Volume 17 — Tax Court Memorandum

The petitioner, Sam Gold, the owner of all the stock of one corporation, entered into an agreement purporting to sell such stock to another corporation. Held: that since the purchasing corporation was also owned by the petitioner, and in view of the other facts and circumstances, the amounts received under the agreement did not constitute capital gain within the intendment of section 117(a) of the Internal Revenue Code of 1939, but, rather, constituted taxable dividends.

Upon failure to prosecute, held, the deficiencies in income tax, and additions to the tax under section 294(d)(1) and (2), I.R.C. of 1939, for the years 1945 through 1951, are sustained. Upon the evidence, held, a part of the deficiencies in income tax for the years 1945 through 1951 was "due to fraud with intent to evade tax" as that phrase is used in section 293(b), I.R.C. of 1939.

Petitioner, organized to strip mine coal, executed an instrument whereby it purported to buy, and a partnership, until then so engaged, purported to sell, all of the latter's coal-mining machinery and equipment and certain real property, for a total consideration of $1,000,000. The actual value of the tangible assets alone was substantially less than $1,000,000, and the going coal-mining operation of the partnership had substantial intangible value. After the transaction petitioner commenced on the following workday to operate the same coal lands formerly worked by the partners in the same manner as had been done by the partners. It received leases to the coal lands owned by the partners and to those formerly leased by them from others. The partnership had so improved the lands as to materially facilitate coal mining thereon. The two active partners became co-managers of petitioner. Held, on the facts, petitioner purchased a going business and not merely tangible assets. The tangible assets are found to have had a fair market value of $650,000, and the intangible value of the business is found to have been worth at least $350,000. All interested parties were aware of such values, and $350,000 of the purchase price is allocable to such intangible value. Petitioner's basis in the tangible assets is reduced pro rata from that claimed by it. Held, further, petitioner has failed to prove erroneous the rates of depreciation applied by respondent to the tangible assets.

Petitioner acquired from a corporation, in 1949 and 1951, the ownership of two small-loan brokerage offices, including one of which he… Held: that the character of the transactions and the purpose of the promissory notes depend principally upon the intent of the parties, at the time when the agreements and notes were executed and delivered; that such intent must be determined from an examination and the weighing of all relevant facts and surrounding circumstances; and that…

Deductions: Legal expenses of trustee and life beneficiary of trust. - Taxpayer claimed deductions for legal expenses incurred in connection with a suit by remaindermen charging her, among other things, with waste and mismanagement of a trust of which she was trustee and life beneficiary. She also claimed deductions arising from alleged losses sustained by condemnation of trust property.

Held: Respondent's determinations with respect to the income received by petitioner, a candy broker, during the taxable years 1944 to 1947,… Held: Respondent's determinations with respect to the income received by petitioner, a candy broker, during the taxable years 1944 to 1947, inclusive, as commissions, profits on the purchase and sale of candy and as his distributable share of the net income of a partnership engaged in packaging candy for retail, sustained with certain…

In 1929, while employed by Air Reduction Company, Incorporated, petitioner William R. Ost invented a process which facilitated the joining together of pipe joints. In 1931 and 1934 petitioner signed agreements with Air Reduction which purported to assign to the latter the invention he had perfected. Thereafter, Air Reduction patented the invention and purported to assign the patent to Walworth Company, which employed petitioner to develop the invention and train personnel to apply it. Petitioner maintained that he owned the patent and retained an attorney to represent him. The attorney threatened Air Reduction and Walworth with lawsuits unless they agreed to compensate petitioner for his rights in the invention. On June 8, 1942, Air Reduction and Walworth signed an agreement under which petitioner was to receive a specified percentage of the net sales of devices manufactured under the patent on his invention. Held: On the facts, one-half of the amounts received by petitioner in 1951 and 1952 pursuant to the agreement of June 8, 1942, represented compensation for services and are taxable as ordinary income. Held further: The other half of the payments made in 1951 and 1952 were made in settlement of petitioner's rights in the patent on his invention and are taxable as capital gains. Rose Marie Reid, 26 T.C. 622.

All of the books and records of petitioner, the operator of a nursery, were destroyed. Held: that, except for adjustments for inventories, improvements to residence, and certain concessions, the respondent's determinations of income are approved.

Gift tax: Valuation of mineral interests. - Held that the petitioners have failed to show error in the respondent's determination of the fair market value of gifts of mineral interests made by the petitioners in the year 1951.

Held: Losses resulting from the worthlessness of certain advances and loans by petitioners to a magazine publishing corporation are not… Held: Losses resulting from the worthlessness of certain advances and loans by petitioners to a magazine publishing corporation are not deductible under section 23(k)(1), I.R.C. 1939, as business bad debts because not incurred in or proximately related to any trade or business carried on by petitioners, but are only deductible as…

Petitioner trust was created at the expiration of a testamentary trust by the beneficiaries of the latter conveying their interest in bank stock and realty to petitioner trust. Held: petitioner was taxable as an association in the same manner as an association under section 3797(a)(3), I.R.C. of 1939.

Official amendment. - The following official order of the Tax Court amends the case of Ralph E. Trisko et al., Dec. 22,712, filed December 24, 1957.

Petitioner John F. Douglas was the majority stockholder of a corporation organized on January 7, 1946, to manufacture toys. The original capital of the corporation was $2,500. Held: on the facts, the advances were contributions to capital and not loans.

