Volume 2 — Tax Court Reports

Petitioners' decedent was in debt to a national bank at the time of his death in December 1935. The bank was insolvent and in the hands of a receiver. Held: the general rule is that, where partial payments are made by a debtor on indebtedness without direction as to how such payments should be applied as between principal and interest, payments should first be applied by the creditor to interest and the remainder to principal.

The cost of the uniform of an officer of the California Highway Patrol and expenses of cleaning and repairing are legal deductions from gross income.

A reserve fund required by law to be computed upon the basis of the American Experience Table of Mortality, with 3 1/2 percent accretions, or which, if otherwise computed, must be substantially equivalent thereto, held to qualify as a true life insurance reserve maintained for the fulfillment of petitioner's combined life, health, and accident insurance contracts within the purview of section 201 (a) of the Revenue Acts of 1936 and 1938.

On June 8, 1922, decedent transferred property in trust, in all of which he retained a possibility of reverter until his death. He died on November 16, 1937. Held: the measure of the decedent's estate for estate tax purposes includes the value of the entire trust corpus at his death. Sec. 302 (c), Revenue Act of 1926, as amended by sec. 803 (a), Revenue Act of 1932; Helvering v. Hallock, 309 U.S. 106; Smith v. Shaughnessy, 318 U.S. 176.

1. During the taxable year the petitioner performed the work of constructing a building in all important particulars called for by the contract, but at the close of the year several minor defects in workmanship remained to be corrected. The architect issued his certificate during the taxable year authorizing a final payment to the contractor and stating that a small amount was retained for final adjustment. Held that within the meaning of art. 42-4.

1. Prior to the taxable years here involved portions of certain properties owned by petitioner were condemned and taken for street widening. Held: under section 112 (f) of the Revenue Acts of 1932, 1934, and 1936, petitioner did not expend any of the award money in the establishment of a replacement fund but did expend part thereof forthwith in good faith in the acquisition of other property similar or related in service or use to the property taken; held, further, in…

The excess of fair market value of an asset distributed in kind over its cost to the distributing corporation, petitioner's wholly owned foreign subsidiary, held not to have augmented earnings or profits of the subsidiary; held, further, inasmuch as the subsidiary had sufficient accumulated earnings and profits from other sources, the distribution was a dividend out of those earnings to the extent of the fair market value of the asset distributed, and petitioner is deemed by section 131 (f) of the Revenue Act of 1934 to have paid a proper proportion of the foreign income taxes paid by the subsidiary upon or with respect to such earnings or profits.

Petitioners' transferor, a Kansas corporation, was engaged in the business of furnishing engineering services for the construction of petroleum processing plants. Held: that the income received under the contract was income to the transferor in 1938.

1. Pleadings -- Cause of Action. -- A petition alleging facts to show that the taxpayer was not in existence for the full six years preceding the imposition of the processing tax and had inadequate records for that period and had requested unsuccessfully that the Commissioner use the average margin of representative concerns, but failing to allege any facts in regard to the tax period or any facts upon which relief could be based, does not set forth a cause of action. 2.

1. At the beginning of the taxable year the petitioner had an impairment of its paid-in capital. During the year it decided to liquidate and dissolve. It sold its assets and business and before the end of the year filed a statement of intent to dissolve with the state authorities. The petitioner had net earnings or profits for the year and, after the sale of its assets and business, made a distribution in excess of such earnings or profits. Held: (a) That the distribution was a distribution in partial liquidation; (b) That, to the extent necessary to absorb the deficit in paid-in capital, the earnings or profits for the taxable year must be regarded as "properly chargeable to capital account" for the purpose of determining the character of the distribution under section 115 (c) of the statute, and only the excess of such earnings or profits over and above the amount necessary to absorb the deficit in capital may be regarded as "earnings or profits accumulated after February 28, 1913," under section 27 (f) of the statute; (c) That the allocation of the distribution as between capital and earnings or profits is to be made in the same ratio that each bears to the total of capital and earnings or profits available for distribution; and (d) That subsection (f) of section 26 of the Revenue Act of 1936, as amended by section 501 of the Revenue Act of 1942, is not applicable. 2. The petitioner was indebted to a bank on two of its notes of different amounts. It entered into negotiations with the bank for the cancellation of a portion of the indebtedness and the bank agreed that if petitioner would pay the smaller note in full and a stated portion of the amount owing on the larger note, it would cancel the balance owing on the latter. The petitioner made the stipulated payments and the bank surrendered the notes. Thereafter during the taxable year the bank brought suit to recover the unpaid amount of the larger note. The litigation has never been finally terminated. Held, that the petitioner realized no taxable income on account of cancellation of indebtedness. Helvering v. American Dental Co., 318 U.S. 322, followed. 3. In addition to bringing suit for the unpaid principal and interest due on the larger note when surrendered to petitioner, the bank sued for additional interest to the date of filing suit. Held, that petitioner is not entitled to a deduction in the taxable year of the amount of such additional interest. 4. Under the law of Illinois, the state of its charter, the petitioner lost the right to continue business, except for the winding up of its affairs, when it filed its statement of intent to dissolve. However, its corporate existence is continued until issuance by the proper state official of a certificate of dissolution following the complete liquidation of the petitioner's affairs. Held that, since during the taxable year the petitioner lost the right to carry on the business for which it was organized, it is entitled to a deduction of organization expenses.

1. The extension by mutual agreement on July 30, 1936, of a two-year contract executed on July 31, 1934, which contract bound petitioner to refrain from dividend payments during its term but contained no provision for its extension or renewal, held to constitute a new contract, rather than a mere continuation of the old, so that petitioner is not entitled to credits by reason of a contract executed prior to May 1, 1936, restricting the payment of dividends. 2.

The decedent bequeathed certain remainder interests to the Presbyterian Hospital in the City of New York, a corporation organized and operated exclusively for charitable purposes. Held: the value of the remainder interests is deductible from the value of the gross estate as a charitable bequest within the purview of section 303 (a) (3) of the Revenue Act of 1926, as amended by section 807 of the Revenue Act of 1932, and section 406 of the Revenue Act of 1934.

Claimant of refund of sugar processing taxes held upon the evidence not entitled to refund because the margin in the tax period was higher than in the before-and-after period and the evidence fails to show that the burden of the tax was borne by claimant and not shifted to the claimant's purchasers.

Redemption of common stock in X corporation, which was owned by petitioner, held to be essentially equivalent to the distribution of a taxable dividend within the provisions of section 115 (g) of the… Held: further, that the amount of the earnings or profits of the corporation which made the distribution included the amount of a gain realized in earlier years upon the redemption of all of the preferred stock.

