Volume 18 — Tax Court Memorandum

Petitioner prepared and filed its income tax returns on the cash basis of accounting. Pursuant to the authorization contained in section 41, I.R.C. 1939, respondent computed petitioner's income on an accrual basis and determined the deficiencies involved on the basis of such computation. 1. Held, respondent's determination of income on an accrual basis, with certain adjustments, sustained. 2. Held, the provisions of section 275(c), I.R.C. 1939, are applicable and the year 1948 is not barred by the statute of limitations. 3. Held, petitioner is liable for additions to tax under section 291(a), I.R.C. 1939, for failure to file timely income tax returns.

Capital gains: Sales of lots. - Held, that lots sold by the petitioner did not constitute property held primarily for sale to customers in the ordinary course of trade or business, and that the gain derived constituted long-term capital gain. Held, further, that such gain did not constitute self-employment income subject to the tax imposed by section 480, I.R.C. of 1939.

Held: 1. That respondent was justified in making use of the net worth plus nondeductible expenditures method in reconstructing net income under the circumstances of the instant case. Held: That respondent was justified in making use of the net worth plus nondeductible expenditures method in reconstructing net income under the circumstances of the instant case. Adjustments and understatements determined for the years in question. 2.

Held, that more than one-half of the support of each of the three children of petitioners was received from petitioner Anna D. Lopez for the calendar year 1955. Held: that more than one-half of the support of each of the three children of petitioners was received from petitioner Anna D. Lopez for the calendar year 1955.

Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. -, (Dec. 31, 1958), followed.

Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. -, (Dec. 31, 1958), followed.

Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. , (Dec. 31, 1958), followed.

Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. -, (Dec. 31, 1958), followed.

Determinations made as to the right of petitioner, a nontax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. -, (Dec. 31, 1958), followed.

The petitioner and two other individuals held stock in the same relative proportions in two corporations, Southern Builders, Inc. and Elliott Homes, Inc. The… Held: that the petitioners have failed to show error in the respondent's determination that the transaction constituted a payment by Southern of the petitioner's obligation and, therefore, the payment of a taxable dividend to the petitioner. Additions to tax under sections 294(d)(1)(A) and 294(d)(2) approved.

Determination made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from the Commodity Credit Corporation (a government agency which was not a member of petitioner cooperative), for services in handing and storing grain owned by such agency.

Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. , (Dec. 31, 1958), followed.

Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. , (Dec. 31, 1958), followed.

Held: $5,000 annual payments received by petitioner from the Trustees under the will of her deceased husband, pursuant to a prenuptial agreement as modified by a… Held: $5,000 annual payments received by petitioner from the Trustees under the will of her deceased husband, pursuant to a prenuptial agreement as modified by a settlement agreement entered into after her husband's death, are taxable income to petitioner to the extent paid out of income of the trust estate.

Held, certain acquisitions of shares of capital stock in a corporation by two members of a partnership were acquired by them upon behalf of a partnership; that certain advances made to the corporation were made by or upon behalf of the partnership; that such advances were nonbusiness rather than business debts; and that both the advances and investment in the capital stock of the corporation became worthless in 1949.

1. Determinations made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of its patronage dividends, certain amounts allocated for the benefit of its members only, out of compensation received from both members and nonmembers of the cooperative, for services in handling and storing grain. Pomeroy Cooperative Grain Co., 31 T.C. , (Dec. 31, 1958), followed. 2.

1. Determination made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as… Held: that where petitioner kept its books and filed its Federal income tax returns on a calendar year basis and principally in accordance with an accrual method of accounting, it was entitled to deduct for the years 1953 and 1954, only those liabilities for state income taxes and county property taxes which had accrued in these years,…

Held, respondent has not sustained his burden of proving that the income tax returns filed by petitioner for the taxable years 1944 to 1949, inclusive, were false… Held: respondent has not sustained his burden of proving that the income tax returns filed by petitioner for the taxable years 1944 to 1949, inclusive, were false or fraudulent returns with intent to evade tax. Held, further, the deficiencies and additions to the tax are all barred by the statute of limitations.

Held, on the facts, that the principal petitioner contributed more than one-half the support of each of his three minor children, for each of the taxable years involved; and that he is… Held: on the facts, that the principal petitioner contributed more than one-half the support of each of his three minor children, for each of the taxable years involved; and that he is entitled to the credits for dependents provided by the applicable provisions of the 1939 and 1954 Codes.

Held, on the facts presently before us petitioner did not hold certain timber primarily for sale to customers in the ordinary course of business. Held, further, amounts received by petitioner in 1948 and 1949 from Coast Redwood Co. for timber cut by the latter in those years from the property of petitioner are properly taxable as capital gains on sale of property held for more than six months.

