Volume 19 — Tax Court Memorandum

Eleazer E. Rand, hereinafter referred to as petitioner, sustained a loss in 1953 on the disposition of the assets of his business (a food market) in a single, isolated transaction. The disposition was, in fact, a sale. Petitioner maintains that such disposition was by abandonment. Held, that whether by sale or by abandonment, the loss sustained was not allowable as a net operating loss carry-over to the years 1954 and 1955 because not attributable to the operation of a trade or business regularly carried on by petitioner within the meaning of section 122(d)(5) of the Code of 1939.

Held, respondent's determination of deficiencies in accordance with net worth computation, sustained with adjustments. Held: respondent's determination of deficiencies in accordance with net worth computation, sustained with adjustments. Held further, returns for the years 1947 and 1949 were not false or fraudulent with intent to evade tax, and no part of the deficiency for any of the years in issue was due to fraud with intent to evade tax.

Held, certain transfers of cemetery lots by petitioner to certain individuals constituted sales rather than security for loans. Held: certain transfers of cemetery lots by petitioner to certain individuals constituted sales rather than security for loans.

Held: 1. Petitioner paid unreasonable and excessive compensation to each of its five officer-stockholders during the taxable years 1952 and 1953. Held: Petitioner paid unreasonable and excessive compensation to each of its five officer-stockholders during the taxable years 1952 and 1953. Reasonable compensation is determined. 2. Petitioner correctly valued certain machines at less than cost on its closing inventories for each of the taxable years 1952, 1953, and 1954. 3.

Jurisdiction. - The petitioners willfully failed to timely file income tax returns for the years 1945 to 1951. Held: that this Court has jurisdiction based upon such notices of deficiency and the petitions filed pursuant thereto.

Petitioner, a dissolved corporation, leased certain lands from its sole shareholder. The leases provided that petitioner should maintain certain improvements to the land. Held: petitioner may not deduct as losses in the year of liquidation the unamortized costs of leasehold improvements.

1. Under the facts, the loss due to the worthlessness of corporate stock occurred during partnership's fiscal year 1954 and is deductible as an ordinary business loss or expense. Tulane Hardwood Lumber Co., 24 T.C. 1146 (1955), and J. T. Dorminey, 26 T.C. 940 (1956), followed. 2.

Respondent's determination of basis for computing depreciation and gain on sale of beach bungalow properties upheld - Petitioner not allowed deduction for amortization of alleged bonus paid for mortgage.

Petitioner kept its books and reported its income under an overall accrual method of accounting. Held: Under the circumstances, the dividends received in 1954 were not properly accruable in 1953; 2. The failure of petitioner to accrue the dividends in 1953 did not constitute a change in accounting method but was a correct adherence to its regular method of accounting; 3.

Held, that rents paid by petitioner to its principal stockholder in excess of $10,200 per year plus insurance, taxes and upkeep, were not reasonable and were not required to be made… Held: that rents paid by petitioner to its principal stockholder in excess of $10,200 per year plus insurance, taxes and upkeep, were not reasonable and were not required to be made within the meaning of section 23(a)(1)(A), Internal Revenue Code of 1939, for the years 1950, 1951, and 1952.

Deductions: Losses: Goodwill. - Taxpayer, a registered pharmacist, was a member of a partnership which dissolved. A partnership return was filed by the receiver and goodwill in the amount of $12,785.43 was taken as a deduction. The Tax Court held that taxpayer had failed to prove that a loss of goodwill resulted from the dissolution of the partnership.

Held, that in each of the fiscal years in question, petitioner's profits were permitted to accumulate beyond the reasonable needs of its business and that… Held: that in each of the fiscal years in question, petitioner's profits were permitted to accumulate beyond the reasonable needs of its business and that petitioner was availed of in each of such years for the purpose of preventing the imposition of the surtax upon its shareholders. Section 102 of the Code of 1939.

Held, that the petitioner did not furnish over half of the support of his two children, and that he is not entitled to deduct exemptions for them as dependents. Held: that the petitioner did not furnish over half of the support of his two children, and that he is not entitled to deduct exemptions for them as dependents.

Held, where petitioners made loans evidence by notes to a corporation in which one petitioner was an officer and major shareholder,… Held: where petitioners made loans evidence by notes to a corporation in which one petitioner was an officer and major shareholder, under the facts of the case, the unpaid balance of the loans was a nonbusiness bad debt within the meaning of section 166(d) of the I.R.C. of 1954 rather than a business bad debt under section 166(a) or a loss…

Held, Tax Court lacks jurisdiction to go behind respondent's determination of income tax deficiency. Decision for respondent in the amount of deficiency stipulated. Held: Tax Court lacks jurisdiction to go behind respondent's determination of income tax deficiency. Decision for respondent in the amount of deficiency stipulated.

Held, that petitioner's post of duty was in New York City and that costs incurred there for meals, lodging, and tips are not deductible as traveling expenses while away from home in the pursuit of trade or business under section 162 of the Internal Revenue Code of 1954. Held, further, that certain expenditures for services and supplies incurred by the petitioner in New York City are deductible as ordinary and necessary business expenses.

Held, on the evidence presented, the fair market value per share of two blocks of 2,000 shares each, or a total of 4,000 shares of the capital stock of Nemours Corporation, on December 17, 1954, was… Held: on the evidence presented, the fair market value per share of two blocks of 2,000 shares each, or a total of 4,000 shares of the capital stock of Nemours Corporation, on December 17, 1954, was $640.

The Burnetts, owners of certain real property, entered into negotiations with Mar-Tex Realization Corporation, contemplating an oil lease. Held: the funds withheld by the purchaser of the oil and gas constituted income (a) in December of 1951, as to those funds then released under bond, and (b) in December of 1952 as to the balance. 2. The original oil lease between the Burnetts and Mel Dar provided for a gross royalty of 25 per cent.