1. Where the provisions of an amendment to the charter of petitioner and certificates of stock issued thereunder prohibited the payment of dividends until the earnings and profits of petitioner… Held: the petitioner is entitled to credits in the taxable years under section 26 (c) (3) of the Revenue Act of 1936, added to that act by section 501 (a) (2) of the Revenue Act of 1942. 3.

Following Helvering v. American Dental Co., 318 U.S. 322, a voluntary cancellation of overdue interest on debentures held by a shareholder of the debtor is a gift and not taxable income to the debtor.

A corporation having only common stock outstanding issued pro rata to its stockholders rights to purchase an issue of its preferred stock. The rights had a fair market value of 36 cents per right. Held: that it did not receive a taxable dividend by reason of such receipt and exercise of rights. By reason of the holding of the Supreme Court in Strassburger v. Commissioner, 318 U.S. 604; Helen Whitney Gibson, 44 B. T. A. 950; affd., 133 Fed. (2d) 308, not followed.

Petitioner is a transferee of the Koppers Products Co., of which it was the sole stockholder, having received its assets and assumed… Held: that the purchase of its subsidiary's bonds by petitioner with its own funds was a legitimate transaction by petitioner and the amount received by it on redemption of the bonds, being no more than its subsidiary would have been required to pay to any holder of the bonds under such conditions, the transaction was not a fictitious sale…

1. Income of a trust made by a former husband for the benefit of his wife and minor children in contemplation of divorce which was not embodied in the Nevada divorce decree, held within the taxable income of the wife except to the extent shown by the evidence to have been used for the support and maintenance of the minor children in discharge of the former husband's parental duty. 2.

The petitioner's capital had, in earlier years, been impaired by distributions exceeding earnings and profits. Held: that earnings and profits accumulated thereafter may not be considered as replacing the capital impairment and diminishing earnings and profits, in determining whether, at the close of the years preceding the taxable years, the petitioner had a deficit in accumulated earnings and profits entitling it to a credit, within the meaning…

Early in 1939 one of petitioner's stockholders desired to retire from the business and the other stockholders were willing. Held: that in consummating the above transactions petitioner was not dealing in its own shares as it might in the shares of another corporation within the meaning of section 19.22 (a)-16 of Regulations 103, and petitioner is not taxable on the gain which the Commissioner has determined.

Held, two trusts created by decedents, husband and wife, were not executed in consideration of each other and respondent erred in including in the taxable estate of each decedent the… Held: two trusts created by decedents, husband and wife, were not executed in consideration of each other and respondent erred in including in the taxable estate of each decedent the corpus of the trust created by the decedent's spouse, as to which such decedent was the life income beneficiary.

Under the terms of a will creating a testamentary trust of which petitioner was the income beneficiary, a class of trust income was under the discretion of the trustees to decide whether it should… Held: that the special income was not deductible in the taxable year by the trustees from the gross income of the trust under section 162 (b) or (c) of the Revenue Act of 1938, and petitioner was not required to include the amount thereof in his gross income for the taxable year.

On December 19, 1934, a voluntary petition for reorganization of petitioner was filed under section 77B of the Bankruptcy Act. Held: that petitioner was not liable to tax on income derived from the operation of such properties in 1935 nor to an addition to tax, under section 291 of the Revenue Act of 1934, for failure to file an income tax return for said year. Reinecke v. Gardner, 277 U.S. 239.

Moneys advanced by petitioner to a corporation in 1938 and early 1939 constituted a capital investment in and not a loan to that corporation. Since this investment became worthless in the tax year the loss thus sustained is a capital loss, the deductibility of which is limited by section 23 (g) (1) and (2) of the Revenue Act of 1938.

The petitioners and others advanced money to a corporation. Each received the corporation's notes, and six-tenths of a share of stock for each $ 1,000 advanced. No other stock was issued except that later, after advancements of money had ceased, after default upon interest on all notes and upon principal of a part, some stock was issued as additional compensation or bonus for services. The corporation had no other assets or capital, except the advances so made.

Where an irrevocable trust instrument provides that upon the death of the life beneficiary the income shall be paid to the trustor for life and that upon the death of the survivor the trust shall cease and determine, and all property then in the hands of the Trustee shall vest in and be delivered to those persons to whom said property shall be given, bequeathed or devised by the last Will and Testament of the survivor and the trustor dies first, the value of the reversionary…

The purchase by petitioner of two annuity contracts providing for the payment of a total of $ 200 per month to an employee being retired after many years of valuable service, rendered with the understanding that retirement would be on a pension, held to be payment of additional compensation for such service and, accordingly, the cost of the annuity feature of each contract is not subject to gift tax. Further held that additional amounts paid by petitioner for the inclusion in each annuity contract of a refund provision obligating the insurer, in case of death of the annuitant before the total cost of the contract had been paid out in monthly installments, to pay to certain members of petitioner's family the balance of such cost, constituted taxable gifts of future interests in property with respect to which petitioner was not entitled to an exclusion under section 505 (b) of the Revenue Act of 1938.

An unadjudicated claim for alleged fraudulent representations in connection with the sale to petitioner of an oil painting, held not to constitute a debt, which may be the basis of a worthless debt deduction, within the meaning of Internal Revenue Code, section 23 (k).

The petitioner kept his individual accounts on a cash basis. He owned individually a school book depository business, the books of which were kept upon the same accrual basis which had for several years been followed by a corporation from whom the petitioner took over the business. Held, income from the school book depository business must be reported upon an accrual basis.

1. Petitioner surrendered several endowment policies prior to their maturities and elected to receive the cash surrender values in equal installments over 20 years and 10 years, respectively. Held: that the receipts in the taxable year were not annuity receipts within the intendment of section 22 (b) (2) of the Revenue Act of 1936, and no part of the amounts received in the taxable year are includable in gross income. 2. Petitioner was a member of a copartnership.

Taxes paid by the petitioner in 1937 and 1938 to the Mexican Government under a statute entitled Ley del Impuesto sobre la Renta, based upon petitioner's gross revenue from mining properties located… Held: income taxes for which a credit is allowed under section 131 of the Revenue Acts of 1936 and 1938.

1. Renunciation of right reserved in trust instrument to designate beneficiary to take after death of life tenant, held, to subject the remainder interest to gift tax. Held: to subject the remainder interest to gift tax. Sanford's Estate v. Commissioner, 308 U.S. 39, followed. 2.

1. Transfer of property in trust with reservation of income to grantor for her life, together with right to withdraw $ 15,000 of principal each year, held, taxable… Held: taxable gift as to the value of the remainder interest. Smith v. Shaughnessy, 318 U.S. 176, 87 L. Ed. 690, 63 S. Ct. 545, and Robinette v. Helvering, 318 U.S. 184, 87 L. Ed. 700, 63 S. Ct. 540, followed. 2. Respondent's computation of value of gift sustained. Henry F. du Pont, 2 T.C. 246, decided herewith.

