Volume 14 — Tax Court Reports

A theatrical producer, having acquired by contract nonassignable production rights in a play, rented theaters, engaged actors, musicians, and stage hands, and bought costumes and scenery. Held: on the evidence, not to be a corporation within the meaning of section 3797, Internal Revenue Code.

1. Income from farming operations conducted by husband and wife on husband's separately owned farm in the State of Washington held community income to the extent attributable to personal efforts of husband and wife. 2. The fair market value of farm improvements acquired by inheritance determined for depreciation purposes.

Trust created by petitioner for his minor son held on all facts not a true partner in partnership composed of petitioner and his brothers.

Formation of petitioner, issuance of its shares in exchange for short term options to purchase all of the stock of another corporation, purchase of such stock by exercise of the options, and liquidation and transfer to petitioner of subsidiary's assets, held on facts to result in one integrated transaction constituting a purchase, so that petitioner held the stock with a cost basis, thus dispensing with any plus adjustment to its equity invested capital for excess profits…

Closing Agreement -- Section 3760, I. R. C. -- Binding Effect. -- The taxpayer is entitled to accelerated amortization of emergency plant facilities in accordance with an election under section 124, I. R. C., where the taxpayer and the Commissioner entered into a closing agreement under section 3760 providing that the taxpayer could take amortization deductions under section 124, and where the parties stipulated facts satisfying the requirements of section 124 and showing…

Credits at a New York bank to the account of petitioner, a Swiss corporation, made pursuant to a contract between it and the foreign owner of patents to pay a percentage of United States license fees for use of the patents, in which petitioner had no interest, held not to constitute petitioner a holding company as royalty income from United States sources.

1. A taxpayer's failure to cite section 721, Internal Revenue Code, on its tax return or to file therewith certain statements regarding abnormal income as required by the Commissioner's regulations, held, not to defeat its right to claim relief under section 721 in a proceeding before the Tax Court. Cf. Soabar Co., 7 T. C. 89. 2. A corporate taxpayer received a share of profits abnormal in amount under a partnership contract with an individual which entitled it to 60 per cent of the profits of a manufacturing business operated by the individual. It made negligible contributions to the business, but its chief shareholder provided operating premises rent-free. The individual by experiments developed and manufactured devices on which patents were granted and jointly owned by him and the taxpayer. In the absence of evidence that experimental work on the devices had not been completed before the contract was made or that the work extended over a period of more than 12 months, held, that no basis has been laid for attributing any part of the abnormal income to base period years, and the provisions of section 721 are inapplicable.

1. Held, on the facts, that corporate stockholders, after distribution in dissolution, and not the corporation, conveyed certain properties, and that the selling price is not… Held: on the facts, that corporate stockholders, after distribution in dissolution, and not the corporation, conveyed certain properties, and that the selling price is not includible in the gross income of the corporation. 2. Value of certain stock and property, for depletion purposes, determined.

1. Deductions -- Ordinary and Necessary Business Expenses -- Advertising Expenses. -- Where it is claimed by the Commissioner that the exhibiting of show animals by a corporation was a hobby of its controlling stockholder, rather than a means of advertising the corporate business, the test of deductibility of expenses incident thereto is whether the corporation honestly intended to acquire and continue to use the animals for advertising purposes, or whether that was merely a…

In August, 1942, petitioner's Wolfe City, Texas, milling plant was destroyed by fire and in November, 1942, petitioner collected insurance as… Held: our decision in Kimbell-Diamond Milling Co., 10 T. C. 7, wherein we determined that the conversion of petitioner's assets did not represent a taxable gain, does not act as a collateral estoppel as to petitioner's basis in Whaley's assets; held, further, petitioner's basis in Whaley's assets is petitioner's cost, as the several…

Reorganization -- Statutory Merger -- Section 112 (g) (1) (A), I. R. C. -- In a statutory merger pursuant to state law, corporation A acquired all the assets of corporation B in exchange for a… Held: on authority of Roebling v. Commissioner, 143 Fed. (2d) 810, that in addition to the statutory merger and to constitute a reorganization within the Federal income tax statutes, the transaction must meet the test of the continuity of interest doctrine enunciated by the courts.

Partnership income received by petitioner as his share of compensation for services rendered by the partnership over a period exceeding 36 months, held subject to allocation over the entire period, under section 107 (a), Internal Revenue Code, notwithstanding part of the services were rendered before petitioner's admission to partnership.

Petitioner, a wholesale liquor dealer in Kentucky, seeks relief under section 722 (b) (2) of the code from excess profits taxes for 1941, 1942, and 1943, on the ground… Held: petitioner is not entitled to relief, as it has not established that its average base period net income is an inadequate standard of normal earnings or that its business or the industry of which it is a member was depressed on account of a temporary economic event unusual in the case of such industry.

Victory Tax -- Deduction -- State Income Taxes. -- Petitioner, a nonresident of New York State, paid personal income taxes to that state on income derived from business carried on within that state. Held: that such personal income taxes are not deductible from gross income in computing victory tax net income within the intendment of section 451 (a) (3), I. R. C.

Decedent in 1935 created an irrevocable trust, naming himself and two others as trustees. Held: the value of the corpus of the trust at the date of death of decedent was includible in his gross estate under the provisions of section 811 (c), I. R. C., undiminished by the face value of so-called certificates of indebtedness issued prior to decedent's death.

Petitioner, a natural gas company, during the taxable years involved was engaged solely in the transportation of natural gas by pipe line for hire. Held: petitioner is not entitled to the benefits of section 735 of the Internal Revenue Code as amended by the Revenue Act of 1943.

Petitioner is a secondary income beneficiary and remainderman of a testamentary trust. Held: The trust existed and the trustee, therefore, continued to be governed by the terms of the trust for a reasonable period following the death of the life beneficiary, and the agreement of settlement of trustee's accounts in lieu of a judicial accounting was executed within such reasonable period.

1. A corporation had only class A shares and class B shares outstanding. Held: that, as to holders of shares of each class, there was a change in proportionate interest and the distribution on each class of stock constituted taxable income. 2. The fair market value of class A shares and class B shares on the date of distribution determined. 3.

Excess Profits Tax -- Credit Based Upon Invested Capital -- Borrowed Capital -- Indebtedness Not Including Interest. -- Certificates of indebtedness issued by a corporation to its bondholders as consideration for their agreement to reduce the future rate of interest payable on its bonds do not evidence an outstanding indebtedness (not including interest) within the meaning of section 719 (a) (1), I. R. C., for the purpose of computing the corporation's excess profits credit…

Petitioner was a member stockholder of a cooperative nonprofit association organized as a corporation under the laws of the State of Washington (Rem. Held: that the amounts represented by the credit memorandums accrued and are taxable to petitioner in the years when the credit memorandums were received.

Purchase rebates, or patronage dividends, issued by cooperative purchasing association in the form of registered redeemable interest-bearing promissory notes payable in any event upon dissolution of… Held: accruable income to the participating members in the years when issued to them.

