Volume 15 — Tax Court Reports

On the facts, held, petitioner was not a partner of Selber Bros. Inc. during the taxable year involved. Held: petitioner was not a partner of Selber Bros. Inc. during the taxable year involved.

Decedent, at the time of his death in August 1945, was a member of a partnership which was in the furniture business and used the installment basis… Held: that the $ 30,168.42 in question is includible in decedent's income for the period ending with his death under section 44 (d) of the Internal Revenue Code, no bond having been filed as provided in the concluding part of that subsection. F. E. Waddell et al., Executors, 37 B. T. A. 565, affd., 102 Fed. (2d) 503, followed.

Gift Tax -- Year of Gift -- Antenuptial Agreement. -- Transfers of property made in 1936 and 1944 pursuant to an antenuptial agreement which became binding upon the marriage of the parties in 1931 were not subject to gift taxes in the years 1936 and 1944.

Petitioner is the lessee of a coal mining property, including the mine, plant, machinery and equipment. Held: For the purpose of determining percentage depletion allowable under sections 23 (m) and 114 (b) (4), Internal Revenue Code, there must be excluded from gross income from the mine a sum equal to the full amount of 25 cents per ton paid as rents and royalties with respect to the property.

During the period 1935 to 1944 petitioner acquired by purchase various mortgage pool participations, mortgage participations and mortgage certificates which were in the process of liquidation. Held: Petitioner was not a dealer in mortgage pool participations, mortgage participations, and/or mortgage certificates.

Petitioner and his three associates organized a corporation to hold and manage a parcel of business realty. Held: The entire amount paid in by petitioner was intended to be risk capital. His loss upon liquidation of the corporation is not deductible in full as a bad debt but may be deducted as a capital loss subject to the limitations of section 117 of the Internal Revenue Code.

A, B, and C were partners in a freight forwarding business with interests approximating 49%, 35% and 15%, respectively. Held: that petitioner was not an acquiring corporation of the said partnership within the meaning of section 740 (a) (1) (D) of the Internal Revenue Code since the exchange by A and B of their interests in the partnership for petitioner's stock was not an exchange to which section 112 (b) (5) of the Internal Revenue Code was applicable.

Where petitioner made an irrevocable conveyance of property which it owned, to an independent purchaser in a bona fide arm's length sale, and as part of the sales agreement retained the right to… Held: petitioner is entitled, under section 23 (f), to deduct as a loss the excess of the basis of the property sold over the amount realized from the sale.

1. Petitioner held not entitled to the deduction of amounts paid by him in 1942 and 1943 as expenses for room and meals while in Washington, D. C., in the employ of… Held: that such portions of the trust income as were paid by the trustee direct to various charities under written designation by petitioner were not deductible by the trust and were limited in their deduction by petitioner to the amount allowable as charitable contributions under the statute to an individual.

Property settlement agreement, incorporated into the decree of divorce which petitioner obtained from her husband, provided that petitioner would receive monthly payments during her life. Held: that the payments are includible in petitioner's income. Laughlin's Estate v. Commissioner, 167 Fed. (2d) 828, followed.

The petitioners, E. W. McGah and John P. O'Shea, were partners doing business under the name of San Leandro Homes Co. The business of San Leandro was the building of… Held: that in the taxable year, the houses were held by San Leandro primarily for sale to customers in the ordinary course of its business within the meaning of sections 117 (a) and (j), I. R. C., and that the gain from the sales in 1944 is taxable as ordinary income. Nelson A. Farry, 13 T. C. 8, distinguished.

1. Upon the facts, held, insurance proceeds received by petitioner in payment for buildings, machinery, and equipment destroyed by fire were expended in the acquisition of… Held: insurance proceeds received by petitioner in payment for buildings, machinery, and equipment destroyed by fire were expended in the acquisition of other property similar or related in service or use to the property destroyed within the meaning of section 112 (f) of the Internal Revenue Code. 2.

Petitioner is a New York corporation incorporated in 1925. It began business in a small way which increased as time went on, and it became prosperous. Held: the payments should be allowed as deductions to petitioner under the provisions of section 29.23 (a)-9 for a period of 24 months after Putnam's death, including the 18 months already allowed by respondent.

Sums expended by the taxpayer in 1940 to provide his employees with paid-up annuities in consideration of their past services were not deductible over a 10-year period as amounts transferred or paid into a pension trust within the meaning of section 23 (p) of the Internal Revenue Code.

Excess Profits Tax -- Section 722 (b) -- Section 713 (f). -- Low net earnings of base period years not shown due to earlier depression, to government interference or droughts and, in any event, the constructive average base period net income would not give benefit in excess of that obtained under section 713 (f).

Petitioner paid $ 16,500 legal and investment counsel fees in connection with a revision of its capital structure. Held: petitioner is entitled to deduct $ 11,000 as ordinary and necessary expense.