The amount withheld in 1939 and 1940 under the Civil Service Retirement Act from the pay of a United States Civil Service employee on the cash basis, held, to be within his gross income. Held: to be within his gross income.

1. Prior to December 15, 1932, the petitioner was engaged as a sole proprietor in the business of selling shoes on a commission basis. Held: that the respondent did not err in determining that all the income from the business during 1937 through 1939 was taxable to petitioner. 2.

1. In 1935 and 1936 petitioner and his parents gave to petitioner's minor son 12,500 shares of X corporation stock. Held: the income from this stock is not taxable to petitioner. 2.

1. A donor made certain gifts in 1932 and claimed in her gift tax return for that year, filed by March 15, 1933, a specific exemption of $… Held: that the donor of the gifts is not entitled to allowance of the specific exemption of $ 5,000 claimed by her for 1933 under section 505 (a) (1) of the Revenue Act of 1932, since she had been allowed the full amount of $ 50,000 provided by that statute before she claimed the $ 5,000 as a further specific exemption in her return for…

Petitioner Chas. F. Roeser, a resident of Texas, created a trust to terminate upon the death of the survivor of himself and his wife; named… Held: that the settlor retained such substantial rights and control in respect of the trust property and the income therefrom as to render such income taxable to petitioners, husband and wife, on a community property basis, under section 22 (a) of the Revenue Act of 1932, as amended, and section 22 (a) of the Internal Revenue Code; (b)…

The petitioner in 1931 abandoned her home, took up her residence in another property, and had resided there for approximately 11 years at the time of trial. Held: expenses for services of a caretaker, and depreciation on the property are allowable deductions under section 23 (a) of the Revenue Act of 1936, as amended by section 121 of the Revenue Act of 1942.

On November 21, 1935, prior to incorporation of petitioner on December 27, 1935, two of the three promoters addressed a letter to a bank… Held: the correspondence mentioned did not constitute a written contract executed prior to May 1, 1936; (2) assignments of portions of the proceeds of the contingent loan to pay for materials and services ordered by or in behalf of petitioner did not constitute ratification or adoption of the agreement with the bank by petitioner; and (3)…

1. Petitioner John W. Willmott was the owner of farms, business properties, oil-producing properties, stocks and bonds. Held: such expenditures not deductible either under section 23 (a) (1), Revenue Act of 1938, or section 121, Revenue Act of 1942. 2.

The petitioner, a widow, has an adult daughter, incompetent from early childhood and from birth always a member of the petitioner's household. Held: petitioner is entitled to personal exemption as the head of a family.

1. Several years prior to decedent's death a partnership, of which he was a member, took out policies of insurance in the aggregate amount of $ 200,000 on the joint lives of decedent… Held: respondent's action was proper. 2. Fair market value of decedent's interest in the partnership held to include the fair market value of certain stocks, the latter being the mean between the high and low quotations. 3. Decedent and two others were jointly and severally liable on a note.

1. Petitioner, a cotton factor, kept its books and filed its returns since its incorporation in 1916 upon the cash basis as distinguished… Held: since petitioner was predominantly upon the cash basis, it erred in accruing or charging on the interest in prior years and it could not correctly be charged off within the meaning of the applicable law and regulations, and the Commissioner is sustained in disallowing it as a bad debt deduction. Charles A. Collin, 1 B. T. A. 305. 2.

1. The holder of petitioner's bonds voluntarily accepted payment of interest at a reduced rate. Held, no taxable income resulted. 2. Held: no taxable income resulted. 2. Petitioner improperly accrued interest as due under an option to purchase property. The accrued interest was deducted from income reported in earlier years. Later when the option was exercised in the taxable year, the vendor voluntarily accepted less than the full amount of interest contracted for.

1. Amount paid by petitioner to attorneys for services rendered to him under a California statute authorizing a proceeding to require a corporation, merging or consolidating with another, to pay… Held: that there was in effect an exchange of stock for stock pursuant to a plan of reorganization and no gain or loss may be recognized.

1. Prior to the taxable years involved petitioner irrevocably transferred certain property to her husband as trustee and directed him to… Held: upon consideration of the entire trust instrument, the intention of the grantor was not that the trust would terminate and revert to her estate should she predecease her husband, but rather that it was to continue for the benefit of her surviving children, and the children of any deceased child; held, further, petitioner's husband…

1. Under an oil and gas lease, lessees were to pay a stated sum annually, called rental, and to retain the royalties produced and be reimbursed… Held: such payments were in the nature of advance royalty, and subject to depletion by lessor. 2. A trust received, by way of gift, certain real estate, a portion of which it subdivided into lots for sale at the suggestion of a licensed real estate broker, who was given the exclusive agency with a stated commission on all sales.

1. The basis for computing percentage depletion on quicksilver mines for 1939, 1940, and 1941 held to be the market value of the cinnabar ore, from which the quicksilver was extracted, at the mouth of the mines and not the market value of the quicksilver in flasks, as reflected in gross sales thereof. 2.

Dividends Paid Credit. -- Fair market value of notes determined and credit allowed in that amount where dividend was declared and paid in part in notes of the corporation.

Under the stock subscription plan here involved, where petitioner's employees could make application to purchase a limited number of shares of petitioner's stock and make deferred monthly payments therefor from wages, and petitioner agreed on its part to make certain credits to the employees' stock purchase accounts equaling the dividends paid on the company's common stock and other annual credits in the form of special benefits and additional compensation, which credits and…

Amounts paid for the benefit of, and to provide special advantages for, a designated ward of a charitable organization, held not deductible as charitable contributions.

Excess Profits Tax Under Subchapter E of Internal Revenue Code. -- Several years prior to the taxable year 1940 the taxpayer corporation acquired policies of insurance on the life of its principal stockholder. During the taxable year the stockholder died and the proceeds of the policies were paid to the taxpayer corporation. Held, the net proceeds thus received (after deducting from the gross proceeds the taxpayer's investment in the policies and the portion of the income and defense taxes applicable to such gross proceeds less the investment) constituted "abnormal income" as that term is defined in section 721 (a) (1) of the Internal Revenue Code as amended, and also "net abnormal income" as that term is defined in section 721 (a) (3) of the Internal Revenue Code as amended; held, further, no portion of the "net abnormal income" is attributable to years other than the taxable year under section 721 (b) of the Internal Revenue Code as amended.

The cost of uniforms and accessories of a nurse in a tuberculosis hospital which are worn only while on duty is deductible from gross income under section 23 (a) (1) I. R. C., as amended by section 121 of the Revenue Act of 1942.