Held: Certain expenditures made by petitioners in 1952 and 1953 in connection with the settlement of litigation involving the creation of… Held: Certain expenditures made by petitioners in 1952 and 1953 in connection with the settlement of litigation involving the creation of and transfers to the Max Rosoff Trust and the probate of the will of Max Rosoff, were capital expenditures and are not deductible under section 23(a)(1)(A) or section 23(a)(2) of the Internal Revenue…

On June 19, 1952, petitioners, the sole stockholders of Weather Guard Company, Inc., sold all the capital stock of Weather Guard to another corporation wholly owned by them. Held, on June 19, 1952, the fair market value of all the capital stock of Weather Guard Company, Inc., was at least $165,000.

1. Held, during the period in issue petitioner was not availed of for the purpose of preventing the imposition of surtax upon its shareholders within the meaning of section 102, Internal Revenue Code… Held: during the period in issue petitioner was not availed of for the purpose of preventing the imposition of surtax upon its shareholders within the meaning of section 102, Internal Revenue Code of 1939. 2. Held, petitioner is not entitled to a bad debt deduction in 1953. 3.

The Commissioner determined deficiencies in income tax and additions to tax for fraud against petitioners for 1942, 1943, 1944, 1945, and 1946. Held: there were no unreported sales for 1943 and there were substantial amounts of unreported sales for 1944 and 1945, the amounts of which are found herein. Held, further, that parts of the deficiencies for 1944 and 1945 are due to fraud with intent to evade tax.

Held, that petitioner's deduction for medical expenses for the year 1955 must be limited to $2,500 for that year under the provisions of section 213(c) of the Code of 1954, since petitioner was… Held: that petitioner's deduction for medical expenses for the year 1955 must be limited to $2,500 for that year under the provisions of section 213(c) of the Code of 1954, since petitioner was entitled to only one exemption for that year under section 151.

Respondent determined deficiencies in income tax and additions thereto for fraud for the years 1946 to 1951, inclusive, against Alpirn. Although placed in issue by the pleadings, no part of the deficiency in income tax was contested at the trial except insofar as certain salary and expense payments were disallowed. Held, that payments to Alpirn's father during each of the years 1946 to 1951, inclusive, represent "reasonable compensation for personal services actually rendered" but that payments to Nell Ross during 1951 are not deductible because of a failure of proof by petitioner. Held, further, that respondent has proved by clear and convincing evidence that some part of the deficiency for the year 1951 is due to fraud with intent to evade tax but that respondent has failed in his proof on the fraud issue for the years 1946 to 1950, inclusive.

Upon remand, held, the 36 territorial franchises which petitioner, Dairy Queen of Oklahoma, Inc., sold in 1948 and 1949 were capital… Held: the 36 territorial franchises which petitioner, Dairy Queen of Oklahoma, Inc., sold in 1948 and 1949 were capital assets as that term is defined in section 117(a)(1), I.R.C. of 1939; held, further, the assets sold in 1948 had been held by petitioner for more than 6 months within the provisions of section 117(h), I.R.C. of 1939, and…

Deductions: Business v. nonbusiness bad debts: Advances to corporations. - Taxpayer, who was a majority stockholder in two corporations, advanced loans to them, guaranteed notes of one of them and made unsuccessful attempts to acquire interests in a number of other corporations during 1948-1950. Loans to one of the corporations became worthless in 1950. The Tax Court held that taxpayer was not in the trade or business of forming, promoting and financing corporations. Therefore, the worthless loans were nonbusiness bad debts.

Alimony v. personal expenses: Rental payments. - In an agreement incorporated in a divorce decree, taxpayer-husband agreed that the wife should have the exclusive use of their residence, except that if she vacated the premises, he could take possession of the property and pay her the fair rental value, if he so desired. Two months after the divorce, the wife vacated and taxpayer re-entered the property and paid $50 a month to her as the fair rental value.

Held, (1) that petitioner has failed to meet the burden of proof of error in respondent's determination of deficiencies for the… Held: that petitioner has failed to meet the burden of proof of error in respondent's determination of deficiencies for the respective years 1952, 1953, 1954 and 1955; and (2) that a part of the deficiency for each of the years 1952 and 1953 was due to fraud with intent to evade taxes, and that a part of the underpayment of tax for each of…

Prior to the years in issue petitioner, a corporation engaged in the patternmaking business, paid its four officers fixed salaries. Held: on the facts, the salaries paid petitioner's officers during the years in issue were reasonable compensation for the services rendered within the meaning of section 23(a)(1)(A), I.R.C. 1939, and section 162(a)(1), I.R.C. 1954.

