Volume 13 — Tax Court Memorandum

1. The taxpayer bought fish in Canada for sale in the United States. He deposited proceeds in United States banks and made transfers to Canadian banks by check or in cash. Held: deficiencies determined from income as reconstructed from records of suppliers and customers are sustained. 2. The taxpayer contends understatement of income in returns was due to ignorance and not to fraud.

Held, petitioners in subdividing inherited real property and selling individual lots as home-building sites were not engaged in a trade or business within the meaning of Section 117 (j) of the… Held: petitioners in subdividing inherited real property and selling individual lots as home-building sites were not engaged in a trade or business within the meaning of Section 117 (j) of the Internal Revenue Code.

Held, gifts to a fraternal association were made in trust for charitable purposes and, consequently, are exempt from gift taxation under section 1004 (a) (2) (B), I.R.C.

Respondent recomputed the 1947 income of Sid H. Carter and his wife by using inventories. Petitioners reported their income on a cash receipts and disbursements basis. Held: respondent erred in not including the value of the opening inventory of cattle on January 1, 1947, in recomputing income for that year.

1. Respondent determined income tax deficiencies for 1947 through 1950 based upon computation of petitioners' income pursuant to the net worth increase… Held: respondent's use of the net worth increase method was unjustified under section 41 upon which he relies, because petitioners' books were sufficiently adequate and complete for income to be correctly determined therefrom. Petitioners' income redetermined from the books and records for each of the taxable years. 2.

Dependency deductions for five minor children disallowed as to 1947 and 1948 but allowed for 1949 since petitioner contributed more than half of the support of the children in that year.

In 1946 Horace E. Oliver contributed 40 lots to a partnership in which he owned a 50 per cent interest. Held: the excess of F.H.A. appraisal value over the cost of the lots was ordinary income.

1. The petitioner's decedent acquired all of the property owned by him at his death during his marriage but prior to July 26, 1945, the effective date of the Oklahoma Community Property Act. Held: that the Oklahoma Community Property Act of 1945 (now repealed) did not apply, for federal estate tax purposes, because the property had been acquired during coverture but prior to the effective date of the Act.

Petitioner is a corporation engaged in the manufacture and sale of safety equipment. Held: on the facts, that a portion of the compensation paid petitioner's president during each of the taxable years involved, was excessive and not deductible under Section 23 (a) (1) (A) of the Internal Revenue Code, and that all other compensation paid its four officers was reasonable compensation for services actually rendered and was…

Petitioners, husband and wife, who filed joint returns, furnished more than one-half the support of the wife's father and stepmother during the year 1949, and are therefore entitled to the exemptions provided by section 25 (b) (1) (D) of the Internal Revenue Code for 1949. They failed to prove that they furnished more than one-half the support of the claimed dependents for the year 1950 and consequently are not entitled to the exemptions provided by said section for 1950.

Held, petitioners' partnership was not engaged in two distinct types of real estate dealings: holding some properties for investment and others for resale. Held: petitioners' partnership was not engaged in two distinct types of real estate dealings: holding some properties for investment and others for resale. Three properties sold by the partnership in 1947 were held by it primarily for sale to customers in the ordinary course of business.

Medical expenses: Section 23(x). - Upon the facts, held that travel of each of the petitioners, which was upon the advice of a physician, was directly and primarily for the mitigation of disease and, therefore, the cost thereof is deductible as expense for medical care under section 23(x), I.R.C.

On January 17, 1948, Ben F. Read and T. B. Knox sold to Texmass Petroleum Company an option to purchase 2/3 of the shares of its stock owned by one Homer W. Snowden. Held: such payments were long-term capital gains realized from the sale of a capital asset.

Where the facts clearly show that the petitioner, a practicing orthodontist, established a dog kennel with the intention of making it a profitable enterprise and that he operated the kennel with the usual techniques associated with a business, held: The dog kennel was a business and the expenses incurred in its operation are deductible under section 23.

Respondent determined that unidentified cash deposits in bank and stock-brokerage accounts, dividends, interest, receipts from the sale of liquor, and commissions on such sales in the total amount of… Held: Ryweck received gross income in 1944 of not less than $35,339.03. 2. Held, further, respondent did not err in asserting a 25 per cent penalty against Ryweck, pursuant to section 291 of the Code, for failure to file a return.

Decedent created a trust providing that the income should go to her sister for life, then to her niece for life, the principal then to be distributed in accordance with the sister's will. The trust instrument provided that the sister could terminate the trust in her own favor at any time with the consent of the decedent settlor. Held, the value of the remainder interest in the trust was includible in decedent's estate under section 811 (d) (2) of the Internal Revenue Code. Thorp's Estate v. Commissioner, 164 Fed. (2d) 966, followed.

Where, pursuant to the provisions of a divorce decree, a husband creates a trust consisting of insurance policies on his own life and the wife has only a remote, contingent interest in those policies, premiums paid by the husband are not income to the wife under section 22 (k), nor are they deductible by the husband under section 23 (u) of the Internal Revenue Code. Lilian Bond Smith, 21 T'C. 353.

Petitioner furnished more than one-half the support of her mother and minor sister during the calendar year 1949 so as to entitle her to the dependency credits provided by sections 25 (b) (1) (D) and 25 (b) (3) of the Internal Revenue Code.

