Volume 17 — Board of Tax Appeals

1. Held, that the petitioner did not own or control substantially all of the stock of four other corporations and therefore was not affiliated with them. 2. Held: that the petitioner did not own or control substantially all of the stock of four other corporations and therefore was not affiliated with them. 2.

On January 2, 1920, the petitioner paid to a trustee the total sum of $338,000 for the benefit of and to secure contracts for the services of the two employees for a period of five years, at the end of which time the funds were to be paid by the trustee to the employees, provided the employees had carried out the terms of their employment contracts. The contracts were duly carried out and the funds paid to the employees.

1. Held that certain amounts representing cost to the petitioners of stock in a corporation constituted losses in 1922 and are deductible in that year. 2. Amounts paid in 1922 and 1923 as assessments on stock by the petitioners who were endorsers of the corporation's notes and guarantors of its indebtedness held deductible in the respective years. 3. An amount advanced in the form of a loan by one of the petitioners in 1922 to a corporation for paying interest on its indebtedness (which was in fact a portion of petitioner's liability as endorser or guarantor), held deductible in that year as a loss then sustained.

The petitioner's Employees' Savings and Profit Sharing Pension Fund held to have been a trust during the years under consideration, and taxable as an entity.

Evidence considered and held insufficient to sustain in petitioner's contention that the payments involved herein were royalties.

1. Where $95,000 was paid in 1922 in compromise of proposed additional assessments of income and profits taxes for 1917 to 1920, inclusive, invested capital for 1921 should be adjusted by the amount of the compromise payment. 2. Special assessment denied.

Held, evidence insufficient to establish the value of a patent on March 1, 1913. Held: evidence insufficient to establish the value of a patent on March 1, 1913.

Held that petitioner has failed to prove that it is the owner of the patent upon which it claims deductions for exhaustion and the determination of the respondent is upheld.

1. Respondent's determination approved for lack of evidence. 2. Respondent's claim that his determination of a deficiency was erroneous held not sustained by the evidence, the burden being on the respondent.

Reasonable amounts as compensation of officers determined in accordance with respondent's determination.

Evidence insufficient to show that a deduction for a bad debt or a loss was allowable in 1920.

Personal service classification denied petitioner for the years 1920 and 1921.

1. A certain contract involved herein held to have cost the petitioner nothing and the petitioner is, therefore, not entitled to any deduction from income for the exhaustion of said contract. 2. The petitioner and the Aluminum Rolling Mills, Inc., were not affiliated during the year 1923. 3.

1. Liberty bonds, purchased at par, were used at that value in payment of dividends, the market price then being less than par. Held, no loss sustained. 2. Factory alterations suggested by Government authorities supervising war work which did not increase the efficiency of the factory, and which have been continued in use, held to constitute capital expenditures. 3. Cost of removal of an engine from one part of a factory to another, held deduct ble as an ordinary and necessary expense. 4. Cost of machinery and equipment purchased and used solely for war work, which was scrapped immediately upon termination of that work, held deductible as a loss sustained during the taxable year. 5. Invested capital may not be reduced by use of a tentative tax in computing earnings available for distribution.

1. Amount of gain on sale of real estate determined. 2. Deductions claimed allowed in part and disallowed in part. 3. Basis for computing depreciation determined.

Assessment and collection of the deficiencies asserted against the petitioner for the years 1918 and 1919 are not barred by the statute of limitations.

During the taxable year, petitioner, in order to meet the demands of the holders of some of its notes for an increase of 2 per cent per annum in the interest rate on the notes, issued to such creditors shares of its 8 per cent special preferred stock having a par value equal to the principal amount of the notes.

1. PARTNERSHIP - HUSBAND AND WIFE. - Husband and wife may be partners under the law of Pennsylvania. Evidence establishes partnership between petitioner and his wife. 2. FICTITIOUS NAME ACT. - Pennsylvania laws requiring registration of the names of persons doing business under an assumed or fictitious name do not affect the status of the partnership.

1. JURISDICTION. - The Commissioner has no authority under section 280, Revenue Act of 1926, to determine or assess a liability against a transferee of property of a taxpayer for munitions taxes imposed on the taxpayer by section 301(1), Revenue Act of 1916. 2.

Special assessment denied.

Where the beneficiaries of a trust do not have a greater amount of control over the management and operation of trust property than to approve appointments on the board of trustees and consent to modifications of the trust agreement, the organization is, under rulings of the Bureau of Internal Revenue not reversed or revoked prior to March 24, 1921, the date on which the petitioner filed its return for the taxable year 1920, taxable as a trust and not as an association.

1. The method of computing profits tax provided by section 302, Revenue Act of 1918, is only used if thereby the tax is lower than it would be under the more ordinary method of section 301; and when section 302 applies, invested capital is not a factor of the computation. 2.

The basis for the computation of loss on property acquired prior to March 1, 1913, and lost by casualty in the years 1918 and 1919, is cost where its value on March 1, 1913, was in excess of its cost.

The Commissioner's action in disallowing a claimed deduction alleged to represent a debt ascertained to be worthless and charged off in the taxable year approved.

Beneficiaries of a trust held not entitled to depletion.

Section 240(a) of the Revenue Act of 1918 does not provide for the filing of consolidated returns of the net income and invested capital of two corporations, one of which owns substantially all of the stock of the other, which corporations were each organized after August 1, 1914, and were not successor to a then existing business, and 50 per cent or more of the gross income of each of which consisted of gains, profits, commissions or other income derived from a Government…

1. Where transferees have invoked the provisions of section 280 by appealing to the Board they may not in such a proceeding question its validity. Henry Cappellini et al.,14 B.T.A. 1269. 2. Assessment and collection of the deficiency asserted against petitioner as transferee for taxes of the Broadway-Strand Theatre Co. for the year 1919 is barred by the statute of limitations. 3.

The petitioner and the Interstate Coal Co. were no affiliated during the taxable year.

1. The taxpayer transferred all its assets to a second corporation, and the second corporation by a similar process transferred such assets to the petitioner, and both the taxpayer and the second corporation have been dissolved. Held that under section 280 of the Revenue Act of 1926 the petitioner is liable for the unpaid Federal income tax of the taxpayer to the extent of the value of the property it received by transfer from the second corporation. 2. Rates of depreciation of taxpayer's property for the taxable year determined.

1. The parties having stipulated or proved all the facts necessary to determine the gain, if any, which the petitioner in Docket No. 20924 realized from the collection of the proceeds of certain fire insurance policies, such gain, and any additional tax liability resulting therefrom should be recomputed under Rule 50, in conformity with the stipulation and findings of fact. 2.

1. The petitioner has failed to establish its right to special assessment for the year 1918. 2. The petitioner has not established that an alleged bad debt was ascertained to be worthless and was charged off during 1920. Under the Revenue Act of 1918 part of a debt may not be charged off and the balance retained on the books as having a value. Steele Cotton Mill Co.,1 B.T.A. 299.

