Volume 16 — Board of Tax Appeals

In 1914 the Union Land Co. and the Kinzel Lumber Co. issued to their stockholders pro rata noninterest-bearing debenture bonds becoming due and payable in 1934. These bonds, together with a small amount of cash, were issued in cancellation of certain accounts payable representing amounts due the stockholders. Held that the debenture bonds thus issued represented borrowed capital.

Certain losses claimed on account of the purchase by a syndicate of certain stock for the purpose of effecting the merger of two banks and the subsequent sale by the syndicate to syndicate members of the stock of the new bank, held not a transaction which resulted in a deductible loss to the syndicate members.

Amount of bad debts deductible from gross income of 1922 determined.

ESTATE TAX. - Upon the evidence, held that certain transfers made by John Wanamaker within two years prior to his death were not made in contemplation of or intended to take effect in possession or enjoyment at or after his death within the meaning of section 402(c) of the Revenue Act of 1921.

1. March 1, 1913, value of an invention and an application for a patent thereon determined for purposes of depreciation. 2. Individual Towel & Cabinet Service Co.,5 B.T.A. 158, and A. E. Starbuck, Administrator, 13, B.T.A. 796, followed.

The evidence herein fails to show that the petitioner is entitled to have its taxes computed under the provisions of section 328 of the Revenue Act of 1918.

1. Determination of the Commissioner approved due to failure of petitioner to submit proof to the contrary in respect to (1) depreciation on mining equipment; (2) depletion on coal; (3) adjustment of a fire loss. 2. Disallowance by the Commissioner of a deduction of $30,000 for the fiscal year ending July 31, 1922, claimed as a bonus paid to officers, approved. 3.

1. Held, that the evidence fails to show that the Commissioner did not include the alleged value of a certain leasehold in his computation of the petitioner's invested capital and depreciation… Held: that the evidence fails to show that the Commissioner did not include the alleged value of a certain leasehold in his computation of the petitioner's invested capital and depreciation deductions in the years 1920 and 1921. 2.

1. The petitioner's claim for additional invested capital denied. 2. Rate for computing allowance for exhaustion, wear and tear of furniture, fixtures and machinery, determined.

- The extent of the loss sustained by petitioner in 1921 by reason of damage to her country estate from a violent ice, sleet and wind storm determined and the amount so found held to be subject to deduction by her from gross income for that year under section 214(a)(6) of the Revenue Act of 1921.

TRANSFEREES - ASSESSMENT AND COLLECTION - LIMITATION. - Assessment was proposed on August 18, 1926, under section 280 of the Revenue Act of 1926 against four stockholders of a dissolved corporation, of liabilities asserted in respect to its unpaid income and profits-tax deficiency for 1918, as transferees in that year of certain of its assets. On the proof found that the tax deficiency of the transferor for 1918 was properly assessed within five years from the filing of the return and prior to the passage of the Revenue Act of 1924, but no proceeding was begun for its recovery within that time and held that such deficiency being barred of collection by the limitation of section 250(d) of the Revenue Act of 1921, and the five-year period for collection not being extended by section 278(d) of the Revenue Act of 1924, the proposed assessment of the liability now, more than one year after the expiration of the period for assessment against the transferor, is barred.

- The extent of the loss sustained by petitioners' decedent in 1921 by reason of damage to his country estate from a violent ice storm determined, and the amount so found held to be subject to deduction from gross income of such decedent for that year under section 214(a)(6) of the Revenue Act of 1921.

1. LEASEHOLD - EXHAUSTION. - Petitioner acquired on May 15, 1916, an assignment of a leasehold having 8 years and 15 days to run, for which he paid $15,000 and assumed the obligations in respect to… Held: for purposes of a deduction for exhaustion for the year 1919 the exhaustion should be computed upon the leasehold period of 8 years and 15 days. 2.

1. DEPRECIATION. - Respondent computed depreciation upon assets acquired prior to March 1, 1913, upon the basis of cost as established by petitioner's books. Held that that basis is proper in the absence of proof of any other amount as cost or of the March 1, 1913, value. 2. AUTOMOBILES USED IN BUSINESS. - Where two officers purchased new cars which were used in petitioner's business and petitioner reimbursed them for the cost thereof on the last of June, 1920, such cost of a capital asset should be included in invested capital for the last six months of 1920, and petitioner is entitled to deduct depreciation on the two cars. 3. Loss. - Petitioner purchased two lots with dwellings thereon, sold the two dwellings for $400 for removal, and then used the lots for an extension of its factory. Held, petitioner sustained no deductible loss on account of the disposition of the dwellings.

1. Wells Brothers Co. of Illinois and Wells Brothers Construction Co. were not affiliated during the year 1917; they were affiliated during the years 1918 and 1920. 2. Wells Brothers Construction Co. is not entitled to include in invested capital for 1917, 1918, and 1920, the value of certain building contracts and certain contracts for the services of its principal stockholders and officers which it claims it acquired in exchange for shares of its capital stock. 3.

1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. The time within which an assessment made prior to June 2, 1924, may be collected, is not extended by section 278 of the Revenue Act of 1924. Russell v. United States,278 U.S. 181. 3. Where the liability of the taxpayer is extinguished by section 1106(a) of the Revenue Act of 1926, the liability of a transferee under section 280 of the same Act is also extinguished.

Where prior to the determination by the Commissioner of a liability under section 280 of the Revenue Act of 1926, a part of the tax of the transferor has been paid and where subsequent to the filing… Held: the liability of the transferee is extinguished.

1. AMORTIZATION. - Held, deductions claimed in 1918 and 1919 returns for amortization of war facilities should be reduced by as much of an award received in 1920 from the War Department as was made… Held: deductions claimed in 1918 and 1919 returns for amortization of war facilities should be reduced by as much of an award received in 1920 from the War Department as was made to cover loss in war facilities. 2. L. S. Ayers & Co.,1 B.T.A. 1135, followed.

Petitioner filed returns for the years 1918 and 1919 on the basis of calendar years. The return for 1918 disclosed no tax and none has been assessed. In his audit the Commissioner held, and the taxpayer agreed, that the tax liability should be determined upon the basis of the fiscal year ending October 31. In November, 1924, after corresponding with respect to the fiscal year ended October 31, 1919, petitioner and the Commissioner entered into a written consent extending the period prescribed by law for the determination, assessment and collection of "any tax due under any return for the year 1919." The Commissioner determined a deficiency for the fiscal year ending October 31, 1919, two-twelfths of which is the tax computed upon the petitioner's income for November and December, 1918. The statute of limitations for the determination, assessment and collection of a tax for the calendar year 1918 expired before any consent was executed and before the Commissioner's determination was made. Held that the assessment and collection of that portion of the deficiency which relates to the year 1918 is barred by the statute of limitations.

The determination of respondent that notes received had a fair market value equal to their face value approved, where the petitioners fail to prove a different fair market value.

1. INVESTED CAPITAL - NOTES. - Upon the evidence certain interest-bearing promissory notes of solvent makers, paid in for petitioner's capital stock and later paid in… Held: that it can not now adjust its 1919 inventory by valuing only a portion of same at cost or market, for whichever basis may be selected, the entire inventory must be valued thereon, and the adjustment requested results in a portion of the inventory being valued at cost and the balance at cost or market.

- Where it appears that the reductions claimed are substantially correct they will be allowed even though they are arrived at by a summary average computation.

1. BUSINESS EXPENSES, SEC. 234(a)(1), REVENUE ACT OF 1921. - An amount of $12,992.06, expenses of traveling, entertaining, collecting, and cash rebates to customers, held to be ordinary and necessary expense properly allowable as a deduction from income. 2. METHOD OF COMPUTING INCOME. - In a choice of methods of accounting for containers, that of the petitioner is approved as attaining greater clarity under the peculiar circumstances of the instant case. 3.

