Volume 14 — Tax Court Memorandum

1949 - Petitioners failed to file return. Failure was due to fraud with intent to avoid tax. Fraud and delinquency penalties imposed. 1950 - Petitioners failed to file a timely return. Delinquency penalty imposed.

Held, the record does not establish a certain alleged bad debt became worthless in the taxable year.

Held, upon the facts and upon petitioners' failure to meet their respective burdens of proof, that the respondent is sustained with… Held: upon the facts and upon petitioners' failure to meet their respective burdens of proof, that the respondent is sustained with respect to application of (a) negligence penalties under the provisions of section 293(a) of the Internal Revenue Code of 1939; (b) penalty for failure to file declaration of estimated tax under the provisions…

Section 23(a)(1)(A). - Travel Expense - Temporary Employment. Held: that employment of J. P. Selby in Milan, Tennessee, was temporary and that expenses of lodging and meals in Milan are deductible under section 23(a)(1)(A), 1939 Code, as traveling expenses. Held, further, that automobile expenses were personal and are not deductible, section 24.

Employees' trust: Distribution of annuity contract in year not exempt under section 165(a): Regulations 111 - section 29.165-6. - The fair market value of an annuity contract, or contracts, being at least the amount of each petitioner's retirement credit in an employees' trust which was used in the payment of the advance premium of each contract, which annuity contract was delivered to and retained by each petitioner, is taxable income to each petitioner under section 22(a).

1. Held, respondent was justified in resorting to the net worth method for reconstructing petitioner's income for the years involved. 2. Held, respondent's net worth computation for 1947, affirmed. 3. Held: respondent was justified in resorting to the net worth method for reconstructing petitioner's income for the years involved. 2. Held, respondent's net worth computation for 1947, affirmed. 3. Respondent's imposition of fraud penalties for the years involved sustained. 4.

1. There was no appearance or evidence presented on behalf of petitioner. No issue as to limitations was raised by petitioner. Held: that petitioner has failed to meet the burden of proof with respect to deficiencies in income tax (not including additions to the tax consisting of fraud penalties). 2. Held, further, that part of each deficiency was due to fraud with intent to evade tax.

Petitioner Harry L. Garvin was a partner with some other members of his family in a business which was operated under the name of Polar Bear Ice & Coal Company. In 1946, these partners organized another partnership to construct and operate another business to be known as Garvin's Quick Frozen Products Company. They had an oral agreement among themselves that each would not invest permanently more than $5,000 in the business and that when construction was finished they would mortgage the property for enough to reimburse themselves for all they had expended in excess of $5,000 each. The cost of construction far exceeded what they had planned and when construction was completed and Garvin's Quick Frozen Products Company was ready to begin business, the partners had expended $91,940.77. They operated the business for awhile as a partnership. On October 20, 1947, Garvin's Quick Frozen Products Company was incorporated under the laws of Georgia and all of the assets of the partnership were transferred to it. There is no evidence to show that the corporation ever agreed to assume and pay as a debt to the former partners, who became the stockholders, any part of the $91,940.77 which the partners had originally expended in the business. Held, the corporation was not indebted to its stockholders for any part of the advancements of $91,940.77. The entire amount represented capital investments in the business and petitioners are not entitled to a deduction for a charge-off in 1949 as representing partial worthlessness of the alleged debt.

Respondent determined unreported net profits from petitioner's business for each of the taxable years 1942 through 1946. Held: that some part of each of the deficiencies determined by respondent was due to fraud with intent to evade tax. 2. Held, further, that petitioner failed to establish that his failure to file returns in 1945 and 1946 was due to reasonable cause and not to wilful neglect. 3.

Petitioner owned 23 residential properties at the beginning of 1944 and purchased 78 additional residential properties during the years 1944 through 1947. Held: on the facts, that these houses were held for sale whenever a profitable price could be obtained, and the gain derived from their sale is taxable as ordinary income.

Held, certain property sold by petitioner in the taxable year constituted capital assets and was not held for sale primarily to customers in the ordinary course of his trade or business.

Held, respondent failed to prove that petitioner's return for 1943 was fraudulent with intent to evade tax. Assessment and collection of any deficiency is, therefore, barred by the statute of limitation since more than three years elapsed from the filing of the return and the mailing of the deficiency notice.

Petitioners claimed they filed individual returns for 1947 and a joint return for 1949. Held: petitioners filed no returns for 1947 and 1949, nor did they make payments on declaration of estimated tax for 1947 and 1948, and the deficiencies for 1947, 1948, and 1949, as determined by respondent (with minor concessions made by him), are upheld. 2.

From September 1943 to September 1952, petitioner's only employment was outside of the United States. He returned approximately at two-year intervals only for vacations. Held: petitioner was a bona fide resident of Saudi Arabia during the year 1948 within the meaning of section 116(a) of the Internal Revenue Code of 1939.

Respondent determined that petitioners had failed to report in their respective returns for the years 1944 through 1950 the income earned by petitioner, Samuel Guralnick, from his slot machine… Held: petitioner, Samuel Guralnick, received unreported income but incurred additional ordinary and necessary business expenses which were not taken into account by respondent in computing the deficiencies herein, and the deficiencies must be adjusted accordingly. 2.

During the taxable years 1944 through 1947 petitioner was the proprietor of a liquor store. Held: deficiencies for each of the taxable years (with some adjustments) properly determined by using the net worth method. Held further, at least part of the deficiency for each of the taxable years was due to fraud with intent to evade tax and the statute of limitations has not run on any of those years.

Petitioner corporation made payments to the widow of a deceased employee from the date of such employee's death on September 10, 1944, to and throughout the year 1950. Held: payments made by the petitioner from 1948 to 1950, inclusive, were not deductible by it as ordinary and necessary business expenses under section 23(a) of the Internal Revenue Code of 1939 or the provisions of section 29.23(a)-9 of Regulations 111.

Petitioners' books and their returns prepared therefrom for the years 1943 to 1947, inclusive, showed gross profit margins on retail liquor sales substantially less than the average for similar… Held: petitioners received substantial amounts of additional unreported income during each of the years 1944 to 1950, inclusive. 2. Held, further, the deficiencies resulting therefrom for such years were due in part to fraud with intent to evade tax. 3.

Held, the petitioners have not shown that they furnished over one-half of the support of the wife's mother for the year 1949. Held: the petitioners have not shown that they furnished over one-half of the support of the wife's mother for the year 1949.

Held: The alleged dependent did not, during the years involved, receive over half of her support from petitioners, and petitioners are, therefore, not entitled to dependency credits for her in such years. Section 25(b)(3), Internal Revenue Code of 1939.

Respondent determined deficiencies and penalties for fraud on the basis of a net worth computation of petitioners' income. Held: petitioners only reported approximately 22 per cent of their income in 1947 and 65 per cent in 1949.such understatements were due to fraud with intent to evade tax.

During each of the taxable years 1943 through 1947 Dr. Milton J. Stern fraudulently understated his receipts from the practice of medicine. In addition he failed to report income from optical rebates, rent, and interest. Further, he deducted farm losses and took credit for dependents to which he was not entitled. He also falsified records in order to get long-term capital gains. Held: Respondent correctly determined Dr. Stern's taxable income for the years 1943 through 1947. Held further: A part of the deficiency determined for each of the years under review is due to fraud with intent to evade tax.