The collection of the deficiency herein is barred by the statute of limitations. Russel v.United States,49 Sup.Ct. 121.

Petitioner held to be affiliated with the Equitable Powder Manufacturing Co.

The net loss of the Maytag Co., an Iowa corporation, during the year 1921, may not be deducted from net income of the petitioner, its successor, in the succeeding year.

Under the circumstances of the case, an agreement to cancel a lease by which the petitioner was relieved of a contingent liability to return a lease deposit held not to result in income in 1923.

1. Personal service classification denied where capital is a material income-producing factor, even though that portion of the business as to which capital is essential may have resulted in no net income, a substantial amount being earned as gross income. Denver Live Stock Commission, 29 Fed.(2d) 543, followed. 2. Special assessment denied for lack of evidence of abnormality.

1. The cost of a patent to petitioner in 1923 determined and a deduction for exhaustion thereof based upon such cost allowed for the year 1923. 2. Held that under the Revenue Acts of 1924 and 1926 the basis for the computation of exhaustion on the patent for the years 1924, 1925, and 1926 is the basis in the hands of the transferor of the patent. In the absence of such basis, the determination of the respondent is upheld.

1. Held that in the absence of evidence of the true tax liability of the petitioners for the year 1918, the Board will not attempt to apportion a proposed overassessment between an assessment made in May, 1924, collection of which is barred by the statute of limitations, and an assessment made in March, 1925, collection of which is not barred. 2.

1. Order of dismissal for lack of jurisdiction vacated and set aside on production of evidence at rehearing to establish essential jurisdictional facts. 2. Action of respondent in including in income for 1918 the amount of $8,161.26 collected by the petitioner in that year from debtors whose accounts were charged off as worthless in 1916, approved. 3. Special assessment denied.

Petitioners held not entitled to deductions for depletion on account of oil produced from property leased by them but as to which lease they made an absolute assignment in consideration of certain payments to be made by the assignee from such oil as might be discovered in and produced by the property covered by the lease so assigned.

Assessment and collection of a deficiency in respect of the tax of an Ohio corporation from the petitioner, a transferee of the assets of such Ohio corporation, held not barred by the statute of limitation.

1. The petitioner was incorporated January 4, 1918, under the laws of the State of Ohio and issued its capital stock to the shareholders of a New Jersey corporation in exchange for their shares of… Held: further, that upon the evidence submitted the petitioner is not entitled to include in invested capital any amount in respect of the value of patents paid in to the New Jersey corporation in 1901 for shares of stock. 2.

A deductible loss is not sustained under the provisions of the Revenue Act of 1921 on account of the voluntary demolition of buildings where the buildings, together with the land on which they were situated, were purchased for the purpose of providing a site for another building, even though the plans for the new building were abandoned.

Held that an agreement among the affiliated corporations for assessment upon the petitioner of the total tax computed on the basis of a consolidated return may not be implied from the facts herein, and since there was no such express agreement, the deficiency determined by the respondent may be assessed upon the petitioner only on the basis of the net income properly assignable to it. Section 240(a), Revenue Act of 1918.

The evidence in this proceeding does not establish that petitioner sustained an alleged loss in the year 1919 as a result of his giving to a bank his promissory note to protect the bank in connection with certain promissory notes of others upon which petitioner was guarantor.

The amount of a note given by the petitioner in settlement of his liability as an indorser of a note is not deductible from gross income, he being on the cash receipts and disbursements basis and no cash having been paid on the note during the taxable year.

Under a deed of trust executed by her father in 1883 the petitioner's decedent was granted a general power of appointment to designate the persons to whom certain property should pass upon her… Held: that the value of the appointed property was includable in the gross estate of the decedent for the purpose of determining the amount of the estate tax.

1. El Paso County Water Improvement District No. 1 and Hudspeth County Conservation District No. 1, held to be political subdivision of the State of Texas. 2. Petitioner, retained as an attorney for such districts on an annual basis, held to be an employee of such districts and his compensation exempt under section 1211 of the Revenue Act of 1926.

1. A corporation organized under the laws of New York but whose operations were conducted principally in Porto Rico held to be a domestic corporation subject to the 4 per cent additional tax imposed by the Revenue Act of 1917. 2. By an act of Porto Rico, approved June 26, 1919, petitioner became liable to pay a tax upon its income for the period from January 1 to July 31, 1918. It kept its books upon the accrual basis.

Decedent acquired stock in National Bank "A," which thereafter united with National Bank "B," but continued business under its (A's) charter, and thereafter went into receivership, reduced its capital stock by sixteen-seventeenths in the number of shares and then increased it and finally reopened, after which decedent sold his stock (which had been reduced to one-seventeenth of the number he originally owned) for less than the March 1, 1913, value, which was less than cost. Held that the sale resulted in a deductible loss of the difference (with minor adjustments) between the March 1, 1913, value and the selling price.

The interest of a surviving wife in community property of her deceased husband and herself, both residents of the State of California, is subject to Federal estate tax imposed by the Revenue Act of 1921. Griffith Henshaw, Executor,12 B.T.A. 1441.

1. Assessment and collection of the additional tax for the year 1917 involved herein held not to be barred by the statute of limitations. 2. Respondent's action in reducing petitioner's invested capital for the years 1917 to 1921, inclusive, on account of depreciation sustained in 1917 and prior years, affirmed. 3, Petitioner held not to be entitled to any deduction for the amortization of a certain building erected by it in 1917 and 1918. 4. Respondent's action with respect to deductions for depreciation of petitioner's hauling equipment for 1921 and 1922, sustained. 5. The petitioner held to be entitled to deduct from gross income for 1922 the amount of $500 contributed by it to the Shriners' convention.

Petitioner, having a life interest in certain coal royalties as residuary legatee through the will of the husband, made certain assignment in respect of such royalties to her children. Held that such royalties paid to the children by virtue of her assignment were income to petitioner.

Written consents entered into between the petitioner, by its president, and the Commissioner after the expiration of the statute of limitation, but before the Revenue Act of 1926, held valid.

A consent executed by an administrator in 1925, more than five years after the filing by the decedent of his income-tax return for 1918, held valid and served to extend the period for assessment and collection of the tax for that year.

A contribution to a benefit fund for sick employees is deductible from gross income for the year as an ordinary and necessary expense of carrying on the petitioners' business, where the facts and circumstances connected with the creation and operation of the fund show that it is a trust.

The Board will not make a determination as to the correctness of the Commissioner's allowance of special assessment under section 327 and his determination of the profits under section 328, Revenue Act of 1918, for the year 1918 not involved in the proceeding before the Board, upon the claim that he used improper comparatives and thereby erroneously determined invested capital for 1919, the year before the Board.