Respondent reconstructed petitioner's net income for the years 1942 to 1946 by employing the increase in net worth-plus personal expenditures method. Deficiencies and 50 per cent fraud penalties were determined for each year. 1. Held: Respondent's resort to the alternative method of computing income approved. 2. Held: The deficiencies were due to fraud with intent to evade tax.

1. Petitioner's income redetermined for the years 1946 through 1949. 2. Petitioner was not liable for any income taxes in 1946 and 1947. 3. Parts of the deficiencies for 1948 and 1949 were due to fraud with intent to evade taxes.

No books or records having been maintained by which the income of petitioners could be calculated, it was determined by the respondent by use of the net-worth method. Held: respondent's net-worth computations are incorrect in certain respects. The correct amounts of the deficiencies are determined. 2. Held, further, petitioners' understatement of their income for four successive years was made with fraudulent intent to evade the payment of taxes. 3.

During 1945 and 1946, petitioner was engaged in shipping relief parcels to Greece and distributing them in that country. Held: such sums were a deductible business expense in each year. 2. Held, further, respondent's disallowance of a part of the deductions claimed for depreciation on furniture and equipment, and the disallowance of a claimed loss on sale of delivery equipment, upheld for failure of proof. 3.

Petitioner gave to his wife, in trust for two of his children, 2,852 shares of stock of the E. A. Laboratories, Inc., and 149.3 shares of the Aufiero Realty Corporation. Held: on the date of the gift, the fair-market value of the stock was $72.50 and $330 per share, respectively.

1. Held, petitioner received additional income in the years 1943 to 1949, inclusive, which he failed to report on his returns for those years. 2. Held, further, his failure to report the amounts of additional income on his returns was due to fraud with intent to evade tax.

Held, the petitioner failed to sustain the burden of showing that a debt owed to him became worthless within the taxable year 1947 and that a 5 per cent negligence penalty on the resultant deficiency… Held: the petitioner failed to sustain the burden of showing that a debt owed to him became worthless within the taxable year 1947 and that a 5 per cent negligence penalty on the resultant deficiency was improperly asserted by the respondent.

Dependency credits denied petitioner for failure to show actual cost of children's support in 1948.

Held, petitioner did not contribute over half the support of five of his children in 1951.

(1) Petitioner has not established that a debt of $475 became worthless in 1948. (2) Petitioner was a hog and cattle buyer and feeder in 1948. Held: the loss was a capital loss as determined by respondent. Also held, the $1,000 was in the nature of a commission and is to be added as a cost of the futures transactions. (3) Amount of business expenditures determined.

Upon the facts, held, that properties sold were not held primarily for sale to customers in the ordinary course of business but were capital assets; gain realized upon sale is capital gain. Held: that properties sold were not held primarily for sale to customers in the ordinary course of business but were capital assets; gain realized upon sale is capital gain.

1. Held: None of the funds identified as emanating from petitioner's employer during the taxable years over and above his reported salary constituted taxable… Held: None of the funds identified as emanating from petitioner's employer during the taxable years over and above his reported salary constituted taxable income to petitioner. 2. Amount of taxable income realized by petitioner from unidentified deposits to his checking account during the years involved, determined. 3.

The percentage used in 1947 and 1948 by petitioner in computing deductions for depreciation of industrial fork-lift trucks used in its stevedoring business was reasonable.

Petitioner was divorced from her former husband in 1945, while living in Oregon. Held: petitioner, having contributed more than one-half of the support of her daughter in 1949, is entitled to a credit for her daughter as a dependent under section 23(b)(1) of the Code.

Decedent owned at the time of his death, July 14, 1946, certain real estate situated in Indian River County, Florida, which had on it several citrus groves which were bearing fruit. Held: the value of all the real estate, including citrus groves, owned by decedent at the date of death, valued one year after his death, namely, July 14, 1947, was $215,965.

1. Held: Respondent did not err in including in the net worth statements an item of $30,000 as accounts payable. 2. Held: Respondent did not err in including in the net worth statements an item of $30,000 as accounts payable. 2. Held: Deficiencies in petitioners' income tax for the taxable years were due to fraud with intent to evade tax.

Held, transfers of property made by the decedent between 1935 and 1947 were not made in contemplation of death within the meaning of section 811 (c) of the Internal Revenue Code.

Upon the facts, it is held: (1) That Starr Pen Company, a partnership in which petitioner was a member in 1943, sold for cash in November 1943, 100 gross of merchandise to King, Larson, and McMahon… Held: That Starr Pen Company, a partnership in which petitioner was a member in 1943, sold for cash in November 1943, 100 gross of merchandise to King, Larson, and McMahon for $7,100.

Held, that a valid, bona fide partnership existed between petitioner and his three children.

Deductions: Interest. - Investment Certificates issued by petitioner to shareholders and others held to be an indebtedness and interest payments thereon were deductible.

Basis of tangible assets for depreciation determined.

The Commissioner has determined a deficiency in petitioner's income tax for the year 1949 of $221 by disallowing petitioner a credit of $600 each for his two minor children as dependents. Held: petitioner has not proved that he contributed more than half the support of his two minor children in the taxable year. The respondent's determination is sustained for lack of evidence to show that it was in error.