1. Held that petitioner comes within the provisions of section 331 of the Revenue Acts of 1918 and 1921. 2. Value of depreciable assets acquired by petitioner for stock determined. 3. Held that, for the fiscal years to which the Revenue Acts of 1918 and 1921 apply, the basis for calculation of depreciation in these proceedings is the cost of such assets to petitioner. 4.

The petitioner having failed to show the cost of stock in trade and the value of the note received by petitioner as a part of the consideration for a store, the respondent's determination of gain derived upon the transaction is upheld.

In determining whether net income is in excess of $25,000 and whether the credit of $2,000 is to be allowed, the net loss provided for in section 204(b) may not be deducted. American Varnish Co.,2 B.T.A. 201.

1. Value of leasehold at date of acquisition determined for invested capital purposes. 2. Value of leasehold on March 1, 1913, determined for purposes of exhaustion. 3. The assessment and collection of the deficiencies for the fiscal years 1919 to 1922, inclusive, are not barred by the statute of limitations. Joy Floral Co.,7 B.T.A. 800; Wells Brothers Co.,16 B.T.A. 79, followed.

1. The petitioner's books of account fairly reflect its income for the calendar years 1919, 1921, and 1923. Held: that the respondent erred in changing petitioner's returns from a calendar year to a fiscal year basis. 2.

Where the owners of oil property create a trust for a limited term for the purpose of selling the property, and pending such sale, of leasing it, and where all money arising from said sales or leases is to be paid at once to the beneficiaries, and where at the end of the term all property not sold is to be reconveyed to the beneficiaries, held that such device created a selling and leasing agency and not a taxable trust and, further, that the beneficiaries are the real…

The respondent determined a deficiency against the Lynchburg Cotton Mill Co., a Virginia corporation dissolved in 1920, and at the date of the deficiency notice there was no one legally authorized to… Held: the Board has no jurisdiction, and the proceeding will be dismissed.

1. Where at all times there were sufficient assets in the present estate to pay administration expenses and debts of the present estate without recourse to previously taxed property, held that… Held: evidence insufficient to determine that the portion of the proceeds from the sale of stock rights used to purchase other securities is to be identified as previously taxed property.

Decedent's will bequeathed his entire estate to his wife with the reservation that if she remarried she should properly provide for his children. Suit was brought by the widow, individually, and as administratrix for construction of the will. The Court of Appeals for the State of Kentucky held that by the terms of the will the widow should have an absolute estate if she remained unmarried, but if she remarried, she should make proper provision for the testator's children.

Deduction on account of exhaustion of capital amount invested in air shaft, main shaft, railroad, development, and right of way, determined.

The action of respondent in disallowing a deduction as a loss on the sale of property approved for lack of evidence.

1. The assets of the petitioner having increased in value from the date of incorporation to 1912, the petitioner was recapitalized in 1912… Held: and given as a stock dividend two shares of common stock and two shares of preferred stock of the corporation. No property was paid in to the corporation, at the time of recapitalization, for the shares of stock thus issued as a stock dividend. Held, the invested capital of the corporation was not increased by the proceeding. 2.

Respondent's action in not allowing any value for good will sustained in the absence of proof of any value for good will acquired.

An overdistribution by trustees under a trust debenture to the life tenant in 1920 does not justify the reduction of the taxable income properly distributable to said life tenant in 1921.

1. The power to consent to an extension of time for the determination, assessment, and collection of taxes as provided under the revenue acts is within the ordinary functions of a corporation and need not be expressly conferred upon its general officers, and quaere whether the consent is to be treated or construed as a contract and hedged about with the legal rules governing contracts. 2.

No loss was sustained by the petitioner in 1922 from the transaction involved herein.

Deductibility of losses and bad debts determined.

Certain executor's fees received by the petitioner held not to be income for the year 1920.

1. Where several proceedings before the Board involve transferors and transferees and grow out of the same deficiency in tax, and where all such proceedings were tried on the same day and by the same counsel, and where in one of the proceedings the deficiency was reduced, held that the Board may take notice of the state of the record obtaining in all of the proceedings. 2. Section 277(b) of the Revenue Act of 1924 applied. 3.

- The reasonable compensation of a steamship company, for the use of its properties during the period of Federal control, awarded to a taxpayer keeping its accounts on the accrual basis, was income for each of the accounting periods for which the compensation was allowed, although not received until a later date.

Held that collection of the additional taxes for the fiscal year ended in 1919 is not barred by the statute of limitations.

Where the petitioner, which keeps its books of account on an accrual basis, has a claim for loss of profits caused by the breach of a contract, accepted and allowed as a general claim by the receiver of an insolvent corporation, recovery of which is uncertain, held that the dividends on said claim should be reported as income for the year in which paid by the receiver.

The petitioner fails to establish that the amount of salary paid him pursuant to resolution of the board of directors, for that portion of the taxable year subsequent to his resignation from the company, was a gift and therefore not taxable.

1. The return to the petitioner railroad by the Director General of Railroads, at the end of the period of Federal control, of materials and supplies equal in quantity, quality and relative usefulness to those delivered to the Director General at the start of the period of Federal control does not give rise to taxable income, although the value at the time returned may exceed the value when delivered. Lehigh & Hudson River Railroad Co.,13 B.T.A. 1154, distinguished. 2.

1. Assessment and collection of asserted deficiencies in tax for the fiscal years ended June 30, 1917, and June 30, 1918, and for the six months ended December 31, 1918 held barred by statute of limitation. 2. Held that the Board has jurisdiction to determine the true tax liability of petitioner for each of those periods, in so far as the pleadings and proof raise the question. 3.

1. An exchange of stock held for investment for bonds and stock, likewise to be held for investment, and a small cash credit to equalize the values of the securities at the time of the exchange, did not result in taxable gain within the meaning of section 202(c)(1) of the Revenue Act of 1921. Richard T. Greene et al., Trustees,15 B.T.A. 401. 2.

The petitioner is entitled to special assessment for the years 1918 and 1919 under sections 327 and 328 of the Revenue Act of 1918.

1. The decedent herein died in August, 1921. The Revenue Act of 1921 was approved on November 23, 1921, and the estate-tax provisions thereof became effective on that day. Held that the estate tax imposed by the Revenue Act of 1918 accrued on the death of the decedent, and that that Act remains in force for the assessment and collection of such tax. 2. The present worth, or commuted value at the date of the decedent's death, of the refund annuity contracts involved herein, held to constitute a part of her gross estate subject to the estate tax under the Revenue Act of 1918.

1. Where tax liability has been determined under the provisions of section 328 of the Revenue Act of 1918, and the taxpayer asks for a redetermination of the deficiency so determined, the burden of… Held: that the petitioner may not include certain alleged values of good will and of a purported contract in its paid-in surplus for invested capital or depreciation purposes. 3.

1. STATUTE OF LIMITATIONS. - Waivers executed under authority of the Revenue Act of 1924, extending the period of limitations applicable to the taxable years 1919, 1920, and 1921, held to be valid,… Held: that the assessment and collection of any taxes due for those years is not barred by the statute of limitations. 2. DEDUCTIONS FROM GROSS INCOME. - Exhaustion of leasehold should be computed upon the basis of its value of $120,000 as determined herein. 3.

Petitioner, an advertising agency, held to have been a personal service corporation during the years 1920 and 1921.

TRUSTS - DISTRIBUTABLE INCOME. - Where the testator left a plantation in trust to be operated for the benefit of and the income therefrom to be divided among several persons, and also provided that "the trustee shall retain out of proceeds of each year's crop sufficient to operate plantation the following year," the amounts retained by the trustee for said purpose were not distributed to nor distributable to the beneficiaries and were properly taxable as income of the trust and against the trustee.