With the primary object of escaping estate and income taxes, petitioner, a naturalized citizen, repatriated himself as a Canadian citizen,… Held: the Nassau corporation lacked business purpose, its existence should therefore be disregarded for tax purposes, and the liquidation of the California company was in effect a distribution to petitioner individually; held, further, the liquidation of the American corporation gave rise to income from sources within the United States.

From 1924 through 1939 the petitioner and his wife engaged variously in the operation of a fruit and vegetable store, acquired in 1924… Held: that the wife of the petitioner was a contributor to the capital of the ham business to the extent that her separate earnings from services rendered by her were retained and used in the business and to the extent that the 1939 profits were attributable to the capital contributed by her or to services rendered by her in that year the…

The cost of bedside uniforms and accessories and the laundering thereof to a graduate nurse engaged in private duty nursing is deductible from gross income under section 23 (a) (1) of the Internal Revenue Code.

Property transferred by decedent during his lifetime to trustees, not including himself, with discretion in the trustees to apply the income to the maintenance, education and support of… Held: not includible in decedent's gross estate. Helvering v. Mercantile-Commerce Bank & Trust Co. (Estate of Paul F. Donnelly), (C. C. A., 8th Cir.), 111 Fed. (2d) 224; certiorari denied, 310 U.S. 654, distinguished.

1. Where a business was conducted by a subsidiary for the first six months and by the parent company for the second six months of a taxable… Held: a compilation made by a certified public accountant of the net income earned by the subsidiary prior to its liquidation from data obtained from the books should be accepted in lieu of the allocation method as representing, as nearly as it is possible to determine, the net income earned by the subsidiary prior to the liquidation;…

1. While a proceeding (Docket No. 111585) involving deficiencies for 1934, 1936, and 1937 was pending before the Tax Court the respondent mailed a second deficiency notice covering a part of the same… Held: that the mailing of the second deficiency notice was not authorized and that this Court has no jurisdiction in a proceeding based thereon. Agnes McCue, 1 T. C. 986, followed. 2.

1. The income of four trusts that was to be accumulated and paid to the grantor's husband, together with the corpora, at the end of terms… Held: not taxable to the grantor under section 22(a) or 167 of the Internal Revenue Code. 2. The grantor-trustee held taxable upon income of a trust which was to be accumulated, where she reserved the power to appoint corpus and income at the end of the trust period among her husband, nieces, and nephews. Commissioner v. Buck, 120 Fed.

Petitioner purchased, for less than face value, and turned in at face value, as payment of its mortgage indebtedness, certain mortgage certificates issued by the trustee under the mortgage. Held: that the petitioner realized income to the extent of the difference between cost and face value of the certificates. United States v. Kirby Lumber Co., 284 U.S. 1, applied.

Petitioner, a domestic corporation, is a wholly owned subsidiary of a Canadian corporation. Held: that in so doing the respondent erred. The accounting records of the parent corporation and petitioner, except as to certain minor items which are not in dispute, correctly reflected the net income from the property and business of each of the corporations and were not devised for the purpose of reducing or avoiding taxes by shifting…

The petitioner is a corporation of two stockholders, husband and wife. Held: that the sale was made by the corporation. Held, further, that though denominated rent discount on the corporate books, an item of $ 350 was paid as compensation for use of money borrowed, and is deductible as interest paid. Fraud penalties disapproved.

1. All of the common stock of X corporation was owned by petitioner and his brother and the preferred stock was owned by their wives and by two valued employees of the corporation. The preferred stock was callable by the corporation at 120, and, after the payment of 7% dividends thereon, was entitled to additional dividends equivalent to any dividends declared on the common stock. Held, dividends paid to holders of preferred stock in accordance with its terms are not gifts of the common stockholders to the preferred stockholders. 2. X corporation in 1934 and 1935 reduced its common stock, thereby enhancing the value of the participating preferred stock and giving it a right to a greater proportionate share of the future earnings of the corporation. Held, the payment of the increased dividends to preferred stockholders in 1936 and 1937 did not constitute gifts from the common stockholders in those years. 3. Exclusions were erroneously allowed petitioner in previous tax years in connection with gifts of future interests to a trust for the benefit of petitioner's children. Held, such exclusions should be disregarded for the purpose of determining petitioner's total net gifts and the rates of tax applicable to petitioner's gifts in current tax years, even though the statute of limitations has run as to the previous years.

1. Petitioner and four banks, all of the stock of which it owned, were members of an affiliated group of corporations. Held: The transfer by petitioner in 1933 of all of its interest in the four banks to the F bank, a partially owned subsidiary and affiliate, was an intercompany transaction between members of an affiliated group during a consolidated return period, and no gain or loss can be recognized.

Taxes becoming due from receivers of petitioner during an equity receivership held assessable against and payable by the debtor corporation, petitioner herein, after confirmation of its petition for arrangement under chapter 11 of the Chandler Act. 11 U. S. C. A., § 797.

A distribution in 1939 by a New York corporation to its stockholders created a deficit on its books. Held: petitioner is taxable in 1939 upon his pro rata share of the company's earnings for that year, as subsequently adjusted, notwithstanding that the net amount retained by him after the repayment in 1940 was less than such share.

1. In 1922 Nathan H. Gordon and Sarah A. Gordon established trusts for the maintenance, support, and comfort of certain beneficiaries. The trusts were to terminate December 31, 1935. Held: the termination of the trusts on December 31, 1935, with the consequent delivery of the trust assets to petitioner in 1936, did not result in income to it in either 1935 or 1936. 2. The trust assets on January 2, 1936, consisted largely of a debt of petitioner to the trusts.

Income from certain contracts payable to petitioner was payable to him because he owned substantially all the stock of a corporation which was one of the parties to one of the contracts and a party… Held: payments made under such contracts to petitioner and by him paid over to his wife under prior assignments to her of all of the income and profits accruing and to accrue to him under such contracts, are taxable to petitioner, notwithstanding such assignments.

Petitioner's sole stockholder canceled indebtedness owing by petitioner to it, including interest accrued by petitioner upon its books. Held: the amount of such interest did not constitute income taxable to the petitioner. Helvering v. American Dental Co., 318 U.S. 322. Held, further, that the petitioner was not entitled to deduct interest so forgiven, which had been accrued during the taxable year prior to the forgiveness of debt.

Unrealized profits by hide dealer from open futures contracts on the Commodity Exchange can not be used to offset unrealized losses as indicated by the inventory taken at market price, on the basis of cost or market, whichever is lower.

A mutual insurance company does not lose its right to be taxed as such under sec. 207 (a), I. R. C., merely because its directors, in the exercise of their discretion, accumulated and held, in an… Held: in an account designated surplus, the excess of premiums over cost for eight years of its existence. The test for determining mutuality is the ownership of the company, its earnings and accumulations, by its policyholders.