Gain on redemption of investment certificates in registered form acquired at a discount and held for more than 6 months, held, properly reported as long-term capital gain. Held: properly reported as long-term capital gain. George Peck Caulkins, 1 T.C. 656, affd. (C.A. 6) 144 Fed. (2d) 482, followed.

Held, respondent's computation under the net worth method of petitioners' unreported net income was correct, with adjustments made as to several of the disputed items in accordance with the findings in the opinion; held, further, a part of the deficiencies for each of the years 1947 through 1951 was due to fraud with intent to evade tax; held, further, the return for the year 1947 was false and fraudulent with intent to evade tax; and held, further, additions to tax for the years 1947 and 1948 under sections 294(d)(1)(A) and 294(d)(2) of the I.R.C. of 1939 are sustained.

Held, the amount in excess of the face amount of a mortgage note executed by petitioner and insured by the Federal Housing… Held: the amount in excess of the face amount of a mortgage note executed by petitioner and insured by the Federal Housing Administration, which was paid by the mortgagee, constituted a premium received by petitioner; such premium is income to petitioner in the year received; and the amount of the premium cannot be amortized over the term…

1. T, the owner of substantially all the stock of a corporation which was in the process of liquidation, received from it a distribution in partial liquidation in 1951 when he withdrew $50,000 in cash, deposited it in five savings accounts in the names of himself and his wife, and transferred unsold assets valued at $7,881.77 to his personal safe deposit box. 2. T's basis for gain or loss on the corporate stock owned by him at the time of the distribution determined. 3.

1. Alimony payments. - Held, that a written agreement (executed after divorce), which was supplemental to a written agreement which was… Held: that a written agreement (executed after divorce), which was supplemental to a written agreement which was incorporated in the divorce decree, was incident to divorce, and that the alimony payments made in the taxable years pursuant to the supplemental agreement (which were in addition to the alimony payments made pursuant to the…

Held, for failure of proof, petitioner is not entitled to a loss deduction in 1951 in the amount of $1,450 under the provisions of either section 23(e)(3) or section 23(k)(4) of the 1939 Code. Held: for failure of proof, petitioner is not entitled to a loss deduction in 1951 in the amount of $1,450 under the provisions of either section 23(e)(3) or section 23(k)(4) of the 1939 Code.

Held, that legal fees paid by the petitioner to secure her release from a mental institution are personal in nature and not deductible. Held: that legal fees paid by the petitioner to secure her release from a mental institution are personal in nature and not deductible. Held, further, that the petitioner has not shown error in respondent's disallowance of claimed deductions for 1954 of other legal fees, accounting expenses and telephone expenses.

Held, certain payments received by petitioner Faye B. Goldberg from the estate of William Barrett, deceased, are taxable as community… Held: certain payments received by petitioner Faye B. Goldberg from the estate of William Barrett, deceased, are taxable as community income to petitioners in 1948 and as separate income to petitioner Faye B. Goldberg in 1949, 1950, and 1951; certain deductions for contributions and automobile expenses are determined., the inclusion by…

Casualty loss: Trees destroyed by hurricane. - Two large maple trees were uprooted by a hurricane. The Tax Court held that taxpayers had sustained a casualty loss. The amount of the loss was the difference between the fair market value of taxpayers' property before and after the casualty.

Held, petitioners have failed to prove error in respondent's determination that certain amounts received by petitioner as per diem or incentive pay are… Held: petitioners have failed to prove error in respondent's determination that certain amounts received by petitioner as per diem or incentive pay are not properly deductible as travel expenses while away from home in connection with the performance by him of services as an employee or in the pursuit of a trade or business.

Held, payments made to an insurance company by the petitioner in connection with certain loans which were geared to annuity contracts issued by the insurance company to the petitioner, are not deductible as interest. The transactions here involved lack substance. W. Stuart Emmons, 31 T.C. 26 and Carl E. Weller, 31 T.C. 33, followed. Held, further, breakage of glassware and china by ordinary handling, by domestic help, in the course of cleaning, and by family cat, does not entitle petitioner to a casualty loss deduction within the meaning of section 23(e)(3) of the Internal Revenue Code of 1939.

Held, that expenditures by petitioner Gilbert Hume Rowe, in 1955, for his son's room, board, tuition, books, and personal needs while attending the… Held: that expenditures by petitioner Gilbert Hume Rowe, in 1955, for his son's room, board, tuition, books, and personal needs while attending the University of South Carolina as a student are not deductible as expenses for medical care within the meaning of section 213(a) and 213(e)(1)(A) and (B) of the Code of 1954.

