Volume 19 — Board of Tax Appeals

1. The amount to be included in the petitioner's invested capital on account of certain property acquired by it in exchange for its bonds and shares of its capital stock, determined. 2. The basis for computing allowances for depletion of certain coal properties owned by the petitioner, determined. 3. The respondent's action in disallowing certain deductions taken by the petitioner, sustained.

1. Evidence considered and held that the petitioner was justified, under conditions then existing, in charging off a debt as worthless at the close of the taxable year. 2. In fixing inventory values of goods of different grades and quality, held that an arbitrary flat rate should not be used, but that each grade should be inventoried at its proper value.

A taxpayer may not take bad debt deductions for 1922 and 1923 in part by the charge-off method and in part by the reserve method; and, having elected the charge-off method for 1921, may not thereafter change to the reserve method without first having obtained permission from the Commissioner.

1. Where the business of a "syndicate" was carried on jointly by a domestic corporation and a foreign corporation, held that the foreign corporation was engaged in trade or business within the United States and had an office or place of business therein. 2. The withholding return filed by the domestic corporation held not sufficient to start the period of the statute of limitations as to the tax liability of the foreign corporation, and held, further, that under such circumstances the Commissioner did not err in imposing a penalty against the foreign corporation for failure to file a return.

1. Where the stockholders took the steps essential to effect the surrender of the charter of a corporation organized under the law of the State of Louisiana, the corporation thereupon was dissolved, even though other requirements of the statute, which were merely directory, were not complied with. 2. Under the statutes of Louisiana the only persons competent to act on behalf of a dissolved corporation in winding up its affairs are the liquidators. 3.

1. At the beginning of the taxable years on appeal there stood on the petitioner's books of account installment accounts receivable representing sales made… Held: the petitioner may not include in the invested capital of the years on appeal the uncollected profits contained in said installment accounts receivable outstanding at the beginning of each year. 2. On January 1, 1918, the petitioner changed from the straight accrual method of accounting to the installment method.

Dues paid by a partnership for membership of the partners in various social clubs disallowed as ordinary and necessary expenses where it was shown that membership in the clubs was availed of by the partners for both personal and business purposes.

Where an assessment has been duly made against the estate of a decedent and the deficiency letter of the Commissioner has been duly mailed to a distributee of the estate, who has received assets equal to or in excess of the amount of taxes, interest and penalty, asserted by the Government, such distributee, as a transferee, is liable for such amount, notwithstanding the estate has been administered and the administrator discharged.

1. DEPRECIATION. - Increased deduction allowed. 2. INTEREST DEDUCTION. - Where it was provided that preferred stock in petitioner was entitled to 7 per cent cumulative dividends to be paid out of net earnings and that when any such dividend was deferred the deferred dividends should bear interest at 7 per cent, the interest is not deductible from gross income.

Affiliated corporations filing a consolidated return under the provisions of the Revenue Act of 1926 are entitled to use as a deduction in determining consolidated net income for 1927 the loss of one of the group in 1926 when not affiliated, even although such last-named corporation still has a net loss in 1927 - (Alabama By-Products Corporation et al.,18 B.T.A. 919, followed).

A taxpayer described as a capitalist, who is president of a corporation and owns stock in others, is not so engaged in the operation of a trade or business regularly carried on as to be entitled to carry over deductions of net losses under Revenue Act of 1921, section 204, or Revenue Act of 1924, section 206.

Disbursements made by a taxpayer under contract for drilling oil wells on another's property, for which it was to be compensated out of the fruits of the contract before dividing with the owner and which were treated by taxpayer as accounts receivable, held not deductible by taxpayer in the year of disbursement as ordinary and necessary expenses.

Proposed additional assessment for the fiscal year ended January 31, 1921, held not barred by the statute of limitations. Myles Salt Co., Ltd.,18 B.T.A. 742.

During the year 1922 petitioner paid $11,200 which had been levied against him under the provisions of section 608 of the Revenue Act of 1918. Held: the $11,200 paid during the year 1922 constituted a tax, not a penalty, and is deductible from gross income for that year. Held, further, that attorney's fees amounting to $5,000 constitute a deduction from gross income for the year 1922 as ordinary and necessary business expenses.

The petitioner's decedent was one of the beneficiaries of a trust created by the last will and testament of her uncle. The trustees of said trust received from time to time stock dividends on certain stocks held by the trust. Said stock dividends were subsequently, in a suit brought to construe said will, adjudged by the court to be income of the trust which should have been distributed to the beneficiaries when received by the trustees. In 1918 shares of stock representing one-half of said stock dividends were conveyed by the trustees to the petitioner's decedent pursuant to the order of said court and they were subsequently sold by her. Held, gain or loss should be computed from the date said stock dividends were received by said trustees.

1. Where the Commissioner sent by registered mail one deficiency letter to the proper address to a husband and wife who had made separate returns and therein computed the deficiencies separately and then added them together, and where such letter was received by both persons, and where both appealed to the Board and tried their cases on the merits, held that the Board has jurisdiction of both appeals. 2.

The petitioners by written instrument transferred securities to a certain person, designated by said instrument as a trustee, with power to sell and reinvest, to collect the income and pay the same to the petitioners, but reserving the right to revoke the written instrument at will. Under the instrument sales of securities and reinvestments were made at the suggestion of, or after consultation and agreement with the petitioners.

The trust company of which petitioner was a stockholder was closed by order of the Commissioner of Banks in September, 1920, and its assets and liabilities were taken over by trustees for liquidation in 1921. The petitioner and other stockholders in the year 1921 voluntarily subscribed to a guaranty fund to be used by the trustees in case the assets failed to satisfy the obligations of the trust company of which the petitioner was a stockholder. The assets held by the trustees plus the guaranty fund were less than the amount necessary to satisfy the obligations of the defunct trust company. Held, upon the evidence that no part of the amounts paid to the trustees by the petitioner upon his guaranty constitute legal deductions from the gross income of the petitioner for the taxable year ended June 30, 1925.

1. An amount paid by the petitioner for services of an architect in preparing plans for a project which was not carried out held to be deductible as a loss in the year in which the project was abandoned. 2. The respondent's action in refusing to allow deductions from gross income on account of alleged losses, sustained. 3. The petitioner executed under seal an instrument giving to his wife, his mother and his sister, 85 per cent of certain shares of corporate stock then owned by him, but reserved to himself the right to act as the agent of his wife, his mother and his sister in the management or subsequent sale of said stock. The instrument was executed in quadruplicate and was delivered to the persons named. The stock mentioned in the instrument could not be delivered to the donees at that time because of certain voting-trust agreements. The stock was subsequently sold. Held that the instrument operated to convey to the petitioner's wife, his mother, and his sister an 85 per cent interest in said stock and that upon the subsequent sale thereof only 15 per cent of the proceeds of the sale belonged to, and constituted income to the petitioner.

1. INVESTED CAPITAL. - The paid-in capital of petitioner corporation may not be reduced until such time as the outstanding stock shares have been returned to the corporation or acquired by it so that said shares can be canceled and the stock retired. In this case 61 shares of the outstanding stock representing paid-in capital were acquired prior to the beginning of each of the taxable periods here involved and such 61 shares must be considered as having been retired and canceled prior to the beginning of the taxable years here under consideration. (Art. 862, Reg. 45 and 62.) 2. Id. - The earned surplus of a corporation may not be reduced for the purposes of invested capital on account of an account receivable until such time as said account shall have been found to be worthless and uncollectible either in full or in part. 3. SPECIAL ASSESSMENT. - The fact that in one year the volume of deductible repairs was such an unusual amount as to result in a net loss for that year can not be taken to establish an abnormality of income in other years and the whole record in this case has been found insufficient to warrant the granting of special assessment for the two years 1919 and 1921.