Held, under the doctrine of Cohan v. Commissioner, (C.A. 2) 39 F. 2d 540, the petitioner is entitled to deduct as a business expense, a portion of the expense incurred by him for installing and maintaining a telephone in his home.

Petitioner, a teacher instructing, inter alia, in art and geography, was required by her employer either to attend summer school or to perform approved travel once every 5 years. Held: petitioner may deduct the cost of travel as ordinary and necessary business expenses.

Held: On the evidence presented, petitioners have not established that the bad debt loss involved was incurred in a trade or business in which petitioners were engaged in the year 1952. Held: On the evidence presented, petitioners have not established that the bad debt loss involved was incurred in a trade or business in which petitioners were engaged in the year 1952. Section 23(k)(4), I.R.C. 1939.

Petitioner was 50 per cent owner and principal officer of a partnership and a corporation engaged in the "cut, make and trim" part of the manufacture of men's clothing in 1946 and 1947. Petitioner drew checks on the partnership and corporation payable to fictitious payees, endorsed the names of the payees thereon, cashed the checks or had them cashed by friends, and received the proceeds thereof in cash. He did not report the proceeds as income but claimed he paid the cash to a tailoring contractor of the partnership and corporation, at the insistence of the contractor, for extra charges made by the contractor. Held: The proceeds of the checks were income to petitioner in 1946 and 1947, and his failure to report them as such was due to fraud with intent to evade tax. Held: Petitioner did not receive unreported income in 1946 from the sale of linings and woolens to Ramley Clothes. Held: Bad debt loss disallowed for failure to prove worthlessness. Held: Petitioner failed to prove error in respondent's determination of unreported interest income and partial disallowance of deduction for sales tax.

Upon the facts, held that the petitioner was not engaged in a joint venture but was a guarantor of losses; that he sustained a loss in the year when his obligation was performed and payment was made; and that he is entitled to deduct his loss under section 23(e)(2) in the year of payment.

Held, respondent erroneously determined that partnership of which male petitioners were sole partners actually or constructively received additional income in the amount of $76,703.75 during 1953. Held: respondent erroneously determined that partnership of which male petitioners were sole partners actually or constructively received additional income in the amount of $76,703.75 during 1953.

Pursuant to respondent's concession, it is held, there is no deficiency and no addition to tax due from petitioner for the taxable years 1944, 1945, and 1946. Held: there is no deficiency and no addition to tax due from petitioner for the taxable years 1944, 1945, and 1946.

The respondent's disallowance of a claimed bad debt deduction approved where it appears that a debtorcreditor relationship was not intended and where, in any event, it has not been established that any debt that existed became worthless in the taxable year.

1. Held, on authority of Putnam v. Commissioner, 352 U.S. 32, that the loss which petitioner incurred in discharging his obligation to a… Held: on authority of Putnam v. Commissioner, 352 U.S. 32, that the loss which petitioner incurred in discharging his obligation to a bank, as guarantor of the note of a corporation of which he was a stockholder, constitutes a loss on a nonbusiness bad debt within the meaning of section 23(k)(4) of the 1939 Code, and is deductible only as…

Petitioner, a corporation, took a miscellaneous expense deduction made up of a contracts receivable adjustment, an accounts receivable adjustment, and a cash adjustment, in computing its net taxable… Held: petitioner did not sustain its burden of proof and the respondent's action is approved.

Held, petitioners have failed to prove by a preponderance of evidence that they suffered deductible gambling losses in excess of $21,682 for 1953 and $46,219 for… Held: petitioners have failed to prove by a preponderance of evidence that they suffered deductible gambling losses in excess of $21,682 for 1953 and $46,219 for 1954. These amounts should be allowed as offsets to the amounts of admitted wagering gains of petitioner B. H. Bickers in the respective taxable years.

The principal petitioner was an assistant professor on the faculty at Pennsylvania State University. He had first been employed for such position in 1950, on a probationary basis; but, under the University's subsequently adopted academic tenure regulations, he had to be given written notice prior to July 1, 1954, if his contract was not to be renewed - otherwise his tenure would become permanent one year later. No such notice was issued; and as of July 1, 1955, petitioner was accorded permanent tenure by affirmative action of the University. A few weeks prior to the deadline for issuance of any such notice, he commenced studies at the University of Pittsburgh, toward a Ph. D. degree, while still continuing his employment at Penn State; and he thereafter pursued such studies periodically during the taxable years 1955 and 1956, and subsequent thereto. Such doctoral studies were not required under his contract with Penn State, or under its regulations; and they were not shown to be necessary, either for the retention of his existing position or for the improvement of his skills therein. Rather, they were incurred for the primary purposes of qualifying him for a new and better position, and for the salary increase attaching to such improved position. Held, that in such circumstances, said expenditures are not deductible under section 162(a) of the 1954 Code, or under section 1.162-5 of the Income Tax Regulations.

Held: Petitioner was not engaged in the business of writing a book but was engaged in the business of illustrating in the year 1951. Deductible expenses of the business determined.

This proceeding was remanded by the Ninth Circuit Court of Appeals, 266 F. 2d 238, for reconsideration. Held: the corporate distributions by Oregon Motor Stages in payment of certain incidental expenses and in retirement of 350 shares of its stock held by Bentson, which proceeds were used for the repayment of a loan taken by Bentson, were not essentially equivalent to dividends under section 115(g) of the 1939 Internal Revenue Code.

1. Two adjacent tracts of timber and timberlands found by three individuals, referred to collectively as BJR, were acquired through the… Held: The agreement constituted a joint venture and the properties were acquired and sold by the joint venture. 2. The properties were capital assets in the hands of the joint venture and were not held by the joint venture primarily for sale to its customers in the ordinary course of its trade or business. Sec. 117(a)(1), I.R.C. 1939.