Estate tax. - Fair market value of shares of stock in closely held corporation determined.

Held, in 1949 and 1950, petitioner operated a farm for the purpose of making a profit but realized net operating losses in both years, which are fully deductible on his returns for such years.

1. Petitioner, William C. Byers, was president and majority stockholder of a corporation. Held: this was a nonbusiness bad debt and petitioners' relief is limited to the provisions of section 23(k)(4) of the Code. 2. Petitioners claimed a deduction for unreimbursed expenses incurred in moving to another locality to accept new employment. Held, such expenses are nondeductible personal expenses. 3.

Held: 1. Deficiencies determined by net worth and expenditures method sustained with minor adjustments. 2. Returns were false and fraudulent with intent to evade tax. Held: Deficiencies determined by net worth and expenditures method sustained with minor adjustments. 2. Returns were false and fraudulent with intent to evade tax.

Respondent erred in holding that the gains arising from certain sales of property are taxable as ordinary gain rather than as gain from the sale of capital assets.

Deficiencies determined in the taxable income of taxpayer engaged in business as a bookmaker, approved for failure of proof of error.

1. The income tax returns filed for 1946 and 1947 were separate returns of the husband, not intended as joint returns of the petitioners. 2. Where the husband, a deputy collector of internal revenue, claimed an exemption for his wife in his separate returns for 1946 and 1947 with the knowledge that she had received income in each of those years, the exemptions are disallowed, there are deficiencies in his income tax for each of those years, and at least a part of the deficiency for each year was due to fraud with intent to evade tax. 3. Where the joint return for 1948 of a deputy collector of internal revenue and his wife failed to disclose income of the wife, a deficiency was properly determined and a part of the deficiency was due to fraud with intent to evade tax.

From March 1949 to December 31, 1950, petitioner was employed as controller of a corporation whose offices were in Galion, Ohio. Held: deductions claimed by petitioner were nondeductible personal expenditures within the meaning of section 24(a)(1) of the Internal Revenue Code of 1939.

From 1940 to 1947, inclusive, petitioner received income from a hauling and construction business, a motor service company, farms, and rental property. Held: petitioner's understatements of income for the years 1940 to 1947, inclusive, were due to fraud with intent to evade tax; and assessment and collection of the deficiencies are, therefore, not barred by the statute of limitation.

In 1949, during an investigation of petitioners' income tax liability, the respondent's agents were shown by petitioners the contents of their safe-deposit box, an accumulation of currency in small… Held: That respondent was justified in resorting to the net worth method in determining taxable income. (2) That he erred in not allowing some amount for pre-1942 undeposited cash savings.

On their joint return for 1946, petitioners reported net income of $2,442.58. Held: Respondent's use of the net worth method was appropriate in this case but his computations were erroneous in the particulars noted. Petitioners understated net income for 1946 by $15,078.12. [1939 Code Sec. 293(b) - substantially unchanged in 1954 Code Sec. 6653(b)] 2.

Held: Upon the cancellation by a corporation of a debt owed by the taxpayer to the corporation, petitioner received taxable income. Held: Upon the cancellation by a corporation of a debt owed by the taxpayer to the corporation, petitioner received taxable income.

Taxpayer was in the business of buying cattle for slaughter and selling the dressed meat at wholesale. Held: on the facts, respondent's action in increasing petitioner's sales was arbitrary and erroneous. Petitioner's sales and the allowable amounts of certain deductions determined. 2. Petitioner reported income for the fiscal year beginning May 1, 1944, and ending April 30, 1945.

Held, petitioners had a debt against Armand Markwordt with whom petitioner Robert W. DePuy had been engaged in joint ventures in 1944, 1945, and 1946, and this debt became worthless in 1948. Held: petitioners had a debt against Armand Markwordt with whom petitioner Robert W. DePuy had been engaged in joint ventures in 1944, 1945, and 1946, and this debt became worthless in 1948.

Petitioner installed appliances as a subcontractor. Held: that petitioner incurred and paid expenses for labor, in addition to other expenses for labor and materials, which are deductible as ordinary and necessary business expenses under section 23(a)(1)(A) of the 1939 Code. The amount of the expenses for labor is determined upon the evidence.

Held, on the facts, that the mother furnished more than one-half of the support of her two children and therefore she is entitled to claim dependency credits for them. Held: on the facts, that the mother furnished more than one-half of the support of her two children and therefore she is entitled to claim dependency credits for them.

1. Held, petitioner's income for each of the taxable years (with some adjustments) properly determined by using the net worth method. [1939 Code Sec. 293(b) - similar to 1954 Code Sec. 6653(b)] 2. Held: petitioner's income for each of the taxable years (with some adjustments) properly determined by using the net worth method. [1939 Code Sec. 293(b) - similar to 1954 Code Sec. 6653(b)] 2.

Held, gifts by decedent-donor, Lloyd C. Douglas, within 3 years of his death, were not in contemplation thereof. Held: gifts by decedent-donor, Lloyd C. Douglas, within 3 years of his death, were not in contemplation thereof.

Petitioner was principally engaged in buying, selling and renting automobiles, trucks, farm machinery, automotive parts, and equipment. In addition, it invested funds in commercial real estate, stocks, oil leases, and made loans to its president and his relatives. The president of the company owned over 97 per cent of the company's stock. During 1949 and 1950, petitioner had substantial earned surplus and net income after taxes, but no dividends were paid to stockholders. 1. Held, on the facts, that earnings or profits were permitted to accumulate during 1949 and 1950 beyond the reasonable needs of the business within the meaning of section 102(c), Internal Revenue Code, 1939. 2. Held further, that petitioner was availed of during the years in question for the purpose of avoiding surtax upon its shareholders within the meaning of section 102, Internal Revenue Code, 1939.

Petitioner, the proprietor of a smalltown general store and other enterprises, hired, in 1907, an employee to whom he entrusted the management of the business, including the maintenance of all of petitioner's books and records, until the manager's death in 1950. Petitioner had complete confidence in him and personally took no part in the keeping of the books and records or in the preparation of the income tax returns. Although most of petitioner's income was initially listed in one of the various books of original entry, the lack of proper control accounts caused failure to report substantial amounts in petitioner's income tax returns. Held, on the facts, none of the returns were fraudulent and no part of the deficiencies was due to fraud with intent to evade tax. Held, further, the deficiencies for 1940 and for the years 1942 through 1944 are barred by the statute of limitations. Held, further, the deficiency for 1946 is not barred by the statute of limitations, since petitioner omitted from gross income in that year more than 25 per cent of the gross income stated in the return. Held, further, the deficiencies for the years 1945 through 1949 are increased on the basis of the increased income for those years conceded by petitioner. Held, further, the deficiencies for each of the years 1945 through 1949 were due at least in part to negligence.

Petitioners failed to prove that loans amounting to $41,419 became worthless during the taxable year ended December 31, 1948, and accordingly are not entitled to a deduction either for a business bad debt under section 23(k)(1), Internal Revenue Code of 1939, or a nonbusiness bad debt under section 23(k)(4).