1. FRAUD. - In 1918 petitioner sold at a profit certain stock in a Norwegian steamship corporation. Held: further, that the assessment and collection being barred, there is no deficiency. 5. OVERPAYMENT. - After the assessment and collection of the deficiency was barred, petitioner paid $14,585.82 thereof. Held, that such payment constitutes an overpayment of tax for 1918 within the meaning of section 607 of the Revenue Act of 1928.

On the evidence, held that certain jewelry stolen in 1924 was the personal property of the petitioner; also, the amount of the deduction to which the petitioner is entitled on account of such loss determined.

Amounts paid in the taxable years under lease of coal property which was to continue until the coal was exhausted, which time was estimated at from 10 to 12 years, may not be deducted in their entirety in the taxable years.

Heiner v. Tindle,276 U.S. 582, and Joseph F. Cullman, Jr.,16 B.T.A. 991, followed in allowing a loss on a property originally acquired as a residence, later rented, and finally sold.

1. In the computation of the taxable estate of a decedent the full amount of a charitable bequest is deductible without reducing such amount by state inheritance or transfer taxes which may be payable therefrom. 2. A bequest to the Waterbury Medical Association held not to be deductible under section 403(a)(3), Revenue Act of 1921, in computing the net taxable estate of a decedent.

1. The method of accounting of a partnership engaged in construction projects, some of which were not completed within a year, was to set up a separate account for each project. Held: the method used correctly reflected income, returns in accordance therewith were proper, and partner had no right to have taxable income from uncompleted projects computed on an annual accrual basis. 2.

1. Where petitioner has pleaded and proved that the statutory time for assessment of a tax has run the burden of proving an extension of such time is upon the Commissioner. 2. After a Kansas corporation has dissolved an instrument executed in its name by a vice president and purporting to extend the period within which a tax may be determined and assessed against it is insufficient to accomplish that purpose in the absence of any proof that execution thereof was authorized by a majority of the trustees in dissolution or that such vice president was empowered to act for the trustees.

Amounts paid as attorneys' fees, expenses, and in settlement of a suit attacking petitioner's title to a business are not deductible as ordinary and necessary expenses of such business.

JURISDICTION. - In 1926 respondent determined and asserted a deficiency against the Hamilton Web Co., a New York corporation, dissolved in 1924. The petitioner, a Rhode Island corporation not in existence during the tax years and against which no transferee proceedings have been brought, filed a petition for the redetermination of the deficiency asserted against the taxpayer. Held that the Board has no jurisdiction and that the proceeding will be dismissed.

DIVIDEND INCOME. - The petitioner and another were the equal owners of the capital of a corporation engaged in the mortgage loan business from the latter part of 1909 to 1920, inclusive.

1. The president of the petitioner, subsequently to March 1, 1913, without consideration, assigned to the petitioner certain patents, the value of which has been determined for the purpose of computing the annual deduction for exhaustion. 2. Intangible property transferred to a corporation without any consideration therefor may not be included in invested capital as paid-in surplus under the provisions of section 326(a)(3) of the Revenue Act of 1918. 3. Because of abnormality in invested capital due to the exclusion of valuable patents from invested capital, the petitioner is entitled to have its excess-profits taxes computed under the provisions of section 328 of the Revenue Act of 1918. 4. Where the petitioner pleads the statute of limitations and urges the invalidity of a waiver offered in evidence by the respondent which appears to be regular on its face, to sustain its plea, on the ground that the officer signing for it did so without authority and also because the respondent did not execute the waiver in person, it must show affirmatively that the petitioner's officer exceeded his powers in signing for the company, and in the absence of evidence to the contrary it will be presumed that the respondent discharged his official duty in a proper and legal manner when he delegated the signing of his name to the said waiver.

Under the Revenue Act of 1926, section 209, the earned-income credit is properly computed by applying the credits under section 216 to the earned income in ascertaining the tax which would be payable if earned net income constituted entire net income.

The petitioners in computing their net incomes for 1922 are not entitled to any deduction on account of certain municipal bonds involved herein.

The evidence fails to show that the amount of $92,600.24 expended by the petitioner in the fiscal year ended April 30, 1927, is a proper deduction from gross income, and the respondent's action with respect thereto is approved.

The petitioner is not entitled to a deduction for an alleged loss resulting from the sale of a property used for many years as his residence, where he entered into a lease of the property, but before the lessee took possession, and within a few days, the lease was canceled and the property sold.

A provision in a lease under which the lessor has the option of canceling the lease prior to the expiration of the term therein specified is no ground, until exercised, of allowing a deduction to the lessee on account of the cost of the improvements other than over the life of the improvements or the term of the lease, whichever is shorter.

In the circumstances of this case, held, the petitioner received no taxable income in the calendar year 1923. Held: the petitioner received no taxable income in the calendar year 1923.

Under the Revenue Act of 1921, held that the donee of an oil lease is entitled to depletion upon the basis of the fair market value of the lease when acquired by the donee.

Held, that the transaction by which the petitioner transferred its assets to a newly organized corporation for cash and preferred stock of such new corporation was a reorganization. Held: that the transaction by which the petitioner transferred its assets to a newly organized corporation for cash and preferred stock of such new corporation was a reorganization.

The petitioner retired from active business in 1924. Held: the amounts paid in the taxable years 1925 and 1926 are not ordinary and necessary expenses deductible from gross income in the petitioner's tax returns for those years.

In the circumstances of these cases, where the stock of one corporation was acquired and issued in the names of the stockholders of another corporation and distributed to them in proportion to their… Held: such distributions are taxable dividends to said stockholders.

1. Where the petitioner obtained without cost a lease to mine copper on a royalty basis from a lessor with an established depletion rate and subsequently entered into an agreement with the lessor to apportion this depletion, held that the petitioner was not entitled to an allowance for depletion. 2. Where a depletion rate has been established on a certain claim and no showing of a materially increased mineral content is made, the respondent's determination will not be disturbed.

NET LOSS. - A loss sustained by the petitioner in 1921 on account of certain stock becoming worthless in said year, held to be a net loss within the meaning of section 204(a) of the Revenue Act of 1921 and therefore deductible as provided in section 204(b) of said act.

An abnormality which would entitle the petitioner to the benefit of the special assessment provisions is not shown to exist.

For lack of sufficient evidence indicating error, the determination of the Commissioner is approved.

1. Inventory adjustments allowed where valuations of lumber made on the basis of average cost of different grades were excessive due to higher than average percentages of lumber in the lower grades. 2. Bad debts ascertained to be worthless by officers of the company during the taxable year and charged off soon thereafter upon formal approval of the board of directors, held deductible.

- In its 1922 return petitioner took deductions for specific bad debts and also for a reserve for partial loss on notes secured by contracts for deeds for real estate. None of the collateral security was sold during 1922, but petitioner claims right to a bad debt deduction in place of the reserve, because of an estimated shrinkage of the value of the collateral to $14,993.08 less than the amount of the notes.

Where the principal stockholder of a corporation enters into an agreement with the corporation to serve it as president upon the basis that the net profits of the corporation shall be paid to him as compensation and the net losses of the corporation shall be sustained by such principal stockholder, and net losses are sustained, such net losses are not deductible from gross income in the individual's income-tax returns.