In 1947 an individual who for the past 10 years had conducted a sole proprietorship business caused the petitioner to be formed to take over the business and assets of the proprietorship. Held: that the debentures did not represent indebtedness and that deductions taken by petitioner as interest thereon were not allowable.

Held: (1) The uncontested deficiencies determined by respondent under the net worth method for the years 1943 and 1944, and the additions to tax under Sec. 293(b), I.R.C. 1939, are not barred by… Held: The uncontested deficiencies determined by respondent under the net worth method for the years 1943 and 1944, and the additions to tax under Sec. 293(b), I.R.C. 1939, are not barred by limitations or estoppel.

Maloney and his wife Dorothy owned 75 per cent of the stock of S & M Sales Corporation. S & M made certain payments to its stockholders and deducted the amounts as traveling and entertainment expenses. Respondent disallowed these amounts and made other adjustments to S & M's income for the fiscal years ended February 29, 1948 and February 28, 1949. Respondent also increased the individual petitioner's income for 1947 to 1950, inclusive, determining that certain expenditures of S & M constituted dividends to the shareholders and also made other adjustments to their income. Additions to the tax for fraud were determined for all parties for all years. Held: (1) that respondent's determinations with regard to the income of the petitioners are upheld in part; (2) that Maloney's separate return for 1947, Maloney's and Dorothy's joint return for 1948, and S & M's returns for the fiscal years ended February 29, 1948 and February 28, 1949, were false and fraudulently filed and part of the deficiencies is due to fraud with intent to evade tax; (3) that Dorothy's separate return for 1947 was not fraudulently filed and none of the deficiency is due to fraud with intent to evade tax and the proceeding against her for that year is barred by the statute of limitations under section 275(a) and (c), Internal Revenue Code of 1939; and (4) that Maloney's and Dorothy's joint returns for 1949 and 1950 were not false and fraudulently filed and none of the deficiencies is due to fraud with intent to evade tax.

1. Cash disbursements were made to various suppliers for merchandise purchased by the individual petitioners Herman Needelman, d/b/a Al-Mel Frocks, and Annette Needelman, d/b/a Five Star Dresses,… Held: that petitioners are entitled to include in their respective cost of goods sold amounts of claimed cash disbursements disallowed by respondent, except for certain adjustments made herein with respect to the individual petitioners. 2.

1. Petitioner, Standard Asbestos and Insulating Company, paid to each of its three officers for services rendered during the years 1949, 1950 and 1951, the sums of $52,232.14,… Held: on the facts, none of the compensation paid during the years in question was intended as compensation for services rendered in prior years. Held further, that the compensation paid to the officers in question for the years 1949, 1950 and 1951 was unreasonable to the extent herein determined. 2.

Amounts received by petitioners under a lease-option agreement held not to constitute rentals, but were receipts under a contract for sale of property.

The petitioner, R. D. Wilbor, Jr., purchased the controlling stock interest in Grand Manufacturing Company, Inc., a furniture company, during 1951, for the sum of $5,880, and shortly thereafter… Held: that petitioner is not entitled to a business bad debt deduction under section 23(k)(1) in connection with the advances to Grand since the aforesaid losses were not incurred in, or proximately related to, any separate trade or business of the petitioner.

Held, additional deficiencies claimed by respondent in an amended answer filed by him in a section 722 proceeding are barred by the statute of limitations. Held: additional deficiencies claimed by respondent in an amended answer filed by him in a section 722 proceeding are barred by the statute of limitations. F. W. Poe Manufacturing Co., 25 T.C. 691, affirmed on another ground 245 Fed. (2d) 8; Commissioner v. S. Frieder & Sons Co., 247 Fed.

Held: (1) Petitioner has failed to show that payments in issue constitute interest within the meaning of section 23(b), I.R.C. of 1939. Held: Petitioner has failed to show that payments in issue constitute interest within the meaning of section 23(b), I.R.C. of 1939. (2) Reasonable compensation paid by petitioner to its officers for each of the taxable years, within the meaning of section 23(a)(1)(A), I.R.C. of 1939, determined.

1. During 1943 and 1944, petitioners and their brother Joseph were members of a partnership called Starr Pen Company. Held: that the $242,298.80 was received by Joseph and Samuel on behalf of the Starr Pen Company; (b) that the $242,298.80 was income of the Starr Pen Company; (c) that $66,448.80 of the $242,298.80 accrued to the partnership during its accounting period ended June 30, 1943; (d) that $175,850 of the $242,298.80 accrued to the partnership…

Payments made by a corporation to the widow of its deceased president, held, on the facts, to be a gift excludable from gross income, rather than compensation paid for past services rendered by the deceased president.