Early in August 1944 petitioner decided to make a gift or series of gifts in trust for the benefit of a grandson who had been born on July 30 of that year. Held: that the gift was the gift of a future interest and that in computing his net gifts for 1945 petitioner is not entitled to the exclusion provided by section 1003 (b) (3) of the Internal Revenue Code.

Petitioner, a corporation engaged as an automobile dealer, borrowed substantial amounts from banks to purchase United States Government obligations, securing… Held: the amounts borrowed did not constitute borrowed invested capital for excess profits tax purposes under section 719, Internal Revenue Code, and Regulations 112, section 35.719-1. Hart-Bartlett-Sturtevant Grain Co., 12 T. C. 760, affd., 182 Fed. (2d) 153, followed. Globe Mortgage Co., 14 T. C. 192, distinguished.

1. Partnership -- Husband's Domination. -- The petitioner has not shown that she was so dominated by husband as to render nontaxable to her her full distributive share of a partnership in which she took a prominent part. 2. Gain -- Realization -- Cash Basis. -- One on a cash basis does not realize gain from an alleged sale until cash or equivalent is received.

Payment of real estate taxes out of proceeds of real property sold at foreclosure of tax lien held not to entitle petitioners to deduction as taxes paid, notwithstanding that petitioners owned the property prior to foreclosure. Harold M. Blossom, 38 B. T. A. 1136, distinguished.

Taxpayers are not entitled to a deduction for casualty loss by fire of jewelry and clothing owned by an adult daughter, notwithstanding the fact that the daughter was still dependent on her parents for support.

Held, as determined by the Supreme Court of the State of Kansas, in McEwen v. Enoch, 167 Kan. 119, 204 P. 2d 736, the trust involved was void because it violated the rule against perpetuities and the gifts to decedent's grandchildren were accelerated. Also, held, the gifts in question were not made in contemplation of death.

The taxpayer, subsequent to marriage, entered into an agreement with his wife whereby he agreed that in selling all real property, or rights or interests in lands owned by him, he would pay his wife… Held: the entire amount received from the sale of the timber rights and from the sale of the interest in the oil and gas lease in the respective years 1942 and 1943 inured to the husband and was properly used to measure his taxable gain.

1. Basis -- Reorganization -- Section 112 (g) (1) (C). -- Where the original mortgagor (lessee) had lost its interest in the property by cancellation of its lease before the mortgagees started foreclosure, there was no transfer from it to the purchaser at the foreclosure sale within the meaning of section 112 (g) (1) (C) and the petitioner does not take the mortgagor's basis.

Deductions -- Accrual -- Interest -- Unpaid -- Section 24 (c). -- Interest accrued but unpaid deductible where payees were not joint venturers and did not own more than 50 per cent of stock of the petitioner.

1. Petitioner received certain annual payments from a drug manufacturer by reason of a licensing arrangement between the manufacturer and petitioner's great-grandfather which provided for use by the… Held: petitioner was not entitled to deduct any portion of the loss sustained in sale of a country estate because of incidental raising of fowl on the property. 4.

Held, payments to a hospital in consideration of hospital and institutional treatment and not imposed on the husband under a divorce… Held: payments to a hospital in consideration of hospital and institutional treatment and not imposed on the husband under a divorce decree nor made by such husband under a written instrument incident to such decree and therefore not being taxable to the divorced wife under section 22 (k), I. R. C., are not deductible by the husband under…

Pleadings -- Constitutional Question. -- A constitutional question will not be considered in the absence of pleadings properly raising such a question.

Partnership -- Income -- Partner Carrying on Allied Business for Benefit of Partnership. -- Where an agreement was made that one partner, during the absence in the military service of his two co-partners, could go into a business similar to that of the partnership, use personnel, office, equipment and credit of the partnership in conducting that business, conduct the business as a partnership with new partners and have his share of the profits transferred to the old…

Petitioner, who reported his income on the cash receipts and disbursements basis, was one of the organizers of a corporation in November 1942. Held: the fair market value of 25 shares is includible in petitioner's income for each of the years 1943 and 1944, in which years they were delivered to him without restriction in consideration of services performed.

Estate Tax -- Gross Estate -- Inter Vivos Trust -- Section 811 (a). -- The part of the corpus of an inter vivos trust to be included in the gross estate, after excluding the life estate of a former wife of the decedent-grantor and the portion left for the benefit of a daughter and her issue, determined.

Ancillary administration proceedings were instituted in June 1941, approximately 20 years after the decedent's death, for the purpose of transferring securities of decedent to petitioner as heir and legatee. $ 45,850 of dividends declared on decedent's stock in 1940 and 1941 were paid to the ancillary administrator in 1941. Petitioner received $ 25,955.31 of this amount and paid income tax thereon.

Petitioner paid $ 25,000 for an option to purchase certain corporate stock with the expectation that another corporation, not obligated so to do, would take… Held: petitioner as principal and not as agent purchased the option and that the loss it sustained was a short term capital loss under section 117 (g) (2) of the Internal Revenue Code. Held, further, that since petitioner had no capital gains in the tax year involved no deduction is allowable for the loss sustained.