ESTATE TAX. - The value of interests in two partnerships held by decedent at the date of his death determined.

- The petitioner, a foreign corporation, received during the year 1919 an income payment from sources within the United States. Held that petitioner is liable to taxes upon such income levied both by Title II and Title III of the Revenue Act of 1918.

The petitioner held not liable for the taxes due from the Union Finance Co. for the years 1921 and 1922.

The petitioners held liable as transferees of the assets of the Union Finance Co. for the taxes due from that company for the years 1921 and 1922.

The petitioner herin dismissed for lack of jurisdiction.

1. Upon the facts, held that a newly incorporated company acquired certain assets by purchase rather than through a reorganization of the company which had formerly owned the assets. 2. Held: A sustained a deductible loss in 1922, measured by the amount he had paid for his stock.

Under section 278(e) of the Revenue Act of 1926 a collection waiver executed after the effective date of that Act is without effect where the collection was barred prior to the enactment of the 1926 Act.

The evidence does not establish that the respondent erred in including in income the amount of $15,153.40 paid to and received by the petitioner during the taxable year 1924 in compromise and settlement of certain litigation.

Under section 278(e) of the Revenue Act of 1926 a collection waiver executed after the effective date of that Act is without effect where the collection was barred prior to the enactment of the 1926 Act.

1. TRANSFEREES. - Certain of the petitioners, stockholders of the taxpayer corporation, not being shown by the proof to have received assets of the taxpayer directly or indirectly, it is held that they have no liability at law or in equity as transferees for an unpaid tax of the taxpayer. 2.

A loss sustained in 1918 may not be deducted from gross income in 1924, notwithstanding the fact that petitioner was unwisely advised by a revenue agent, as well as by others, that he was not entitled to the deduction for 1918.

Held that the cash paid for stock was its entire purchase price and that no part of the price was paid in services.

Salaries paid to officers did not create an abnormal condition within the meaning of section 327 of the Revenue Acts of 1918 and 1921 so as to entitle petitioner to special assessment.

1. The evidence does not establish that any larger salaries were authorized to be paid to petitioner's officers for 1921 than those claimed in the return and allowed by the respondent. 2. Special assessment denied.

GAIN OR LOSS. - Petitioner in the taxable year was lessee of certain coal properties and owner of all the issued stock of a corporation… Held: the constructive payment of $125,000 to petitioner by the corporation for the lease in question did not represent a realization by him of income in that amount, as all of the contracts in question were interdependent and in effect one transaction, of which such payment was merely an incident, petitioner being obligated upon receipt…

Basis for determining gain in 1919 upon the sale of property received in exchange for other property in 1918 determined.

The petitioner in 1924 executed oil and gas leases covering land owned by him. The leases provided, in addition to the usual royalty, for a cash consideration which was paid to the petitioner in that year. Held that the leases were not sales of capital assets within the meaning of section 208 of the Revenue Act of 1924, and that the petitioner is not entitled to the benefits of that section.

Deduction for alleged loss resulting from sale of residential property allowed.

Evidence examined and transaction in Italian lire held not deductible in 1919, and proper net income determined.

1. AFFILIATION, denied. 2. ACCOUNTING PERIOD. - Where the petitioner kept its accounts on a fiscal year basis and made its returns on a calendar year basis, the respondent properly taxed the petitioner on the fiscal year basis under section 212(b) of the Revenue Act of 1918. 3. GOOD WILL. - No deduction for obsolescence of good will can be allowed because of prohibition legislation.

- The petitioner, during the periods here under review, was engaged in the business of buying, selling and storing grain and other products and merchandise, and sold corn, stored in its elevator, for which it received $11,886.10, which corn had not been purchased, and petitioner's liability to the parties storing such corn could not be determined until the succeeding taxable period.

During the years 1924, 1925, and 1926, the petitioner was a member of a partnership engaged in a brokerage real estate business. During the same years he sold as an individual certain parcels of real estate which he had acquired more than two years prior to the taxable years. Some of this real estate was sold through the partnership of which he was a member and he paid a commission to the partnership upon such sales.

The term capital assets as defined in section 206(a)(6) of the Revenue Act of 1921 means property actually acquired and held by the taxpayer for profit or investment for more than two years. Magdaline McKinney,16 B.T.A. 804; William Kempton Johnson,17 B.T.A. 611.

1. The basis for computing gain or loss upon the sale of stock in 1922 and 1925 determined. 2. Debts found to be recoverable in part only during the years 1924, 1925, and 1926 may be charged off in part.

Where the basis for the computation of the gain on the sale of a factory is the March 1, 1913, fair market value, such value may be an amount in excess of the residual value of the tangibles, depending upon the earnings over a series of years and other relevant factors.

The petitioner was a limited partnership and in the year 1919 it distributed its assets to its members with the understanding that the income received by the members from such assets should be deposited with the partnership to take care of future liabilities, if any. At the close of 1922 the amounts thus deposited aggregated the sum of $37,557.99. Held that such amounts deposited with the petitioner by its members did not constitute income to it.

1. Compensation received by the petitioner for the use of its properties during the period of Federal control was income in each of the accounting periods for which allowed, irrespective of the date of final settlement with respect thereto. 2. Terminal Railroad Association of St. Louis,17 B.T.A. 1135, followed with respect to the treatment of compensation received from the Director General of Railroads for undermaintenance during the period of Federal control. 3.

The respondent's determination that the petitioner in 1925 realized income from an installment sale of real estate made in 1923, sustained.

The deduction herein sought is not an expense of any kind, either personal or an ordinary and necessary expense of business. It is a subtraction from the gross value of the estate willed to the widow. What she received was the entire estate of her deceased husband, less $225,000.

- The business carried on by petitioner was conducted by a partnership from 1869 to 1902. The partnership assets, tangible and intangible, were paid in for stock having a par value much less than the value of such assets in 1902. The partnership business was nation-wide but no value has ever been set up on petitioner's books for the valuable good will acquired. In 1911 many capital additions were charged to expense.

Where a lease containing a provision that upon termination thereof at any time all improvements made by the lessee are to become the property of the lessor is mutually canceled prior to the expiration of its term, and a new lease is entered into between the same parties for the same premises at an increased rental, the unextinguished cost of improvements made by the lessee at the date of termination of the first lease remains a capital item and should be returned to the…

Depreciation disallowed for lack of evidence on which a determination might be made with respect thereto.

A loss sustained by petitioner in the year 1923 as a result of the liquidation of a corporation, organized to carry on a business in which he was engaged, was not a net loss from the operation of a trade or business regularly carried on by him and the excess of the loss sustained in the year 1923 over his income for that year was not a proper deduction under the provisions of section 206 (f) of the Revenue Act of 1924 from his income for the taxable period, January 1 to…

The decedent was a member of a partnership. He reported his income on the basis of a calendar year and it reported its income on the basis of a fiscal year ending January 31. He died October 7, 1924. Held that only his distributive share of its net income for its fiscal year ending January 31, 1924, should be included in his return for 1924.

The decedent was a residuary legatee (owning a three-sixteenths interest in the residuary estate) of a prior decedent who died within five years from the date of the second decedent and on whose estate a Federal estate tax was paid. All payments made by the executor of the prior decedent were made from a mixed fund consisting of corpus, gains, and income.

Under authority of decision by the Supreme Court in Lucas v. Earl,281 U.S. 111, held that the wife correctly returned her own salary.