An estate which, during 1921 and 1922, held certain funds, securities, real estate and other assets by virtue of the will of the deceased and the activities of which during such period consisted of the liquidation of such assets and such other activities as are required by law in connection with the administration of an estate, held not engaged in the operation of a trade or business regularly carried on within the meaning of section 204 of the Revenue Act of 1921, and may…

Held that of the sums drawn by petitioner from the corporation of which he was president and majority stockholder, that portion which he applied to the purchase of property for the corporation and taxes and interest thereon did not constitute dividends.

The decedent in July, 1917, sold, transferred and conveyed by a prenuptial agreement certain shares of stock, which agreement provided that he should have the sole use and benefit of such property and be entitled during his lifetime to all dividends, income and profits therefrom and also the exclusive voting power of such shares of stock.

1. During the taxable year, petitioner created, by appropriate instruments, two trusts for the payment of pensions to former employees and officers. Held that the net income of the trusts is not taxable to petitioner, and that the securities and cash contributed to the funds held in trust are deductible from gross income as ordinary and necessary business expenses. 2. Where an inventory of goods in process and finished goods on hand at the close of a taxable year is taken at cost, it should include the amount of bonuses paid to employees who participated in the production of the goods composing the inventory. 3. No error was committed by respondent in allowing as a deduction from gross income instead of as a credit against taxes due the United States, certain income taxes assessed by Great Britain. 4. Special assessment allowed.

DEPLETION. - Respondent's disallowance of certain deductions from gross income by petitioner as representing depletion of timber, sustained.

- A loan made by petitioner in 1921, found to be worthless and charged off in 1922, held to represent a proper deduction in arriving at net income for that year.

Where A sold to B all the oil produced from his interest in an oil lease during the period December 2, 1921, to October 2, 1922, for the sum of $625,000, of which the amount of $225,000 was payable at all events and the remainder was limited to an amount equal to the sale price of one-half the oil produced from such interest during said period, with an option in B to purchase said interest in the lease for the sum of $25,000, plus an amount equal to the difference between the sum of $625,000 and what had been paid for oil, said latter amount to be paid out of oil, and where it was uncertain, under the then known facts, whether B would exercise his option, held that the contract was a sale of oil and not a sale of the interest in the lease until the option was exercised; held, further, that A is entitled to deduction for depletion during such period; and held, further, that the exercise of the option by B did not, for income-tax purposes, relate back to the date of the contract.

Valuation of certain stock determined for estate-tax purposes.

On August 1, 1924, the petitioner, which filed its return on the calendar year basis, obtained a lease for one year from that date on a certain building which it agreed to keep in a good and… Held: that the amount so expended represents an investment of capital to be exhausted over the period beginning at the date the roof was put on and ending at the expiration of the lease.

1. Where the actual cost of certain depreciable assets is not established, the determination of the respondent as to the basis for depreciation must be approved. 2. Petitioner reduced 1923 net income by a net loss sustained in 1922 giving it a balance subject to tax of less than $25,000, and it claimed the $2,000 exemption allowed by section 236(b) of the Revenue Act of 1921.

1. The fair market value of certain leaseholds determined from the evidence for invested capital and exhaustion purposes. 2. The cost of an automobile, found to have been erroneously charged to expense, restored to the capital account for invested capital and exhaustion purposes. 3.

Resident citizens of the United States, owners of a residence in France, but receiving no income therefrom, nor any income from any business or profession situated or carried on in France or any other foreign country - their income being received exclusively from sources within the United States - are not entitled to have allowed as credits against income taxes dur the United States, the amount of income taxes computed upon an estimated income of seven times the rental value…

1. A taxpayer entitled to receive from a trustee bank mineral royalties, who agrees with another to pay him for legal services in perfecting the right to such income a sum equivalent to a fixed percentage of the amounts received or who agrees to pay him a fixed percentage of the amounts received, such amount being in fact paid to the other directly by the bank and not received by the taxpayer, is taxable upon such percentage amount as his income. 2.

1. The fair market value of the surface rights in land owned by certain of the petitioners was reduced in 1920, due to the fact that the land became impregnated with oil and salt water from oil wells drilled thereon and was thereby rendered permanently less fitted for cultivation. Held that said shrinkage in value is not an allowable deduction from gross income. 2. The amount of sales of cotton made by certain of the petitioners in 1920, determined. 3.

Evidence held insufficient to how that a dividend declared by a corporation in 1922 was not a cash dividend, as determined by the Commissioner.

1. The respondent treated the petitioner as the parent company instead of its affiliated company, the Emandess Holding Co., and he computed the net income of the two companies on the basis of a fiscal year ended July 31, 1921, instead of a calendar year basis ended December 31 of that year. Held, petitioner having failed to show that the basis employed by the respondent was incorrect because it does not clearly reflect the true net income or that the method which it contends for will more nearly reflect its net income, the action of the respondent is approved. 2. The March 1, 1913, value of certain tenement buildings owned by the petitioner's affiliated company determined. 3. The rate of depreciation determined by the respondent and applied to the properties aforesaid approved because of the failure of the petitioner to overcome the prima facie correctness of the respondent's findings. 4. Deficiencies were asserted against and collected from the petitioner for the years 1917 and 1919, which were later, but not until after the period of limitations had barred the right of recovery, found by the respondent to have been excessive. The respondent reduced petitioner's invested capital by the amount of the outlawed portion of the overpayment in tax. Held, the petitioner's invested capital should not be increased by the amount of the said outlawed portion of the overpayment in tax. 5. The petitioner having offered no evidence with respect to value of its leasehold at the date of acquisition, respondent's action in failing to allow a value for invested capital purposes is approved. 6. For failure to prove the existence of a leasehold upon premises occupied by the petitioner extending over a period of years upon which a March 1, 1913, value might be predicated, the action of the respondent in failing to allow exhaustion thereon in the taxable year is approved. 7. For failure to adduce satisfactory evidence of the March 1, 1913, value of the so-called Handley lease the respondent's failure to allow said value or exhaustion thereon is approved. 8. No evidence having been offered with respect to the depreciation upon improvements erected by the petitioner upon leasehold property, the respondent's failure to allow a deduction therefor in the taxable year is approved.

The liquidation of liability under the guaranty by stockholding corporations of the bonds of a corporation created at their instance for the sole purpose of acquiring and eliminating competing properties, is a capital expenditure and may not be deducted by the principals as a loss.

1. Under the Constitution of the State of Arkansas a promissory note given to a corporation for its stock is void as between the maker and the corporation, and, notwithstanding the solvency of the maker of the note and his ability to pay, no amount may be included in invested capital on account of such note given for stock. 2. Cost of depreciable property acquired for cash determined.

1. Decedent was given general powers of appointment by the wills of her father and brother and reserved a general power of appointment to herself in a certain trust deed. By her last will and testament she exercised the three powers in favor of her daughter, who was also the remainderman under each of the instruments. Held that the value of the appointed property should be included in the decedent's gross estate under section 402(e) of the Revenue Act of 1918. 2. Evidence held insufficient to determine that the value placed on certain shares of stock by respondent was erroneous.