Reconstruction of income: Unreported business and dividend income: Burden of proof. - Although taxpayer was advised several times by the Court to employ counsel and at least two continuances were granted for this purpose, taxpayer undertook to represent himself, his wife and his son before the Court. The Court found that the taxpayer failed to introduce any evidence to overcome the presumption of correctness accorded the Commissioner's determinations. The Court upheld the Commissioner's determination that taxpayer had received unreported business income of $18,432 and $35,461 during 1944 and 1945, respectively, and other unreported dividend income during 1945, 1946, and 1948. Family partnership: Recognition: Proof. - A taxpayer, who represented himself and his wife before the Tax Court, failed to prove that the Commissioner was in error when he failed to recognize the existence of a partnership in the handkerchief business composed of taxpayer, his wife and son. Taxpayer was taxable on all the income from the handkerchief business during 1946-1948; his wife was taxable on none of this income. Deductions: Medical expenses: Proof. - Since the taxpayer failed to meet his burden of proof, the Court upheld the Commissioner's adjustments in medical expense deductions for 1944, 1945 and 1947 resulting from the reconstruction of taxpayer's income for those years. Also, disallowance of a deduction for unsubstantiated medical expenses claimed for 1948 was proper. The Commissioner properly disallowed deductions claimed by the wife on her returns for 1946 and 1947 for unsubstantiated medical expenses. Dependents: Sisters: Proof of dependency. - Taxpayer, who represented his wife before the Court, failed to prove that his wife supplied more than one-half of the support of her three sisters during 1946-1948. The wife was not entitled to claim exemptions for the sisters for those years. Penalties: Fraud: Negligence. - At the trial, the Commissioner conceded that taxpayer was not liable for fraud penalties for 1943-1948 and that, therefore, a deficiency determined for 1943 was barred by the statute of limitations. Since the wife was not a member of an alleged family partnership, negligence penalties determined on the basis of her unreported income from the partnership were not sustained. Jurisdiction: Son's petition signed by father: Son in mental institution. - Where no legal guardian had been appointed for taxpayer's son who was in a mental institution, the Tax Court had no jurisdiction over a petition filed in the son's name and signed by the father as "agent" for the son. No power of attorney was filed with the Court.

Held: To the extent the aggregate amounts paid petitioner's president and vice-president during each of its fiscal years ended in 1954… Held: To the extent the aggregate amounts paid petitioner's president and vice-president during each of its fiscal years ended in 1954 and 1955 exceeded $80,000, such amounts did not constitute reasonable allowances for salaries or other compensation for personal services actually rendered and are not deductible as ordinary and necessary…

Printing expenses of a lottery business and the loss incurred in the operation of a restaurant-bar business conducted without a license allowed under Commissioner v. Sullivan, - U.S. - (Mar. 17, 1958). Certain other deductions claimed as business expenses, and disallowed by respondent as not having been substantiated, allowed either in full or in part. Respondent's determination of additions to the tax in 1954 under section 294(d), I.R.C. 1939, sustained for lack of proof.

Held, that parts of amounts deducted by the corporate petitioner as expenditures for officers' travel and entertainment, and also use of… Held: that parts of amounts deducted by the corporate petitioner as expenditures for officers' travel and entertainment, and also use of company automobiles, are to be disallowed and, as hereinafter determined, are to be included in income of individual petitioners; and Held further, that the amounts so disallowed are not allowable as…

The petitioner, an officer of several corporations, claimed certain expenditures as his own ordinary and necessary business expenses. Held: under the facts presented, petitioner has failed to prove that the expenditures were made pursuant to a plan of the corporations involved requiring or expecting him to absorb certain expenses of his several offices.

Held: 1. That expenditures by petitioner for board and lodging in the taxable year 1954 were personal expenses within the meaning of section 262 of the Code of 1954 and not traveling expenses paid in connection with the performance of services as an employee, or in the pursuit of a trade or business while away from home within the meaning of section 62(2)(B) or 162(a)(2) of said Code; 2. That petitioner has failed to meet the burden of proving that any part of transportation expenses deducted by him for said year were other than personal expenses; and 3. That petitioner, for said year, was not entitled to take both the standard deduction and, in addition, a specific deduction for union dues.

The Jewell Ridge Coal Corporation was the holder of a lease to mine coal in a certain area. Held: petitioner who mined coal under such contracts during the years 1953 and 1954, possessed an economic interest in the coal in place and was entitled to depletion thereon under the provisions of sections 23(m) and 114(b), I.R.C. of 1939, and sections 611 and 613, I.R.C. of 1954.

1. Held, that rents paid by a partnership engaged in gambling operations, for occupancy of premises used in conducting such operation in violation of Illinois law, are deductible as ordinary and necessary business expenses within the meaning of section 23(a)(1)(A), Internal Revenue Code of 1939. Commissioner v. Sullivan, et al., - U.S. - (March 17, 1958) followed. 2. Held, that the "revenue" of said partnership from its bookmaking operations for each of the taxable years involved, as shown on its partnership information returns, is understated, and that adjustments thereto should be made. In the absence of reliable records susceptible of verification or audit by normal accounting methods, such adjustments are determined by application of the principle of Cohan v. Commissioner, 39 Fed. (2d) 540. 3. Held, that the "revenue" of said partnership from its operation of gambling "games" for each of the years involved, as shown on its partnership information returns, is not understated and should not be adjusted. 4. Held, that assessment of the liabilities determined against petitioners La Porte and his wife for the year 1948 is not barred by the statute of limitations, by reason of consents extending the period for assessment, which were executed by them and the Commissioner; and that assessment of the liabilities determined against them for the year 1949 is not barred by limitation, because of the application of section 275(c) of the 1939 Code. 5. Held, that an addition to tax for substantial underestimate of estimated tax, under section 294(d)(2) of the 1939 Code, should not be imposed against petitioners La Porte and his wife for the year 1948, because timely payments of estimated tax were made by them, in amounts that were adequate in relation to the tax shown on the return for the preceding taxable year; but that such addition to tax should be imposed against them for the year 1949, because three of the payments of estimated tax in respect of said year were not timely payments made within or before each quarter.

