Volume 15 — Board of Tax Appeals

1. The taxpayer loaned $80,000 to one Stafford. There had been assigned to taxpayer as collateral, life insurance policies on the life of Stafford in the principal amount of $80,000. Stafford became bankrupt and was discharged. At the date of bankruptcy such policies had a cash surrender value of $24,586. The taxpayer did not surrender the policies or otherwise foreclose on them but continued them in force. Held, that he continued to hold them as collateral and was not the owner. Held, further, that in the absence of any foreclosure on the collateral, no deduction was allowable under the Revenue Act of 1918 as for a debt ascertained to be worthless. 2. The taxpayer paid the net premiums due under the policies. Held, that since the policies were held only as collateral and the principal amount was equal only to the original indebtedness, a loss was sustained in the amount of such premium payments.

1. The evidence does not establish error in the Commissioner's determination of the value of assets. 2. The Commissioner was not in error in reducing invested capital on account of income and profits taxes for prior year.

The inventories shown by the petitioner's books of account at the beginning and close of the year 1920 held to be its true inventories.

Petitioner billed and was paid, twice a month, for articles manufactured upon orders from purchaser, under a cost, plus agreed profit, contract dated March 1, 1919, and expiring March 1, 1924. Held: the amount of the adjustment is deductible from income of the year 1921.

In 1919, petitioner's decedent exchanged leaseholds for an annuity contract under the terms of which the said decedent was entitled to receive $100,000 per… Held: that the exchange in 1919 constituted a closed and completed transaction and that in determining whether a gain was realized in 1921 and 1922 on account of the annuity payments then received, the capital value of the contract in 1919 must be taken into consideration as an amount which may be returned free of tax.

1. An unlimited waiver for the fiscal year ending January 31, 1918, was signed by the duly authorized officers of the company on February 15, 1923. Held: the assessment and collection of taxes for that year are not barred by the statute of limitations. 2.

1. The tax liability of this petitioner for the year 1918, on the income derived from its business as a broker, should be recomputed under the provisions of section 303 of the Revenue Act of 1918. 2. Evidence fails to overcome the presumption that the Commissioner correctly included the amount of two certain notes in the gross income of the petitioner for the year 1920.

1. MOTION TO DISMISS denied. 2. MARCH 1, 1913, VALUE of certain land determined for purpose of computing profit derived upon the sale thereof.

1. The petitioner, by its secretary and treasurer, on November 9, 1925, executed a consent extending the time within which additional income and profits taxes for 1920 and 1921 could be assessed… Held: that such consent was valid and that the assessment and collection of the deficiency in tax determined by the Commissioner is not barred by the statute of limitations. 2. The petitioner kept its books of account and made its income-tax returns upon the accrual basis.

- The amounts withdrawn by the president of petitioner and carried on its books as an account receivable, held to be a bona fide indebtedness representing an asset and a part of petitioner's invested capital at face value.

Upon the evidence no amount of deductions for salaries, greater than that claimed in the returns and allowed, is determinable.

BONUS. - Held, that for the year 1924, petitioner is entitled to a deduction in the amount of $1,584.90, representing additional salaries authorized and paid during the year 1924. Held: that for the year 1924, petitioner is entitled to a deduction in the amount of $1,584.90, representing additional salaries authorized and paid during the year 1924.

1. Exclusion of good will from invested capital by the Commissioner approved for lack of evidence to show that the petitioner acquired good will with shares of capital stock, and the value thereof, at date of acquisition, if any such were acquired. 2. Additions to reserve for cash discounts, in excess of the cash discounts actually allowed within the year, are not deductible from income. 3.

1. The petitioner is a local mutual benefit association wholly voluntary in character. Its primary purpose is the mutual relief of its members in times of sickness, accident, or death. Held: that the petitioner is not an organization which is exempt from income and profits taxes under sections 231 and 304 of the Revenue Acts of 1918 and 1921, and that it is an association taxable as a corporation. Philadelphia & Reading Relief Association,4 B.T.A. 713, followed. 2.

Income of petitioners from a partnership of which they were members determined.

A corporation, engaged in engineering business, only one of whose stockholders is actively engaged in the business, the nonactive stockholders owning 33 per cent and 28 per cent of the stock, and one… Held: not a personal service corporation.

1. a business bequeathed to petitioners by their father subject only to the payment of $50 a month to their sister, was owned and operated by them as partners. Held: that the payments so made are not deductible from the distributive shares of partnership income taxable to the petitioners, except to the extent of $50 a month paid to petitioners' sister. 2.

- Upon the facts, an allowance for exhaustion, wear and tear of certain construction equipment is determined to be reasonable in the amount claimed by the petitioner.

Value of petitioner's physical assets determined for purposes of depreciation, and profit or loss on sale.

1. ACCOUNTING - CALENDAR OR FISCAL YEAR. - The petitioner, on the facts, held, to have kept and closed its books on the basis of a calendar year. 2. Held: to have kept and closed its books on the basis of a calendar year. 2. DEPRECIATION. - In the absence of evidence as to the remaining life of depreciable assets at the time acquired by the petitioner, the rate for depreciation determined by the Commissioner approved. 3.

- The two stockholders of petitioner corporation in 1921 by individual contract subscribed to stock in a new corporation then being organized and agreed, in payment therefor, to secure the transfer… Held: that the transfer by petitioner was not a sale of assets whereby a gain or loss was sustained by petitioner but merely a method effecting a disstribution of assets in the course of liquidation.

The petitioner, having sold real property in 1915 which it repossessed in 1920 because of default on the part of the purchaser, is entitled to deduct any loss sustained upon said repossession.

1. The right to oil and gas royalties is an assignable property right, and following an assignment of a fractional interest therein by taxpayer to his wife, royalties payable on such fractional interest are income of the assignee by virtue of her ownership and taxable only to her. 2.

1. March 1, 1913, value of a patent determined. 2. Petitioner is entitled to deduct normal exhaustion on its patent based upon the March 1, 1913, value as herein determined. 3. L. S. Ayers & Co.,1 B.T.A. 1135, followed.

1. Petitioner is liable for income tax due upon income received by decedent prior to her death even though the estate has been fully administered and he has been discharged as administrator of the estate. 2. The evidence fails to establish that the respondent erred in taxing the decedent on all of the income of the Jacob Kaufmann estate.

Held that a certain transaction consummated by the petitioner with other beneficiaries of her father's will, resulted in a taxable profit in 1920 of $9,500.

The value of good will acquired for stock being established, it may, subject to the statutory limitations, be included in invested capital.

Two corporations held to be affiliated by reason of the actual control of substantially all the stock by the same interests.

1. The amount paid by the petitioner to a former partner for his interest in the firm is not a deductible loss, even though it was not the petitioner's intention to form the copartnership. 2. The profit realized under a contract for the payment of an annuity in consideration of the release of a debt, held not to be taxable in the year 1920.

PERSONAL SERVICE CORPORATION. - Upon the facts, held that the petitioner was a personal service corporation in 1921.

The gross income under the Revenue Act of 1918 of a foreign corporation includes gross sales in the United States of goods manufactured abroad.

1. Interest accrued on corporate bonds owned by decedent but not matured at time of his death becomes part of the corpus of his estate and when collected is not income to the estate. 2.

1. INVESTED CAPITAL. - Petitioner acquired the assets and liabilities of a profitable business for stock and cash after agreement upon the values of the various items transferred. Held: that such balance is income as gain derived in excess of the cost of such accounts receivable. 3. EXPENSES. - The amount of the cost of deductible repairs determined.

Authorization to accumulate a so-called reserve to cover debts ascertained to be worthless by charging off a portion thereof each month over a period extending beyond the taxable year is not the equivalent of a charge-off as required by the statute to permit deduction of that portion accumulated by amounts charged off after the close of the year.

Held, under the evidence, that no abnormalities are shown which bring the petitioner under the provisions of section 327 of the Revenue Acts of 1918 and 1921. Held: under the evidence, that no abnormalities are shown which bring the petitioner under the provisions of section 327 of the Revenue Acts of 1918 and 1921.

March 1, 1913, fair market value of a leasehold determined.

1. Expenditures by a corporation to repay money loaned or advanced are not deductible as ordinary and necessary expenses. 2. The value of a leasehold determined from the evidence.

The evidence does not establish that petitioner is entitled to a deduction from gross income for 1920, on account of certain transactions relating to the purchase of German marks.