Petitioner has failed to establish that the Commissioner's deficiency notice was mailed more than five years after the return for the fiscal year ending February 28, 1919, was filed.

The decedent was the record owner of certain shares in a trust estate represented by three certificates for 4,000 shares each. On August 1, 1918, he assigned the certificates to his wife, daughter, and son, respectively, and delivered them to the assignees as gifts and they were accepted as such by them.

Decedent in exercising a power of appointment created equitable life estates with void limitations over. Held, since under the laws of Massachusetts the prior disposition is allowed to operate as if the void limitations over had never been made, that the respondent correctly included the present worth of such equitable life estates in decedent's gross estate under section 402(e) of the Revenue Act of 1921.

1. Partnership held not entitled to both deductions for debts ascertained to be worthless and written off and also reserves for bad debts. 2. Increase of partnership income by reason of the disallowance of claimed reserves for bad debts does not, on the evidence, entitle it to additional deductions for distributions to employees who were to share in the firm's net profits.

1. Cost of patent acquired by petitioner for its capital stock determined for purpose of computing an allowance for exhaustion. 2. Under section 331 of the Revenue Act of 1921, such patent can be included in invested capital only to the extent of its cost to the patentee, where such patentee owned 50 per cent or more of the stock of the petitioner.

1. Additional salaries voted by the board of directors for 1917, credited in the petitioner's books of account to the various officers and employes affected before the close thereof for 1917, and… Held: the patent having been acquired in 1905, and at least twelve years of its life having been spent in 1917 and thirteen years in 1918, the amount restored by the respondent should have been reduced by exhaustion occurring during those twelve and thirteen years, respectively. 8.

1. The petitioner is sustained in his contention that the gains here in question are capital net gains. 2. Held: that in accordance with his election, the tax thereon shall be levied at 12 1/2 per centum thereof under the provisions of section 206(b) of the Revenue Act of 1921.

Certain unclaimed wages, which had been credited to operating expense and allowed as a deduction for the year in which the expense accrued, were subsequently credited to profit and loss. Held that such unclaimed wages constitute taxable income for the year in which they were charged to profit and loss.

The decedent was a resident of the United States at the time of his death.

The petitioner purchased a certain tract of land in the year 1921, upon which she later built a residence and made other improvements. She furnished and lived in the residence during the summer months of 1924 and 1925. In 1925 she sold the entire property, including the furnishings and equipment, at a loss. Held that the transaction was entered into for profit and that the loss sustained is deductible.

In the absence of proof of error by the Commissioner of March 1, 1913, value of land, his determination of such value is approved.

By agreement, this proceeding determined on record of a prior determined proceeding.

1. Losses, claimed by reason of alleged worthlessness of royalty rights, disallowed for lack of evidence of such worthlessness, as well as lack of evidence of a closed transaction. 2. Deductions taken by petitioner, in his return for 1922, on account of bad debts, allowed.

1. Depreciation upon tobacco warehouse and warehouse equipment determined. 2. Deduction for the loss of tobacco baskets allowed. 3. Personal service classification denied. 4. Petitioner is a transferee of assets of the Star Warehouse Co. within the meaning of section 280 of the Revenue Act of 1926. 5.

1. Beneficiaries of a trust which sustained net losses for its fiscal periods ended March 31, 1922, March 31, 1923, and March 31, 1924, are not entitled to deductions upon their individual returns for the calendar years 1922, 1923, and 1924, respectively, of amounts equal to the portions of the said net losses allocable to their interests in the trust. 2.

Deduction from gross income of 1921 of the unrecoverable portion of a debt allowed.

1. Loss allowed on the sale of securities to a corporation of the stock of which the petitioner owned 51 per cent in his own name and 49 per cent as trustee, where it appears that the sale was genuine. 2. Where the petitioner fails to show which of several lots of bonds he sold and which he retained, the Commissioner's determination that he sold those first acquired is approved.

Petitioner is not entitled to a credit in his individual tax return for the calendar year 1917 of an amount paid by a corporation as a tax upon his individual income erroneously reported by the corporation in a return filed by it for that year.

1. Section 202(a)(2) of the Revenue Act of 1921 is not unconstitutional. Taft v. Bowers,278 U.S. 470. 2. The term capital assets as defined in section 206(a)(6) of the Revenue Act of 1921 means property actually acquired and held by the taxpayer for profit or investment for more than two years.

1. Where one corporation, which owns all of the stock of a second corporation, causes the second corporation to be dissolved, and takes over its assets, which have a value less than the cost of the stock, the first corporation has a deductible loss which it may claim in computing its income for the period following affiliation.

Petitioner, a large stockholder in and president of several banks, made substantial payment to one of such banks to cover defalcation made by an employee and to prevent the closing of such bank. The amount so paid was in addition to petitioner's obligation for double liability upon his stock. No like payment was made by the other stockholder. Held that petitioner did not sustain any deductible loss by reason of such payment.

The fact that a corporation was enabled to carry on its business with less capital than would have been required had it not had the benefit of a favorable contract arrangement is no ground for special assessment when it appears that the capital as used in its business and recognized for statutory invested capital purposes is not other than normal for a business so carried on.

1. Collection of tax for 1920 held not barred where notice of deficiency was mailed to the petitioner within the five-year period as extended by a written consent. 2. Traveling expenses incurred on behalf of petitioner by its president and paid by petitioner during the taxable year 1920 held deductible in computing taxable income of that year. 3.

Proposed assessments made upon returns prepared and filed by the deputy collector in December, 1925, on behalf of the petitioner for the years 1918 to 1923, inclusive, in respect of income from property held during those years by the Alien Property Custodian approved.

1. Certain debts held to have been ascertained to be worthless and charged off within the taxable year. 2. Certain trade acceptances acquired during the taxable year represented debts owing to the bank rather than investments, and deductions on account thereof may not be made since they were not both determined to be worthless and charged off within the taxable year.

The petitioners, making income-tax returns upon a cash receipts and disbursements basis, are not entitled to deduct from gross income, under section 214(a)(7) of the Revenue Act of 1921, worthless debts charged off by a partnership of which they were members, such worthless debts not representing losses of capital of the partnership or of the petitioners, nor losses of income included in returns made on a cash receipts and disbursements basis.

1. Respondent having failed to mail a notice to petitioner within 60 days after making a jeopardy assessment for 1920 and 1921, and the time elapsed from the filing of returns to the date of notification being more than the statutory period for assessment plus the 60-day period provided by section 279(b) of the Revenue Act of 1926, collection is held to be barred, following J. H. Reese,15 B.T.A. 1261. 2.

Under section 403(a)(3) of the Revenue Act of 1921, a bequest of personal property and a devise of real estate to the Glenwood Cemetery Associationheld not to be to a corporation organized and operated exclusively for charitable purposes and the value of such property so bequeathed and devised may not be deducted from the gross estate in determining the value of the net estate subject to the tax.