The decedent, survived by his wife and daughter, bequeathed his residuary estate, which had a value in excess of $100,000, to a trustee. Held: the right of the surviving spouse to withdraw the $15,000 from the trust corpus and her right to the proceeds of the insurance policies are both terminable interests within the meaning of section 812(e)(1)(B), Internal Revenue Code of 1939, and accordingly such interests do not qualify for the marital deduction.

Held, that the expenditures by petitioner's husband for board and lodging in Denver and its immediate vicinity in the taxable year 1954 were… Held: that the expenditures by petitioner's husband for board and lodging in Denver and its immediate vicinity in the taxable year 1954 were personal expenses within the meaning of section 262 of the Internal Revenue Code of 1954, and not traveling expenses paid in connection with the performance of services as an employee, or in the…

Petitioner received liquidating assets of a corporation organized for the purpose of owning and wagering on race horses. Held: petitioner is liable as transferee for income tax deficiencies of the corporation in the amount of $9,520 plus interest.

Held, respondent's computations of petitioners' net income by the net worth and expenditures method is sustained, with certain adjustments. Held: respondent's computations of petitioners' net income by the net worth and expenditures method is sustained, with certain adjustments. Held, further, a part of the deficiencies for each of the years 1944 through 1947 was due to fraud with intent to evade tax within the meaning of section 293(b) of the Internal Revenue Code of 1939.

Held, that petitioners have failed to meet the burden of proving error in respondent's determination disallowing deductions claimed for… Held: that petitioners have failed to meet the burden of proving error in respondent's determination disallowing deductions claimed for (1) travel expense, board and lodging; (2) daily commuter expense from home to work and return; (3) payment of municipal public taxes; (4) contributions to Masonic Lodge and Eastern Star; and (5) medical…

A corporation purported to lease 93 pieces of heavy construction equipment for varying terms of up to 28 months. Held: that the so-called leases were intended to be installment purchases and the alleged rent is not deductible under section 23(a)(1)(A), 1939 Code. Held, further, that the respondent's determination of allowable depreciation is approved.

In early 1949, petitioner was employed in the butter and egg business at a total remuneration of $175 per week. Three persons wishing to commence such a business persuaded him to leave his employment to manage the new enterprise. It was agreed that petitioner would operate the business but make no capital investment, and would receive a salary of $125 per week, plus an equal share in the enterprise. A corporation was formed, and each of the other three persons invested $10,000. Soon thereafter, a need for additional capital became apparent, and a fourth individual invested $10,000. Petitioner and the four investors each received stock having a value of $8,000, and constituting one-fifth of the total stock issued. Held, the value of the interest received in the business constituted taxable income to petitioner, and was not a gift within the purview of section 22(b)(3), I.R.C. of 1939.

Held, upon failure to prosecute, the deficiencies and additions to tax under sections 291(a) and 294(d)(2) of the Internal Revenue Code of 1939, for the years 1942 to 1945, inclusive, and 1948 to 1950, inclusive, are sustained. Held, further, respondent has failed to prove that a part of the deficiencies in income tax for the years 1942 to 1945, inclusive, and 1948 to 1950, inclusive, was due to fraud with intent to evade tax.

Upon the facts, held: (1) That petitioners realized income in the total amount of $10,100 during 1946 which they failed to report in their joint return. Held: That petitioners realized income in the total amount of $10,100 during 1946 which they failed to report in their joint return. (2) That for failure of proof, petitioners are not entitled to miscellaneous deductions claimed in their return and disallowed by the respondent.

Held: The amounts received by the petitioner-wife, pursuant to the separation and property settlement agreement entered into between her former husband and herself, and made part of… Held: The amounts received by the petitioner-wife, pursuant to the separation and property settlement agreement entered into between her former husband and herself, and made part of their divorce decree, were not periodic alimony payments within the meaning of section 22(k) of the Code of 1939.

Family partnership. - Petitioner's interest in a partnership originated in a loan from his father which he repaid from first profits of the partnership. Held: that the sisters were not partners nor sub-partners, and that the petitioner did not hold his partnership interest in trust for his sisters.

Where the proceeds of an insurance policy, which named decedent's children as the beneficiaries, were used as a part of the purchase price of a partnership interest acquired by decedent, thereby… Held: the trust property held by decedent at his death is not properly includible in his gross estate.

Petitioner's income was determined by respondent, in the absence of records, by including therein certain disbursements of two solely… Held: petitioner failed to prove that such disbursements, remittances, and deposits were not received by or for his benefit and should not be included in his gross income. Held, further, various costs and expenses of petitioner's business, in addition to those allowed by respondent, were not properly pleaded and are not before the Court.

Certain deductions claimed as business expenses, and disallowed by respondent as not having been substantiated, allowed in part. Held: the cost of painting and scraping the floors was a capital expenditure. On January 2, 1952, petitioner Robert J. Harder transferred all the assets and liabilities of his individual business to petitioner corporation in exchange for all the issued stock of the corporation.

Petitioner was the beneficial owner of all shares of stock of a close corporation. Held: that the sale of assets was made by petitioner in his individual capacity, following a genuine liquidation of the corporation; and that no such sale was made by the corporation itself. United States v. Cumberland Public Service Co., (1950) 338 U.S. 451, followed.

1. Held, lots sold by the petitioner, Wood, in the years 1948 through 1953, inclusive, were held by him primarily for sale to customers in the ordinary course of his business and the gains derived… Held: lots sold by the petitioner, Wood, in the years 1948 through 1953, inclusive, were held by him primarily for sale to customers in the ordinary course of his business and the gains derived therefrom are taxable as ordinary income. 2.