The income from trusts for the benefit of donor's children who had become of age, distributable directly to them when attaining that age, upon the donor's written order, and in amounts determined by him, held not taxable to donor.

A corporation expended certain sums to secure assurance by union officials that picket lines or other labor interference would not obstruct the prompt loading of cargoes upon ships. Upon information that petitioner received said money, respondent held petitioner liable for income tax thereon plus fraud penalty and penalty for failure to file a return. Respondent's determinations of deficiency in tax and liability for penalties are sustained.

Upon advice of counsel that it was not an association taxable as a corporation, petitioner refused to file capital stock tax returns and in August 1937 a deputy collector filed delinquent returns under section 3176 of the Revised Statutes. Following judicial determination that it was taxable as a corporation, petitioner in December 1942, and after the institution of this proceeding, tendered for filing delinquent amended capital stock tax returns increasing capital stock values declared by respondent for 1936 and 1937, the effect of which was to eliminate the excess profits tax liability determined by respondent for 1937. Held, petitioner is not entitled to amend the returns filed by the deputy collector or to substitute its own delinquent returns therefor.

Decedent, for the purpose of securing an independent income to his son, unconditionally assigned to him an interest in an indebtedness owed to decedent. Held: the gift to the son was not intended to take effect in possession or enjoyment at or after decedent's death within the meaning of section 302 (c) of the Revenue Act of 1926, as amended.

A died intestate leaving an estate of over $ 500,000. Held: B's notes to A were worth their face amount upon A's death, and consequently A's estate realized no income upon their distribution to B.

Petitioner is the income beneficiary of a testamentary trust required to be set up out of the residue of the estate under the will of her deceased uncle, who died testate in… Held: that petitioner is not taxable on the income of the estate of decedent during the period January 1 to October 11, 1938, during which time the estate was still in process of administration or settlement, except as to $ 4,000, which was paid to her during such period out of the income of the estate.

Petitioner, Kaufmann Department Stores Securities Corporation, in 1928 executed a collateral trust agreement containing provisions (a) prohibiting the payment of dividends except in shares of stock of the company, only common shares being authorized and all having been issued, (b) requiring payment, into the sinking fund, of certain amounts and additional amounts equal to the total net income for specified periods, and (c) granting petitioner the option to purchase its notes and deposit them with trustee in lieu of sinking fund deposits. In 1938, petitioner, Kaufmann Department Stores, Inc., under merger and recapitalization plan, assumed the liabilities and distributed the stock received in exchange under the plan, direct to stockholders of petitioner, Kaufmann Department Stores Securities Corporation. Held: (1) Petitioner was not entitled to credit either under section 26 (c) (1) or (2) of the Revenue Act of 1936. (2) The year in which the petitioner purchased its notes rather than the year they were surrendered to the trustee controls the credit that may be taken under section 355 (b) of the Revenue Act of 1937. (3) Petitioner, Kaufmann Department Stores, Inc., is liable as transferee for the contested tax deficiencies of petitioner, Kaufmann Department Stores Securities Corporation, as redetermined under Rule 50.

The decedent in 1929 conveyed property in trust, the income to be paid to her for life and after her death to her granddaughter for life and upon the death of the granddaughter the remainder to the… Held: that the value of the trust property at the date of decedent's death is includible in her gross estate under section 811 of the Internal Revenue Code.

1. Where petitioner's decedent served as executor and trustee for a period of over five years and received one commission for both services at completion thereof, held, tax on such compensation is… Held: tax on such compensation is limited by section 220 of the Revenue Act of 1939. 2. Legal expenses paid in opposing claim of alleged mismanagement as trustee not deductible under I. R. C., section 23 (a) (2), as amended by section 121 of the Revenue Act of 1942.

Petitioner in 1938 made gifts to her three grandsons of certain guaranteed annuity policies and paid the annual premiums due thereon. In 1939, 1940, and 1941 petitioner paid the premiums on such policies and returned the amounts thereof in her gift tax returns for those years. In her gift tax returns filed for each of the taxable years petitioner treated the gifts of the annuity premiums as gifts of present interests in property and took the full amount of the exclusions provided by section 1003 (b), Internal Revenue Code. Held, that because of certain restrictive provisions in the annuity contracts, the gifts of the contracts were of future interests. Hence the gifts of the annual premiums in the taxable years to keep such contracts in force were also gifts of future interests. Commissioner v. Boeing, 123 Fed. (2d) 86; Frances P. Bolton, 1 T. C. 717, followed.

1. Held, that certain state and Federal taxes accrued by petitioner, a mining company operating on the inventory basis, are not indirect expenses incident to and necessary for the production of ore… Held: that certain state and Federal taxes accrued by petitioner, a mining company operating on the inventory basis, are not indirect expenses incident to and necessary for the production of ore and hence are not includable as cost in valuing inventories at cost.

A partner sustaining indivdual capital losses and having income consisting of his distributive share of partnership gains is not limited to $ 2,000 in his deduction for loss but is entitled, under section 117 (d), Revenue Act of 1936, to deduct $ 2,000 plus such distributive share of partnership gain. Neuberger v. Commissioner, 311 U.S. 83.

The value of a gift from one employee to another of corporate shares carrying bylaw restrictions permitting them to be held only by employees, requiring that upon termination of the employment they should be sold to the corporation, which was required to purchase them at a defined book value, and the assignment of which shares from one employee to another was prohibited by the certificate of incorporation except with special permission of the board of directors, held limited…

The petitioner's sister, a registered nurse in Germany, immigrated to America with the help of petitioner's affidavit that he was able to and would support her. Held: the petitioner is not entitled to credit either as head of a family or for a dependent.

1. Petitioners, fire insurance companies incorporated under the laws of New Hampshire and doing business in that state, reinsured a portion… Held: under the provisions of section 204 (b)(1) of the Revenue Acts of 1936 and 1938, practically identical with section 246 (b)(1) of the Revenue Act of 1921, the first statute to create new legislation relating to insurance companies other than fire or mutual, petitioners' income tax returns must be based on the Convention Form and…

The original petition herein, filed within three years after certain payments of tax upon the deficiency determined, alleged that the dividend upon which the tax was based was nontaxable, but did not… Held: the original petition stated a cause of action, that the statute had not run as to payments made within three years prior to petition filed (section 322 (d) of the Revenue Act of 1936), and that as to such payments there had been overpayment of tax.

