 are not invalidated by respondent's failure to comply with section 1309 of the Revenue Act of 1921.

A written consent, signed by the chairman of the board of directors of the petitioner, to a later determination, assessment and collection of such income and profits tax as may be determined to be due, operated, under the evidence in this case, to suspend the running of the statutes of limitation, notwithstanding the board of directors of the corporation did not specifically authorize the execution of such consent.

A fiduciary who files a return for the estate of a decedent is not entitled to the earned-income credit provided by section 209, Revenue Act of 1924, with respect to income not in excess of $5,000.

Under the terms of a partnership agreement, the petitioner loaned certain percentages of his net distributive earnings to the partnership. Held: that such interest payments were not income to the petitioner in the taxable year.

Where the petitioner fails to prove facts from which we can determine the true deficiency by the installment sales method, the respondent's determination of the deficiency by another method must stand, even though the facts establish the right of the petitioner to return income from installment sales by the installment sales method.

1. Held, that a certain contract for the exclusive showing of certain theatrical attractions in the City of Detroit and which was… Held: that a certain contract for the exclusive showing of certain theatrical attractions in the City of Detroit and which was transferred to the petitioner for a portion of its capital stock had cost the previous owner nothing within the meaning of section 331 of the Revenue Act of 1918 and is not to be included in petitioner's invested…

1. The evidence is insufficient to justify the conclusion that a written request had been made by an executor, administrator, or other fiduciary representing the estate of the decedent which would start running the one-year statutory period provided in section 250(d), Revenue Act of 1921, with respect to income received during the lifetime of the decedent. 2.

1. Purported sale of stock by petitioner's husband, in which she held a one-half interest as community property, for the purpose of establishing a loss for income-tax purposes, held not to have been a bona fide sale. 2. Evidence held insufficient to justify the conclusion that petitioner's return in which the loss was taken as a deduction, was wilfully false and fraudulent.

1. Decision in Kahuku Plantation Co.,12 B.T.A. 977, followed. 2. March 1, 1913, value of leasehold interests in sugar cane lands determined.

Deduction allowed of losses sustained during the years 1920 and 1921 upon investments in corporation stock which was worthless at the close of the taxable years.

The respondent having determined a taxable gain resulting from an exchange of one farm for another in 1918, the burden of proof is on the petitioner to show that no such gain was realized in such transaction.

Held, That the amount of $28,000, authorized and paid the general manager of the petitioner for personal services rendered, was no more than reasonable… Held: That the amount of $28,000, authorized and paid the general manager of the petitioner for personal services rendered, was no more than reasonable compensation and is a proper deduction from petitioner's gross income for the taxable year, under the provisions of sections 234(a) and (a)(1) of the Revenue Act of 1918.

Where crypts in a mausoleum were sold, the payments therefor to be made at specified times as the building progressed, and where, in case of nonfulfillment of the contract by the purchaser, all… Held: that all such payments constituted taxable gross income as of the date they became due or payable, irrespective of when title was conveyed or possession granted.

Items of expense established by evidence, allowed; those claimed, but not established by evidence disallowed.

For the year 1922 the petitioner filed a return of all income of his wife and himself, believing when he did so that net taxable income was less than $4,000, and that no saving in tax could be… Held: that this was an election to file a joint return even though it was influenced by a misapprehension of fact, and that petitioner and his wife can not subsequently file separate returns under the community properly law of Texas. R. Downes, Jr.,5 B.T.A. 1029, cited and followed.

1. Deduction from gross income of certain alleged bad debts disallowed. 2. Amounts not included in reserves set up as required by law not deductible from gross income as reserves required by law. 3. Reserves required by law were properly computed by the respondent in each of the taxable years.

1. Value of certain property determined. 2. Respondent's action in including among the assets of the estate a certain note at a value of $35,000, plus accumulated interest, sustained.

1. Petitioner made a payment of $40,000 to its four principal stockholders as compensation for services in addition to the compensation regularly provided for each of the fiscal years ended June 30,… Held: that $2,560 of such amount constituted a legal deduction from gross income in income-tax returns for the years in question as reasonable compensation for personal services actually rendered. 2.