Petitioners, grain and commodity traders through a brokerage office in Canton, Ohio, near their home, deducted travel expenses for trips made to Chicago and New York to… Held: petitioners failed to sustain their burden of establishing that such expenditures were made and also that such expenses would be ordinary and necessary expenses paid in carrying on a business under section 23(a)(1)(A), I.R.C. of 1939. Petitioners filed no declaration of estimated tax in the year 1952.

1. George Ebner, as sole proprietor, during the taxable year 1948, and together with Henry Steinhoff as partners during 1949 and 1950, operated a bookmaking establishment in Kenosha, Wisconsin. Held: During the taxable years in question, the aforesaid amounts were properly deductible as ordinary and necessary expenses in carrying on their business under section 23(a)(1)(A), Internal Revenue Code of 1939. 2.

Petitioner Transit Bus Sales, hereinafter referred to as Sales, was a corporation organized in 1937 and dissolved in 1950. Held: that the partnership is entitled to recognition as a separate entity, and the income derived therefrom is taxable to the partners and not to Sales, Goemans, or Wagner. 2.

Upon the facts, held, that loans which became worthless in the taxable year represented nonbusiness bad debts deductible only under section 23(k)(4), 1939 Code. Held: that loans which became worthless in the taxable year represented nonbusiness bad debts deductible only under section 23(k)(4), 1939 Code.

Held, that two debts in respect of which decedent incurred bad debt losses in 1946 and 1948 were non-business debts within the meaning of section 23(k)(4) of the 1939 Code, and that such losses are… Held: that two debts in respect of which decedent incurred bad debt losses in 1946 and 1948 were non-business debts within the meaning of section 23(k)(4) of the 1939 Code, and that such losses are deductible only under said section.

Held, of the amounts received by petitioners during the years in issue, pursuant to the terms of two agreements executed October 27, 1953, no part of the receipts were for the sale of property and… Held: of the amounts received by petitioners during the years in issue, pursuant to the terms of two agreements executed October 27, 1953, no part of the receipts were for the sale of property and all of the proceeds constituted rent receipts taxable as ordinary income.

Respondent determined that compensation of each of petitioner's two chief executives was excessive in 1951 and 1952 to the extent of $17,500 and $17,980 each. Upon the facts, held, that the entire amount paid to each executive in each year represented a reasonable allowance for compensation for services rendered to petitioner.

Petitioners were employed by the State of Maryland as Cottage Parents at a Maryland training school for boys. Held: Petitioners are not entitled to exclude from their gross income under section 119, I.R.C. 1954, the cost of their meals and lodging. J. Melvin Boykin, 29 T.C. 813 followed.

During 1949 and 1950, petitioner entered into a number of service contracts in connection with the sale of television sets wherein it agreed to render… Held: the additional income determined by the respondent was not such an omission from gross income as is provided for in section 275(c) of the Internal Revenue Code of 1939 and that the deficiencies determined by the respondent are barred by the 3-year statute of limitations provided for in section 275(a) of the 1939 Code.

During 1948 and 1949, petitioners George Harrison, Samuel B. Wallace, and William H. Lewis were members of a partnership. Held: the copartners of Lewis are not taxable on the funds appropriated by Lewis, and (2) Lewis is taxable on the full amounts of his misappropriations.

1. The principal petitioner was engaged in the waste paper business acting as a packer and sub-broker. Respondent discovered that petitioner had cashed substantial amounts of checks at a check cashing agency. Respondent circularized the makers of the checks and determined that petitioner had receipts in his business in excess of the amounts reported on his returns during the years herein involved. Respondent's determination that the unreported receipts were additional income to petitioner sustained, with certain adjustments. 2. Respondent's determination that certain other checks cashed by petitioner on which no information from the makers could be obtained, were additional unreported income, sustained. 3. Several parcels of realty were held jointly in petitioner's and May's names, or in May's name alone. Respondent determined that the income from these properties was taxable to petitioner. Held, petitioner is taxable on one-half of the income from the jointly-held properties, and on none of the income from the properties held in May's name. Held, further, petitioner has failed to establish that there were additional expenses to offset the rental income. 4. Held, petitioner failed to establish that he suffered a deductible fire loss in 1947. 5. Held, a portion of the deficiencies in each of the years in issue was due to fraud with intent to evade tax. Held, further, the deficiencies for 1946 and 1947 are not barred by the statute of limitations. 6. Held, respondent properly determined additions to tax for each of the years in issue, as provided by sections 294(d)(1)(A) and 294(d)(2), I.R.C. 1939, subject to any adjustments made necessary by our decisions on the above issues.

Petitioner and his wife were not divorced or legally separated under a decree of divorce or separate maintenance, or separated under a separation agreement executed after the date of the enactment of… Held: that the payments in question are not allowable as a deduction to petitioner.

Held, that petitioners have failed to meet the burden of proving that payments made in settlement of a claim based on a judgment, together with court costs, and payments to attorneys for fees in… Held: that petitioners have failed to meet the burden of proving that payments made in settlement of a claim based on a judgment, together with court costs, and payments to attorneys for fees in relation thereto are deductible for income tax purposes.

Held, petitioner contributed more than one-half the support of her eight-year-old daughter. Held: petitioner contributed more than one-half the support of her eight-year-old daughter. Held further, respondent failed to prove that petitioner did not qualify as head of a household under section 1(b), I.R.C. of 1954.

