Volume 20 — Board of Tax Appeals

1. Henry Cappellini,14 B.T.A. 1269, followed. 2. Each of the petitioners held liable as transferees for unpaid income and excess-profits taxes of the transferor for 1918 and 1919. 3. Special assessment denied.

Loss sustained by the petitioner in 1923 is a "net loss" deductible in computing net income for 1924.

1. The assessment by respondent of a penalty for petitioner's failure to file a new return for the fiscal year ended July 31, 1925, under the 1926 Act, a return having been filed by it for that period under the 1924 Act, is not sustained, since petitioner's tax liability computed under both acts is less than the amount shown to be due in the return filed under the 1924 Act, and assessed by respondent. M. Cohn & Sons Co.,9 B.T.A. 87, followed. 2.

Where a husband and wife domiciled in the State of California have a joint bank account and the husband has drawn funds from this account and purchased property in his own name, the income from such property is taxable to the husband.

1. Rule laid down in Clinton G. Edgar,10 B.T.A. 110, relative to inclusion in capital account of certain expenditures for capital items which were charged to expense and for the computation of allowances for depreciation on account thereof, applied. 2. Petitioner's distributive share of the net income of W. H. Edgar & Son for the calendar year 1925 determined.

1. The petitioner was not organized exclusively for religious, charitable, scientific, literary, or educational purposes and is not exempt from taxation under section 231 of the Revenue Act of 1921. 2. Certain amounts were permanently set aside by the petitioner during the years 1922 and 1923 for charitable and like purposes specified in section 214(a)(11) of the Revenue Act of 1921 and are deductible in those years.

1. A partnership of which the decedent Smith was a member transferred real estate to the petitioner Shannon under an agreement providing that the latter, upon payment of $10 on the date thereof, $1,000 monthly for a term of 20 years, and $10 at the end of such term, in addition to paying the taxes and insurance, would be entitled to a fee simple deed to the premises.

Amount paid in purchase of assets of going bank in excess of value of the assets held not deductible.

1. Legal expenses incurred in establishing or defending title to real estate or minerals thereunder are capital expenditures and are not deductible as ordinary and necessary business expenses. 2. An amount paid pursuant to court judgment to reimburse a trespasser for cost of drilling 10 oil wells on the petitioners' lands, of which 7 were dry wells and 3 were producers, held to be a capital expenditure representing the cost to the petitioner of additional assets.

Held that the loss sustained by the petitioner in connection with the Atmore Trading Co. was a net loss within the meaning of section 204 of the Revenue Act of 1921.

1. At and prior to his death, the decedent and his wife held as tenants by the entireties certain property located in the Commonwealth of Massachusetts. The respondent included the value of said property in the gross estate of the decedent for the purpose of the Federal estate tax. The action of the respondent is approved on authority of Tyler v. United States,281 U.S. 497. 2. Prior decisions of the Board inconsistent herewith, overruled.

1. The proceeds in excess of $40,000 of insurance policies on the life of the decedent payable to beneficiaries other than the decedent or his estate held properly included in decedent's gross estate. Chase National Bank v. United States,278 U.S. 327. 2.

Amount collected by petitioner in 1925 under bonds partially charged off and allowed as a bad debt deduction in 1921 held to be taxable income in the year of payment.

1. ESTATE TAX. - The amount paid to a trustee for management of a trust estate created by decedent during his lifetime is held to constitute a reduction of the trust property in determining the value at which it is to be included in the gross estate. 2. Id. - Amounts paid by the trustees out of the trust fund for the erection of a church, and to other institutions, under a power conferred upon them in the trust instrument to distribute the residue of the trust property in such way and at such time or times as they, in their unrestricted judgment may deem best, are not deductible under section 303(a)(3) of the Revenue Act of 1924. 3. Id. - A sum poaid to a religious organization, conditioned upon the right of the trustees to revoke it upon certain contingencies, is held to be a valid gift and deductible from the gross estate.

1. LOSSES. - Where the petitioner corporation acquired for a consideration of $3,600 certain corporate stock from its president and majority stockholder and it sold for a consideration of $1 a few… Held: a proper basis is not established for a claim for a deductible loss. 2.

- Petitioner, pending hearing of her action for divorce, entered into an agreement with her husband whereby a trust fund was created from his estate, the income thereof not in excess of $14,000 per year to be paid her yearly for support of herself and child and for release of her dower rights, the trust to become effective only if and when she secured a decree of divorce.