Held, the amount received by the petitioner from her deceased husband's former employer was a gift and was not additional compensation for his past services. Held: the amount received by the petitioner from her deceased husband's former employer was a gift and was not additional compensation for his past services.

Petitioners consistently understated their income on their returns for 1944, 1945, and 1946. Held: petitioners having defaulted on their burden of proof, respondent's determination of deficiencies and penalties for failure to file returns is sustained. 2.

Medical expenses: Section 23(x). - Upon the facts, held that travel of each of the petitioners, which was upon the advice of a physician, was directly and primarily for the mitigation of disease and, therefore, the cost thereof is deductible as expense for medical care under section 23(x), I.R.C.

Upon the facts, held, that parts of the deficiencies for the taxable years are due to fraud with intent to evade tax.

1. Fraud: Proof. - Evidence of understatements of income not sufficient to show intent to defraud. 2. Failure to file return on time: Reasonable cause: Section 291(a). - No addition to tax proper where signed blank return and signed check in amount shown to be due according to computation made by tax advisor's office were left with tax advisor but not filed due to inadvertence of employee of tax advisor.

Petitioners engaged in a gold mining venture. The venture proved unprofitable and operations ceased on October 1, 1946. Thereafter certain equipment which had been used in the venture was disposed of. Petitioners maintain that the equipment was disposed of by abandonment. Respondent maintains that the disposition was by sale. Petitioners suffered a loss as the result of disposition of the equipment. Held, the loss sustained by petitioners on the disposition of the mining equipment was not allowable as a net operating loss carry-over because not attributable to the operation of a trade or business regularly carried on by the taxpayers, I.R.C. 122(d)(5), whether the loss be attributable to sale or abandonment.

Transaction between husband and wife terminating their interests in community property by a settlement agreement embodied in a divorce decree was tantamount to a sale by the wife of her interest in certain community assets upon which a gain was realized, rather than a mere partition or division of community property.

Held, petitioner is entitled to dependency credits for his two children, who resided with his former wife during the taxable years involved, since he provided over one-half the support of each child. Held: petitioner is entitled to dependency credits for his two children, who resided with his former wife during the taxable years involved, since he provided over one-half the support of each child.

1. Respondent's deficiency determinations based on a reconstruction of net income by the bank deposits plus cash expenditures method are sustained. 2. Respondent properly imposed fraud penalties where petitioner restaurant operator deliberately furnished his bookkeeper with false figures for sales and purchases and did not inform the bookkeeper of cash withdrawals.

A partnership composed of the wives of petitioners held to be a bona fide one.

In 1944 and 1945, a partnership, in which decedent, Michael A. Mirabelli, held a 50 per cent interest, received additional income by making unreported sales through fictitious persons, and overstating its cost of goods sold by showing purchases from one such person. Decedent, Emma Mirabelli, reported a one-sixth share of income of the same partnership on her returns for 1944 and 1945 and paid taxs thereon. She was not a member of the partnership. 1. Held, decedent, Michael A. Mirabelli, received additional partnership income in 1944 and 1945 which he failed to report on his returns for those years. 2. Held, further, his failure to report such additional income was due to fraud with intent to evade tax. 3. Held, further, decedent, Emma Mirabelli, overpaid her income tax in 1944 and 1945.

1. Held, that interest deductions claimed by the Osborne Engineering Company on its corporate income tax returns for the fiscal years ended October 31, 1947, and October 31, 1948, are not allowable because alleged loans by petitioner, on which such interest deductions were claimed, were, in fact, his capital investment in the corporation. 2. Held, further, petitioner is liable for any income tax deficiency assessed against the corporation, since, upon its dissolution, he received all of its assets as its sole stockholder, and the transfer thereof left the corporation insolvent.

1. Held, a sum paid by petitioner to a joint venturer in the acquisition and sale of oil interests was improperly included in petitioner's income. 2. Held: a sum paid by petitioner to a joint venturer in the acquisition and sale of oil interests was improperly included in petitioner's income. 2. Held, oil interests sold by petitioner were held for sale in ordinary course of business and gain was ordinary income.

Ralph H. Booth Corporation owned shares of Detroit Bankers Company which, in turn, owned substantially all of the stock of First National Bank, Detroit, which failed and went into receivership. Held: on authority of Estate of Fred T. Murphy, Deceased, Detroit Trust Company and Edward S. Reid, Jr., Executors, et al., 22 T.C. 242, that the amount of the 1948 distribution is to be treated as a long-term capital gain.

Held, loans made by petitioner created valid debts, which became worthless in 1947 and 1948. Petitioner's losses from the worthlessness of these debts were not incurred in his business. Held: loans made by petitioner created valid debts, which became worthless in 1947 and 1948. Petitioner's losses from the worthlessness of these debts were not incurred in his business.

The amount paid by petitioners to the Office of Price Administration in settlement of claimed overcharges is deductible as an ordinary and necessary business expense where petitioners had no intention of violating the regulations and acted on advice of counsel.