1. ASSOCIATIONS. - During the years involved petitioner operated, under a declaration of trust agreement, in the mode and form of a corporation, the shareholders of which exercised a large degree of… Held: to be an association taxable as a corporation. 2. DEDUCTIONS. - Amounts of salary deductions determined. 3. STATUTE OF LIMITATIONS. - Held, not to bar assessment of taxes for 1920.

The amount expended in building up a capital asset designated circulation structure can not be determined from the evidence.

A payment made by a corporation to one of its stockholders, who had brought suit to enforce his alleged right to subscribe for his proportion of the stock representing an increased capitalization, pursuant to a compromise agreement between its two stockholders, is not deductible by the corporation.

1. As income from sources outside a trade or business serves to reduce the loss from trade or business to reach net loss as defined by section 204, Act of 1921, it is immaterial whether certain endeavors outside a certain trade or business are themselves part of petitioner's trade or business, and whether the trades or businesses, if several, should be separately considered in computing net loss, as the income therefrom reduces net loss in any event. 2.

The petitioner made real estate or mortgage loans during 1921 and 1922, bearing interest at a specified rate. Held: that the total amount of commissions on loans so made in the respective years constituted taxable income for such years. Chicago Acceptance Co.,12 B.T.A. 150, distinguished.

The evidence is insufficient to show error in the Commissioner's determination.

When a return was filed prior to the passage of the Revenue Act of 1921 for a fiscal year ending January 31, 1921, and the provisions of the Revenue Act of 1921 did not increase the tax liability of the petitioner on the income shown in the return filed, and where the Commissioner failed to notify the petitioner that additional tax was due prior to the expiration of four years after the return was filed, or within the period agreed upon, the Commissioner is barred by the…

1. Commissioner's appraisal of value of corporation stock approved. 2. Held: that such bonds, at their market value at time of sale, are properly included in the computation of taxable income to seller. John B. Atkins et al.,9 B.T.A. 140.

The Commissioner's determination in respect of the value of a distributor's contract approved for lack of sufficient evidence to show error.

Held, that the evidence is not sufficient to show that what the petitioner assigned to his wife was other than income to arise in the future. Such income is, therefore, taxable to the petitioner. Held: that the evidence is not sufficient to show that what the petitioner assigned to his wife was other than income to arise in the future. Such income is, therefore, taxable to the petitioner.

1. Disallowance by respondent of a portion of the total salaries paid to officers, as a deduction from income, approved, for lack of evidence showing error. 2. An examination of petitioner's accounts in 1924 disclosed that customers' accounts in the subsidiary ledger exceeded, in the aggregate, the balance shown due from customers in the accounts receivable control account, by $9,892.61, and that this discrepancy arose prior to May 31, 1923.

The evidence does not sustain the claim of petitioner that noninterest-bearing notes given for stock should be included in invested capital in an amount greater than that allowed by the respondent.

1. Held that the evidence does not establish error on the part of the respondent in determining that the petitioner was taxable in 1919 on account of amounts credited to him in that year. 2. In the light of the circumstances in this case held that the tax return filed for 1919 was wilfully fraudulent, and that the petitioner is liable to the assessment of the penalty provided by the statute for the filing of a fraudulent return.

By an option executed December 7, 1920, petitioner agreed to sell all his stock to another within 15 days. On the last day of the option period he refused to sell all the stock, but offered to sell half the stock in 1920 and half of it in 1921. This offer was accepted. Half the stock was placed in the hands of a third party to be delivered January 2, 1921, if payment were then made.

1. JURISDICTION. - For the calendar year 1920, the Commissioner determined an overassessment, which represented the difference between the amount of tax shown on the original return and the amount of the tax liability as determined by the Commissioner for said year. The Board has no jurisdiction to redetermine the tax liability for 1920 and for that year the appeal is dismissed. See Revenue Act of 1926, section 274(g); Cornelius Cotton Mills,4 B.T.A. 255. 2.

1. March 1, 1913, value of certain coal lands determined. 2. Where corporations were affiliated for excess-profits-tax purposes for a fractional part of 1917, but occupy a nonaffiliated status for the remainder of the year, the income tax may not be computed upon the basis of such fractional period, but must be computed upon the basis of a full taxable year. 3.

Cash value of tangible and intangible properties paid in to the petitioner for its capital stock determined and segregated between the different classes of properties paid in for purposes of depreciation and invested capital.

1. In 1919 the petitioner received $45,000 in consideration of an agreement to transfer on January 2, 1920, certain shares of stock owned by him in the Syracuse Washer Corporation. Held: that the $45,000 in question was taxable income for the year 1919. 2.

Cost of property acquired by petitioner in exchange for capital stock at the time of its incorporation in 1918 determined for invested capital purposes.

1. A taxpayer is required to report as income profits received, even though he believes he may later incur expenses equal to such profits in lawyer's fees and fines necessitated by indictments… Held: on the evidence, that no fraud was proven in the omission of such profits from the tax return. 4. When fraud is alleged respondent must prove the same by clear and convincing evidence.

Held, that certain stock accepted in part payment of an account had no fair market value. Held: that certain stock accepted in part payment of an account had no fair market value.

1. Prior to 1913 certain capital assets and expenditures were charged off to expense and to profit and loss. Held: that none of such capital assets and expenditures can be restored to invested capital for the taxable years in the absence of proof that the assets (those charged off and those for which the expenditures were made) existed and were owned by petitioner during the taxable year, and that the capital account at the beginning of the…

1. DEPLETION. - Timber cut during 1919 and 1920 having all been purchased standing at $6 per thousand feet and that cut during 1921 having been purchased at various prices… Held: that reasonable rates for depletion are $6 for 1919 and 1920 and $6.84 for 1921. 2. DEPRECIATION. - Upon the facts proven, held, that a rate for depreciation upon a certain lumber plant based upon an expected life of 10 years will give a reasonable allowance as called for by the taxing statute. 3.

1. In the absence of an agreement to the contrary, the earnings of a wife in California are community property and are taxable to the husband. H. A. Belcher,11 B.T.A. 1294, followed. 2. The sale of stock involved herein held to have been made in the year 1921.

The petitioner and the Security National Bank of Sioux Falls, S. Dak., were affiliated during the 10-month period ended December 31, 1919, and the years 1920 and 1921.

1. Kasco Mills, Inc., is the transferee of the assets of F. Kieser & Son Co., Inc. In 1923, the Commissioner determined a deficiency against the latter of $11,724.85 for the calendar year 1917 and… Held: that the transferee is not liable for the unpaid balance. 2. The income-tax return filed by F. Kieser & Son Co., Inc., for 1917 was not false or fraudulent and its invested capital for 1920 should not be reduced by the amount of the fraud penalty paid in 1923. 3.

The petitioners are beneficiaries of certain trust funds. Held: that the net income of the trusts distributable to the beneficiaries was the excess of the gross income from all sources over losses sustained on the sale of securities and operating expenses of the trust funds.

Credit allowances given on certain used trucks which were traded in when certain new trucks were acquired, held to represent the selling price of the used trucks.

1. The respondent's determination of the petitioner's invested capital and the amount of deductions to which the petitioner is entitled on account of wear and tear of its plant and equipment for the years 1917 to 1920, approved. 2. The respondent's disallowance of deductions claimed by the petitioner on account of alleged additional compensation to its president for the years 1917 to 1920, inclusive, sustained.

- The petitioner was a member of a corporation which claimed personal service classification during the years 1918 to 1921, inclusive, and during each of such years reported and paid tax on his… Held: that in view of this situation the respondent properly readjusted the tax liability of the petitioner and eliminated from his returns the reported proportionate share of corporate earnings and substituted therefor the amount of dividends actually declared and paid.

The gifts here in controversy were not made in contemplation of death within the meaning of the statute.

1. INVESTED CAPITAL - GIFT OF STOCK. - The property paid in in 1907 for capital stock had a cash value equal to the par value of the stock issued therefor. Held: original paid-in capital not reduced by $10,000 because of said gift and that the $4,500 constitutes additional paid-in capital. 2. ADDITIONAL SALARIES, properly authorized during 1921 for services actually rendered during that year, and the total salaries being reasonable, held, deductible from 1921 gross income.

1. A trustee, holding common stock for investment purposes, exchanged it for Federal, State, municipal and railway bonds, which he thereafter held for the same use and purposes as the stock. Held: there was an exchange of property for property of a like kind or use, within section 202(c)(1), Act 1921, and no gain could be recognized. Margaret M. Edson,11 B.T.A. 621, overruled, in part. 2.