- Petitioner, doing business as a sole proprietor, to a large extent on the installment basis, organized a corporation to which he transferred in 1923 all of the assets of the business for all of its authorized capital stock. Included in the assets conveyed were $117,863.13 of uncollected installment obligations representing unrealized profits of $53,488.57.

1. Invested capital determined. 2. Special assessment denied.

1. Neither the deduction of an item claimed by a corporation to be a business expense nor its disallowance depends upon whether it is a donation. 2.

1. Following Corliss v. Bowers,281 U.S. 376, the settlor of a trust who may by its terms control both the corpus and the income to the extent of requiring both to be transferred to him, is taxable upon the income therefrom not only by virtue of Revenue Act of 1924, section 219(g) and (h), but also under the Revenue Act of 1921. 2. The Revenue Act of 1924, section 219(g)(h), is declaratory of the existing law.

1. Where respondent determines a tax on the income received by a trustee under a will from property coming into such trustee's hands under the will, but sends a deficiency notice to the executor, who was a different person from the trustee, and the trustee files with the Board a petition from such notice, the proceeding will be dismissed for lack of jurisdiction. 2. Held that the trusts here involved are not exempt from taxation under the provisions of section 231(6) of the Revenue Act of 1921. 3. Held that the petitioners are not entitled to the deductions taken in their returns for income claimed to have been permanently set aside for charitable and educational purposes under the provisions of sections 219(b) and 214(a)(11) of the Revenue Act of 1921. 4. Where petitioner at the time of filing its return contended that its income was either exempt from tax under section 231 of the Revenue Act of 1921, or was deductible under the provisions of sections 219(b) and 214(a)(11), and did not report any tax on the return, held that it is entitled to have the profits on the sale of corporate stock held for profit or investment for a number of years taxed under the provisions of section 206, although not so claimed in its original return. 5. The action of the respondent in disallowing a deduction taken for executor's commission approved for lack of evidence.

1. Held that the petitioner is transferee of the assets of the Gideon-Anderson Lumber & Mercantile Co. and as such is answerable for the deficiencies in tax liability of that company for the years 1920 and 1921. 2. Held that the deficiencies in tax of the Gideon-Anderson Lumber & Mercantile Co. for 1920 and 1921 are not barred by the statute of limitations.

1. Mere diminution of actual value of property owned does not result in a sustained loss even if the diminution occur in the taxable year. 2. Held: there was no realized or sustained loss in 1924 and no deduction.

1. The existence of a partnership may be recognized in a variety of conduct and circumstances, and the questions whether one exists, and, if so, the persons who compose it, with consequent rights and liabilities, can not be decided solely with regard to the understanding of the alleged partners, their opinions or their conclusions. 2.

1. Articles 1502 and 1504, Reg. 62, 65, 69, defining associations and trusts, except for those organizations which fall unmistakably within one… Held: That the trust was not merely passively holding property and collecting the income, but was engaged in maintaining and renting a building which it owned, and was therefore taxable as a corporation under the applicable regulations and rulings of the Commissioner. Hecht v. Malley,265 U.S. 144; sec. 704(a), Revenue Act of 1928.

The transaction involved herein held to be a bona fide sale which resulted in a deductible loss.

1. Amounts paid to the grantor of an oil and gas lease as royalties and as bonuses held taxable as income at the ordinary rates and not as capital gain. 2. Royalties and bonuses received by a resident of Texas from oil and gas leases covering his separately owned land located in Texasheld to be his separate income. 3. Petitioner's earned-income credit for 1924 and 1925 determined.

Under the laws of the State of Michigan, where a husband receives the income from real estate owned by the husband and wife as tenants by the entirety, held that the entire income belongs to the husband.

1. The March 1, 1913, value of property sold in 1923 determined. 2. Held that petitioner has failed to prove that certain notes received in 1923 as part payment for real estate did not have a readily realizable market value. 3. Held that the notes received in part payment of the real estate are not property held for investment or for productive use in trade or business within the meaning of section 202 of the Revenue Act of 1921.

1. A net loss sustained by the petitioner in 1924 was attributable to a trade or business regularly carried on by him and is a proper deduction in computing net income for the year 1925. 2. The amount of the said net loss determined.