Where petitioner and four associates in a joint venture purchased 18 cottages for resale, advertised them for sale, and erected a "For Sale" sign on the premises, held, the properties were held for sale to customers in the ordinary course of a trade or business, notwithstanding the incidental renting of some of the cottages until acceptable purchase prices could be obtained. Petitioner's share of the profits from sale of the cottages is taxable as ordinary income.

1. Petitioner operated a numbers lottery in the taxable years 1946 and 1947. Petitioner's records grossly overstated the amounts paid out on winning numbers. Held: petitioner failed to carry his burden of proof and respondent's determination is sustained. 2. Held, petitioner proved that he suffered a deductible capital loss on the sale of 300 shares of stock in 1947.

Petitioner's loss on preliminary development expenses for an unsuccessful real estate venture is not deductible in the year prior to his withdrawal from the enterprise.

Held, cost of repairing and improving house so that a portion of it might be rented is a capital expenditure and is not deductible under section 23(a)(1)(A), I.R.C. Held: cost of repairing and improving house so that a portion of it might be rented is a capital expenditure and is not deductible under section 23(a)(1)(A), I.R.C.

Upon the evidence, held, that no part of the deficiencies is due to fraud with intent to evade tax. Held: that no part of the deficiencies is due to fraud with intent to evade tax.

Property rights in an agreement to purchase real estate were held less than six months when disposed of by petitioners.

There being no evidence in support of petitioner's claim that he is entitled to credits for two dependents during the taxable years, held, that the respondent properly disallowed credits in each year for two alleged dependents under sections 25(b)(1)(D) and 25(b)(3).

Petitioner corporation had a depreciable interest in machinery and equipment used in its manufacturing process after transfer of ownership from principal stockholder. Basis for depreciation determined. Part of deficiencies in 1942 and 1943 due to fraud and part of deficiency for 1943 also due to negligence. Court has no jurisdiction to abate or reduce interest on deficiencies.

The cost of constructing a new fire passageway in a theatre leased and operated by petitioner, held to constitute a capital outlay and not an ordinary and necessary business expense. Hotel Sulgrave, Inc., 21 T.C. 619 (Jan. 29, 1954) followed.

Upon the facts, held, that during the years 1946-1949, petitioner was engaged in a business of buying and selling power shovels and similar equipment. Held, further, upon the facts, that the net loss sustained in 1949 is attributable to the operation of a business regularly carried on by the petitioner.

Held, petitioner and his wife were partners for income tax purposes although the business was conducted in a manner designed to conceal the existence of the partnership in its business relationship… Held: petitioner and his wife were partners for income tax purposes although the business was conducted in a manner designed to conceal the existence of the partnership in its business relationship with others.

1. Petitioners understated their sales on their books and income tax returns. Held: respondent's determination of unreported sales is sustained, but petitioners are allowed a deduction for black-market purchases, as found herein. 2. Substantial portions of the income from unreported sales were fraudulently retained by the petitioners during 1943 to 1946 with intent to avoid the payment of taxes thereon.

Petitioner was engaged in the wholesale liquor business in 1943 and 1944. He made sales of liquor at prices in excess of the O.P.A. ceiling. Held: upon the facts: (1) Respondent was justified in reconstructing petitioner's net income by use of an acceptable method. (2) The amounts of certain business expense deductions incurred and paid by petitioner determined. (3) Part of the deficiency in petitioner's income tax in each year is due to fraud with intent to evade tax.

Petitioner surrendered to the issuing corporation part of its stock in the corporation for the purpose of improving the financial condition of the corporation. The corporation carried the surrendered stock as treasury stock. Held: (1) Petitioner unconditionally surrendered the stock in question to the issuing corporation which became the owner thereof. (2) The stock was surrendered before May 31, 1949. (3) The amount of petitioner's loss is its basis, less the resulting increase in value of the stock which petitioner retained. (4) The amount of petitioner's cost basis of the surrendered stock is determined, and the amount of the increase in the value of the retained stock is determined. (5) A question of fact not raised in the pleadings of petitioner may not be considered.

1. Petitioner manufactured and sold shirts and leather goods. Held: on the facts, petitioner did not make any contributions in 1946 or 1947 to organizations exempt from taxation under section 101(6) of the Internal Revenue Code.

1. During 1945 and 1946, three journal entries were made on petitioners' books indicating an additional contribution to capital by petitioner, in the form of materials and supplies, amounting to… Held: petitioners overstated their deductions for the cost of goods sold by $11,712.03 and $13,392.93 for 1945 and 1946, respectively. 2. Held, further, bonus paid to an employee was paid within 2 1/2 months following the close of the taxable year and was reasonable in amount. 3.

The amounts which petitioner is entitled to deduct for each of the taxable years as a reasonable allowance for compensation for the services of the heads of petitioner's sales department during each… Held: that the 5 per cent less sales expenses formula is a proper method for measuring the total net amount of the commissions of the heads of the sales department as compensation for their services during each year.

Upon the facts, it is held, that petitioner is not entitled to a loss deduction under section 23(e)(1) or (2), I.R.C., upon the sale in 1947 of property which had been used continuously as the… Held: that petitioner is not entitled to a loss deduction under section 23(e)(1) or (2), I.R.C., upon the sale in 1947 of property which had been used continuously as the residence of petitioner and her family.