The purchaser and assignee of a 99-year lease of real property, renewable forever, is not entitled to a deduction from gross income for depreciation of buildings, machinery and equipment used in his business, which were erected upon the demised premises by the original and prior lessees at their own cost and expense, in accordance with covenants in the original lease, even though the purchaser and assignee assumes all of the covenants and conditions imposed upon the original…

1. Determination of proper adjustment of invested capital incident to the exchange of certain assets of petitioner for other property. 2. Cost of mining lease and equipment and amount of coal reserve determined.

1. A taxpayer used a calendar year, contrary to his natural business cycle. Held: respondent correctly included actual receipts in gross income of the calendar year 1919. 2. There is no absolute test of accrued income, and regularity of accounting practice not inconsistent with a clear reflection of what the law recognizes as income may be important. 3.

Commissioner's determination approved in the absence of proof of the proper basis for computing the gain from the sale of stock acquired in various ways.

1. The Green River Distilling Co., having an accounting period ended on June 30, became affiliated with another corporation on February 28, 1918. Held that the return filed for the eight-month period prior to affiliation is a return for a fractional part of a year, and that the Commissioner did not err in determining a deficiency for such short period. 2.

Beneficiaries under a trust who were also the remaindermen held not entitled to a deduction from gross income for depletion of mining property which formed the corpus of the trust estate where the royalties from such trust estate were paid over to the beneficiaries undiminished by depletion sustained. Detroit Trust Co. et al., Executors,16 B.T.A. 207.

Corporate organization expenses may not be included in the basis for determining profit or loss upon the sale of property acquired subsequent to incorporation, but constitute a capital expenditure deductible under the loss provisions of the statute upon dissolution of the corporation and abandonment of its corporate franchise.

1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. The assessment of a liability under section 280 of the Revenue Act of 1926 is not barred by limitation if the assessment is proposed by the Commissioner at a time when the liability of the taxpayer is not barred and is proposed within the periods provided by section 280, and an appeal is taken to the Board within the statutory period.

Held, petitioner, D. F. Strickland, was an employee of a political subdivision of the State of Texas and that his compensation is exempt from tax. Held: petitioner, D. F. Strickland, was an employee of a political subdivision of the State of Texas and that his compensation is exempt from tax.

Where securities acquired prior to March 1, 1913, were sold in 1921, 1922, and 1923 at less than their March 1, 1913, value, which was in turn less than cost, the loss deductible from gross income is the difference between the March 1, 1913, value and the sale price and not the difference between the cost and the sales price.

The value at March 1, 1913, of certain real estate purchased in 1905, determined for the purpose of computing profit or loss on the sale thereof in 1922.

Value of certain machinery, which was discarded by petitioner in changing from the use of steam power to electric power, determined.

The petitioner filed an income-tax return under the provisions of the Revenue Act of 1917 for the fiscal year ended October 31, 1918, on December 24, 1918. Held: that the collection of any additional tax for the fiscal year ended October 31, 1918, is barred by the statute of limitations.

Gift held not intended to take effect in possession or enjoyment at or after death.

1. Certain instruments held to be oil and gas leases and not sales of capital assets within the meaning of section 206 of the Revenue Act of 1921 and section 208 of the Revenue Act of 1924. 2. Royalties received from oil and gas leases on the separate property of a husband held under the facts of these proceedings not to constitute community income under the laws of Texas. 3.

Attorney fees paid by a partnership composed of stockholders of a dissolved corporation who were transferees of the assets of the corporation, for services in securing the abatement of a proposed penalty assessment by the Commissioner of Internal Revenue against the corporation held deductible as ordinary and necessary expenses paid by the partnership in carrying on a trade or business.

The petitioner, under a trust established by her father in 1906, had an equitable life interest therein consisting of the right to receive one-fourth of the distributions of the trust. On December 24, 1919, petitioner, in consideration of love and affection assigned to her husband a one-half interest in all income, grants, interest, reversion, remainder, and remainders which might thereafter be payable to her from the trust.

The decedent, majority stockholder in a bank, guaranteed stockholders and depositors against loss due to loans made by the bank. Under such guaranty agreements, he, in 1922, 1923, and 1924 paid the bank amounts due on various notes and took the notes over. Held that in the absence of evidence of the value of the notes no deduction is allowable under section 214 of the Revenue Acts of 1921 and 1924.

1. DEDUCTIONS - DEPRECIATION. - In the absence of proof of March 1, 1913, value of assets acquired prior to that date, the cost of such assets as established by petitioner's books is the proper basis for computing depreciation. 2. ID. - SUSPENSE ACCOUNT. - Since 1906 petitioner, on the accrual basis of accounting, has credited to a suspense account and charged to profit and loss accrued labor and discount at the close of each year.

1. Where the petitioner makes a prima facie showing that the statute of limitations has run against collection of taxes, the burden of showing that assessment was made within the statutory period, thus allowing six additional years for collection, is upon the respondent. 2. Collection of 1917 taxes held not barred by statute of limitations. 3. Collection of taxes for 1918 held not barred by statute of limitations. 4.

Petitioner and her husband acquired property as tenants by the entireties. The busband died and the value of the entire property was included in determining his taxable estate for estate-tax purposes. Petitioner thereafter sold such property. Held that for the purpose of determining taxable gain or loss to her the cost was the purchase price plus additional expenditures for improvement.

1. Deduction from gross income on account of a debt charged off in 1922 disallowed, because the record indicates that worthlessness was ascertained prior to such year. 2. Deduction of loss resulting from the worthlessness of certain stocks and bonds in 1922 disallowed, because of failure to prove value thereof at date of acquisition. 3. Certain losses sustained in 1922, on account of stocks becoming worthless in that year, disallowed. 4.

Where the owners of a tract of land had executed an oil and gas lease and subsequent to the execution of the lease and subsequent to the discovery of oil on the premises gratuitously assigned part of… Held: that the donees are not taxable on any part of the royalty received by them.

Special assessment denied.

No gain arises to a lessor of property destroyed by fire where the proceeds of insurance are expended by the lessee in similar property.

Under the facts held that substantially all the stock in the three corporations was not owned or controlled by the same interests and the corporations are, therefore, not affiliated.

1. A waiver of the time prescribed for assessment of Federal income taxes executed by an executor pursuant to the provisions of the Federal revenue… Held: that the fact that only one of the two executors was a party to the consent does not invalidate it. 3. Held, that there is insufficient evidence to determine the depreciation sustained by a corporation on its improvements to realty. 4. The amount of a taxable dividend declared by a corporation to the petitioner determined.

Amounts paid by the trustees of a trust to attorneys for services in prosecuting a claim for refund of taxes, held, preperly deductible in computing the net income of the trust. Held: preperly deductible in computing the net income of the trust.

1. ESTATE TAX - DEDUCTION FOR PROPERTY PREVIOUSLY TAXED WITHIN FIVE YEARS. - Certain Liberty bonds of the par value of $25,200 acquired by the present decedent with funds resulting from the sale of United States Steel preferred received from a prior decedent within five years identified as property previously taxed and allowed as a deduction from the gross estate of the present decedent. 2.

1. Instruments executed by employees of the petitioner corporation as a part of the transaction by which they purchased its stock, held to be evidences of indebtedness received in payment for such stock, which may be included in invested capital at their actual cash value at the time paid in. 2.

Section 331 of the Revenue Act of 1921 held not applicable where the owner of a business received practically all the stock of the corporation but immediately transferred it in accordance with a preexisting agreement that he should sell it.

Sums received for leasing tracts of land for the purpose of conducting drilling and mining operations thereon are not taxable under the provisions of section 206 of the Revenue Act of 1921.

Where the principal stockholder of a close corporation, pursuant to an intention to make a contribution to corporate surplus, instructed his bookkeeper to transfer a portion of the sum credited to… Held: the amount so transferred was allowable as invested capital.

The loss sustained by petitioner in 1921 on the sale of stock did not arise from the operation of a trade or business regularly carried on by him, and may not be used in determining a net loss for deduction purposes in the succeeding year.

The respondent's determination that a certain patent involved herein had no actual cash value when acquired by the petitioner, approved.