Upon the evidence, held that the petitioners constituted a partnership and that certain agreements between each petitioner and his wife did not relieve either petitioner from liability to pay tax upon his entire distributive share of the partnership income.

Where a trustee filed a return, but the deficiency notice was addressed to the beneficiary and referred throughout to the deficiency as that of the beneficiary, the Board has no jurisdiction over a proceeding brought by the trustee.

The petitioner kept its books on a fiscal year basis, closing its books as of November 30, 1923, but filed its return for the calendar year 1923. Held: the petitioner should have filed its return for the fiscal year ended November 30, 1923, and the Commissioner committed no error in so determining a deficiency in tax.

The disallowance by the respondent of a deduction taken by the petitioner for the year 1922, on account of a debt claimed to have been ascertained to be worthless and charged off in that year, sustained.

Assessment and collection of the tax herein are not barred.

1. A contribution to the Pennsylvania League of Women Voters held deductible under section 214(a)(11), Revenue Act of 1921. 2. The sale of certain stock was not consummated after December 31, 1921, and the profits therefrom are not taxable under the capital gain provisions of the Revenue Acts of 1921 and 1924.

1. A corporation organized to acquire the real and personal property of a shipbuilding corporation and to liquidate the personal property as salvage, and to also dispose of the real property, is not entitled to defer the return of income from its operations for purposes of taxation until such time as the liquidation is completed. The Federal taxing statutes are designed to levy taxes upon the gains and profits of annual periods. 2.

Held that the securities in the trust created by decedent which were purchased with income from the original securities in the trust which was payable to decedent's wife are not a part of the decedent's gross estate.

The petitioner held to be liable as transferee under the facts stated.

1. An individual who purchases stock as an isolated investment having no relation to any trade or business is not entitled to claim a deduction for an alleged loss under section 214(a)(4) of the… Held: the stockholder sustained no deductible loss in respect of his original stock in 1922. 3. A mere fluctuation in value of tock, although resulting from a definite change in the character of the corporation's assets, is not a realized gain or loss.

1. In a proceeding to determine the tax liability of an individual, wherein he asserts the existence of a partnership and his wife's membership in it, his mere self-serving statement that a partnership existed or was intended to exist is not sufficient.

The foundation here involved held not to be a corporation, trust or community chest, fund or foundation organized or operated exclusively for charitable or educational purposes.

Upon the evidence held that petitioner has failed to prove that the amount of notes given by him is deductible as an ordinary and necessary business expense in the year in question.

In the absence of evidence as to when, if at all, income-tax returns were filed by the taxpayers, the Board can not determine whether assessment and collection of the proposed deficiencies are barred by the statute of limitations.

The petitioner is a transferee of the McGowin-Foshee Lumber Co. of Alabama and is liable for the income and profits taxes due from that company for the years 1918 and 1919.

In July, 1922, the petitioner bought an apartment house. At that time he was engaged in practicing law and also in making loans on real estate as a broker. Held: the apartment house constituted a capital asset and the profit derived from its sale it taxable as a capital net gain under section 208 of the Revenue Act of 1924.

Cancellation of indebtedness by agreement of creditors, under the circumstances involved herein, held not to constitute income.

The sale of certain stock was not consummated after December 31, 1921, and the profits therefrom are not taxable under the capital gain provisions of the Revenue Acts of 1921 and 1924. Charles W. Dahlinger,20 B.T.A. 176, followed.

The Commissioner's determination that the expenditures for incoming freight and drayage should be added to the cost of goods sold approved.

The Commissioner erred in including in the petitioner's gross income for the calendar year 1924 the amount of a dividend, which dividend was declared on December 26, 1924, by a resolution which stated Checks for same to be mailed December 31, 1924, where the petitioner, who kept his books and reported his income for each calendar year on the basis of cash received and disbursed, received a check for his dividend in due course on January 2, 1925.

1. NET LOSS. - A loss sustained by petitioner resulting from loans to a corporation is not a deductible net loss within the meaning of section 204(a) of the Revenue Act of 1921, or of section 206(f) of the Revenue Act of 1924. 2. Id. - Losses resulting from dealings in stocks as an investment are not deductible as net losses under said sections.

Where the petitioner purchased the accounts and deposits of a private bank and the private banker rendered services in holding and transferring the accounts and solicited new ones, the consideration paid him was a capital expenditure and not an ordinary and necessary business expense. (Following Union National Bank,18 B.T.A. 468.)