DONATIONS. - Respondent disallowed as deductions from gross income eighteen items consisting of contributions made by petitioner to various organizations. Upon the record respondent's determination is approved as to thirteen items and disapproved as to the remaining five.

1. The Board has jurisdiction of a proceeding brought by a withholding agent to determine the liability of the withholding agent for the taxes of nonresident alien individuals. 2.

- Petitioner was a member of a partnership which regularly filed returns of income as for a calendar year, but in each instance computed such income over a period ending subsequent to the calendar year, closing its books for the computation of income sometimes on one date and sometimes another.

INCOME OF FOREIGN CORPORATION. - The petitioner, a Japanese banking institution with its principal office in Japan, maintained an agency in New York during the year 1919, where it kept on deposit a supply of capital. It its Japanese offices it contracted with its customers for the extension of credit, either under the form of letters of credit or under authorization by letter or cable, by means of which its Japanese customers purchased goods in the United States. The resident sellers, acting upon the letters of credit or other authorization, drew drafts against the Japanese buyers. The New York agency cashed or purchased these drafts. The New York agency also, upon its own initiative, purchased drafts drawn by residents of the United States against Japanese buyers of merchandise. All these drafts were forwarded to the main office of the petitioner in Japan, where they were collected, together with interest or other form of compensation for the credit extended. Held that the interest or other form of compensation so collected in Japan was not income from sources within the United States.

Debts neither ascertained to be worthless nor charged off within the taxable year are not legal deductions from gross income.

The petitioner is entitled to deduct from gross income for 1926 as debts ascertained to be worthless and charged off in that year, the amount of $5,741.27.

The respondent's action disallowing a deduction taken by the petitioner from income for 1924, on account of an alleged net loss for 1923, sustained.

1. Organization expenses of a corporation are not ordinary and necessary expenses deductible from gross income in income-tax returns. Emerson Electric Mfg. Co.,3 B.T.A. 932; Simmons co.,8 B.T.A. 631. 2. In 1921 the petitioner accrued upon its books of account, kept upon the accrual basis, certain charges against the American Railway Express Co. The latter company refused to pay the charges so made against it.

An insurance agent's contract with his company allowed him all commissions on policies written in territory assigned him, but required him to organize such territory, write insurance, employ, train… Held: petitioner was entitled to claim in each taxable year $20,000 as earned net income for personal services actually rendered.

Compensation received by the petitioner as a consulting engineer for professional services rendered to the city of Corpus Christi, Tex., held not exempt from taxation under section 1211 of the Revenue Act of 1926.

1. On an exchange of stock for stock, cash, and debenture notes that as part of the same transaction were paid in cash, held that the proceeds of the debenture notes together with the cash are taxable gain under the provisions of section 202(e) of the Revenue Act of 1921 as amended. 2. The basis for determining loss on certain real estate determined.

1. During 1920 petitioner exchanged certain assets for 50 per cent of the capital stock of a new corporation. Held: upon the evidence, that the new stock received in exchange had no fair market value within the meaning of that term as used in section 202(b) of the Revenue Act of 1918. 2.

1. Worthlessness is a fact to be established as are other facts in dispute. The facts on which petitioner predicates his conclusion of worthlessness must be presented and these facts must bring to the Board a conviction that the petitioner's conclusion was correct. 2. A sum paid to compromise a gambling debt is not an allowable deduction. 3. To establish fraud the evidence thereof must be clear and convincing - a mere preponderance is not enough.

The real estate transactions of the petitioner based on a so-called lease option contract were sales on the installment plan and income therefrom should be computed on the installment basis.

The respondent's determination as to the fair market value of certain shares of stock received by the petitioners in 1920 sustained.

1. An amount received in the taxable year from a corporation does not appear to have been a gift and was, therefore, properly included in gross income. 2. Commissioner's disallowance of a deduction representing the cost of transporting the petitioner's family to England and the maintenance of a residence there where he had gone on business approved. 3. Deductions for losses in operating a farm allowed.

1. The Board will not disregard a corporate entity merely because the corporation was a family corporation, organized for convenience. The distinction between a corporation and its stockholders is one of substance and not of mere form. E. C. Huffman,1 B.T.A. 52. 2. Fair market value of items on live stock and lumber inventories at March 1, 1913, determined.

Compensation received by an architect for professional services rendered to the Board of Education of Atlanta, Ga., held not to be exempt from taxation under section 1211 of the Revenue Act of 1926.

Under the facts in this case, the donees of a part of a partner's interest in a business became partners in that business on agreement of the other members of the firm, and their distributive shares of the profits were returnable by them, respectively, and not by the donor.

The deduction under Revenue Act of 1921, section 403(a)(2), of the value of previously taxed property should not be reduced merely because it was commingled with other property in the estate and from the commingled fund expenses were paid which are deductible under section 403(a)(1).

Loss claimed disallowed on account of insufficient evidence.

Held that a syndicate known as the Nutt-House-Bradley Syndicate was not an association taxable as a corporation under the revenue acts.

The Survey Associates, Inc., Held to be a corporation operated exclusively for educational or charitable purposes, contributions to which are properly deductible from gross income under the provisions of section 214(a)(10) of the Revenue Act of 1924.

1. Petitioner and its affiliated company filed consolidated returns of net income for the calendar years 1921 and 1922. Held: the one-month period of January, 1923, is not a taxable year within the meaning of sections 200 and 204(b) of the 1921 Act. 2.

Transfer of shares of stock by petitioner to his wife held to constitute a bona fide gift, and dividends subsequently paid on such stock held not taxable to petitioner.

Conditions not found to exist with respect to petitioner's invested capital and/or income for 1920 which bring it within the provisions of section 327, Revenue Act of 1918.

Petitioner capitalized its payments of special assessment taxes imposed by the city of Des Moines to meet the cost of certain improvements on city property adjacent to its real estate holdings. Held that there is no basis in law for the recovery of such additional cost by ratable annual deduction measured by the depreciation annually sustained by the public improvements in question.

1. Where payment of expenditures deductible under paragraph (1) of section 403(a) of the Revenue Act of 1921 was made from previously taxed property, although there was at all times sufficient property in the present estate other than previously taxed property to meet payment of all such expenditures as made, held that the deduction allowable under paragraph (2) of said section for previously taxed property should not be reduced to any extent on account of deductions…

1. Held that all the income earned on petitioner's share in a partnership was taxable to him, notwithstanding a contract between himself and wife that they were partners in all of his property, where the books of the partnership and its income-tax returns did not indicate the wife's ownership of a share, and where all profits earned were paid to the husband and deposited in a joint account. 2.

Transfer of stock held not to have been made in contemplation of death or to take effect in possession and enjoyment after death.

The tender by a taxpayer, made during the year 1925, to a collector of internal revenue and the acceptance by him of checks tendered in full payment of all income taxes of the taxpayer for all previous years is not a valid settlement under section 1006 of the Revenue Act of 1924; neither does such acceptance operate as an estoppel against the United States.

Deduction under section 403(a)(2), Revenue Act of 1921, for previously-taxed property should not be reduced by amounts deductible under subdivisions (1) and (3) merely because such items were paid out of previously-taxed property but did not exceed in amount the value of property not previously taxed. Hepburn's Estate,11 B.T.A. 1386, followed.

Amounts representing costs defending against an indictment charging a violation of a Federal statute are not deductible from gross income as ordinary and necessary expenses.

Held that the amount received by pettioner in 1922 as partial compensation under a certain contract was taxable to him as income in that year.