Petitioner acquired from the owners an option to purchase certain lands. The total purchase price under the option was $85,800. Held: In substance and in fact, petitioner sold the land itself to the third party and not the option and the gain resulting is taxable as a short-term capital gain.

Held, that petitioner did not receive at least 80 per cent of informer's fees from the State of Pennsylvania in one taxable year, and therefore is not entitled to the benefits of section 107(a) of… Held: that petitioner did not receive at least 80 per cent of informer's fees from the State of Pennsylvania in one taxable year, and therefore is not entitled to the benefits of section 107(a) of the Internal Revenue Code of 1939.

Fair market value of certain commercial realty, and of one-half undivided interests therein, determined.

1. Charlotte manufactured upholstered furniture, and Lycoming manufactured furniture frames for Charlotte. Both firms were operated as one integrated unit, and as such sold out to Chesterfield. Held: Chesterfield purchased all of the assets of Charlotte and Lycoming, including Charlotte's good will; the total purchase price equaled the fair market value of said assets; and the fair market value of Charlotte's good will determined. 2.

1. On or about December 1944, William P. Cooper purchased prepaid installment share accounts of the Perpetual Building and Loan Association in the amount of $2,273.26, which he held until his demise on December 28, 1948. During the years said share accounts were in existence (held almost exclusively by members of the Cooper family), Perpetual credited dividends thereto at various times in amounts ranging from 200 to 600 per cent representing a portion of its earnings. The current dividend on other types of share accounts issued by Perpetual during the same period was four per cent. Under Perpetual's bylaws dividends could not be paid to the holder until the share account matured or until the account was surrendered in its entirety to Perpetual for repurchase and withdrawal. Under the terms of his will, decedent bequeathed all of said shares to his wife, executrix and sole legatee, of his estate. On February 17, 1949, the executrix withdrew the balance of $117,445.65 from his share account with Perpetual, of which $115,172.39 represented dividend credits made to the accounts during its existence. On the same day, the executrix and Perpetual executed an escrow agreement which provided, in essence, that the dividend credits in question be paid to an escrow agent, Mutual Savings and Loan Company (controlled by the Cooper family) on condition that if said dividends were not subject to income tax to the recipient but were subject only to estate tax, the dividends would be paid to decedent's spouse, and that if the dividends were subject to income tax, then they would be returned to Perpetual. At the time of the instant proceeding (about 10 years after said escrow agreement was executed) the funds were still held by the escrow agent. Held: That the escrow agreement was a sham and a tax avoidance device; that the dividends credited to William's share account during the years of its existence represented a portion of Perpetual's earnings to which his account was entitled as dividends upon surrender of the share account in its entirety and, hence, taxable as ordinary income of his estate under sections 161 and 126(a) of the Code of 1939. Held, further, that the provisions of section 113(a)(5) with respect to the basis of property do not apply to the dividends in question. 2. Petitioner failed to file a Federal income tax return for the taxable year 1949. Held, That since no evidence was produced by petitioner showing the cause of such failure, addition to tax under section 291(a) was properly imposed.

Held, that a mining business was not carried on by the petitioner or by him and other individuals, but was carried on by their corporation, that… Held: that a mining business was not carried on by the petitioner or by him and other individuals, but was carried on by their corporation, that amounts paid by the petitioner to the corporation or on its behalf constituted either investments in its stock or nonbusiness loans to it, and that losses sustained by petitioner on such…

Held, that petitioners were on the cash receipts and disbursements method of accounting; and accordingly, that their state income taxes were deductible only in the year when paid. Held: that petitioners were on the cash receipts and disbursements method of accounting; and accordingly, that their state income taxes were deductible only in the year when paid.

Petitioner made a contribution to a pension fund within 60 days after the end of its fiscal year. Held, this contribution had not accrued during such fiscal year, and it is therefore not deductible under section 23(p)(1)(E) of the I.R.C. of 1939.

1. In 1925, petitioner purchased one-half of the stock in Publishing Company for $12,500 cash and capital contributions of $2,500 arising out of prior advances. Held: Petitioner's cost basis for the stock is $15,000. 2. Petitioner claimed an interest in a certain radio enterprise, and in 1950 brought suit based on such claim along with another suit to protect his interest in Publishing Company.

Where petitioner sought to deduct as ordinary and necessary business expenses the cost of certain items of work incidental to a general plan of rehabilitation, improvement, and modernization of its… Held: none of the expenditures incidental to the over-all project represented ordinary and necessary expenses of petitioner's business and such expenditures should be capitalized and recovered during the remaining useful life of the building.

Respondent disallowed a partnership loss in the sum of $107,000 and increased the income of petitioner-partner in said amount. Held: respondent correctly disallowed the loss to the partnership but such disallowance would only result in an increase of petitioner's income to the extent of 10.3 plus per cent of said sum, which was his per cent of profits and loss established by the partnership instrument.

1. Petitioner, an individual accrual-basis taxpayer, received in 1952 a sum agreed upon in 1951 as final payment of a claim for additional compensation for work performed… Held: the sum was properly reported when received in 1952 and did not constitute income in 1951. United States v. Harmon, 205 F. 2d 919, followed. 2. A judgment in favor of petitioner became final in 1953 in a suit against the United States for additional compensation for work performed in 1943 and 1944.

Held, that petitioners have failed to meet the burden of proving error in respondent's determination that their failure to file a declaration of estimated tax for the year 1951 was not due to… Held: that petitioners have failed to meet the burden of proving error in respondent's determination that their failure to file a declaration of estimated tax for the year 1951 was not due to reasonable cause within the meaning of section 294(d)(1)(A) of the 1939 Code.