Amounts expended by the petitioner in raising the floor of its building and rearranging shelving and bins therein, held to be capital expeditures.

Amount of deductions for wages or salaries paid in the taxable years determined.

Petitioner held to be an employee of a municipal corporation of the State of Arkansas and his compensation exempt from Federal income tax.

1. PERSONAL SERVICE CORPORATION. - Where the business and income of the petitioner was obtained mainly by nonstockholder employees and the evidence does not indicate what part thereof was attributable to the activities of the principal stockholder, personal service classification will be denied. 2.

1. LIMITATION - WAIVER. - Under the laws of Texas the directors of a dissolved corporation are trustees for three years for the purpose of winding it up.

Depletion deductions for a given year may not be revised upon the basis of facts determined in subsequent years.

1. Petitioner, operating a theatre, held not to be entitled to classification as a personal service corporation. 2. No abnormalities of income or capital being shown, petitioner was held not to be within section 327(d) of the Revenue Act of 1918, although a large income was earned upon a small invested capital. 3. Tax apportioned between affiliated corporations.

1. A gift of certain shares of stock by the petitioner to his wife held to be bona fide. 2. The fair market value of said stock at date of gift was $1 a share.

1. A municipal corporation entered into a contract with the petitioner, under which the latter was relieved from the payment of local taxes to the former, in consideration for certain services to be… Held: that the Commissioner's action should not be disturbed. 2.

1. Held that the holding of the respondent that petitioner was not affiliated with another corporation in 1921 did not operate to deprive petitioner of its right of election between the two methods of returning its income provided in section 240(a) of the Revenue Act of 1921. 2. Held that petitioner, in filing a separate return for the year 1922, made its election under section 240(a) of the Revenue Act of 1921 and its tax must be computed upon the basis of that return.

1. Farm rentals received in the year 1920 from real estate situated in the state of Texas which was the separate estate of a husband, constitute community income under the laws of Texas. 2. Oil royalties received in the year 1920 from real estate situated in the State of Oklahoma which was the separate estate of a husband living in Texas, constitute separate income of the husband.

1. Deduction for depreciation in the year 1923 of a patent issued in November, 1913, allowed on the basis of the March 1, 1913, value of the patent application then pending. 2. Value of patent application at March 1, 1913, for depreciation purposes determined. 3.

1. INVESTED CAPITAL. - Where the taxpayer had an operating deficit at the close of the year 1920, but paid no dividends of any kind during that year or 1921 and there was no return of capital to the… Held: that respondent erred in reducing the taxpayer's paid-in capital by the amount of an operating deficit and in determining a deficiency for the year 1921. 2.

1. Where evidence of the cost of assets to a predecessor corporation or of their value as of the date (prior to March 3, 1917) when such assets were taken over from the predecessor is inadequate, the determination of the Commissioner in respect to invested capital, not having been proved to be erroneous, can not be disturbed, regardless of whether the transfer of the assets to the new corporation constituted a reorganization of the old corporation or whether the corporation…

1. A ferry corporation incorporated by special act of a state legislature, on the petition of a township, for the purpose of maintaining and operating a ferry between the mainland and the island on which the township is situated, is a private corporation engaged in the business of transportation and is not a governmental agency performing an essential governmental function, even though the township owns a majority of the corporation stock and by virtue of such ownership…

Deduction for bad debt loss in 1922 disallowed where there is no evidence of a charge-off as required by the statute during the taxable year.

A corporation filed fraudulent returns for 1918 and 1919, which fraud was known to the petitioners and actively participated in by them as officers and stockholders of such corporation.

Held that the respondent has failed to sustain the burden of proving that the petitioner is a transferee within the meaning of section 280.

Loss held properly deductible by residuary legatees rather than estate.

1. The total amount of compensation received by the petitioner from the United States Government for the use of its properties during the period of Federal control, as finally agreed upon, was income for each of the accounting periods for which said compensation was allowed. 2. Interest received from the United States Government on additions and betterments is taxable income and should be included in the computation of gross income for the years in which it accrued. 3.

1. STATUTE OF LIMITATIONS. - The five-year period for assessment and/or collection of taxes for the year 1918 having expired prior to issuance of the deficiency notice without assessment or… Held: that the assessment and collection are now barred. 2. CONTRACTS - VALUE. - Value of stock issued for contracts determined to have been par, and contracts held depreciable on basis of that value over their terms.

1. Amounts paid by the petitioner in its fiscal years ended January 31, 1920, 1921, and 1922, to former creditors whose claims had been discharged by composition in 1915, held not to be ordinary and necessary expenses of its business, nor deductible from the income of those years. 2.

Expense items accrued in taxable year, although not paid in that year, allowed as deductions from gross income.

1. JURISDICTION - FRAUD. - Where the deficiency notice contains a statement Deficiency asserted but states no amount of deficiency for a given year, and further claims a fraud penalty for such year, the Board has jurisdiction to determine the tax liability and the liability for the fraud penalty. Gutterman Strauss Co.,1 B.T.A. 243. 2.

1. Held that a transfer of certain stock was intended by the decedent to take effect after his death and that the respondent properly included the value of such stock in the gross estate. 2. Held that certain Masonic bodies were not organized and operated exclusively for charitable and educational purposes and that an endowment bequest to them should not be excluded from the gross estate. Bert R. McReynolds,1 B.T.A. 815, cited and followed.

1. The cancellation of articles of incorporation by the Secretary of State of Ohio, through an entry upon the margin of his records, for failure of a corporation to make an excise-tax report, only deprives the corporation of the right to carry on its business until such tax report is made and until the tax and penalties imposed by law are paid, and does not completely dissolve such corporation. 2.

Section 280 of the Act of 1926 provides only an additional means of procedure against a transferee, and such procedure is available to respondent only if available remedies against the transferor would be unavailing.

1. Section 403(a)(2) of the Revenue Act of 1921 construed. 2. After property has once been identified as meeting the requirements of paragraph (2) of section 403(a) of the Revenue Act of 1921, the deduction to be allowed under that paragraph is to be measured by the lesser of two values, viz.: (a) The value placed by the Commissioner on such property in determining the value of the gross estate of such prior decedent.

1. Where a taxpayer in 1918 invested in war facilities to produce so-called war income, amortization of the cost of such facilities may be spread over the entire period during which there was a factual relation between the income taxed and the war burdens. 2. Date of termination of contract for purchase of supplies related to prosecution of war, held to determine period over which amortization may be spread. 3. Where the period of amortization covered portions of three 3.

Where a corporation, whose stock was owned equally by two individuals, sustained an operating loss during the calendar year 1921, and was liquidated on December 31, 1921, its assets and business being transferred to a partnership composed of the same two individuals who were stockholders in the corporation, held that the operating loss is not a proper deduction from the net income of the partnership in the succeeding year.

Phillip C. Donner,16 B.T.A. 758, followed.

1. Premiums paid in on capital stock may be included in invested capital. 2. Oversubscriptions to capital stock and commissions paid on the sale of capital stock held to have been improperly included in invested capital.

Claimed bad debt deduction disallowed.

The principle of law that the Federal Government may not tax the means, agencies or instrumentalities by which a State exercises its governmental functions does not exempt from the Federal income tax the distributive share, or any part thereof, of a member of a partnership who was not himself an employee of the State but whose partner was such an employee and paid his entire salary into the partnership treasury.

Proceeding dismissed for lack of jurisdiction.

A corporation engaged in raising fruits and other products in Porto Rico, which are sold in the United States, derives income from sources within the United States and does not come within the provisions of section 262 of the Revenue Act of 1921.

- Petitioner, the residuary legatee of an estate of a decedent who died in 1918 and upon which the estate tax was due in 1919, paid in 1922 a deficiency in estate tax finally determined in that year. Subsequently, as a result of suit and judgment the greater part of the sum paid was refunded, with interest, by the Government, this refund being subsequent to 1922, but prior to the hearing on the appeal.