Deficiencies exist for each of three taxable years in controversy because of failure to report income from business and because of the disallowance of certain deductions. Held: 1. Held: Part of the deficiency in each year is attributable to fraud with intent to evade tax. Fraud penalty determined. 2. Petitioner not entitled to depreciate an agreement not to compete because it is not severable from good will and a separate value cannot be assigned to it. 3.

Deficiencies occur in each of two taxable years involved because unsubstantiated expenses are disallowed. Held: 1. Part of the deficiencies in each year is due to fraud with intent to evade taxes. 2. Held: Part of the deficiencies in each year is due to fraud with intent to evade taxes. 2. Delinquency penalty is approved for each year for failure to file timely returns.

Held: On the facts, petitioner is not entitled to take deductions for depreciation of assets transferred to it in 1940 for capital stock or to include the value of those assets as… Held: On the facts, petitioner is not entitled to take deductions for depreciation of assets transferred to it in 1940 for capital stock or to include the value of those assets as property in the computation of equity invested capital under section 718(a)(2), Internal Revenue Code of 1939.

1. Held, that petitioner failed to file an income tax return for the taxable year 1941 and is subject to delinquency penalties under section 291(a), I.R.C., 1939. 2. From 1941 until mid-1947, petitioner was a partner in a tavern business. He maintained two sets of books for the business, one for tax purposes and the other for partnership purposes. The state sales tax returns filed for some of the years in issue reported gross sales in excess of that reported in the partnership income tax returns for the same years. There were also gross understatements of petitioner's income from the partnership in each of his individual returns filed for 1942 through 1947. Held, that respondent has established by clear and convincing evidence that there were deficiencies in tax for each of the years 1941 through 1947 due in part to fraud with intent to evade tax. 3. In September 1947, petitioner became the sole proprietor of the tavern business which he operated through 1949. Held, that respondent has not met his burden of proving that any part of the deficiencies for the tax years 1948 and 1949 were due to fraud with intent to evade tax. Held, further, that the determinations of deficiencies by respondent for the years 1948 and 1949 are presumed to be correct, and that petitioner has failed to meet the burden of proving that such determinations were erroneous.

1. Petitioners filed a final income tax return for 1948 in January 1949. Held: the statute of limitations began to run on March 15, 1949, and the consent agreements executed within the permissible period for assessment extended such period until June 30, 1954. Respondent's notice of deficiency was timely sent. 2. Williams' practice of law consisted largely of insurance adjusting.

1. The Commissioner has determined deficiencies in petitioner's income tax for the years 1943, 1944, 1945, 1946, and 1947. Held: under the circumstances the Commissioner's method is approved.

Sec. 23(a)(1)(A), 1939 Code - Compensation for services: Upon the facts, reasonable allowance for compensation for present and past services determined.

Upon the facts, held: 1. [Reconstruction of income: Net worth method.] Respondent was not justified in reconstructing petitioner's taxable net income by use of the net worth method. 2. Held: [Reconstruction of income: Net worth method.] Respondent was not justified in reconstructing petitioner's taxable net income by use of the net worth method. 2. Fraud penalties disallowed.

1. Held, the Commissioner properly determined petitioners' net income, except for failing to make any allowance for depreciation for the… Held: the Commissioner properly determined petitioners' net income, except for failing to make any allowance for depreciation for the years 1942 through 1945, in each of the taxable years involved. 2. Held, at least part of the deficiency in each of the taxable years 1942 to 1945, inclusive, was due to fraud with intent to evade tax. 3.

Held, deficiencies determined on the basis of a net worth computation are sustained, with adjustments for certain errors in the computation. Held: deficiencies determined on the basis of a net worth computation are sustained, with adjustments for certain errors in the computation.

1. In 1949, petitioner placed bets of several hundred thousand dollars with a bookmaker for himself and for one Luke Smith. Held: petitioner received $40,150 of additional gambling income in 1949 which was fully taxable to him in that year. 2. In 1950, an experienced accountant kept petitioner's books. Petitioner owned and operated a racing stable and bought and sold horses.

During the taxable year, petitioner and another corporation each held 50 per cent of the outstanding capital stock of Kinmore, a corporation organized by them to build and operate a $100,000 motion… Held: all sums advanced by petitioner to Kinmore were capital contributions.

Advances made by taxpayer to two corporations in which he was a substantial or controlling stockholder were capital contributions and losses attributable to these advances were capital losses.

1. Held: As petitioners failed to sustain their burden of proof the deficiencies (with some adjustments) for the years 1947 through 1950 are… Held: As petitioners failed to sustain their burden of proof the deficiencies (with some adjustments) for the years 1947 through 1950 are sustained. 2. Held: Respondent failed to establish fraud by clear and convincing evidence. Accordingly petitioners are not liable for the additions to tax asserted for the years 1947 through 1950. 3.

Held, that the fair market value of 106 shares of stock of Journal-Tribune Publishing Company, representing a minority interest in a closely owned publishing corporation, was $2,200 per share as of… Held: that the fair market value of 106 shares of stock of Journal-Tribune Publishing Company, representing a minority interest in a closely owned publishing corporation, was $2,200 per share as of the applicable valuation date.

Held: The deficiency asserted for 1948 is sustained. 2. Held: The deficiency asserted for 1947 is sustained. 3. Held: The deficiency asserted for 1948 is sustained. 2. Held: The deficiency asserted for 1947 is sustained. 3. Held: Petitioners understated taxable net income for 1945 with intent to evade tax and are liable for the deficiency and addition to tax imposed therefor. 4.

Petitioner was engaged in the business of unloading ships at docks of the City of New York. Held: that extortion payments are not deductible under section 23(a)(1)(A) of the 1939 Code, or under any other provisions; that the evidence establishes the amounts accrued in the taxable year for trucking expense; that trucking expense was an ordinary and necessary expense of petitioner; that petitioner had failed to prove that certain…

Held, upon the facts: (1) The amounts paid by petitioner in 1947 and 1949 for business expenses. Held: upon the facts: (1) The amounts paid by petitioner in 1947 and 1949 for business expenses. (2) That a nonbusiness debt owing to petitioner became worthless before 1947. (3) That petitioner's failure to file a return for 1947 was due to wilful neglect and a 25 per cent penalty is due under section 291(a), 1939 Code.

Held, that respondent has established by clear and convincing evidence that there were deficiencies in tax for each of the years in question due in part to fraud with intent to evade tax. Held: that respondent has established by clear and convincing evidence that there were deficiencies in tax for each of the years in question due in part to fraud with intent to evade tax.

Final return for 1943, although not signed by wife but containing all the income and taking all the deductions of the marital community, held a joint return of husband and wife.

Amount paid by petitioner in the taxable year in satisfaction of a personal obligation under an indemnity agreement held deductible under sec. 23(e)(2), I.R.C. of 1939, as a loss incurred in a transaction entered into for profit.

Held, on the facts, that petitioners have not sustained their burden of establishing that they furnished over half of the support for… Held: on the facts, that petitioners have not sustained their burden of establishing that they furnished over half of the support for two minor children whom they claimed as dependents; and accordingly that they are not entitled to dependency exemption credits under section 25(b) of the Internal Revenue Code (1939) in respect of either of…

From 1942 to 1947, inclusive, petitioners received income from a number of businesses. They also received second trust notes upon the sale of property owned by them. Held: respondent's reconstruction of petitioners' income by the net worth method is approved except that second trust notes are to be included in such computation at their fair market value rather than at their face value.

