Volume 17 — Tax Court Reports

Petitioner, a former member of the Fire Department of the District of Columbia, was retired in 1942 by order of the Board of Commissioners, solely on the ground that he had passed the age of 65 years. Held: The amount received by petitioner in the taxable year 1945, pursuant to such order of retirement, did not constitute compensation for injuries or sickness, exempt from tax under section 22 (b) (5) of the Internal Revenue Code.

Petitioner, a professor at The Catholic University of America, in the Summer of 1947 undertook a European trip for study and research. Held: Such expenditures were of a personal nature and, therefore, under section 24 (a) (1), Internal Revenue Code, are nondeductible in computing taxable net income.

During the taxable years 1944, 1945, and 1946, petitioner was married and was domiciled in Virginia, a non-community property state. Held: the income, except that which was from rentals of real estate, was taxable in its entirety to the husband, he being domiciled in Virginia.

Petitioner Palmer Hutcheson, as a partner in the law firm of Baker, Botts, Andrews and Wharton, owned a 7.5 per cent interest in the firm for which he paid $ 22,500. Held: petitioner sustained a loss of $ 25,558.93 not occasioned by the sale or exchange of a capital asset and the loss is deductible under section 23 (e) of the Internal Revenue Code.

Deduction -- Nonbusiness Expense -- Premiums Paid on Insurance. -- The petitioner held insurance on the life of a debtor of petitioner's estate to secure payment of the debt principal. Held: that (1) the estate was not engaged in a business, and the insurance premium expense is not deductible under section 23 (a) (1) (A); and that (2) the payment of insurance premiums is not a nonbusiness expense under section 23 (a) (2) and is not deductible.

1. A trust, forming part of a pension plan, was created by petitioner in 1933, within the meaning of section 165 (a), I. R. C., and the amendments made thereto by the Revenue Act of 1942. 2. The amount of deductions to which petitioner is entitled on account of its contributions to such trust pursuant to section 23 (p), I. R. C., as amended by the Revenue Act of 1942, determined for 1942, 1943, and 1944. 3.

An agreement between petitioner and his wife, incident to a decree of divorce, provided for a payment of $ 2,244.73 which sum, it was agreed, was equal… Held: the installment payments on the gross sum of $ 2,244.73 were payments of alimony, but were not periodic payments within section 22 (k) of the Internal Revenue Code and are not deductible by petitioner under section 23 (u). The Commissioner has not questioned the deductibility of the $ 46.14 weekly payments to the wife.

1. Funds held by a resident trustee in the general bank account of the trust for the benefit of a nonresident alien, the sole life beneficiary, held, not excludible from her gross estate as bank… Held: not excludible from her gross estate as bank deposits by or for a nonresident alien, within the meaning of section 863 (b), I. R. C. 2. Value of real estate determined for estate tax purposes.

1. Petitioners, husband and wife, owned and operated a charter launch business on San Francisco Bay. They filed separate income tax returns for the years 1943, 1944, and 1945. Held: under section 275 (c) the determination of deficiencies against the wife for the years 1943 and 1944 was timely. Respondent conceded that the determination of deficiency against the husband for the year 1943 was barred under section 275 (a) of the Internal Revenue Code.

1. Renegotiation -- Unilateral Determination -- Statutory Authority. -- The Renegotiation Act authorized the Secretary of War, in the absence of a mutual agreement, to issue a unilateral order determining the amount of excessive profits realized by a contractor or subcontractor in 1942. 2.

1. Gift Tax -- Premiums on Policies Held in Trust. -- Petitioner paid premiums on insurance on the life of his father who transferred the policies in trust. Held: that petitioner's interest in the trust was such that the payment was for his own financial benefit and was not a gift. Grace R. Seligmann, 9 T. C. 191, followed. 2.

Taxable Year -- Beginning of. -- During a period prior to actual incorporation of petitioner certain business was transacted in the name of an existing corporation and petitioner's incorporators did… Held: that petitioner's first taxable year began on the date of its incorporation.

1. Decedent at the time of his death held a voting trust certificate representing 4,000 shares of Graybar stock which he purchased for $ 80,000. Held: the value of the voting trust certificate representing 4,000 shares of Graybar stock includible in decedent's gross estate is $ 20 per share or $ 80,000. 2. At the time of his death, September 29, 1945, decedent was receiving a pension from Graybar Electric Company, Inc., his former employer.

1. Income -- Separate Entities -- Corporation and Partnership -- Section 22 (a). -- Sacramento Corporation (Coca-Cola Bottling Company of Sacramento, Ltd.), which had a sole and exclusive license to… Held: that a new partnership was a separate entity from the corporation and that the net income and capital gain of the new partnership for the years 1944, 1945, and 1946 are not includible in the income of the taxpayer corporation. 2.

The petitioner, in order to sell a large block of special preferred, 6 per cent, Kress & Co., stock, which was callable at $ 11 per share, agreed to pay to purchasers of the stock the difference… Held: that the payment in the 1945 fiscal year constituted a long term capital loss, and that it is not deductible as an ordinary loss under section 23 (f).

In 1943, petitioner's wife was operated upon for cancer of the throat. In 1946, she still had not recovered her voice and could scarcely speak above a whisper. Held: that such expenses are not medical expenses within the meaning of section 23 (x) and are not deductible.

1. Petitioner was employed as general manager of a department store for 10 years. Held: petitioner is entitled to use the back pay treatment specified in section 107 (d) of the Internal Revenue Code. Held, further, the legal fees are deductible in the year in which paid. An allocation between principal and interest for the $ 212,000 is made. 2. Petitioner was one of five equal stockholders in an incorporated cattle farm.

1. During the taxable years, petitioner Bates Motor Transport Lines, Inc., carried freight for the Federal Government under an agreement that its charges would not exceed the lowest land grant railroad rate available to the Government over any combination of carriers between the points of shipment and the points of destination. Its efforts to obtain such land grant rates for the purpose of billing the Government for freight carried were unsuccessful, and it was required to bill the Government for the shipments at its prevailing rates and accept payments therefor in full, pending determination by the General Accounting Office of the amount or amounts it would be required to refund under the agreement. Held, that the excess of the amounts collected over the lowest land grant rate for the shipments in question which it was obligated to refund to the Government did not constitute gross income to petitioner. 2. The facts show that petitioner Standard Freight Lines, Inc., is liable as the transferee of Bates Motor Transport Lines, Inc., for any deficiencies in tax against Bates Motor Transport Lines, Inc., for both the taxable years 1942 and 1944, plus interest as provided by law, and that petitioner Harry F. Chaddick is liable as such transferee for 1944.

Petitioner on December 29, 1947, made a gift in trust to her infant daughter who at that time was 19 days old. The trustees were petitioner and her husband. The trust contained the following provision: "The Trustees shall pay the income of the Trust Estate unto Denice Rassas in quarterly installments. Payment of such income to said minor shall be made by the Trustees paying and applying, in their sole discretion, so much of the income as may by them be deemed necessary for the maintenance, education and support of the said Denice Rassas during her minority, and any income not so paid and applied shall be accumulated by the Trustees during the minority of the said Denice Rassas, as and for her own separate property, and shall be paid to her upon her coming of age." During the year 1947 and subsequent years, the petitioner and her husband were financially able to maintain, educate, and support Denice and none of the income of the trust was at any time used for her maintenance, education, and support since the creation of the trust. Held, that the gift was one of future interests in property and no exclusion is allowable to petitioner under section 1003 (b) (3) of the Internal Revenue Code. Fondren v. Commissioner, 324 U.S. 18.

Gift Tax. -- Held, petitioners, as heirs of decedent, a resident of Minnesota, who died intestate, had no power to prevent by renunciation… Held: petitioners, as heirs of decedent, a resident of Minnesota, who died intestate, had no power to prevent by renunciation passage of title to themselves to their shares in his estate immediately upon his death, and an instrument which was executed by them after his death, labeled a renunciation, effected a transfer of such title to…

In connection with a reorganization of petitioner, members of a family, a corporation whose stock they owned, and two other parties… Held: that immediately after the reorganization, the members of the family, the corporation whose stock they owned, and the two other parties retained an interest of 50 per centum in the property paid in for stock; that under section 113 (a) (7) of the Internal Revenue Code the unadjusted basis to the petitioner for the property so paid in…

1. The reasonable compensation for each of petitioner's three executives for services actually rendered by each in the respective taxable years 1945 and 1946 determined. 2. Petitioner, on the accrual basis, is entitled to deduct the amount of $ 2,500 in 1945 and $ 1,200 in 1946, the payment of which was authorized by its directors and in those respective years and paid before the 15th day of the third month following the close of each of such years, representing contributions to educational institutions, under section 23 (q), I. R. C., as amended.