Held, that an accrual basis automobile dealer must accrue as income for each taxable year the amount of the net increase for such year in a… Held: that an accrual basis automobile dealer must accrue as income for each taxable year the amount of the net increase for such year in a dealer's reserve account credited to him on a finance company's books, notwithstanding that such reserve account was composed only of portions of the finance company's charges which were allowed to…

Held, that no portion of amounts paid by the corporation to attorneys as reimbursements and fees for services in connection with a… Held: that no portion of amounts paid by the corporation to attorneys as reimbursements and fees for services in connection with a recapitalization and partial liquidation of the corporation, or an amount paid for a certificate of title, have been shown to be deductible as ordinary and necessary business expenses of the corporation.

Held, respondent properly reconstructed petitioners' income for the years 1943 through 1949 by the use of the net worth method and the deficiencies determined thereby, with adjustments for the years… Held: respondent properly reconstructed petitioners' income for the years 1943 through 1949 by the use of the net worth method and the deficiencies determined thereby, with adjustments for the years 1943, 1944, and 1945, are sustained.

Held, that deductions for miscellaneous alleged losses, and for commuting expenses, are denied.

Held, that the amount of $12,750 paid by petitioner corporation to a former executive employee constituted additional compensation to… Held: that the amount of $12,750 paid by petitioner corporation to a former executive employee constituted additional compensation to such employee, rather than purchase price of shares of petitioner corporation's stock which said employee, at the time his employment was terminated, placed in escrow for subsequent retransfer to petitioner.

Respondent's determination of additional income sustained in part and reversed in part.

A payment by petitioner which was directly related to petitioner's right to receive royalties from certain patents, held, capital in nature. American Envelope Co., 29 T.C. 307 (1957). Petitioner's right to amortization of the payment determined.

1. Petitioners, over a two-year period, advanced in excess of $50,000 to a corporation in which they owned 50 percent of the stock and controlled the other stock. Held: the advances were contributions to the capital of the corporation. 2.

Held, that the corporation transferred full ownership of certain improved realty to the individual petitioner, its sole stockholder,… Held: that the corporation transferred full ownership of certain improved realty to the individual petitioner, its sole stockholder, rather than mere legal title for the benefit of the corporation; such transfer was not shown to be in payment of loans owing from the corporation to the petitioner; such transfer constituted the distribution…

Held, that certain payments made by the petitioner over the period 1927 to 1930 to his father in Austria did not give rise to debts within the meaning of section 166 of the… Held: that certain payments made by the petitioner over the period 1927 to 1930 to his father in Austria did not give rise to debts within the meaning of section 166 of the Internal Revenue Code of 1954, and therefore the deduction claimed by the petitioner for a bad debt in 1956 was properly disallowed.

Petitioner Robert E. Rivers was divorced from his wife Georgia Rivers in 1951. Georgia was awarded custody of their two minor children and the decree of the court required that petitioner should pay to Georgia $450 annually for the support and maintenance of each of the children. Georgia subsequently remarried and the minor children in each of the taxable years 1955, 1956, and 1957 were living with Georgia and her then husband. Petitioner paid in each of the taxable years the $450 which he had been directed to pay by order of the court to his divorced wife for the support of each of the children. Petitioners claimed on their returns an exemption of $600 for each of the minor children as dependents. Held, that petitioner Robert E. Rivers furnished over one-half of the support of each of the minor children in the taxable years 1955 and 1956 and is entitled to the two exemptions claimed. Held, further, petitioner did not furnish over one-half of the support of the minor children in 1957 and is not entitled to the two exemptions claimed for that year for the two minor children.

1. Timber acquired in the name of partners with funds advanced by a wholly owned corporation, under a plan whereby the timber was to be acquired and owned by the partnership and sold for reasonable… Held: to be owned by the partnership and not the corporation. Respondent may not disregard the sales from the partnership to the corporation. 2.

Held: (1) That $17,845.13 of the total amount received by petitioner upon his retirement or withdrawal from the Acuff Clinic, a medical… Held: That $17,845.13 of the total amount received by petitioner upon his retirement or withdrawal from the Acuff Clinic, a medical partnership formed by petitioner and six other doctors in 1947, which retirement or withdrawal was made effective as of September 1, 1950, represents his pro rata share, less withdrawals, of the profits of the…

During the year 1954, petitioners sold certain lots by metes and bounds from two parcels which were not subdivided. Petitioners were in the real estate business during the taxable year. Held: the lots sold by the petitioners during the year 1954 were held primarily for sale to customers in the ordinary course of their business, and the gains derived from the sales are taxable as ordinary income.

Petitioner and her then husband opened a joint savings bank account, largely with petitioner's funds, each having the right of withdrawal. Held: petitioner is not entitled to a deduction for a theft loss for 1952 pursuant to section 23(e) of the Internal Revenue Code of 1939 with respect to the withdrawals of the funds by her husband.

Held, petitioners have sustained their burden of proving that certain ranches were individually owned and were not assets of a partnership. Held: petitioners have sustained their burden of proving that certain ranches were individually owned and were not assets of a partnership.

Held: Respondent's disallowance of claimed away-from-home expenses and dependency exemptions sustained.

Held, transfers of certain property made by the decedent, within three years of her death, in establishing separate and irrevocable trusts in favor of her three… Held: transfers of certain property made by the decedent, within three years of her death, in establishing separate and irrevocable trusts in favor of her three children were not made in contemplation of death and are not includible in her gross estate under section 2035(a) and (b), Internal Revenue Code of 1954.

Pension received by petitioner's decedent from Civil Service Employees' Pension Fund of the City of Nashville for physical incapacity to discharge his duties, not due to accidental injury suffered in… Held: exempt from tax as amounts received through health insurance under section 22(b)(5), I.R.C. 1939.