Determination made as to the right of petitioner, a non-tax-exempt farmers' cooperative association, to exclude from its gross income as part of the patronage dividends certain amounts allocated for the benefit of its members only, out of compensation received from the Commodity Credit Corporation (a government agency which was not a member of the petitioner cooperative) for handling and storing grain owned by such agency. Pomeroy Cooperative Grain Co., 31 T.C. 674, followed.

Petitioner's gain on the sale of a tankship is allocated between long-and short-term capital gain.

Tax Court rules: Deficiency determined by the Commissioner: Burden of proof. - Taxpayer claimed a deduction for a loss of $3,081.69 on his 1954 return. The Commissioner disallowed the loss because of a lack of substantiation and determined a deficiency. The Tax Court sustained the Commissioner since taxpayer offered no testimony at the trial, or other evidence, which would tend to show that the Commissioner's action was erroneous.

Corporate distributions: Dividends v. interest: Note issued for assets. - Taxpayer incorporated his individual proprietorship business. All the assets were transferred, except machinery and equipment, to the corporation for $35,000 of its stock. He transferred the machinery and equipment, which was worth $180,000, to the corporation for its promissory note with interest at 4%. The Tax Court held that the corporation was adequately capitalized and the note was bona fide.

Held, that the petitioner, in giving a promissory note to its majority stockholder, did not intend to create a true indebtedness within the meaning of section 23(b) of the… Held: that the petitioner, in giving a promissory note to its majority stockholder, did not intend to create a true indebtedness within the meaning of section 23(b) of the Internal Revenue Code of 1939 and consequently is not entitled to deductions for interest on such note for the years 1952 and 1953.

Held: 1. Respondent was justified in making use of the net worth plus nondeductible expenditures method in reconstructing petitioners' net income for each of the years in issue under the… Held: Respondent was justified in making use of the net worth plus nondeductible expenditures method in reconstructing petitioners' net income for each of the years in issue under the circumstances of this case. 2. Respondent correctly determined the deficiencies for the years in issue. 3.

Held, respondent properly reconstructed petitioner's net income for the years 1946-1951, inclusive, by the use of the net worth plus nondeductible expenditures method, and the deficiencies determined… Held: respondent properly reconstructed petitioner's net income for the years 1946-1951, inclusive, by the use of the net worth plus nondeductible expenditures method, and the deficiencies determined thereby are sustained.

Petitioner, a practicing attorney during the years in question, failed to file income tax returns for the years 1945 to 1953, inclusive. Held: a part of the deficiency for each of the years 1945 to 1953, inclusive, is due to fraud with intent to evade taxes. Understatements determined.

Held, petitioner is not entitled to deductions for payments to his divorced wife under section 23(u), 1939 Code, and section 215(a), 1954 Code. Held: petitioner is not entitled to deductions for payments to his divorced wife under section 23(u), 1939 Code, and section 215(a), 1954 Code.

Reconstruction of income: Recomputation of depreciation reserves. - The court recalculated the accumulated depreciation for a previously determined net worth reconstruction of income.

Held, assuming that the loss from sandblasting here in question is a casualty loss within the meaning of section 165 (c)(3) of the Code of 1954,… Held: assuming that the loss from sandblasting here in question is a casualty loss within the meaning of section 165 (c)(3) of the Code of 1954, the loss was not deductible in the taxable year 1955 since the casualty actually occurred in 1953 and it was apparent prior to 1955 that there was no reasonable likelihood of recovery of…

Petitioner, who was president and sole shareholder of Bruce Bowen, Inc., was indebted to the corporation for sums which it had advanced at petitioner's request and on petitioner's behalf, which he… Held: the $12,000 salary credited to the debit balance on the corporation's account receivable in petitioner's name constituted taxable income to petitioner in 1954.

Held, that the principal petitioner was not, during the year 1952, engaged in a business of loaning money to business enterprises; and… Held: that the principal petitioner was not, during the year 1952, engaged in a business of loaning money to business enterprises; and that losses which he incurred in said year, in respect of advances previously made to a doll manufacturing corporation, were not business losses, but were losses incurred in respect of worthless stock and…

In 1946 the petitioner purchased a plant from his corporate employer. Held: that an oral understanding between the petitioner and the president of the corporation, which understanding was had prior to the formal document of purchase by the petitioner in 1946, did not have the effect of postponing the accrual of interest, that the interest was properly accrued and deducted in each of the prior years, and that…

Held: the business of the Burnette Coal and Heating Company during the years here involved was conducted as a partnership as that term… Held: the business of the Burnette Coal and Heating Company during the years here involved was conducted as a partnership as that term is defined in section 3797(a)(2), I.R.C. 1939, with a fiscal year ending on April 30, rather than as a sole proprietorship; the partnership terminated on December 31, 1946, as determined by the respondent;…

Held, that petitioners have not shown that the respondent erred in holding that certain expenditures were expenses incurred in seeking employment, and that such expenditures are not deductible… Held: that petitioners have not shown that the respondent erred in holding that certain expenditures were expenses incurred in seeking employment, and that such expenditures are not deductible under either section 23(a)(1)(A) or section 23(a)(2) of the Internal Revenue Code of 1939.