1. Basis used by respondent for computing depreciation approved for lack of evidence. 2. Additional depreciation allowed on motors due to overtime use. 3. Depreciation on boats for 1923 allowed. 4. Amounts for attorneys' fees, appraisals, and other items spent in connection with the acquisition of property held not deductible as ordinary and necessary expenses. 5. Donations to various organizations and institutions held not deductible as ordinary and necessary expenses. 6.

The acceptance of a return containing a deduction for amortization of war facilities is not the "tentative" allowance of a deduction for amortization so as to make the statute of limitations inoperative.

The decedent filed his income-tax return for 1921 and took a deduction therein for amortization. Held: that the deficiency is not barred because the examination was not made prior to March 3, 1924.

1. The March 1, 1913, value of leaseholds of sugar cane lands determined for the purpose of fixing a reasonable allowance for the exhaustion thereof. 2. The evidence shows that in the taxable year petitioner replaced a broken roller of its sugar mill and charged the cost to expense, that such rollers have a life of from one day to three years, that breakage is frequent, and that replacement does not extend the life of the mill as a whole.

1. Collection of amounts assessed within five years after the return was filed held not to be barred. Art Metal Works,9 B.T.A. 491, followed. 2. Taxes not assessed within five years after return was filed may not thereafter be assessed or collected, New York & Albany Lighterage Co. v. Bowers,273 U.S. 346. 3.

1. The determination of a deficiency in tax under the Revenue Act of 1924 does not bar the subsequent determination of a further deficiency. 2. Held: that such rental was properly chargeable against the crop from which it was paid and deductible as an expense of producing that crop. 8. Cost of reclaiming swamp lands held to be a capital expenditure to be included in petitioner's assets in computing its earned surplus for invested capital purposes. 9.

Upon the dissolution of a law partnership in 1921, of which the petitioners were members, they received from the sale of certain interests in the partnership amounts of money in excess of the cost of… Held: that the petitioners derived no taxable income from the sale.

The Commissioner's action in disallowing as a deduction for 1923 a loss alleged to have been sustained by reason of the sale of certain stock in that year is, under the circumstances herein, approved.

1. Under the circumstances herein, it is held that the sale of certain property in February, 1920, by petitioner constituted a completed transaction as of that date, and that the gain resulting therefrom should be reported in its entirety as income for 1920. 2. Alleged losses disallowed.

Petitioner entered into a 5-year agreement to make certain payments to one of its stockholders or to his heirs or assigns as salary for his services as manager and in consideration of such… Held: that in the circumstances herein, such payments may not be deducted from income in the determination of the petitioner's tax liability for any of the several taxable years involved, either as ordinary and necessary expenses or as losses.

1. Amounts expended by a physician for railroad fare, hotel accommodations and meals in connection with attending meetings and conventions of various medical associations held to be deductible as ordinary and necessary expenses. 2. The action of the Commissioner, disallowing any deduction for certain losses claimed, sustained for lack of evidence of loss.

1. Certain withdrawals from a corporation made by a stockholder who owned all the stock of the corporation except certain qualifying shares, held to be taxable dividends under section 201 of the Revenue Act of 1921. 2. In the absence of evidence showing when income-tax returns were filed, held, that the assessment of a deficiency is not barred by the statute of limitations. 3. The value of the good will of a corporation determined. 4. Right to special assessment under section 328 of the Revenue Act of 1921 denied where the only facts established in evidence are the amount of income and the amount of invested capital of petitioner as determined by respondent.

The petitioner and the owners of certain land entered into agreements wherein it was provided that petitioner should subdivide and sell the land, the funds necessary for the development thereof, such… Held: that the funds furnished by petitioner and expended for the development of the lots were of a capital nature and, consequently, not deductible from gross income.

1. Determination of Commissioner denying special assessment for 1918 and 1921 is approved. 2. Determination of Commissioner disallowing deduction claimed to represent exhaustion of contract sustained. 3. Determination of Commissioner imposing penalty for negligence sustained.

In 1924 the petitioner paid a note, the payment of which had been assumed by the City of New Orleans as a part of the purchase price of land. Held: that the amount paid was a legal deduction from gross income as a necessary expense.