Two individuals transferred assets which they owned equally between them to petitioner corporation in exchange for petitioner's stock. Held: 1. Held: Petitioner acquired the assets in a tax free exchange within the meaning of section 112(b)(5) since immediately after the exchange the transferors were in control of petitioner. 2.

(1) Petitioner, a corporation engaged in the wholesale distribution of beer, paid to its sole stockholder, who acted as the petitioner's… Held: the salary paid was reasonable compensation for services actually rendered. (2) Petitioner paid its president's dues in two country clubs and the Elk's Club, paid his expenses in entertaining customers and brewery representatives, and purchased football tickets for customers. Held, under Cohan v. Commissioner (C.A. 2), 39 Fed.

In 1946 and 1947, petitioner worked nights for a gambling enterprise, receiving a salary therefor which he reported as income on Form W-2, withholding statement, and ran his own horse betting operation during the daytime. In 1948 and 1949, petitioner conducted a horse betting operation for the gambling enterprise, which was operated by his employer. Held: (a) Petitioner's income for 1946 and 1947 was properly determined by respondent pursuant to the bank deposits method. His income for 1948 and 1949 was properly reconstructed by respondent, except for certain adjustments made herein, from the gambling enterprise's books and other evidence. (b) Petitioner's deficiencies for 1946 and 1947 were due, in part, to fraud with intent to evade taxes. No part of the deficiencies for 1948 and 1949 was due to fraud with intent to evade tax. (c) As a result of petitioner's fraud, assessment of deficiencies for 1946 and 1947 is not barred by the statute of limitations (section 276(a), I.R.C.). Moreover, such assessment may be made under the five-year statute of limitations (section 275(c), I.R.C.).

Held, fees paid by a doctor, engaged in the practice of performing abortions, to other persons who referred clients to him for such purpose, are not deductible because contrary to sharply defined… Held: fees paid by a doctor, engaged in the practice of performing abortions, to other persons who referred clients to him for such purpose, are not deductible because contrary to sharply defined public policy.

Pursuant to a promise to assign to her a 75 per cent interest in any inventions, petitioner's wife financed petitioner's experiments. Held: the respondent erred in including in petitioner's gross income his wife's distributable share of the partnership income.

1. Held: Petitioner's system of accounting for its returnable containers did not accurately reflect income and the adjustments made by respondent in his… Held: Petitioner's system of accounting for its returnable containers did not accurately reflect income and the adjustments made by respondent in his determination are justified. Okonite Co., 4 T.C. 618, followed. 2. Propriety of certain ordinary and necessary business expenses claimed by petitioner in 1944, determined. 3.

1. Respondent's treatment of accrued salaries, royalties, and expenses credited by petitioner to the account of its president and majority stockholder sustained in part and reversed in part. 2. Held: Petitioner is entitled to deduct, in 1943 and 1944, the unrecovered costs of certain plant equipment as losses sustained in that year by reason of abandonment or as reasonable allowances for obsolescence.

Petitioner was engaged in a gambling enterprise with his father-in-law during the years beginning June 4, 1945 through 1949. Held: Petitioner was an employee in the enterprise, not a partner or coadventurer.

Held, upon consideration of the record as a whole, that petitioners have failed to establish the theft or loss of $10,000 in currency during the taxable year in question. Held: upon consideration of the record as a whole, that petitioners have failed to establish the theft or loss of $10,000 in currency during the taxable year in question.

1. On its income tax returns for each of the fiscal years, July 31, 1923, to June 30, 1927, and from June 30, 1929, to May 31, 1942, Jacksonville deducted amounts for salaries paid to Matthew and… Held: Jacksonville was not entitled to deductions for salaries, even though the amounts deducted might be reasonable in amount. Held, further, its returns for all of the years here in issue were fraudulently filed with intent to evade tax. 2.

1. Held, the assessment of the tax for the years 1941 and 1942 was barred by the statute of limitations as there was no proof that the taxpayer made false or fraudulent returns with intent to… Held: the assessment of the tax for the years 1941 and 1942 was barred by the statute of limitations as there was no proof that the taxpayer made false or fraudulent returns with intent to evade tax for those years. 2. The taxpayer possessed $51,000 in cash at the time of his death.

Petitioner was in the wholesale meat business during the tax years 1943 through 1946. Held: Petitioner's net income and tax deficiencies for 1943 through 1946 determined by adjusting certain items as reported in his returns. 2. Petitioner's deficiencies for 1944 and 1945 were due in part to fraud with intent to evade taxes. The deficiency for 1946 is not due to fraud with intent to evade tax.

An automobile dealer's franchise did not become worthless in 1948 and the cost thereof was not deductible in that year, when in 1947 the manufacturing corporation disposed of most of its operating assets and abandoned its preparations for the production of automobiles. The loss was not deferred until 1950, when a so-called successor corporation was adjudicated a bankrupt. The cost of another such franchise acquired in 1948 was deductible in that year, since it became worthless when the manufacturer terminated its productive activities, and the deduction was not postponed because reorganization proceedings in bankruptcy, begun in 1949, were pending until 1950.

Ten thousand dollars in cash was deposited in petitioner's bank account and subsequently withdrawn. Held, this money was not petitioner's and was not her income. (Cf. Michael F. Drinkhouse, Docket No. 41985 [13 TCM 793,].)