The decedent, prior to the date of his retirement under a pension plan, at which if living and in the employ of the employer he would have a right to an annuity, and before his employer had paid up… Held: that at the time of exercise thereof the decedent had no right to annuity payments which he could or did transfer within section 811 (c) of the Internal Revenue Code and that the value of the annuity paid to his widow is not includible in his estate.

Held, under the facts, that co-owner of two oil leases was not entitled to deduct in taxable years 1944 and 1945 sums paid by him in those years for his portion of… Held: under the facts, that co-owner of two oil leases was not entitled to deduct in taxable years 1944 and 1945 sums paid by him in those years for his portion of his share of drilling expenses incurred in 1941, which he was unable to pay in that year and which were then paid in his behalf by another co-owner.

On or about August 23, 1942, petitioner, a United States citizen, left this country for Canada in pursuance of his employment concerning a war contract. Held: petitioner was a bona fide resident of Canada for at least 2 years prior to October 1, 1944, and the compensation received from his work in Canada during 1943 and 1944 should be excluded from his gross income under section 116 (a) (1) and (2).

1. Capital Gain -- Option -- Not Exercised -- Section 117 (g) (2). -- Petitioner sold stock in a corporation in 1940 and received from… Held: the 1940 sale was closed for tax purposes in that year and section 117 (g) (2) applies to the 1942 transaction. 2. Capital Loss -- Transferee Paying Tax of Transferor -- Ordinary Loss. -- Payment of transferor's tax by a transferee is deductible as an ordinary loss and not as a capital loss. Stanley Switlik, 13 T. C. 121, followed. 3.

Held, since all of the factors necessary to a determination of the amount of the credit on petitioner's franchise tax provided by… Held: since all of the factors necessary to a determination of the amount of the credit on petitioner's franchise tax provided by applicable New York law based on its 1943 net income became known within its tax year 1944 and not prior thereto, and since it kept its books on an accrual basis, the amount of such credit was includible in its…

1. A petition filed in the name of a dissolved corporation by a former liquidating trustee and sole stockholder, without authority to act for the corporation under state law, is not the petition of the corporation and the proceeding instituted thereby is dismissed for lack of jurisdiction. 2.

On February 21, 1944, petitioner executed a trust instrument whereby he transferred to himself as trustee both his entire interest in an agreement between his employer and himself relating to certain… Held: The transfer by petitioner of his entire interest in an agreement between his employer and himself constituted an assignment of his right to compensation for past services and therefore payments received by the trust from his employer are taxable to petitioner. 2.

1. Administration of estate held completed when decedent's debts were paid and all other duties pertaining to administration were performed by the executor, except distribution of the assets of the estate to the life beneficiary under decedent's will. 2. Gift by the life beneficiary to her daughter of certain cattle which had been raised by the estate after decedent's death held not to have resulted in taxable gain to the donor.

1. Petitioner employed a manufacturer's representative to aid it in securing government contracts and the representative performed this service as well as many other services after the contracts were… Held: the commissions paid to the manufacturers' representative were ordinary and necessary business expenses and constituted reasonable compensation for the services performed, under section 23 (a), I. R. C. 2.

1. Business -- Regularly Carried on -- Net Operating Loss Carry-over -- Section 122 (d) (5). -- A deduction for bad debts was attributable to the operation of a business regularly carried on by the petitioner. 2. Earned Income Credit. -- Earned income credit proper although petitioner spent a part of the year in the Air Corps.

Petitioners and others purchased as an investment certain past due notes of a corporation at less than face value and caused them to be transferred to a Trust Company which, pursuant to an agreement,… Held: The notes were not in registered form, within the meaning of section 117 (f), I. R. C., and the petitioners' gains upon retirement of the notes were not capital gains.

Exchange by A Corporation's stockholders of its entire stock solely for a part of B Corporation's voting stock held to constitute both corporations parties to a reorganization so that gain on the exchange is not recognized under sec. 112, I. R. C., notwithstanding that on the next day, due to subsequent developments and without the acquiescence of the A shareholders, B transferred the A Corporation stock to its subsidiary.

In 1939 petitioner executed an oil and gas lease covering 1,160 acres for a primary term of 5 years, receiving $ 100,000 bonus or advanced royalty on which petitioner was allowed a depletion… Held: The original lease was not terminated but was extended in a modified form for a primary term of 2 years. 2. Twenty-four twenty-ninths of the sum of $ 27,500 claimed and allowed in 1939 as a deduction for depletion is to be restored to petitioner's income for the taxable year 1944.

Decedent was one of two partners who were awarded a contract for the construction of a government housing project early in 1942. Held: That the wives were included in the partnerships organized on June 1, 1942, and January 2, 1943, for valid business reasons and must be recognized as partners in such partnerships for Federal tax purposes.