Petitioner rented from his wife property used in the manufacturing business he operated as a sole proprietor for which he paid a fixed rental of $ 200 per month from 1938 to 1942. In 1942 petitioner decided on his own initiative to pay an increased rental and entered into an agreement with his wife to pay as rent a sum equal to 45 per cent of his net profits. Accordingly, for the year 1942 and for 5 months in 1943 he paid sums 10 to 30 times larger than the previously fixed rental. Held, respondent is sustained in his determination that all sums in excess of $ 2,400 for 1942 and $ 1,000 for 1943 were not rentals petitioner was "required" to pay. Held, further, the wife's relation to the business was not that of a joint venturer.

Gift Tax -- Exclusions -- Not allowable where present interest in income of trust is incapable of valuation because trust agreement permitted total exhaustion of trust corpus. William Harry Kniep, 9 T.C. 943, affd. 172 F.2d 755, followed.

1. Petitioner, owner of a dairy and breeding herd of Guernsey cattle, sold some animals in 1946 some of which were purchased animals and… Held: the purchased animals were held by petitioner primarily for breeding and milk producing purposes and the gain from their sale is taxable at capital gains rates; with respect to the animals raised by petitioner, those over 24 months of age, when sold, were a part of the dairy and breeding herd and the proceeds therefrom are entitled…

The correct basis for computing petitioner's gain or loss in the year 1944 for his 252 shares of stock of Corporation B in liquidation depends upon whether the shares, which… Held: the shares which petitioner received in Corporation B in 1941 were not received in pursuance to any plan of reorganization which started in 1934 and their cost basis to petitioner was their fair market value when transferred to petitioner in 1941. The Commissioner's determination is sustained.

Sections 42, 111 and 117. -- Cash Basis -- Sale of Stock for Indeterminate Amount to be Paid in Future -- Year in Which Gain Realized -- Short Term Capital Gain. -- Petitioner, reporting on a cash… Held: the determination of the respondent that in 1945 petitioner realized a short term capital gain on the sale in 1942 was not error.

Two corporations, Industries and National, and two partnerships, Hosiery and Abar, were owned or controlled directly or indirectly by the same interests. Held: allocation of Abar's income to the two corporations disapproved; (2) allocation of Hosiery's income to Industries approved; (3) allocation of Hosiery's income to National disapproved.

1. Petitioner in 1939 inherited one-third of his father's interest in a 1937 farmers' cooperative wine marketing pool. Held: that the amounts received by the petitioner in 1944 and 1945 from the liquidation of the pool in excess of the fair market value of his interest therein when he acquired it constituted capital gains in the years in which received. 2.

Petitioner is engaged in the poultry, egg, and creamery business. Held: the petitioner has failed to establish that its excess profits tax for the years 1941-1944, computed without the benefit of section 722, I. R. C., was excessive and discriminatory because of any of the factors set forth in subsections (b) (2), (b) (3) (B), and (b) (5).

Held, petitioner is not entitled to relief under section 722 (b) (4), Internal Revenue Code, not having shown that it changed the… Held: petitioner is not entitled to relief under section 722 (b) (4), Internal Revenue Code, not having shown that it changed the character of its business during the base period by reason of a difference in the capacity for operation, as claimed, and not having established what would be a fair and just amount representing normal earnings…

The petitioner kept its books and filed its returns on the cash receipts and disbursements method of accounting, except that it did not report prepaid subscriptions in the year of receipt, but… Held: that the respondent properly included the amount of prepaid subscriptions in income in the year of receipt.

Petitioner from December 17, 1940, was a wholly owned subsidiary of its parent corporation. Held: that the Commissioner did not err in denying the deductions. D. J. Jorden, 11 T. C. 914; Doylestown & Easton Motor Coach Co., 9 T. C. 846; Regulations 110, section 33.31 (d), promulgated March 14, 1941.

Estate Tax -- Transfer During Life -- Retention of Rights for Life -- Section 811 (c) (1) (B) and (A). -- A transfer of a farm to a corporation owned by decedent with a lease back to the decedent at… Held: within section 811 (c) (1) (B) and (A).

Held: A parcel of water front property was not * * * real property used in the trade or business of the taxpayer within the meaning of section 117 (a) (1) of the Code as amended by the… Held: A parcel of water front property was not * * * real property used in the trade or business of the taxpayer within the meaning of section 117 (a) (1) of the Code as amended by the Revenue Act of 1942, and a loss incurred on its foreclosure was a capital loss, not an ordinary loss.

1. Respondent determined that during the fiscal year ended June 30, 1944, petitioner received additional unreported income from the sales of whiskey in excess of O. P. A. ceiling prices. Held: During the period involved petitioner did not charge nor receive payments in excess of O. P. A. ceiling prices, and respondent erred in his determination. 2. Deductible travel expenses incurred by petitioner during the fiscal year ended June 30, 1944, determined. 3.

Mortgage upon a building belonging to petitioner was foreclosed in 1944 and he claimed, in the taxable year 1945, net operating loss carry-over. Held: on the facts, that the petitioner was not a dealer in real estate and his activities as a whole did not constitute a trade or business regularly carried on by him to which the loss on the foreclosure was attributable, therefore section 122 (d) (5) of the Internal Revenue Code limits the operating loss thereon and prevents the…

Deductions from Income -- Bad Debts -- Nonbusiness Debts -- Section 23 (k) (4). -- On the facts, held, that a debt of a corporation to the petitioner which became worthless in 1944 is a non-business… Held: that a debt of a corporation to the petitioner which became worthless in 1944 is a non-business debt under section 23 (k) (4) of the Code.

Excess Profits Tax -- Section 721 -- Abnormal Income -- Periodic Payments on Sale of Real Estate -- Income Attributable to Other Years. -- Prior to the taxable years, the petitioner sold parcels of… Held: Upon the facts, the petitioner is not entitled, under section 721 (b) of the Code, to attribute part of the net abnormal income it realized in 1942 and 1943 to years before and subsequent to the taxable years.

1. Section 22 (k) -- Decree of a German Court and Agreement Incident to Decree within Scope of Section 22 (k). -- Petitioner married an American citizen and resided in the State of Washington. Held: The German decree property is treated as a decree of divorce under section 22 (k). (2) The support contract was incident to the decree. (3) The person who is taxable on the periodic payments under the contract is the petitioner. 2.

Petitioner, a coal mining corporation, acquired two leases in 1935 and thereafter conducted mining operations thereon. Held: on the facts, that it is not shown that petitioner during the base period changed the character of its business by increasing its capacity for production or operation within section 722 (b) (4), Internal Revenue Code; therefore that it is not entitled to relief thereunder.

1. Petitioner's board of directors voted its two principal officers, who were minority stockholders, a fixed salary plus bonuses based upon percentages of corporate… Held: the compensation paid the two officers was a reasonable allowance for the personal services actually rendered. 2. Petitioner drew sight drafts with attached bill-of-lading on its customers for merchandise sold, which it used as security with its bank to borrow money for the operation of its business.

1. Income -- Deduction -- Depreciation -- Basis. -- 2. Held: the basis of the property for depreciation and for computing equity invested capital under section 718 (a) (2) is its cost to the petitioner, the value of the preferred stock and the amount of the liabilities assumed. 3.

Petitioner held liable as transferee for taxes due from its wholly owned subsidiary which had transferred the bulk of its assets to petitioner purportedly in payment of an unsecured indebtedness based upon advances which petitioner had previously made to the subsidiary.

Certain legal expenses claimed by petitioner as ordinary and necessary nonbusiness expenses deductible under section 23 (a) (2), I. R. C., held, not deductible from gross income but capital… Held: not deductible from gross income but capital expenditures insofar as allocable to recovery of title to property, but, held, deductible from gross income under section 23 (a) (2) insofar as paid or incurred for the production or collection of income.