A contingency reserve for anticipated excessive mortality losses and possible losses in reserves invested, which was maintained by petitioner in addition to a reserve of the net value of outstanding policies is not a reserve required by law within the meaning of section 245(a)(2) of the Revenue Act of 1921.

1. Where a parent company owns all the stock of its subsidiary companies, in determining the source of profits or earnings of the parent… Held: that the distributions made by the subsidiary to the parent from sources other than earnings accrued subsequent to February 28, 1913, represent, for the purposes of the income tax, a return to it of a part of its investment and do not constitute earnings available for distribution to stockholders where there is no gain in excess of…

For lack of evidence, held that an alleged loss taken as a deduction from gross income for the fiscal year ending January 31, 1919, was not sustained during such taxable year.

Evidence as to time of transfer of property considered and held sufficient to overthrow the respondent's determination of deficiency.

March 1, 1913, value of certain real estate fixed, and determination of respondent overruled.

March 1, 1913, value of real estate, and rate of depreciation on the building, determined.

During the taxable year the stockholders of the corporation in which the petitioners held stock unanimously agreed to release them of all liability for payment of the amounts shown by the corporate books to be due from them. Held that the evidence discloses an intention to distribute profits without regard to stock holdings and that the amount of which each petitioner was discharged represents a payment of dividends.

Evidence held insufficient to determine that respondent erred in disallowing a deduction claimed as a bad debt.

1. The March 1, 1913, value of patents and applications for patents determined for purposes of depreciation. 2. Individual Towel & Cabinet Service Co.,5 B.T.A. 158, followed.

1. Held, that reproduction cost as of March 1, 1913, does not establish actual value of machinery and equipment, as of that date. 2. Held, that petitioner is entitled to only such depreciation as will recover the cost of property and not such as will provide for cost of replacement of such property. 3. Respondent's determination of asset values for purposes of invested capital upheld. 4. Held, that an amount for contractual amortization should be excluded from income.

Held, that certain interest notes should be included in invested capital of petitioner at their face values. Held: that certain interest notes should be included in invested capital of petitioner at their face values.

During the lifetime of an insane woman, unmarried, and past 50 years of age, her guardian made numerous payments out of her surplus income to those who in the natural course of events would become… Held: said notes formed a part of the assets of the estate to the extent of their value. There being no evidence by the petitioner that the notes were not worth their face value, the determination of the respondent on that point is sustained.

Held, that respondent did not err in including in the gross estate of decedent the value of certain real property transferred by him to his wife within two years prior to his death. Held: that respondent did not err in including in the gross estate of decedent the value of certain real property transferred by him to his wife within two years prior to his death.

Where one accepts a Governmental appointment which requires his presence and work in Washington about half the time, and who retains his home and professional connections in a distant city, held, that his expenses for travel to and from Washington, D.C., for meals and lodging while there, and the like, are properly deductible from gross income as "ordinary and necessary expenses incurred" in carrying on a trade or business.

Salaries of officers held to have accrued as an expense for the calendar year 1921.

Upon the evidence, held that certain transactions constituted sales by stockholders of the petitioner of their stock and did not constitute a sale by the petitioner of certain of its assets.

1. Certain contingent claims for refund of amounts paid by the decedent to public utilities companies and the City of St. Louis, held to have had only a nominal value at time of death of testator. 2. The amount paid by the executrices of the estate to the State of Missouri under the so-called Missouri Inheritance Tax Law, held to have been a part of the gross estate of the decedent.

Income and gains of an estate accruing to charitable organizations as residuary legatees, held to have been permanently set aside pursuant to the terms of the will, as provided in section 219(b) of the Revenue Act of 1921.

Attorney's fees, contracted for prior to 1920, but not received until 1920, held to be income in the year actually received.

Respondent's determination that a husband had not conveyed certain partnership interests to his wife approved.

Special assessment denied petitioner upon failure to show that it comes within the class of cases set forth in section 327 of the Revenue Act of 1918.

Respondent's valuation of assets for estate-tax purposes approved.

Held, that the principal stockholders of the petitioner corporation were also partners in a partnership operating under the name of M. B. Austin & Co., and that respondent erred in consolidating into one return the net income of both the partnership and corporation for the year 1919.