Held that the petitioner is taxable on the net distributable profits of an enterprise in which he is engaged in proportion to the interest which he owns therein.

Petitioner held to be liable as a transferee of the Fairlawn Sand & Gravel Co.

1. Value of assets paid in for capital stock determined for purposes of invested capital under section 331, and for the computation of allowable deductions for exhaustion, wear and tear under section 234(a)(7) of the Revenue Act of 1918. 2.

On December 28, 1920, the petitioner was carrying certain bonds on its books at an amount considerably in excess of their then market value. As a result of an examination by a state bank examiner, and in accordance with the direction of the secretary of banking, the petitioner, on February 3, 1921, added $15,000 to its reserve for depreciation on these investments.

1. Where a corporation conveys part of its assets in exchange for stock of a par value equal to the book value of the property sold, and subsequently distributes the stock so acquired among its stockholders as a dividend, the distribution constitutes taxable income to the stockholders. 2. The dividend was unqualifiedly made subject to the demand of Kathryn R. Ziliox in 1921 and is taxable to her in that year and not 1922, the year in which she actually received it.

The decedent transferred certain property on May 21, 1918. He died January 18, 1924. The respondent included the value of the property transferred in the decedent's gross estate under section 402(c) of the Revenue Act of 1921.

Beneficiaries of a trust created by a will held not entitled to claim a deduction for depreciation of the trust estate, where they received the income undiminished by the amount of the depreciation.

On August 15, 1921, the petitioner filed its income and profits-tax return for the fiscal year ending May 31, 1921. The Revenue Act of 1921 was passed on November 23, 1921. Under it an additional tax was due from the petitioner for the fiscal year in question. The deficiency notice was mailed on March 5, 1927. Assessment and collection of the deficiency are not barred by the statute of limitations.

1. STATUTE OF LIMITATIONS - ACT OF 1926. - Where the taxpayer filed his return on February 28, 1922, for the calendar year 1921 and no assessment or attempt to collect further tax was made until… Held: such assessment and collection is barred by the statute of limitations. 2. Held, further, that the record in this case fails to sustain the allegations of fraud.

1. Petitioner subleased certain property for a term of years and in addition to annual and other rentals received a bonus in the taxable year. Held that, as the petitioner was on the cash receipts and disbursements basis, such bonus was income in the year in which it was received. 2. Commission paid to secure a long-term lease is not an ordinary expense but is a capital expenditure ratably deductible from income over the term of the lease.

- Where the petitioner sold real estate in Pennsylvania for part cash and for the balance reserved a ground rent which the purchaser agreed to pay and extinguish on or before a fixed date, and which ground rent had a fair market value of the unpaid portion thereof, held that this constituted a taxable transaction in the year the indenture was made.

1. ACCOUNTING - BONUS. - Where petitioner accrued on its books during a taxable year certain sums for the payment of a bonus to employees, but the liability for payment thereof was dependent on the continuance of the employee in petitioner's service until a date in the following year, held that the bonus is not deductible in the year in which accrued, but in year when liability became fixed and payment was made. 2.

1. There was no error in the Commissioner's action in excluding from petitioner's invested capital $100,000 original capital stock for which nothing was paid by those to whom the stock was issued. 2.

Petitioners in their 1924 tax return claimed as a deduction against income derived from operation of an apartment house, depreciation sustained on same prior to its sale in that year. Held: no error was committed, and the action of the Commissioner is approved.

Evidence considered insufficient to establish that a loss had been sustained on account of the endorsement of certain notes.

1. The petitioner purchased in fee certain Ohio real estate. Subsequently he executed a lease for 99 years, renewable forever, covering this property. Held: under the circumstances of this case, taxable income to petitioner, Metcalf & Eddy v. Mitchell,269 U.S. 514, and David A. Reed,13 B.T.A. 513, followed.

Respondent's determination of deficiencies approved and penalties for failure to file returns approved.

1. Where the respondent has computed the taxable income on the net worth basis, certain additions to income made by respondent are approved in part and rejected in part. 2. Net loss of petitioner for 1921 disallowed as deductions in determining 1923 net income because not substantiated. Net loss for 1922 allowed as a deduction from 1923 net income. 3.

Held, under the circumstances as shown, it is not established that the petitioner received, during the years involved, the tax-exempt income in controversy. Held: under the circumstances as shown, it is not established that the petitioner received, during the years involved, the tax-exempt income in controversy.

Held, under the facts shown, proceeds received by the petitioner from coupons clipped from municipal bonds held in pledge by a bank to secure loans, are tax-exempt income to it. Held: under the facts shown, proceeds received by the petitioner from coupons clipped from municipal bonds held in pledge by a bank to secure loans, are tax-exempt income to it.

In the circumstances herein the petitioner realized no profit from the exchange of certain property for the stock of a corporation.

Held that net additions to petitioner's reserve for bad debts in 1924 and 1925 were proper deductions from its gross income in each of such years.

1. The petitioner is entitled to a deduction for each of the years 1923 to 1926, inclusive, of 4 per cent of the mean of the reserve funds required by law and held at the beginning and end of each taxable year, undiminished by the amount of exempt interest received. National Life Insurance Co. v. United States,277 U.S. 508. 2. Reserves maintained by a mutual life insurance company on account of dividends declared upon participating policies and left with the company to accumulate are not "reserve funds required by law" within the meaning of the revenue acts. 3. Reserves maintained for premiums paid in advance are not "reserve funds required by law" within the meaning of the revenue acts.

1. A transaction which involved the exchange of common corporate stock for common and preferred stock of another corporation plus cash, held to have resulted in taxable gain. 2. Held: under the facts shown, that the petitioner, who, as a result of individual bargain, received both cash and stock in exchange for his stock in the old corporation, was not a distributee of taxable dividends within the provisions of section 203(d)(2) of the 1926 Revenue Act.

An amount paid under state tax statute which was later declared to be unconstitutional, held to be deductible.

A husband and wife filed a joint return for 1921 and separate returns for 1922. The husband, when considered separately, had a business loss for 1921, whereas the wife had nontaxable income. Held that, in determining the net loss of the husband for 1921 which may be carried forward and allowed as a deduction in computing his net income for 1922, the business loss of the husband for 1921 should be reduced by the nontaxable income of his wife for the same year.

Where return of income was made on a separate basis for 1922 by corporations which were affiliated, returns for 1923 shall be upon the same basis where no permission to change the basis has been granted by the Commissioner.

1. MORTGAGE FEES. - Commissions and fees for securing loans on mortgages are not deductible in full in the year when paid or incurred, but should be spread proportionately over the life of the mortgages and when the mortgages are paid off or the property sold and the mortgage assumed by a third person, the unamortized portion of such mortgage fees may be charged off and deduction taken from gross income. 2.

The transfer by members of a syndicate of their undivided interest in certain oil leases to a corporation in exchange for shares of the capital stock of the corporation, resulted in taxable income under section 202(b) of the Revenue Act of 1918.

- Where, after the enactment of 1921 Revenue Act, a taxpayer, with knowledge of its right of election, makes a return on either the separate or the consolidated basis, it may not thereafter change without first obtaining permission from the Commissioner.

1. The proceedings having been set down for further hearing for the purpose of permitting a recomputation of the deficiencies upon the basis laid down in the opinion at 15 B.T.A. 1127, it developed that the evidence given at the original hearing was inaccurate. Findings modified and previous decision reversed. 2. A company sold cement in cloth bags. It charged its customers for said bags at a fixed price and agreed to redeem them at the same price.