Held: 1. That the accounting records for petitioner's bar business were incomplete, inaccurate, and unreliable; that it was proper for… Held: That the accounting records for petitioner's bar business were incomplete, inaccurate, and unreliable; that it was proper for the respondent to reconstruct the income of the business for each year by the measurement method, but that he erred in using a three-quarter-ounce measure; that reconstruction based upon a 1-ounce measure is…

Additions to tax: Failure to file declaration of estimated tax: Reasonable cause. - Taxpayer, an attorney, failed to file a declaration of estimated tax for the year 1954.

Held: 1. In the return for 1950 and for 1951 petitioners omitted from gross income an amount of includible income which was in excess of 25 per cent of the gross income… Held: In the return for 1950 and for 1951 petitioners omitted from gross income an amount of includible income which was in excess of 25 per cent of the gross income reported; therefore, under section 275(c), the 5-year period of limitation applies and deficiencies for those years are not barred. 2.

Held: Wife filing joint income tax return with husband is jointly and severally liable for addition to tax for fraud under section 293(b),… Held: Wife filing joint income tax return with husband is jointly and severally liable for addition to tax for fraud under section 293(b), I.R.C. 1939, as well as deficiency in tax, even though the fraud was solely that of the husband and she did not knowingly participate therein. Held: Fraud proved for 1950 but not proved for 1952.

Held: 1. Respondent was justified in making use of the increase in net worth plus nondeductible expenditures method in reconstructing petitioner's net income for each of… Held: Respondent was justified in making use of the increase in net worth plus nondeductible expenditures method in reconstructing petitioner's net income for each of the years in issue under the facts and circumstances. 2. The amounts of petitioner's taxable income for the years in issue are determined. 3.

Held: Amounts of unreported tips received by petitioner determined.

Held, amount of tips received in taxable years determined. Held: amount of tips received in taxable years determined.

Petitioners' farm was purchased and operated with the intention of making a profit. Held: the mere fact that the farm was also used as a residence and as the location for a manufacturing business does not preclude the deduction of losses incurred in the operation of the farm.

Corporate distributions: Funds diverted by stockholder. - The Tax Court held that funds withdrawn by taxpayer from his wholly-owned corporation were not income to him. The Tax Court found as facts: (1) Amounts withdrawn by taxpayer in cash were used to pay employees of the corporation vacation pay and accounts of the corporation charged with the payments were eliminated as chargeable to the taxpayer's account; (2) an amount withdrawn by taxpayer was used to settle a labor controversy existing between the corporation and some of its employees. The Commissioner also conceded that an amount withdrawn in 1941 was not income.

Under State law petitioner was required to segregate a portion of the purchase price of cemetery lots as a permanent improvement fund and to use all income from such fund only for the improvement of… Held: petitioner was not the owner of the permanent improvement fund for income tax purposes; that the improvement fund was a trust fund for the benefit of the lot owners and not petitioner and petitioner was not entitled to the exclusion or deduction.

The petitioner, an automobile dealer in California, sold conditional sales contracts to a bank which credited to petitioner's dealer reserve account a holdback, and the portion of a time price… Held: that the portion of the time price differential is likewise taxable. Commissioner v. Hansen, 360 U.S. 446, Arthur V. Morgan, 29 T.C. 63.

Notice of deficiency is not invalid merely because Commissioner of Internal Revenue failed to refund overpayment of tax resulting from taxes withheld from petitioner's wages prior to issuance of notice.

Petitioner, in 1953, took a nonbusiness bad debt deduction arising out of a series of advancements made to his son-in-law in prior years. Held: a valid debt was created but petitioner did not meet his burden of proof to show that the debt actually became worthless in 1953.

Held, upon the evidence that expenditures for maintenance of parade horses are not deductible as ordinary and necessary business expenses. Held: upon the evidence that expenditures for maintenance of parade horses are not deductible as ordinary and necessary business expenses.

Held, no valid partnership for income tax purposes was created between petitioners and their junior children when the evidence shows no active participation, no real capital contribution, and no… Held: no valid partnership for income tax purposes was created between petitioners and their junior children when the evidence shows no active participation, no real capital contribution, and no control over partnership distribution or partnership affairs.