Interest paid by petitioner held to be proper deductions on individual returns.

1. In 1919 the petitioner abandoned the manufacture and sale of a trade-marked alcoholic cordial known as Creme Yvette on account of prohibition legislation. Held: that the petitioner is entitled to deduct from the gross income of 1919 as a loss sustained the entire cost of the trade-mark, namely, $46,875. 2.

1. In the absence of proof of value at March 1, 1913, debts ascertained to be worthless and charged off within the taxable period disallowed as deductions in computing net income. 2. Deduction claimed for depreciation or as ordinary and necessary business expenses disallowed.

1. STATUTE OF LIMITATIONS. - Petitioner's taxable year in question was the fiscal year ending November 30, 1919. A waiver was executed by the petitioner "for the year 1919." Held, that such waiver was sufficient to waive the statute of limitations. 2. INVESTED CAPITAL. - The invested capital for the fiscal year ending November 30, 1919, should be properly adjusted on account of the prior-year tax liability in accordance with the stipulation of the parties.

Held, that during the taxable years petitioner, his wife, and his mother were members of a partnership engaged in coal mining and should be taxed as such. Held: that during the taxable years petitioner, his wife, and his mother were members of a partnership engaged in coal mining and should be taxed as such.

Evidence held insufficient to overcome respondent's determination of a deficiency.

Held, certain bonds and stock had no readily realizable market value when received by petitioner. Held: certain bonds and stock had no readily realizable market value when received by petitioner.

In the absence of evidence from which the value on March 1, 1913, of petitioner's right, title and interest, if any in and to certain selections of land could be determined, respondent is affirmed.

Proof held insufficient to overcome the presumption that the Commissioner's disallowance of certain deductions representing debts alleged to have been ascertained as worthless and charged off in the taxable year was correct.

Patronage dividends due members of a cooperative business association held to be a part of the cost of goods sold.

1. Machines acquired for use in the petitioner's business which had never been used but were capable of use, became surplus equipment in 1920 because the business did not require their use. Held: on the evidence, that petitioner is entitled to a deduction as a loss on account of the worthlessness of a machine in 1920.

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

1. Action of the respondent in reducing petitioner's invested capital for 1921 on account of prior year taxes approved. 2. Actual cash value of property on date acquired in exchange for petitioner's entire capital stock determined. 3. Petitioner is entitled to include in invested capital for 1920 and 1921 the excess of the actual cash value of property acquired in exchange for its capital stock over the par value of capital stock issued therefor. 4.

1. Rate of depreciation on machinery and equipment determined. 2. Value of assets salvaged from a fire determined.

Portion of debt charged off in taxable year as worthless disallowed as a deduction from gross income.

Respondent's disallowance of an item claimed to be deductible as a bonus payment, sustained.

The amount found due by an auditor appointed by an equity court held not deductible as a loss in the year in which the report was made in the absence of evidence showing that the report was approved by the appointing court or acquiesced in by the defendant, and where there is evidence tending to show that the liability was being contested and was compromised in a later year.

Where petitioner keeps its accounts on the accrual basis, an estimated reserve for freight charges incurred in 1920 is not deductible from gross income, but only the amount actually incurred is deductible.

Value of certain real property acquired by petitioner in 1920 in exchange for capital stock determined.

1. Where, during prior years the petitioner had losses in excess of its profits, held that its invested capital for the taxable year should be reduced by certain advances made by it to some of its preferred stockholders in lieu of dividends. 2. Respondent's determination as to the amount by which invested capital should be reduced on account of a dividend paid during the taxable year approved for lack of evidence.

Where petitioner's books are kept on the accrual plan, income produced but held in abeyance by litigation is taxable for the years when produced and not for the year when actually received.

1. Value of property for invested capital purposes determined. 2. Value of leases determined.

The bond filed by the petitioner in connection with a claim in abatement does not operate to extend the statutory period of limitations for the assessment and collection of taxes. C. B. Shaffer,12 B.T.A. 298, and Gulf States Steel Co.,12 B.T.A. 1244, followed.