1. Petitioner corporation held liable to tax for 1921 under section 220 of the Revenue Act of 1921. 2. If it is clear that a corporation is availed of for the purpose of preventing the imposition of surtax upon its stockholders through the medium of permitting gains and profits to be accumulated instead of distributed, it falls within section 220, whether the accumulations be large or small. Accumulations in excess of needs are evidence of purpose but not necessary.

1. The petitioners held to be transferees of the property of the Barr-Davis Oil Co., and, as such, liable for the amounts asserted against them on account of taxes due from the Barr-davis Oil Co. for 1921 and 1922. 2. The respondent's determination of the tax liability of the Barr-Davis Oil Co. for 1921 and 1922 sustained.

Compensation received by the petitioners as civil engineers for professional services rendered to Harris County, Texas, held not exempt from taxation under section 1211 of the Revenue Act of 1926.

The petitioners are not liable for the taxes due from the Lincoln Tank Co. for the years 1918, 1919, and 1920.

1. In 1921 the petitioner, who was the majority stockholder and president of a corporation, sustained a loss as a result of having to pay certain notes of the corporation which he had endorsed. In 1921 and 1922 he sustained losses on the sale of stock of the corporation. Held that such losses do not constitute net losses within the meaning of section 204(a) of the Revenue Act of 1921. 2. Loss on the exchange of an automobile determined.

Basis for computing gain or loss on sale of capital assets of an estate in the hands of an administrator is the value of such property at date of decedent's death. Dorothy Payne Whitney Straight, Executrix,7 B.T.A. 177.

Insurance premiums, paid by one partner on a policy on his own life in which the other partner was named as beneficiary, are not allowable deductions from gross income when such expenditures are not shown to have been ordinary and necessary expenses of carrying on such partner's business.

1. Where the record shows the date of the filing of the return and the expiration of the statutory period for determination, collection, and assessment, the Commissioner has the burden of proving an… Held: the waivers were a nullity and the transferee was not liable for the deficiency in tax.

In the early part of 1925 the petitioner sold certain real estate owned by him for $70,000, receiving in payment therefor $17,000 in cash and four promissory notes for $13,250 each, payable in one, two, three, and four years from date and which were secured by a first mortgage on the property sold.

1. Henry Cappellini,14 B.T.A. 1269, followed. 2. A corporation held to be entitled to classification as a personal service corporation.

Deficiencies for the calendar years 1917, 1918, and 1919 held not barred by the statute of limitations, where the time for assessment was extended by consent agreements beyond the date of the mailing of the deficiency notice.

Upon the evidence respondent's determination of petitioner's gain upon the sale of certain shares of stock in 1924 approved.

The petitioner is the principal stockholder of a corporation to which he advanced on open account $6,800 to December 10, 1924. The corporation had not sufficient funds or assets to pay its indebtedness. The petitioner, who was the principal creditor, accepted the corporation's note for $1,500 in settlement of its obligation to him. He charged off the balance of $5,300 on his books of account as a bad debt.

The evidence fails to show a value for stock issued in part payment of property different from that determined by the Commissioner.

The traveling and subsistence expenditures here were not incurred in carrying on a trade or business within the meaning of the Acts and, consequently, are not deductible.

Loss sustained by reason of a shipwreck in 1919 not deductible in 1923 when the salvage therefrom was disposed of.

On March 1, 1913, the petitioner was the owner through agents of certain leases of oyster lands in Narragansett Bay. The leases ran for a term of 10 years. Held: that the petitioner is entitled to deduct from gross income of the fiscal years ended June 30, 1921, and June 30, 1922, $5,625 and $65,489.07, respectively, representing the petitioner's loss of investment in certain oyster leases canceled in those years.

The petitioner was the equitable owner of an undivided one-half interest in certain real estate at the time oil was discovered thereon in November, 1921, and she is entitled to depletion deductions based upon the fair market value at the date of the discovery or within thirty days thereafter.

The petitioner agreed with his estranged wife that if she would join him in the conveyance of real estate owned by him, and a divorce were obtained by either within one year, $40,000 of the proceeds of the sale, together with a deed in fee simple to other property, should go to her; that in the event no divorce was obtained within the year, the $40,000 and other property should be returned to the petitioner.

1. The Board has no jurisdiction to review determination of deficiencies for years prior to 1916; 2. Nor has it jurisdiction to review the determination of an overassessment for the year 1917. 3.

Respondent's determination of gain from the sale of partnership interests sustained.

1. In determining the profit on the sale of a certain lot the method of allocating cost used in J. S. Cullinan,5 B.T.A. 996, followed. 2. From the evidence held that an advancement made to a certain political campaign fund was not a debt and hence not deductible as a bad debt loss.

The petitioner reported income and paid taxes for a portion of 1921 and for 1922 on a calendar year basis, but kept its books on a fiscal year basis ending May 31; respondent, after adjusting petitioner's income to a fiscal year basis ending May 31, 1922, reduced petitioner's total tax liability for the fiscal year by the amount of tax paid for the calendar year 1922, but made no adjustment with respect to the tax paid by the petitioner for the seven-month period in 1921.

- In 1926 a corporation, owned by and affiliated with petitioner, received a large refund of Federal income and profits taxes, overpaid in prior years, together with $1,409,856.46 interest thereon. Held that such interest did not represent interest upon the obligations of the United States within the meaning of section 213(b)(4) of the Revenue Act of 1926, and was consequently not subject to the exemption provided by that section.

Loss. - Upon the evidence, held that the loss of the cost of an oil lease was properly allowable as a deduction in 1923 when sustained through expiration of the lease rather than in 1922 when charged off to profit and loss by direction of the secretary-field manager, whose judgment is not sustained by the evidence.

- The remainder of a net loss in 1922, after deducting the net income of the same taxpayer for 1923, is allowable as a deduction in computing net income for the third year, 1924, and the resulting net income or loss should be considered in full in arriving at the consolidated net income of a consolidation of which the 1922 loser is a member, even though such member had a loss for 1924 previous to deducting the net loss for 1922.

An association operating under a Massachusetts deed of trust, which deed of trust has not been canceled, sustained a net loss in the year 1921. The petitioner, a corporation which was organized to take over the business of the association, is not entitled to deduct such net loss from its net income for 1922, even though its stock was held by the same parties and in the same proportions as the shares of the association.

A portion of a dividend declared and distributed in 1923 which represented earnings accumulated since February 28, 1913, held taxable as an ordinary dividend, regardless of whether or not it was part of a distribution in liquidation.

1. Certain purchase-money note taken in 1920 held to have had no fair market value, and should not be included in income for that year. 2. The petitioners purchased a lease covering certain land in order to protect their titles to other leases, and to enable them to carry out contracts they had made. Held that the amount paid for said lease should be capitalized.

The proper method of reporting income and losses by a member of a partnership determined.

The petitioner and the Director General of Railroads each claimed that the other was indebted upon accounts arising out of the use of the petitioner's properties during the period of Federal control. A lump-sum settlement or compromise was reached in 1923, whereby the petitioner paid to the Director General $50,000 and each canceled his claim against the other.

BAD DEBT. - Where it does not appear from the evidence that an alleged bad debt was ascertained within the taxable year to be bad, in whole or in part, it may not be allowed as a deduction under section 214(a)(7) of the Revenue Act of 1921.