1. The Commissioner determined deficiencies in the income tax of the petitioners using the bank deposits method. The Commissioner also disallowed certain deductions and dependency credits and included as long-term capital gains in the taxable income of two of the petitioners for the year 1943 the full amount realized on the sale of their tractors and trailers. Held, petitioners failed to sustain their burden of proving error in the deficiencies as determined. 2. The Commissioner determined additions to tax for failure to file returns or, in one instance, a timely and properly executed return. Held, petitioners failed to prove that they were not liable for the additions to tax. 3. Held, the amount of the earned income credit to which two of the petitioners were entitled in 1943 is determined. 4. Held, the Commissioner failed to prove by clear and convincing evidence that any part of the deficiency of any of the petitioners in any of the taxable years was due to fraud with intent to evade tax. Held further, two of the petitioners are entitled to the benefits of section 6 of the Current Tax Payment Act of 1943.

1. In 1942, C. Gilbert Taylor and his father executed agreements establishing a partnership, Aircraft, to which they both contributed capital and services. Held: on the facts, petitioner and his father intended, in good faith, to join together for the present conduct of Aircraft's business as partners with an equal interest in Aircraft's profits. 2.

Petitioner was paid $8,000 after the death of her husband by his former employer. Held: upon the facts, that the payment to petitioner was not compensation for services rendered to the payor; it was a gift; it is excludable from gross income under section 22(b)(3) of the 1939 Code.

Respondent sustained for failure of proof of error.

1. The respondent determined the petitioners' taxable net income for each of the years 1942 to 1946, inclusive, by the net worth plus expenditures method. Held: the use of the net worth plus expenditures method is approved. Held, further, the petitioners' taxable net income for each of the years 1942 to 1946, inclusive, determined.

Upon the evidence, held: (1) That the petitioner realized taxable income in each of the years 1944 and 1945 in the amounts determined by the respondent, which he… Held: That the petitioner realized taxable income in each of the years 1944 and 1945 in the amounts determined by the respondent, which he failed to report in his income tax returns. (2) That the petitioner is not entitled to deductions, as business expenses, for alleged payments of fines for traffic violations.

Upon the facts, held, that in the years 1948 and 1949 petitioner contributed more than one-half of the cost of the support of his two children; for the year 1950 he did not contribute more than… Held: that in the years 1948 and 1949 petitioner contributed more than one-half of the cost of the support of his two children; for the year 1950 he did not contribute more than one-half toward the support of the two children.

Petitioner, a bookmaker, employed clerks who listed on daily sheets the details of each bet accepted. Held: on the facts petitioner has not established that the losses recorded in his record were actually sustained; the amount of losses actually sustained determined. Held, further, no part of any deficiency is due to fraud with intent to evade tax.

1. The accuracy of various items in respondent's net worth statement used in determining the income of Charles and Leta Laity for the years 1947 through 1949, determined and corrected. [1939 Code Sec. 293(a) - similar to 1954 Code Sec. 6653(b)] 2. No part of the deficiences for the years 1947 through 1949 was due to negligence or to the intentional disregard of rules and regulations.

Petitioner was employed as manager of a cottonseed oil mill in 1945 of which R. R. Tipton was a stockholder and director. Tipton wanted to build a mill for dehydrating and processing alfalfa hay into meal. He induced petitioner to leave his employment in September 1945 and to draw plans for and to supervise the construction and operation of the alfalfa mill. Petitioner and Tipton agreed, orally, that petitioner was to receive $300 a month plus 50 per cent of the profits of the alfalfa mill. Tipton advanced the money to construct and equip the mill. The management of the business and the income therefrom were under the complete control of Tipton. In 1946 Tipton had his attorney draft a purported partnership agreement and other legal papers which petitioner signed as a partner at the request of Tipton. Petitioner never received a share of the profits of the business. He was paid a salary, only. In December 1948, Tipton represented to petitioner that the business was "broke," and he offered to pay petitioner $12,500 for whatever interest petitioner had in the business or profits if he would "get out." Petitioner accepted the offer and terminated his association with the business on December 7, 1948. Held, Tipton, acting in good faith and with a business purpose, did not intend to form a partnership with petitioner. The business of the alfalfa mill was not conducted by Tipton and petitioner as partners during the period from October 1945 through December 7, 1948. Held, further, that petitioner was an employee of Tipton on a salary and profit sharing basis; and that the payment which petitioner received upon termination of his employment constituted additional compensation for his services.

Upon the evidence, held: (1) That the petitioner is entitled to a nonbusiness bad debt deduction in the amount of $600. Held: That the petitioner is entitled to a nonbusiness bad debt deduction in the amount of $600. (2) That the petitioner is entitled to a deduction in the amount of $1,016.95 for depreciation of certain rental real estate owned by him.

Upon the evidence, held, that petitioner realized unreported income in 1947 and 1948 in amounts determined by respondent, and that at least part of each deficiency is due to fraud under section… Held: that petitioner realized unreported income in 1947 and 1948 in amounts determined by respondent, and that at least part of each deficiency is due to fraud under section 293(b), 1939 Code.

1. The Commissioner's statutory notices asserting transferee liability against petitioners were mailed more than four years after the filing of the alleged transferor's tax returns. Held: The stipulation constituted an admission by petitioners of the alleged transferor's deficiencies and fraud.

1. During the taxable years, the petitioner was a partner in several partnerships which engaged in the placing of wagers on horse races… Held: on the facts, (a) the petitioner has not established that the betting losses sustained by one of the betting partnerships, Rozman, were correctly set forth in the partnership records; the amount of losses sustained by Rozman determined; (b) the petitioner has not established that K.F. and P., another betting partnership, sustained…

1. During the taxable years the petitioner was a partner in several partnerships which engaged in the placing of wagers on horse races… Held: on the facts, (a) the petitioner has not established that the betting losses sustained by one of the betting partnerships, Rozman, were correctly set forth in the partnership records; the amount of losses sustained by Rozman determined; (b) the petitioner has not established that Maylan, another betting partnership, sustained any of…

The petitioners and their brother, B. B. Malouf, acquired control of a large tract of undeveloped acreage in the City of Burbank, California, in 1940 and 1941. Held: upon the facts, the acreage sold to the School District was a capital asset, under the provisions of section 117(a)(1) of the 1939 Code, and the gain realized by the petitioners upon the sale was long-term capital gain.

1. Broadway Drug, Inc. was incorporated in Arkansas in 1937. Petitioner acquired the corporate charter in 1938. The corporate organization was not perfected. Held: Broadway Drug, Inc., Dissolved, is taxable as a corporate entity only for the period January 1, 1939 through April 9, 1941, and after April 9, 1941, it did not become an association taxable as a corporation.

Certain advances made by petitioners to Rosario Syndicate held to be loans, and losses from the worthlessness of such loans are properly deductible as nonbusiness bad debts. Section 23(k)(4), Internal Revenue Code of 1939.

1. Amount of unreported income of petitioner in each of the years 1948 through 1951 determined. 2. Propriety of certain deductions claimed in various of the years 1948 through 1951 determined. 3. Held: Some part of the deficiency in each of the years 1948 through 1951 was due to fraud with intent to evade tax.