The provisions of section 204(b) of the Revenue Act of 1921, concerning the second taxable year after the taxpayer has sustained a net loss are to be literally interpreted and applied, article 1602 of Regulations 62 to the contrary notwithstanding.

The Ault & Wiborg Co. sold a portion of its plant in 1920, receiving in exchange therefor $2,000,000 in cash and 5,000 shares of stock in a corporation organized to operate the properties sold. Held that the 5,000 shares of stock did not have any fair market value when received by the Ault & Wiborg Co.

Assessment and collection of the tax involved herein are not barred by the statute of limitation.

Two partnerships had fiscal years ending March 31. On September 30, 1922, the partnerships were succeeded by a corporation, the stock of which was issued to the partners. The partners reported their income on a calendar year basis.

Two partnerships had fiscal years ending March 31. On September 30, 1922, the partnerships were succeeded by a corporation, the stock of which was issued to the partners. The partners reported their income on a calendar year basis.

The owner of a controlling part of the stock of a corporation bequeathed the stock in trust to persons who were representatives of the board of directors of the corporation and of its employees, and to their successors, to receive the dividends and in their discretion so to use them as to provide a living wage to employees of the corporation or, in the event the plant should be shut down or the employee should be disabled, to provide an income for him or his dependents; the…

1. LIMITATION - FIDUCIARY - RETURN. - Where a fiduciary files a return on Form 1041 instead of Form 1040 in good faith, this is a sufficient compliance with the regulations and starts the running of the statute of limitations. 2. COMMUNITY PROPERTY - SURVIVOR. - In Texas the surviving husband has the exclusive management, control and disposition of the community property for the purpose of paying debts and settling its affairs and occupies a fiduciary relation thereto. 3.

1. A net loss sustained by petitioner in 1922 arose from the operation of a business regularly carried on within the meaning of section 204 of the Revenue Act of 1921 and is a proper deduction from income for 1923. 2. Interest added to income by Commissioner held not to have been received by petitioner in the taxable year; since the petitioner employed the cash receipts and disbursements method of accounting she is not taxable on such interest. 3.

1. Taylor Oil & Gas Co.,15 B.T.A. 609 followed. 2. Henry Cappellini et al.,14 B.T.A. 1269 followed. 3. Held: further, that petitioner can not relieve himself to the extent of one-half of the amount so received by merely showing that such stock was community property under the laws of Texas at the date of the death of his wife, who had died two years previously, unless he shows that children survive the death of the wife or that he had not…

Losses sustained by petitioner in the year 1921 on a loan and sales of stock, were incurred in a business regularly carried on by him and may be used in computing a net loss under section 204 of the Revenue Act of 1921.

Petitioner, an advertising agency, held not to have been a personal service corporation during the year 1921.

1. Where licenses to manufacture under patents were acquired before March 1, 1913, in exchange for capital stock of unproven value, and in 1916 the title to the patents was acquired for a nominal consideration, no amount may be included on account thereof in invested capital. 2. In the same situation there is no basis on which depreciation can be computed.

Evidence held insufficient to overcome respondent's determination of value.

A loss sustained by the petitioner in 1922, held to be a net loss within the meaning of section 204 of the Revenue Act of 1921, and therefore deductible from net income for 1923.

1. The basis for computing allowances for the depletion of certain mineral claims determined. 2. Held: to have been regularly engaged in a trade or business during the years 1921 to 1923, inclusive, within the meaning of section 204 of the Revenue Act of 1921, and to be entitled to the benefits of that section.

1. Where a corporation during its taxable year 1922 becomes affiliated with two other corporations, held that separate returns for each of the corporations or a consolidated return for all of the… Held: that where one corporation of an affiliated group filed a separate return for 1922 and 1923 the corporations may not now file an amended return on the consolidated basis.

Assignment of payments to be made under a contract with an insurance company providing for payment of renewal premiums, constitutes assignment of future income and is taxable to the assignor in the year payments are made by the insurance company.

1. Section 245(b) denies to an insurance company any deduction for taxes, expenses, and depreciation, on account of real estate owned and occupied by it in whole or in part, unless the rental value… Held: that the 4 per cent minimum must be computed upon the book value of the entire building rather than the value of the space occupied by the company. 2.

Section 202(b) of the Revenue Act of 1924 does not authorize the addition of taxes and interest to cost of real estate in determining gain or loss upon a sale of the property in 1925.

Upon evidence that taxpayer partnership had capital at the beginning and end of the year and that, in addition to making sales on commission, it derived a substantial part of its gross income from the purchase and sale of goods as a principal, held, that the partnership was not one with "no invested capital or not more than a nominal capital," within sec. 209, Revenue Act of 1917.

1. A taxpayer in 1917 issued mortgage bonds for assets in reorganization and before the end of the year it purchased such bonds for less… Held: no income. 2. Taxpayer's property was in 1917 requisitioned by the Government, and the compensation was more than cost. Taxpayer made no application to the Commissioner and gave no bond covering a replacement fund, as required by the regulations prescribed under the statute. Held, the excess was income and no deduction was allowable.

Petitioner, a steam railroad corporation, and two other steam railroad corporations were operated independently and not physically connected or merged. Held: the three corporations were not affiliated in 1917 under section 1331, Revenue Act of 1921.

Petitioner held not entitled to the deduction of a loss resulting from the sale in 1922 of residential property used exclusively as his personal residence.

Where the evidence shows that a going corporation owning stock in another corporation, which stock represents in part earnings and surplus accumulated since February 28, 1913, does not sell such stock, but distributes the same in kind to its stockholders, no deductible loss is sustained, although the market value of such stock at date of distribution is less than it cost the owning corporation.

1. Cost of goods sold determined. 2. Deductions for depletion held to have been improperly allowed by respondent.

1. There is no abnormal condition affecting the capital of a corporation because its business is conducted upon leased property, although the value of the fee of such property is several times the statutory invested capital of such corporation. The value of the fee of leased premises is no part of the capital of the business of the lessee. 2.

1. Where, upon organization, a new corporation becomes affiliated with another corporation, there being no period for which the new corporation is required to file a separate return, a single consolidated return is to be filed for the two corporations for the taxable year. Automatic Fire Alarm Co.,13 B.T.A. 1195, followed. 2.

1. Terms of a trust construed to provide that the trustees should retain out of income amounts sufficient to provide for depreciation and depletion of capital assets and to cover losses. 2. The beneficiaries of a trust are taxable only upon their distributable share of the income of the trust.

Contingent reserve set up to cover estimated unliquidated damages disallowed as a deduction.

1. To establish a loss on the sale of specific property the identity of the property sold with that purchased must be established. 2. The transaction here involved held not to constitute a sale of stock.