1. Where the evidence shows that a letter written by an executrix requesting assessment of taxes on the income of a decedent in his lifetime has never been found in the files of the Bureau of Internal Revenue, and the evidence is insufficient to establish that the letter was properly addressed and mailed, the presumption that it was received does not arise, and assessment and collection of the taxes are not barred under section 277(a)(3) of the Revenue Act of 1924. 2.

1. The Commissioner's disallowance of deductions claimed as ordinary and necessary expenses sustained, where it is not shown that the petitioner made the expenditures, and where it is impossible to segregate the total amount expended into capital expenditures and ordinary and necessary expenses. 2. The Commissioner's determination in regard to deductions for depreciation sustained.

- Proceeds of life insurance policies in which the insured reserved the right to change the beneficiaries were properly included in the gross estate. Chase National Bank, v. United States,278 U.S. 327; Louis M. Weiller et al.,18 B.T.A. 1121, followed.

1. BAD DEBTS - LOSSES. - Certain checks payable to the petitioner in Germany in German marks, and an open bank account standing to the credit of the petitioner in a German bank, also payable in… Held: the deduction from income is properly allowable in that year. 2.

Special assessment denied.

The Commissioner's action in taxing the petitioners on the value of certain securities received by them in 1922 in connection with the liquidation of a trust fund created as the result of the merger of two corporations in 1912, approved, in the absence of proof that the amounts were not in excess of the March 1, 1913, value or cost of the certificates under which the distribution was made.

Petitioner sustained statutory net losses for 1922 and 1923 and earned taxable net income for 1924. The net loss for 1922 was in excess of the net income for 1924. Held: that such excess does not constitute a net loss for 1924 which may be used as a deduction in computing net income for any year subsequent to 1924.

Decedent took out certain policies of insurance on his own life, in all of which policies he had the right to change beneficiaries up until the date of his death. The policies were taken out prior to the passage of the Revenue Act of 1918. The beneficiaries who received the proceeds of the policies were named after the passage of the Revenue Act of 1921, and the decedent died while that act was in force.

GROSS INCOME. - Petitioner is a trade association incorporated in the State of New York and organized for profit, which profits inure to the benefit of its stockholders. There is no evidence that the dues of stockholders were intended or were accounted for, as contributed additional capital; on the contrary, the dues had no relation to the stockholdings and were paid in consideration of the valuable services of the corporation and of the benefits of membership. Held, the dues paid in by the stockholders should be included in gross income. Pontiac Employees Mutual Benefit Association,15 B.T.A. 74, and Employees' Benefit Association of American Steel Foundries,14 B.T.A. 1166, followed.

Executors' commissions, attorney's fees, and other expenses of maintaining and preserving an estate over a long period of years held not to be ordinary expenses of administration and not proper deductions in computing the net estate subject to the Federal estate tax.

Certain adjustments made by the respondent in the petitioner's inventories for the taxable years involved herein, disapproved.

The dividends here were unqualifiedly subject to the demand of the petitioner in 1923 within the meaning of section 201(e) of the Revenue Act of 1921. Commissioner v. Bingham, 35 Fed.(2d) 503, followed.

EXEMPT CORPORATIONS - FARMERS' SELLING AND PURCHASING ASSOCIATION. - Petitioner furnished its members supplies at cost and marketed the perishable produce of its 400 members and returned to them the average price received by it less freight, brokerage fees if sold on consignment, and 5 per cent commission which, with interest on bank deposits, constituted its gross receipts. Out of said receipts petitioner paid all necessary expenses and the net receipts were used as follows: 10 per cent dividends paid on all of its capital stock; $3,000 added to surplus, one-half of the balance also added to surplus and the remainder set aside for refunds to all members on the basis of the value of produce sold for them, respectively. During 1923 and 1924, the refunds constituted a very small portion of petitioner's net receipts. Only a portion of petitioner's members held stock and the dividends were in excess of the legal rate of interest in South Carolina. Held that the Commissioner's regulations applicable to section 231(11) of the 1921 and 1924 Acts, are reasonable and sound and that during 1923 and 1924, petitioner failed to comply with the said provisions of the revenue acts and regulations.

The petitioner held to have sustained a deductible loss in the taxable year of his entire investment in a business project which definitely failed and was known to have failed prior to the close of that year.

As residuary legatee of her brother's estate the petitioner, in 1924, 1925, and 1926, received interest from a corporation which was indebted to her brother for unpaid salary over a period of years. Held: the interest received was a gift and not subject to income tax.

Held that the petitioner derived no taxable income by purchasing and retiring certain of its outstanding bonds at amounts which were less than it had issued them for.

1. Respondent's determination of the fair market value of purchase money notes approved for lack of evidence to overcome its prima facie correctness. 2. The Board will not accept the opinion of a witness as to the fair market value of purchase money notes when it does not appear that the witness is qualified as an expert to express an authoritative opinion of the value of such notes.

Expenditures made by the petitioner for replacing the front and side walls including new steel windows and part of the second-story joist and the roof of the building held to be capital expenditures and not deductible in determining net income.

When a trustee in bankruptcy for the estate of a husband, reporting his income on the community property basis, sold assets belonging to the bankrupt estate at a loss, held, for lack of proof, that… Held: for lack of proof, that the loss is not deductible under the provisions of section 206(b) of the Revenue Act of 1924.

1. From the evidence, held that the respondent was in error in refusing to allow as deductions the contributions made to certain religious, educational and charitable organizations. 2. From the evidence, held that the transactions entered into between the petitioner and the State National Bank of St. Louis, Mo., were sales resulting in taxable profit except in the case of municipal securities. Willcuts v. Bunn, 35 Fed.(2d) 29, followed.

- Where four corporations were affiliated during the taxable year 1922 and filed separate returns, and the same four corporations were affiliated during the year 1923 with two others, they can not file a consolidated return for 1923 without the permission of the Commissioner.

1. GAIN OR LOSS - CAPITAL TRANSACTIONS. - The stockholders of petitioner, under an agreement having as its object the acquisition of control of petitioner by a foreign corporation, caused to be distributed to themselves certain of petitioner's assets, and received in place of their voting common and nonvoting preferred stock, which was surrendered and canceled, an amount in cash and new nonvoting preferred stock of petitioner in a larger amount, issued under authority of an…

1. STATUTE OF LIMITATIONS. - Held that the respondent has failed to establish the validity of a waiver executed by a former officer of the National Bank of Commerce more than five years after the filing of the return. Assessment against that bank held to be barred. 2.

In 1924 the petitioner was served with a notice of complaint by the Federal Trade Commission, in which violation of the Sherman Act by the petitioner was alleged and a date set for hearing before the Commission. The petitioner employed eminent counsel to defend it against such charge. On October 14, 1925, the Commission entered an order dismissing the complaint.

Petitioner held not to be entitled to special assessment for the years 1920 and 1921.

The petitioner, having received 46.25 per cent of the sale price of a tract of land during the taxable period in which the property was sold, is not entitled to report the profit realized on the sale on the installment basis.

Held that amounts received by petitioner's wife under instruments executed by petitioner, assigning to her one-third of certain renewal commissions then due and which might thereafter accrue to him on insurance business secured by him, are taxable to the assignor.

The evidence is insufficient to establish that a mortgage taken back by petitioner on real estate sold in 1925 had no fair market value in that year or that its value was any less than that found by the respondent.

1. Held that the deferred payments under contracts for the sale of lots in a subdivision had no fair market value. 2. Amounts paid by petitioner to clear title to a tract of land under sale to it, held to be capital expenditures. 3. Depreciation rate on automobiles determined.