A will probated in 1923, under the law of Georgia, provided that the testator's wife receive a certain amount of income annually during her life from the income of the estate, or, if necessary, from… Held: that, under section 163 (a) (1) of the Internal Revenue Code, during the taxable year the executors were in the position of trustees and that the petitioner is a trust and not an estate; therefore, that a credit against net income is allowable to the extent of $ 100 only.

Petitioners acquired jewelry in 1929 and sold it in 1940 at below cost. Held: a capital loss deduction is allowable to an individual only if the loss meets the requirements relative to the deductibility of losses by individuals, generally, as provided in section 23 (e) of the Internal Revenue Code.

Petitioner, a domestic holding company, received dividends from its Puerto Rico subsidiary. Held: the limitation on the amount of credit taken for taxes deemed to have been paid by reason of section 131 (f) of the Internal Revenue Code is to be determined by the application of section 131 (b) of the Internal Revenue Code; (2) the numerator of the limiting fraction provided for in section 131 (b) (1) is net income from sources…

Held, on the facts, that a transaction involving the disposition of corporate stock was an exchange in partial liquidation, and not merely a sale. Held: on the facts, that a transaction involving the disposition of corporate stock was an exchange in partial liquidation, and not merely a sale.

Petitioner's transferor in 1916, pursuant to a recapitalization, exchanged 2,595 shares of X corporation's stock for 2,076 new shares and a cash distribution. Held: the average cost rule should be applied in determining gain to petitioner. Arrott v. Commissioner, 136 Fed. (2d) 449.

1. The retroactive amendment of the first sentence of section 23 (k) (1) of the Revenue Act of 1938 by sections 124 (a) and (d) of the Revenue Act of 1942 does not violate the Fifth Amendment to the Constitution, and applies to the deduction of partial bad debts in the computation of petitioners' decedent's income taxes for the period January 1 to October 11, 1939, the date of decedent's death. 2.

Jurisdiction -- Mailing. -- A deficiency notice returned undelivered after being sent by registered mail to one address was remailed by ordinary mail to another address, and after being forwarded to… Held: the Court lacks jurisdiction over a proceeding commenced more than 90 days after the mailing of a deficiency notice, and (2) a letter sent by ordinary mail is incapable of giving rise to jurisdiction, the defect in mailing not being cured by a prior registered mailing.

1. Distributions from Capital -- Taxability under Section 115 (D) -- Repayment. -- A distribution by a corporation to its shareholders not in partial or complete liquidation and not out of earnings and profits is taxable as a gain from the sale or exchange of property, in so far as the distribution exceeds the basis of the stock to them. 2.

1. Decedent, who died in 1936, and his brother created a trust in 1922, each contributing one-half of the corpus and designating their cousin beneficiary… Held: that the value of the life estate, to the extent of the one-half interest contributed by decedent, is includable in decedent's gross estate. 2. In 1923 decedent made a gift in trust to his wife's parents for life (or the survivor), with remainder over of the principal to his daughter, Marion, or her issue surviving.

1. In a prior proceeding between the same parties involving the year 1935, the issue submitted to the Board of Tax Appeals, and on review of the Board's… Held: that the decision by the Circuit Court of Appeals in that proceeding that interest on said bonds was exempt from tax is not, in the instant proceeding, res judicata of the question whether premiums and penalties received on the same kind of bonds during the taxable year, 1939, involved herein were exempt from tax. 2.

Where during the taxable year a taxpayer corporation engaged in the publication of a newspaper entered into a contract to sell all of its intangible assets for a specified consideration but no… Held: the entire consideration received by the taxpayer in the sale should be treated as a whole and taxpayer's gain from the transaction should be determined by subtracting the March 1, 1913, value of its intangibles, including good will, from the total consideration received.

Petitioner, owner of rights under certain patents, made a contract by which a certain corporation agreed to pay royalties to the petitioner. Later, petitioner made a contract to sell 30 percent of its stock for $ 30,000, payable over a period of four years, with a provision that there should be credited on the $ 30,000, 30 percent of any royalties received by petitioner. This contract was made with the parent of the corporation which agreed to pay royalties. Thereafter, the parent corporation dissolved the other and took over the royalty contract by assignment, with provision for assumption of duty of paying royalties; and the royalties were, when payable, credited against the $ 30,000 due until the whole amount was, by application of royalties and cash, discharged. The contract with the parent corporation had provided that petitioner's receipts thereunder, except as required to redeem certain stock, pay indebtedness, and for retention as capital, should be distributed to petitioner's stockholders. Held, the royalties applied upon the $ 30,000 indebtedness constituted income taxable to the petitioner.

Commissions paid by the American Oil Co. under an agreement with the petitioner for selling gasoline held to be taxable to the petitioner and not to his family corporation.

Deduction -- Taxes. -- Occupant of a residence for life, charged with payment of taxes and repairs but holding title in trust, is entitled to deduct on individual return taxes which she paid to protect her estate.

The basis for gain or loss in a nonreorganization exchange in 1939 by F corporation of shares in S corporation for shares in F corporation, the S shares having been acquired by F in an earlier reorganization exchange of F corporation treasury shares for S shares, the F treasury shares having been bought by F for cash in the open market and held in its treasury, is the cost to F of the treasury shares and not the cost to the transferors of the S shares transferred in the…

1. Entire amount of installments received by beneficiary under life insurance contract pursuant to an option exercised by her following insured's death held exempt from income tax under section 22 (b) (1), I. R. C. Section 19.22 (b) (1)-1(c) of Regulations 103, as amended, is invalid. 2. Amounts received by such beneficiary as dividends held not exempt.

Petitioner for several years acted as nurse, secretary, dietitian, and driver for an individual who died testate, naming petitioner residuary legatee under his will and codicil thereto. Held: petitioner acquired the property by bequest within the meaning of section 22 (b) (3) of the Internal Revenue Code, and its value is to be excluded from gross income.

Under the facts, certain legal and miscellaneous expenses paid by petitioners held to be deductible from gross income as Non-Trade or Non-Business Expenses under section 23 (a) (2) of the Internal Revenue Code as added by section 121 of the Revenue Act of 1942.

The petitioner paid to a processor of petitioner's raw sugar, for services, including refining, paying processing tax on and selling the sugar for petitioner's account, a fixed charge plus the… Held: petitioner is a vendee of services within the intendment of section 501 (a) (2) and (k) of the Revenue Act of 1936, and no error is shown in the determination that it was liable to the unjust enrichment tax.

1. Decedent created trusts the remainders of which were to pass to her descendants then living upon the death of the respective life beneficiaries. Held: from the context, decedent did not use the word descendants in its strict legal meaning, but as designating her children and their issue, whether the grantor was living or not. Consequently, the gifts of the remainders were not intended to take effect in possession or enjoyment at or after decedent's death. 2.