1. Where respondent's net worth computation failed to take into consideration substantial loans to petitioner by his father during the years in question and was based in part on other figures inconsistent with the stipulation, the deficiencies as determined were incorrect and corrected deficiencies are determined. 2. None of the deficiencies was due to fraud with intent to evade tax.

1. Respondent determined a deficiency in petitioner's 1943 income tax and also asserted a fraud penalty. The 1943 deficiency included, pursuant to section 6(a) of the Current Tax Payment Act of 1943, 25 per cent of a deficiency determined in petitioner's 1942 tax. Petitioner's 1943 return was filed more than three years prior to the mailing of the deficiency notice. Petitioner did not assign error to the 1943 and 1942 deficiency determinations themselves but based his case entirely on the bar of the 3-year statute of limitations. Held, respondent has proved that certain items of income with which petitioner was taxable in 1943 were omitted from his return. However, respondent has not proved by clear and convincing evidence that such omission was due to fraud with intent to evade tax. Held, further, that the 3-year statute of limitations provided by section 275(a), Internal Revenue Code of 1939, bars assessment of the deficiencies determined by respondent against petitioner for 1943. 2. Held, that an alleged partnership between petitioner, his stepson and brother-in-law, organized to operate two liquor stores and a drive-in restaurant, was not a bona fide partnership and was not recognizable for tax purposes and that the net profit therefrom in 1944 and 1945 was taxable entirely to petitioner. Respondent, however, failed to prove (except for minor amounts in 1945) that additional deficiencies asserted in his amended answer, based upon understatements of reported sales and purchases of one of the liquor stores, were due from petitioner in 1944 and 1945. 3. Even though petitioner either gave or loaned his stepson the money invested by the latter in a joint venture to run a hotel, petitioner was neither connected with, nor exercised control over, the venture or the income therefrom. Such income was received by the stepson and dealt with as wished by him. Held, petitioner's stepson was the actual participant in the joint venture and respondent, therefore, erred in determining that the income therefrom was taxable to petitioner in 1945. 4. Held, petitioner was engaged in the trade or business of farming in 1945 and, since the expenses incurred therein were deductible business expenses, respondent erred in disallowing the farm loss claimed by petitioner in his 1945 return. 5. Included in petitioner's 1944 return (filed in 1945) was a statement indicating that it was incomplete. Any omissions of income by petitioner from his returns for 1944 and 1945 were not due to fraud with intent to evade tax. Held, no part of the deficiencies for 1944 or 1945 was due to fraud.

On March 15, 1951, a joint individual income tax return was filed with the Collector of Internal Revenue of Los Angeles, California, by petitioner and his then wife. Held: the petitioner and his wife, Frances S. Ostler, were husband and wife on December 31, 1950, and were entitled to file a joint return. Marriner S. Eccles, 19 T.C. 1049, followed.

Losses: Embezzlement losses: "Not compensated for by insurance or otherwise." - The taxpayer's collection agent confessed in 1950 that he had "juggled" his accounts in the previous year. The loss was determined to be $13,875.73. The taxpayer brought suit against an insurer of a $10,000 indemnity bond and eventually settled out of court in 1954 for $5,800. In 1950 his agent delivered to him a second mortgage on his home for $4,000 and paid it in 1952. Since the amount of the indemnity bond plus the fair market value of the second mortgage exceeded the amount of the embezzled loss, held, that the loss was not deductible in 1950, the year of discovery, because the amount deductible should be the amount "not compensated for by insurance or otherwise."

Petitioners purchased for $11,000 certain property which was being leased to a corporation which they controlled. Held: the corporation furnished no part of the consideration for the purchase and the transaction did not result in the receipt of taxable income by the petitioners.

Held, deficiencies determined using the net worth method upheld in part. Held further, 25 per cent additions to tax for failure to file returns upheld. Held: deficiencies determined using the net worth method upheld in part. Held further, 25 per cent additions to tax for failure to file returns upheld. Held further, respondent has failed to show that part of the deficiencies was due to fraud with intent to evade tax.

Held: 1. The judgment in Franklin Flato, 14 T.C. 1241, affd. 195 Fed. Held: The judgment in Franklin Flato, 14 T.C. 1241, affd. 195 Fed. (2d) 580, sustaining the taxability of trust income to the beneficiaries under section 22(a), I.R.C. (1939), and not to the trusts, constitutes a bar to the present proceedings involving the same trusts under the principle of collateral estoppel.

In 1938, petitioner inherited a one-half interest in certain real property located in the downtown section of Los Angeles. to a 99-year lease on the property, made in 1924, petitioner is entitled to receive annual rental payments of $120,000 until the year 2023 for her inherited one-half of the property. 1. Held, the premium value of this lease is a depreciable capital asset which will be fully exhausted by the year 2023. 2. Held, further, the fair market value of this capital asset in 1938 was $1,000,000.

1. Petitioner was the proprietor of a retail jewelry store during the taxable years 1939 through 1948. Held: that net income was properly determined by use of the increase in net worth plus nondeductible expenditures method. Held further, that there is a deficiency in income tax for each of the taxable years due in part in each year to fraud with intent to evade the tax. 2.

Petitioner Harlan E. McGregor, on January 19, 1950, purchased a farm in Maryland. There was included in the purchase 218 acres of land, certain improvements, equipment, and the landlord's interest in some tobacco, corn, wheat, and soybeans which were harvested in 1949 and which were still stored on the premises. The total purchase price of $14,206.55 was not allocated by the buyer and the seller between the several items included in the sale. The petitioner and the Commissioner differ on the proper allocation which is to be made. Under the evidence, the Court finds the allocation which should be made. Held, depreciation on the depreciable property should be computed on the allocated cost found in the allocation. The remaining useful life of the depreciable assets is as determined in the deficiency notice. Held, further, petitioner had no gain or loss on the sale in the taxable year of the prior year's crops stored on the farm. As to this adjustment the Commissioner is sustained.

Petitioner's decedent devised his residuary estate in trust. Held: that no part of the transfer in trust qualifies for a marital deduction within the meaning of section 812(e)(1)(F) of the Internal Revenue Code of 1939.

1. Held: Income derived from the operation of a restaurant by petitioner was her income and not that of the Church organization to which she contributed it. 2. Held: Part of amounts contributed to a Church organization by petitioners was not deductible as contributions to a religious organization, since the Church was not organized and operated exclusively for religious purposes within the meaning of section 23(o), Internal Revenue Code of 1939. 3. Held: Dependency exemption for petitioner's mother disallowed, since her support was received from the Church.

1. Held: The individual return filed by A. J. Mandt for the year 1944 and the joint return filed by A. J. Mandt and Ola Fae Mandt for the year 1945 were not false or fraudulent returns with intent to… Held: The individual return filed by A. J. Mandt for the year 1944 and the joint return filed by A. J. Mandt and Ola Fae Mandt for the year 1945 were not false or fraudulent returns with intent to evade tax.

Held: The amount of $131,670.16 designated on the corporation's books as an account payable to stockholders was a bona fide obligation of petitioner. Held: The amount of $131,670.16 designated on the corporation's books as an account payable to stockholders was a bona fide obligation of petitioner.