Reasonable allowance as compensation for personal services determined.

Held, that an amount of $2,214.12 representing an adjustment on a fire which occurred in 1920 was erroneously included in income for 1921. Held: that an amount of $2,214.12 representing an adjustment on a fire which occurred in 1920 was erroneously included in income for 1921.

Will of decedent construed and held to create one trust, not two.

1. There being no assignment of error with regard to the correctness of the deficiency determined by the respondent for the year 1920, the determination of the respondent is approved. 2. Held that the record does not sustain the respondent's assertion of the fraud penalty for the years 1920 to 1923, inclusive.

Where improved residential properties were purchased by partners as a joint investment, and pursuant to a decision reached in subsequent years the improvements were razed to make way for a building needed by the partnership business, that portion of the total cost of such properties which was allocable to the old improvements, less depreciation, is deductible in the year the demolition occurred.

Assessment of additional taxes for the year 1917 held not barred by the statute of limitations.

1. The petitioner expended amounts for reconstruction of old canal boats to be used as dwellings, and the boats were finally abandoned due to the fact that it was impracticable to keep them afloat. Held that since petitioner, himself, intended to occupy one of the boats and since there is no segregation of the amounts expended on the various boats, no deduction for loss is allowable under section 214(a)(4) of the Revenue Act of 1921. 2.

1. Allowance as a deduction for rent paid by a corporation to its sole stockholder, of a greater amount than was allowed by the respondent, denied in the absence of evidence showing that the additional amount paid was in fact rent. 2. The taxable year in question is not within the terms of section 204(b) of the Revenue Act of 1918, and, consequently, a loss sustained during such period can not be deemed a net loss which can be applied against the income of other years.

Deductions allowed for physical loss of bottles and also for loss sustained upon sale of bottles.

The petitioner having failed to show that there are any abnormal conditions affecting its capital or income for the year 1920, it is not entitled to have its tax for that year computed under section 328 of the Revenue Act of 1918.

On organization in 1909 the petitioner acquired two coal leaseholds from a predecessor corporation. Held, that the leaseholds had no cash value at the date of acquisition nor at March 1, 1913. Held: that the leaseholds had no cash value at the date of acquisition nor at March 1, 1913.

1. A corporation filed a return including its income for a portion of its taxable year, and later there was filed a joint return with a corporation which acquired its property and business which… Held: that the return started the running of the period of limitations with respect to a deficiency for the fiscal year.

Cancellation of indebtedness held not income. Meyer Jewelry Co.,3 B.T.A. 1319, followed.

1. Accounts or commissions receivable acquired by petitioner at its incorporation in January, 1917, in exchange for capital stock are capital assets. 2. The cost of surveying and staking land held capital expenditure 3. Traveling and entertaining expenses authorized by a corporation but not shown actually to have been expended and to be ordinary and necessary business expenses, disallowed.

Special assessment denied.

The transfers involved herein were not made in contemplation of death, and the value of the property transferred should not be included in the gross estate of the decedent subject to the Federal estate tax.

Collection of a deficiency determined for the calendar year 1918 held to be barred by the statute of limitations.

Action of Commissioner affirmed, for lack of sufficient evidence showing he committed error in disallowing deductions claimed on account of alleged contributions to a charitable corporation during the years involved.

The redemption of bonds at a called date for an amount in excess of cost of the bonds to the bondholders results in a gain from the sale or exchange of capital assets within the meaning of section 206 of the Revenue Act of 1921.

1. Court costs and attorneys' fees assessed against the petitioner by a court of equity in the circumstances herein held to be deductible from gross income in 1920 as ordinary and necessary business expenses incurred and paid in such year. 2. Attorneys' fees incurred in connection with the reincorporation of the petitioner are not deductible from gross income as ordinary and necessary expense in 1923.

- It is shown that transactions of the petitioner in buying and selling cotton futures and corporate stocks occupied 75 per cent of his business hours, and they were sufficiently regular and numerous to amount to a business; therefore, the losses resulting and paid in cash are net losses subject to the provisions of section 204 of the Revenue Act of 1921.

1. Corporation taking deductions from gross income of amounts authorized as reimbursements to stockholders for advances alleged to have been made in the interest of the business may be required to… Held: that certain deductions from its gross income, taken by the petitioner in its income and profits-tax return for the year 1920, are not allowable as ordinary and necessary business expenses incurred or paid in a trade or business.

Contracts entered into in 1912 held not to represent increase in value of property accrued prior to March 1, 1913, which may be distributed tax-free in 1922.

1. The profit realized on a certain contract for the manufacture and sale of book-paper-making machines held to be taxable income in the year 1921. 2. Held, that the additional amount received on the sales price of a paper-making machine is taxable income in 1921, the year in which it was received.

Petitioner, an officer and owner of 25 per cent of the common stock of a corporation, became dissatisfied because of differences of opinion with the president, who owned the controlling interest, because of the latter's refusal to permit the declaration of a dividend, and announced his intention to sell his stock and resign. Thereupon, the president offered personally to purchase petitioner's stock, offering therefor approximately $25,000 more than petitioner had paid for it, and finally a price was agreed upon of the sum petitioner paid for the stock plus an amount equal to 25 per cent of the surplus accumulated by the corporation during the period of his connection therewith. The stock was transferred to the president personally and the latter made the payments with funds of the corporation. Of these payments the sum representing the excess over cost of the stock to petitioner was charged on the corporate books to a "Reserve for Bonuses" and the balance to the president's personal account. Held, that the amount so charged to "Reserve for Bonuses" did not represent a bonus or a dividend distribution but a profit accruing to petitioner from his sale of stock.

1. Values of patent and a license agreement determined. 2. Petitioner is entitled to a deduction for exhaustion of the foregoing patent and license agreement computed upon the remaining life thereof when acquired. 3. The petitioner's invested capital for the years in question with respect to the patent and license agreement should be recomputed upon the basis of the values herein determined. 4.

Petitioner held to be a building and loan association.

1. In determining the extent of ownership or control of property under section 331 of the Revenue Act of 1918, the issued capital stock of the corporation to which such property is transferred is to be considered and not the amount of authorized capital stock. 2.

Respondent's determination of loss sustained by sale of capital assets in the taxable year approved.

PERSONAL SERVICE CORPORATION. - Petitioner, upon the facts proven, held to be entitled to classification for the years 1919 and 1920 as a personal service corporation, as defined in section 200 of the Revenue Act of 1918.

LEASE - VALUATION OF. - The value determined for a long-term lease as of March 1, 1913.

1. Held, that a partnership between petitioner and his three daughters existed during the taxable years. 2. Held: that a partnership between petitioner and his three daughters existed during the taxable years. 2. Held, that petitioner was not subject to the delinquency penalty in filing his return for the year 1921.

Petitioner paid $50,000 to two of its stockholders in 1920, in consideration of their becoming guarantors under a renewal lease to begin May 1, 1926. Held: that this was not an allowable deduction from gross income in 1920 under the provisions of section 234(a)(1), Revenue Act of 1921.

Transaction held to be a sale of stock by the stockholders and not a sale of assets by the corporation.

OBSOLESCENCE OF BREWERY PLANT, due to national prohibition. Amount of reasonable allowance determined upon the evidence.

1. In the absence of a written closing agreement the Commissioner may determine a deficiency at any time prior to the expiration of the period of limitations prescribed by law. 2. The three petitioners herein were affiliated in the year 1920 and the deficiencies for such year were properly computed on the basis of a consolidated return. 3.

A reasonable allowance during 1920 and 1921 for the exhaustion, wear and tear, including obsolescence of petitioner's hotel building, found to be an amount computed at 2 per cent on the structural cost thereof.

Debts charged off in the taxable year not allowed as a deduction to petitioner in such year, when such debts were in fact worthless in a prior year.

The record fails to establish error in the Commissioner's determination of invested capital other than in the reduction of surplus in the amount of a tentative tax upon the earnings for the year in determining the amount of current earnings available for the payment of dividends during the year.

Commissioner's determination approved for lack of sufficient evidence to show error.

1. Petitioner transferred certain securities to a bank of which he was president and a stockholder, the capital of the bank having been impaired. Held: that the loss, if any, which the petitioner sustained would not be measured by the value of the securities transferred but by their cost. 2. The computation of a net loss, under section 206(a) of the Revenue Act of 1924, differs radically from the computation of income or loss upon the annual return.