Ten thousand dollars in cash was deposited according to petitioner's instructions in the bank account of another and subsequently withdrawn. Held, the money belonged to petitioner and should be included in his income for 1945.

The amounts reported by the petitioner and other stockholders as the value of shares of stock when received in 1932 in the determination of a taxable capital gain upon a corporate liquidation in that year do not establish the fair market value of such shares when so received, which is the basis for the determination of loss upon a subsequent sale.

Held, a bad debt resulting from a payment by a beer distributor to a supplier in order to obtain a shipment of beer was related to the taxpayer's business and is deductible by him as a business bad… Held: a bad debt resulting from a payment by a beer distributor to a supplier in order to obtain a shipment of beer was related to the taxpayer's business and is deductible by him as a business bad debt under section 23(k)(1), Internal Revenue Code.

Decedent sold a farm on January 5, 1943, made up of parcels of land acquired before and after March 1, 1913, and upon which there were approximately 40 improvements erected by the decedent. Held: petitioner failed to prove that respondent's determination as to the adjusted basis of the farm was erroneous.

Held, amounts reported by petitioners as ordinary income from royalties were properly so reported rather than as long-term capital gains as now claimed by petitioners.

In the absence of affirmative evidence that the transfers in trust by the decedent of several insurance policies on his life were for a motive associated with life, the Commissioner's determination that such transfers were in contemplation of death is sustained.

Held, upon the facts, that business of manufacture of foam rubber was carried on by a corporation organized for that purpose, and not by one of petitioners and his "co-promoter." Held, further, upon the facts, that funds paid in for the purposes of the business carried on by said corporation were contributions to capital, and not loans. Petitioners' losses in relation thereto were capital losses, subject to the limitations provided for in section 117(d)(2) of the Internal Revenue Code, and could not be treated as losses incurred in trade or business, or in a transaction entered into for profit or as business bad debts. Held, further, upon the authority of George Aftergood, 21 T.C. 60, and Peter Stamos, et al., 22 T.C. #108, that the sum of $500 paid by one of petitioners in discharge of his liability as endorser of a note of said corporation must be treated as a nonbusiness bad debt and not as a loss incurred in a transaction entered into for profit.

Petitioner was an officer, director and majority stockholder of Janice Shoe Company, Inc. In 1946, the company issued its note for $15,067.10, representing the unpaid portion of a bonus voted to… Held: Petitioner was not entitled to a business bad debt deduction under section 23(k)(1) of the Internal Revenue Code of 1939.

Deductions. - Sections 23(a)(1) and (a)(2) of the Internal Revenue Code of 1939. - Expenditures made by an unemployed business association executive in seeking new employment held, not deductible.

Petitioners operated a scrap business. Their books did not clearly reflect income and respondent determined their net income by the net worth increase method. He also determined additions to tax under section 293(b), I.R.C. Held, petitioners' testimony that they possessed a large cash hoard at the beginning of 1945 is not believed, and with two adjustments the determination of the deficiencies by respondent is upheld. Further, held, the evidence is clear and convincing that net income was substantially understated for each of the years 1945, 1946, 1947, and 1948 and that part of the deficiencies in each of those years was due to fraud with intent to evade taxes.

Petitioners contributed not more than $784.35 each year, in 1948 and 1949, in support of petitioner Stanley H. Saurs' two children who resided with their mother, Mildred Saurs. Mildred earned approximately $1,950 each year. Held, petitioners failed to prove that the amount contributed to the support of the children was more than one-half of the total amount spent for their support in each year.

Petitioner, Jesse Werner, was in the business of selling gasoline, oil, and related petroleum products. He kept his books on the accrual basis and reported his income on the cash basis for the years 1935 through 1947. Respondent requested petitioner to report his income for 1948 on the accrual basis, to which petitioner acceded. Respondent adjusted the 1948 return by including in income for that year the opening inventory, and accounts and notes receivable as of January 1, 1948. Held, a taxpayer who keeps his books on an accrual basis, which properly reflects income, and who is required to change his method of reporting income from a cash to an accrual basis, cannot be required to include income of prior years in the year of change-over.

Petitioner was a certified public accountant, and taught courses in Federal Income Taxation. He failed to report substantial amounts of income and claimed unallowable deductions on his return for 1947 on which he reported a net loss. He failed to appear at the hearing, and respondent's motion to dismiss the proceeding as to the deficiency was granted. Held, a part of the deficiency was due to fraud with intent to evade tax.

Amounts deductible by petitioner corporation in 1945 and 1946 as reasonable compensation of its president and vice-president determined on the facts.

Non-business expense deductions under section 23(a)(2). - 1. Held: petitioner not entitled to deductions that were by court decree the obligation of a trust, a separate entity. 2. Held, petitioner's litigation expenditures for the protection of a remainder interest in a trust were not for the management, conservation, or maintenance of property held for the production of income. 3.

Where a proceeding is initiated before the Tax Court to test the correctness of respondent's action in denying, in whole or in part, a claim for refund under section 722 of the Internal Revenue Code of 1939, the Court is without jurisdiction to consider issues raised by either litigant relating to the general provisions of the excess profits tax statute. Mutual Lumber Co., 16 T.C. 370, West Flagler Amusement Co., 21 T.C. 486.