1. ATTORNEY FEES. - Amounts paid individually by a large stockholder in a hotel corporation, who was also its president and manager, in resisting a law suit against the corporation are deductible where the object was to oust him from the control and management of the hotel. 2. REPAIRS. - Expenses for repairs to residence used for rental purposes allowed as a deduction. 3. Deductions for bad debts and traveling expenses disallowed for lack of evidence.

Petitioner held not taxable as a corporation during the years involved.

In 1923 the petitioner was president and general manager of a construction company of which he owned 80 per cent of the capital stock. The corporation became insolvent and was dissolved in 1924, the petitioner losing his investment therein. held that the loss sustained was not a loss resulting from the operation of any trade or business regularly carried on by the taxpayer within the provisions of section 204(a) of the Revenue Act of 1921.

Under the Revenue Act of 1926, section 206(b) and (e), the aggregate of net losses for the calendar years 1923 and 1924 can not be applied against net incomes for the calendar years 1925 and 1926. Section 206(b) is prospective and the unabsorbed portion of a net loss for the year 1923 can not be applied against net income for the year 1926.

1. The amount of the deduction to which the petitioner is entitled for officers' salaries determined. 2. The determination of the respondent that withdrawals from the corporation by its president were not loans but constituted taxable income to him, approved.

Where in the sale of real property the purchaser thereof assumes as a part of the consideration for the transfer, the payment of accrued interest on mortgages on the property, accrued taxes, paving liens, and interest thereon, the sum of such charges should not be treated as a part of the initial payments received in the taxable period in which the sale was made, in the absence of evidence that the items assumed by the purchaser were paid within the taxable period.

The selling price of a parcel of land being $108,000, of which only $23,000 was paid in the taxable year, petitioner is entitled to return the profit realized on the sale on the installment basis.

Respondent's action in exhausting commission paid for securing a 99-year lease ratably over the life of the lease sustained.

Special assessment denied.

Certain distributions by a corporation to its stockholders held to constitute taxable dividends to the distributees.

1. The petitioner held to be affiliated with each other and with certain other corporations for 1922 and 1923. 2. Held: that the accrual basis used by the Commissioner with respect to rental commissions paid was correct. Bonwit Teller & Co.,17 B.T.A. 1019; Central Bank Block Association,19 B.T.A. 1183.

Prior to 1922 the petitioner acquired a membership in the New York Stock Exchange for which he paid $76,000. In 1922 the petitioner, without consideration, transferred the membership to another partner of his firm, with the agreement that the membership should still be regarded as owned by the petitioner. The partner in whose name the membership stood died in 1923, and his executors refused to transfer the membership to the petitioner.

Petitioner in 1926 exchanged property held for productive use in its business for other property of a like kind for the same use and also paid a money difference between properties exchanged. Held: under section 203(b)(1) of the Revenue Act of 1926, no gain or loss is recognized.

Where it is impracticable to apportion the total cost of preferred and common stock when purchased, but subsequently, upon a reorganization, petitioner receives stocks having known values in exchange for said preferred and common stocks, an apportionment of the original cost should then be made, using such known values as a basis for the allocation.

1. A committee appointed to manage the affairs of an incompetent, although required to make a return of income, is not a taxpayer. The tax is imposed upon the incompetent. 2. Because of fees paid to the committee and to referees, special masters and attorneys upon an accounting, the expenses for 1923 exceeded the income. Held that there has been no loss of the kind required under the net loss provision of the Revenue Act. 3.

1. The respondent's determination that an amount of $38,860.95, representing accrued oil royalties was constructively received in the taxable year is approved. 2. A promissory note received by petitioner as partial payment for a royalty interest sold had no fair market value and the unpaid balance thereof should not be included in computing profit from the sale. 3.

Payments made by coal companies to a railroad company in compromise of suits at law growing out of the building of a railroad by the latter company to the mines of the coal companies held, under the… Held: under the facts, to constitute capital expenditures amortizable over the life of the coal properties, and not business expenses deductible in the year paid.

A certain transaction held to be taxable and the amount of profit resulting therefrom determined.