Petitioner, a member of the California Highway Patrol, was injured while on duty. Held: the salary so paid was not workmen's compensation within the meaning of section 22 (b) (5), I. R. C., and should not be excluded from gross income.

1. Income -- Accrual Basis -- Reversing Entries. -- Taxpayer properly reported accrued rent as shown on corporate books after reversing entries had eliminated amounts which were collected but later refunded. 2.

1. Trusts -- Income -- Distributed Currently -- Distributive Share of Partnership Income Not Actually Received by Trust -- Section 162 (b). -- Beneficiaries held not taxable on that part of a testamentary trust's distributive share of partnership income not distributed to trust where beneficiaries had no present, enforceable right under the will to the income in question. 2.

Petitioner, in the taxable year 1945, was an employee of the Chemical Warfare Service of the War Department with her regular post of duty in Lowell,… Held: the case of Beatrice H. Albert, supra, is res judicata in the present proceeding. Held, further, that even if it be assumed that the first proceeding is not res judicata, nevertheless, such expenditures are not deductible under the rule of stare decisis for the same reasons stated in Beatrice H. Albert, supra.

Petitioner and his former wife were married in 1901. They were separated in 1921. Several times from 1921 until 1936 they discussed the subject of divorce. Held: since the payments were made under a written instrument and legal obligation within the intendment of section 22 (k) of the Internal Revenue Code, they were properly deductible by petitioner during the years before us.

Basis -- Fair Market Value -- Property Received as a Bonus. -- Property received as a bonus for taking over a lease and reported as income at its fair market value, thereafter takes that value as its basis.

Activities incident to the sale of a tract of land which petitioner subdivided and improved in order to promote its sale to a group of six contractors, held not to constitute the carrying on of a trade or business, and therefore the lots sold to the contractors during the taxable year were not held primarily for sale to customers in the ordinary course of the petitioner's trade or business and the profits from such sales were taxable as capital gains rather than ordinary…

Respondent mailed a statutory notice of deficiency in income tax for the period January 1 to June 30, 1941, to A corporation and a statutory notice of liability for such tax as transferee to corporation B. These corporations filed no appeal with this Court from such deficiency or liability.

Petitioner and his wife separated in 1934. At that time there was no discussion of the possibility of a divorce. Held: the petitioner's payments in question were not made in discharge of a legal obligation imposed upon or incurred by him under a divorce decree or under a written instrument incident to such decree as provided in section 22 (k) of the Internal Revenue Code, and the payments made by petitioner under the separation agreement in the years…

On or before June 24, 1941, petitioner acquired title to 7 chrome mining claims in exchange for its entire capital stock, and thereafter it engaged in limited exploration and development of the… Held: that during the taxable year 1944 petitioner was not engaged in the mining of chromite within the meaning of section 731 of the Internal Revenue Code, and therefore its adjusted excess profits net income in that year was not exempt from the excess profits tax.

Petitioner, not having established portion of 1943 abnormal income from citrus fruit orchards which was attributable to other years, or that such abnormal income was not attributable to increased demand, higher prices and improvement in business, held not entitled to excess profits tax relief under section 721 (a) (2) (C).

Income -- Exemption -- Employees of Foreign Government -- Sections 22 (b) (8), 116 (h) (1). -- Fomento was a part of the Government of Chile, not a corporation; the petitioners, employees of Fomento, were employees of a foreign government and their compensation was received for official services to that government.

1. Gift Tax -- Transfer in Trust. -- Where a transfer in trust in 1932 was made with a reserved power in the grantor to revoke in whole or in part in conjunction with a contingent remainderman who… Held: a completed gift of the entire trust property. Held, further, that payments of trust income to the wife prior to such amendment constituted annual gifts in the years such payments were made.

On August 31, 1944, just prior to the close of the fiscal year ended September 30, 1944, petitioner borrowed certain funds with which it purchased from the shareholders of Impervious Varnish Co. all… Held: Petitioner, after the acquisition of all the shares of another corporation, became a member of a controlled group. (2) There is no ambiguity in the provisions of section 713 (g) (5), as added to section 713 (g) by section 216 of the Revenue Act of 1942.

1. The petitioner corporation during the taxable years owned in fee certain coal lands, a part of which it operated. Though consisting of 3 tracts, the land was almost entirely in 1 body. Certain fringe areas of the land, at a distance, were leased to other operators on a royalty basis. Held that within section 114 (b) (4), Internal Revenue Code, the land was one property. 2.

The advent of the chain store and the building of modern highways brought about a change in merchandising as between manufacturers and… Held: that such change in the merchandising of manufactured goods was a permanent rather than a temporary economic event bearing upon petitioner's business; and further, that petitioner has not shown that its earnings but for the circumstance in question would have resulted in an excess profits credit greater than that computed and allowed…

1. Petitioner's receipt of income from manufacture and sale of lathes developed in prior years over a period in excess of 12 months held to entitle petitioner to special relief from excess profits tax under Internal Revenue Code, section 721 (a) (2) (C), with adjustments for expenses deductible in computing net abnormal income, and after application of business improvement factor. W. B. Knight Machinery Co., 6 T. C. 519, followed. 2.