Pursuant to antenuptial agreement between petitioner and his intended wife, he transferred to her 13,139 shares of stock in consideration for her… Held: The transfer was made for less than an adequate and full consideration in money or money's worth and was subject to gift tax under section 503 of Revenue Act of 1932. (2) Marriage, as a consideration, is not measurable in money or money's worth and the amount taxable as a gift is the value of the property transferred.

The extremely remote possibility that decedent or her estate would reacquire trust property by operation of law upon a failure of beneficiaries extending into the fourth generation, and also the extremely remote possibility that decedent would inherit other trust property as distributee of the named beneficiary, upon failure of the latter's issue, do not warrant the conclusion that the transfers in trust were intended to take effect in possession or enjoyment at or after…

On the facts, held that this Court has no jurisdiction to allow as recoupment against the deficiency in income tax determined against petitioners for the taxable year the amount of an erroneous… Held: further, that if this Court had such jurisdiction the claimed recoupment is not allowable because of the provisions of sections 608 and 609 (b) of the Revenue Act of 1928.

1. Decedent during the last year of his life executed certain oil and gas leases and received in part consideration therefor certain bonuses on which he was allowed percentage depletion. Held: the respondent erred in restoring to income, under article 23 (m)-10 (c) of Regulations 101, the percentage depletion which he had allowed on the bonuses received with respect to these six leases. Estate of Emma Louise G. Seeligson, 1 T. C. 736, followed. 2.

Petitioner had a Vinson Act contract with the Secretary of the Navy providing for delivery of certain materials and that for the purpose of that act the contract should be considered complete upon… Held: the contract not shown to have been completed in 1938. Douglas Aircraft Co., 46 B. T. A. 1025; Foster-Wheeler Corporation, 42 B. T. A. 36.

Petitioner was a stockholder of corporation A, which in 1937 adopted a plan to completely liquidate within the two-year period prescribed by… Held: the change in plan in 1939 resulting in corporation A being a party to a reorganization did not affect the fact that corporation A was completely liquidated within the two-year period provided by section 115 (c) and petitioner is taxable on the gain received from the 1937 distribution according to the percentages prescribed by…

1. Petitioner, a retired employee of an oil company, received substantial sums annually under a retirement contract, which had been purchased by his employer from an insurance company and fully paid for by the employer. The cost of the contract had not been included (or includible) in petitioner's gross income in the year purchased or in the year when his rights under it had become vested.

A partner died in January 1934. His debts were paid off within about a year. Due to business considerations, the surviving partner and the other heirs agreed to continue the estate in the partnership. Held: that the taxable years 1937, 1938, and 1939 did not constitute a period of administration or settlement of the estate, under section 161 (a) (3) of the Revenue Act of 1938 and the Internal Revenue Code.

The cost of tax advice and of the preparation of income tax returns may or may not be deducted as a nontrade or nonbusiness expense under section 23 (a) (2) of the Internal Revenue Code, depending upon whether such cost is proximately related to the production or collection of income or the management, conservation or maintenance of property held for the production of income.

In prior proceedings between respondent and petitioner, Libbie Rice Farish, and W. S. Farish, deceased, involving their respective gift taxes for 1934 and 1935, their rights to certain exclusions and… Held: These judgments estop the respondent from denying those exclusions in the determination of gift taxes on transfers by the same donors to the same trusts in 1938 since the law does not require that such judgments be so ignored.

A nonprofit corporation organized exclusively for educational purposes held to have been operated exclusively for educational purposes within the meaning of section 1004 (a) (2) (B) of the Internal Revenue Code where its only activity was the renting of its property at cost to a school association that is also exempt under said section.

On the facts, held that the decedent's estate should be valued as of the date of his death because the estate tax return was not timely filed and therefore the petitioner, executrix of decedent's… Held: further, that neither of the corpora of two trusts, one created by petitioner's decedent and the other by decedent's wife, should be included in the valuation of decedent's estate.

Where the facts fail to show that the social aspect of a club's organization was only incidental to a primary purpose of furthering higher education, it is held that the club was not organized exclusively for educational, literary, or charitable purposes within the purview of section 812 (d) of the Internal Revenue Code.

In four instances in the tax year, preferred shares owned by the taxpayer were soon to be redeemed at par by the corporation, as the taxpayer expected, and he sold them in one instance to a friend… Held: the gain of the taxpayer was taxable as a long term capital gain from sale, taxable under section 117, and not a short term gain from liquidation in redemption, taxable under section 115.

The business and assets of the insolvent New York Title & Mortgage Co., which had sold over $ 700,000,000 face value guaranteed first mortgage… Held: Each trust was a taxable entity and not in the nature of a receiver of a part only of the property of an insolvent corporation. (2) Sections 166 and 167, 1934 and 1936 Acts, are not applicable to the trusts, they not being the type of trust, and the certificate holders not being grantors, within the intendment of such sections.

Pursuant to a 1935 reorganization under section 77B, Bankruptcy Act, noncumulative, nondetachable scrip certificates were attached to petitioner's outstanding bonds. Held: the bankruptcy proceedings in 1935 canceled the obligation to pay the past due interest and the deductions taken therefore in prior years can not be restored to income in 1939 to the extent of the face amount of the unmatured certificates.

Where a donor simultaneously made gifts to A individually and to A as trustee for C, the gift to A individually being free of tax by section 504 of the Revenue Act of 1932, but the gift to A as… Held: A is individually liable as a donee-transferee for the tax resulting from the gift to herself as trustee for C to the extent of her personal gift. Sec. 510 and 526, Revenue Act of 1932.

Petitioner corporation was organized by A for the purpose of acquiring all of the stock of X, a foreign personal holding corporation, which had been… Held: the amounts paid by petitioner as interest upon the debentures of X are not deductible by petitioner as interest paid under section 23 (b), Revenue Act of 1938; nor are the amounts so paid to be considered as dividends in determining petitioner's undistributed Title IA net income under section 405, Revenue Act of 1938.

1. In 1933, petitioner owned in community a 3/32 right in all minerals in certain lands in Texas, acquired by her deceased husband in 1919 for services rendered to the then owner, Henrietta M. King. Held: the agreement of September 26, 1933, was a sale, entitling petitioner to the benefits of the capital gains provisions of the revenue act. Alice G. K. Kleberg, 43 B. T. A 277, followed.

Petitioner's certificate of incorporation was filed in the office of the Secretary of State of New Jersey on December 19, 1939, but business was not commenced… Held: petitioner was in existence prior to January 1, 1940, within the meaning of section 712 (a) of the Internal Revenue Code as amended and is entitled to have its excess profits credit for 1940 computed under section 713 or 714 of the Internal Revenue Code, as amended, whichever method results in the lesser tax.