1. The petitioner was employed as an agent of a life insurance company. Held: that the petitioner was an employee. 2. In his return for the taxable year the petitioner elected to be taxed on adjusted gross income under section 400 of the Internal Revenue Code, using the optional standard deduction. Held, that such election was irrevocable. 3.

1. Upon the facts, held, petitioner was not a bona fide resident of a foreign country or countries during the taxable years involved within the meaning of section 116 (a) of the Internal Revenue… Held: petitioner was not a bona fide resident of a foreign country or countries during the taxable years involved within the meaning of section 116 (a) of the Internal Revenue Code. 2. The amount of allowable deduction for medical expense determined.

In 1932 the petitioner was having financial difficulties and reduced from $ 100 to $ 50 the par value per share of its outstanding par value common stock, crediting the amount of the reduction, $… Held: that the debentures consituted indebtedness of the petitioner and that the interest paid thereon was deductible.

Amounts borrowed by petitioner, a corporation engaged in the general investment and finance business, and used to purchase United States Government bonds as bona fide business investments for profit constituted borrowed invested capital for excess profits tax purposes under sec. 719, I. R. C., and Regulations 112, sec. 35.719.1.

Where the sole trustee of trusts had broad discretionary powers to distribute trust income annually to herself or her husband, the grantor of the trusts, which power was limited only by her sole judgment with respect to her husband's needs, the trustee, the petitioner in this proceeding, had the burden of proving what part of trust income she could have been compelled to pay her husband, and how much was not within her absolute control. Upon the evidence, comprising an original stipulation and further evidence admitted upon further consideration of the proceeding after remandment by the Circuit Court of Appeals for the Third Circuit, held, that the petitioner failed to meet the burden of proof, and, in the absence of evidence to overcome the respondent's determination that the trusts' income was within her absolute control, the power given to the trustee, the petitioner, was too little fettered to give her less than complete command over the trusts' income for purposes of taxation under section 22 (a), I. R. C.Mallinckrodt v. Nunan, 146 Fed. (2d) 1; Stix v. Commissioner, 152 Fed. (2d) 562.

A and B were members of a partnership established in 1943 to engage in the business of handling coarse flour on a brokerage basis and the purchase and sale of millfeed. Held: that the income realized in 1944 from the partnership interests conveyed in trust was taxable to A and B rather than to the trusts and the beneficiaries named therein.

Petitioners for some years had been carrying on a business in corporate form. Held: that the business earnings for the years 1945 and 1946 are properly taxable to the petitioners rather than to the petitioners' wives.

In 1928 the petitioner's husband entered into an employment agreement with a recently organized corporation under which he was to… Held: That the above agreement and the rights thereunder, not the periodic payments thereafter received pursuant to the agreement, constituted property received by bequest within the meaning of section 22 (b) (3) of the Internal Revenue Code, and that the excess of the payments received by petitioner over and above the fair market value of…

Upon the facts, held, decedent and not his mother during her lifetime elected to take the proceeds of two life insurance policies under an… Held: decedent and not his mother during her lifetime elected to take the proceeds of two life insurance policies under an optional provision of the policies; held, further, that such election constituted a transfer of property within the meaning of section 811 (c) of the Internal Revenue Code. Estate of Mabel E. Morton, 12 T. C. 380.

Gain or Loss -- Capital Asset -- Sale by Partners. -- Where individuals acting as partners sell to another most of the assets of a partnership subject to some of its liabilities, without a distribution of the assets to the partners prior to the sale, and the partnership survives the sale, the transaction is a sale by the partnership of some of its assets and not a sale by the partners individually of their interests in the partnership, for the purpose of determining to what…

1. The stockholders of a corporation had personal accounts standing on the books of the corporation against which they could draw at any time. Held: the distribution of the surplus was a taxable dividend. 2. One petitioner omitted to report on his return $ 10,160 of interest credited to his account on the corporation's books and capital gain derived from a transfer of land. Imposition of 5 per cent penalty for negligence is sustained.

1. The transaction involving the exchanges of the shares of stock upon the organization of petitioner's predecessor was tax-free within the meaning of section 203 (b) (4) of the Revenue Act of 1926,… Held: petitioner's predecessor was entitled to accrue and deduct on its 1943 consolidated return the amount of $ 17,986.84 for Pennsylvania income and franchise taxes of one of its subsidiaries. 3.

Petitioner, an Ohio corporation organized in April, 1940, was engaged during the taxable years 1942 and 1943 in the business of… Held: that a taxpayer seeking relief under section 722 (c) must demonstrate the inadequacy of its excess profits tax credit based upon invested capital by showing the existence of one of the qualifying features under section 722 (c) and by establishing a fair and just amount representing normal earnings for use as a constructive average…

Burton, the owner of a sole proprietorship, organized a corporation in June, 1940. Held: on the facts, that the corporation did not acquire substantially all of the assets of the proprietorship for stock and it is not an acquiring corporation within the meaning of section 740 (a) (1) (D) of the Internal Revenue Code.

Partnership interest acquired in consideration of agreement to make fixed periodic cash payments and also to pay annually an amount equal to 5 per cent of the business profits for the preceding year,… Held: not to include beneficial interest in 5 per cent of the partnership income, which, being retained by retiring partner, is not taxable to petitioner.

1. The taxpayer corporation purchased from a deceased stockholder's estate and later sold to other stockholders and employees certain shares of its own stock. Held: the taxpayer corporation was not dealing in its own shares as it might in the shares of another corporation within the meaning of section 29.22 (a)-15, Regulations 111, and the excess of the selling price above that paid for such shares was not taxable as gain. 2.

Petitioner owns and operates a motion picture theatre in Toledo, Ohio. Its three principal stockholders were its officers and directors. Held: such weekly payments, including those which were retroactive to November 1, 1942, represented reasonable compensation for services actually performed and were deductible as ordinary and necessary business expenses. Lucas v. Ox Fibre Brush Co., 281 U.S. 115.

Transfer of property by petitioner to his wife and children held of facts an unconditional gift subject to gift tax, notwithstanding donees' subsequent reconveyance after advice to donor that his purpose of escaping estate tax had failed.

1. Respondent, in determining the deficiency in estate tax, included in decedent's gross estate one-half the commuted value, $ 24,901.72, of a certain annuity contract, as a transfer during… Held: respondent erred in including any part of the commuted value of the annuity contract as a taxable transfer by the decedent. No amount with respect to the annuity contract is, therefore, to be treated here as property previously taxed. 2.

1. Deduction -- Expense -- Compensation. -- Reasonable allowances determined for salaries or other compensation for personal services rendered to a corporation by its officers. 2.

Decedent, by transfers made in December, 1940, and January, 1941, conveyed to his wife 437 shares of stock in a corporation of which he was the sole stockholder. Held: That the transfers of 437 shares in the Gilbert Casing Co. made by decedent to his wife in December, 1940, and January, 1941, were not made in contemplation of death.

1. Annual improvements, not received in cash, in petitioner's commission account on the books of National Cash Register Co., containing credits for commissions earned and debits for expenses paid in connection with petitioner's sales agency, held not taxable to petitioner, a cash basis taxpayer. 2.