(1) Held, distributions from a Cuban corporation to its shareholders, citizens of the United States, were not distributions in liquidation within the meaning of section 115(c), I.R.C. of 1939. Held: distributions from a Cuban corporation to its shareholders, citizens of the United States, were not distributions in liquidation within the meaning of section 115(c), I.R.C. of 1939.

During 1953 and 1954 petitioner loaned various sums of money to a painting contractor. Held: that petitioner has failed to prove that the worthless debt was proximately related to his trade or business so as to qualify as a business bad debt.

Held: Petitioner did not provide more than one-half the support of either of his two children during the year 1955 and is not entitled to deduct a dependency exemption for either of them for that… Held: Petitioner did not provide more than one-half the support of either of his two children during the year 1955 and is not entitled to deduct a dependency exemption for either of them for that year.

Held, the evidence reviewed and the respondent's computation under the net worth method of petitioner's unreported net income was… Held: the evidence reviewed and the respondent's computation under the net worth method of petitioner's unreported net income was correct, with adjustments made as to several of the disputed items; held, further, a part of the deficiencies for each of the years 1943 through 1949 was due to fraud with intent to evade tax; and held, further,…

Held, petitioner is not liable under section 311(a)(1) of the Internal Revenue Code of 1939 as a transferee for any part of the unpaid income taxes of his parents for the taxable years ended February… Held: petitioner is not liable under section 311(a)(1) of the Internal Revenue Code of 1939 as a transferee for any part of the unpaid income taxes of his parents for the taxable years ended February 28, 1953, and 1954.

Held, that portions of amounts received from two oil companies by a partnership of which petitioners were partners constituted payments for anticipated damage to leases on oyster beds from the laying of pipelines across such beds, and that no income was derived by the partnership from receipt of such portions except to the extent they exceeded the basis of the leases. The excess held to be long-term capital gain. The remaining portions of the amounts received from the oil companies held to constitute ordinary income.

Held, that petitioners understated their income for each of the taxable years involved; and that the amounts of unreported income for said years,… Held: that petitioners understated their income for each of the taxable years involved; and that the amounts of unreported income for said years, reflected by respondent's net worth statement as herein adjusted, are approved. Held, that part of the deficiency for each of the taxable years, is due to fraud with intent to evade tax.

Petitioner William J. Steele, a journeyman plumber, was temporarily employed away from home on various jobs during each of the taxable years 1953 and 1954. Held: the evidence does not establish that respondent incorrectly determined petitioner's expenses for food, lodging, and travel while away from home.

Held, petitioner furnished more than one-half the support of his three children during the taxable year 1956 and is entitled to a dependency exemption for each of them for that year. Secs. 151(e) and 152(a)(1), I.R.C. of 1954.

1. At the time of decedent's death, February 2, 1952, she owned 27 shares of the common stock of the Mushroom Supply Company, a family-held corporation. Held: the value of each share of the stock at decedent's death was $283.50 per share. 2.

Held that the petitioners, Edward F. Klemowicz and Violet L. Klemowicz, furnished more than half the support of the four children of Violet L. Klemowicz by a former marriage and they, rather than the petitioner Anthony Duke, are entitled to the dependency credits on account thereof for the year 1953.

1. Held, respondent correctly increased petitioners' gross income for the taxable year 1952 by the amount of $2,118.71. 2. Held: respondent correctly increased petitioners' gross income for the taxable year 1952 by the amount of $2,118.71. 2. Held, petitioners are entitled to additional deductions from gross income in the amount of $1,975.11 for the taxable year 1952. 3. Other deductions in the amount of $3,954.69 are disallowed.

Held, a portion of the salaries paid by petitioner to each of its three executive officers, who were in control of the corporation, was excessive and unreasonable for their respective… Held: a portion of the salaries paid by petitioner to each of its three executive officers, who were in control of the corporation, was excessive and unreasonable for their respective services for each of the years in question within the meaning of section 23(a)(1)(A) of the Code of 1939.

Petitioner-husband, an employee of the Internal Revenue Service, drove his own automobile in the performance of his duties. Agency regulations provided for reimbursement of expenses incurred therein, but petitioner did not, except on one occasion during the taxable years in controversy file a voucher seeking reimbursement. Held, the expenses, to the extent they could have been reimbursed, were not "necessary," and are not deductible. Horace E. Podems, 24 T.C. 21, followed.