1. Royalties on patented blast furnace specialties paid under licensing agreements by petitioner corporation to its president held deductible in year of payment. 2. Deposits of insurance premiums by petitioner with trustees under a stock bonus plan creating forfeitable beneficial interests in the officer-beneficiaries, held not deductible. Section 23 (p) (1) (D), Internal Revenue Code. 3.

Petitioner having worked for less than 12 months on a program of development initiated several years earlier by another corporation from which petitioner indirectly acquired its assets, held not entitled to relief under section 721 (a) (2) (C), Internal Revenue Code, requiring research or development extending over a period of more than 12 months.

Gain realized by petitioners upon receipt of cash compensation from the United States for property damaged, destroyed or converted while in possession of the United States under lease entered into… Held: taxable to them as long term capital gain under section 117 (j) (2), I. R. C.

1. Distribution by A Corporation to its sole stockholder, B Corporation, out of realized pre-1913 appreciation, which exceeded B Corporation's basis in A Corporation's stock held taxable when redistributed by Corporation B to its stockholders. Internal Revenue Code Section 115 (1). 2.

Complying with the directive of the Oregon Insurance Commissioner issued pursuant to Oregon statutes, petitioner segregated from its 1945 premium income an amount equal to 3 per cent of its total… Held: petitioner properly excluded as unearned premiums from its 1945 premium income the amount of the reserve set up as of December 31, 1945. Early v. Lawyers Title Insurance Corp., 132 Fed. (2d) 42, followed.

During petitioner's taxable year ended June 30, 1946, the daughter of petitioner's treasurer and majority stockholder was married. Held: the expenses so incurred and paid by petitioner are not deductible as ordinary and necessary business expenses under section 23 (a) (1) (A) of the Internal Revenue Code.

1. Income -- Realization -- Gift Before. -- Former owner of shares held not taxable on gain from liquidation where he made a valid and complete gift of the shares prior to the liquidation. 2.

A letter attached to and requesting an early examination of the final returns of a dissolved corporation, which was addressed to the Collector, and disclosed no corporate authority for the request, held not to constitute a request for prompt assessment within the meaning of section 275 (b) of the Internal Revenue Code.

Petitioner purchased all the equipment of Mexican radio station XENT in 1944 to obtain high-powered transmitting equipment made unavailable in the United States by wartime restrictions. Held: That the loss resulted from the sale of property used in the trade or business within the meaning of section 117 (j), I. R. C. Petitioner's cost basis for the diesel and loss thereon determined. 2. Depreciation on the above transmitting equipment determined. 3.

Petitioner transferred legal title to eight of its banking premises to Capital Co. for a consideration which was less than the adjusted… Held: The sale to Capital Company was not bona fide, and Capital Company was a mere conduit for the conveyance of legal title from petitioner to Merchants. 2. The transactions between petitioner and Merchants lacked substance and reality, and petitioner did not suffer a deductible loss therefrom. Higgins v. Smith, 308 U.S. 473, followed.

Deduction -- Rent -- Section 23 (a) (1) (A). -- The excess of rent, payable to the wife of the sole owner of the taxpayer corporation, over the rent the husband had to pay to the owners of property occupied by the corporation was not deductible under section 23 (a) (1) (A).

Petitioner paid $ 5,000 as an admission fee to the New York Clearing House Association. This payment is required of all new members and is made but once. Held: the payment of the admission fee for membership in the Association is a capital expenditure and is not deductible as an ordinary business expense.

Petitioner corporation purchased an abstract and title plant from another corporation pursuant to an option contained in a lease of such assets, paying therefor full value in cash in the… Held: That the petitioner corporation incident to the exercise of the option contained in the lease agreement purchased only the abstract and title plant of the transferor corporation and at no time, either directly or indirectly, purchased any of the stock of the transferor corporation.

A financial settlement and separation agreement between husband and wife providing for certain periodic payments to the wife made binding on the husband's estate, which agreement was entered into… Held: further, that such payments constitute taxable income to the divorced wife under section 171 (b) and constitute allowable deductions to the former husband's estate under section 162 (b).

Petitioner corporation as of December 1, 1943, conveyed certain foundry property to the Trustees of William Jewell College. The property was used in petitioner's business. Held: No loss is recognizable under section 112 (b) (1) and 112 (e), Internal Revenue Code, and Regulations 111, section 29.112 (b) (1)-1, the transaction constituting an exchange of a leasehold of a fee with 30 years or more to run and cash for real estate.

Prior to and on the date of his death, November 22, 1945, Isidore Waldman was a member of a firm made up of three partners. Held: The partnership tax year did not end with the death of Waldman; it continued until termination of the partnership on January 31, 1946; and no part of the partnership income for the period July 1 to November 22, 1945, is includible in decedent's final income tax return covering the period January 1 to November 22, 1945.