Petitioner was affiliated with company A during the entire years 1922 and 1923 and with company B from August 11, 1922, to December 31, 1923. Petitioner filed a separate return for 1922. Held: petitioner and company B are not entitled to file a consolidated return for 1923.

Respondent's determination approved upon petitioner's failure to establish correct depletion deduction.

The petitioner was a common-law partnership during the years 1923 and 1924, and as such it is not liable to taxation as a corporation nor as an association taxable as a corporation.

Beneficiaries of an operating trust which operated at a loss for the first ten months of 1923 and dissolved on October 31 of that year, filing a fiduciary return for the period, the assets and business of the trust being taken over by a corporation created for that purpose, are not entitled to deduct on their individual income-tax returns for that year, as partners in the trust, their pro rata of its operating loss.

The payment involved was a capital transaction upon which the petitioner sustained no deductible loss during the taxable year.

1. In making loans upon real estate security the petitioner charged and deducted from the face of the loans a commission which was entered upon its books of account and returned as taxable income of the year in which the loan was made. At the close of each year the petitioner had on hand a large amount of mortgage notes and bonds which it had not sold to its clients. The petitioner kept its books of account and made its income-tax returns upon the accrual basis.

The petitioner, who is an accountant, in 1925 employed certain assistants in the practice of his profession. The petitioner supervised the work of his assistants and gave his individual attention to all work passing through his office. Capital was not a material income-producing factor. Held that the net income from his business was earned net income within the meaning of section 209(a)(3) of the Revenue Act of 1926.

1. A fee paid by corporation for services of an accountant in the circumstances of the instant case held not an ordinary and necessary expense of carrying on a business. 2. Evidence held insufficient to show that any part of a debt claimed as a deduction in the taxable year was then ascertained to be worthless.

Petitioner held not to have been engaged in the real estate business and therefore the commissions and transfer charges incident to the sales of real estate, the profit from which is reported on the installment basis, serve to reduce the selling price in determining the profit to be realized, thus being spread over the same period as the installment payments, and are not deductible in the year of sale. Mrs. E. A. Giffin,19 B.T.A. 1243.

Reserves set up by a taxpayer at the close of the taxable years 1922 and 1923, in amounts equal to a certain percentage of its then outstanding accounts receivable, for discounts anticipated in connection with the settlement of such accounts, are not deductible in determining net income, nor is a deduction allowable in the year for which the reserves were set up on account of the actual discount which it was later determined was availed of in the subsequent year.

Under the laws of California, upon the death of the husband the wife takes her portion of the community estate as heir of the husband and the whole community estate is properly included in the gross estate of the husband for purposes of Federal estate tax.

Organization expenses of a state bank held not deductible as a loss when such bank was merged with another bank under the laws of the State of New York.

The action of the respondent in rejecting the petitioner's original inventory and its alternative offer of a corrected inventory reduced by anticipated shrinkage and estimated losses through degrading and discount is approved.

Held that the petitioner changed its method of reporting income to the installment basis by an original return for 1920, and that respondent correctly included in income for 1922 payments received in that year on account of installment sales made in 1920 and 1921.

Held that the petitioner changed its method of reporting income to the installment basis by an original return for 1920, and that respondent correctly included in income for 1922 payments received in that year on account of installment sales made in 1920 and 1921.

Method of handling accounts ascertained to be worthless held sufficient to effect substantial compliance with statute with respect to charging off bad debts.

1. A corporation is not shown to be engaged in rendering personal service, within section 200(5), Revenue Act of 1921, by evidence (in this case, stipulated facts) that certain commissions were received by employees and that substantially all of the gross income was derived from services or operations other than trading or manufacturing. 2.

The principal stockholder of a corporation having acquired all its assets and assumed all its liabilities upon dissolution, immediately transferred the assets to a partnership formed by him and a… Held: the partnership was liable for a deficiency, proposed after the formation of the partnership, in income and profits taxes of the dissolved corporation to the extent of its validity, and counsel fees paid in contesting the deficiency were proper deductions of the partnership.

1. Section 219(b), Revenue Act of 1921, authorizes the deduction, in computing taxable net income of an estate or trust, of any part of the gross income which, pursuant to the terms of the will or deed creating the trust, is during the taxable year paid or permanently set aside for any corporation organized and operated exclusively for charitable purposes.

Value of turpentine rights reserved by petitioner in the sale of a tract of timber determined for the purpose of computing the amount of gain realized or loss sustained in the sale.