1. In 1935, decedent and his wife established two trusts, one for each of their minor daughters, with the corpus and accumulated income to be… Held: that the transfers were not made in contemplation of death, section 811 (c) of the Internal Revenue Code, and the power retained by decedent as trustee did not constitute either the right to designate who shall possess or enjoy, section 811 (c) of the Code, or the power to terminate the trust, section 811 (d) of the Code.

1. Petitioner is entitled to allocate insurance proceeds received in the taxable year ended January 31, 1947, from the destruction by fire of certain of its properties, between the capital and noncapital assets destroyed, and the amount allocable to each such class of property is determined. 2. Petitioner is entitled to a deduction of the amount of $ 2,349 in the taxable year ended January 31, 1947, representing a contribution to the Cannelton Flood Wall Fund. 3. Petitioner is entitled to an excess profits tax credit carry-back to the fiscal year ended January 31, 1945, in an amount to be determined in a recomputation under Rule 50.

1. Petitioner's decedent owned certain real property which she had inherited from her husband. Held: On the basis of the facts, the negotiations between decedent and Bein resulted in Bein's becoming a lessee with the privilege to purchase, and not in a sale of the property involved. 2. In accordance with the contract of July 5, 1946, Bein paid decedent the amount of $ 25,000.

Petitioner and Roseland Manufacturing Company merged on October 31, 1944, under the laws of Louisiana with petitioner as the surviving corporation. Held: petitioner is liable as transferee of Roseland under section 311 of the Code if Roseland owes any tax, and its liability as transferee was not barred by the statute of limitations at the time the deficiency notice was issued.

Petitioner, during the first 6 months of 1943, earned commission on orders when they were accepted by the contractor, the amount of which was… Held: on the record, that the amounts of the accruals made by the contractor at the close of 1943 and 1944 were not subjected to renegotiation in 1943 and 1944 (except $ 54,372 for 1943) and that the amounts (less the $ 54,372 included in the bilateral agreement and the installment payment made by the contractor, in 1944), plus the…

A taxpayer reporting income on the cash receipts and disbursements basis sold property in 1945 in consideration of a down payment in cash and the vendee's contractual obligation to pay the balance of… Held: the contractual obligation was not the equivalent of cash, and the only amount realized by petitioner on the sale in 1945 was the sum of cash received.

A corporation had outstanding 5 per cent debenture shares, class A and class B common stock. Held: the exchanges of debenture shares and class A stock for debenture bonds were exchanges of stock and securities for securities pursuant to a plan of reorganization and, in accordance with section 112 (b) (3), Internal Revenue Code, no gain or loss is to be recognized.

1. The petitioner was involved in a 77-B reorganization in the United States District Court for the Eastern District of New York for the period 1936 to 1945. Held: that such letter was not a certification to the Commissioner by a Federal agency authorized to exercise regulatory power over such corporation [petitioner] that petitioner was in an unsound financial condition in 1941, such as contemplated by sec. 22 (b) (9), I. R. C. (amended by the Revenue Act of 1942). 2.

Estate Tax -- No Bona Fide Sale for Adequate and Full Consideration in Money's Worth Under Section 811 (c) (1). -- The decedent created a life insurance trust giving X a… Held: The decedent did not receive adequate and full consideration in money's worth for his transfer to X of interests in survivorship annuity contracts which would provide X with income after his death, from X's relinquishment of a contingent right to income after his death from the life insurance trust.

1. Petitioner's assets found to be less than its liabilities both before and after it purchased its obligations at less than face value, minus unamortized discount, during the years 1940, 1941, and 1943. Held, no income was realized from the purchase of these obligations. 2. Notes were surrendered to the debtor pursuant to a plan and returned to the petitioner with a change of interest rate and maturity date. Held, that the transaction was a recapitalization and the notes retain their original basis in the petitioner's hands.

1. Government Contracts -- Year of Accrual and Amount of Accrual under Cost-Plus-Fixed-Fee Contracts. -- Where under cost-plus-fixed-fee… Held: that the taxpayer should accrue as income the amounts of such items in the year in which the Government agrees that it is entitled to reimbursement of costs and payment of fees; held, further, that where the Government subsequently recoups part of such items, section 3806 (a) (2) of the Internal Revenue Code requires that the amount…

Internal Revenue Code Section 117 (j) -- Residential Properties Rented Upon Construction in 1943 and 1944 and Sold in 1945 and 1946. -- A partnership in which petitioners were members constructed 52… Held: that in 1945 and 1946 the 51 houses sold were held for sale to customers in the ordinary course of business and the gains were properly treated by the respondent as ordinary income.

1. Renegotiation -- Jurisdiction -- Principal or Successor. -- The Tax Court has jurisdiction to determine the amount of excessive profits, if any, of a petitioner which was assigned for renegotiation, furnished information to the renegotiators, was notified that renegotiation of its contracts had commenced, was renegotiated and received a unilateral order and notice of the War Contracts Price Adjustment Board that it, as a contractor or subcontractor, had received excessive…

The Securities and Exchange Commission determined that the petitioner, who was an officer and director of the corporation in whose stock he was dealing, had violated section 16 (b) of the Securities… Held: the sanction imposed by section 16 (b) is in the nature of a penalty and deduction of the payment made pursuant thereto is disallowed since it would mitigate the deterrent effect of the statute and subvert a sharply defined public policy.

During the taxable year petitioner's employer discontinued an employees' pension trust plan, and, pursuant to an order of court, petitioner received, as one of the named beneficiaries, the major… Held: the distributive share received by petitioner during the taxable year was ordinary income and not long term capital gain.

The amounts petitioner is entitled to deduct as ordinary and necessary business expenses in the taxable years 1941, 1942, and 1943 are determined with respect to the following: (1) compensation paid to its president, Philip Kerrigan, Jr.; (2) rental of trucks; (3) rental of Northside Plant and equipment; and (4) compensation paid to Regina Kerrigan.

By separate fee simple deeds, executed and recorded in 1938, decedent purported to convey certain improved properties to each of three grandchildren, as gifts. Held: the alleged transfers in 1938 did not divest decedent of his ownership of the properties, and respondent properly included the value thereof in decedent's gross estate under section 811 (a), I. R. C.

In the year 1944, the estate of petitioner's deceased husband received from cooperatives proceeds from the liquidation of certain of… Held: that section 126 income is taxable to the recipient thereof, so that any such income received by the estate of the decedent is taxable to it and, as such income is not income of the estate, the provisions of section 162 (c) are inapplicable thereto; (2) that the proceeds received by the petitioner in 1945 from liquidation of the wine…

Decedent and her husband created reciprocal trusts. After amendment there remained in each, at the time of her death, the right to change the trust beneficiaries. Held: the decedent's power, at date of death, to change beneficiaries requires inclusion of the trust corpus and accumulated income in her gross estate under section 811 (d) (2), Internal Revenue Code.

1. Held, that the mere crediting of dividends to the accounts of petitioner's stockholders under the circumstances existing in the… Held: that the mere crediting of dividends to the accounts of petitioner's stockholders under the circumstances existing in the instant case did not constitute payments and petitioner is not entitled to a basic surtax credit of $ 39,200 as claimed in its personal holding company return for dividends paid during the taxable year, section 27…

1. Petitioner made a down payment in 1945 on a contract to buy land. He did not carry out the contract, and claimed an ordinary loss in 1945 of the amount of the deposit. Held: petitioner has failed to prove error in respondent's determination. 2. Petitioner deducted in his 1945 and 1946 returns advances made in each year to a corporation of which he was president and a substantial stockholder. The corporation was in bad financial condition and operating at a loss.

At the time of his death, petitioner's decedent was an active partner in the partnership of Neare, Gibbs and Company. This partnership was engaged in the insurance and underwriting business. Held: The right to become a partner in the partnership and to receive decedent's distributive share of the income thereof was not capital in nature and afforded no basis for depreciation. Bull v. United States, 295 U.S. 247.

A partnership purchased land plus buildings in 1920 with the intent to demolish the buildings and erect a modern office building on the site. This intent was subsequently abandoned. Held: for purposes of determining gain or loss on the sale of such land in 1946, the basis thereof was the purchase price paid for the property in 1920 less the allowed depreciation.

By proper notice respondent allowed in part and disallowed in part petitioner's claim for relief under section 722, I. R. C. In the same notice respondent determined deficiencies in income tax… Held: respondent's motion granted.