Held, on the evidence presented that the failure of petitioners to file declarations of estimated tax for the years 1951 and 1953 was not due to reasonable cause but to willful neglect… Held: on the evidence presented that the failure of petitioners to file declarations of estimated tax for the years 1951 and 1953 was not due to reasonable cause but to willful neglect and, accordingly, that petitioners are liable for additions to tax under section 294(d)(1)(A), I.R.C. 1939.

Held, that petitioner failed to establish that section 72 of the 1954 Code is unconstitutional, in its application to lifetime retirement allowance payments which he received from the New York State… Held: that petitioner failed to establish that section 72 of the 1954 Code is unconstitutional, in its application to lifetime retirement allowance payments which he received from the New York State Employees' Retirement System under the Civil Service Law of that state.

1. Respondent's determination of additional unreported taxable income by the cash expenditures method approved except as to individual items which the petitioner proved to be erroneous. 2. Held: That his rental income may be reported in his return on the cash method although his business income is reported on an accrual method. 3.

Held: That payments made to Kathryn R. Welsh by petitioner, Ashton L. Welsh, in the amounts of $25,000 and $35,000 are not periodic payments and are not deductible under the provisions of section… Held: That payments made to Kathryn R. Welsh by petitioner, Ashton L. Welsh, in the amounts of $25,000 and $35,000 are not periodic payments and are not deductible under the provisions of section 215(a) and sections 71(a) and 71(c) of the Code of 1954.

Held: Amount of casualty loss determined for deduction under Section 165(c)(3), 1954 Code. Held: Amount of casualty loss determined for deduction under Section 165(c)(3), 1954 Code.

Held, transfer of her one-half interest in Goodman Brothers Company, a partnership, made by the decedent, within three years of her death, to… Held: transfer of her one-half interest in Goodman Brothers Company, a partnership, made by the decedent, within three years of her death, to her son, the owner of the other one-half interest therein, was made in contemplation of death and is includible in her gross estate under section 2035(a) and (b), Internal Revenue Code of 1954.

Held: Amount of petitioners' taxable net income for 1948 determined. Held: Amount of petitioners' taxable net income for 1948 determined.

Early in 1956 petitioner's board of directors authorized its president to make a contribution of corporate funds or property, to a university, of not to exceed $1,000 in value. Held: petitioner in substance made a sale or other disposition of its 1,000 shares of Daytona Beach bank stock for an amount realized of $42,000 within the meaning of those terms as used in section 1001, I.R.C. 1954.

Petitioner's business comprised the ownership and management of a piece of real estate from which it received rents, and the operation of a retail hardware store the gross receipts of which were… Held: The respondent properly included in the cost of goods sold the hardware store inventory on hand June 30. Petitioner realized income from its operation of the hardware business and net income from all business in 1951.

In 1955 the United States selected a portion of petitioner's estate for the purpose of establishing a Nike anti-aircraft missile site. Held: severance damages to adjacent property retained by petitioner are an intrinsic part of the fair market value of the property contributed for the purpose of determining the amount of the charitable deduction for the land and easements so conveyed. Held further, fair market value of the land and easements so conveyed is determined.

Petitioners were engaged in the business of purchasing and cutting timber, manufacturing lumber products, and selling logs and lumber… Held: under certain contracts executed by petitioners and the owner of timberland, they acquired the right to cut timber for sale on their own account and for use in their trade or business within the meaning of section 631(a), I.R.C. 1954, and section 117(k)(1), I.R.C. 1939, and therefore were entitled to report the gain arising from the…

Held: That petitioner has failed to prove error in respondent's determination disallowing the deduction of expenses claimed by petitioner as travel and living expenses for the year 1955.

The fair market value of three pieces of property as of the date of death of decedent determined.

Held, petitioner corporation is not entitled to deduct as advertising expenses amounts incurred in the operation of racing boats. Held: petitioner corporation is not entitled to deduct as advertising expenses amounts incurred in the operation of racing boats. Held, further, some amounts expended by the corporation on its racing boat program are includible in gross income of the individual petitioners, one of whom was the corporation's president and major shareholder.

Held, respondent committed no error in disallowing $165 claimed by petitioner as a deduction for work clothing and laundering, or in disallowing $857.07 of the $1,303.09 claimed by petitioner as a… Held: respondent committed no error in disallowing $165 claimed by petitioner as a deduction for work clothing and laundering, or in disallowing $857.07 of the $1,303.09 claimed by petitioner as a deduction for automobile expense and depreciation.

Held, that debenture bonds, which were held by petitioner's stockholders or members of their families in proportion to their… Held: that debenture bonds, which were held by petitioner's stockholders or members of their families in proportion to their stockholdings and which were issued by petitioner in connection with an expansion program and simultaneously with the retirement of its preferred stock, represent a proprietary interest in the corporation rather than…

Certain annuity contracts were purchased in 1953 and 1954. Held: That the annuity contracts in question were not purchased by Maxwell's employers for Maxwell as an employee within the meaning of section 22(b)(2)(B) of the 1939 Code as to purchases in 1953 or within the meaning of the then section 403(a)(1) of the 1954 Code as to purchases in 1954.

1. Held, that petitioner is not entitled to include among its amortizable assets, an item designated as research and development costs, which actually… Held: that petitioner is not entitled to include among its amortizable assets, an item designated as research and development costs, which actually represented the amounts that four interrelated corporate stockholders of petitioner had expended in meeting current operating expenses of carrying on their own businesses.

Held: ( 1) that certain monthly payments made by the corporate petitioner, which operated an automobile dealership, to its stockholders,… Held: ( 1) that certain monthly payments made by the corporate petitioner, which operated an automobile dealership, to its stockholders, the individual petitioners, constituted dividends to such individuals rather than loans and that certain weekly payments so made were salaries taxable to the individuals rather than payments for travel…

Where a corporation's Articles of Incorporation disclose a purpose to engage in business, the corporation having been continued for the personal convenience of the shareholders, and the corporation… Held: such corporation carried on business and had a tax identity distinct from the stockholders.