Amount paid to officers of petitioner held to be a distribution of profits and not compensation for services rendered.

1. Where a taxpayer is adjudicated a bankrupt after filing a petition with the Board, such adjudication does not oust the Board of jurisdiction. 2. Petitioner sustained a loss in 1925 by reason of payments made on debts of two corporations for which he became liable by indorsement. Held that such loss was not a net loss which can be deducted from 1926 income.

1. In the circumstances of this case, held, an amount received by an attorney for professional services rendered under a contract with the Attorney General of Illinois to conduct certain grand jury… Held: an amount received by an attorney for professional services rendered under a contract with the Attorney General of Illinois to conduct certain grand jury investigations in Cook County, Ill., is not exempt from income tax. 2.

In the computation of the taxable estate of a decedent the full amount of charitable bequests is deductible without reducing such amount by a state inheritance tax which may be payable therefrom.

Held, proceeds of life insurance taken out by the decedent, a resident of Tennessee, and made payable to his estate are, in the circumstances of the instant case, the absolute property of his widow… Held: proceeds of life insurance taken out by the decedent, a resident of Tennessee, and made payable to his estate are, in the circumstances of the instant case, the absolute property of his widow and are not subject to the Federal estate tax under the Revenue Act of 1924.

Certain payments made by one stockholder (petitioner) to another stockholder of the same corporation held not to be deductible in determining the income taxable to the petitioner.

Valuation of inventory of dry egg albumen and dry egg granulated yolk determined.

Basis for depreciation and for gain or loss on sale of barges determined from the evidence.

Held that the cost of timber to petitioner should be increased by half the salvage value of a plant which was required to be transferred to the seller of the timber as part of the consideration thereof.

1. Certain stock acquired by the petitioner in the sale of his farm did not have a readily realizable market value at the time it was received. 2. The sum of a bonus charged by a financial institution for making a loan to petitioner and included in the notes given to evidence the loan, is not deductible from gross income, since petitioner was on the cash basis of accounting and no part of the bonus appears to have been paid in the taxable year.

The net losses of a Missouri corporation sustained in 1921 and 1922 may not be applied to reduce the tax liability of the petitioner, an Oklahoma corporation, for the years 1923 and 1924.

Where a corporation organized under the laws of Oklahoma owned a majority of the stock of another corporation, also organized under the laws of Oklahoma, and actually voted through its own officer such stock at stockholders' meetings, held that the minority stockkholders did not own or control substantially all the stock of the second corporation by reason of the provisions of section 49 of article 9 of the Constitution of Oklahoma.

Upon the evidence, held that the petitioner is entitled to deduct certain losses sustained on investments made in the oil business and also to deduct losses sustained by reason of his payment of certain notes which he had endorsed.

1. For the years 1923 and 1924, Commissioner's determination of deficiencies approved for lack of evidence to show error. 2. For the year 1925 a so-called average cost obtained by disregarding varying cost of production of different classes of lumber, and disregarding varying number of feet in each grade, is not comparable with the market price of each grade, to determine whether cost or market is lower.

- Where the petitioner created trusts and the income therefrom was used for the purpose of paying premiums on insurance on his own life, the income of the trusts should be included in petitioner's income under section 219(h) of the Revenue Acts of 1924 and 1926.

1. ACCOUNTING - BONUS. - Where petitioner kept its books on basis of a fiscal year ending September 30 and set up on its books during the taxable years certain sums for the payment of a bonus to employees, but the liability and payment thereof was based on their salaries from December 1 to December 1, and dependent on the continuance of the employees in petitioner's service until December 1 of each year, the bonus is not deductible in the year in which so set up on its…

1. Sale price of certain real estate determined for computation of tax on installment basis under articles 44 and 45, Regulations 69. 2. Where real estate is bought for the purpose of resale and is divided into lots, the cost should be equitably apportioned to the several lots and the gain or loss calculated on each lot sold.

Certain corporation stock became worthless in the taxable year and the petitioner sustained a loss thereby of $39,340.25.

Fair market value of certain real estate at March 1, 1913, determined.

In the circumstances herein the respondent properly disallowed a deduction for damages, court costs and attorney's fees, paid by petitioner in settlement of a judgment against him for personal injuries resulting from an automobile accident.