Since its organization in 1935 petitioner has been engaged in the business of dealing in job lots, closeouts, odd lots and surplus material… Held: that although petitioner was liable in each of the taxable years for a personal holding company surtax, a liability which it now concedes and has paid, it was not liable for penalties for failure to file personal holding company returns, because its failure to do so was not due to willful neglect but was due to reasonable cause.

Petitioner purchased cigarettes in Oklahoma, which state imposes tax on cigarettes. Held: Under section 23 (c) (3) of the Internal Revenue Code that the amount of the tax was separately stated and should be allowed as a deduction in computing petitioner's net income as if such amount constituted a tax imposed upon and paid by him. Deductibility of other deductions claimed, determined.

Petitioner, a nonstock and nonprofit corporation organized under the Kentucky Revised Statutes for religious, educational and charitable purposes, is exempt from tax under section 101 (6) of the Internal Revenue Code in each of the taxable years involved.

Petitioner, a manufacturers' representative, during 1943 and 1944 earned commissions based upon orders largely from commercial firms to which he had been selling for his principals for many years. Held: that to the extent of such war end use of products sold, the petitioner was a subcontractor within section 403 (a) (5) (B) of the Renegotiation Act of 1943. Amount of excessive profits determined.

Petitioner, a New York corporation, is subject to taxation as an insurance company under section 204 of the Internal Revenue Code. Held: the entire amount of petitioner's reinsurance reserve on December 31, 1945, represents unearned premiums within the meaning of section 204 (b) (5), I. R. C., and respondent erred in disallowing as a deduction from gross premiums the full amount of the reserve. Title & Trust Co., 15 T. C. 510, followed.

1. Fair market value of petitioner's interest in iron ore lands determined as of March 2, 1919. 2. Held: the respondent did not err in applying the dilution theory in section 23 (m), I. R. C., in reducing the petitioner's allowance for depletion. 3.

Primarily for the purpose of encouraging and retaining its employees, petitioner's directors on September 29, 1943, passed a resolution appropriating not more than $ 37,000 establishing an employees'… Held: respondent erred in determining that for the fiscal year ended September 30, 1943, petitioner's contribution was not deductible under section 23 (p) of the Internal Revenue Code.

The petitioner, a corporation organized in May 1936 and engaged in the candy jobbing and merchandising business, seeks relief under section 722 (b) (4) and ( 5) of the Internal Revenue Code.

Deduction -- Taxes -- Transferee -- Section 23 (c) (1). -- A transferee may not deduct, under section 23 (c) (1), I. R. C., California income taxes due from the transferor but paid by the transferee.

Petitioner acquired timberlands and within 6 months thereafter entered into a contract contemplating the disposal of all timber, within certain categories, to be paid for as cut. Held: that by and at the time of the contract there was disposal of the timber within 6 months from acquisition thereof within the language of section 117 (j) (1) and (k) ( 2), Internal Revenue Code, and that petitioner's gain, from the payment for the timber, was not capital gain.

In its return for the year 1930, petitioner deducted and respondent allowed $ 22,228.17 as a bad debt loss resulting from the bankruptcy of Mico Curtain Co., a customer of petitioner. Held: the payment represented the recovery of a bad debt to petitioner under section 22 (b) (12) and was a recovery exclusion under section 22 (b) (12) (D), Internal Revenue Code.

Payment by primary taxpayer to collector, and accepted by collector as such, of deficiencies determined in notice invoking the 5-year statute of limitations, held to constitute such payment of the… Held: further, for the years as to which no notice of deficiency was sent to the primary taxpayer and no payment thereof accepted by the collector, the other requirements having been shown, petitioners are liable as transferees.

The decedent created an irrevocable trust on January 29, 1932, to which and prior to June 7, 1932, he transferred insurance contracts and bonds. Held: the non-insurance assets transferred to the trust prior to June 7, 1932, are includible in the decedent's gross estate by reason of the amendatory language of the Joint Resolution of March 3, 1931, and section 811 (c) of the Code. 2.

Under section 311 of the Internal Revenue Code, petitioner is held liable as a transferee of assets of the Merchants Warehouse Co. for unpaid income and declared value excess profits taxes due from that company.

Under section 311 of the Internal Revenue Code petitioner is determined to have a personal liability under sections 3466 and 3467, Revised Statutes, for unpaid income and declared value excess-profits taxes of the Merchants Warehouse Co. by reason of his distribution of all of the assets of that company on liquidation without first satisfying its indebtedness for taxes due the United States.

1. On December 11, 1943, petitioner's directors passed a resolution approving the establishment of an employees' pension plan and trust and appropriated irrevocably $ 30,000 thereto. Held: respondent erred in determining that for the taxable years ended December 31, 1943, and December 31, 1944, petitioner's contributions were not deductible under sections 23 (p) and 165 (a) of the Internal Revenue Code. 555, Incorporated, 15 T. C. 671, followed. 2.