Depreciation: Maintenance costs. - Property acquired by a real estate corporation in 1937 as a part of its business holdings, held, not to have lost its character as property… Held: not to have lost its character as property used in the trade or business until it leased the property to a nonprofit foundation for $1 per year. Depreciation sustained and maintenance expenditures prior to the date of such lease held deductible; such items after that date held not deductible.

The evidence offered by petitioner held insufficient to overcome the prima facie correctness of the deficiencies determined by the respondent.

1. Held, respondent properly reconstructed petitioner's income by use of the net worth method for each of the years 1942 through 1947, and the deficiencies determined thereby are sustained. 2. Held: respondent properly reconstructed petitioner's income by use of the net worth method for each of the years 1942 through 1947, and the deficiencies determined thereby are sustained. 2.

For the taxable year 1952 petitioner corporation claimed substantial deductions for entertainment and travel expenses allegedly incurred by its president and for salary and bonus compensation of its… Held: on the facts, petitioner's deductions for entertainment and travel expense of its president did not exceed the amount allowed by respondent. The amount of deduction allowable for compensation of its officers determined.

1. Held, respondent correctly determined deficiencies in income tax for each of the years 1951, 1952, and 1953. 2. Held: respondent correctly determined deficiencies in income tax for each of the years 1951, 1952, and 1953. 2. Held, respondent correctly determined additions to tax under sections 294(d)(1)(A) and 294(d)(2), I.R.C. of 1939 for the year 1951, and under section 294(d)(1)(A) for the year 1952. 3.

The principal petitioners were three of several stockholders of a corporation which was organized in 1946 to erect and operate a chemical plant. Held: that neither the common stock nor the subordinated notes of the corporation became wholly worthless during and within the year 1949; and that petitioners are not entitled to deductions based on the claimed worthlessness of such securities in said year.

Held, airline pilot not entitled to trip expense deduction for meals on turn-around trips from his home in Chicago to eastern cities, when elapsed time of round trip did not involve staying at a… Held: airline pilot not entitled to trip expense deduction for meals on turn-around trips from his home in Chicago to eastern cities, when elapsed time of round trip did not involve staying at a hotel in eastern terminals.

Held, that petitioners have failed to establish the amount of an alleged loss resulting from a transfer of property to a newly formed… Held: that petitioners have failed to establish the amount of an alleged loss resulting from a transfer of property to a newly formed corporation in exchange for stock, and for a contract of employment, and an option to return such stock to the corporation and get back such assets if a certain contract for laundry and dry cleaning at…

Petitioner is an electrical supervisor by trade. Since 1935, he has maintained a home in Richmond, Virginia, for his wife and children. Held: the amounts thus spent were personal expenses within the meaning of section 262, I.R.C. 1954, and are not traveling expenses paid in connection with the performance of services as an employee or in the pursuit of a trade or business while away from home within the meaning of section 62(2)(B) or 162(a)(2) of said Code.

Held: Respondent's disallowance of claimed business bad debt deductions, sustained.

Held, that the transfer made by decedent in 1952 was not in contemplation of death. Held: that the transfer made by decedent in 1952 was not in contemplation of death. Held, further, that the fair market value of the Atlas stock on December 21, 1953 and January 15, 1954 was $585 per share.

Held: (1) Certain checks issued by corporations owned or controlled by petitioner, Paul Weir, during the taxable years constituted income to Paul. The amounts determined. Held: Certain checks issued by corporations owned or controlled by petitioner, Paul Weir, during the taxable years constituted income to Paul. The amounts determined. (2) Petitioner realized short-term capital gain from the sale of the Mansfield Apartments. The amount determined.

Held, that the evidence is not clear and convincing that any part of any of the deficiencies here involved is due to fraud with intent to evade tax, and additions to tax under section 293(b) of the… Held: that the evidence is not clear and convincing that any part of any of the deficiencies here involved is due to fraud with intent to evade tax, and additions to tax under section 293(b) of the Code of 1939 are not to be applied.

1. Birmingham Business College, Inc., (B.B.C.) was formed in 1941 by Griffith and his two sisters, Jewell and Audrey, each of whom owned… Held: that B.B.C. has failed to prove that it was organized and operated exclusively for educational purposes and that no part of its net earnings inured to the benefit of a private shareholder or individual and therefore it is not entitled to tax exempt status under section 101(6) of the 1939 Code; that the retroactive revocation of…

Held, where transfers were made to petitioners without consideration by a delinquent taxpayer, as a part of a plan to hinder and defeat the collection of his delinquent tax, petitioners are liable as… Held: where transfers were made to petitioners without consideration by a delinquent taxpayer, as a part of a plan to hinder and defeat the collection of his delinquent tax, petitioners are liable as transferees to the extent of the transfers to each.

Petitioners had annual income from husband's salary and other sources in excess of $20,000. During the years 1951 to 1955, inclusive, they sustained losses in farming operations. Held: the losses were incurred in the operation of a business and properly deductible under the provisions of section 23(e), I.R.C. of 1939, and section 165(c), I.R.C. of 1954.

1. Petitioners were members of two partnerships. The first mined coal and manufactured coke. The second mined coal. Held: a representative field or market price of coal of like kind and grade as that used in the coke operations found for percentage depletion purposes. 2. Held, amounts expended by a partnership on reconditioning coke ovens and securing parts for coke machines represented capital expenditures and not deductible repair expenses. 3.