Cost of stock in a bowling pin manufacturing corporation bought by petitioner, an operator of bowling alleys, in 1950 to insure it of a source of supply of pins at a time when it was difficult for petitioner to secure pins, held deductible in full in 1955 as a business expense or loss upon worthlessness of the stock and a failure of the manufacturer to supply the pins. Tulane Hardwood Lumber Co., 24 T.C. 1146, followed.

Until June 1940 decedent and his older brother were partners in the real estate and construction business. The brother was domineering, grasping and dishonest. Held: the net consideration so paid is a deductible expense of administration. 30. (a) As a result of the assumption by each brother of one-half of the liabilities of the other, certain adjustments are made, halving certain deductions previously allowed in full.

1. No part of the deficiencies for the calendar years 1944 through 1947 is due to fraud with intent to evade tax under section 293(b), I.R.C. 1939. 2. The statute of limitations has run for the years 1945, 1946, and 1947. 3. The net taxable income of E. C. Lloyd, deceased, is determined for the years 1942, 1943, and 1944.

Respondent's determination of income by increase in net worth plus nondeductible expenditures method approved with adjustments in accordance with the proof. Held: that the statute of limitations does not bar assessment and collection of the tax liabilities. Held, further, that respondent failed to meet his burden of proving that the petitioner Dorothy P. Millikin is liable, as transferee of assets of her husband, for his tax liabilities for the years in question.

Held: Fraud with intent to evade tax not proved. Additions to tax under sections 291(a), 294(d)(1)(A) and 294(d)(2), I.R.C. 1939, approved. Respondent's determination of estimated living expenses found to be correct absent sufficient evidence to overcome presumption of correctness.

Held: That monthly payments made by Fred Spicknall to his former wife during the years 1952 and 1953 were not periodic payments within the meaning of section 22(k) of the Internal Revenue Code of… Held: That monthly payments made by Fred Spicknall to his former wife during the years 1952 and 1953 were not periodic payments within the meaning of section 22(k) of the Internal Revenue Code of 1939, and hence are not deductible under section 23(u) of said Code.

Melvin W. Fogle drove a truck on a turnaround route in each of the years 1954 and 1955, leaving the truck terminal each morning in Orangeville, South Carolina, for prescribed destinations and returning thereto each evening. His longest trips were not over 250 miles. In each of said years, he made 205 turnaround trips and paid $701.50 in each of the years for meals on said trips. He was not released from duty on the trips but took one hour each working day for lunch, for which time he did not receive his regular hourly pay. He was paid 75 cents a day as reimbursement for an evening meal when he was on duty over 13 hours. His total reimbursement for such evening meals was $153.75 in each of said years. Held, that petitioner's expenditures for such meals were personal and nondeductible. Held, further, that the amounts received by petitioner as reimbursement for meals are includible in petitioner's gross income for the respective years in which received.

1. Petitioner paid certain amounts as dividends on its preferred stock, issued in connection with its purchase of the mass public passenger transportation system in the City of… Held: Said dividends are not deductible as interest on indebtedness, within the meaning of section 23(b) of the 1939 Code and section 163(a) of the 1954 Code, inasmuch as the preferred stock represented an equity investment and not a debt. 2. Petitioner kept its books of account on an accrual basis.

1. Held, certain promissory notes issued by petitioner to two of its stockholders for cash paid in by the stockholders, when considered in light of all the evidence, constituted a bona fide… Held: certain promissory notes issued by petitioner to two of its stockholders for cash paid in by the stockholders, when considered in light of all the evidence, constituted a bona fide indebtedness, and interest paid with respect thereto is deductible. 2.

Held, that petitioner Raymond C. Lewis was a bona fide resident of Peru for the entire year 1954 and his earnings as engineer of the fishing boat Sun Splendor in that year were excludable from his… Held: that petitioner Raymond C. Lewis was a bona fide resident of Peru for the entire year 1954 and his earnings as engineer of the fishing boat Sun Splendor in that year were excludable from his gross income under the provisions of section 911(a)(1), I.R.C. 1954.

Respondent's determination of deficiency for 1946 approved with certain adjustments. Held: that the statute of limitations does not bar assessment and collection of the tax liabilities for any of the years in question. $2Held, further, that petitioner is not entitled to dependency credits for his father and mother for the year 1950.

Withdrawals made by petitioner from corporation controlled by petitioner and his family were distributions taxable as dividends rather than loans.

1. Petitioners had adjusted gross income in the amount of $20,164.39 for the year 1953 and reported that amount of income on their joint return for that year. Held: the provisions of the Internal Revenue Code of 1939 requiring petitioners to file a declaration of estimated tax for 1953 are constitutional.