1. Value of farm land and cattle determined for gift tax purposes. 2. Petitioner C. H. Cullers failed to prove a lower valuation for a hospital that he gave to his wife in 1933.

From 1941 to 1946, inclusive, petitioner's income was derived from extensive gambling activities. He kept no books and records. Held: the deficiencies for each of the years in issue were due to fraud with intent to evade tax. Held, further, petitioner's failure to file a timely income tax return for 1942 was not due to reasonable cause.

Held, petitioner's reinsurance reserve in the amount of $27,701.25, accumulated from June 1, 1938 to May 31, 1945, is properly… Held: petitioner's reinsurance reserve in the amount of $27,701.25, accumulated from June 1, 1938 to May 31, 1945, is properly includible in computing the reinsurance reserve to be deducted from its underwriting income in the year 1945 since, pursuant to the New York Insurance Law, as amended, such sum constitutes unearned premiums within…

Petitioner's wife instituted a suit against him for separate maintenance in connection with which she asked the court to enjoin petitioner from transferring his… Held: that the amounts paid by the petitioner under the decrees of the court are nondeductible under section 23(u), I.R.C. of 1939. Held, further, that the court costs and counsel fees incurred by petitioner on his own behalf in defense of the suit are not deductible as nonbusiness expenses under section 23(a)(2).

1. Petitioner corporation was a retail furniture dealer which made cash and installment sales. It made some sales at wholesale, most of which were at cost. Held: its realized profit is to be computed by multiplying the sum of the cash and installment sales collections (excluding wholesale sales) by the percentage of gross profits computed also by excluding wholesale sales. 2.

Issue 3. Upon the facts, held, that petitioner, Charles S. Weil, during 1947, contributed more than one-half of the support of each of the two children of himself and Beulah Weil and is, therefore, entitled to two dependency credits under the provisions of section 25(b)(1)(D) and (b)(3) as they applied to 1947, I.R.C. of 1939.

1. Held, Meyer Overbeck received no taxable income in 1942 or 1945 except interest income in the amount of $697.50 in 1945. 2. Held: Meyer Overbeck received no taxable income in 1942 or 1945 except interest income in the amount of $697.50 in 1945. 2. Held, Meyer Overbeck purchased United States bonds in 1945 with money acquired by him or his deceased wife prior to 1942.

During 1942, petitioner was engaged in the general excavation, hauling, and grading business. Held: respondent has failed to prove by clear and convincing evidence that such deficiencies were due to fraud with intent to evade tax.

Reconstruction of income: Net worth method: Adjustments: Fraud. - The Commissioner by use of the net worth method had reconstructed the income of a taxpayer, whose books were inadequate. In redetermining the amount of cash on hand at the beginning of the taxable year, the Tax Court found a balance of $20,000 kept in a safe deposit box.

Held, petitioner is entitled to deduct various expenses arising out of the operation of certain real property, title to which was held in the name of petitioner's… Held: petitioner is entitled to deduct various expenses arising out of the operation of certain real property, title to which was held in the name of petitioner's wholly-owned corporation, since such corporation engaged in no business activity and is, therefore, to be regarded as a sham for the taxable year 1947.

Held, deficiencies for each of the taxable years (with some adjustments) properly determined using the net worth method. Held: deficiencies for each of the taxable years (with some adjustments) properly determined using the net worth method. Held further, at least part of the deficiency for each of the taxable years was due to fraud with intent to evade tax and the statute of limitations has not run on any of those years.

Petitioner paid $32,000 on July 6, 1944, for a partial assignment of an oil and gas lease dated January 1, 1940, and for a period of five years, and so long thereafter as oil or gas is produced in… Held: the stipulation is a conclusion of law and must be disregarded. Ohio Clover Leaf Dairy Co., 8 B.T.A. 1249, affd. 34 Fed. (2d) 1022, certiorari denied 280 U.S. 588.

Issue 1, Under all of the circumstances of this case and upon the entire record, it is held that the Commissioner was not justified in reconstructing the taxable net income of the petitioner for each of the taxable years at an amount equal to 25 per cent of gross receipts from bettors. Issue 2. Held, that there are no tax deficiencies to which 50 per cent penalties under section 293(b), 1939 Code, attach. Issue 3. Held, that the petitioners are liable for additions to the tax under sections 294(d)(1)(A) and 294(d)(2), 1939 Code, the amounts of which are to be recomputed under Rule 50.

Where a certain sum is paid to and received by the taxpayer (a corporate officer) as salary, it is taxable to him as salary despite an attempt by the owners of the corporation's stock subsequently to convert the payment into a loan from the corporation to such officer.

There was no appearance and no evidence presented on behalf of petitioner. No issue was raised with respect to the statute of limitations. Held: Petitioner has failed to meet the burden of proof with respect to deficiencies determined by respondent. 2. Respondent has sustained his burden of proof with respect to increased deficiencies alleged in his Amended Answer. 3. The deficiency in each of the two years involved was due in part to fraud with intent to evade income taxes.

Held, that the potential value of the common stock of McKay-Reece Company was not extinguished until the sale of the remaining assets of the company in 1943, and that said stock did not become… Held: that the potential value of the common stock of McKay-Reece Company was not extinguished until the sale of the remaining assets of the company in 1943, and that said stock did not become worthless prior to that year.

Held: Reasonable allowances for salaries paid by petitioner to its officers in the taxable years ended June 30, 1948, 1949, and 1950 are not in excess of the amounts allowed by the Commissioner for… Held: Reasonable allowances for salaries paid by petitioner to its officers in the taxable years ended June 30, 1948, 1949, and 1950 are not in excess of the amounts allowed by the Commissioner for those years.

Petitioners, together with other parties, owned 50 per cent of the partnership known as Teaford, Danches and Company. On November 6, 1943, petitioners and such other persons, known as the Teaford faction, collectively entered into a written agreement relating to the sale of their interests to the so-called Danches faction. Upon being apprised of the agreement, the Bank, to which the partnership was heavily indebted, refused to acquiesce in the agreement and insisted upon a new agreement, executed November 18, 1943, providing for the continued existence of the partnership as then constituted until the Bank in its uncontrolled discretion gave its consent to a dissolution or until the indebtedness was retired. The consideration in both agreements was $387,500 over and above capital investment, which amount was stated to be half the estimated partnership profits for 1943. The actual partnership income for the year was somewhat less than estimated. The indebtedness to the Bank was retired some time after 1943. Held: The agreement of November 18, 1943, was intended to and did in fact tacitly revoke and supersede the earlier agreement of November 6, 1943, and was an executory agreement to buy and sell upon the happening of a future contingency, which contingency did not occur in 1943. Held, further, no sale of petitioners' partnership interests having been consummated in 1943, their distributive shares of partnership income as of December 31, 1943, is [are] taxable to them as ordinary income.

Dependency exemptions: Minor daughters of former marriage: Proof of existence. - A father was allowed a dependency exemption for two minor daughters by a former marriage. The Commissioner completely failed to overcome the prima facie proof of the taxpayer as to the existence of the daughters.