Deductions: Interest. - Transaction wherein petitioner purported to purchase $11,000,000 face amount of U.S. Treasury notes, giving his note for all but $16,500 of the purchase price, held, lacking in substance and insufficient to create indebtedness. Respondent's disallowance of claimed interest deductions approved. Eli D. Goodstein, 30 T.C. - (August 28, 1958), followed.

1. Held: (1) that petitioner's direct advances to Southwest Land Improvement Company, Inc., of which he was sole stockholder, constituted contributions to its capital and became worthless in 1949, and (2) that the payments by petitioner, less the assets received upon dissolution, to third parties on behalf of Southwest constituted guaranty payments and were deductible in 1949 as bad debts under section 23(k), Internal Revenue Code of 1939. Putnam v. Commissioner, 352 U.S. 82 (1956). Held, further, that the bad debts were nonbusiness bad debts under section 23(k)(4) of the 1939 Code. 2. Petitioner was also the sole shareholder of the Frank Nelson Realty Company, Inc., a real estate and insurance company whose largest account was Southwest. Realty, after 5 years of losing operations, was dissolved in 1950. Petitioner, besides his $2,000 original capital contribution, had advanced about $32,000 to Realty by the end of 1950. Held, that the advances to Realty were contributions to capital; held, further, that the original contribution of $2,000 plus the net advances as of December 31, 1949, became worthless in 1949 and the balance became worthless in 1950.

None of the returns were false or fraudulent and these proceedings are not timely under section 276(a) of the 1939 Code. Respondent failed to show that petitioner for the year 1945 omitted gross income in excess of 25%.

Income: Net worth method: Fraud. - Respondent's determination of income by increase in net worth plus nondeductible expenditures method approved with adjustments of some items in the computation, in accordance with the evidence. Determination that the petitioners are liable for additions to tax for fraud, pursuant to section 293(b), Internal Revenue Code of 1939, disapproved.

Held, that petitioner has not shown that his failure to file income tax returns for the years involved was due to reasonable cause and not due to willful neglect, within the… Held: that petitioner has not shown that his failure to file income tax returns for the years involved was due to reasonable cause and not due to willful neglect, within the meaning of section 291(a) of the 1939 Code. Imposition of additions to tax under said section for all years involved, approved.

Held: 1. Respondent's determination of petitioner's business income by the bank deposits method, sustained. 2. Held: Respondent's determination of petitioner's business income by the bank deposits method, sustained. 2. Petitioner has failed to show his right to deductions for medical expenses, interest, taxes and contributions in amounts greater than the standard deduction allowed by respondent. 3.

Held, that the petitioner, Gainford T. Lally, contributed during the taxable year 1955 more than one-half of the actual cost of the support of his two minor children, and that he is therefore… Held: that the petitioner, Gainford T. Lally, contributed during the taxable year 1955 more than one-half of the actual cost of the support of his two minor children, and that he is therefore entitled to two dependency exemptions under sections 151 and 152 of the 1954 Code.

1. Commissions on automobile insurance were received by an individual who was an employee of the corporate petitioner, a closely held incorporated automobile agency, and were paid over by the… Held: that in conducting the insurance agency business the individual was not acting on behalf of the corporate petitioner and that the respondent erred in including the commissions in its gross income. 2.

Held, the sum of $10,000 received by petitioners from the employers of petitioner Richard L. Harrington was not compensation but was a gift excludable from gross income under section 22(b)(3), I.R.C.… Held: the sum of $10,000 received by petitioners from the employers of petitioner Richard L. Harrington was not compensation but was a gift excludable from gross income under section 22(b)(3), I.R.C. of 1939.

Held, expenditures by a building owner for converting three storerooms in the building into one were capital expenditures within section 24(a)(2), Internal Revenue Code of 1939 and… Held: expenditures by a building owner for converting three storerooms in the building into one were capital expenditures within section 24(a)(2), Internal Revenue Code of 1939 and section 263(a)(1), Internal Revenue Code of 1954, and hence not deductible in computing petitioner's taxable income.

Held, petitioners have not shown that respondent committed error in disallowing a part of the deduction claimed by petitioners under section 23(a)(1)(A) of the Internal Revenue Code of 1939 for traveling expenses while away from home in the pursuit of a trade or business.

Held: 1. After auditing and accepting petitioners' income tax return as filed, respondent is not barred from subsequently re-examining such return, disallowing a deduction claimed thereon and determining a deficiency in tax for the taxable year. 2. Amounts paid by petitioners in satisfaction of their guaranty obligations are deductible only as non-business bad debts under section 23(k)(4), I.R.C. 1939. Putnam v. Commissioner, 352 U.S. 82. Held further: Amount of appeals fees expended by petitioner in connection with his efforts to reduce his guaranty liabilities, is deductible as a loss incurred in a transaction entered into for profit, under section 23(e)(2), I.R.C. 1939. Peter Stamos, 22 T.C. 885.

The Olney Foundation, Inc., was organized as a nonprofit charitable corporation in 1950 to build and operate a hospital. Held: for the petitioner. The Foundation operated the hospital and was exempt from tax under section 101(6) of the 1939 Code as a corporation organized and operated exclusively for * * * charitable * * * purposes. Held, further, that the receipts of the hospital are not to be included in Olney's income.