1. Where petitioner scrapped one of its plants, but continued to own the land appurtenant thereto, including certain mineral deposits, held that it did not suffer a deductible loss by reason of any minerals remaining under the land. 2.

1. Assessment and collection of the deficiency here are not barred by the statute of limitation. 2. It is not necessary to the validity of consents to a later determination and assessment of taxes that the Commissioner notify the taxpayer of his acceptance of such written consents.

1. Held that certain payments to the petitioner by the corporation of which he was the principal stockholder were income to him. 2. Held that in failing to include these amounts in his returns for the years 1920 and 1921, the petitioner fraudulently misrepresented his true income with intent to evade the tax, and the respondent's assertion of the 50 per cent fraud penalty is upheld.

Section 229 of the Revenue Act of 1921 being expressly limited in its application to any trade or business the net income of which for the taxable year 1921 was 20 per centum or more of its invested capital for such year, a taxpayer seeking the benefits of such section must prove that he comes within the limitations, and where, as in this case, no proof is offered as to net income or invested capital for 1921, the determination of the respondent must be approved.

The omission from invested capital of a bank of a leasehold interest, the value of which has not been proven, the existence of depositors' accounts the ratio of which to capital and surplus is higher than the average ratio of other banks, and the omission from invested capital of any amount as value of accounts acquired from a predecessor, held not to constitute an abnormal condition of capital or income under section 327(d), Revenue Act of 1918.

Action of the respondent in disallowing a deduction for an alleged bad debt approved.

For 1922 and subsequent years, corporations which are affiliated may file separate or consolidated returns. A consolidated return must include all affiliated corporations. Any one of such corporations may file a separate return, in which event the remaining corporations may not file a consolidated return of their income but must file separate returns.

Attorneys' fees paid by the guardian of the petitioner to assert her rights to one-half of the net income of the trust estate of J. Dundas Lippincott during the life of Isabel A. Lippincott are deductible expenses in the computation of net income.

A certain instrument held not to have resulted in the creation of a trust as contemplated by the Revenue Act of 1921.

Where a deficiency in income and profits tax for 1917 was assessed in 1921 and the taxpayer filed with the Commissioner a claim that an overpayment for 1918 be credited against such assessment and the Commissioner in 1927 determined that a part of the outstanding assessment for 1917 should be abated, the Board has jurisdiction to determine the correct tax liability for 1917.

Personal service classification denied.

Creation of a trust by decedent within two years prior to his death held not to be made in contemplation of death.

On the evidence, held that decedent's investment of $9,900 in the common stock of the Midwest Engine Corporation became worthless within the taxable year 1922, and the petitioners are entitled to a deduction of said amount from gross income for said year as a loss.

1. Deficiency held barred by the statute of limitations. 2. Petitioner's contention that a distribution received in the taxable year did not include any income or profits of the company making the distribution which accrued since March 1, 1913, rejected where the cost of certain property sold by the company in the taxable year is not shown, and, therefore, it is impossible to determine whether or not the profit from this sale wiped out a surplus deficit for prior years.

1. Where a taxpayer entered into an agreement with a corporation relative to an oil lease upon lands in the State of Louisiana, by which the corporation was placed in possession of the lease, and agreed to operate it at its own expense so long as oil might be produced in paying quantities, and where, under the agreement, the corporation was entitled to all gas and casing-head gas and to 40 per cent of all the oil produced subject to certain deductions, and where the…

1. Motion for judgment by default denied. 2. Respondent's computation of earned income credit approved. 3. Deduction for repairs to house used as home but occasionally rented for short periods denied.

1. A commission received in connection with the sale of some real estate was not income from a trade or business, the sale having been an isolated transaction. 2.

1. Where one of several corporations which were affiliated elected to file a separate return, other members of the group of affiliated corporations may not file a consolidated return of their income. Action of the Commissioner in computing the tax liability of one of such corporations on the basis of its separate income approved. 2. Interest which accrued and was paid during the taxable year held to be income to the recipient.

1. Petitioner corporation was organized by another corporation for the purpose of carrying out the plans of the latter corporation for welfare work among its… Held: further, that payments made to it under contract by such other corporation were income to it. 2. Petitioner and mutual benefit associations distinguished. 3. Distinction drawn between petitioner and charitable enterprises whose beneficiaries are indefinite and without enforceable claim against its funds. 4.

1. Commissioner approved in disallowing the deduction of certain expenditures claimed to have been ordinary and necessary expenses. 2. Where the petitioner has failed to prove that cash or other property was not unqualifiedly made subject to his demand in the year 1921, the Commissioner's action in including in income of 1921 certain dividends actually received in 1922 is approved.

1. The Commissioner had authority to reconsider and reverse the determination of his predecessor in office that the petitioner and Hamilton & DeLoss, Inc., were affiliated during the year 1918 and the period January 1 to February 1, 1919. 2. The petitioner and Hamilton & DeLoss, Inc., were not affiliated during the year 1918 and the period January 1 to February 1, 1919, within the meaning of section 240 of the Revenue Act of 1918.

Ground rent received by petitioner from the mayor and city council of Baltimore, Md., the leased land being used by the city for school purposes, held not exempt from Federal income tax.

No error shown in Commissioner's computation of invested capital.

1. Under section 280 of the Revenue Act of 1926 a transferee of the assets of a dissolved corporation held liable for unpaid taxes of the corporation to the extent of the amount the transferee received in liquidation, and the respondent is not required to apportion the taxes among the transferees or to elect as to which one of the transferees the tax should be assessed. 2. The taxpayer filed an income and profits-tax return for the year 1919 on March 15, 1920.

Where stockholders of a holding company voluntarily and without obligation contributed proportionately to a fund raised to reward officers and employees of the operating company for their long and faithful services, and the fund was distributed by a committee of such stockholders to such officers and employees, among whom were the petitioners, held that the amounts received were gifts and not additional compensation.

Commissioner's refusal to include a certain amount in invested capital approved, where the evidence fails to show the actual cash value of tangible property paid in for stock, or the actual cash value of intangible property paid in for stock, or the par value of the total stock of the corporation outstanding on March 3, 1917, or the par value of the total stock outstanding at the beginning of the taxable year, and, therefore, the necessary computation under section 326(a) of…

The Commissioner's disallowance of a deduction for an alleged debt ascertained to be worthless and charged off in the taxable year approved, where the evidence fails to show that there was a debt and also fails to show that there was any ascertainment of worth-lessness within the taxable period.

1. Probable useful life of stone buildings determined upon the evidence, for purpose of computing deduction for exhaustion and profit from sale to be not in excess of 10 years. 2.

- Petitioner and his wife contributed assets jointly owned to a partnership under contract witnessing that they each held a one-sixth partnership interest. Respondent included in petitioner's income the distributive earnings of the partnership paid to both petitioner and wife on their individual interests, upon the theory that the contract of partnership was invalid under state law which prohibited a partnership relation between husband and wife.