Capital Gain -- Sale of Corporate Assets. -- Where there was a genuine liquidation of the petitioner corporation followed by a sale negotiated and consummated wholly by the stockholders, the capital gain realized may not be imputed to the corporation. United States v. Cumberland Public Service Co., 338 U.S. 451, followed; Commissioner v. Court Holding Co., 324 U.S. 331, distinguished.

Gift Tax -- Exclusion -- Present Interest -- Section 1003 (b) (3). -- A transfer in trust for minor children, 4, 7, and 11, by a parent well able to support them, the income to be disbursed within the discretion of the trustee, with power in the children or by a guardian, if appointed, to terminate the trust and take the corpus and income, is a transfer of future interests only and section 1003 (b) (3) does not grant any exclusion.

1. Income -- Deduction -- Alimony Payments -- Sections 23 (u), 22 (k). -- Payments made by a divorced husband to the mother of his former wife, for and in behalf of the wife who was the sole support of her mother are deductible under section 23 (u). 2.

Petitioner was a 36 per cent member of a partnership, also more than a 50 per cent owner of stock in a corporation. The partnership sold certain property to the corporation. Held: that for failure of proof as to basis, petitioner has not shown error in the denial of deduction of the loss claimed.

1. Internal Revenue Code Section 23 (p) (1) (E). -- Within the year 1944 no steps were taken by the petitioner's officers, directors or stockholders toward the establishment of a retirement plan,… Held: that the year 1944 was not the year of accrual under section 23 (p) (1) (E) and no deduction is allowable for that year for a group annuity premium paid within 60 days after the close of the year. 2.

Petitioner, who was engaged in the business of acting as a consultant, officer, or director of public utility corporations, was an officer and director of a corporation… Held: such payment was made in connection with petitioner's trade or business; and, since its allowance as a deduction would not frustrate a clearly defined public policy, it is deductible in the year in which paid. Held, further, legal expenses incurred by petitioner in such settlement are also deductible.

1. Upon the record it is found that respondent's determination as to the amount of petitioner's income for the years 1942 and 1943 was erroneous and it is held that there are no deficiencies in… Held: that such action by respondent does not oust the jurisdiction of this Court to redetermine the tax liability of the petitioner for the year 1943.

The patronage dividends paid by petitioner, a cooperative, to its members in certificates of interest in a fund representing its excess of gross receipts from member products sold over operating expenses and segregated on its books as a Reserve for Members' Equity, held not to have been paid in the exercise of discretion by its directors but under a fixed and legal obligation under the provisions of its charter, bylaws, and contracts with its members and, as such, subject to…

Petitioners had a right under a contract of employment to salary and bonuses, the bonuses under the different conditions being paid in cash or in common stock of the… Held: that the contract was one of employment, that the stock was received as compensation for services rendered, and that the difference between the price at which received and the fair market value of the stock when received was properly included by the Commissioner in the gross income of petitioners.

The owner of one-half the stock of a corporation, in which he was an active officer, made loans to the corporation from time to time. Held: in the circumstances of this case, the uncollectible portion of the loans upon dissolution of the corporation was a non-business bad debt within the meaning of section 23 (k) (4) of the Internal Revenue Code.

On November 22, 1944, petitioner paid $ 2,065,842.02 to the United States in an agreed settlement of a claim by the O. P. A. that petitioner had made overcharges on the sale of some of its woolen and… Held: the payment of $ 2,065,842.02 is deductible under section 23 (a) (1) (A) of the Internal Revenue Code.

On its return for 1946, the petitioner claimed a deduction as ordinary and necessary expenses of amounts expended by it in leveling and grading hummocky land and swale, the drilling and equipping of… Held: that the expenditures in question, being capital in character, are not deductible as ordinary and necessary expenses.

Basis for Gain or Loss -- Effect of Payment of Estate Tax on Donor's Estate After Sale of Stock. -- The basis of stock acquired by gifts in contemplation of death may not be increased by the amount of Federal estate tax on the estate of the donor which the donee paid in a year subsequent to the year of sale of the stock.

Petitioner's books of account having been closed and balances carried forward at the end of each calendar year, held deficiencies determined on a fiscal year basis were incorrect, notwithstanding that petitioner reported its income for the years involved on the basis of a fiscal year ended November 30. Helvering v. Brooklyn City R. Co. (C. A. 2), 72 F. 2d 274, followed.

Sale of corporate stock at nominal price held not to result in taxable loss, where only evidence of value in prior years is corporation's book figures which are shown not to have any relation to actual value. Frank C. Rand, 40 B. T. A. 233, affd. (C. A. 8) 116 F. 2d 929, certiorari denied 313 U.S. 594, followed. B. F. Edwards, 39 B. T. A. 735, distinguished.

Payments made pursuant to agreements between petitioner and a client for trading in securities under which petitioner became entitled to all dividends and 25 per cent of profit from sales, in return for his obligation to pay client an annual return upon sums invested, held deductible as an expense for the production or collection of income under section 23 (a) (2), Internal Revenue Code.

Estate Tax. -- 1. Corporate stock valued at amount stipulated. 2. Held: the decedent was not engaged in business in the United States and moneys in bank accounts in his name are not includible in his gross estate. 3. Decedent was a citizen of Yugoslavia.

Relief Claims under Code Section 722 -- Res Judicata. -- Under the doctrine of res judicata, a decision of this Court that the taxpayer is not entitled to relief under Internal Revenue Code section 722 (b) (5) for the year 1940 estops the taxpayer from a trial on the merits of claims for later years under the same Code provisions, no new matters being pleaded or alleged to exist.

1. Transfer of property of petitioner corporation simultaneously with payment by transferee to petitioner's shareholder held to result in capital gain to petitioner notwithstanding payment was not… Held: further, not res judicata although facts were identical, parties not being the same or in privity.

During period in which railroad corporation was in the process of reorganization, a partnership composed of petitioners purchased outstanding bonds of the corporation and entered into when issued… Held: proper method of determining the amount of long or short term capital gain realized, or long or short term capital loss sustained, is to match the earliest when issued sales contracts with the securities sold in the order of their dates of acquisition.

The directors of a personal holding corporation in which petitioners were stockholders declared and paid a dividend approximate in amount to the capital gain which had been realized on sale of… Held: that neither the action of the directors nor the repayment by the stockholders of the amounts previously received changed the character of the dividend payments so as to permit their exclusion from gross income or their deduction by the petitioners of the amounts repaid.

1. Petitioner, lessor of a building, was entitled to receive not only fixed monthly rent, but also additional rent measured by the net sales of its lessee during petitioner's fiscal year, ended… Held: such additional rent must be accrued as income for the year with respect to which it was due and not for the succeeding year when it was payable. United States v. Anderson, 269 U.S. 422, followed. 2.

Petitioner received $ 12,000 in 1945 and $ 6,000 in 1946 from his employer in addition to his regular salary, which sums were reported as… Held: the statutory definition of back pay, section 107 (d) (2) of the Code, is not satisfied because there was no legal liability or agreement on the part of the employer to pay any compensation other than petitioner actually received in the years 1942, 1943, and 1944, and moreover none of the prescribed statutory events occurred to…

Petitioner, as stockholder in a corporation liquidating under the provisions of section 112 (b) (7), Internal Revenue Code, received, in kind, certain loans, discounts, mortgages, and other claims. Held: that in the absence of sale or exchange of the distributed properties, the amounts received on collections were ordinary income and not capital gain.

1. Held: Petitioner, a cash basis taxpayer, made payments of of interest and expenses when the corporation, of which he was president, remitted checks to his creditors and… Held: Petitioner, a cash basis taxpayer, made payments of of interest and expenses when the corporation, of which he was president, remitted checks to his creditors and charged petitioner's personal account with the amount paid, the charges being offset in the taxable year by credits to the account. 2.

1. A sum received by the petitioner in the taxable year constituted the purchase price of an option and was not rental income in that year. 2. A delinquency penalty was properly determined for a year for which it was later ascertained that no tax was due because a net operating loss for a subsequent year was allowable as a carry-back to the taxable year. Cf. Manning v. Seeley Tube & Box Co. of New Jersey, 338 U.S. 561.

Petitioners held 6 per cent cumulative preferred stock in a corporation as part of the corpus of a trust. Held: the money received from such redemptions is taxable as capital gain and not as ordinary income since the payments were not made at such time and in such manner as to be essentially equivalent to taxable dividends.