Held, petitioners have not shown that respondent committed error in disallowing a part of the deduction claimed by petitioners under section 23(a)(1)(A) of the Internal Revenue Code of 1939 for… Held: petitioners have not shown that respondent committed error in disallowing a part of the deduction claimed by petitioners under section 23(a)(1)(A) of the Internal Revenue Code of 1939 for traveling expenses while away from home in the pursuit of a trade or business.

Held, that petitioner's bases for amortization of a hotel lease and for depreciation of certain furniture, fixtures and furnishings used in connection therewith, are the… Held: that petitioner's bases for amortization of a hotel lease and for depreciation of certain furniture, fixtures and furnishings used in connection therewith, are the adjusted bases of such properties as prescribed by the applicable provisions of the 1939 Code, and not the values of such properties.

Petitioner was formed in 1949 when an existing corporation was too insolvent to furnish a potential supplier with a satisfactory financial statement. Held: respondent did not act in an arbitrary or unreasonable manner in disallowing a deduction for the taxable year 1951 on account of a partially worthless indebtedness.

Deductions: Alimony payments: Treatment of alimony: Insurance premiums. - Under the terms of a separation agreement, incident to a divorce, taxpayer agreed to pay his former wife $300 per month until her death or remarriage for her support and for the maintenance of their four children. Taxpayer agreed to assign a $35,000 life insurance policy to a trust in order to secure performance of the separation agreement.

Held, that an amount of $85,000 received by a partnership in 1943 constituted a deposit and not taxable income of the partnership in that year as selling price of whiskey. Held: that an amount of $85,000 received by a partnership in 1943 constituted a deposit and not taxable income of the partnership in that year as selling price of whiskey. The portion of such deposit retained in 1944 as liquidated damages constituted income of the partnership in 1944.

Evidence is reviewed and it is held petitioner Rubin Uslander failed to discharge his burden of establishing by credible evidence that he made loans to a corporation which were the subject of a bad debt deduction in his 1948 income tax return in the amount of $38,033.33.

1. Held, respondent correctly determined deficiencies for each of the taxable years 1948, 1949, and 1950 by properly reconstructing petitioner's taxable… Held: respondent correctly determined deficiencies for each of the taxable years 1948, 1949, and 1950 by properly reconstructing petitioner's taxable income for the year 1948, using the bank deposits plus expenditures method and by properly disallowing net operating loss carry-overs to each of the years 1949 and 1950. 2.

Petitioner received wages for his services aboard a ship owned by the United States and operated by a private shipping firm under a general agency contract. Held: the wages were paid by the United States or an agency thereof and thus they were not tax-exempt under section 911(a), I.R.C. of 1954. Robert W. Teskey, 30 T.C. 456, followed.

Petitioners are members of a partnership engaged in furnishing architectural services under the firm name of J. M. Blew & Son. Held: the partnership of Blew & Son, being on the cash basis, properly included the entire $57,440.81 in its gross income for 1954. Held, further, the partnership, in computing its net income for 1954, improperly deducted the $10,443.07 which it did not pay to Ewing Co. in that year.

Donor made gifts to trusts where the trustee of each trust was required to distribute the income annually to the beneficiary and, also,… Held: such gifts of a present right to trust income could not be valued for gift tax purposes because of the trustee's discretion to disburse corpus. Held, further, respondent's determinatons denying exclusions based on the right to receive income from the gifts to the trusts are correct within the meaning of section 1003(b)(3), 1939 Code.

1. Jaeger Motor Car Company (JMC) was engaged in the new and used car business. During 1945 through 1948 over-invoice payments on cars sold by JMC were diverted from the company to Anthony Jaeger, president and controlling stockholder of JMC. Respondent determined the over-invoice payments diverted from JMC to be income to both Anthony and JMC. Respondent computed the amount of the over-invoice payments by the net worth method. Held: Respondent's determination sustained, with certain adjustments to his net worth computation. 2. During 1946 through 1948 profits on cars sold by JMC were retained by members of Anthony's family other than Anthony. JMC did not report these profits as income. Held: These profits are income to JMC. 3. Held: A portion of the deficiencies in respect to each of the petitioners for each of the years 1945 to 1948, inclusive, was due to fraud with intent to evade tax. 4. Held: JMC and Anthony filed false or fraudulent returns with intent to evade tax for the year 1945. Consequently the statute of limitations is no bar to the assessment of the deficiencies for that year. 5. During 1947 through 1951 JMC paid for certain improvements to property owned by Anthony which JMC leased from him. Held: The improvements constituted dividend income to Anthony and Anna Jaeger. 6. The reasonable compensation for services rendered JMC by various members of the Jaeger family and deductible by JMC is established. 7. Jaeger Finance Company (JFC) accrued interest payable to Anthony and Anna in 1948 and 1949. The interest was paid in 1950 and reported by Anthony and Anna as income in 1950. Respondent, on the constructive receipt theory, determined the interest to be income to Anthony and Anna in the years accrued payable rather than in the year paid. Held: Respondent's determination sustained. 8. Insurance commissions paid pursuant to an agency agreement between Anthony and Motors Insurance Corporation were orally assigned by Anthony to JFC and JMC. Held: The commissions are income to Anthony. Moke Epstein, Inc., 29 T.C. 1005, followed. 9. Additions to tax under section 294(d)(2), Internal Revenue Code of 1939, sustained. 10. Respondent's determination that an excessive refund was paid pursuant to JMC's filing an "Application for Tentative Carry-Back Adjustment" sustained.