- Upon the proof, held that petitioner's wife was the owner of a one-third interest in a partnership during 1922 and 1923, having received same by gift from petitioner, and that the one-third of the profits of the partnership paid to and received by her in those years was income to her, and respondent was in error in including such amounts in petitioner's income.

From 1916 until on or about January 1, 1923, the petitioner and his mother conducted a corpartnership in the State of New Jersey, he owning at the latter date a… Held: the one-third interest transferred to the petitioner's wife and all of the rents, issues and profits thereafter accruing thereto became her sole and separate property and the petitioner is not taxable upon profits accruing to her one-third interest and set aside for her during the years 1923, 1924, and 1925.

- Where prior to the expiration of five years from the filing of the 1918 return both parties consent in writing to a determination, assessment, and collection of the taxes due for 1918 which consent is to remain in effect for a period of one year after the expiration of the statutory period of limitation and the respondent assesses a deficiency within six years after the return was filed but after the passage of the 1924 Act, the collection of such deficiency, may, under…

1. Payment of $25,000 in addition to cost of inventory, less discounts, held to be made for the acquisition of capital assets and not deductible as an expense. 2. Deduction of reserve for bad debts disallowed for failure of proof of worthlessness of accounts and reasonableness of amount of reserve claimed.

Held, that petitioners constituted an association taxable as a corporation under the Revenue Acts of 1921 and 1924. Held: that petitioners constituted an association taxable as a corporation under the Revenue Acts of 1921 and 1924.

Held, that the agreement in evidence created an association taxable as a corporation under the provisions of the Revenue Act of 1924. Held: that the agreement in evidence created an association taxable as a corporation under the provisions of the Revenue Act of 1924. J. W. Pritchett et al., Trustees for Hillsboro Court Syndicate,17 B.T.A. 1056.

Held, that the petitioners constituted an association taxable as a corporation under the Revenue Act of 1924. J. W. Pritchett et al., Trustees for Hillsboro Court Syndicate,17 B.T.A. 1056. Held: that the petitioners constituted an association taxable as a corporation under the Revenue Act of 1924. J. W. Pritchett et al., Trustees for Hillsboro Court Syndicate,17 B.T.A. 1056.

1. Evidence considered and held insufficient to sustain respondent's determination that the petitioner's return of income for 1922 was false and fraudulent with intent to evade tax. 2. Held: this was not a deductible loss for the year 1922.

The petitioner held to be entitled to deduct from gross income for 1922 the amount of $53,170.59 as a loss sustained from the transaction involved herein.

The taxpayer held to be entitled to a deduction of $80,000 from gross income for the year 1923 on account of a loss sustained in that year from the transaction involved herein.

The petitioner made an agreement by which he disposed of a portion of his share of the net profits of a partnership of which he was a member. Held: such agreement did not operate to exclude from his income any part of the petitioner's share of the partnership profits.

Evidence considered and held insufficient to overcome the respondent's determination as to the amounts properly deductible as expenses.

1. A corporation as to which no deficiency has been determined and to which no notice has been sent has no right to proceed before the Board and the Board is without jurisdiction as to it. 2. Circulation, Associated Press membership, and good will are not tangible property and may not be classified as paid-in surplus under section 326, Revenue Act of 1918. 3.

On the facts here presented, held that the petitioner acquired certain map plates in October, 1920.

Where additional tax is due under 1921 Act, a return filed prior to its passage for a fiscal year ending in 1921 will not start the four-year period provided in the 1921 Act. Hutchinson Co.,14 B.T.A. 367, followed.

The evidence fails to show that a certain copyrighted advertising plan owned by the petitioner had any value on March 1, 1913.

On the facts here presented, held that attorney's fees constituted an investment of capital and therefore are not allowable as a deduction in determining taxable income.

1. The Revenue Acts of 1924 and 1926 do not limit to one agreement the number of consents the Commissioner and taxpayer may enter into for the assessment of taxes after the expiration of the five-year period provided for therein. 2. Assessment of the deficiencies for the years 1918 and 1919 is not barred by the statute of limitations, the consent agreements executed being effective to extend the time for assessment beyond the date of mailing of the deficiency letter.

In 1914 the petitioner issued $50,000 par value of capital stock for a patent paid in to it by an employee, which capital stock was distributed pro rata among its… Held: that the reduction of the invested capital by the $50,000 in question and the disallowance of the deduction from gross income of the $50,000 claimed for 1917 did not give rise to such an abnormality of invested capital or net income as warrants assessment under section 210 of the Revenue Act of 1917.

Transfer of certain stocks and bonds to his sons, by a father, held not intended to take effect in possession or enjoyment at or after his death.

Value of tangible assets taken in payment of capital stock, determined for invested capital purposes.

The petitioner was an employee of the Norborne Land Drainage District Co. of Carroll County, Missouri, and his compensation is exempt from taxation under section 1211 of the Revenue Act of 1926.

1. During the period of Federal control the railroad properties of the petitioner were undermaintained by the Director General of Railroads. Held: that in computing the amount to be allowed as an expense of maintenance paid or incurred by the petitioner, the Commissioner correctly reduced the amount expended for maintenance by the amount which was paid petitioner for undermaintenance. 2.

There being no organization empowered to advise, direct or control the activities of a manager in charge of a fund placed in his hands by contributors for investment purposes, no association taxable as a corporation under section 2 of the Revenue Act of 1921 is formed.

Where the settlor of a trust reserved the right to alter, change or modify its provisions with the restriction that no part of the corpus should be withdrawn by him, it is held that, substantial rights with respect to the income and corpus of the trust ceasing only at the settlor's death, the corpus plus the accrued income should be included in computing the value of the gross estate for estate-tax purposes.

A debt claimed to have been ascertained to be worthless and deducted from gross income by the decedent in its income-tax return for 1921, held not to have been ascertained to be worthless in 1921.

Where an individual acquires an interest in a partnership business and pays an amount for such interest in excess of the value of the tangibles, which amount is received by the seller for his own use and benefit and which is not used as a partnership asset, the individual making payment is not entitled to deduct from gross income in annual tax returns an aliquot part of such bonus.

1. The year in which the sale of petitioner's valve department occurred, for the purpose of reporting the profit thereon, determined. 2.

1. Where under contracts a corporation agrees to pay some of its employees a fixed annual salary plus a percentage of its profits for services rendered, it may not deduct from gross income each year, as additional compensation for services rendered, the amount of profits credited to the account of such employees in the absence of proof that the contingencies to which the credits are subject are not present. 2.

Intangible assets consisting largely of good will, which were acquired at a cost of $45,000, held not to be such wasting assets as may be exhausted over a definite number of years.

The evidence failing to show that the petitioner owns at least 95 per cent of the stock of the Browne-McQuaid Co. with which affiliation is alleged, or that at least 95 per cent of the stock of both… Held: such corporations are not affiliated and the determination of the Commissioner to that effect approved.