Pursuant to an alleged "retirement pay" contract, the corporate petitioner paid certain amounts to its vice president and his son, an employee, upon their retirement, and upon the sale of the vice president's stock to the remaining stockholders. Held: the amounts paid were not additional compensation in consideration of or in recognition of former services and are not deductible by the corporate petitioner pursuant to section 162(a)(1) of the Internal Revenue Code of 1954. Held, further, the amounts paid to the vice president and his son were, in fact, in consideration of the sale of the vice president's stock and such amounts are constructive dividends to the purchasing shareholders. Reasonable allowance for salaries to the corporate petitioner's secretary-treasurer determined. The corporate petitioner entered into a new lease prior to the expiration of its prior lease. Held, the unrecovered costs of leasehold improvements were not deductible in the year the lease expired but were amortizable over the term of the new lease. East Kauai Water Co., Ltd., 11 T.C. 1014 (1948), followed.

1. Taxpayer corporation caused the liquidation of an unprofitable subsidiary which was indebted to it in an amount in excess of the value of the debtor… Held: these transactions, considered either separately or as a whole, did not contain or constitute an exchange as to which any subsection of section 112, I.R.C. 1939, provides that no gain or loss shall be recognized, even assuming the transactions constituted a reorganization as defined in section 112(g)(1)(D). 2.

1. Petitioner Will C. Turner, an electrical contractor, and others formed a corporation, TASCO, Inc., in 1953 to engage in the general contracting business. Held: petitioner's loss was a nonbusiness bad debt. 2. TASCO, Inc., not being licensed as a general contractor, obtained the general contract on a housing project in 1953 in the name of Arney, a licensed general contractor, and agreed to do the work and pay Arney 5 per cent of the profits.

1. Petitioner, in 1953, was an executive of General Motors. He undertook to obtain a dealership in St. Louis. Held: The class B stock cost $85,000; it was sold in 1954 for $10,000, and at a loss of $75,000; the loss was a long-term capital loss, deduction for which was limited to $1,000. 2. Petitioner expected to remain in St. Louis. He listed his house in Michigan with an agent for sale and at the same time rented it.

Petitioner is a practicing physician and has been engaged in the practice of medicine continuously since 1937 both as an individual and in partnership with other doctors. Held: petitioner sustained a loss from a business bad debt deductible in full in the year of the loss.

Petitioner reports income on the cash basis. Held: All of the shares cost petitioner $110,000. (2) The noninterference agreement was separate from the agreements covering the purchases of the shares. (3) The noninterference agreement was for the benefit of the corporations. (4) Petitioner purchased the shares in a transaction entered into for profit.

Where the will and trust indenture provided for the subdivision of each family group's share into separate parts, contained language in the various provisions evidencing intention to create separate… Held: the instruments provided for separate trusts within each family group for the respective living and after-born grandchildren and grandnieces or grandnephews. McHarg v. Fitzpatrick, 210 F. 2d 792 (C.A. 2), explained and followed.

Petitioners, partners in a business engaged in the construction and sale of residential houses, purchased two tracts of land, together with plans and permits, and built two 4-unit apartment buildings on each lot. The apartment units were rented as soon as they became tenantable; there were no sales activities in connection therewith; and on petitioners' books the rental income arising from the apartment buildings was segregated from the profits arising from the sale of residential houses. At varying times within a four-month period, averaging at least 11 1/2 months after their completion, petitioners sold the apartment buildings because of the need for additional capital which arose in connection with the subdivision and development activities of a related corporation from which they had received loans to finance the purchase and construction of the apartment buildings. Held, the four apartment buildings were not held primarily for sale to customers in the ordinary course of petitioners' business and gain realized from their sale constitutes capital gain.

Held, that gifts by decedent of shares of corporate stock and of United States bonds were transfers in contemplation of death within the meaning of section 811(c)(1)(A) of the 1939 Code. Held: that gifts by decedent of shares of corporate stock and of United States bonds were transfers in contemplation of death within the meaning of section 811(c)(1)(A) of the 1939 Code. The value of such gifts is accordingly includible in decedent's gross estate.

1. Amount paid its president and principal stockholder by M corporation in 1955 held reasonable compensation for services rendered. 2. Held: certain amounts of reimbursements for entertainment of business guests determined as deductible business expenses of M corporation; held, further, no amounts paid for home maintenance are deductible by M corporation as business expenses. 5.

Held, that petitioner made certain loans to a partnership and, when that partnership was incorporated, accepted preferred stock with no… Held: that petitioner made certain loans to a partnership and, when that partnership was incorporated, accepted preferred stock with no ascertainable fair market value in full satisfaction of these loans, which stock became worthless during petitioner's fiscal year ended September 30, 1952, entitling petitioner to a capital loss deduction…

1. Held, (a) petitioners are not entitled to reduce their income for the years involved for losses from wheat shrinkage; (b) petitioners are not entitled to exclude from income in 1954 the proceeds of sale of certain wheat futures purchased in 1953 and 1954; and (c) petitioners overstated purchases of wheat in 1954 in the amount of $23,850. 2. Court is without jurisdiction to determine petitioners' tax liability for the years 1957, 1958, and 1959. 3. Addition to tax under section 294(d)(1)(A), I.R.C. 1939, approved.

Prior to 1955, four retail supermarkets, known to the public as Budget Markets were owned and operated by three corporations, all the stock of which was in turn owned by petitioners. Held: the respondent erred for the reason that the $110,000 ostensibly paid for the restrictive covenant was in fact nonseverable from the total consideration for all the assets purchased from petitioners. Cf. Ray H. Schulz, 34 T.C. 235 (May 19, 1960).