1. In the absence of any agreement as to the basis upon which the total tax due from affiliated corporations is to be apportioned, such tax is to be assessed upon the respective corporations on the basis of the net income properly assignable to each. Section 240, Revenue Acts of 1918 and 1921. 2.

The sale herein is held to have been a sale of assets of a corporation in dissolution, and not a sale of property of the individual stockholders.

Notes of solvent persons, worth their face amount, received in payment for an equal amount in par value of the capital stock of a West Virginia corporation, are to be included at their face value in computing the invested capital of such corporation.

Prior to 1917 petitioner owned preferred stock of A corporation, which owned the common stock of B corporation. Held: that the cost of the stock of A corporation is not the basis on which gain or loss is to be determined on the sale of the stock of B corporation. Marr v. United States,263 U.S. 536.

1. The taxpayer, without reference to his tax liability, settled through compromise an ad valorem penalty assessment, incurred through the irregular filing of… Held: that such settlement in no way affected his liability to further assessment for any additional taxes later determined for said year. 2. Evidence in support of deductions claimed for losses through investment in corporation stock and for a bad debt held insufficient to show loss sustained within the taxable year.

Amounts received on account of accidental death under certain accident policies and under the double indemnity provisions of certain life insurance policies, held to represent amounts received under policies taken out by the decedent upon his own life and therefore includable in the gross estate of the decedent under the provisions of section 302(g), Revenue Act of 1924.

Where, in order to effect a partial distribution of her property among her children, petitioner, upon the sale of a farm, directs that the notes and mortgage covering the balance of the purchase price above the cash payment be made payable to and delivered to her daughter and the notes and mortgage are so made and delivered, petitioner is, nevertheless, chargeable with the total profits arising from the sale.

The petitioners are life tenants under a trust which includes depreciable assets. Held: that the entire amount distributed by the trustees among the petitioners constituted taxable income to them, and that under the Revenue Acts of 1918 and 1921 they are not entitled to deduct, in computing their net income, any allowances for exhaustion, wear and tear of the trust property.

1. Amounts claimed as deductions from income for 1918, held not to be deductible in said year either as bad debts or losses, since the transactions giving rise thereto were not completed in said year. 2. Special assessment denied. 3. JURISDICTION. - All facts necessary to show jurisdiction in the Board must be pleaded and proved.

1. Any ruling of the officers of the Bureau of Internal Revenue contained in the various Cumulative Bulletins published by said Bureau, falls within the term "any ruling of the Commissioner or any duly authorized officer of the Bureau of Internal Revenue" as that term is used in section 704(a) of the Revenue Act of 1928. 2. Where during the years 1921 and 1922 persons association themselves together under corporate form for the purpose of the transaction of business, but where the title to all property was vested in a trustee who was given uncontrolled management of the affairs of the trust and who could be removed only for misconduct or breach of trust and where such taxpayer returned its income for said years as a trust and where during said periods the rulings of the Bureau of Internal Revenue were to the effect that such an organization was taxable as a trust, held, that under the provision of section 704(a) of the Revenue Act of 1928, such an organization was taxable as a trust.

1. The income of a partnership is to be computed upon an annual basis and in the same manner as the income of an individual. The dissolution of a partnership by the death of one of the partners and the consequent necessity for a liquidation of the partnership does not affect the basis on which taxable income is to be computed. 2.

1. Amounts paid by the petitioner in the year 1918 to creditors whose claims had been discharged by bankruptcy proceedings in 1911 held not deductible from income in the year 1918. 2. The respondent's disallowance of deductions for additional salaries and commissions paid by petitioner to its officers allowed in part and disallowed in part.

1. In the absence of evidence that depreciated cost of assets is equal to fair market value, it will not be assumed that cost depreciated to March 1, 1913, is equivalent to fair market value on that date. 2. Cost of assets acquired for stock is not established by an admission of the par value of the stock issued therefor and without evidence of the actual value of the stock or the assets. 3.

1. Held that petitioner is entitled to deduction from gross income of the year 1921 the cost to him of railroad bonds which were ascertained to be worthless in the year 1921. 2. Notes and a bond received by petitioner and others in exchange for stock held to have had a readily realizable market value in 1921.

Where one owning a life interest in a piece of real property erects with her own funds a building thereon, the life of which extends far beyond the life expectancy… Held: that she is entitled to deduct each year that portion of the cost which the taxable year bears to her total expectancy of life, as shown by the life tables. Held, further, that she is not entitled under these circumstances to an additional deduction representing exhaustion of the building over its own life.

Held, that the petitioner's decedent was entitled to a deduction from his gross income in 1921 on account of the partial charge-off of a debt in that year. Held: that the petitioner's decedent was entitled to a deduction from his gross income in 1921 on account of the partial charge-off of a debt in that year.

1. Held that certain income from a trust fund received by the petitioner's wife pursuant to a formal and complete assignment by him to her of his interest therein should not be included in the… Held: under the peculiar circumstances of this case, that the payments should be deducted in computing net income for the year in which such payments were made.

1. INVESTED CAPITAL - LIMITATION - ASSETS ACQUIRED FOR STOCK. - Assets consisting of an option to purchase property and certain contracts for production of motion pictures, acquired by an individual… Held: under section 331 of the Revenue Act of 1918, not to be subject to inclusion in invested capital even though an actual value be proved for such assets equal to the book value assigned. 2.

- The value of a depreciable asset, acquired for capital stock, determined for purposes of computing the allowable deduction from income for exhaustion thereof.

1. The respondent's action sustained in disallowing as deductions from gross income for the years 1919, 1920, and 1921, amounts paid by the petitioner as salary to its former president, and amounts alleged to have been given as bonuses to employees of the petitioner. 2. Deductions taken by petitioner on account of amounts of money paid to one of its officers for the purpose of conducting investigations of its employees approved. 3.

- Petitioner and his wife originally made a joint return for the calendar year 1925; thereafter, petitioner made separate individual returns for the year 1925 and tendered same to the respondent. Held: petitioner having originally made a joint return for the calendar year 1925, may not thereafter, by filing amended separate returns, have the tax liability determined upon the basis of such separate returns.

Compensation voted and paid by a corporation to an individual in the year 1920 for services rendered in prior years in securing the extension of a leasehold, floating of bond issues, selling capital stock the securing of credit in connection with the erection and equipping of a building and for advice relating to the design and arrangement of the building and the character and arrangement of the equipment, is not deductible from income in the fiscal year ending April 30,…

1. The impossibility of determining the value of assets which cost the corporation nothing, which assets may not be included in invested capital, does not give rise to a condition under which invested capital can not be determined. 2.

Petitioner during the taxable years was an independent contractor and not an officer or employee of the State of New Jersey, or a subdivision thereof.

- Where taxes are assessed against property for the payment of bonds and interest thereon, the proceeds of which were used for drainage district purposes in the State of Missouri, the amount paid by the taxpayer is not deductible even though interest on the bonds is included therein.

1. Where petitioner in 1922 loaned money to A corporation to cover advancements by A corporation to B corporation and where such advancements were made on the security of a surety bond running from B corporation to A corporation, and where such bond was in force at the end of the taxable year, held that no part of petitioner's debt was deductible under section 214(a)(7) of the Revenue Act of 1921. 2.

1. SPECIAL ASSESSMENT - ABNORMALITIES. - Where approximately 80 per cent of petitioner's product for the year 1918 was commandeered by the United States and subsequently released to and sold by petitioner in 1919, in addition to its regular product for 1919, this created an abnormality in income. 2. ID. - Where valuable trade-marks and cannery sites have not been included in invested capital, their exclusion may be considered as grounds for granting special assessment. 3.

Where the petitioner and another filed a corporate return in the name of a joint-stock company, taxable as a corporation, and the Commissioner asserted a deficiency in corporate income and profits taxes against the association named in the return, the Board is without jurisdiction to redetermine such deficiency upon appeal by the petitioner as an individual.

1. The return filed for 1920 was not signed or sworn to and the date of filing is not in evidence. Held, deficiency not barred by limitation. 2. Held: deficiency not barred by limitation. 2. An individual taxpayer acquired by will in 1915 an interest in real property which decedent acquired by purchase in 1906. Held, the basis for gain or loss from sale by taxpayer in 1920 is not the cost to decedent in 1906 but the value at the time of acquisition by taxpayer.