1. In 1946, petitioner D. D. Query created two trusts, one each for his son and his daughter, both of whom were minors of the ages of 9 and 11 years,… Held: the income of the trusts was not taxable to petitioner. 2. On December 31, 1948, the corporation declared a dividend payable to stockholders of record as of that date. The dividend was to be paid in January 1949. The dividends to the respective stockholders were actually paid by check dated February 14, 1949.

Held, petitioner acquired oil royalties and mineral rights situated in Edwards County, Texas (near a lease in Val Verde County, Texas,… Held: petitioner acquired oil royalties and mineral rights situated in Edwards County, Texas (near a lease in Val Verde County, Texas, which petitioner and associates were developing by drilling and which had promising prospects), primarily for investment and not for sale to customers in the ordinary course of trade or business and the…

Section 115(g), Internal Revenue Code of 1939. Held, purchase and cancellation of portion of preferred stock by a corporation was essentially equivalent to distribution of a taxable dividend. Held: purchase and cancellation of portion of preferred stock by a corporation was essentially equivalent to distribution of a taxable dividend.

Under a written agreement, by which petitioner acquired the assets of a partnership, petitioner became contractually obligated to pay the income taxes for 1945 and 1946 of the partner-transferors. The transferors received stock in petitioner as consideration for the assets transferred. Held, that petitioner's contractual obligation to pay the transferors' taxes is enforceable under section 311 of the 1939 Code. Petitioner is liable as transferee.

Held: That petitioner did not accumulate its surplus or profits beyond the reasonable needs of its business, and, accordingly, is not liable for additional surtax under section 102, I.R.C.

Deductions: Casualty loss: Damage to residence. - Under the facts, held, loss sustained in damage to a private residence deductible as a casualty loss within the meaning of section 23(e)(3), Internal… Held: loss sustained in damage to a private residence deductible as a casualty loss within the meaning of section 23(e)(3), Internal Revenue Code of 1939.

Held: Petitioner was not a bona fide resident of a foreign country or countries for the entire taxable year 1950 or for a continuous period of two years prior to his return to the United States in… Held: Petitioner was not a bona fide resident of a foreign country or countries for the entire taxable year 1950 or for a continuous period of two years prior to his return to the United States in December, 1950.

Reconstruction of income: Adequacy of books. - The books kept by taxpayers, who operated a meat market and also entered into real estate transactions, adequately reflected their total income, and the taxpayers therefore overcame the presumption of correctness of the Commissioner's determination of income by the net worth method. The books reflected all sales and expenses but did not account for inventory and capital accounts.

Petitioner Charles O. Gunther, Jr., is a certified public accountant who practiced his profession in Baltimore, Maryland, as a sole proprietor in 1948 and 1949 and in partnership during 1950. Held: 1. Held: Certain business expenses, including traveling expenses incurred in servicing out-of-town accounts, automobile expenses, convention expenses, and entertainment expenses, determined and are deductible. 2.

1. In an earlier proceeding between the same parties involving the same partnership arrangement for the year 1946 this Court held in a Memorandum… Held: the decision in the previous case operates as a collateral estoppel here. 2. Held, petitioners failed to sustain their burden of showing the incorrectness of respondent's determination that they realized a taxable gain on the exchange of their interest in the assets of a partnership for stock in a successor corporation.

Petitioner paid the United States $21,194.16 in settlement of a suit against it by the O.P.A. for violating ceiling price regulations. Held: where there has been no showing that the violations were unintentional or not the result of failure to take adequate care to comply with the law petitioner is not entitled to deduct the amount paid as an ordinary and necessary business expense.

Petitioner Frank DeMartino owned and operated a small grocery store. Held: Determination of total receipts by bank deposits plus cash expenditures method is proper under the circumstances; 2. Net income was understated in the return filed for each of the years 1942 through 1946; 3. A part of the deficiency for each of the years 1942, 1943 and 1944 was due to fraud with intent to evade tax; 4.

1. In 1948, 1949, and 1950, petitioner was employed by an architectural firm for the sole purpose of supervising the construction of 3 building projects in various localities in the United States. Held: the traveling and away from home expenses claimed by petitioner, including the cost of trips to Mexico City and Florida, were nondeductible personal expenditures within the meaning of section 24(a)(1) of the Internal Revenue Code of 1939. 2.

Where a prime contract with the United States Government was entered into in 1944 and was, therefore, exempt from the profit-limiting provisions of the Vinson-Trammel Act, held, subcontracts entered… Held: subcontracts entered into under that prime contract are similarly exempt notwithstanding the fact that they were entered into after December 31, 1945. Aluminum Company of America, 23 T.C. - (Oct. 29, 1945).

Deductions: Medical or personal expenses: Sections 23(x) and 24, Internal Revenue Code of 1939. - Petitioner suffered a mental illness in 1948. His physician recommended a change in residence to a more cogenial location. Petitioner traveled to various parts of the country in 1949 searching for such a place and finally settled in Maine. He sought to deduct lodging expenses for his wife and himself while traveling. Held, such expenses were personal and not deductible.