1. Petitioner, the sole active stockholder, owning 25 per cent of the capital stock in a corporation, bought all of the stock in order to liquidate the corporation and operate the business as a sole… Held: petitioner realized a long term capital gain based on the difference between the original cost of his 25 per cent of the stock and the fair market value of a 25 per cent interest in the tangible assets. 2.

1. Contracts to purchase packed dried raisins to be delivered in the latter part of the year f. o. b. dock, entered into as a speculation by taxpayer in May, 1937, long prior to the maturity and… Held: to be capital assets. 2. Held, that the loss sustained on the sales of such contracts in June, 1938, is excludable under section 711 (b) (1) (B), I. R. C., in computing excess profits net income.

New York State franchise taxes computed on income, held deductible in full by an accrual basis taxpayer in year when liability arose, notwithstanding that income and corresponding tax were reduced in a subsequent year as a result of renegotiation.

The decedent and her husband were members of a California marital community. Held: that decedent did not receive an interest which she transferred, within the meaning of section 811 (c), I. R. C.

1. Railroad company keeping its books on an accrual basis, held, required to accrue as income in taxable years interest on bonds owned by it even though payment of part of interest due in those years… Held: required to accrue as income in taxable years interest on bonds owned by it even though payment of part of interest due in those years was deferred and was received by it in later years. 2.

Gift Tax -- Value. -- Where a taxpayer purchased a diamond ring at retail and gave it to his wife one week later, the value of the ring for gift tax purposes is determined to be an amount equal to the total purchase price paid by the taxpayer for the ring, including the 10 per cent Federal excise tax which the seller added to the price and later paid to the collector of internal revenue, since that sale is the best evidence of value in the record.

For several years decedent, Lester O. Stearns, was employed as sales manager of a manufacturing corporation under a written contract for an indefinite term. Held: the $ 10,000 net which Stearns received in 1945 was not back pay as defined in section 107 (d) (2), I. R. C., and petitioner is not entitled to the benefit of section 107 (d) (1), I. R. C., in the computation of tax for 1945.

The petitioner, seeking relief under section 722 (b) (3) and ( 4) of the Internal Revenue Code, was engaged in the business of air… Held: on the facts, that petitioner has not shown that it was a member of the building and construction or the construction industry, or that its business was depressed, in the base period, by reason of conditions generally prevailing therein subjecting it to a profits cycle differing materially in length and amplitude from the general…

Deductible Expense or Purchase Price -- Section 23 (a) (1) (A). -- Payments made during each of the taxable years were purchase price of a business in which the petitioner was acquiring an equity and not expenses deductible as made. Following Judson Mills, 11 T. C. 25.

Petitioner is a surviving life annuitant under certain annuity contracts purchased by her deceased husband, Franklyn L. Hutton, for a consideration of $ 730,000. On the death of Hutton, these contracts were included in his gross estate for estate tax purposes at a compromise valuation. Petitioner received no other property from decedent's estate.

The petitioner is transferee of a corporation dissolved in 1945. Held: the corporation income tax paid by the petitioner in 1947 can not be used as a deduction in the computation of the petitioner's income tax for 1945.

Petitioner Western Construction Co. was created as a limited partnership under the laws of the State of Washington in 1942 and again in… Held: on the evidence, petitioner Western Construction Co. does not resemble an association in corporate form and is, therefore, not taxable as such ( Glensder Textile Co., 46 B. T. A. 176, followed); held, further, the Western Construction Co. is a bona fide partnership composed of the three Johnson brothers and their several children as…

Sale by petitioner held on facts to have constituted disposition of his entire business, so that, O.P.A. ceiling prices on individual machines being concededly inapplicable, no ground exists for applying I. T. 3811.

Held, the corporate entity of the corporation here involved may not be disregarded for tax purposes. Held: the corporate entity of the corporation here involved may not be disregarded for tax purposes.

Where the facts show that a taxpayer has filed a proceeding in a court having jurisdiction over a cause involving the correct tax liability of the taxpayer, such as in a United States District Court or in the United States Court of Claims, and, thereafter, the taxpayer files a petition in the Tax Court of the United States asking the Tax Court to redetermine the tax liability of the taxpayer for the same year involved in an action previously filed in another court, the fact that the taxpayer has filed an action in another court involving the same cause of action prior to the filing of a petition in the Tax Court, held, is not sufficient ground for the granting of a motion to continue the trial of the proceeding in the Tax Court until the other court has disposed of the cause. The rule followed by the Tax Court is that, since both courts have concurrent jurisdiction, the court which reaches the cause on its calendar first may proceed to the trial for decision of the matter without further delay; held, further, that the motion of petitioners in this proceeding for continuance of trial and decision will be denied because this Court has reached this proceeding first and is ready to proceed in the matter.

Net earnings of a business conducted during part of base period prior to petitioner's existence by a wholly owned affiliate, and of which the affiliate has obtained the benefit in computing its own credit for base period income, held insufficient by itself to demonstrate petitioner's right to relief from excess profits tax under section 722 (b) (4).

1. In observance of the one-hundredth anniversary of the founding of its business a business corporation, late in 1943, by paid advertisement, offered 17 awards… Held: that the amount received by the petitioner constituted compensation and was taxable income to him. 2. On the facts presented, held, that no portion of the petitioner's award may be allocated to his wife as her earnings, and that no amount is deductible by the petitioner as compensation paid for her services.

The petitioner, a pilot for Transcontinental & Western Air, Inc., was engaged chiefly in transporting passengers and cargo to foreign bases pursuant to a contract between his employer and the Army… Held: that the respondent has not shown that the deductions were fraudulently claimed with intent to evade tax. 2. Petitioner's return was not filed within the period prescribed by statute and respondent has determined a delinquency penalty of 15 per cent.

Decedent's gross estate for Federal tax purposes consisted of assets of a value of $ 26,404.15 held in decedent's own name, personal property of a value of $ 235,990.30 held in the joint names of decedent and his wife, and insurance on decedent's life in the face amount of $ 14,200.16. From these assets the executrices of decedent's estate paid funeral and administration expenses and debts of the decedent in the total amount of $ 62,585.23, including arrears in income taxes and interest thereon in the amounts of $ 40,957.23 and $ 12,202.68 owed by the decedent to the Federal and state governments, respectively, on joint returns filed by decedent and his wife in prior years. In computing decedent's net estate under section 812 (b) of the Internal Revenue Code, respondent limited deductions for such expenses and debts to the amount of $ 26,404.15 representing the value of property held by decedent in his own name at death. Held, that the personal property jointly owned by decedent and his wife constituted "property subject to claims" within the meaning of section 812 (b) and, therefore, petitioner is entitled to deductions in the amount of $ 62,585.23 in computing the value of decedent's net estate under the provisions of section 812 (b) of the Internal Revenue Code.

Statute of Limitation -- Last Day on Saturday -- Application for Relief Under Section 722 -- Sections 722 (d), 322 (b) (1). -- An application for relief under section 722 stamped received by the Bureau of Internal Revenue at 12:40 p. m. on Monday, November 17, 1947, was filed too late where the three-year period provided in section 322 (b) (1) expired on November 15, 1947, a Saturday on which the Bureau of Internal Revenue was not open officially.