The evidence failing to show that the same interests own as much as 95 per cent of the stock of two corporations, for which affiliation is asserted by the petitioner, held such corporations are not affiliated and the determination of Commissioner approved.

1. The evidence is insufficient to establish the actual cash value of stock purchase contracts and the respondent's refusal to allow any value for them in invested capital is approved. 2. The evidence is insufficient to support respondent's allegation that he erred in failing to reduce invested capital on account of purchases by petitioner of its own stock.

The corporate existence of the Union Plate & Wire Co. having been wholly terminated more than three years prior to the execution of consents extending the time for the assessment of a deficiency for the fiscal year ended March 31, 1922, and to the filing of the petition herein, held that the petition must be dismissed for lack of jurisdiction.

AFFILIATION. - Upon the facts proven petitioner held to be affiliated with the Associated Simmons Hardware Companies during 1921 and 1922 and with the Winchester Repeating Arms Co. during 1923.

1. Deductions claimed by a coal-mining corporation from its gross income for 1922, on account of losses sustained in 1921 through the abandonment of certain properties, allowed in part, to the extent of the net loss sustained in said prior year. 2. Allowable deductions for development and improvement costs determined.

Action of the Commissioner in rejecting closing inventories approved.

Actual cash value of a contract on a certain day determined.

1. Stock subscription agreements of the character and in the circumstances shown to exist in these proceedings, held to constitute such evidences of indebtedness as should be included in petitioner's invested capital for the taxable year in question. 2. Interest paid by such stock subscribers, should, in the circumstances of this case, be treated as taxable income earned by petitioner, for extension of credit to such subscribers.

1. Two brothers were the owners of all the stock in one corporation, and the owners of 75 per cent of the stock of another corporation, but had no control over the remaining 25 per cent of the stock… Held: that the corporations were not affiliated. 2. A ruling by the Commissioner for one or more years that corporations are affiliated and should file a consolidated return does not of itself warrant the same ruling for a succeeding year.

The compensation received by the petitioner during the year 1923 as counsel of the New York State Commission to Examine Laws Relating to Children, in which capacity he was an employee of the State of New York, was not subject to Federal income tax.

Petitioner employed a certain individual to advise and aid him in the consolidation and incorporation of his business with that of another competing concern, and the petitioner, in 1920, agreed to pay such individual $10,000.

1. Petitioner sold patents under a contract, by which the purchaser was obligated to pay certain sums annually upon the condition that the sales of the patented articles exceeded certain sums annually, and there was a failure to sell the specified amounts. Held that no liability resulted from purchaser to petitioner, and petitioner is not entitled to deduct said contingent annual payments either as a bad debt or a loss. 2.

1. A cooperative corporation composed of seven members organized for the purpose of operating a cold storage warehouse in which the members stored their perishable produce in the operation of their business and as an adjunct thereto is not a business league exempt from taxation, even though it was not organized for profit and no part of the net earnings inured to the benefit of any private stockholder or member. 2.

Deficiency determined for the calendar year 1918 held to be barred by the statute of limitations.

1. A corporation and a partnership made separate income and excess-profits tax returns for the year 1917 and each paid the tax computed on its own return. Thereafter the Commissioner required the filing of a consolidated return for such year. Upon audit of such consolidated return the Commissioner determined additional tax due by the affiliated group and was then advised that had the petitioner understood group and was then advised quested that the entire tax of the group be allocated to the partnership. The Commissioner allocated all the additional tax to the partnership, but refused to so reallocate the amounts theretofore paid. Held that in the absence of proof that there was an understanding that one of the members of the group should pay all tax assessed against the affiliated concerns, the action of the Commissioner must be approved. 2. For the taxable year petitioner is not entitled to the benefits of section 328 of the Revenue Act of 1921.

1. The owner of certain real property and the petitioner entered into an agreement on May 19, 1920, whereby the owner leased to petitioner such property for a period of two years at a stipulated rental and in said agreement the owner contracted and bound herself to sell to petitioner the premises leased to him at any time within two years from June 15, 1920, for the sum of $30,000; $10,000 in cash and the remaining $20,000 to be evidenced by two promissory notes of the…

1. Where the petitioner, who operated a garage and automobile sales agency, purchased stock of an automobile manufacturing company in order to acquire an agency contract, which stock later became worthless, held that the loss thus sustained should be included in the computation of a net loss under section 204(a) of the Revenue Act of 1921. Philip Kobbe Co.,4 B.T.A. 663, followed. 2. The net loss provided for in section 204 means only net losses resulting from the operation of a trade or business regularly carried on by a taxpayer. A net loss so resulting may not be increased by nonbusiness deductions or losses, but will be decreased by any excess of nonbusiness profits or gains over nonbusiness deductions or losses. H. J. Schlesinger,5 B.T.A. 943 followed.

1. Sale of royalty rights held to give rise to taxable gain. 2. Revenue received from sale of royalty interest held to be community income.

The proper method of computing the income of the partnership of Howell & Graves for the years 1922 and 1923, determined.

1. Alva Adams, deceased, in his return for 1920 reported income as dividends, while on the books of a partnership that paid that amount of money, it was designated as rent. Held: further, that under the circumstances of this case, the amount in controversy was correctly returned as a dividend from a corporation, although in the bookkeeping it never got on the books of the corporation, and no formal declaration of dividend was made.

Petitioner sold its capital stock on the installment plan. Upon default in meeting the payments due, the stock and the amounts paid thereon were declared forfeited. Under the laws of Oklahoma such forfeiture is void and the subscriber may redeem his stock at any time before foreclosure. Held that the amounts so forfeited are not income in the hands of petitioner.

1. Agreements were made between husband and wife, residents of California, that the earnings of both should be contributed to a common fund and out of its their personal and community expenses should be paid, and they should be the owners of any surplus. Held that the earnings of the wife are community income and taxable to the husband. 2.

Respondent's action in disallowing deductions claimed on account of alleged losses and expenses, approved for lack of evidence to show error.

1. Rate of depreciation on buildings and equipment determined by the respondent approved for lack of evidence. 2. Held: the petitioner is not entitled to take a deduction on account thereof.

The value of real estate and improvements thereon paid in to a corporation in 1913 for the purpose of computing invested capital and allowable depreciation deductions determined.

1. Reasonable additions to a reserve for bad debts deductible from gross income for the years 1921, 1922, and 1923 determined. 2.

On the evidence, held that 95 per cent of the stock of the two companies involved was not owned by the same interests, and said companies were not affiliated for the taxable years within the provisions of section 240(c) of the Revenue Acts of 1924 and 1926.

1. The petitioner held not liable for the taxes due from Angier Mills for the years 1917 and 1918, and from the Mansfield Co. for the year 1918 and the period January 1 to March 31, 1920. 2. The petitioner held liable for the taxes due from Angier Mills for the year 1920, computed on the basis of the net income properly assignable to that company.