Estate Tax -- Gross Estate -- Transfer to Take Effect at Death -- Reversionary Interest -- Sections 811 (c) (1) (C), 811 (c) (2), As Amended in 1949. -- The gross estate includes the value of the life estate of a widow in income of a trust, created by her husband, the decedent, which took effect in enjoyment at his death, where he retained a reversionary interest in the trust property having a value in excess of 5 per centum of the value of the corpus.

1. Petitioner, a citizen and resident of London, England, came to the United States on a temporary visa as a visitor in 1940. Held: that during the taxable years 1942, 1943, and 1944, petitioner was a resident alien in the United States and is taxable as such. 2. In the years 1942, 1943, and 1944, petitioner was unconditionally credited with salaries and dividends by Helena Rubinstein, Ltd., of London, England, in British pounds.

Income -- Exemptions -- Cost-of-living Allowance -- Alaska Court Clerk -- Section 116 (j). -- Increase in the basic salary of a District Court Clerk in Alaska to offset increased living costs is not exempt from tax under section 116 (j).

The decedent's wife died testate in 1919 leaving both her separate and her community property to her three sons. Held: The decision of the Texas court was a real controversy in which the facts and issues concerning the decedent's property ownership were presented, by which decision we are therefore bound as to the extent of decedent's property ownership; therefore, only the decedent's one-half interest in the property standing in his name at death…

During his lifetime, George H. Peck provided abundantly for petitioners by gifts outright and in trust, and by the purchase of certain annuity contracts for their benefit, 14 of which were with The… Held: no express trust was created by George H. Peck by his endorsements of the annuity contracts and respondent correctly determined that the taxable portion of the annuity payments was income of the guardianship estates.

Allocation of income determined.

1. The petitioner and her brothers were the operating owners of an orange grove property comprising land, trees, a growing crop of oranges… Held: that the growing crop of oranges was not real property used in the petitioner's trade or business within the meaning of that term as used in section 117 (j) of the Internal Revenue Code, and further that the crop constituted property held by petitioner primarily for sale to customers in the ordinary course of her trade or business…

1. Under section 311 (b) (1), I. R. C., the Commissioner has one year after the expiration of the period of limitation for assessment of taxes against the taxpayer within which to proceed against a transferee of the taxpayer's assets, and the provisions of section 311 (b) (1) are applicable notwithstanding that the period of limitation against the taxpayer is computed under section 275 (b), I. R. C. 2.

Income realized by a wheat farmer on the sale of a farm on which there was a growing crop of wheat, held, ordinary income, and not capital gains, to the extent that it represented payment for the… Held: ordinary income, and not capital gains, to the extent that it represented payment for the growing crop.

Liquidating dividends paid by bank receiver to owner by assignment of deposit claims, which were evidenced only by instruments executed by the assignors, held not amounts received upon retirement of evidences of indebtedness issued by a corporation in registered form under section 117 (f), Internal Revenue Code, so as to authorize treatment as capital gain.

Petitioner, on a calendar year basis, was engaged in installment selling and at all times computed ordinary income under section 44 (a) of the… Held: that such gross profits were properly included in accumulated earnings and profits in computing equity invested capital under section 718 (a) (4) of the Internal Revenue Code; and held, further, that such profits should not be eliminated in the determination of the ratio of inadmissible assets to total assets in computing the…

Elections were filed under section 112 (b) (7) in 1944 setting up the right thereto because of liquidation in November 1944. Held: on the facts, that it is not shown that the property of the liquidating corporations was not all transferred in one calendar month, as required for application of election under section 112 (b) (7).

Petitioners received distributions in liquidation from a corporation and paid the amount of a judgment against the corporation in a later year. Held: the amounts so paid are ordinary and not capital losses to petitioners in the year of payment. Stanley Switlik, 13 T. C. 121.

Legal fees were paid by a partnership for the defense of two partners and an employee indicted for murder. Held: these expenditures are not deductible as ordinary and necessary business expenses of the partnership.

Income -- Deductions -- Medical Expenses -- Section 23 (x). -- Expenses of an annual Florida trip, advised by a physician, several years after a coronary occlusion, were not medical expenses within section 23 (x) where a close connection between the expenses and the cure, alleviation, or prevention of some existing or imminent disease or physical defect is not shown.

1. Excess Profits Tax -- Equity Invested Capital -- Property Contributed -- Basis -- Section 718 (a) (2). -- The cancellation of indebtedness can not increase equity invested capital under section 718 (a) (2) since the debtor has no basis for loss on a debt after it has been canceled. 2.

Where the petitioner did not show that its business was depressed during the base period by reason of conditions which generally prevailed in and produced depression throughout its industry during… Held: that petitioner failed to establish its eligibility for relief under the provisions of sections 722 (b) (3) (B) and 722 (b) (4) of the Internal Revenue Code.