Petitioner in 1938, after designating each of his five children as primary beneficiary in insurance policies of $ 150,000 aggregate principal amount and specifying the manner in which the proceeds of… Held: that the gifts were gifts of future interests and that petitioner was not entitled to the exclusions provided by section 1003 (b) (3) of the Internal Revenue Code. Ryerson v. United States, 312 U.S. 405, followed.

In 1932 and 1933 decedent's wife applied for and was issued five policies of insurance on her husband's life and met all premiums on these policies until her husband's death on September 18, 1945. Respondent determined that decedent indirectly paid all the premiums falling due after January 10, 1941, totaling $ 8,757.85, and therefore included a portion of the proceeds of these policies in decedent's gross estate. On the facts, held, that decedent indirectly paid for the premiums falling due after January 10, 1941, to the extent of $ 8,195.85, and therefore that portion of the proceeds of the policies which $ 8,195.85 bears to the total premiums paid since the commencement dates of the five policies is includible in decedent's gross estate under section 811 (g) (2) of the Internal Revenue Code, as amended.

Family Partnership -- Limited Partner -- Lack of Intention. -- Although formalities to form a partnership in which the then wife of the petitioner was to be a limited partner were carried out, the petitioner and his wife did not really and truly in good faith and acting with a business purpose intend to join together to conduct a partnership in which the wife was a real limited partner.

Held, petitioner, the author of American Guerrilla in the Philippines, spent more than 36 months in the preparation of such book and is entitled to compute the tax on his income in accordance with… Held: petitioner, the author of American Guerrilla in the Philippines, spent more than 36 months in the preparation of such book and is entitled to compute the tax on his income in accordance with the provisions of section 107 (b), I. R. C.

Decedent acquired title to seven parcels of real estate, each subject to a first mortgage issued for monetary consideration. Held: the first mortgages are not deductible in computing the decedent's net estate.

Gain or Loss -- Amount Realized -- Cash Basis -- Escrow -- Property -- Equivalent of Cash -- Sections 44 and 111 (b). -- A stockholder using the cash receipts method of reporting income joined with other stockholders during 1942 in a contract to sell all of the stock of a corporation, under which contract they delivered the stock to the sellers in 1942, the sellers deposited one-half of the estimated purchase price in a bank as escrow agent of both sellers and purchasers to distribute the cash early in 1943, and the balance of the purchase price, after events in 1943 fixed the amount, was to be paid during 1943. Held, the stockholder realized no taxable gain from the sale in 1942, since his share of the cash in escrow was not actually or constructively received by him in 1942 and the contract itself was not "property (other than money)" or part of an "amount realized" in 1942 within the meaning of section 111 (b).

Capital Contributions or Cost of Goods Sold. -- Amounts paid by a stockholder-customer to a corporation were capital contributions by the stockholder, not a part of the cost of goods purchased by him from the corporation, and not ordinary and necessary expenses.

Capital Expenditure or Expense. -- An individual 82 years old transferred his business to a corporation in exchange for all of its stock and its agreement to employ him and after his death to pay a… Held: payments made in that same year to the widow after his death are not shown to have been ordinary and necessary expenses of the corporation paid or incurred in carrying on its business.

Section 107 (a) -- Special Separate Services by an Officer to a Corporation. -- The services which the petitioner rendered to a corporation in a patent controversy with a licensee were sufficiently separate and distinct from his regular duties as an officer to justify taxation under section 107 (a) of his separate compensation for those services.

Payment by subsidiary of interest on sums borrowed for benefit of parent, held on facts to be allowable deductions for purposes of personal holding company surtax as dividends paid if not as interest.

Excess Profits Tax -- Relief Under Section 722 -- 722 (b) (5). -- The petitioner has not established its right to relief under section 722 (b) (5) by showing that deductions for the amortization of the cost of an exclusive sales contract, with the termination date of December 31, 1940, reduced the income of the base years but was no longer being deducted in the tax years and, as a consequence, the actual base period net income was not normal for the purpose of comparison…

Excess Profits Tax -- Relief Under Section 722 -- 722 (b) (5). -- The petitioner has not established its right to relief under section 722 (b) (5) by showing that deductions for depreciation of the cost of assets having lives coextensive with a lease were larger in the base period than in the tax years because the term of the lease was extended in 1941, thus reducing the rate.

In 1943 M and H were equal general partners carrying on two separate partnership businesses. Held: the two partnership businesses were under common control within meaning of section 403 (c) (6) of the Renegotiation Act. (2) Held, petitioners have not proved that respondent erred in failing to exempt contracts for the making of the products of the partnerships pursuant to section 403 (i) (4) of the Renegotiation Act.

In December, 1941, the Lincoln Electric Co., pursuant to a resolution of its board of directors, established a trust for the benefit of 890 of its employees,… Held: the trust was not an exempt trust within the purview of section 165 (a) of the Internal Revenue Code as interpreted by Treasury Regulations 111, section 29.165-1, and (2) the trust indenture created a single trust and not a separate trust for each of the persons named as a beneficiary in the trust instrument.

Respondent included in the gross estate of decedent, a nonresident alien not engaged in business in the United States at the time of her death, one-half of certain trust funds deposited in the name… Held: the trust funds to which decedent was entitled as a remainderman were excludable from her gross estate as a deposit by or for her within the meaning of section 863 (b) of the Internal Revenue Code.

The petitioner's president and general manager, who had renegotiable sales during his and the petitioner's concurrent fiscal year in excess of $ 1,800,000, controlled the meetings of the petitioner's… Held: that the petitioner was under the control of its president and general manager within the meaning of section 403 (c) (6) of the Renegotiation Act and that it was subject to renegotiation under the provisions of that act.

Petitioner, a meat-packing corporation, by lining the walls and floor of its basement with concrete, sought to protect it from the seepage of oil spilled on the ground by a neighboring refinery. Held: the expenditure for lining the basement walls and floor was essentially a repair and as such is deductible as an ordinary and necessary business expense under section 23 (a) of the Internal Revenue Code.

Petitioner, an inventor, was the owner of 75 per cent of the stock and president of a corporation whose only assets were patents which were classified by the Government as secret and placed on the… Held: that such payment to the petitioner constituted back pay within the purview of section 107 (d) (1) and (2) (iv), and that the petitioner is entitled to its proration for computation of tax as if received over the period 1941 to 1944, inclusive.

1. Gifts to ten trusts made by decedent during 1938, held, to be gifts of future interests to which the $ 5,000 exclusion provided for in section 504 (b) of the Revenue Act of 1932 does not apply. 2. Held: to be gifts of future interests to which the $ 5,000 exclusion provided for in section 504 (b) of the Revenue Act of 1932 does not apply. 2.