Petitioner was the president and principal stockholder of a corporation which was newly organized, with only $4,000 cash paid-in for capital stock, to enter into a $700,000 contract for building and completely equipping houses by use of an assembly-line process within a plant. The corporation obtained the funds with which to erect its plant, acquire its lumber and supplies, and carry on its operations: (1) Through cash advancements made to it by petitioner and the other principal stockholders; (2) through petitioner's payment of certain expenses connected with the corporation's business; and (3) through bank loans and F.H.A. financing, which petitioner and one of the other principal stockholders guaranteed. During the second year of the corporation's operations, it encountered difficulties which resulted in its insolvency and complete liquidation. Held: That all payments and advances which petitioner made to or for said corporation, other than the final advancement which he made to effect discharge of a bank loan that he had guaranteed, represented contributions to the corporation of equity capital; and that the loss which he incurred in respect thereto, is deductible only as a capital loss for the year in which the corporation became insolvent and was liquidated. Held, further: That petitioner's loss in respect to his final advancement to said corporation, which was made for the specific purpose of enabling the corporation to pay the bank loan that he had guaranteed, was a guarantor's loss which, under the facts here present and the doctrine of Putnam v. Commissioner, 352 U.S. 82, is to be treated as a loss from a nonbusiness bad debt; and that said loss is deductible by petitioner only as a short-term capital loss for the year in which said advancement was made.

Prior to 1954 petitioner E. George Schaefer, the publisher of a weekly investment newsletter, kept his books and filed his income tax returns on the cash basis; prepaid subscription income was included in net income in the year received. On his returns for the taxable years 1954 and 1955 petitioner deferred including prepaid subscriptions in net income. Held, respondent correctly determined that the prepaid subscriptions constituted taxable income in the years of receipt.

Tax accounting: Reconstruction of income: Bank deposit method: Approximation. - Taxpayer was a matchmaker employed by a boxing and wrestling club. The Commissioner determined that taxpayer had unreported taxable income for 1953, which was based upon the so-called unidentified or bank deposit method. Although the evidence was not entirely satisfactory, the Tax Court determined under the Cohan rule that taxpayer had unreported taxable income in the amount of $8,000 for 1953.

1. Held, the Commissioner is sustained in his disallowance of $29,119.25 of the $30,320.73 interest claimed by petitioner as a deduction on his income tax return for the taxable year. The amount disallowed did not represent interest on indebtedness owed by petitioner within the meaning of section 23(b), I.R.C. 1939. 2. Held, the Commissioner is sustained in his disallowance of a deduction of $8,037.06 claimed by petitioner for legal fees and costs incurred by him in litigation with his wife from whom he was living separate and apart but was not divorced. The Commissioner has determined that the expenditures were of a personal nature and are not deductible under any provision of the Internal Revenue Code.

The fair market value of minority interests in a closely held corporation determined.

Held, petitioners have failed to prove that they are entitled to a deduction claimed on their joint income tax return for the calendar year 1954 of $1,500 as an embezzlement loss, or to a deduction of $445 for legal fees paid during the year 1954.

Held, payments made to Kenneth H. Runyon in 1953 were in payment for services rendered and deductible as business expenses of petitioner's business. Held: payments made to Kenneth H. Runyon in 1953 were in payment for services rendered and deductible as business expenses of petitioner's business.

Petitioners were owners of a corporation engaged in the business of building and selling houses. In 1950, petitioners formed a partnership which bought a rooming house as an investment. Held: at the time of their sale the apartment properties, except the rooming house, were held primarily for sale to customers in the ordinary course of business and the gain on the sales is taxable as ordinary income.

Respondent ascertained by net worth computation that petitioners had unreported income for 1951, and determined a deficiency. Held, subject to a minor adjustment, respondent's determination is sustained. Held further, respondent's additions to tax pursuant to sections 293(a) and 294(d)(1)(A), I.R.C. 1939, are sustained and his addition to tax pursuant to section 294(d)(2) is denied.

1. Held, that for each of the taxable years except 1952, the cost of scrap brass and copper purchased by the principal petitioner's metal-smelting proprietorship was overstated in petitioners' return. Held: that for each of the taxable years except 1952, the cost of scrap brass and copper purchased by the principal petitioner's metal-smelting proprietorship was overstated in petitioners' return. Amounts of overstatements determined. 2.

1. Respondent disallowed deductions for additions to petitioner's reserves for bad debts in the amount of $4,540.57 for the calendar year 1953, and… Held: that petitioner has failed to meet the burden of proof of error in respondent's determination of disallowance, except to the extent of the conceded amount, and has likewise failed to prove error on the part of respondent in failing to allow further additions to such reserves claimed by petitioners by amended petition. 2.