Held: Petitioner is entitled to deduct a loss under Section 23(e), I.R.C. of 1939, for expenditures made in a mining venture rather than… Held: Petitioner is entitled to deduct a loss under Section 23(e), I.R.C. of 1939, for expenditures made in a mining venture rather than a capital loss for the worthlessness of stock, where a corporation formed by petitioner for the purpose of raising additional capital for the venture never took title to the properties, never issued any…

Estate tax. - Fair market value of shares of stock in closely held corporation determined.

1. Held: Joseph A. Mundy failed to sustain his burden of proof with respect to the deficiencies determined for the years 1947 through 1951. Held: Joseph A. Mundy failed to sustain his burden of proof with respect to the deficiencies determined for the years 1947 through 1951. Accordingly, those deficiencies (with some adjustments) are sustained. 2.

In 1950, petitioner established a trust for his minor grandson. The trust agreement directed the trustee to distribute the entire net income of the trust estate to the grandson. The agreement also provided that the trustee might distribute all or part of the corpus to the grandson at the trustee's discretion. It also provided that the grandson should have the power to terminate the trust at any time, except that, during his minority, such power was to be exercised only by his legal guardian. No guardian was appointed. Held, the gift of the corpus of the trust was the gift of a future interest within the meaning of section 1003(b)(3) of the 1939 Code. Arthur C. Stifel, Jr., 17 T.C. 647 (1951), affd. 197 Fed. (2d) 107 (C.A. 2, 1952), followed. Held, further, the present interest of the grandson in the income of the trust was incapable of valuation on the date of the gift.

Deductions: Business expenses: Repairs: Nondeductibles: Capital expenditures: Structural improvements in leased property. - Expenditures made by the corporation in 1949 incident to structural changes in the premises which it leased were capital in nature and not deductible as a business expense. The expenditures in 1950 for papering and painting the premises were for repairs and were properly deductible as a business expense.

Held, petitioners' failure to file a declaration of estimated tax for 1950 was due to willful neglect and was not due to reasonable cause. Held: petitioners' failure to file a declaration of estimated tax for 1950 was due to willful neglect and was not due to reasonable cause.

Petitioners were engaged during 1948 in the operation of two retail businesses. Held: petitioners have identified $9,562.62 of these deposits as being from sources which were not income to petitioners in 1948. As to this $9,562.62 the Commissioner is reversed. Held, further, the evidence as to the remainder of the $16,949.54 is not sufficient to overcome the presumptive correctness of the Commissioner's determination.

The petitioner, John D. Robertson, was furnished food and housing by his employer, a California state hospital. Held: that the value of the food and housing, being part of compensation, constituted part of gross income regardless of the fact that the items were furnished for the convenience of the employer. Charles A. Brasher, 22 T.C. 637 followed.

Held, petitioners' failure to file a declaration of estimated tax for the year 1950 was the result of willful neglect and was not due to reasonable cause.

Held, the uncontested deficiencies in petitioner's income tax for the years 1942 to 1947, inclusive, were not due to fraud with intent to evade tax. Held: the uncontested deficiencies in petitioner's income tax for the years 1942 to 1947, inclusive, were not due to fraud with intent to evade tax.

Petitioners were common stockholders in a corporation which distributed cash and property to them in 1949. Held: the total fair market value of the distributions in 1949 is taxable as dividends to stockholders only in an amount equal to the total current earnings or profits of the corporation which were available for distribution to the common stockholders, and the excess is applied against and reduces the basis of the stock in the hands of…

Issue 1: Upon the evidence, it is held, that petitioner has failed to establish that ownership of an interest in certain rental property passed from petitioner to his parents, or to… Held: that petitioner has failed to establish that ownership of an interest in certain rental property passed from petitioner to his parents, or to either one of them, and, therefore, the rental income from the property is taxable to petitioner. Petitioner assigned income only to his parents.

(1) In the circumstances of this case, held, that the Commissioner was not justified in reconstructing gross income from bookmaking operations in an amount equal to 14 per cent of gross receipts from… Held: that the Commissioner was not justified in reconstructing gross income from bookmaking operations in an amount equal to 14 per cent of gross receipts from bettors. (2) Held: Petitioner, A. Schavel, failed to prove that $9,000 of payments received in 1945 was not income.

In March 1951, petitioners Tucker and Silling decided to terminate their association as partners in an architectural firm. The partnership possessed no substantial tangible assets at that time, but was then engaged in certain contracts which the partners believed would produce substantial amounts of income during subsequent years. Petitioners entered into an agreement providing for the payment to Tucker of $24,000 in 1951, $12,000 in 1952, and $4,000 on February 28, 1953. Such payments were denominated in the agreement as Tucker's distributive share of partnership income. The agreement required that Tucker formally sell his interest in the partnership to Silling on March 1, 1953, for the sum of $1.00. Tucker reported the transaction on his return for 1951 as the sale of a capital asset resulting in capital gain, whereas the partnership's return and the return filed by Silling for 1951 indicated that Tucker remained a partner in the firm throughout that year and that the $24,000 paid to him was his distributive share of partnership income. Held, Tucker sold his interest in the partnership to Silling for the sum of $40,000, such sum to be paid to Tucker over a two-year period.

An individual who was engaged principally in the construction and sale of row houses, also sold certain real properties which he had held for rental and other investment purposes. Held: (a) His gains from sales of certain apartment buildings which had been rented for more than 6 months are taxable under section 117(j), Internal Revenue Code (1939), as gains from the sale of real properties used in his rental business; (b) his gain from the sale of certain vacant land, not suitable for development in his construction business, is a long-term capital gain within the meaning of section 117(a); (c) his gains from sales of certain properties held primarily for use in his construction business are taxable as ordinary income under section 22(a); (d) his gain from the sale of certain vacant property which had been distributed to him as a partner in a subdivision project, and which he had continued to hold for sale to builders, is taxable as ordinary income under section 22(a); and (e) his gains from sales of certain vacant land which he acquired and held for investment without building thereon, are long-term capital gains within the meaning of section 117(a). 2. A corporation, organized by the above-mentioned individual, constructed and operated for investment a large apartment project consisting of 48 units containing 104 apartments. An unfavorable earnings record prompted the corporation to liquidate the project by making separate sales of the units. Held, that the manner and the degree of sales activity were insufficient to change the investment purpose and to cause the units to be held primarily for sale to customers in the ordinary course of a real estate business. The gains realized were from sales of property held for use in the corporation's rental business, within the meaning of section 117(j).

Packing, a corporation engaged in meat packing, owned two subsidiaries, Feed Yards, operating a cattle feeding yard, and Stock Farms, operating a feed yard and farm. Held: Overceiling collections were income of Packing. 2. Amount of overceiling collections determined. 3. Feed yard and canning operations were conducted by bona fide partnerships and income therefrom is not income to Packing. 4.

On concession by the respondent that the petitioner had no closing inventory for the year 1949, held, that there is no deficiency for that year. Held: that there is no deficiency for that year. Held, further, that amounts withdrawn for living expenses from gross business receipts were erroneously added back to gross receipts in reporting income, and that an operating loss was sustained instead of income being realized as reported in the return.

1. Net Worth Method. - Absent a showing by petitioner that his books of account accurately reflected his income during the years in question, respondent's use of the net worth plus non-deductible expenditures method of determining petitioner's income is upheld; and the amounts of various items entering into the computation of petitioner's net worth during the years in question are determined. 2.