Decedent was paid an annual pension of $ 15,000 upon his retirement, pursuant to the terms of a compulsory pension plan established by… Held: that the pension which was payable to the decedent's wife upon his death did not represent an interest in property of which the decedent had made a transfer intended to take effect in possession or enjoyment at or after his death within the meaning of section 811 (c) of the Internal Revenue Code, and, therefore, the commuted value of…

1. Held, the renegotiation proceedings involved were commenced in the form and manner and within the period of limitation prescribed by the applicable renegotiation statutes. 2. Held: the renegotiation proceedings involved were commenced in the form and manner and within the period of limitation prescribed by the applicable renegotiation statutes. 2.

Because petitioner, a dealer in securities, has failed in his burden of proving that he made gifts of certain securities to his children in 1935 and 1936, it is held that payments made to them in 1943 allegedly upon the indebtedness created by the 'long' position of the children in their brokerage account with petitioner are not deductible as interest under section 23 (b) of the Internal Revenue Code.

Petitioner purchased realty with his own funds and had the sellers deed it to him as trustee for his two minor daughters. He did not sign the deed. Held: that the income from the property is not taxable to the petitioner.

1. The deductions for depreciation by the petitioner for the taxable years are reasonable in amount and allowable. 2. The petitioner was, in the taxable years, a member of a controlled group within the definition of section 713 (g) (5) of the Internal Revenue Code.

1. Petitioner was organized to take over as of October 1, 1937, pursuant to a revised plan of reorganization, the assets and some of the liabilities of its predecessor corporation. Held: the $ 75,500 representing income from the cancellation of petitioner's debt to the United States Government and the $ 1,570.83 representing income from the purchase of its bonds at a discount are includible in petitioner's gross income for the calendar year 1941. 2.

1. Taxpayer, a foreign corporation, has always kept books in its home office in Glasgow, Scotland, on the basis of a fiscal year ending September 30, but from 1937 through 1944 it also kept books in… Held: respondent did not err under section 41, Internal Revenue Code, in determining deficiencies for 1941, 1943, and 1944 on the basis of a calendar year. 2.

Deduction. -- During the years 1943, 1944, and 1945, in connection with wartime orders for spun yarn and apart from the regular price thereof,… Held: that petitioner is not entitled to a deduction for the deposits as made in each of those years as a business expense, or otherwise, for such respective years; held, further, that neither the total of such deposits nor any part thereof was forfeited in 1945 so as to be deductible in that year as an expense, or otherwise.

Deductions -- Interest. -- Certain annual payments made in consideration of the payees' deferment of the payment of principal amounts due in settlement of action for breach of fiduciary duty, held to be interest and deductible under section 23 (b), Internal Revenue Code.

Where over a period of years an intelligent taxpayer and businessman has received income in substantial amounts and has failed to report that income, and where no books or records were kept by him and no tenable explanation was offered for the failure to report the income received, the respondent has established by clear and convincing evidence that some part of the deficiencies is due to fraud with intent to evade tax within the meaning of sections 293 (b) and 1112 of the…

1. Deduction -- Depreciation -- Basis -- Reorganization -- Section 112 (g) (1) (D). -- Where two corporations transferred property to the petitioner and the integral plan required that one would, upon completion of the plan, hold no stock of the petitioner, the transaction as to the one transferor was a sale of assets, even though at an intermediate stage it held stock of the petitioner. 2.

1. Petitioner specializes in the engineering, design, and construction of glass plants and allied equipment. Held: in 1943 petitioner realized abnormal income from contracts as a result of research and development within the meaning of section 721 (a) (2) (C) of the Internal Revenue Code. 2. The amount of net abnormal income received in 1943 attributable to the years 1936 through 1943 determined and the formula for allocation also determined.

Primarily in order to avoid expense and delay in administration, the decedent conveyed real estate to a corporation formed, of which he was president and owner of all stock except qualifying shares. The properties which were the only corporate assets were rental properties subject to yearly leases producing monthly rentals.

1. Deduction -- Depreciation -- Basis -- Transferor -- Section 112 (b) (5) -- Control -- Section 112 (h). -- Executors transferred property to a corporation and for a short time held all of its… Held: there was not the control required by sections 112 (b) (5) and (h) and the corporation does not take the executors' basis for the property transferred. 2.

1. The petitioners, husband and wife, created four irrevocable long term trusts for the benefit of their two minor children. Held: the trust income is not includible in the petitioners' gross community income. 2. Held, the payment of $ 15,000 for one-fourth of Fischer's interest in certain leases resulted in a sale as of December 31, 1943, on which a gain was realized. 3. Held, the gain realized on the sale was a long term gain. 4.

1. Petitioner is a corporation, engaged in the business of manufacturing and selling flexible couplings. Held: that our decisions in the former proceedings affirmed by the Third Circuit are not res judicata as to the present proceedings; held, further, that the royalties paid in 1942, 1943, and 1944 to the extent of $ 80,000 in each year are deductible as ordinary and necessary business expenses under section 23 (a) (1) (A), I. R. C. 2.

1. Petitioner, a public carrier engaged in the transportation of passengers by motor bus, held, not entitled to relief (1) under sec. 722… Held: not entitled to relief (1) under sec. 722 (b) (4), I. R. C., because of the establishment in November, 1939, of a new bus route to supplement one of its several existing routes, or (2) under sec. 722 (b) (5), I. R. C., because of an alleged loss of $ 667.12 resulting from the operation of the new route for the period November 13 to…

A corporation owning a one-half interest in a joint venture real estate project was dissolved on December 30, 1942, and its assets were all… Held: that there was no sale by the corporation of its interest in the joint venture; held, further, that the former stockholders realized no gain on the sale of their interest in the joint venture in 1943, the sale price which they received not being in excess of the value of such interest at the time of its distribution to them, and…

Excess Profits Tax -- Deductions -- Credits -- Corporate Identity. -- The Commissioner can not disregard the tax consequences of an unsuccessful business, regularly carried on by a corporation for several years, merely because it acquired and also carried on during the taxable year an additional unrelated profitable business formerly carried on by its present stockholders as partners.

1. Returns -- Joint or Separate -- Election. -- Where a husband files a return reporting all of the income of a partnership in which his wife had an equal interest and she filed none, he has, in effect, elected to use a joint return and thereafter has no right to have his tax liability for that year computed upon the basis of a separate return to include only one-half of the income. 2.

1. On the facts, held, respondent's determinations as to reasonableness of salaries of depreciation on machinery and equipment during the taxable years and reasonable allowance for salaries in… Held: respondent's determinations as to reasonableness of salaries of depreciation on machinery and equipment during the taxable years and reasonable allowance for salaries in computing base period net income of petitioner's predecessor are sustained. 2.

Petitioner, an individual citizen of the United States, was a bona fide nonresident of the United States for more than six months during the taxable year 1942. Held: The amount of $ 36,279.30 was not excludable from petitioner's gross income in 1942 under section 116 (a), Internal Revenue Code, since it was an amount paid by the United States within the meaning and intent of the parenthetical exception to the exemption provided by that section.

In 1943, when they were both in the armed service, petitioner and his son, then 18 years old and without business experience, executed a purported partnership agreement covering the ownership and… Held: that petitioner and his son did not at any time during the years herein, in good faith and acting with a business purpose, intend to, and did not, actually join together as partners in the present conduct of a partnership business.