1. When property, acquired by gift subsequent to January 1, 1921, was sold by the donee in that year for an amount in excess of the cost to the donor, the taxable profit is the difference between the selling price and the cost to the donor. Section 202(a)(2), Revenue Act of 1921. 2. The provisions of section 202(a)(2), Revenue Act of 1921, are constitutional. Taft v. Bowers,278 U.S. 470.

STATE EMPLOYEE - COMPENSATION. - Petitioner held to be an employee of the State of West Virginia and his income from services performed for that State held to be exempt from Federal income tax.

Held, that the deficiency asserted by the Commissioner was properly determined and that the penalty imposed for making a false and fraudulent return should be collected. Held: that the deficiency asserted by the Commissioner was properly determined and that the penalty imposed for making a false and fraudulent return should be collected.

1. Held, that Adam, Meldrum & Anderson Co. was a joint-stock association taxable as a corporation under the Revenue Act of 1917, and not a partnership. 2. Held: that Adam, Meldrum & Anderson Co. was a joint-stock association taxable as a corporation under the Revenue Act of 1917, and not a partnership. 2. Held, that amounts credited on the books to the various stockholders constituted borrowed capital and may not be included in invested capital.

1. Respondent's refusal to include in invested capital any amount for good will acquired for stock sustained in the absence of proof of the value of any good will acquired. 2. Depreciation rate for manufacturing equipment determined. 3. Respondent's action in disallowing as a credit in 1921, taxes paid to the canadian Government in that year for the years 1918 and 1919, sustained.

Evidence held insufficient to warrant modification of respondent's method of computing average prewar income.

Held, the transaction here involved was the sale of a single body of assets and that gain or loss resulting therefrom must be determined by adding to the value at March 1, 1913, all… Held: the transaction here involved was the sale of a single body of assets and that gain or loss resulting therefrom must be determined by adding to the value at March 1, 1913, all additional capital investments subsequent to that date, giving due weight to depletion and depreciation.

Where the Commissioner has determined a deficiency in estate tax under sections 308 and 318 of the Revenue Act of 1926, and where he has determined no personal liability of the executors for the deficiency under section 316 of the same Act and under section 3467 of the Revised Statutes, held, that the Board has jurisdiction to redetermine the deficiency but that it has no jurisdiction in such a proceeding to determine whether the executors have been released from personal liability under section 313 of the Revenue Act of 1924.

Where one who has sold a tract of land on the deferred-payment plan and has so returned for tax the gain arising from the sale, and where after the sale had been completed, entered into a contract with certain of his children to whom he had attempted to make oral gifts of parts of the land sold whereby he irrevocably assigned to each child that part of each purchase-money note which represented the part of the sale price of the tract attempted to be given, and by the terms…

The actual cash value of an application for patent at the time paid in to the petitioner corporation on May 1, 1916, upon which letters patent issued on January 2, 1917, determined for the purpose of computing invested capital for the years 1920 and 1921, and for the purpose of computing allowances for exhaustion for those years.

1. DEPRECIATION - GAIN FROM SALE. - Held, that in computing gain from sale of real estate, due allowance must be made for the amount of depreciation sustained from March 1, 1913, to date of sale in… Held: that in computing gain from sale of real estate, due allowance must be made for the amount of depreciation sustained from March 1, 1913, to date of sale in 1920, even though no deductions were taken therefor in tax returns for prior years. Even Realty Co.,1 B.T.A. 355. 2.

- Upon the facts, held that stock received by petitioner in 1920 in exchange for assets had no market value as of that date and accordingly no loss or gain was realized in the transaction.

The petitioner kept its books of account for 1923 upon the accrual basis. Held: that it is entitled to deduct from gross income interest accrued upon its indebtedness at the close of 1923 and charged as a liability upon its books.

An amount expended in construction of new building attributable to early occupancy thereof held to be a capital expenditure exhaustible over the life of the building. Frank & Seder Co.,13 B.T.A. 1.

1. DATE OF ACQUISITION OF INTEREST IN PROPERTY. - Under the facts in the case at bar and the law of Wisconsin, where the property was situated, held that petitioner acquired his interest in the property in question in January, 1919 (at the death of the grantor), within the meaning of section 292(a)(3) of the Revenue Act of 1921. 2. VALUE OF PROPERTY in January, 1919, determined for purpose of determining gain derived from sale in 1921.

1. Value of leasehold at March 1, 1913, determined for exhaustion purposes. 2. Special assessment denied where no abnormality affecting capital or income is shown to have existed.

SPECIAL ASSESSMENT - SECTION 327 OF THE REVENUE ACT OF 1918. - Influence exerted by officers and directors to the extent to which same increased business done held not sufficient to constitute an abnormality and bring the case within the purview of section 327.

Where one purchases an interest in property determinable upon the death or remarriage of the grantor and agrees to pay therefor a certain sum each month so long as the grantor lives or does not remarry, held that the amount paid each year may be deductible under section 214(a)(8) of the Revenue Act of 1921, but, based upon the facts obtaining and there being no proof of the value of the life estate acquired, the deduction to which petitioner may be entitled can not be…

1. A reserve set up by the Commissioner in the amount of depreciation deductions claimed and allowed in prior years but not reflected in the books, held prima facie correct and the reserve affirmed where the evidence failed to establish that replacements and repairs, charged to expense, adequately offset depreciation sustained. 2. Special assessment denied upon the evidence.

In the determination of a value in use of amortizable facilities by a comparison of the maximum capacity of facilities on hand at the close of the amortization period with production during the postwar period for the purpose of arriving at the reasonable allowance for an amortization deduction under the provisions of section 234(a)(8) of the Revenue Act of 1918, held that the production to be used in this case is the maximum production attained during any one of the years of…

1. The presumption of the correctness of the Commissioner's determination that surplus, as reflected by petitioner's books, should be reduced on account of insufficient depreciation written off on its books for prior years is not rebutted by a mere showing of the depreciation and surplus as reflected by such books. 2.

1. FISCAL YEARS. - The petitioner corporation having kept its books and closed its accounts annually as of May 31 of each of the years 1920 and 1921, was required, by sections 212(b) and 232 of the Revenue Act of 1918 and the same sections of the Revenue Act of 1921, to make its income and profits-tax returns on the basis of such fiscal years. 2. STATUTE OF LIMITATIONS. - The petitioner corporation, keeping its accounts on a fiscal year basis but making returns on a calendar year basis, the applicable statutes of limitations begin to run on the day following the filing of its last calendar year return covering a portion of its fiscal year period. Paso Robles Mercantile Co.,12 B.T.A. 750, followed. Jeopardy assessments made on the day five or four years respectively from the day on which return was filed are timely made and such assessments having been timely made on March 15, 1926, may be collected at any time within six years from the date of assessment. Revenue Act of 1926, section 278(d).

1. GAIN OR LOSS. - In determining gain or loss on a sale in 1920 of an oil and gas lease and equipment acquired in 1919 the basis, in this instance the cost thereof, should be reduced by the… Held: the notes should be included in computation for 1919 and excess costs allowed as a return of capital for the year in which paid. 4. SALE OR GIFT. - A certain transaction held to be a sale, thereby entitling the petitioners to a deduction for the loss resulting from the sale.

A taxpayer keeping its books of account and making its returns upon the accrual basis may not deduct from gross income of any one year, several years' interest upon indebtedness even though the interest is not payable until the maturity of the indebtedness.

1. Where a former decision of the Board is neither pleaded nor introduced in evidence, and where it is stipulated that a question of law is submitted to the Board for decision, and where it is asserted for the first time in a brief filed by counsel that the decision of such question is res adjudicata, held that such contention has no merit. 2. A contract to purchase and sell gas held to be "tangible property" as that term is defined in section 325(a) of the Revenue Acts of 1918 and 1921.

Petitioner was incorporated to take over business of a profit-sharing partnership of three members, the operating assets of which were owned entirely by one partner. Held: That $500,000 in cash, or the equivalent, was paid in to petitioner for stock and surplus, and is the true invested capital at the time of organization; that this amount is the proper basis for computing invested capital for taxable years.

Evidence held to sustain respondent's determination that a payment by a corporation was a dividend.