1. Petitioner maintained a home for herself and mother. The mother had an independent income of more than $200 per month from investments in securities. Held: petitioner not entitled to personal exemption as head of a family. 2. Deductions claimed for bad debts disallowed for lack of evidence to show that the alleged debts became worthless in the taxable years.

Where a taxpayer at the time of taking the closing inventory for one year and the opening inventory for another had on hand certain articles, some of which were manufactured by it at a certain cost and some of which were purchased by it at a higher cost, but due to the intermingling of the articles it can not tell what part of the articles were manufactured by it and what part purchased, the Commissioner's determination of a deficiency for the latter year in which the…

1. INCOME - FORGIVENESS OF INDEBTEDNESS. - Petitioner operated cotton gins and purchased for cash considerable cotton from growers and street dealers throughout its territory. It shipped the cotton to commission merchants for sale and drew upon the latter on the basis of the then market value of the cotton. Before the commission merchants had sold the cotton the market declined greatly, leaving the petitioner insolvent.

In order to raise needed capital for petitioner, certain of its stockholders sold shares of petitioner's stock then held by them and turned over to petitioner the proceeds. In the taxable year petitioner agreed to pay to its stockholders a certain sum for the use of the money. Petitioner being on the accrual basis, such sum held to be deductible in the year 1921, the year in which the liability accrued.

1. Income from an oil and gas lease may not all be treated as income until the capital value is returned. New Creek Co. v. Lederer,295 Fed. 433, followed. 2. A donee of property may be taxed upon the increment in value which occurred while the property was owned by the donor. Taft v. Bowers,278 U.S. 470, followed. 3. The donee of an oil and gas lease is not entitled to claim depletion based upon a discovery value established by the donor.

The basis for the computation of the allowance for depreciation of property acquired by gift subsequent to December 31, 1920, under the provisions of the Revenue Act of 1921 is the fair market value of the property at the date of the gift.

Real estate owned by a decedent at the time of his death and situated in Missouri satisfies the requirements of section 402(a) of the Revenue Act of 1921, with respect to its being subject to the payment of administration expenses, necessary for its inclusion in the gross estate of such decedent for estate-tax purposes.

1. DEFICIENCY - ERRONEOUS REFUND. - Where the Commissioner has made an erroneous refund of taxes he may reconsider his action and determine a deficiency on account thereof at any time within the period of limitation, or such time as may be extended by agreement or waiver. 2.

On the evidence, held that the two corporations involved were affiliated in 1921.

Rates of depreciation and obsolescence determined.

The transfer of properties to a corporation for its capital stock constitutes an exchange of property for other property within the meaning of section 202(b) of the Revenue Act of 1918, and any gain derived therefrom is subject to tax.

1. The petitioner conducted a general undertaking business in the City of Pittsburgh, succeeding to a business conducted as a sole proprietorship. Held: that the petitioner is not entitled to be classed as a personal service corporation for the years 1920 and 1921. 2. The predecessor business had a valuable good will which was in no wise reflected in its invested capital.

1. The term capital net gain, as used in subdivision (b) of section 206 of the Revenue Act of 1921, comprehends the net result of all transactions during any taxable year, involving the sale or exchange of capital assets, provided such result represents a net gain to the taxpayer. 2. The provisions of subdivision (b) of section 206 of the Revenue Act of 1921 are applicable only when a taxpayer derives a capital net gain from the sale of capital assets.

Value of real estate at Yorktown, Va., as of November 20, 1922, determined for estate-tax purposes.

BAD DEBT. - Claimed bad debt deduction disallowed.

In July, 1918, the petitioner acquired a leasehold of hotel property in exchange for all its capital stock. Held that at the time the lease contract was paid in for stock it had no value in excess of the rentals reserved to the lessor, and the petitioner is, therefore, not entitled to an exhaustion allowance nor to include any amount in invested capital on account thereof.

The petitioner offered to compromise an additional assessment asserted against him and tendered $500 with said offer prior to the expiration of the period of limitation, which offer was rejected, but… Held: it was not until after the period of limitation that the said amount became paid within the meaning of section 607 of the Revenue Act of 1928, and it, therefore, constitutes an overpayment within the meaning of that section.

In 1914 petitioner, a corporation, charged off the account of a corporation which had been declared bankrupt. In his will the sole stockholder of the debtor corporation provided that the income from certain stocks be applied as payment of the debts of the corporation at the time it became bankrupt. Pursuant to the terms of the will petitioner, in 1923, received an amount of money from the estate.

1. Where a fiduciary, in good faith, seasonably filed his returns for the years 1920 and 1921, respectively, on Form 1041 instead of on Form 1040 as required by the applicable regulations, the… Held: under the facts of this proceeding assessment and collection of the taxes in question are barred by the provisions of section 277 of the Revenue Act of 1926.

Held that there existed during the years 1922 and 1923 a partnership composed of petitioner and his four sons, and profits credited on the books to the sons are not taxable to petitioner.

1. Evidence submitted as to the value of certain shares of stock included in decedent's gross estate held insufficient to overcome presumption existing in favor of the correctness of respondent's determination. 2. Held that the transfer of certain shares of stock of the same corporations was not made in contemplation of death or intended to take effect in possession or enjoyment at or after death. 3.

The evidence is insufficient to establish that a sum received by petitioner upon the termination of his employment was a gift and, therefore, not taxable income.

Corporations held not to be affiliated within section 240 of the Revenue Act of 1918.

- A corporation organized and operated solely for the purpose of extending aid to the employees of a large department store in cases of death or disability, and which derives its income solely from voluntary contributions and interest on investments, is an exempt corporation as defined in section 231(6) of the Revenue Act of 1921, and contributions thereto by an individual are deductible pursuant to section 214(a)(11) of the Revenue Act of 1921.

The petitioner and one Gardner entered into an agreement to acquire and sell fuller's earth properties, they to invest in and share the profits therefrom equally. Held: the petitioner's portion of the initial payment aforesaid was taxable income to him in 1921. Held, further, the petitioner's portion of the deferred payments in the transaction aforesaid was not income to him in 1921.

Evidence found to be insufficient to establish the liability of petitioners as transferees, under section 280 of the Revenue Act of 1926, of assets of the taxpayer.

1. DEPLETION. - Discovery basis in hands of donee of oil and gas property. Melville G. Thompson,10 B.T.A. 25 followed. 2. DEPLETION. - Based upon fair market value of property at date of receipt, McKinney et al.,16 B.T.A. 804 followed. 3. Fair market value of property at date gift determined for depletion purposes.

Before the Commissioner's determination of the individual tax liability of a partner involving his liability for excess-profits tax on his salary as a partner will be disturbed, it must appear that the salary assigned to him upon which the Commissioner has computed an excess-profits tax, is in an amount larger than would be reasonable under all the circumstances.

1. ACCOUNTING PERIOD. - Where the petitioner kept its accounts on a fiscal year basis and made its returns on a calendar year basis, the respondent properly taxed the petitioner on the fiscal year basis under section 212(b), Revenue Acts 1918 and 1921. 2.

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

1. Held, the petitioner was not a personal service corporation during the taxable year. 2. Held: the petitioner was not a personal service corporation during the taxable year. 2. Where compensation for personal services of stockholders was neither authorized, paid nor accrued, no amount therefor can be allowed as a deduction from income.

Upon the facts shown petitioner held not entitled to a deduction in 1923 on account of a net loss sustained in 1922 by an affiliated group of which it was a member.

Where a petitioner admits that he is the transferee of the assets of a dissolved corporation and the Commissioner introduces no evidence to show the value, if any, of those assets the Commissioner has not borne the burden of proof imposed upon him by section 912 of the Revenue Act of 1926, added to the Revenue Act of 1926 by section 602 of the Revenue Act of 1928, of showing any liability on the part of the transferee of a tax due from a taxpayer.

Traveling expenses of the petitioner in attending medical conventions constitute legal deductions from gross income.