1. Income -- Deduction -- Ordinary and Necessary Expense -- Repairs or Capital Expenditures. -- Money spent in repairing rotted portions of an old building held deductible as ordinary and necessary expense. 2. Income -- Deduction -- Loss -- Bottles and Crates. -- Where evidence shows an extraordinary loss on bottles and crates not adequately offset by the usual depreciation, the additional amount representing the loss is deductible. 3.

1. On January 19, 1931, decedent created a trust, reserving the income therefrom to herself and her three children. Held: the transfer in trust was not made in contemplation of death and the value of the trust corpus should not be included in decedent's gross estate under section 811 (c), as amended. 2.

Petitioner drew sight drafts on its customers, payable to its bank, to which it attached bills of lading endorsed in blank. Held: the amounts credited are not borrowed capital within the meaning of section 719 (a) (1) of the Internal Revenue Code.

Excess Profits Tax -- Equity Invested Capital -- Capital Contribution -- Basis -- Sections 718 (a) (2), 113 (a) (8). -- Property received by a corporation as a capital contribution is to be included in equity invested capital under section 718 (a) (2) at its unadjusted basis for gain or loss, and that basis under section 113 (a) (8) is the same as the transferor's basis. Failure to show the transferor's basis is fatal.

1. Petitioners' decedent in 1938 irrevocably assigned four insurance policies on his life to his wife. Held: premiums paid in 1943 and thereafter were indirectly paid by decedent and the amount received on such policies at death attributable to such premiums is includible in decedent's gross estate under section 811 (g) (2), I. R. C., as amended by section 404 (a), 1942 Act. 2.

Exempt -- Section 101 (6) -- Corporation Operating Regular Business. -- Congress, in section 101 (6), did not intend to include in the exempt class, as a corporation organized and operated exclusively for educational purposes, a corporation not engaged in educational work, but having as its only activity the operation of a regular competitive commercial business for profit, even though its earnings inure solely to the benefit of a separate corporation, a university, falling…

Petitioner's wife died intestate. Under the community property law of California, she had during her lifetime a present, vested, and equal… Held: that, although the interest in the community of the wife passed to petitioner upon her death, the estate was admitted to probate, and under section 161 (a) (3), I. R. C., income received by the estate during the period of administration was taxable to the estate, the estate being a taxable entity; but it is held, further, that the…

The tax as shown opposite a taxpayer's adjusted gross income in the tax table contained in section 400 of Supplement T of the Internal Revenue Code is a tax computed on the taxpayer's net income, arrived at by allowing deductions substantially equal to 10 per cent of the taxpayer's gross income, his personal exemption, and credits for dependents.

In 1943 petitioner corporation distributed in liquidation 47,000 shares of Transamerica Corporation stock to its stockholders, which stock was then pledged with creditors as security for certain… Held: That the petitioner corporation realized no taxable income in 1943 as a result of the sale of the 47,000 shares of Transamerica stock by its stockholders.

Under the facts, held, that amounts received by petitioner, the manufacturer of a concentrated extract known as 7-Up, from bottlers who… Held: that amounts received by petitioner, the manufacturer of a concentrated extract known as 7-Up, from bottlers who contributed to a national advertising fund were burdened with obligation to expend them for national advertising and constituted a trust fund which petitioner administered as agent; that no gain or profit was realized by…

1. Renegotiation -- Validity of Respondent's Determination. -- Section 403 (e) of the Renegotiation Act, as amended, providing a de novo proceeding in the Tax Court, held to provide due process, and… Held: further, that petitioner had renegotiable business in 1943. 3.

Petitioner was engaged in the publication of a farm paper during its base period, which extended from June 1, 1936, to May 31, 1940,… Held: That the result of the contract of January 23, 1940, whereby the petitioner from and after February 10, 1940, sold accident policies to its subscribers as the direct agent rather than the subagent of the issuing company, realized an increase in commission income of 20 cents on each policy sold, and was granted certain profit-sharing…

1. Excess Profits Tax Relief Under Section 722 (b) (2). -- Held, that national prohibition was not a temporary economic event unusual in the case of the brewing industry or the beer business of… Held: that national prohibition was not a temporary economic event unusual in the case of the brewing industry or the beer business of petitioner and, further, that neither was depressed during the base period years. 2.

Under the facts, held, that at least 80 per cent of the gross income of petitioner for the taxable years, which consisted of payments… Held: that at least 80 per cent of the gross income of petitioner for the taxable years, which consisted of payments received from Australian shoe manufacturers ranging from 7 to 50 cents per pair on each pair of shoes manufactured by them, embodying certain styles and designs, was derived from royalties, and constituted personal holding…

1. The amount paid to the manager of a local branch of the business here involved in addition to his salary was a bonus constituting reasonable compensation for services he actually rendered, and was deductible by such business as an expense of doing business in the year in which paid. 2.

From its inception the petitioner employed the trade name Food Fair in its retail grocery business which was conducted in Arlington County, Virginia. Held: that the primary purpose of the suit was to defend or perfect petitioner's title to or property right in the trade name and that the attorney's fee incurred by the petitioner in connection with the suit is not an allowable deduction in computing taxable net income.

1. Family Partnership. -- The Commissioner did not err in refusing to recognize as partners the petitioner's mother and aunt, indigent elderly women, who took no part in the business. 2. Held: that they had no right to select a new accounting period for their partnership, either because they entered into a new agreement or because it was the first agreement entered into since the other partner had attained his majority.

1. Petitioner kept his books and filed his income tax returns on the cash basis for 1942, and for many years prior thereto. Held: that petitioner should properly have reported his income on an accrual basis for 1942, and the adjustments in gross income made by respondent to reflect the change from the cash to an accrual basis were proper. C. L. Carver, 10 T. C. 171; affd., 173 Fed. (2d) 29, and William Hardy, Inc. v. Commissioner, 82 Fed. (2d) 249, followed. 2.

1. Held, petitioner is not entitled to a deduction, either as a bad debt or as a loss, of the value of certain shares of stock awarded under a… Held: petitioner is not entitled to a deduction, either as a bad debt or as a loss, of the value of certain shares of stock awarded under a stock bonus plan where, under the plan's provisions, on the separation of petitioner from the company, the unearned portion of the shares was forfeited and the certificates not delivered. 2.

Respondent determined that a partnership existed between petitioner J. M. Tindall and his son in a cotton oil mill business during the… Held: on the facts, it was not the intention of petitioner J. M. Tindall and of his son, either at the time the agreement was entered into or during the taxable years in question, in good faith and acting with a business purpose to join together in the present conduct of the business, and respondent erred in determining that petitioner J.…

Receipt of arrears of periodic alimony by estate of a deceased divorced wife held includible in gross income of the estate. Sec. 126, I. R. C.

1. Held, that monthly payments to wife for her support prior to divorce are not taxable to the wife under section 22 (k), and are not deductible from petitioner's income under section 23 (u), I. R. Held: that monthly payments to wife for her support prior to divorce are not taxable to the wife under section 22 (k), and are not deductible from petitioner's income under section 23 (u), I. R. C.George D. Wick, 7 T. C. 723; affd., 161 Fed. (2d) 732. 2.