Amounts expended by petitioner in consideration for option to buy property held, upon failure to exercise option, deductible only as short term capital loss under section 117 (g) (2), Internal… Held: upon failure to exercise option, deductible only as short term capital loss under section 117 (g) (2), Internal Revenue Code.

On January 1, 1941, petitioner was retired from active service for having served 30 years in the United States Navy, and thereafter received the appropriate pay allowances for such service. Held: the Navy pay allowances petitioner received in the taxable years 1944, 1945, and 1946 constituted retirement pay, which is not exempt from taxation under section 22 (b) (5), Internal Revenue Code.

Prior to and during the taxable year the petitioner was a civilian employee of the Army Transportation Corps. Held: that the cash allowance in lieu of subsistence and quarters received by petitioner while working ashore was income within the meaning of section 22 (a) of the Internal Revenue Code.

In 1939, after a survey of its operations, the petitioner, a motor freight carrier, formulated a plan for a change in some of its methods of operations, to the end that a more economical and… Held: that the petitioner has not shown that there was a change in the character of its business, within the meaning of section 722 (b) (4) of the Internal Revenue Code.

Arthur L. Hobson and George W. Langdon, Jr., executed an agreement by the terms of which the former agreed to sell and the latter agreed to purchase certain shares of stock. Held: Dividends received by Hobson in 1943, 1944, and 1945, by reason of his retaining title to the stock, but applied by him against purchase price thereof, were not ordinary income to Hobson. Such dividends belonged to and were constructively received by Langdon and constituted ordinary income to him.

Amounts stipulated to have been paid out by petitioner as traveling expenses held deductible under section 22 (n), Internal Revenue Code, without the necessity of determining petitioner's status as an employee.

Held: 1. Petitioner, in the taxable year 1945, did not sustain a loss deductible under section 23 (e) of the Internal Revenue Code, on the sale… Held: Petitioner, in the taxable year 1945, did not sustain a loss deductible under section 23 (e) of the Internal Revenue Code, on the sale of real estate devoted solely to his use as a personal residence for 16 years, although he originally purchased the property with the predominant purpose of realizing a profit on its sale. 2.

1. Petitioner was organized by the stockholders of a corporation which had been unsuccessful and was in liquidation. This latter corporation possessed a piece of improved real estate and certain old and uncollectible accounts receivable. Petitioner acquired this property, the improved real estate, at a stated figure equal to its depreciated cost to the former owner and the uncollectible assets at a stated consideration of 100 cents on the dollar.

Petitioner acquired in 1941, ownership of a contract for patent royalties and agreed to pay for such rights and for other property acquired at the same time, $ 50,000 to American Cyanamid Company. Held: that the patent royalties in the taxable year 1944 which were paid to Cyanamid and applied by it to petitioner's debt evidenced by his promissory note were taxable to petitioner and not to his daughter. The Commissioner is sustained.

1. Evidence showing long term downward trend in profits of petitioner's newspaper business, rather than variant profit cycle or temporary or unusual economic circumstances, held not to entitle it to relief under sections 722 (b) (3) (A), or 722 (b) (2). 2.

Petitioner corporation engaged in the real estate business, paid sums to Sydenham Hospital, to Jewish Agency for Palestine and to Men's Group Godmothers League, Inc., all exempt organizations under… Held: following C. F. Mueller, 14 T. C. 922, revd. 190 F. 2d 120, and United States v. Community Services, Inc., 189 F. 2d 421, that the petitioner is not exempt from taxation under section 101 (6), Internal Revenue Code.

The family residence of petitioner's mother was acquired by petitioner by devise upon the death of his mother in February 1940. Held: after October 1942, the property was held for the production of income and petitioner is entitled to deductions for depreciation, section 23 (l) (2), and maintenance and conservation expenses, section 23 (a) (2) during the years 1943, 1944, and 1945; held, further, the loss incurred upon the sale of the property in 1945 is not…

Deduction for legal expenses in connection with amendment of a corporation's charter, retiring its outstanding capital stock, issuance of new stock in reduced amount, and distribution of assets in partial liquidation, allowed in part and disallowed in part.

1. Monies due under settlement agreements made in 1945 compromising claims growing out of alleged patent infringement, none of which were paid to petitioner in that year but which were then largely… Held: not accruable as income for 1945. 2. Attorneys' fees for services rendered in 1945 and other years but not determined in amount and billed until 1946, held, not deductible by an accrual taxpayer for 1945.

Statute of Limitations -- Code Section 3801. -- The application of Internal Revenue Code section 3801 in deficiency cases is limited to the increase in tax which results from adjustment for specific items as to which an inconsistent position has been maintained.

1. Main-Hammond Land Trust filed its petition with this Court at a time when there was no question about its legal existence and ability to do so. Held: Upon the filing of the petition our jurisdiction attached, and having so attached continues unimpaired until we have decided the controversy. 2.

Petitioner gave a written option to purchase stock owned by him for the net value thereof as shown by the books of the corporation. Held: under the circumstances, that the fee charged by counsel for his services is an offset against price received as an expense of the sale and, therefore, is not deductible as a nonbusiness expense.

Petitioners formed a partnership in 1941. On October 1, 1941, the partnership purchased 10 pairs of chinchillas. Held: on the facts, that of the 74 pairs actually disposed of all but 58 animals were breeding stock and their sale resulted in capital gain, and that the 58 animals were not shown to be breeding stock and the sale is held to result in ordinary income. Section 117 (j), Internal Revenue Code.

1. Because of an ambiguity in the deficiency notice statement of the nature of the disallowance, petitioner contends that a questioned deduction is not properly before the Court. Held: the issue was raised because the only ambiguity was in the explanation of the deduction, and the taxpayer had reasonable notice, examined the issue and was not prejudiced. 2.

Held, on the facts, that the petitioner has not shown any commitment prior to January 1, 1940, to a course of action within the intendment of section 722 (b) (4), Internal Revenue Code. Held: on the facts, that the petitioner has not shown any commitment prior to January 1, 1940, to a course of action within the intendment of section 722 (b) (4), Internal Revenue Code.

1. Petitioner, a resident of California and an employee of Shell Company, became a member, in 1915, of an employees' fund. Held: that the amounts received by petitioner after the receipt of an amount equal to the total of the deposits made by him constituted the receipt by him of ordinary income. 2.

1. Exemption -- Fruit Growers Cooperative -- Producer -- Section 101 (12). -- A fruit growers cooperative association which carries on, as one of its principal activities, the maintenance and caretaking of citrus groves and which markets for its members fruit purchased by them near harvest from nonmember growers does not qualify for exemption under section 101 (12). 2.

Where petitioner incurred certain retirement losses which, because of Interstate Commerce Commission regulations, it could not charge against railroads using its passenger terminal facilities, and… Held: the reimbursement in the later year did not constitute taxable income, since the retirement losses did not produce any tax benefit in the earlier years.

Pension received by policeman by reason of retirement for disability incurred in the line of duty held exempt under section 22 (b) (5), I. R. C.

Two days prior to his death, decedent received the proceeds from a condemnation award from the involuntary conversion of real property. Decedent realized a gain therefrom. Held: the benefits of section 112 (f), permitting nonrecognition of gain in the year realized by the taxpayer, are limited to the taxpayer individually, and are not available to taxpayer's personal representative whether or not he has fully complied with the conditions imposed by the statute.

1. Income -- Constructive Receipt -- Cooperative -- Revolving Fund Certificates. -- Amounts retained from marketing operations of a cooperative performed on behalf of members, for which amounts it voluntarily issued revolving fund certificates having no fair market value, which amounts belonged to and represented taxable income of the cooperative and were not made available to the members, were not income of the members for the year in which they were retained. 2.

Loss claimed by petitioners (brothers) on exchange of property with corporation of which they became sole stockholders simultaneously with consummation of exchange, held properly disallowed under section 24 (b) (1) (B), Internal Revenue Code.

De factoConnecticut corporation held capable through its president of executing valid waivers in advance of expiration of statute of limitations so as to authorize respondent to send notices of liability to transferees within one year of expiration of statute as so extended.

Respondent's action in disallowing deductions of salary payments to petitioner's president in excess of $ 100 per month is approved in the absence of proof as to what services were in fact rendered. Further held that the salary payments so disallowed may not be allowed as additional rental for the property owned by petitioner's president and occupied by petitioner at a specific and agreed rental.