1. Petitioner denied personal service classification because capital was a material income-producing factor. Kossar & Co.,4 B.T.A. 1164. 2. Held: said taxes accrued and are deductible for years 1920 and 1921, respectively. 3. Amounts paid as penalty and interest on such tax held not deductible as tax, interest, or expense. 4.

Deduction on account of alleged bad debt loss denied where the debt resulted from intercompany transactions between petitioner and an affiliated company. Gould Coupler Co.,5 B.T.A. 499; et alia.

1. A waiver signed by the taxpayer but not executed by the Commissioner, or by one on his behalf, is not binding on any one, and does not extend the period of limitation. 2. Waivers executed on behalf of the taxpayer by parties not authorized to execute the same are not effective to stay the running of the statute of limitation.

1. The amount of salaries of officers of a corporation deductible from gross income determined. 2. Held: the petitioner properly reduced its inventory.

1. Where one agreed to reimburse a taxapyer for attention, care and nursing, and especially to do so by last will and testament and where he failed to pay and to keep the promise to provide by will, and where taxpayer, after his death, filed her action at common law to recover upon such promise the value of such services, and recovered thereon, held that the amount recovered is income within the meaning of the Sixteenth Amendment to the Constitution and is taxable income…

The petitioner acquired by assignment from his father on the day before his death in 1919 a one-third interest in an indebtedness, the value of which for Federal-estate-tax purposes was determined to… Held: upon the evidence, the petitioner is not entitled to deduct from gross income, in his return for 1923, $30,000 representing a shrinkage in the value of the claim charged off in that year.

1. Petitioner purchased property for a residence and used it for that purpose for several years until 1920. In that year he placed a caretaker in possession and offered it for sale or rent. In 1922 he rented it and in 1923 he sold it.

Held, that an amount deposited by the petitioner in a bank as a separate fund to await the result of a suit filed against him during the taxable year for alleged neglect in the conduct of his… Held: that an amount deposited by the petitioner in a bank as a separate fund to await the result of a suit filed against him during the taxable year for alleged neglect in the conduct of his profession is not an allowable deduction in determining his net income.

Deductions claimed by the petitioners on account of bad debts, to the extent ascertained to be worthless and charged off in the respective taxable years, allowed under section 214(a)(7) of the Revenue Act of 1921.

Deduction of an amount representing compensation for services rendered, allowed.

Losses on sales of securities allowed.

1. Petitioner's closing inventory for the fiscal year involved, determined. 2. The value of a certain leasehold at the date it was acquired by the petitioner determined.

Alleged loss on road contract disallowed for lack of evidence to sustain such loss.

Held, that an amount representing loans from a corporation to the petitioner and which during the taxable year was canceled and released to him by a resolution adopted unanimously by the stockholders of the corporation represented a payment of dividends.

Loss sustained by petitioner in the year 1921, as the result of certain dealings in wool, was a net loss from the operation of a business regularly carried on by him, as defined by section 204(a) of the Revenue Act of 1921.

1. The contention of the petitioners that the Board should not determine the deficiency for 1920 without determining a refund for 1919, when the Board has no jurisdiction for 1919, is without merit.… Held: partnership good will not shown to have had any value on March 1, 1913.

Where owners of an oil and gas lease organize a trust for the purpose of issuing units and thus raise money to be used in sinking one well and thus ascertaining the value of the lease, and where it was their intention to sell the lease as soon as oil and gas were discovered, and where the declaration of trust provided for the immediate distribution to the shareholders of all moneys arising from royalties or the sales of the corpus, held that such an organization was not an…

A transaction by which the owner of a mortgage upon property takes such property and discharges the mortgage obligation constitutes an exchange of property for other property and gives rise to taxable gain or deductible loss, measured by the difference between the cost of the mortgage and the market value of the property.

Neither the acceptance of a return and the assessment of a tax thereon, nor a letter from the respondent to the petitioner indicating the allowance of an amortization deduction and requesting petitioner's acquiescence therein for purpose of determining net income as a basis for considering special assessment, constitute a tentative allowance of the amortization deduction within the meaning of section 278(b), Act of 1926, which makes the ordinary statute of limitations…

Assessment and collection of additional tax involved herein are barred by the statute of limitation, and there is no deficiency.

The net loss sustained by the petitioner in 1921 did not result from the operation of a trade or business regularly carried on and may not be deducted in 1922 under section 204 of the Revenue Act of 1921.

A loss sustained by the petitioner in 1921 as the result of the liquidation of a corporation in which he was one of the chief stockholders is not a net loss resulting from the operation of any trade or business regularly carried on by the taxpayer, within the meaning of section 204 of the Revenue Act of 1921, and may not be deducted from the net income of the taxpayer for the succeeding taxable year.

The petitioner has failed to sustain his burden of proof that an alleged debt was ascertained to be worthless and was charged off during the year 1920.

The waivers herein considered, dated January 14, 1926, held valid authority for the determination and assessment of taxes for 1919 and 1920 at any time prior to, and including, December 31, 1926.

1. The evidence does not overcome the presumption that certain gifts made within two years of decedent's death were made in contemplation of death. 2. The evidence offered by the petitioners in support of certain values contended for is also held insufficient to overcome the Commissioner's finding of value.

In 1920 the petitioner expended the aggregate amount of $53,300.62 in moving the machinery from its plants at Seymour, Conn., and Chicago, Ill., to a new plant at Buffalo, N.Y. Held, said expenditures constituted an ordinary and necessary business expense, deductible from income for 1920.

Where a corporation sustained a net loss in 1919, prior to becoming a member of an affiliated group in 1920, the excess of such net loss over the net income of the corporation for 1918 may, under section 204(b) of the Revenue Act of 1918, be allowed a as deduction from the net income of such corporation only in computing the consolidated net income of the affiliated corporations for 1920.

1. Petitioner was the principal stockholder of a corporation which suffered a net loss in 1920. Held: further, that the claimed deductions based upon the corporation's net loss for 1920 must be denied also, for the reason that there is no statutory net loss provision applicable to said year. Keystone Table Co.,1 B.T.A. 382.

Five individuals, who were doing business as a partnership, retained five-sevenths of the voting stock of a corporation that succeeded the partnership. Held: respondent was correct in applying the limitation set forth in section 331 of the Revenue Act of 1918.

1. A loss sustained by petitioner in 1922 upon the sale of stock in a corporation may not be carried forward and deducted from income for 1923 under the provisions of section 204 of the Revenue Act… Held: to be a distribution of capital within the meaning of section 201 of the Revenue Act of 1921.

1. The fair market value on March 1, 1913, of certain inventions and applications for United States Letters Patent determined from the evidence. 2. Basis for gain or loss on the sale in 1919 of certain foreign patent rights held not to have been established. 3. Exhaustion of alleged cost of certain contracts denied.

Where one sold in 1924 a tract of land on the installment plan, and where, after the sale was completed, he conveyed in trust one of the installment notes for the benefit of his wife and children, held that the vendor is entitled to report the transaction under the provisions of section 212(d) of the Revenue Act of 1926. Wallace Huntington et al.,15 B.T.A. 851, followed.

1. Valuation of a contract for the sale of real estate, included in in decedent's gross estate determined. 2. Held: that executors' commissions and attorney's fees as allowed by the surrogate court are proper deductions from gross estate. 3. New York State transfer tax allowed as a credit under section 301 of the Revenue Act of 1924.

1. The statute of limitation did not bar the assessment in March, 1926, of additional taxes for the year 1920 where returns were not shown to have been filed more than five years before the date of the assessment. 2. The Commissioner's determination that the four petitioners were affiliated for 1920 and 1921 approved.

1. Deficiency held not barred by limitation. Palmetto Coal Co.,11 B.T.A. 154, and Denholm & McKay Co.,15 B.T.A. 225, distinguished. 2. Held that under Regulations 62 the petitioner is required to compute his inventory at the close of the fiscal year ending February 28, 1921, upon the basis of cost, his inventory at the beginning of that taxable year and in prior years having been upon that basis.