The petitioner, a steamfitter, resided in the Bronx, New York City. Held: the petitioner's regular place of employment during 1949 was in Schenectady, and amounts paid by him for food and lodging in Schenectady in 1949 were personal expenses, under the provisions of section 24(a)(1) of the Internal Revenue Code of 1939, and were not deductible as traveling expenses paid while away from home in the pursuit…

Petitioner, a cemetery corporation, keeps its books and reports its income on an accrual basis. Substantially all of its sales of burial lots are made on an installment plan. It has established a trust fund to provide for the perpetual care and maintenance of its cemetery. Under the terms of the sales agreements entered into with lot holders, petitioner is required to place in the trust 30 per cent of the gross sales price of each lot. In accounting for and reporting income, petitioner included the gross sales price of each lot in gross income for the year in which a sales contract was executed, under which a lot was sold. Its liability to pay to the trust 30 per cent of the proceeds from the sale of each lot was reflected on its books as an accrued expense of the year in which the lot was sold, and was deducted from gross income. It is held, upon the entire record, that 30 per cent of the purchase price of lots sold was impressed with a trust; held, further, that the part of the contract price, 30 per cent, which is impressed with a trust is, properly, excludable from the net amount of accruable receipts.

Held, that petitioners have failed to establish that certain alleged debts became worthless in 1949 within the meaning of section 23(k)(4) of the Internal Revenue Code of 1939.

The decedent reserved the right to appoint by will the remaindermen of an inter vivos trust. Held: That the value of the trust corpus is includible in decedent's estate under the provisions of sections 811(c) and 811(d)(1), 1939 Code.

During 1946, petitioner earned and was paid from sources without the United States while working in Europe, principally France, certain sums of money. Held: petitioner was a bona fide resident of France during 1946 and the income is exempt from tax under section 116(a)(1), Internal Revenue Code of 1939. Burlin B. Hamer, 22 T.C. 343, followed.

The deficiency for 1941 held not barred by the statute of limitations prescribed in section 275(a) of the Internal Revenue Code of 1939 since petitioner omitted from gross income more than 25 per cent of the gross income stated in his return for that year. Income of petitioner, the sole proprietor of a small department store and other retail stores, redetermined for the years 1941 through 1944 and the deficiencies for those years adjusted accordingly.

Held, a cousin does not qualify as a dependent within the purview of Section 25(b) of the Internal Revenue Code of 1939. Held: a cousin does not qualify as a dependent within the purview of Section 25(b) of the Internal Revenue Code of 1939.

Held, upon the facts, and upon petitioner's failure to meet the burden of proof, that the value of food and lodging furnished petitioner by his employer was includible in petitioner's gross income as additional compensation to him for his services.

Petitioner was employed by Eversharp, Inc., during January and February, 1948, as the supervisor of salesmen in eleven western states. Held: petitioner was an employee throughout 1948, and in computing his adjusted gross income he was limited to the deductions allowed by section 22(n)(2) of the 1939 Code. The amount of the allowable deductions determined under Cohan v. Commissioner, (C.A. 2), 39 Fed (2d) 540.

1. Contemplation of death: Transfers of stock: Sec. 811(c). - Decedent transferred certain shares of stock to his wife and children over the period of 1937 through part of 1948. Held: the transfers were not made in contemplation of death. 2. Marital deduction: Valuation of life insurance policy pledged for debt of decedent: Sections 812(e)(1)(A) and 812(e)(1)(E)(ii). - Decedent took out a $50,000 insurance policy on his life with his wife as beneficiary.

Held: Petitioner was engaged in the real estate business in 1948 in partnership with her then husband, Henry G. Small, and her distributive share of the profits is taxable to her whether or not… Held: Petitioner was engaged in the real estate business in 1948 in partnership with her then husband, Henry G. Small, and her distributive share of the profits is taxable to her whether or not distributed.

Held: Petitioner was engaged in the real estate business during part of the year 1948 in partnership with his then wife, Mary.

1. Cost basis of petitioner's stock in Merrimack Loan Company as of January 31, 1945, determined. 2. Respondent's finding of value of real estate received by petitioner on January 31, 1945 as liquidating dividend from Merrimack Loan Company affirmed for failure of proof of error.

1. Year of worthlessness of corporate stock and corporate debt determined. 2. Worthless debt determined to be non-business in character and deduction limited by section 117(d) of the Internal Revenue Code of 1939.

1. Decedent, Barnet L. Rosset, was the major stockholder and president of a trust company. Held: the amounts received by decedent and paid over to the trust company were received in his capacity as its employee or agent and were not includible in his gross income.

1. Respondent's computation of income by means of the so-called cash expenditures method approved subject to certain adjustments. 2. Held: respondent erred in including within the net taxable income of petitioner and decedent for the year 1939 an amount representing gain realized on a certain real estate transaction. 6. Held, some part of the deficiency in each of the years 1939-1943, inclusive, was due to fraud with intent to evade tax.

Petitioner received $5,610 and $2,800 in 1948 and 1949, respectively, from a corporation which hoped to derive a profit from the successful development of various ideas upon which petitioner was… Held: the amounts received by petitioner were ordinary income.

Respondent's disallowance of deductions for alleged depreciation or amortization of a certain contract sustained.