Held: On the facts presented that the fair market value of two gifts from petitioner to his son in 1954 and 1955, each of a one-thirtieth interest in certain real property located in Syracuse, New… Held: On the facts presented that the fair market value of two gifts from petitioner to his son in 1954 and 1955, each of a one-thirtieth interest in certain real property located in Syracuse, New York, was not in excess of $3,000 for each of said gifts.

By agreement between Arthur Murray, Inc., of New York City, as licensor, and petitioner's husband and petitioner, as licensee, the licensor granted to the licensee the use of the name, "Arthur Murray", in connection with the operation of a dancing school in Albany, New York. This license agreement was in effect during 1948 and 1949, the taxable years here involved. Petitioner contributed $1,000 of her own funds to the business when it commenced in 1947. She rendered services thereto during the taxable years by interviewing, handling publicity, and teaching children's dancing classes. There was neither a written nor oral agreement between petitioner and her husband to share profits and losses of the business. Petitioner's name was not on the business bank account and she could not draw checks thereon. The real property used in the business was in the name of petitioner's husband only. Petitioner did not have access to the books of the business, did not participate in the management thereof, was not named in suits brought in connection therewith, and received no distribution from profits. When in the latter part of 1949 petitioner asked her husband to recognize her as a partner in the business, he refused to do so and has continued to refuse to so recognize her. Held: Petitioner was not a partner with her husband in the operation of the dancing school business and is not taxable during the years here involved on any portion of the profits thereof.

Held: That respondent has failed to prove that the fair market value of 147 of petitioner's 300 authorized shares was, on July 16, 1951, worth less than the stated contract price for such shares. Held: That respondent has failed to prove that the fair market value of 147 of petitioner's 300 authorized shares was, on July 16, 1951, worth less than the stated contract price for such shares.

Held, that since it has not been shown that a certain debt owing to Calavo, Inc. became worthless during the year in question, the amount of such debt may not… Held: that since it has not been shown that a certain debt owing to Calavo, Inc. became worthless during the year in question, the amount of such debt may not be charged against the reserve for bad debts and thereby be reflected in the computation of the deductible addition to the reserve for bad debts for such year.

1. Held, that shares of stock issued to the principal petitioner by a corporation of which he was the president and general manager constituted compensation for services rendered and excess reimbursement for travel expenses, and therefore were taxable income to him. Held, further, that the fair market value of said shares is determined. 2. Held, that the principal petitioner is not entitled to deduct premiums paid by him on a policy of term insurance on his life, which was taken out in order to meet a requirement imposed by a creditor upon petitioner's controlled corporation, as to which said creditor was the beneficiary, and of which the proceeds were to be used to pay off the corporation's debt to said creditor.

Petitioners purchased real property in 1947 which they used as their residence until October or November 1950. They rented the property from February 1951 until it was sold on February 5, 1952. Held: that, whether any possible loss is to be treated as a capital loss or an ordinary loss, there is no evidence supporting a carry-over of any part of such loss to 1953 or 1954.

Held, that petitioners failed to establish that, for any of the taxable years involved, petitioner Raymond L. Stiff furnished more than half of the support for each of his three minor children by a… Held: that petitioners failed to establish that, for any of the taxable years involved, petitioner Raymond L. Stiff furnished more than half of the support for each of his three minor children by a prior marriage, who resided with his former wife.

Held: That the amount of $42,000 in issue (out of a total of $47,000, $5,000 of which is not in issue, section 101(b), I.R.C. 1954) paid to a widow by a corporation of which her deceased husband had been an officer was not intended as a "gift" excludible from gross income under section 102, I.R.C. 1954. Estate of Mervin G. Pierpont, Deceased, et al., 35 T.C. -, (filed October 19, 1960), followed.

During the taxable years 1954, 1955, and 1956, petitioner Charles H. Duell, without consideration, unconditionally surrendered for cancellation 2,120 shares of preferred stock in a corporation in which he was the principal common stockholder. There was no ratable contribution of their stock by the other stockholders to the corporation. Petitioner's purpose in surrendering the preferred stock was to improve the corporation's financial condition. The increase in value of petitioner's remaining stock in the corporation resulting from his surrender of the preferred stock was stipulated as $24.15 in 1954, $1,242.69 in 1955, and no increase in 1956. Held, following Julius C. Miller, 45 B.T.A. 292, that petitioner is entitled to deduct as ordinary losses in the taxable years the difference between the stipulated basis of the stock surrendered and the stipulated increase in the value of petitioner's remaining stock.

Held, the deficiencies determined for the taxable years 1943 to 1947, inclusive, were due to fraud with intent to evade tax. Held: the deficiencies determined for the taxable years 1943 to 1947, inclusive, were due to fraud with intent to evade tax.

Held, interest deductions claimed by petitioners as having been paid on an Annuity Loan Note and Assignment of Annuity Savings Bond and which have been disallowed as… Held: interest deductions claimed by petitioners as having been paid on an Annuity Loan Note and Assignment of Annuity Savings Bond and which have been disallowed as deductions by the Commissioner are not deductible. The Commissioner is sustained. Knetsch v. United States, U.S. , decided November 14, 1960.

The petitioners are executive-employees of R & R corporation. Held: The dividends in dispute did not constitute additional compensation to any of the petitioners for services to the corporation.

Pursuant to paragraph 10 of their separation agreement, petitioner's former wife conveyed her interest in certain real property to petitioner in exchange for a promissory note under which petitioner… Held: payments under the promissory note did not constitute periodic payments within the meaning of section 71(a), Internal Revenue Code of 1954, and are not deductible by petitioner under section 215.

Held, payments received by petitioner during 1952 and 1953 from Remington Rand, Inc., represented additional compensation for the continued rendition of his services to Eckert-Mauchly Computer… Held: payments received by petitioner during 1952 and 1953 from Remington Rand, Inc., represented additional compensation for the continued rendition of his services to Eckert-Mauchly Computer Corporation.