Respondent's action in refusing to allow the petitioner a deduction from closing inventory on account of alleged rotten and unsalable lumber discovered during the year approved.

The Commissioner taxes as income to petitioner certain profits made on the purchase and sale of ships. The evidence was found to establish that such gains were not income to this petitioner, which had no part in the transaction.

1. Claimed fire loss disallowed for lack of evidence of cost of property. 2. Amount expended, in excess of insurance received, in restoring a building partially destroyed by fire, held not deductible as the cost of repairs.

In 1914 the petitioner received four promissory notes of $50,000 each, payable in 1916, 1917, 1918, and 1919 in payment of a debt. None of the notes was paid at maturity. Held: that the note maturing in 1918 was not ascertained to be worthless in 1921 and that that maturing in 1919 was not ascertained to be worthless in 1922.

Patronage dividends due members of a cooperative business association held to be part of cost of goods sold.

Petitioner, an interior decorating firm, held entitled to personal service classification.

Gain. - Where petitioner loaned money on a trust deed and foreclosed and subsequently sold at a profit, the profit should be included in income for the year in which received and should not be held in suspense account to await termination of a lawsuit between the same parties.

- Petitioner and his wife, residents of California, entered into contract by which the wife furnished $5,000 from her separate estate to enable petitioner to engage in moving picture production, the… Held: that one-half of the proceeds resulting therefrom was the wife's separate property and income and should not be included in husband's income.

HUSBAND AND WIFE - PARTNERSHIP - California. - Where the two petitioners and their respective wives entered into a contract to carry on a mercantile business as a partnership and each contributed capital and services to the business and the profits and losses were divided equally, the income derived therefrom by the wives was their separate property and was properly returned and tax paid by them, and it was error to include same in the income of petitioners on the theory…

Loss. - Where ground is prepared and planted for the raising of cranberries and where its value is completely destroyed by overflow or seepage of water from natural causes, the cost of preparation and planting is a deductible loss.

1. Penalties paid by a railroad corporation to the United States for violation of certain regulatory statutes are not deductible as ordinary and necessary expenses. Held: that such obligations when charged back to profit and loss constituted taxable income. 5.

1. Held, that the petitioner is not entitled to a deduction for obsolescence for intangible assets, including good will. 2. Held: that the petitioner is not entitled to a deduction for obsolescence for intangible assets, including good will. 2.

Affiliation. - Where five persons owned all of the stock in one corporation, and 80.20 per cent in another, and controlled 18.80 per cent in the other, the corporations were affiliated and a consolidated return for each taxable year is proper.

Evidence held insufficient to determine value of leasehold for exhaustion and invested capital purposes.

1. Claim for deductions for losses, in addition to the amounts allowed by the respondent, denied where books of account were kept on cash basis. 2. Income taxes imposed by and paid to the Government of Great Britain and Irelandheld not deductible under the Revenue Act of 1918. 3. Interest on foreign government bonds owned by petitioner, a foreign corporation, is not income from sources within the United States. Standard Marine Insurance Co., Ltd.,4 B.T.A. 853.

Borrowing funds for operating expenses, although in large amount compared with invested capital, does not, per se, entitle a corporation to special assessment.

A legally formed trust is not dissolved by an instrument jointly executed by the donor, the trustees and all of the beneficiaries, which declares that the same is thereby revoked but conditioned upon the formation of a new trust for the same property in accordance with terms therein set forth and naming the trustee therefor.

1. New York State franchise tax on trust companies which accrues rateably over the year, is deductible as it accrues, for the purpose of determining taxable income and invested capital when accounts are kept on an accrual basis. 2. No basis for the application of equitable estoppel exists in the absence of a showing that the party asserting the estoppel has been damaged. 3.

Held, that at the date of the deficiency notice the statute of limitations had run against the assessment and collection of any additional taxes. Fred T. Ley & Co.,9 B.T.A. 749. Held: that at the date of the deficiency notice the statute of limitations had run against the assessment and collection of any additional taxes. Fred T. Ley & Co.,9 B.T.A. 749.