1. A valuation of the rights of one party to a bilateral contract based on promises to deliver and to receive and pay for raw material, which assumes the profit to be derived from the manufacturing… Held: on all the evidence, to have no premium value to eptitioner for invested capital or on March 1, 1913, for a basis for depreciation in 1918 and 1920. 5.

- Where the petitioner purchased from the taxpayer its tangible assets only, and taxpayer retained its cash, bills and accounts receivable, and stock on hand, and respondent did not prove that the value of these retained assets was less than the amount of the tax, and there is no evidence of bad faith, there is no liability of petitioner under section 280.

Petitioner, an advertising agency, held entitled to personal service classification.

Petitioner held not affiliated with the Empire Turst Co. during the taxable years 1921 and 1923.

The Commissioner did not err in including certain dividends received by six persons in 1922 in the petitioner's net income for 1922, although there was an order of the probate court entered in 1926 which held that the stock was illegally distributed to the six persons in 1920, and should be accounted for by them to the estate until December 31, 1922.

1. Three individuals transferred to a newly organized corporation certain assets, in payment for which they received the corporation's check, which they immediately endorsed and turned back to the corporation in payment for its capital stock. Held that the transaction was a sale resulting in a profit at the time the check was received. 2.

1. From the evidence, held that the petitioner is entitled to personal service classification for the years 1920 and 1921. 2. Assessment and collection of taxes held not barred by the statute of limitations. 3.

Held, that the trust here involved was not carrying on business during the taxable years and is not taxable as a corporation for such years. Held: that the trust here involved was not carrying on business during the taxable years and is not taxable as a corporation for such years.

The total amount of commissions paid by petitioner to its agent for services in procuring a lease contract, whereby it leased its property for a period of 50 years, should be spread ratably over such period and not deducted as an expense in the years in which paid, notwithstanding petitioner was on a cash receipts and disbursements basis.

1. INCOME - DIVIDENDS - DISTRIBUTION IN LIQUIDATION. - Amounts received by petitioners in 1921 and 1922 from a corporation of which they were stockholders, and representing distributions of earnings accumulated by the corporation subsequent to February 28, 1913, held to be income to them exempt from normal tax and subject to surtax under the Revenue Act of 1921, whether normal dividends or distributions in liquidation. 2.

The petitioner filed a return which showed the tax as computed under section 301 of the Revenue Act of 1918, and attached to it or accompanying it were a statement and application for special assessment showing the tax at a stated lesser amount. The respondent denied the application for special assessment and dtermined the petitioner's tax liability to be less than that shown on the return, but greater than that shown in the accompanying statement and application.

1. Petitioner created certain trusts the income from which was used to pay premiums on life insurance policies on his life. Held that under section 219(h) of the Revenue Acts of 1924 and 1926 such income should be included in petitioner's net income regardless of whether the trusts created were revocable or irrevocable. 2. The provisions of section 219(h) are not so arbitrary or capricious as to amount to confiscation of property without due process of law.

Income in 1924 and 1925 of a trust created by petitioner in 1922 for the purpose of paying premiums on life insurance policies on his own life is held taxable to petitioner in 1924 and 1925 under the provisions of section 219(h) of the Revenue Acts of 1924 and 1926.

Prior to March 3, 1924, the Commissioner made an examination for the purpose of determining the petitioner's allowance for amortization for the year 1919.

- Where real estate was sold by one not a dealer and the profit reported on the installment method, the expenses incident to the sale serve to reduce the selling price in determining the profit to be realized, thus being spread over the same period as the installment payments, and are not deductible in full in the year of sale.

1. Decision in Mrs. E. A. Giffin,19 B.T.A. 1243, followed, and selling costs incident to sale of real estate held not deductible from profit reported on the installment method. 2. Petitioner held not entitled to deduct as a loss the cost of land purchased in 1925 and to which he held title at the close of the year.

Selling costs incident to the sale of real estate by one not a dealer, the profit being reported on the installment method, held to constitute a reduction of selling price and not a reduction from income. Decision in Mrs. E. A. Giffin,19 B.T.A. 1243, followed.

Selling costs incident to the sale of real estate by one not a dealer, the profit being reported on the installment method, held to constitute a reduction of selling price and not a deduction from income. Decision in Mrs. E. A. Giffin,19 B.T.A. 1243, followed.

1. Decision in Mrs. E. A. Giffin,19 B.T.A. 1243, followed. 2. Commission paid by petitioner as lessor for procuring a 99-year lease held not to constitute a deductible expense in the year paid but a capital expenditure deductible ratably over the term of the lease.

Selling costs incident to the sale of real estate by one not a dealer, the profit being reported on the installment method, held to constitute a reduction of selling price and not a deduction from income. Decision in Mirs. E. A. Giffin,19 B.T.A. 1243, followed.

- Cost of producing gold and silver from the same are not being susceptible of direct allocation to each metal, the respondent's allocation on the basis of the relative value of the metals is approved.

The evidence is insufficient to establish that the petitioner made a completed gift to his wife of certain corporate stocks prior to the taxable years, and the action of the respondent in including the dividends therefrom in the petitioner's reported income is approved.

TRANSFEREES - LIMITATION UPON TIME OF ASSESSMENT. - The evidence shows that the notice of liability as a transferee was mailed to the petitioner by the respondent within the statutory period of one year following the expiration date for assessment agreed upon by the taxpayer corporation and the Commissioner, consequently, the proposed assessment is not barred by the statute of limitations. Sections 280(b)(1) and 280(d) of the Revenue Act of 1926.

- The testator's will created a trust, the income therefrom to be paid to his wife and daughter during their lives in equal shares and all the income to the survivor. The wife and daughter were given power of appointment over $150,000 and $75,000, respectively, of the principal of the trust.

Evidence held insufficient to overcome respondent's determinations of deficiencies.

The petitioner sustained no deductible loss in the taxable year in the transaction by which it acquired certain assets, including the accounts, deposits, good will and going business of another bank, assumed liabilities equal to the value of the tangibles, and paid a certain amount in excess of the value of such tangibles, since the payment was made partly to acquire the accounts and deposits of the other bank and was a capital expenditure.

1. The cost of the part of the real estate involved in this case, which was sold in the years 1922 and 1923, was, under the 1921 Act, a capital investment, and the profits made thereon are liable to tax under section 206(b) of the 1921 Act. 2. Such of said real estate as was sold in 1924 and subsequent years constituted, under the 1924 Act, property held primarily for sale in the course of the taxpayer's business, and the profits realized thereon are taxable under sections 210 and 211 of the Revenue Act of 1924.

1. In computing an individual's tax liability for the calendar year 1924, where the individual, who reports on the calendar year basis, sustained a capital net loss during the year, and is a member of a partnership whose fiscal year ends during 1924, the amount to be placed in the lower brackets of the rate schedule applicable to the year 1924 under the provisions of section 207(b) of the Revenue Act of 1924 is the amount of the ordinary net income subject to the rates for…

Under all the facts in this case, held that the dividend declared and paid by the corporation was a cash and not a stock dividend, and was taxable as such to the stockholder.

In view of all the evidence in this case, the determination of the Commissioner is approved.

BAD DEBTS - CHARGING OFF - PRIVATE LEDGER. - An entry made and kept in a private ledger only, for time being, if used in making balance sheets, which entry shows that a "charge-off" of bad debts has effectually eliminated such accounts or bills receivable from the available assets, is held a sufficient charge-off to meet the requirements of the statute.

1. The Board will not decide an issue not raised by the pleadings. 2. Petitioner's rental income determined.