1. Evidence insufficient to show that repairs on building offset exhaustion, wear and tear so that basis for gain should not be adjusted for exhaustion, wear and tear. 2. A fee received for the sale of trust property, under appointment of the Orphans' Court of Philadelphia by virtue of the statutes of Pennsylvaniaheld not exempt.

1. The common-law doctrine of estates by the entirety exists in Michigan, and upon the death of one spouse there is no transfer of property upon which to impose a tax. 2. Under the laws of Michigan, joint depositors in bank accounts payable to either or the survivor, are joint tenants, and in the absence of evidence establishing the contrary, during their lifetime they are equal owners of the funds.

Petitioner held not entitled to special assessment.

1. In 1921 the petitioner issued $800,000 of Serial Debenture Gold Notes, which, it alleged, were sold through a bank at par, less a commission of 5 per cent. Held: that the $400 stamp tax constitutes an allowable deduction from gross income for 1921; and held, further, that the $40,000 of so-called commissions represents in effect bond discount, and should be prorated over the life of the notes. 2.

1. LOSS OR GAIN - EXCHANGE OF NOTES FOR PROPERTY AND STOCK. - As a result of a reorganization of the John Russell Cutlery Co. effected on December 15, 1923, the petitioner, then being the owner and holder of promissory notes issued by the cutlery company in the amount of $297,500 and another note of $100,000 secured by stock of the cutlery company and all representing a cost to the petitioner in the amount of $397,500, and also being then the original payee and holder of a note in the amount of $120,000, issued and representing a scrip dividend declared by the cutlery company in February, 1920, but which represented no element of cost to the petitioner, exchanged all of these notes and surrendered the collateral and received therefor 1,200 shares of the newly issued stock of the cutlery company at an agreed value of $102,000 and a conveyance of the real estate and factory equipment of said company at an agreed valuation of $300,000. Held, that the petitioner in exchange for notes representing a cost of $397,500 received stock and property at a valuation of $402,000 and then realized a gain in the amount of $4,500. 2. SCRIP DIVIDEND NOTE. - The note representing a scrip dividend declared in February, 1920, and in the hands of the original payee and under the facts as shown in this record, represents no element of cost and can not be a basis for either a bad debt or loss deduction. 3. INTEREST INCOME. - Although the petitioner kept its accounts and made its tax returns upon the accrual basis, the $42,016.67 interest item involved in this action was not a properly or legally accruable item in the ordinary course of petitioner's business, as there existed no reason for believing that the said interest was likely to be paid or could be collected. Following Great Northern Railway Co.,8 B.T.A. 225.

In determining the depletion allowance deductible for 1918, under the provisions of section 234(a)(9) of the Revenue Act of 1918, on account of a leasehold for the extraction of oil which was acquired prior to March 1, 1913, and under which operations were carried on from March 1, 1913, to 1918, consideration should be given to the entire exhaustion sustained for all years, regardless of whether the whole amount of such exhaustion has been allowable as a deduction from gross…

1. Where the allegations of a petition are admitted in the answer, and where nevertheless, petitioner introduces evidence for the purpose of proving such allegations, held, that where the evidence… Held: that where the evidence does not contradict the allegations but supports them, the Board should accept the composite picture resulting from both, but where the evidence contradicts the allegations, the evidence should be accepted. 2.

1. An amount was paid by a corporation for selling its capital stock. Held: no deductible loss resulted. 2. During the years 1922 and 1923 petitioner made expenditures for stenographic hire, miscellaneous office supplies, insurance, advertising and taxes amounting to $1,200.47, of which amount $227.54 represented county and municipal taxes.

In 1922 the Manufacturers National Bank and the Citizens National Bank were merged by the contribution by each of an equal amount of assets. Held: that the transfer to the trustees constituted a declaration of a dividend which became income to the stockholders when paid to them by the trustees.

The evidence does not establish that petitioners are entitled to deductions for losses claimed.

Transfer made before the enactment of the Revenue Act of 1921 not in contemplation of death, but subject to an absolute power of revocation in the transferor, terminable at his death, is not complete until his death and under section 402 of the Revenue Act which is not retroactive where his death follows the passage of the statute, the value at the time of his death of the property transferred is properly included in the gross estate of the transferor.

The invested capital of a corporation may not be reduced, in determining the extent to which a dividend is paid from current earnings of a year, by a tentative tax theoretically set aside out of such earnings pro rata over the year.

- Petitioners originally made a joint return for the calendar year 1925; thereafter, petitioners made separate individual returns for the year 1925, and tendered same to the respondent. Held: petitioners, having originally made a joint return for the calendar year 1925, may not thereafter, by filing amended separate returns, have the tax liability determined upon the basis of such separate returns.

1. Deduction from gross income in the fiscal year ended July 31, 1920, on account of additional salary paid in such year is allowed as reasonable compensation for services rendered in such year. 2. The amount received in the taxable year ended July 31, 1922, in settlement of an action for damages was properly added to petitioner's gross income by the Commissioner. 3.

Where a partnership did not have a fiscal year but a monthly accounting period and the partners reported the income from the partnership and filed returns on a calendar year basis, held, the… Held: the respondent was in error in placing the partnership on a fiscal year basis, and in increasing the income of the partners.

1. Held, that a tax imposed by the income-tax act of the French Republic upon seven times the rental value of property used by an American… Held: that a tax imposed by the income-tax act of the French Republic upon seven times the rental value of property used by an American citizen resident in France is an income tax and as such should be credited against income-tax liability of the payor to this Government as of the year in which it is paid to the French revenue. 2.

1. INCOME - INSTALLMENT SALES. - In the year 1920 the petitioner collected $27,423.50 on installments of sales made in the year 1918. Of this amount $13,026.16 was gross income and must be included in petitioner's gross income for the year 1920. 2. DEDUCTIONS - INSTALLMENT SALES. - The excess of allowable deductions over gross income as reported on the installment basis for the year 1918 may not be treated as a deferred expense and deducted in the year 1920. 3.

Where the cost of an exhaustible asset is greater than its value on March 1, 1913, such cost may be used as the basis for the deduction, under the Revenue Acts of 1917 and 1918, of a reasonable allowance for the exhaustion of such property.

The petitioner filed its income and profits-tax return for the calendar year 1918 on June 16, 1919. Held: that assessment and collection of the deficiency is not barred by any statute of limitation.

Petitioner not entitled to classification as a personal service corporation during any of the years in question.

Where a corporation sells capital assets and as a part of the consideration therefor receives certain of its own shares of stock, held, that the transaction is one that may result in gain or loss and… Held: that the transaction is one that may result in gain or loss and such gain or loss must be ascertained by determining the fair market value of the property other than cash included in the sales price.

1. AFFILIATION - GAIN OR LOSS. - Where the petitioner was the owner of capital stock in an affiliated corporation and the latter was liquidated during the taxable year, resulting in a loss on the price paid for the stock, the loss is not deductible on the consolidated return as it was an intercompany transaction occurring during affiliation. 2.

1. Held, under facts presented, petitioner's sale of stock was not an involuntary conversion thereof within the meaning of section 214(a)(12) of… Held: under facts presented, petitioner's sale of stock was not an involuntary conversion thereof within the meaning of section 214(a)(12) of the Revenue Act of 1921. 2. Held, under the facts presented, that the petitioner's sale of stock was not a transaction amounting to a reorganization such as to give rise to any gain or loss.

A corporation which filed separate returns for 1922 and 1923 may not subsequently file consolidated returns for those years.

Held, that expenses incurred by a lawyer who is a member of the American Bar Association in attending a meeting thereof are deductible… Held: that expenses incurred by a lawyer who is a member of the American Bar Association in attending a meeting thereof are deductible from gross income as ordinary and necessary expenses incurred in a trade or business, and, further, held, that expenses incurred by such member of the American Bar Association in making a trip to Europe as…

The petitioner owned 81.466 per cent of the capital stock of the Merchants Ice Co. of Lebanon Valley, Pa., from January 1, 1922, to the date of sale of its holdings in the last named company. Held: that the petitioner was not affiliated with the Merchants Ice Co. of Lebanon Valley for the year 1922 and that it is liable to income tax upon the profit received by it in 1922 from the sale of the stock.

- Where petitioner was in the wholesale grocery business and also operated a cattle ranch, it may file its inventory of the grocery business on the cost basis, and that of the cattle ranch on the basis of market, as it appeared that it had always used that method, and that the nature of the business made it practically impossible to use the cost basis.