Petitioner was organized in April 1937 and thereafter received a conveyance of five oil leases which had been acquired by its three promoters and sole stockholders. Held: that when petitioner adopted the contract and mortgage of its promoters it in legal effect made them its own.

Bequests to trusts under which the trustees have the power to draft bills and acts, laws, and other legislation, and use all lawful means to have them enacted into law, held not deductible under section 812 (d) of the Internal Revenue Code as bequests exclusively for charitable, scientific, or educational purposes.

Decedent created prior to 1931 two trusts to which he conveyed practically all of his property, the income of which was to be paid to two of his former wives in certain fixed amounts for life and the… Held: the corpora of the trusts are not includable in decedent's gross estate under section 811 (c) or 811 (d) (2), Internal Revenue Code.

Petitioners failed to file a return for decedent's estate. Respondent filed a return for the estate under section 3176, Revised Statutes, upon information furnished by one of the petitioners. Held: the return was insufficient to set in motion the running of the statute of limitations.

The receipt in 1939 by nonresident alien shareholders of a corporation's 6 percent debentures in a nontaxable (section 112 (b) (3)) recapitalization (section 112 (g) (1) (E)) in exchange for their 6 1/2 percent preferred shares held not essentially equivalent to a dividend taxable under section 115 (g), Internal Revenue Code.

Trusts -- Income -- Distributable To Beneficiaries. -- Allocation between life tenant and subsequent beneficiaries of a recovery by a trust on a long term lease from a bankrupt lessee representing rents after default, depends upon all known facts, and the Commissioner's determination that it was all income distributable to the life tenant at the time of receipt will not be disturbed in the absence of facts showing that some other allocation would be more just.

In 1930 petitioner executed three indentures by which he created three trusts, one for the benefit of each of his three children. During the taxable years the children were of age. Held: the income of the trusts is not taxable to petitioner under section 22 (a) of the Revenue Act of 1934 as that section affects section 167 of the same act.

1. Decedent created a trust during her lifetime, reserving the trust income to herself for life. Held: that trust was testamentary in character and was intended to take effect in possession and enjoyment after death, and the trust corpus is includible in decedent's gross estate under the provisions of section 811 (c) of the Internal Revenue Code. 2. Decedent created two separate irrevocable trusts for the benefit of two employees.

The voluntary and gratuitous relinquishment by a creditor on the cash basis of salary credited to his account in earlier years on the debtor's books held not a realization of income in the year of relinquishment.

1. The petitioner, who was cotrustee of a trust created by his father, was upon his request entitled to all of the income of the trust, except $ 10,000 payable annually to his wife. Held: that respondent did not err in determining that said income was taxable to petitioner. 2. In 1921 the petitioner created a charitable trust but did not retain power of revocation or modification.

A petition filed by a dissolved Michigan corporation is a valid petition since under Michigan law a corporation continues to be a body corporate for a term of three years from its dissolution for the purpose of prosecuting and defending suits for or against it. Verification of the petition by an officer of the corporation at the time of its dissolution is a sufficient verification to comply with the Court's rules of practice.

The petitioner is the beneficiary of a portion of the net income and also one of four trustees of a trust created by her husband. Held: that petitioner is taxable upon 50 percent of the total.

1. An individual, though not a member of a partnership which carried on a securities business, furnished, through a straw man and two trustees, a substantial part of its capital and shared its gains… Held: that she was a joint venturer and taxable as a partner under sections 901 and 182 of the Revenue Act of 1938. 2. The predecessor in interest (brother) of petitioner had been a joint venturer in a securities business prior to his death.

Petitioner was an income beneficiary of certain trusts under which the trustee was required to pay the income as frequently as may be… Held: that the receipt of the new stock of corporation B by the preferred stockholders of corporation A was not the receipt of securities of a corporation a party to a reorganization within the meaning of section 112 (b) (3) of the Internal Revenue Code; held, further, that the fair market value of the new stock of corporation B is taxable…

Petitioner, a subsidiary of a holding company, acquired its properties in 1927 from X corporation, a subsidiary of another holding company,… Held: that the transfer from X was pursuant to a reorganization and the basis to petitioner is the same as that of X; (2) that the transfer from Y was made pursuant to a plan which did not come within any of the provisions of sections 203 (b) or 203 (h) (1) of the Revenue Act of 1926, or within section 113 (a) (7) of the Revenue Act of…

Petitioner was incorporated under the Indiana Business Corporations Act in 1921 to act as the successor to an unincorporated association formed in 1902 for the purpose of constructing and operating a… Held: under facts, petitioner is exempt under section 101 (9) of the Internal Revenue Code.

Income received by a Texas spouse from a New York trust created by her father before her marriage, of which she continued after her marriage to be a beneficiary, was community income under Texas law and on separate returns the spouse is taxable upon only one-half.

Estate Tax -- Prior Taxed Property -- Gift. -- Where an estate claims and is entitled to a deduction under section 303 (a) (2) (B) for property previously subjected to gift tax within five years, the deduction is not lost (1) because no deduction would be allowable under (A) since the estate of the donor was allowed a similar deduction based upon a prior estate tax, or (2) because the estate of the donor was allowed a credit for the gift tax.

Petitioners on June 4, 1940, received compensation for personal services rendered covering a period of 61 months and 18 days commencing on April 17, 1935. The compensation was payable only on completion of such services. Held that petitioners correctly computed their income tax in accordance with the provisions of section 107, I. R. C., added by section 220 of the Revenue Act of 1939.

In the taxable year petitioner conveyed to her four children an undivided one-fourth interest each in certain real estate situated in Nueces County, Texas, reserving to herself a life estate in the lands thus conveyed. In her gift tax return she took four exclusions of $ 4,000 each. The Commissioner in the deficiency notice disallowed these exclusions on the ground that the gifts were gifts of "future interests" in property. Held, the gifts were of "future interests" as that term is used in section 1003, I. R. C. (as amended by section 454, 1942 Act). Welch v. Paine, 120 Fed. (2d) 141, followed.

Petitioner was the fee simple owner of two tracts of land and leased them to oil companies for exploration and production. Held: petitioner is entitled to percentage depletion on the 20 percent profits paid it by reason of its reserved interest in the oil in place. W. S. Green, 26 B. T. A. 1017, and Marrs McLean, 41 B. T. A. 565, followed. Helvering v. Elbe Oil Development Co., 303 U.S. 372, distinguished.

The petitioners, Harry Wiedetz and C. M. Rodgers, as partners, during the calendar year 1940 conducted in the city of Wheeling, West Virginia, a business of taking bets made by others on horse races… Held: that the above amount is not an ordinary and necessary expense deductible from the gross income of the partnership in the determination of the partners' distributive shares.