1. Equity Invested Capital -- Donated Property. -- Value of real estate deeded to a corporation as a gift by a citizen of Omaha, Nebraska, as a site for a first-class hotel development in that city held includible in donee corporation's equity invested capital at fair market value thereof at the time acquired. Brown Shoe Co. v. Commissioner, 339 U.S. 583. 2.

In December, 1942, petitioner and his partner dissolved a partnership engaged in operating moving picture theatres, and each partner assigned his entire proprietary interest therein to his wife. Held: the petitioner is not taxable upon his wife's distributive share of partnership income in 1944.

1. The petitioner has alleged error by the respondent in disallowing as expenses $ 67.50 for 11 1/4 days of business travel in the United States. Held: that part of the deficiency was due to fraud, with the intent to evade tax.

As an accommodation to him, petitioner loaned securities to her husband, to be used as security for his personal brokerage account. Held: on the facts, that in the taxable year and upon the payment of the $ 15,000 petitioner sustained a nonbusiness bad debt loss which, subject to the limitations of section 23 (k) (4) of the Internal Revenue Code, is an allowable deduction.

In December, 1942, petitioner and his partner dissolved a partnership engaged in operating moving picture theatres, and each partner assigned his entire proprietary interest therein to his wife. Held: the petitioner is not taxable upon his wife's distributive share of partnership income in 1943 or 1944.

Petitioners are husband and wife, with residence in Texas, a community property state. During the taxable years the husband was employed in Puerto Rico and the wife in Texas. Held: petitioners' income is community income and the rights in that income are perfectly equivalent to each other. Hopkins v. Bacon, 282 U.S. 122. The income of the husband is composed of one-half of his earnings and one-half of the income earned by his wife.

Decedent assigned certain insurance policies on his life to his wife with a dominant motive to put them beyond the reach of possible judgment… Held: under the facts, the policies were not transferred in contemplation of death, nor did the decedent retain any incidents of ownership in them. Only that proportion of the proceeds of the policies which the premiums paid after January 10, 1941, bear to the total premiums paid is includible in the gross estate of the decedent.

Where petitioner made payments to a profit-sharing plan which had been approved as an exempt trust under section 165 (a), and the contributions were in excess of the amounts required to be… Held: only the payments required by the terms of the plan may be deducted under section 23 (p) (1) (C), Internal Revenue Code.

1. The petitioner, a playwright, is the coauthor of the plays My Sister Eileen and The Doughgirls, which were copyrighted in his name. Held: the proceeds from the sale of the movie rights to the plays are taxable to the petitioner as ordinary income in the years in which received under section 22 (a), rather than as capital gains under section 117 (j), because the movie rights were not property used in the trade or business of the petitioner, but were property held…

1. South Carolina property taxes which became due and payable January 1 of each year held properly accruable on a month to month basis by an accrual basis taxpayer. 2. Unused excess profits credits carry-back from 1943 and 1944 to 1942 allowed taxpayer, which on March 3, 1942, sold its principal assets but took no steps to dissolve and continued to operate a portion of its business throughout 1943 and 1944.

Where petitioner, a title insurance company acting as escrowee of funds advanced by mortgagees on a building contract, acquired title to property in the name of its nominee consisting of uncompleted… Held: the loss sustained upon sale of the buildings is deductible as an ordinary loss upon the sale of property held by petitioner primarily for sale to customers in the ordinary course of its business within the meaning of section 117 (a) (1), I. R. C.

Deduction in 1943 of a portion of a 1942 contribution to an employees' trust set up by petitioner in 1941 held not allowable under sections 23 (p) and 165, I. R. C., as amended by section 162 of the… Held: further, that respondent is not estopped from disallowing the 1943 deduction by reason of the fact that he allowed the deduction in 1941 of a contribution to the trust made in that year and in 1942 of a portion of a contribution made in that year.

1. Commission paid in 1944 by lessors to obtain five-year oil and gas leases on properties owned by lessors, held, capital expenditure and not ordinary and necessary business expense. 2. Held: capital expenditure and not ordinary and necessary business expense. 2. Lessors having taken percentage depletion in 1944 on bonus received from the lessee for oil and gas leases, held, not entitled to cost depletion in that year on commission paid to obtain the leases.

1. The mother and father each created three irrevocable trusts, one for the benefit of each of their three sons, and transferred $ 1,000 to each trust. Held: the trust income is taxable to the beneficiaries under the provisions of section 22 (a), I. R. C., and not to the trusts. 2.

Held, the amount of $ 50,000 which petitioner received from an accounting firm in 1944 was the purchase price paid for his accounting practice and is taxable as capital gain under section 117,… Held: the amount of $ 50,000 which petitioner received from an accounting firm in 1944 was the purchase price paid for his accounting practice and is taxable as capital gain under section 117, Internal Revenue Code.

Petitioner is a railway postal clerk. His daily run, covering six hours and fifteen minutes, is from his home town to another, and return. Held: the expense of the meal is not incurred away from home within section 23 (a) (1) (A) of the Internal Revenue Code and is, therefore, not deductible.

Estate Tax -- Contemplation of Death -- Substitute for Testamentary Disposition -- Section 811 (c). -- A transfer in trust made by an elderly man not in the best of health, to be enjoyed after his death, held a substitute for testamentary disposition and in contemplation of death even though made as an inter vivos trust rather than as a part of the will so that income taxes might be saved during the remaining life of the grantor.

1. Held, petitioner is entitled to dependency credits for the years 1942 and 1943 for the support of his sister-in-law during those years. 2. Held: petitioner is entitled to dependency credits for the years 1942 and 1943 for the support of his sister-in-law during those years. 2. Held, petitioner is not entitled to benefits of section 107, Internal Revenue Code, since amount he received in 1943 was payment for personal services which covered a period of less than 36 months.

On the facts, held, (1) the four children of petitioners were not partners with their parents in the limited partnership of Russell Giffen &… Held: the four children of petitioners were not partners with their parents in the limited partnership of Russell Giffen & Co. and petitioners were taxable equally on all the partnership net income, and (2) respondent properly computed the income of petitioners from Russell Giffen & Co. on the basis of the fiscal year elected by the…

Prior to December 17, 1941, petitioner made unsecured loans to Cole Motor Service, Inc., totaling $ 17,561.33. Held: Petitioner was not entitled under section 23 (k) (1) to a business bad debt deduction in 1944 on the notes he acquired from the bank, because they were not business debts.

1. No jurisdiction for determination of overpayment of income taxes held to exist where respondent in a deficiency notice for year 1944 determined a deficiency in excess profits tax and an overassessment in income tax. Difco Laboratories, Inc., 10 T. C. 660, followed. 2.

Between 1935 and 1943, petitioner entered into agreements with stockholders of a corporation holding defaulted farm mortgages. The agreements provided that the stockholders would endorse their shares in blank and give them to petitioner for the purpose of compelling the management of the corporation to liquidate. If successful, petitioner was to receive a percentage of the amounts paid to the shareholders in liquidation.