Held, that at the date of the deficiency notice the statute of limitations had run against the assessment and collection of any additional taxes. Fred T. Ley & Co.,9 B.T.A. 749. Held: that at the date of the deficiency notice the statute of limitations had run against the assessment and collection of any additional taxes. Fred T. Ley & Co.,9 B.T.A. 749.

1. Held, that during 1920 the petitioner was not domiciled in Texas but was domiciled in the State of Tamaulipas, Mexico. 2. Held: that during 1920 the petitioner was not domiciled in Texas but was domiciled in the State of Tamaulipas, Mexico. 2.

Personal service classification denied petitioner for the year 1918 and allowed for the year 1919.

Where a husband and wife establish a joint account and take into it property belonging to each and where each owns approximately one-half of the property in such account, the income from such property is the income of the husband and wife in proportion to their ratable contributions to the principal amount thereof.

1. Held, that collection of the deficiency herein is not barred by the statute of limitations. 2. Held: that collection of the deficiency herein is not barred by the statute of limitations. 2.

1. Installment Sales. - The filing of original returns on accrual basis is no bar to later filing amended returns on installment basis providing books contain sufficient information to so compute the net income. 2. ID. - Petitioner held to be regularly selling personal property on the installment plan within the meaning of that term as used in section 212(d) of the Revenue Act of 1926. 3.

1. The Commissioner determined a deficiency for the fiscal year ended June 30, 1919, for which year there was also outstanding an unpaid portion of the original tax which was assessed when the return… Held: that the Board has jurisdiction to consider both issues raised. 2. Petitioner filed its return for the fiscal year ended June 30, 1919, on September 15, 1919.

Under the provision of section 603 of the Revenue Act of 1928, amending subdivisions (c) and (d) of section 1001 of the Revenue Act of 1926, the Board is without authority to approve a bond to stay the collection of a deficiency pending review when such bond is not filed with the Board prior to or at the time the taxpayer files his petition for review.

Certain compensation received by the petitioner during 1923 held to be for personal services as an employee of a political subdivision of a State and therefore exempt from taxation under section 1211 of the Revenue Act of 1926.

Limitations. - Petitioner filed its income and profits-tax return on September 15, 1919, for the fiscal year ended June 30, 1919. Held: that said return was in substantial compliance with the statute, and constituted the return required by law. Held, further, that assessment and collection of the proposed deficiency are barred by the statute of limitations.

Affiliation. - Where three persons owned all the stock of a refining corporation, and owned or controlled substantially all of the stock of an oil-producing corporation and both corporations were managed and controlled by said three persons as a business and economic unit, the corporations were affiliated and should file a consolidated return.

1. The amount of the award of the New York State Compensation Insurance Commission on account of a death from accident on the petitioner's property is not necessarily properly accrued upon the petitioner's books where it appears that an appeal was taken from the Commission's decision which decision was sustained in the following year. 2.

1. The petitioners leased certain real estate which they owned for a period of 20 years, and the lessees, pursuant to a convenant in the lease, erected a building thereon at their own expense. Held: that petitioners realized income for the taxable years in question due to the erection of these improvements. 2.

Bonds do not have the effect of extending the period for the assessment or collection of taxes.

A residuary legatee under a will acquired personal property, within the meaning of section 202(a)(3) of the Revenue Act of 1921, when distributed by the executor and is taxed for purposes of gain pursuant to section 202(a)(3) of the Revenue Act of 1921, using as a basis the fair market value of the property at date of distribution.

Alleged capital value of law cases turned in to a partnership by the petitioner disallowed.

1. DEDUCTION - ACTOR'S WARDROBE. - Where it is necessary for an actor to provide at his own expense certain costumes which are destroyed or ruined by the character of use required, the cost thereof may be allowed as an ordinary and necessary business expense. 2. PHYSICAL TRAINING. - Expenses for physical training incurred by petitioner deductible as business expenses. 3. TRAVELING EXPENSES. - Claims for traveling expenses determined and allowed and those for use of automobile disallowed for lack of evidence as to part of expenses borne by petitioner. 4. BAD DEBTS. - Claim for disallowed because no investigation made to ascertain worthelessness.