Held, on the facts, that the petitioner has not shown a reconstruction of average base period net income in any amount larger than the figure allowed under section 713 (f),… Held: on the facts, that the petitioner has not shown a reconstruction of average base period net income in any amount larger than the figure allowed under section 713 (f), Internal Revenue Code, and is therefore not entitled to relief under section 722 (b) (4) because of change in character of business.

1. In 1944 the petitioner made payments to his wife pursuant to separation agreement. Held: on the facts, that the payments were partly in consideration of the release by the wife of rights to support, and partly in consideration of release of other marital rights, therefore that the payments were partly taxable as gifts. Held, further, that the determination of deficiency was not arbitrary. 2.

Decedent created a trust with income to herself for life. The trustees were a corporate trustee and decedent's two children. Held: no complete taxable transfer was effected by the deed of trust since the corpus might have been totally depleted by the time of decedent's death without the consent of any adverse party.

1. Income -- Title Insurance -- Premiums Earned -- Section 204. -- Under section 204, the entire amount of premiums paid a title insurance company for policies guaranteeing titles are earned and constitute taxable income when paid and can not be deducted to the extent credited under state law to a reserve for reinsurance. American Title Co., 29 B. T. A. 479, affd. 76 F. 2d 332, followed. 2.

1. Interest. -- Petitioner, a corporation engaged in the business of investing in oil properties, issued income debentures in exchange… Held: interest payments on such debentures are deductible under section 23 (b), I. R. C. 2. Depletion. -- Petitioner increased the 1947 cost basis of its royalty interests by the excess of cost depletion deductions over percentage depletion deductions for the years 1933 to 1939 when percentage depletion had been claimed for those years.

1. Excess Profits Tax -- Acquiring Corporation -- Qualified Component Corporation -- Section 740. -- The taxpayer corporation's acquisition of all of the property of another corporation, that was in existence at the beginning of the base period, in exchange for all of its outstanding stock constitutes it an acquiring corporation and the other a qualified component corporation within the meaning of section 740. 2.

1. Property belonging to a partnership of which Jacob Resler was a member was taken in 1946 by condemnation, at which time an amount in excess of the cost of such property to the partnership was paid… Held: that as to the payment made and received in 1946, the transaction was a closed transaction and that the gain resulting therefrom should be accounted for in partnership income. 2.

1. Petitioner, a canner of fruit products, reported its income on a calendar year accrual basis. Held: that title to the unshipped and unpaid for goods did not pass to the petitioner's buyers on the billing dates because the goods subject to the contract were not then ascertained. Accordingly, petitioner erroneously accrued income from the sale of these unshipped goods in the taxable years when it billed its buyers therefor.

1. Held: Petitioner and his wife were bona fide partners in Southern Fireproofing Company during 1942 and 1943. 2. Held: Petitioner and his wife were bona fide partners in Southern Fireproofing Company during 1942 and 1943. 2. In 1941 Southern Fireproofing Company executed a trust agreement wherein it initiated a bonus and profit sharing plan to benefit certain of its employees.

Parent corporation held not entitled to a loss or bad debt deduction upon dissolution of a subsidiary with which it had filed consolidated returns. Regulations 104, sections 23.37 and 23.40.

1. Prior to January 1, 1938, petitioner was engaged in the business of manufacturing and selling butter, ice cream, and ice cream mix in the vicinity of Lockhart, Texas. Held: petitioner changed the character of its business within the meaning of section 722 (b) (4) of the Internal Revenue Code; held, further, that petitioner was entitled to relief under section 722, and a constructive average base period net income has been determined. 2.

The sum received by petitioner-lessor upon execution of a lease, as security for the lessees' performance of the terms of the lease, was not taxable income upon receipt where lessor was under obligation to repay it unless in the meantime it should be appropriated to make good a default by the lessees.

1. Decedent was a citizen of and domiciled in The Netherlands in 1940 when he made a business trip abroad and was unable to return because of the invasion of his country by enemy forces. Held: that within the meaning of the estate tax statute the decedent was a nonresident of the United States. 2. Value of shares in a New York corporation, the certificates for which were in the United States, held to be the amount determined by the respondent in the notice of deficiency.

Advance Rental or Security Deposit. -- Successive leases, covering the same property, were executed within one calendar year. Held: that the first lease expressed the intent of the parties and that under it a sum paid by the lessee was advance rental and is includible in gross income of the lessors at the time of payment.

1. The majority stockholders of the petitioner, which was engaged in the business of furnishing supplies, materials and a training base for the Civil Air Patrol, organized a partnership which took… Held: the respondent erred in refusing to recognize the partnership for tax purposes, and in holding the petitioner taxable on the net income of the partnership either under section 22 (a) or section 45, Internal Revenue Code. 2.

1. Cost basis of patents used in the petitioner's business determined for purpose of computing equity invested capital and depreciation deductions. 2. Certain capital expenditures relating to the development and procurement of patents held proper additions to the cost basis thereof. 3.

Sale by petitioner of shares of its own stock to its vice president and general manager without any restriction as to its use or resale and not in furtherance of any consistent plan for officer stock ownership held on the facts to have resulted in realization of long term capital gain.

The petitioners were members of a cooperative growers association through which they marketed their peaches. Held: that the petitioners, upon receipt of certificates, received and realized income to the extent of the fair market value of the certificates received. Held, further, that the fair market value of the certificates was equal to face.

1. Held: Petitioner has not shown that its average base period net income but for a strike would have resulted in an excess profits credit greater than that computed on the basis of invested capital… Held: Petitioner has not shown that its average base period net income but for a strike would have resulted in an excess profits credit greater than that computed on the basis of invested capital which was allowed by respondent. 2.

For 1944 and 1945, petitioner claims deductions for amortization of the intangible drilling and development costs of three gas wells under section 124 of the Code. Held: intangible drilling and development costs of a natural resource are not deductible under section 124 of the Code providing for special amortization of emergency facilities.

Petitioner's employees' pension plan, administered by a trust, was inaugurated in the year 1944. Held: that the clear and unambiguous provisions of the pension plan require amounts received by the trustees by way, of forfeiture to be applied towards the payment of premiums and that the petitioner can not take a deduction under section 23 (p) (1) (A) for any contribution greater than required by the plan.

1. Excess Profits Tax -- Relief under Section 722 -- Section 722 (b) (1) -- Interruption of Normal Operation -- Future Delivery Contracts. -- A canner of citrus products which entered into contracts calling for the future delivery of its products for a stated price and permitting the buyers to cancel in the event they could obtain, before the contract time of delivery, the same product elsewhere at a lower price which the petitioner then failed to meet, does not qualify for…

1. Deductions, Interest. -- Debenture notes issued by petitioner in a reorganization for value received, held to be in form and substance an indebtedness and interest payments thereon deductible,… Held: that petitioner's debenture notes constituted borrowed capital, section 719. 3.

1. Deductions -- Ordinary and Necessary Expenses -- By Trust or Remainderman -- Section 23 (a) (2). -- Terminal trustee's commissions, and attorneys' fees and expenses incident to the distribution of assets and termination of a trust after the death of the life beneficiary paid by the trust are not deductible by a remainderman. 2.

Petitioner's employer, in 1941, purchased an annuity contract based on petitioner's life for the purpose of providing a monthly income for petitioner on retirement. Held: petitioner was taxable in 1943 on value of policy. Section 22 (b) (2) (B), Internal Revenue Code, does not exclude value of policy from taxable income.

Pursuant to written agreement a predecessor corporation transferred on December 30, 1936, to petitioner, a newly organized corporation, all its assets as consideration for 75,000 shares of stock of… Held: petitioner acquired the assets as the result of a tax free reorganization within the meaning of section 112 (g) (1) (C), Revenue Act of 1936, since the predecessor corporation was in control of petitioner immediately after the transfer.

During the taxable year 1946, petitioner was an employee and his principal place of employment was in Memphis, Tennessee. Held: that within the meaning of section 23 (a) (1) (A) petitioner had a home, (2) that petitioner's home was in Memphis, (3) that petitioner is entitled to a deduction from gross income in accordance with sections 22 (n) (2) and 23 (a) (1) (A) for the cost of meals and lodging while away from Memphis, and (4) that respondent did not err…

Petitioner, whose stockholder-members were wholesale grocers, was organized to administer a system of merchandising in the food and grocery field which would enable wholesalers and their retail… Held: Payments which petitioner received from wholesalers were for services it rendered to them, and not to retailers, and the refunds of amounts attributable thereto which it was required to make to wholesalers constituted true patronage dividends.