1. AFFILIATION. - Where the parent corporation owned all of the common stock of the petitioners, and preferred stock with voting rights, but redeemable at any time, was issued to others not in excess of 30 per cent, and the affairs of petitioners were absolutely dominated and controlled by the parent corporation, the cororation, the corporations were affiliated, and should file a consolidated return. 2.

Petitioner, his wife and two sons, with four others, formed a partnership which operated a coal mine during the taxable years. Held: that there should be included as income taxable to petitioner only the share of partnership net earnings that did not belong to others.

Petitioner priced the inventories in its return for the fiscal year ended March 31, 1920, on the basis of cost, such return having been filed prior to the issuance of Treasury Decision 3108, which… Held: that the petitioner should be allowed to price its inventories for the fiscal year ended March 31, 1920, on the basis of cost or market, whichever was lower.

Held, that the alleged parol assignment by this taxpayer, now deceased, of income to arise in the future has not been proved, and does not relieve her estate from the liability for the tax thereon… Held: that the alleged parol assignment by this taxpayer, now deceased, of income to arise in the future has not been proved, and does not relieve her estate from the liability for the tax thereon when the income was received.

Value at March 1, 1913, of land and building determined for the purpose of ascertaining profits derived upon sale in 1921.

Held, that the wives of the petitioners were copartners with them in the W. E. Held: that the wives of the petitioners were copartners with them in the W. E. Kier Construction Co. during 1921; and that the respondent erred in adding to income of the petitioners the shares of their respective wives in the profits of the company for that year.

An amount claimed to represent the value of intangibles paid in for capital stock at the time of petitioner's incorporation in 1907 held properly excluded from invested capital where neither the character nor the value of the property claimed to have been paid in can be ascertained.

1. The unexpended balance of a bequest received by a decedent from a preceding estate within five years prior to his death, remaining in his account in a bank at the time of his death, held deductible under section 303(a)(2), Revenue Act of 1924. 2.

1. Petitioners sold their product in cotton bags, reserving the property in such bags. Held: that in the circumstances shown, such treatment of the account distorted income and was erroneous. 2. Held, further, that income represented by such transactions is properly reflected by including as income 10.1 per cent of the amounts credited to Bag Redemption account during the year.

Petitioner has not established such abnormal conditions as to entitled it to a determination of its profits tax under section 328 of the Revenue Act of 1918.

1. Petitioner corporation entered into an agreement with the owner of real estate to pay her an annuity as the consideration for the conveyance of such real estate. Held: further, that to the extent that each annual payment is in excess of the present value of such payment at the time when the annuity contract was undertaken, it is deductible in computing income. 2.

1. Action of the respondent in adjusting invested capital on account of income and profits taxes for the preceding year approved. 2. Held: that the petitioner is not entitled to have its profits-tax liability determined under section 311(a) of the Revenue Act of 1918. 3.

As compensation for his services in effecting a sale of certain coal properties the petitioner received from the purchaser certain interest-bearing notes and bonds payable seven years from the date… Held: that the notes had no market value at the time received and that, therefore, the Commissioner's determination in respect to the notes was erroneous, but that the evidence offered was insufficient to show error in the Commissioner's determination in respect to the bonds.

Evidence held insufficient to show a state of facts permitting the petitioners herein, who were legatees and life beneficiaries under a decedent's will, to deduct in their individual income returns a proportionate share of the net capital loss suffered by the estate during the taxable year 1923.

1. Expenditures for improvements, betterments and replacements to a chemical plant, held to be capital expenditures. 2. Held: that the book value of a chemical plant at January 1, 1920, does not truly reflect its value. 3. Under section 280, Revenue Act of 1926, a transferee of the assets of a corporation which has gone out of business, held liable for unpaid taxes of the corporation to the extent of the amount the transferee received in liquidation. 4.

During the calendar year 1920, the petitioner operated under a declaration of trust, which vested in the three trustees, named therein, the unrestricted management and control of its affairs. Held: that under the retroactive provisions of section 704 of the Revenue Act of 1928 the petitioner is taxable for the year 1920 as a trust and not as a corporation. E. A. Landreth Co.,15 B.T.A. 655, followed.

Commissioner's disallowance of additions to a reserve for bad debts approved.

The petitioner and the Syracuse Baseball Club were not affiliated from January 1 to July 3, 1922, but were affiliated from July 3 to December 31, 1922. Held: that the tax liability for 1923 should be computed upon the basis of the consolidated return filed.

1. Legal expenses and a payment in compromise of a suit alleging petitioner acquired oil properties by fraudulent means and seeking to recover the properties, together with an accounting for profits obtained from dealings with such properties, were not personal expenses, nor were they deductible as business expenses, for that portion allocable to the defense of the claim against title was a capital expenditure. 2.

The petitioner held to have had no such abnormality in invested capital and income for the years 1918, 1919, and 1920 as would entitle it to special assessment under the provisions of section 328 of the Revenue Act of 1918.

1. The fair market value of a farm acquired prior to March 1, 1913, determined as of that date. 2. Petitioner held not entitled to return income from sale of farm in 1921 on the installment basis, the sale being a completed one in 1921, and more than one-fourth of the sale price being received in the initial payment.

Petitioner in 1919 paid $11,300 for stock in a corporation which, in October, 1920, decided to liquidate and in that year sold one-third of its assets. Held: petitioner sustained a loss in 1920 of the cost of his stock, $11,300.

Motion for judgment on the record holding deficiency barred by the statute of limitation denied.

Under section 280 of the Revenue Act of 1926 one of eleven transferees of the assets of the corporation upon liquidation who received property of a greater value than the deficiency in income and profits tax due by the corporation, is liable for payment of the entire deficiency.

The petitioner and the Real Estate Mortgage Co. were affiliated corporations during the taxable year.

Section 301 of the Revenue Act of 1918, levying a higher rate of tax upon income from Government contracts, is not unconstitutional.

1. An amount paid by petitioner to his attorney for services rendered in appearing before certain legislative committees in connection with certain proposed legislation affecting petitioner's business held to be an ordinary and necessary business expense and deductible from gross income in the taxable year. 2.

1. The doctrine of res adjudicata did not, under the Revenue Act of 1924, operate to make a decision in a former case involving the years 1918 and 1919 conclusive as to a subsequent proceeding for the years 1920, 1921, and 1922. Union Metal Manufacturing Co.,4 B.T.A. 287, followed. 2.

1. Deduction for obsolescence of intangibles disallowed. 2. Deduction for compensation of an attorney for services rendered allowed in the taxable year. 3. Invested capital should not be reduced on account of a tentative tax in determining current earnings available for the payment of dividends within the year.

Where a taxpayer had a contract for the construction of a building which provided that the building should not cost more than a specified amount and the contractor refused to complete the building,… Held: that the taxpayer failed to show that it sustained a loss, and held, further, that it is not entitled to deduct any amount as a debt ascertained to be worthless even though the contractor was adjudicated a bankrupt within the taxable year.

A tax paid to the Republic of France by a citizen of the United States temporarily residing in France computed upon an estimated income of seven times the rental value of the residence occupied by him is an income tax within the meaning of section 222(a)(1) of the Revenue Act of 1921.

1. The petitioners, attorneys at law, making their returns on the cash receipts basis, performed numerous separate legal services for a dealer in coal properties, such services extending over a period from 1909 to 1915, when their client's affairs were placed in the hands of receivers. In the latter year the petitioners acquired a judgment for the value of their services and interest. The judgment, plus interest to date of payment, was paid in cash in 1920 and the Commissioner determined that the entire amount received in cash was income to the petitioners for that year. Held, that the portion of the amount received in 1920 which represented the value of the completed services performed prior to March 1, 1913, plus interest thereon to that date, was not taxable income in 1920 where the evidence showed that the March 1, 1913, value of such portion equaled the amount received therefor. 2. The determination of the Commissioner in respect to the remainder of the amount received in 1920 is sustained.

Petitioner, having filed a joint return of income for himself and wife for the calendar year 1922, is not entitled to have his tax computed on the basis of a separate return.

BAD DEBTS. - Where the petitioner introduced no competent evidence to show what action it took to ascertain the alleged worthlessness of certain bad debts in the taxable year, deduction therefor can not be allowed.

The six-year period for collection after assessment provided in the 1924 Revenue Act, does not apply to an assessment made before June 2, 1924, the date on which the act was approved, and if the unabated portion of the tax so assessed is not collected within the statutory period as extended by waivers, if any, the collection of such tax by the Commissioner is thereafter barred. Russell v. United States,278 U.S. 181.