New South Wales held to be a foreign country within the meaning of section 238(e) of the Revenue Act of 1921.

1. Mining agreement held to be a sale of coal in place and not a lease. 2. Petitioner expended $2,429.37 during the year 1921, representing the premium paid for insurance on labor used in the development of a coal mine. Held that this amount was a capital expenditure. 3. Petitioner expended $1,700 in recovering and repairing a steam shovel during 1921 which had fallen over an embankment.

Where the last day of the period in which the Commissioner may make an assessment falls on Sunday, an additional day in which to assess is not allowed him by the statute.

1. Where the life tenant of a going business made an absolute conveyance of her interest in consideration of an agreement to pay her an annuity of $25,000, held that the amounts paid were capital expenditures. 2.

1. Transaction held to have been entered into and carried on by the corporation rather than by an individual. 2. Contract held to have been a single continuing one and the resulting loss properly reported at the completion upon the completed contract basis under the consistent practice of the petitioner.

1. Expenses of a department store in holding annual picnic for employees held to be ordinary and necessary expenses of conducting the business. 2. Contributions to a trustee to provide a fund for distribution among various classes of corporations or to a certain community chest held deductible under the Revenue Act of 1921, but not under the Revenue Act of 1918.

The petitioner is a Pennsylvania trust estate, and during the years 1920 to 1923, both inclusive, the income was distributed in part and accumulated in part. However, under the law of Pennsylvania, the entire income was distributable. Held that said income is taxable only to the beneficiaries under section 219(d) of the Revenue Acts of 1918 and 1921.

1. The mere fact that a mixed aggregate of tangible and intangible assets was paid in for stock and it is impossible to determine the respective values of the two classes of assets at the time of acquisition, is no ground for special assessment where a value for the mixed aggregate was allowed in invested capital equal to the par value of the stock issued therefor without any reduction on account of intangibles so acquired, and where it is not shown that the total value of…

Losses from dealings in grain futures held to have been sustained in a prior year and not deductible in the taxable year ended July 31, 1920.

The Commissioner determined a deficiency, which is not questioned, against a corporation of which the petitioners were each transferees of assets of a value in excess of the deficiency. Held that petitioners are liable under the provisions of section 280 of the Revenue Act of 1926 for the deficiency in the tax of the corporation.

1. Invested capital may not be reduced on account of a tentative tax computed on the income for the year in determining the amount of current earnings available for the payment of dividends. 2. No deduction for obsolescence can be allowed where the property with respect to which a claim for such deduction is made was not used either prior to or during the taxable year and where the value of such property can not be determined. 3.

1. Held that for such portions of the fiscal years ended August 31, 1917, and August 31, 1918, as fell within the calendar year 1917, the petitioner had more than a nominal capital, hence, was not entitled to have its profits tax computed under section 209 of the Revenue Act of 1917. 2. The respondent's denial of personal service classification for such portion of the fiscal year ended August 31, 1918, as fell within the calendar year 1918, approved.

Held that petitioner was neither an officer nor an employee of a political subdivision of the State of Texas nor was he such a governmental instrumentality as to render his compensation therefrom for services performed under a contract exempt from tax.

1. Dividends paid on shares of stock in 1922 held not taxable to decedent, who conveyed the stock to his son as a gift in 1919. 2. A gift from father to son of shares of corporate stock, where transfer was made in the stock book of the corporation with clear intent to convey title, was not voided by the subsequent acts of the donor in receiving dividends paid thereon.

1. In 1920 the petitioner received $100,000 in consideration for the sale of 24 shares of stock of the Ohio Mattress Co., and the execution of a quitclaim deed to certain property. The March 1, 1913, value of the 24 shares of stock was $6,910, which was in excess of the cost thereof to the petitioner. The real estate with respect to which the quitclaim deed was executed cost the petitioner nothing. The petitioner contends that $64,000 of the $100,000 received was a gift from his father and not taxable income. Held, the $64,000 was not a gift to the petitioner. 2. At the hearing of this proceeding counsel for the respondent claimed an addition to the deficiency of 50 per centum of the amount thereof for the filing of a false and fraudulent return by the petitioner for 1920. Held, the return filed was false and fraudulent.

The long-term contract basis of reporting income of the petitioners herein held to properly reflect income. Held: further, that petitioners, having elected to file returns on that basis, may not change to a different basis.

A life insurance agent who advances the first premiums due upon policies he writes for customers, believing and expecting that the money will be repaid to him, held not entitled to deduct as ordinary and necessary expenses, the amounts so paid.

Losses on sales of stocks allowed as deductions from gross income.

Although, as between a brother and sister there was no partnership relation, yet, by reason of the fact that she contributed one-half the original investment, and notwithstanding the fact that no specific contract existed between them other than during the later years of operation and she was not publicly known as an interested party in such business, one-fourth of the income belonged to her, and petitioner was not chargeable with that one-fourth.

Where a legal partnership exists among members of a family, each member of such partnership may be charged only with his distributable share in the profits of the business.

A loss of an investment in the stock of a corporation held to have been sustained in 1923.

- By the will of petitioners' father an annuilty of $6,000 a year was given their mother, directed to be paid by petitioners. Held: that the annuity was a charge against the income from the property and as to any arrearage against the corpus, and the income in 1923 being less than the the amount of the annuity, none of it represented income taxable to petitioners, but the income in the following year being in excess of the annuity, such excess represented income…

An officer and large stockholder in a corporation held its promissory notes, on which the interest was not paid. The company did not have surplus cash sufficient to pay the interest. Held: there was no constructive receipt of interest by the noteholder.

1. The mortgage notes here in question had a fair market value of $70,000. 2. This sale is to be treated as a deferred payment sale not on the installment plan, and the tax for 1924 and 1925 computed accordingly.

The petitioner is not a corporation organized and operated exclusively for scientific, literary or educational purposes. Its only stockholder, the American Institute of Accountants, is a private stockholder within the meaning of section 231(6) of the Revenue Act of 1921.

The value of patent rights paid in to the petitioner corporation for shares of stock in 1920 determined for depreciation purposes.

1. Special assessment for the year 1919 denied on failure of petitioner to show the existence of abnormalities affecting its capital or income. 2. An amount representing a portion of petitioner's income and profits tax for 1919 paid by the petitioner in 1920 and by agreement charged to certain of its employees as a part of their compensation for 1919, held to constitute taxable income to the petitioner in the year 1919.

Where more than six years elapsed from the date of an assessment against a taxpayer to the enactment of the Revenue Act of 1926, an assessment against the transferee of the assets under section 280 of that Act is barred by the statute of limitations.

The petitioner was created by an agreement and declaration of trust for the purpose of actively engaging in the theatre business and its ultimate control was vested in its beneficiaries. Held: that the petitioner is subject to income taxation as a corporation under the Revenue Act of 1924.

1. Revenue agents' reports not shown to have been used by the Commissioner of Internal Revenue in the determination of deficiencies are not proof of the adjustments made by the Commissioner even though in some instances the deficiencies proposed in such reports are identical with the deficiencies found by the Commissioner. 2. The Commissioner, in computing the distributive shares of partners in the net income of a partnership, need not, as a general principle, take into consideration and make adjustments for the fact that an asset of the partnership sold during the year might, as to the various partners, have different bases for gain or loss if the various partners had owned undivided interests as individuals in this particular asset. 3. A compliance with the statutory provisions in regard to the mailing of deficiency notices to taxpayers involves the mailing of such a notice by registered mail to the taxpayer's correct address.

Held, that there is no deficiency for the years prior to the year in which the petitioner was incorporated, where it does not appear that the Commissioner is trying to establish the petitioner's… Held: that there is no deficiency for the years prior to the year in which the petitioner was incorporated, where it does not appear that the Commissioner is trying to establish the petitioner's liability as a transferee.