1. In 1913 petitioner removed its business from leased premises to other leased premises. This move was made for the benefit of the business. Held: that such deduction may not be allowed. 2. Section 212(b), providing that the method of accounting used by the taxpayer shall be used in computing income unless such method fails to reflect the true income, refers to the method of accounting and not to the treatment accorded on the books to an isolated transaction.

1. The will of George H. Faulkin, after giving the use, income, rents, and profits of his real and personal property to his wife,… Held: that under these wills the interests of each of the deceased persons vested immediately upon their deaths in 1901 and 1908, respectively, and that when their children, in 1922, transferred the four pieces of real property to four of their number at agreed amounts and the total amount so received was divided equally among them, these…

In the taxable years the petitioner was the trustee and residuary legatee of an estate burdened by the will of the testator with the payment of certain annuities to other legatees under the will. Held, that the income of the residuary estate paid as annuities was not taxable to the petitioner.

Ordinary and necessary business expenses determined and allowed as deductions.

Affiliation. - Under all the facts and circumstances of the case, held that the Bank of Italy and First National Bank of Fresno are affiliated corporations and should file consolidated returns pursuant to the provisions of section 240 of the Revenue Act of 1918.

1. Bonus - Advance Payment of Rent. - Where the petitioner rented property to another for a term of 15 years at an agreed rental of $5,000 monthly, and it was further agreed that the lessee should pay in addition thereto the sum of $20,000 in cash in advance at the beginning of the term, said sum of $20,000 constitutes a part of the profit to petitioner and is taxable for the year in which received and can not be apportioned over the entire term of the lease. 2.

Respondent was not in error in reducing the amount of bad debt reserve.

Held that certain accounts claimed as deductions for bad debts have been included in income for prior years and certain other accounts were ascertained to be worthless and charged off in the taxable year.

Landlords' interest in growing crops of tenant classified.

Only the excess realized on a chose in action over the value thereof at the date of the death of a decedent constitutes taxable income when received by the executors.

The petitioners, carrying on a partnership business under the name of Phelps & Armistead in 1919, entered into an oral agreement with their wives that they should be equal partners with themselves… Held: that the petitioners are not liable to income tax in respect of the shares of the profits belonging to their wives.

Special assessment disallowed for lack of evidence showing inability of the Commissioner to determine invested capital.

1. The value of leaseholds and of other property paid into the petitioner corporation in exchange for shares of stock determined for the purpose of computing invested capital. 2. The value of the same assets at March 1, 1913, determined for the purpose of computing an allowance for exhaustion and depreciation.

Held, that the evidence does not sustain the petitioners' allegation that certain securities were transferred by gift by each of them to their respective wives. Held: that the evidence does not sustain the petitioners' allegation that certain securities were transferred by gift by each of them to their respective wives.

1. The petitioner, on February 25, 1918, retired 2,000 shares of its preferred stock at $10 per share above par. Held: that the retirement having been made within the first 60 days of the taxable year, invested capital should be reduced by the full amount paid for the stock. 2.

Petitioner paid certain amounts to secure immediate possession of leased premises. Held, that the evidence is not sufficient to overcome the presumption that Commissioner's determination is correct. Held: that the evidence is not sufficient to overcome the presumption that Commissioner's determination is correct.

Denial of obsolescence deduction approved where depreciated cost of assets abandoned is not segregated from that of assets not abandoned.

The debts claimed as deductions in 1920 and 1921, respectively, held neither to have been ascertained to be worthless nor charged off in the taxable year for which claimed.

1. Held that the deficiency notice sent by the Commissioner was not a notice of mathematical error sent pursuant to section 274(f) of the Revenue Act of 1926, and that the Board as jurisdiction to determine the appeal in this case, even though the petitioner's total tax, as determined by the Commissioner, was the same as the total amount would have been on the petitioner's amended return, except for a mathematical error in the computation thereof. 2.

Losses sustained by reason of investments becoming definitely valueless in the taxable year are allowable as deductions from income.

The attorneys' fees and expenses incurred by the petitioner in defending indictments charging conspiracy in restraint of trade held not deductible as an ordinary and necessary business expense.