Payment of ordinary and necessary business expenses with borrowed money does not postpone the deduction on account thereof to the year in which the borrowed money is repaid.

The merchantable stock in trade of a going retail business has a readily realizable value.

Petitioners held liable as transferees under section 280 of the Revenue Act of 1926.

1. The respondent's action relative to the amount that should be included in the petitioner's invested capital on account of certain contracts involved herein, and the amounts deductible from income… Held: said profits constituted taxable income. 3. Petitioner is not entitled to have its profits taxes for the years 1919, 1920, and 1921 computed under the provisions of sections 327 and 328 of the Revenue Acts of 1918 and 1921.

1. Petitioner's partner misappropriated funds held in trust by the partnership. Held: petitioner sustained no deductible loss in 1920. 2. At the close of 1920 a debt was owing to the petitioner. It was apparent that the debtor's business and source of income was, or very soon would be, ended. The debtor had some assets but the amount of such assets was not determined until February, 1921.

A corporation which acquires oil and gas properties in exchange for its capital stock is not entitled to depletion based on discovery values that were established before such acquisition.

Where subsequent developments show that a material error has been made in the original estimate of mineral reserves, a new estimate may be made and the remaining undepreciated cost of capital assets used in production may be redistributed accordingly.

Property which, under the laws of Missouri, the widow was entitled to receive upon the death of her husband in January, 1926, should not be excluded from the gross estate of the decedent in determining the Federal estate tax due from the estate of such decedent.

1. An elder brother agreed to purchase a hotel property at a price asserted to be less than its true value. Held: in the circumstances of the case, to be less reliable evidence of value than bona fide sales of the property in question.

Where real property, situated in New York, is conveyed to one person for the benefit of another, the legal and equitable title vests in the latter under the laws of the State. No part of the rents or profits from the sale of such property is income to the person in whose name the property is held.

Under the facts in these proceedings, it is held that the Commissioner erred in holding the petitioner to be an association taxable as a corporation.

1. Under the facts held that, for the purpose of determining the depreciation deduction of a plant under the unit-of-production method, the timber acquired in 1923 should be considered as available in 1922. 2. Held that a dividend of a definite amount paid in Liberty bonds of a value in excess of cost gives rise to taxable gain.

Held that the timber not owned by the petitioner was not under the evidence available to it for the purpose of determining depreciation on its plant by the unit-of-production method.

On May 21, 1918, the decedent transferred his leasehold interest in certain real property to a corporation in consideration of $12,000 and certain monthly payments to be made during the rest of his life. On January 25, 1922, he assigned his rights under the contract of May 21, 1918, to his six children, and thereafter they received them.

The Commissioner's disallowance of a deduction under section 234(a)(7) approved where the cost of a secret formula on which the allowance is claimed does not appear.

1. Where a vendor of real estate sold for a price consisting of a cash payment, a first mortgage assumed, and deferred payments secured by a purchase-money mortgage, exchanged the latter obligation in the year of sale for an obligation of equal amount on open account of a corporation, a stranger to the original sale, the amount of which, together with the cash payment, exceeded one-fourth of the purchase price, it is unnecessary to consider whether the vendor may return…

In the circumstances herein the petitioners are not liable for surtaxes on amounts received incident to the redemption by a corporation of a portion of its capital stock, even though stock dividends and rights were thereafter issued by which each stockholder became entitled to an equal or greater amount of stock than that redeemed.

Rate of depreciation determined.

Held, under the evidence, that the petitioner used the reserve method of handling its bad debts in the years involved, and the permission of the Commissioner not having been obtained to adopt this… Held: under the evidence, that the petitioner used the reserve method of handling its bad debts in the years involved, and the permission of the Commissioner not having been obtained to adopt this method, the deductions claimed are disallowed.

GAIN. - Where petitioner issued its bonds at par and subsequently purchased some of them on the open market at less than par and retired them, the difference between the par value and purchase price at which they were retired is not taxable as income.

Reasonable allowance as compensation for personal services determined.

Where petitioner issued its mortgage bonds at par and subsequently purchased some of them on the open market at less than par and retired them, the difference between the par value and purchase price is not taxable as income.

Deduction of bad debt ascertained to be worthless during taxable year and charged to profit and loss allowed as a deduction, though petitioner, contrary to its business practice and without permission to change the same, credited the item to reserve for bad debts, later making a correcting entry.