1. The petitioners, on the dissolution of a corporation of which they were the principal stockholders, received liquidating dividends in excess of the amount of additional taxes subsequently assessed against the dissolved corporation. Held that the petitioners are transferees within the meaning of section 280 of the Revenue Act of 1926. 2.

1. Profits of petitioner for the fiscal years ending June 30, 1917, and June 30, 1918, credited to the personal drawing accounts of its principal stockholders, were distributions of corporate assets and can not be included in invested capital. 2. Special assessment denied.

Under the evidence adduced, certain shares of stock, alleged by the petitioner to have been acquired by purchase, with the purchase of debenture bonds, constitute income in the year in which received, and for failure to overcome the prima facie correctness of the value of said shares as found by the respondent the value so found is approved.

Premiums paid by petitioner covering insurance policies on lives of its officers, under which petitioner was neither directly nor indirectly a beneficiary held to be deductible as ordinary and necessary expenses.

The March 1, 1913, value of certain farms and fair market value of notes determined.

Petitioner, a member of an affiliated group, sustained net losses in 1922 and 1923 and had no net income in 1924. Held that the net losses of petitioner for 1922 and 1923 may not be deducted from income of other members of the affiliated group for 1924.

Petitioner, an insurance company, having been allowed deductions for policy losses actually paid and also the net additions required by law to be made to reserves, is not entitled under the Revenue Act of 1918 to further deductions of amounts representing the increase in reserves set up to cover estimates of its probable liability on liability and workmen's compensation policies.

Payment by partners of a sum of money to the widow of their father, pursuant to an antenuptial agreement, does not serve to reduce their distributive shares in the partnership profits.

1. ESTATE TAX. - Commissioner's valuation of stock sustained for lack of evidence to show error. 2. ID. - Policies of insurance upon which decedent's husband paid the premiums held to be policies taken out by decedent upon her own life, and the face amounts properly included in the gross estate.

The evidence does not establish that petitioner owned and controlled substantially all of the stock of the Spivey Packing Co. during 1921.

Certain dividends were declared by a corporation, of which petitioner was a stockholder, December 26, 1923. The check for petitioner's dividend was made out and mailed to her after banking hours on the afternoon of December 31, 1923, but was not received by her until January 2, 1924. Held that the dividend was income to petitioner in 1924.

Damages, costs and expenses paid by petitioner on account of personal injuries to another person, resulting from the operation of his automobile by his minor son on a pleasure trip, are not allowable as a deduction from gross income under section 214(a)(6) of the Revenue Act of 1921.

1. Gain realized by an estate upon the sale of securities is taxable to it where there is no provision directing the distribution thereof. 2. A loss sustained by the estate in the sale of securities is not allowable to the individual beneficiaries of the estate.

Deduction claimed by petitioner is allowed as a bad debt, or loss.

1. Loss on account of guarantee of accounts held not to have been sustained in 1922. 2. Evidence insufficient to sustain allegations of error as to two other items of bad debts or losses.

Interest credited to the personal account of petitioner on the books of the corporation of which he was a stockholder, held to have been constructively received, the financial condition of the debtor during the taxable years being such that the amounts credited could have been paid.

ESTATE TAX. - Commissioner's determination as to gross estate approved.

1. Membership dues paid to a trade association by the petitioner should be deducted from gross income in the taxable year as an ordinary and necessary business expense. Independent Brewing Co.,4 B.T.A. 870, followed. 2. Loss resulting from obsolescence of renewal rights of saloon licenses allowed as deduction from gross income in the taxable year, under authority of section 234(a)(4) of the Revenue Act of 1918. McAvoy Company,10 B.T.A. 1017, followed.

1. The decedent, a resident of Nebraska, died seized of real estate situated in that State. The statutes of Nebraska give the surviving wife a one-third interest in her deceased husband's real estate. Held that where, under the statute, substantial rights of the husband with respect to such real estate cease only at his death, the one-third interest of the wife should be included in computing the gross estate for estate-tax purposes. 2.

1. Claim for special assessment on account of intangible assets acquired by a corporation at the time of its incorporation, but not capitalized, disallowed for lack of proof establishing such right. 2. A high rate of earning during an unusually prosperous year, alone, is not evidence of abnormalities warranting special assessment. 3. Respondent's adjustments of invested capital on account of unpaid Federal taxes for prior years, paid in the taxable year, approved.

Evidence adduced by petitioner insufficient to overcome the presumption that the deficiency determined by the Commissioner is correct.

1. Evidence fails to overcome the presumption that the Commissioner correctly determined the value at acquisition of a certain note received by the petitioner prior to the taxable year in which it was paid in full. 2. Market value of a certain parcel of real estate at March 1, 1913, determined.

1. Commissioner's computation of profit from the sale of real estate and building sustained on authority of Even Realty Co.,1 B.T.A. 355. 2. Deduction for a bad debt, in 1922, disallowed because the evidence shows that such debt was worthless in a prior year.

Additions to a reserve for the maintenance of roofs constructed under a guaranty contract can not be excluded from gross income. Uvalde Co.,1 B.T.A. 932, followed.

1. Under the terms of a contract of sale, profits over and above the amount distributed in 1921 were so contingent that they should not be included in petitioner's income for 1921. 2. Where the actual facts show that petitioner received no dividends from a company, although book entries indicated that he did, the facts will control. 3. Negligence penalty asserted for 1920 disallowed where it appears that petitioner followed the same course as a reasonable and an ordinarily prudent man would follow. 4. Negligence penalty asserted for 1921 approved where evidence fails to rebut the determination of respondent.

1. Where the decedents did not own, receive or control any part of certain oil royalties, ownership being vested in others because of an agreement by which a law suit regarding title to the land was compromised, it is held that the amount of such royalties was improperly included in gross income by the respondent. United States v. Looney, 29 Fed.(2d) 884. 2.

Held, upon authority of Harry E. Lutz,2 B.T. A. 484; John G. Paxton,7 B.T.A. 92; and Warren E. Held: upon authority of Harry E. Lutz,2 B.T. A. 484; John G. Paxton,7 B.T.A. 92; and Warren E. Burns et al.,11 B.T.A. 524, that an assessment against a stockholder of a national bank, made for the purpose of replacing the impaired capital thereof, is not a deductible loss within the meaning of section 214(a)(5) of the Revenue Act of 1921.

Petitioner held to be an employee of the State of Kansas during the year 1923 and his income from the State held to be exempt from Federal income tax.

1. Distributions made by a corporation in 1922 held to be dividends within the meaning of section 201(a) of the Revenue Act of 1921, to the extent that they represented earnings or profits accumulated since February 28, 1913, subject to the surtax and exempt from the normal tax, even though the distributions were made in liquidation of the corporation. 2.

The petitioner held not to have been the owner of stock sold in 1922 and therefore not taxable with any profit thereon.

Amounts credited to a suspense account for possible return to customers held income to the petitioner in the absence of any showing as to the amount of such items which could reasonable be expected to be returned to customers.

A cancellation of stockholders' and officers' indebtedness tentatively agreed to in 1922 but as to which formal action was not taken until 1923, held not to justify a deduction for compensation of officers in 1922.

1. Value of certain parcels of real estate in 1924 determined for estate-tax purposes. 2. Certain transfers of real estate by decedent to his children more than 5 years prior to death were not made in contemplation of death.

An instrument executed by petitioners, giving their two sons each a one-fourth beneficial interest in a business operated by petitioners, held not to create a partnership or render the income nontaxable to the petitioners.

Amount of income received by the petitioner in 1922 from the transaction involved herein, determined.

1. The petitioners and the third member of their law firm were attorneys for the Special Coal and Food Commission of Indiana. Held that they were state employees and the income received for such services is exempt from tax. 2. The third member of the law firm of which the petitioners were members received compensation for his services as a receiver appointed by a court of the State of Indiana.