Held, that the cost of the improvements made by petitioner on leased property in the instant case is to be depreciated over the useful life of said improvements and may not be amortized on the basis… Held: that the cost of the improvements made by petitioner on leased property in the instant case is to be depreciated over the useful life of said improvements and may not be amortized on the basis of the remaining stated period of the lease.

Held, that the transfer of a 360-acre farm by decedent to his son approximately 14 months prior to his death was not a transfer made in… Held: that the transfer of a 360-acre farm by decedent to his son approximately 14 months prior to his death was not a transfer made in contemplation of death; Held, further, that no portion of the decedent's estate was trust property belonging to the decedent's son; Held, further, that the decedent's son did not contribute any part of the…

1. Held, contributions to an irrevocable trust, the funds of which must ultimately go to charities described in section 170(c), I.R.C. 1954, are for the use of such charities and are deductible under… Held: contributions to an irrevocable trust, the funds of which must ultimately go to charities described in section 170(c), I.R.C. 1954, are for the use of such charities and are deductible under section 170. 2.

Petitioner, a participant in numerous business ventures, made a loan to Frank Abbate which became worthless in 1954. Held: Petitioner was engaged in a series of full-time business activities during 1946-1959, and his intermittent promotional activities outside his normal business routine do not put petitioner in the trade or business of promoting, organizing, and financing businesses. 2.

Held: On the facts presented, petitioners have failed to establish they furnished more than one-half the support of their son, James F. Wright, during the year 1957, and accordingly are not entitled to a dependency exemption for him for that year.

Petitioner's wife deserted him and their infant daughter in 1956. Petitioner was granted a divorce a vinculo matrimonii in 1959. Held: the amount so paid is not deductible as an expense for the production of income under section 212(1), I.R.C. 1954, for the reason that it constituted a personal, living, or family expense which is specifically not deductible under section 262, I.R.C. 1954.

1. Sophie Daniel was a national and resident of Budapest, Hungary. She owned an interest in rental property there. After her departure in 1948, her interest was managed by an agent. Held: as a part-owner petitioner was engaged in a trade or business and sustained a net operating loss in the amount determined which may be carried over to 1953. Peter S. Elek, 30 T.C. 731, followed. 2. Tibor Daniel was a national and resident of Budapest. He owned an unimproved lot there.

Petitioners' unadjusted basis in rental property inherited from Chester's father, on which lessee had constructed improvements before father's death under… Held: to be fair market value of land and building at date of father's death in 1926 as determined for Federal estate tax purposes. Adjustments must be made for allowable depreciation, based on useful life and value of building at time of father's death, in computing loss incurred on involuntary sale of property in 1951.

Petitioners, owning over 50 per cent of the stock of a family corporation, acquired real estate, on which the corporation held a very favorable long-term lease and on which it operated a market, for… Held: the $40,000 profit realized by petitioners was a disguised dividend from the corporation and taxable to petitioners as ordinary income.

Petitioner entered into a series of transactions by which he purchased bonds, donated them to a charitable organization and claimed deductions for amortization of the bond premiums and for interest… Held: respondent correctly disallowed petitioner's deduction for amortization of the bond premium. Maysteel Products, Inc., 33 T.C. 1021. Held, further, petitioner is entitled to deduct the interest. Fabreeka Products Co., 34 T.C. 290.

Held, that in the years in question the petitioner, a waiter, received tips in a greater amount than reported by him in his returns, but in a lesser amount than determined by the respondent. Held: that in the years in question the petitioner, a waiter, received tips in a greater amount than reported by him in his returns, but in a lesser amount than determined by the respondent. The amount of such tips found.

In 1955, there was assigned to a partnership of which petitioners were members all the operating assets of a corporation which had been engaged in the construction business for several years prior thereto and which was then in liquidation and was dissolved at the end of the year. At the same time there was also assigned to the partnership a contract known as the Booth Ranch contract on which the corporation had done some preliminary work. The contract was completed in 1957 by the partnership and proved to be a profitable one. In 1955, when the contract was assigned to the partnership no one could tell whether it would prove to be profitable or not and it had no fair market value at that time. The Commissioner added to the income reported by petitioners as profits from the liquidation of their stock in the corporation a sum which he contends represents petitioners' proportional share of the fair market value of the contract at the time of its assignment. Held, the Commissioner erred in his adjustment to the income reported by petitioners on their return because the contract had no fair market value at the time of assignment to the partnership.

1. Held, that in applying the net worth method herein, no adjustment should be made to the opening net worth as found, to reflect an adjusted basis for slot machines. 2. Held, that during each of the years 1942 through 1946, the principal petitioner held coin-operated machines primarily for sale to customers in the ordinary course of a business; and that he is not entitled to capital gain treatment with respect to any portion of the proceeds from the sales of machines which he sold in such business. 3. Held, that at least part of the deficiency for each of the years 1944 through 1947, is due to fraud with intent to evade tax within the meaning of section 293(b) of the 1939 Code.

Petitioner, a certified public accountant, made loans to a corporation engaged in the business of selling curtains, of which he was a salaried officer and his son was the controlling stockholder. Held: petitioner was not entitled to a business bad debt deduction when the loans became worthless in the year in question, since the debts were not proximately related to his accountancy business.

Amount paid by corporation of which petitioner was sole stockholder in settlement of notes on which petitioner was guarantor constituted a dividend to petitioner. Petitioner has failed to establish that the amount of the payment in 1954 on corporate notes guaranteed by him was an allowable deduction.

Petitioners are not entitled to deduction for a nonbusiness bad debt where evidence fails to show that debt became totally worthless in year in which deduction is claimed.