Petitioner Harold M. Fleming paid to his divorced wife pursuant to a separation agreement and alimony decree $ 2,300 in 1942, $ 1,200… Held: $ 1,200 of the total paid in 1942 and the entire payments for 1943 and 1944 constituted sums paid for the child's maintenance and may therefore not be deducted under section 23 (u), I. R. C. (2) The balance of the 1942 payment determined to constitute an installment payment of alimony paid within a period of less than 10 years within…

Petitioner, a waste paper dealer in Cleveland, seeks relief under section 722 (b) (2) of the Internal Revenue Code, from excess profits tax for 1943 on the ground that… Held: petitioner is not entitled to relief, as it has not established that its average base period net income is an inadequate standard of normal earnings, or that its business or the industry of which it is a member was depressed on account of temporary economic events unusual in the case of such industry.

1. The Warner family owned and operated two business enterprises that had renegotiable contracts. Held: the partnership and the corporation were under common control within the meaning of section 403 (c) (6), Renegotiation Act of 1943, and this Court has jurisdiction to redetermine excessive profits, if any. 2.

Issue 1. Upon the facts, held, the respondent correctly disallowed deduction in 1940 of an alleged expense. Issue 2. Held: the respondent correctly disallowed deduction in 1940 of an alleged expense. Issue 2. Petitioner entered into a contract with a Peruvian corporation under which the consideration was to be paid in soles. The corporation defaulted in payments, which gave rise to a debt. The value of soles declined after the debt accrued.

Petitioner was obligated under both a divorce decree and agreement incident thereto to pay both his wife and daughter, as alimony to the… Held: petitioner was not entitled to deduct cash installments of alimony paid his wife in 1945 under section 23 (u) of the Internal Revenue Code, since they were installment payments not includible in her income under section 22 (k) of the code; (2) petitioner was not entitled to deduct premiums he paid on the escrowed policies in 1945…

Petitioner was engaged in the factoring business, which consisted in purchasing accounts receivable and making loans on inventories to firms engaged in the textile industry. Petitioner had adopted the reserve method of treating bad debts. Upon the evidence, the amount of a reasonable addition to the petitioner's reserve for bad debts is determined.

1. Petitioner, a national bank, was required by the Banking Act of 1933 to terminate, by June 16, 1934, its affiliation with a corporation dealing in securities. Held: that the loss sustained on the stock upon the liquidation of the corporation in 1943 was a long term capital loss. 2. In and prior to 1943 petitioner charged off with tax benefit the full amount of certain corporate notes and thereafter held them at a zero basis.

Petitioner's share of payments received from a corporation by him and the two other principal stockholders in exchange for a portion of the stock, being made for no corporate reason and not affecting petitioner's ultimate proportional interest in the company, held on facts essentially equivalent to the distribution of a taxable dividend. Section 115 (g), Internal Revenue Code.

1. Held, that a decision of a court of New York on a question of property interests in a related case involving the same class of payments as are involved in this proceeding is binding on this Court. Held: that a decision of a court of New York on a question of property interests in a related case involving the same class of payments as are involved in this proceeding is binding on this Court. Commissioner v. Blair, 300 U.S. 5.

The petitioner is a limited partnership, with two general partners with power of control over the business, and five limited partners with power to dissolve the partnership at any time. Held: that petitioner and Nichols were in 1943 under common control within Section 403 (c) (6) of the Renegotiation Act and its profits were renegotiable.

In 1940, L. O. Koen and the partnership of Hamill & Smith entered into an agreement to exploit Koen's device known as Airstyr. Held: Koen and Hamill & Smith operated such business as a joint venture. 2. Respondent properly disallowed as a deduction in the taxable year 1943 that part of the payment of $ 20,000 attributable to expenditures incurred and paid in the operation of such joint venture in the prior years 1941 and 1942.

Petitioners, the owners of all of the stock of a corporation, entered into agreement with two purchasers, wherein they sold their stock for $ 190,000, and reserved to themselves certain assets in… Held: Interests in contract received by petitioners constituted a dividend and was taxable as such. 2. Value of contract at time of distribution determined.

Petitioners purchased property in 1943 for $ 42,858.55, and sold it in 1944 for $ 70,000 in cash and a note for $ 10,000. Held: on the facts, fair market value of note in 1944 was $ 3,000, and following Victor B. Gilbert, 6 T. C. 10, the amount of $ 7,000 constituted ordinary income to petitioners in 1945.

1. Excess Profits Tax -- Equity Invested Capital -- Property Paid in for Stock -- Section 718 (a) (2). -- Where property was actually paid in for shares the basis of that property must be included in equity invested capital and it is immaterial that the transferor immediately sold the shares to underwriters pursuant to a prearranged plan. 2. Id. -- Value of the property determined.

1. Property transferred to petitioner as paid-in surplus by its two stockholders in 1933, subject to a purchase money mortgage which petitioner assumed, held includible in equity invested capital… Held: not shown on the evidence of record.

Edward Bausch and William Bausch had for about 50 years served the Bausch & Lomb Optical Company of Rochester, New York, in important capacities. Held: such part of the payments made to the estates in the taxable year represented taxable income to the estate under section 22 (a) and section 126, Internal Revenue Code. Louise K. Aprill, 13 T. C. 707, distinguished.

On June 1, 1943, petitioner entered into a final renegotiation agreement with the Secretary of the Navy in which it was agreed that its excessive profits were $ 350,000 and should be paid, $ 70,000… Held: the deficiency was correctly determined. Baltimore Foundry & Machine Corporation, 7 T. C. 998, followed. National Builders, Inc., 12 T. C. 852, distinguished.

Life insurance premiums paid by petitioner on policies held by trustee as security under separation agreement providing for monthly support payments to divorced wife held not deductible under section 23 (u), Internal Revenue Code. Meyer Blumenthal, 13 T. C. 28; Lemuel Alexander Carmichael, 14 T. C. 1356, decided this day, followed.

1. Overstatements of travel expenses in returns filed by a Transcontinental & Western Air, Inc, pilot held not shown on the evidence to have been false and fraudulent with intent to evade tax. 2. Petitioner's actual expenses of foreign travel held not less than his per diem allowance.

Held, that petitioner did not file a false and fraudulent tax return. Held: that petitioner did not file a false and fraudulent tax return.

Held, since there were no powers granted to or exercised by the trustee, or depositor, or both combined, beyond those which are incidental… Held: since there were no powers granted to or exercised by the trustee, or depositor, or both combined, beyond those which are incidental to the preservation of trust property, the collection of income therefrom and its distribution to the holders of trust certificates, the trust involved is not an association taxable as a corporation…

1. Where petitioner, a nonresident alien author, not engaged in trade or business in the United States, assigned to his wife the right to… Held: the entire payments received from the transfer are income to petitioner. 2. Where petitioner received lump-sum payments for the American and Canadian serial rights to certain of his literary works, held, the amounts received for the American rights are includible in his income under section 211 (a) of the Revenue Act of 1938. 3.