DEPRECIATION. - On the facts, held that petitioner is due an allowance for depreciation on its railroad facilities leased to two operating roads under a lease which only obligates the lessees to make current maintenance repairs, and the rates for such depreciation on the various classes of facilities determined.

1. The amount of allowable deduction for depreciation during the taxable years of a factory building, machinery and equipment determined. 2. Where a corporation received from its former principal stockholder an amount sufficient to reimburse it for income taxes of a previous year paid in the taxable year and the amount of such payment was not deducted as an expense on the return, the Commissioner was in error in adding such amount to reported net income.

Deductions for salaries of corporate officers determined.

INVESTED CAPITAL - LEASE - INCOME. - Petitioner in 1906, by warranty deed, conveyed the title to a certain building. By indenture executed the same date and as part of the same transaction it leased for a term of years to the same interests land upon which the building stood. The lease provided that the building was to be kept in repair, insured for the benefit of the petitioner, and be returned to petitioner as its property at the termination of the lease. Held, that the ultimate beneficial interest surrendered by petitioner and received by the lessees under the transaction was no more than the use and occupancy of the property for the term of the lease and the total consideration paid by the lessees was income to petitioner and its distribution by the latter to its stockholders was not a liquidation of capital.

In 1919 the decedent received from a trust, of which he was one of the beneficiaries, Liberty bonds which represented a distribution of a part of the assets of the trust. In computing the profit realized by the trust and by the beneficiaries in 1919, the Commissioner valued the bonds at par, even though their market value at the date of receipt in 1919 was less than par, and the decedent's tax liability for 1919 was determined and settled upon that basis.

The petitioner, under a trust established by the will of her father, had an equitable life interest therein consisting of the right to receive one-sixth of the income of the trust. Held: that the amount of $2,250 is income to petitioner in 1921; held further, that the amounts paid to the assignees, which amounts were accumulated subsequent to the assignments, did not constitute income to the petitioner.

A lessee of chattels that has no capital investment therein, is not entitled to deduct from gross income the amount of an annual depreciation reserve established for the purpose of replacing or renewing such chattels.

1. Where a corporation, after March 3, 1917, used a part of its assets to acquire from its stockholders property which such stockholders acquired without cost, section 331 of the Revenue Acts of 1918 and 1921 prohibits the inclusion in invested capital of any value for such assets. 2. In such circumstances invested capital is properly computed by reducing the amount as computed under section 326 by the amount paid for such assets. 3. Special assessment granted.

- Petitioner did not buy and sell merchandise nor trade as a principal; it rendered the purely personal service of soliciting orders for textiles; its income was derived from commissions earned from… Held: that petitioner is entitled to personal service classification.

The transaction involved herein held to be a sale made in good faith on which the petitioner sustained a loss which it is entitled to deduct from gross income for 1921.

1. Certain amounts expended by the petitioner in the year 1921 in connection with the operation of his ranch, held to be properly deductible from gross income for that year. 2. The petitioner sustained a loss in 1921 from the sale of a hardware business in which he was interested and the amount thereof should be deducted from gross income for that year.

The petitioner and the North Moneta Garden-Lands Water Co. were affiliated during the years 1920 and 1921.

Respondent's determination that securities received upon an exchange in 1923 had a readily realizable market value approved.

Respondent's determination of value of leasehold approved because of insufficient evidence to show error.

Fees of executors appointed by an Illinois probate court held taxable.

Amounts expended held to have been for a secret formula in use in the petitioner's business during the years in controversy and improperly excluded from the petitioner's invested capital during those years.

Held that capital was a material income-producing factor in the business of the petitioner and petitioner was not a personal service corporation in 1920 and 1921, within the meaning of section 200 of the Revenue Acts of 1918 and 1921.

Loss held to have been sustained by petitioner where corporation was formed but no corporate action was ever taken and the business in which the loss was sustained was never transferred to the corporation.

Disallowance of deduction for loss on subscription list approved.

Income from securities held in trust such income being periodically distributed, held not taxable to grantor.

March 1, 1913, value of leasehold interest determined.

Amount received from sale of dead and down timber in 1923 held to be taxable as capital gain where petitioner was not engaged in logging or lumbering business, such timber not being considered petitioner's stock in trade or property includable in inventory.