1. Excess Profits Tax -- Abnormal Deductions -- Section 711 (b) (1) (J). -- Petitioner, a wheat milling and sales corporation, for the purpose of computing its excess profits credit for the taxable… Held: petitioner's alleged abnormal deductions being inventory adjustments, are a reduction of cost of goods sold and as such are not within the class of items which are deductions from gross income under section 23 of the Code. 2.

1. Good Will. -- Held, on facts that $ 50,000 received by petitioners for the sale of the business is consideration for good will and taxable as capital gain. 2. Held: on facts that $ 50,000 received by petitioners for the sale of the business is consideration for good will and taxable as capital gain. 2.

1. Gifts which were made by decedent to his three living children on April 21, 1941, nearly four years prior to his death January 6, 1945, were made from motives associated with life and… Held: the value of the property included in such gifts is not includible in decedent's gross estate under section 811 (c) of the Internal Revenue Code. 2. Decedent was the settlor of a trust estate in 1926 in which he reserved the income for life to himself with remainder over to others.

Payments Under Lease -- Capital Gain or Ordinary Income. -- Petitioner and others owned and were lessors of real estate for a 50-year term. Held: the $ 475 monthly payments were in the nature of rent and constituted ordinary income.

Held, that where decedent, in making transfers of property in trust with income to be paid to his wife retained no right to have income applied towards her… Held: that where decedent, in making transfers of property in trust with income to be paid to his wife retained no right to have income applied towards her support, he did not retain the right to the possession, enjoyment or income from the property and the trusts are not includible in the valuation of his gross estate.

Where the British Ministry of War Transport entered into a space charter for the hire of petitioner's steamship, and the charter was financed with Lend-Lease funds provided through the United States… Held: the charter was not a contract with the Maritime Commission, within section 403 (c) (1) of the Renegotiation Act, and therefore was not renegotiable.

1. Income -- Community Property -- Estate During Period of Administration -- Section 161 (a) (3). -- A deceased husband's estate is taxable upon only one-half of the income derived during administration from Texas community property. 2.

Personal Services -- Section 107. -- Petitioner performed legal services as attorney for the executors of an estate from January 10, 1939, to June 22, 1944. Held: the $ 3,500 not being 80 per cent of the total compensation of $ 8,500 received for services as such attorney, petitioner is not entitled to the benefits of section 107, Internal Revenue Code.

1. Gift Tax. -- In ascertaining the net value of gifts to a trust for gift tax purposes, wherein the trustee was required to pay the future income tax of the settlor-beneficiary, the gross value of… Held: the gift tax may be deducted from the gross value of the gifts in determining the net value of the transfer subject to gift tax.

Petitioners are settlors of irrevocable trusts which, as extended on December 1, 1942, were to run in each case for a period of at least 9 years. Held: none of the income of the trusts was taxable to petitioners. The income did not belong to them and they reserved no power of control over either the corpus or income during the 9-year irrevocable terms of the trusts.

Petitioner claimed relief for excess profits taxes under section 722 (c) (3) because its invested capital was abnormally low for each of the taxable years. Held: that where its proposed credit under the income method is smaller than the credits actually allowed under the invested capital method, it is not entitled to relief.

1. Income -- Realization -- Benefit -- Reduction of Indebtedness. -- The purchasers of the stock and a note of an insolvent corporation did not realize income from… Held: each purchaser did not have to report income until he had first recovered the cost of his entire interest in the indebtedness since his twenty notes did not represent twenty divided interests in the original indebtedness of a kind requiring allocation of his entire cost basis proportionately to each note.

Held, allowance for board and room sent to son living in California because of the mild climate there does not constitute deductible expense… Held: allowance for board and room sent to son living in California because of the mild climate there does not constitute deductible expense as medical care under section 23 (x), I. R. C., as amended, the son's illness having occurred 9 years before the taxable year, from which he had recovered beyond the period of actual illness and…

1. Sec. 22 (a) -- Payments for Research -- Income. -- A polytechnic institute held a United States Navy contract under which it was to test certain materials. Held: that the institute, in appointing the petitioner to its research staff, intended the monthly payments as compensation for petitioner's skilled services, and intended that the petitioner would perform services in exchange for compensation. The institute did not intend the payments to be gifts.

Petitioner is, and during the years 1945 and 1946 was, an officer, director, and principal stockholder of a corporation which during the war… Held: that pursuant to section 115 (b) of the Code, the corporation's 1946 earnings are conclusively presumed to be the source of its 1946 dividends; therefore, the corporate declaration as to the source of the dividends must be disregarded, and petitioner realized taxable income in 1946 to the extent of his share of such dividends.

On the facts, held, the redemption of corporate securities held by petitioners for approximately ten months was not * * * essentially… Held: the redemption of corporate securities held by petitioners for approximately ten months was not * * * essentially equivalent to the distribution of a taxable dividend, under section 115(g), Internal Revenue Code; although, as conceded by petitioners, premiums above cost paid on redemption of each security were ordinary income.

Held: That petitioner did not accumulate its surplus or profits beyond the reasonable needs of its business and, accordingly, is not liable for additional surtax under section 102, I. R. C. Held: That petitioner did not accumulate its surplus or profits beyond the reasonable needs of its business and, accordingly, is not liable for additional surtax under section 102, I. R. C.

Redemption of entire block of corporate stock formerly owned by petitioner's brother and bequeathed by him to petitioner, the surviving shareholder, held, on all facts, not a distribution essentially… Held: on all facts, not a distribution essentially equivalent to a dividend under section 115 (g), Internal Revenue Code.

1. Redemption of Stock -- Distributions in Liquidation -- Payment for Stock or Dividend. -- A distribution in kind in cancelation of stock was not essentially equivalent to the distribution of a taxable dividend within the meaning of section 115 (g) but was taxable as provided in section 115 (c). 2.

Louis R. Eisenmann conveyed a half interest in his business, in trust for the benefit of his minor son. Held: valid partnerships were formed, and petitioners are not taxable on the trust's distributive shares of the partnership income.

In 1927, decedent borrowed $ 125,000 from a bank on his promissory note and pledged mortgages aggregating $ 180,000 as security therefor. Held: under all the facts, petitioners have failed to prove that decedent was, in fact, an accommodation maker; and, therefore, no amount paid by decedent to the bank on such indebtedness is deductible either as a loss or as a bad debt.

Gain from Sales of Lots -- Capital Gain. -- The petitioner purchased country lots in 1931 as an investment. He held the lots for 15 years. Some of the lots were sold in 1946 and 1947. Held, under the facts, that the lots were not held primarily for sale to customers in the ordinary course of petitioner's business within section 117 (a) (1), I. R. C., and that gain realized from sales in 1947 is taxable as long term capital gain.

1. Respondent correctly determined the contested deficiency upon the basis of a joint return by both petitioners. 2. Held: that such tax was not deductible by petitioner. Williard I. Thompson, 15 T. C. 609, in so far as it pertains to the deduction of Oklahoma cigarette tax, will no longer be followed. 3. Respondent disallowed a deduction of $ 6 taken by petitioner Louis M. Roth, as representing a tax.

Deduction -- Ordinary and Necessary Expense -- Section 23 (a) (1) (A). -- Amounts spent by a field manager to build up business and increase his compensation, though spent for the entertainment of salesmen under his supervision, were ordinary and necessary expenses of his business as field manager.

Upon the facts, held, that a partnership in which the petitioners were members during 1944 sold houses during the fiscal year ended October 31, 1944, which were held… Held: that a partnership in which the petitioners were members during 1944 sold houses during the fiscal year ended October 31, 1944, which were held primarily for sale to customers in the ordinary course of the business of the partnership and that the gains realized were ordinary and not capital gains.