1. The amount of unreported net income of petitioners for each of the years 1942 through 1949 determined. 2. Held: A part of the deficiency for each of the years 1942 through 1949 was due to fraud with intent to evade tax.

Upon the facts, the cost or other basis of municipal bonds owned by the petitioner, Clifford J. Straehley, is determined, and the capital gain realized upon sales of bonds in 1946, 1948, 1949, and 1950, is determined.

From 1946 to 1950, inclusive, petitioner was engaged in a number of businesses from which he received taxable income. Held: the amount of income from ten real estate sales, the income from real estate brokerage commissions, and net interest income from petitioner's loan business determined.

Held, a corporation did not realize taxable income by distributing as a dividend to its stockholders a portion of its rice inventory having a value in excess of cost. Held: a corporation did not realize taxable income by distributing as a dividend to its stockholders a portion of its rice inventory having a value in excess of cost.

1. Certain consents or waivers of the statute of limitations filed on behalf of J. B. and Rosa Williams held to be valid. [1939 Code Sec. 275(c) - changed in 1954 Code Sec. 6501(e)] 2. The five-year statute of limitations provided in Section 275(c), IRC of 1939, held applicable to the taxable year 1943.

1. The amount paid out to winning betters by Badger News Service in each of the years here involved, determined. 2. Amount of deductions properly allowable for expenses and bad debts for the years 1947 through 1950, determined. 3. Respondent's disallowance of deductions for interest admittedly paid by petitioner in each of the taxable years as not being attributable to petitioner's business, sustained. 4.

1. The parties are in agreement that petitioner kept no adequate books and records to enable the Commissioner to determine petitioner's net income for… Held: petitioner is sustained in his contention that an account receivable of a substantial amount should be included in a statement of assets owned at the beginning of the net worth period. The remaining part of this account receivable still due at the end of 1950 should be included in petitioner's assets owned at that time.

1. On the evidence, it is held that petitioner's earnings did not exceed the amount reported in his return, and that respondent erred in increasing his earnings by $69.52. 2. Held: that since the statutory gross income of petitioner's mother in the taxable year exceeded $500, petitioner is not entitled, under section 25(b)(1)(D) of the 1939 Code, as amended, to the dependency credit claimed. John H. Gooch, 21 T.C. 481 followed.

Held, on the facts, that petitioner disposed of a note by sale rather than in a compromise settlement. Held: on the facts, that petitioner disposed of a note by sale rather than in a compromise settlement. Deduction of the loss realized on the sale of such note is limited by the provisions of section 117 of the 1939 Code.

1. Respondent disallowed portions of the amounts claimed by Utility as traveling and entertainment expenses because of lack of substantiation. Held, on the record herein, respondent's determination is sustained. 2. Utility credited the drawing account of its president, B. F. Crabbe, for various deposits of cash and checks which he made in its bank account and also for various expenditures purportedly made by him on the corporation's behalf. Respondent determined that such credits constituted additional income to Utility. Held, Utility having failed to prove that the deposits of cash and checks were items belonging to Crabbe rather than to itself, and that the expenditures purportedly made on Utility's behalf were, in fact, made, or that they were made from Crabbe's personal funds rather than from the funds of the corporation, respondent's determination that such items constituted additional income to Utility is sustained. 3. Utility claimed a deduction because of the failure of the United States to deliver certain surplus materials which Utility had purchased and paid for. Held, respondent's disallowance of such deduction is sustained since Utility has failed to prove the worthlessness of its claim against the United States. 4. Respondent disallowed a deduction for legal expenses claimed by Utility. This expense was incurred and paid in an attempt to obtain the delivery of the aforementioned surplus materials or to obtain a refund of their purchase price. Held, this expense is deductible as an ordinary and necessary business expense. 5. During the fiscal year ended July 31, 1946, Utility received a $5,000 deposit from a customer to be credited toward the purchase price of certain merchandise. Prior to the end of that taxable year, Utility discovered that it would not be able to deliver the merchandise ordered by this customer. It, accordingly, reversed the bookkeeping entry on its books treating such deposit as income from sales and thereafter treated it as a liability due its customer. No refund was made to the customer because Utility did not have sufficient cash on hand. Respondent determined that this deposit became income to Utility during the fiscal year ended July 31, 1948, on the basis that Utility did not abandon hope of delivering such merchandise until that year. Held, Utility's books accurately reflected this transaction and it resulted in a fixed and continuing liability. 6. Utility paid $3,500 for an interest in an oil well to an individual who had aided it in obtaining financial assistance. Respondent disallowed a $3,500 deduction claimed by Utility on its return for the fiscal year ended July 31, 1948, after the well turned out to be a dry hole during that year. Held, the worthlessness of this investment constitutes a capital loss and did not result in an ordinary and necessary business expense. 7. Crabbe withdrew sums substantially in excess of his salary from Utility and his drawing account on the company's books disclosed a debit balance of $19,775.26 on July 31, 1946. This debit balance increased to $54,837.47 by July 31, 1949. Respondent determined that Crabbe's withdrawals during the calendar years 1946 and 1947 constituted taxable distributions of earnings. Respondent also determined that portions of the amounts received by Crabbe as travel expenses from the corporation constituted additional income to him. In an amended answer, respondent alleged that legal fees in the amount of $2,000 which were paid by Utility in 1947 in the unsuccessful defense of Crabbe in a criminal action, arising out of such officer's activities on behalf of the corporation, constituted additional taxable distributions of earnings to Crabbe. Held, Crabbe has failed to show that his withdrawals were loans at the time they were made and respondent's determination that they constitute taxable distributions of earnings is sustained; held, further, Crabbe has failed to show that amounts received from the corporation purportedly for travel expenses, which were disallowed, were, in fact, so spent and respondent's determination that they constitute additional taxable distributions of earnings is sustained; held, further, respondent has failed to carry his burden of proving that Utility had sufficient earnings and profits at the end of 1947 to support the distribution of a $2,000 taxable dividend to Crabbe and, consequently, his affirmative allegation that the payment of a legal fee for the defense of Crabbe constituted taxable income to Crabbe is denied. 8. Crabbe understated the gross income reported on his return for the taxable year 1946 by more than 25 per cent. Held, the statute of limitations does not bar the assessment and collection of the deficiency determined against Crabbe for that year.

The petitioner, an automobile dealer, kept its books and reported income on an accrual basis. It sold deferred payment notes, secured by sales agreements, which it received in payment for automobiles, to a finance company. The finance company withheld part of its payment to petitioner for each note, as agreed upon with petitioner, as a dealer's reserve which it credited to petitioner's account on its books. Held, that in determining petitioner's taxable income for the taxable years, the amounts held as dealer's reserves and credited to petitioner's account on the finance company's books are includible in petitioner's taxable income. Shoemaker-Nash, Inc., 41 B.T.A. 417, followed.

Held, that where trustees had the power and discretion to encroach upon and exhaust the principal of trusts for support and education of the respective beneficiaries, gifts of income from the trusts… Held: that where trustees had the power and discretion to encroach upon and exhaust the principal of trusts for support and education of the respective beneficiaries, gifts of income from the trusts could not be valued, and the exclusions claimed are not allowable.