Upon an audit of petitioner's books by O. P. A. investigators, petitioner was found to have made overcharges for its hotel rooms. Held: where there was no showing that the overcharges had been innocently made, petitioner could not deduct the amount so paid as an ordinary and necessary business expense.

Petitioner inherited from her mother an interest in an income-producing building erected, prior to decedent's death, by the lessee at its expense. Held: petitioner had a basis for depreciation of the fair market value of the building at the time of her mother's death. J. Charles Pearson, Jr., 13 T. C. 851, followed.

In 1942 the petitioner, a resident of Louisiana, who has always filed her returns on the basis of the calendar year, was married. Held: the petitioner was not entitled during the years involved to report her income on a fiscal year basis rather than on the calendar year basis which she had employed in making her returns. Sections 41, 46, Internal Revenue Code.

Petitioner elected, pursuant to section 736 (a), Internal Revenue Code, to compute its income from installment sales for excess profits tax purposes upon the accrual basis but continued to compute… Held: the amount of its deduction for contributions under section 23 (q) is limited to its net income computed on the accrual basis for excess profits tax purposes. The pertinent part of Treasury Regulations 112, section 35.736 (a)-3 is valid.

Petitioner, in order to obtain a liquor license for transfer to it by the Board of Commissioners of the City of Jersey City for use in another location, was compelled to purchase the… Held: that that amount, also attorneys' fees paid for services rendered in connection with the issuance of a license by transfer, were expenditures for a capital asset having an indeterminable life, and that none of the amounts is deductible as an ordinary and necessary business expense.

Corporation A, a holding company, was merged into Corporation B, an operating company. Held: that there was a business purpose in the merger and the transaction was a statutory reorganization under section 112 (g) (1) of the Internal Revenue Code and within the meaning of section 112 (b) (3) stock or securities in a corporation a party to a reorganization * * * [were], in pursuance of the plan of reorganization, exchanged…

Petitioner, a corporation engaged in the retail furniture business and regularly making sales on the installment plan, elected to compute its income from installment sales on the accrual basis for… Held: The amount of $ 14,091.34 received by petitioner in 1940 as proceeds from a use and occupancy insurance contract which insured against actual loss sustained of profits in business, is includible in excess profits net income. 2.

1. Petitioner and his business partner each took out and maintained life insurance in equal amounts on his own life, and each named the other his beneficiary without reserving a power to change the… Held: Petitioner was directly or indirectly a beneficiary of the policies on his own life within the meaning of section 24 (a) (4), I. R. C., and therefore not entitled to a deduction from gross income with respect to premiums which he paid. 2.

Expenses incurred for evening engineering courses, held not deductible by petitioner, who was employed during the tax year in an engineering capacity. Hill v. Commissioner (CA-4), 181 Fed. (2d) 906, distinguished.

Loan to real estate corporation by petitioner engaged in the paper business held not shown to be not a non-business bad debt under section 23 (k) (4), I. R. C.

Petitioner issued its check, for salary, to its principal stockholder (not an officer) who held more than 50 per cent of its stock. Held: neither actual nor constructive payment was proven and no error is shown by the Commissioner in denying deduction under section 24 (c) of the Internal Revenue Code.

1. Petitioner drilled oil-gas wells for the usual contract price, under a contract providing for immediate payment of its out-of-pocket expense, and for deferment of the balance until the owner had… Held: the petitioner acquired no economic interest in the oil, and an amount received in the taxable year in settlement of a controversy over the matter was ordinary income, not capital gain as claimed by petitioner. 2. Petitioner's fiscal year ended June 30, 1946.

Where dissolution of a corporation has been voted by the stockholders and in the resolution of dissolution the president of the corporation was designated as trustee to conduct the winding up of the business and affairs of the corporation the Tax Court is without jurisdiction in a proceeding initiated by a petition, not by the designated trustee, but, by an individual who was a stockholder and at the time of dissolution had been a director.

1. Held, the word talc as used in the percentage depletion statutes refers to the product known commercially and in the industry as talc and not to a theoretically or chemically pure product as ruled… Held: the word talc as used in the percentage depletion statutes refers to the product known commercially and in the industry as talc and not to a theoretically or chemically pure product as ruled by the Commissioner. 2.

After 30 years of foreign service in the employ of the Standard Oil Company of New York and its successor companies, the decedent was… Held: under section 811 (c), I. R. C., as amended by P. L. 378 (1949) the election to take a lesser annuity was not a transfer -- (1) under which decedent retained the possession or enjoyment of, or the right to the income from, the property transferred, section 811 (c) (1) (B); or (2) of property in which decedent retained a reversionary…

1. Petitioners operate a cattle ranch in Kansas, purchasing one or more groups of beef cattle each fall from a Texas ranch, feeding them for… Held: that these cows were held for sale to customers in the regular course of petitioners' business of fattening and marketing beef cattle and that the gains on such sales are taxable in full as ordinary income rather than as capital gains under section 117 (j), I. R. C.Held, further, that such cows were not subject to depreciation…