Pursuant to an agreement incident to a decree of divorce, petitioner-husband agreed, among other things, to make monthly payments to his divorced wife for her support and maintenance. These payments were to be in proportion to his earnings and were to continue as long as the divorced wife lived or until she remarried. The agreement contained another provision which required petitioner-husband to pay his divorced wife $ 6,000 in quarterly installments upon her remarriage. Held, pursuant to sections 23 (u) and 22 (k) of the Internal Revenue Code the $ 6,000 payment is not deductible by petitioner since the agreement, in a provision separate and apart from the provisions calling for the monthly payments for the divorced wife's support and maintenance, required the payment of a principal sum of $ 6,000 in four installments within a year after notification of the divorced wife's remarriage and were not, therefore, "periodic payments."

1. Estate Tax -- Rule Against Perpetuities -- Vesting -- Interpretation. -- The rule against perpetuities was not violated where an ambiguous provision of a deed of trust could be read as providing that the remainder interest should go to persons ascertainable at the death of a person in being at the time the trust was created. 2.

Corporation not subject to tax on gain realized on condemnation sale of property made by its stockholder where the corporation had conducted no negotiations for sale prior to liquidation and purchaser had made no commitment prior to distribution by the the corporation to the stockholder.

Petitioner, an attorney, while acting as co-executor of an estate, received executor's commissions under two separate provisions of the California Probate Code; he allocated the amount received under… Held: the commissions received by the co-executor were not divisible, and since the allocated amount was not more than 80 per cent of the total compensation received as a co-executor, petitioner is not entitled to the benefits of section 107, I. R. C.

Petitioner claimed relief for excess profits taxes for the taxable years 1941 to 1946, inclusive, under section 722 (b) (4), Internal Revenue Code, because of a change in the character of its business in its base period. Held, petitioner having failed to establish that its average base period net income is an inadequate standard of normal earnings because of the change, or that its tax computed without the benefit of section 722 results in an excessive and discriminatory tax, or, what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income, it is not entitled to relief.

Petitioner has failed to establish that any portion of its 1943 abnormal income was attributable to any other years, entitling it to relief under section 721 of the Internal Revenue Code.

Excess Profits Tax -- Relief Under Section 722 (c) -- Constructive Average Base Period Net Income. -- Amount of constructive average base period net income determined.

1. Debenture Notes -- Interest. -- Debenture notes issued to stockholders to cover open accounts representing unpaid dividends, salaries, and advances held to represent bona fide indebtedness and the… Held: that the 1925 dividend, to the extent that it exceeded earnings and profits computed by treating the 1924 sale as an installment sale, reduced equity invested capital in the years 1941 to 1945. 4.

Capital Assets -- Personal Service Contract -- Section 117 (a) (1). -- Amounts received from alleged purchaser of contracts for personal services were not capital gains.

Petitioners William A. Joplin, Jr., Joseph F. Kohn and S. Crews Reynolds were members of a tax exempt farmers' marketing cooperative corporation, reporting their income on the cash receipts and… Held: petitioners received and realized income upon the receipt of the certificates of preferred stock to the extent of the fair market value of the certificates, which is determined to be equal to the par value thereof.

1. Taxable Entity -- Administrator of Partnership Interest of Deceased Partner. -- The appointment under Washington law of a surviving partner as administrator of a deceased's partnership estate does… Held: that the income is taxable to the surviving partner. 3.

1. Family Partnership -- Distributive Share of Brother Not Attributable to Taxpayer. -- Taxpayer and his brother received equal distributions from partnership in which they and two others not members of the family group were partners. Taxpayer's father furnished capital and services for partnership on behalf of his sons, though not himself a partner. Held, the brother's share was not taxable to petitioner. 2. Deductions. -- Taxpayer claimed deduction in 1943 resulting from adjustment of capital accounts based on transactions in 1941 and 1942. Held, deduction disallowed.

1. A partnership had to refund excessive profits under the Renegotiation Law. Petitioner, a partner, included in his 1945 income a part of his share of these excessive profits. Held: petitioner is entitled to a tax credit under section 3806. 2. Because of a net operating loss deduction from a loss incurred in 1947, petitioner had received refunds of all 1945 income taxes before the renegotiation tax credits were applied.

Excess Profits Tax -- Section 722 (b) (4) -- Change in Character of Business. -- Petitioner, in the operation of its radio broadcasting station, installed a new type antenna which resulted in… Held: petitioner changed the character of its business and a constructive average base period net income has been determined.

Prior to and during the taxable year, petitioner withdrew, from a corporation in which he was an officer and a stockholder, amounts which exceeded his salary, bonus, and travel allowance. Held: such excessive withdrawals were loans and were not dividends within the meaning of section 115 (a) of the Internal Revenue Code.

1. Rentals paid to a family trust which was created for the purpose of acquiring the overriding leasehold estate from petitioner's lessor, disallowed, to the extent that they exceeded the rental which petitioner was obligated to pay in the taxable years under the old lease. 2. Reasonable compensation for services performed by petitioner's president and vice president determined on the evidence. 3. Where amortization deductions on leasehold improvements during the base period years were excessive, due to the fact that the cost of such improvements was spread over the remaining short term of petitioner's lease, held, that such excess should be disallowed under section 711 (b) (1) (J), Internal Revenue Code, for the purpose of computing petitioner's average base period net income and its excess profits credits for 1945 and 1946. 4. An amount subscribed and paid during 1946 to a development and advertising association of merchants in petitioner's business district held deductible in full as a business expense of that year. 5. Verification of petitioner's income and excess profits tax returns for 1945 by its president, who was also treasurer, held substantial compliance with the statutory requirement that the returns be signed and sworn to by the president and the treasurer or other principal accounting officer.

1. Held, breeding turkeys sold in 1945 were not property held primarily for sale to customers in the ordinary course of trade or business. 2. Held: breeding turkeys sold in 1945 were not property held primarily for sale to customers in the ordinary course of trade or business. 2. Held, section 324 of the Revenue Act of 1951 does not exclude breeding turkeys sold in 1945 from property used in the trade or business as defined by section 117, I. R. C.

Held, petitioner, husband of decedent and sole beneficiary under decedent's will, made taxable gifts to the other heirs by renouncing any rights to inherit property under his wife's will or to… Held: petitioner, husband of decedent and sole beneficiary under decedent's will, made taxable gifts to the other heirs by renouncing any rights to inherit property under his wife's will or to receive any property from her estate under the laws of succession of California.

1. Deductions. -- Held, petitioner did not sustain his burden of proving distributions or advances to wholly owned corporation to enable it to pay certain indebtednesses and real estate taxes were… Held: petitioner did not sustain his burden of proving distributions or advances to wholly owned corporation to enable it to pay certain indebtednesses and real estate taxes were allowable as business bad debts or losses incurred in transactions entered into for profit.

In the taxable year 1941 petitioner paid the sum of $ 575,206.43 upon its employees' retirement annuity policy and contributed the sum of $ 1,000,000 to an employees' trust as a part of its long… Held: such payments, constituting ordinary and necessary business expenses, were reasonable in amount and are deductible under section 23 (a) (1) (A), I. R. C.

Petitioner corporation, which included in its activities the giving of instructive courses in gemmology, held, not exempt from tax under section 101 (6), I. R. C., because part of its net earnings inured to the benefit of an individual.

Section 23 (u) -- Deductions for Payments to Divorced Wife Denied: 1. Held, that a payment of $ 3,000 to wife prior to divorce is not deductible under section 23 (u). 2. Held: that a payment of $ 3,000 to wife prior to divorce is not deductible under section 23 (u). 2. The terms of a separation agreement which was ratified and confirmed by a decree of divorce in 1946 are construed.

Excess Profits Tax -- Qualification for Relief Under Code Section 722 (b) (4) and (b) (5). -- The petitioner acquired citrus trees in 1932 which in the excess profits tax years had a fruit bearing capacity greater than they had in the base period years. Held, that the increased capacity was not the consummation of a course of action to which the petitioner was committed and did not constitute a change in the character of the business so as to entitle it to relief under Internal Revenue Code section 722 (b) (4). Held, further, that such increase in capacity did not constitute any other factor not inconsistent with subsection (b) (4) and that the petitioner does not qualify for relief under Code section 722 (b) (5).

Effect of Reorganization on Earnings. -- Accumulated earnings of a corporation do not survive a section 77B reorganization whereby the assets are acquired by a new corporation whose stock is acquired by creditors of the old corporation to the exclusion of stockholders. Commissioner v. Sansome, 60 F. 2d 931, is not applicable to a section 77B reorganization.