When a jeopardy assessment of a tax for 1920 is made under the provisions of section 279(a) of the Revenue Act of 1926 just prior to the expiration of the statute of limitation, and before notice has been mailed under the provisions of section 274(a), the tax so assessed may not be collected unless a notice is mailed to the taxpayer under the provisions of subdivision (b) of section 279 within 60 days after such assessment and within five years after the return was filed.

A contribution, made by a corporation to an association, with which to erect and equip a hospital for employees of the corporation held under the facts of record to have had a direct relation, and produced a direct benefit, to the corporation and the sum so contributed allowed as a deduction under section 234(a)(1) of the Revenue Act of 1918.

1. Where a taxpayer owns a life interest in real property and erects a building thereon with her own funds, the life of which extends beyond the life expectancy of the life tenant, she is entitled to deduct in each year that portion of the cost which the taxable year bears to her total expectancy of life, as shown by life tables, but she is not entitled under the circumstances of this case to an additional deduction representing exhaustion of the building over its own life.…

1. INVESTED CAPITAL. - Petitioner corporation in June, 1918, increased its capital stock from $5,000 to $50,000 and the additional $45,000 of stock was issued to two individuals in exchange for an… Held: that petitioner is precluded by sections 331 of the Revenue Acts of 1918 and 1921 from including in invested capital for 1920 and 1921 any amount on account of the contract so acquired. 2.

1. Where petitioner corporation paid over to its president large sums of money to use in the company's business, which sums were spent by him at his discretion, no record… Held: such proof is insufficient to establish error in disallowing such items as expense deductions. 2. Testimony, though uncontradicted, that all sums claimed were spent in the business of the company is not sufficient to establish the deductibility of expenditures as ordinary and necessary expenses.

Held that certain personal property held in name of decedent, a resident of the State of Washington, was community property and returnable as such for taxation.

1. Payments to petitioner made in 1920 constituted loans or advances and were neither gratuities nor payments of additional compensation under the terms of a contract of employment. 2.

The petitioner is entitled to deduct the aggregate amount of six promissory notes found to have been worthless and charged off in 1920, irrespective of the worth of four other notes against the same debtor which it did not charge off until the years following.

Where a jeopardy assessment is made under the provisions of section 279(a) of the Revenue Act of 1926, before notice has been given under the provisions of section 274(a), such assessment must be followed by notice, as prescribed by section 274(a), within 60 days after the making of the assessment, in order that its collection may be made after the expiration of such 60 days. J. H. Reese,15 B.T.A. 1261, followed.

Where a jeopardy assessment is made under the provisions of section 279(a) of the Revenue Act of 1926, before notice has been given under the provisions of section 274(a), such assessment must be followed by notice, as prescribed by section 274(a), within 60 days after the making of the assessment, in order that its collection may be made after the expiration of such 60 days. J. H. Reese,15 B.T.A. 1261, followed.

SECTION 280, REVENUE ACT OF 1926. - Petitioner received, as transferee, assets of a dissolved corporation in excess of the amount of its tax liability. Held: that petitioner is liable for the unpaid portion of the amount of the tax liability of the transferor. Grand Rapids National Bank et al.,15 B.T.A. 1166, followed.

1. Where under a composition agreement of creditors it is provided that all sums paid shall be treated as interest, but upon the payment of sums totaling 45 per cent of the principal sum due all further obligations to pay either principal or interest shall be discharged, petitioner's accrual of interest may not exceed the total amount it is obligated under the contract to pay. 2.

1. Petitioner has failed to establish that the deduction claimed as net additions to reserves required for the protection of policyholders under section 234(a)(11) of the Revenue Act of 1918 is properly allocable to the taxable year. 2. The respondent's action in eliminating from invested capital the amount of reserves held by petitioner during the taxable year is approved. 3.

- Classification as a personal service corporation denied. Petitioner's income may not be ascribed primarily to the activities of the principal stockholders who are themselves regularly engaged in the active conduct of its affairs.

1. Petitioners were remaindermen under a declaration of trust of personalty made originally in 1892. Held: the sale resulted in gain or loss to petitioners and the basis thereof is the value of property sold when legally acquired on March 3, 1921. 2. Section 202(a)(2), providing the basis for ascertaining gain or loss on the sale of property acquired by gift after December 31, 1920, is not applicable.

Where both a partner and a partnership of which he was a member kept their accounts on a cash receipts and disbursements basis, and each had the same accounting year, and where the partner died within such year, held that they should return for income tax the share of such decedent in the partnership income for the period ending with his death, irrespective of whether such share was distributed or not, the said share of income to be computed as of the date of such partner's…

Decedent having had no interest in certain securities at the time of his death within the meaning of section 402 of the Revenue Act of 1921 and there having been no valid claim against the estate with respect thereto within the meaning of section 403 of that Act, the value thereof should not be included in the gross estate, nor the alleged liability therefor deducted in the computation of the net taxable estate.

1. The value of certain engraved copper rolls at December 31, 1919, was $18,000. 2. The value at December 31, 1919, of buildings, machinery, and furniture and fixtures can not be established by restoring certain amounts written off to profit and loss or surplus in 1913 and prior years.

PLEADINGS. - Where the pleadings present an issue of law and the proceeding is submitted for final determination solely upon such pleadings, and it appears that the pleadings also present an issue of fact which the Board is without means of determining and the determination of which is essential to the Board's granting the petitioners any relief, the Board will decline to determine the issue of law because to do so would be futile in the circumstances.

Certain stock received by petitioner in 1920 held not to have been issued in payment for salary and should not be included in gross income for that year.

1. Where within the taxable year certain stockholders assumed a debt due the corporation and where such debt was worthless when so assumed, held that such debt is not deductible from the gross income of such stockholders for said year as a debt ascertained to be worthless and charged off within the taxable year. 2.

A Texas corporation was dissolved June 13, 1919. The statutes of that State continued the existence of the corporation for a period of three years and gave the trustees of the corporation authority for that period to settle the affairs of the corporation, and also provided that the corporate existence might be longer continued by the appointment of a receiver. No receiver was appointed. More than three years after the dissolution of the corporation, the former president of the corporation, who had also been one of its trustees, signed a consent on behalf of the dissolved corporation purporting to extend the period of limitation for assessment and collection of any tax found to be due by the corporation. Held, that such former officer of the corporation was without authority to act beyond the three-year period; that the consent executed by him for the corporation was invalid and did not suspend the running of the statute of limitation. Held, further, that inasmuch as the deficiency was not assessed against the corporation within five years from the date the return was filed, and the notice of the Commissioner's determination that petitioner was liable for the deficiency of the corporation as a transferee of its assets, was not mailed within one year after the expiration of the period of limitation for assessment of the tax against the corporation, the petitioner is not liable for the deficiency.

An antenuptial agreement, entered into in Alsace-Lorraine in 1903 between the petitioner and his wife, that property acquired (including earnings of either) should be conclusively considered as… Held: does not entitle each of them after becoming residents of New York to return one-half of the salary earned by the husband.

1. A segregated surplus of $20,610.54 should not have been applied to reduce invested capital at December 31, 1917. 2. The voluntary payment without assessment of income and profit taxes in the amount of $17,298.79 for 1918 should have been given effect in determining a tax liability for that year, and the Board has jurisdiction in such matters. 3.

For failure to adduce sufficient evidence of errors on the part of the respondent as alleged, his findings are approved.

County warrants received by the petitioner in prior years as compensation for materials furnished to counties and political subdivisions and held during the taxable years are inadmissable assets under the definition in section 325(a) of the Revenue Act of 1918.

Where certain stocks were transferred to petitioner as trustee under a revocable trust in 1915, were later placed in the corpus of another trust in the hands of another trustee, and subsequently, in 1917, upon the revocation of both such trusts, were transferred to a third trust of which petitioner was trustee; held the first and third trusts were distinct and separate and the value of the stocks when acquired by petitioner in 1917, rather than when acquired in 1915, was the…

Respondent's application of surtax rates approved in the absence of evidence showing when the amounts so taxed were received and where it is not shown that his action is erroneous under the statute.

Value of patents determined.

Gifts inter vivos made by the decedent prior to the passage of the Revenue Act of 1924, to wit, June 2, 1924, are not taxable under sections 319-324 of that Act as amended by the Revenue Act of 1926.