Held that the petitioners constitute an "association" taxable as a corporation under the Revenue Acts of 1924 and 1926.

In 1924 the petitioner voluntarily, but subject to and with the approval of the Commissioner, changed its accounting period from a fiscal to a calendar year basis.

1. Interest received on Liberty bonds, though exempt from tax, should be included in the computation to determine a net loss. 2. In determining whether or not net income is in excess of $25,000 and the credit of $2,000 allowable, a net loss provided for in section 204(b) may not be deducted.

1. Petitioner and the Ford Realty & Construction Co. held not to be affiliated corporations, where from 19 to 24 per cent of the stock of the latter company was owned by those who were not stockholders in the petitioner. 2. The fair market value of certain land contracts taken upon sale of subdivided realty held to be 65 per cent of their face amount.

Section 31. of the Revenue Act of 1924 is not unconstitutional as applied to a gift made on December 26, 1924.

1. The Commissioner's valuation of stock approved. 2. Where a widow accepts the provisions of the decedent's will in lieu of dower and a year's support, and under the laws of the jurisdiction (Georgia) such election bars her right to dower and a year's support, the amount paid her during the first year subsequent to the decedent's death is not deductible from the gross estate as an allowance for the support of dependents.

Money received by petitioner in settlement of litigation held, under the evidence, to be taxable income. Held: under the evidence, to be taxable income.

Certain amounts owed to the petitioner and charged to profit and loss on December 31, 1920, held to have been ascertained to be worthless in 1920, and therefore a legal deduction from gross income.

1. The syndicate managers, as agents for the syndicate subscribers, of which J. Henry and Julia Dick were subscribers, transferred the… Held: since the syndicate managers were agents for the syndicate subscribers, the stock so acquired by the syndicate was, in legal effect, acquired by the subscribers in the first instance, and since the said subscribers, through their agents, were then in control of the corporation whose stock was acquired, within the meaning of section…

In 1924 petitioner paid additional income taxes on its 1921 and 1922 income to the State of South Carolina. Held that such payment can not be deducted on petitioner's Federal Return for 1924, since petitioner kept its books of account on the accrual basis.

1. It is not the duty of the Board, even by agreement of the parties, to determine abstract questions on assumed facts. There must be a real controversy, the facts of which must be established either by a bona fide stipulation or by evidence. 2. Under the Revenue Act of 1921 a liquidating distribution is taxable as a dividend and not as a capital gain. 3.

Evidence considered and respondent's determinations as to sale price of stock and March 1, 1913, values, sustained.

Where a corporation agreed to purchase one-fourth of all certain stock deposited in escrow and by the same agreement was given options to purchase one-fourth of such stock in each of the three succeeding years at increased prices, and where it was provided that if the corporation failed to exercise its option and pay for the stock in any one of said years, the corporation would forfeit all it had paid, held that the excesses of the deferred payments over the cash payment did…

- Where petitioner bought raw materials in India and transported them to this country, where they were manufactured and sold, petitioner is not entitled, under section 238(a) of the Revenue Act of 1926, to have allowed income taxes paid the Indian Government as credits against United States income taxes, because petitioner's entire income was derived from sources within the United States.

1. An amount paid by a corporation in settlement of a suit brought against its officers on account of their alleged wrongdoing, held not to constitute an ordinary and necessary expense of the corporation. 2.

Payments to stockholders carried on corporate books as interest held to be dividends.

Where the settlor of a trust estate reserves to herself alone a power to change the ultimate beneficiaries of the trust or to vary the share distributable to each, such reservation constitutes a power to alter or amend and renders the transfer incomplete until her death. The property is, therefore, properly to be included in her gross estate subject to tax under section 302(d) of the Revenue Act of 1924.

1. FOREIGN INCOME TAX. - Where dividends are received by a citizen of the United States, a resident therein, on stock which he holds in a foreign corporation, a holding company, he is not entitled to credit against the tax on such dividends foreign taxes which were paid at the source for the account of the foreign corporation, a holding corporation, and not for the account of the stockholder. 2.

1. The Commissioner's determination of a deficiency for 1926 approved for lack of evidence to show error. 2. The constitutionality of a statute can not be raised by the mere allegation in a pleading that it is invalid.

1. Where a 99-year lease is made with the purpose of erecting a new building, the unextinguished cost of the old buildings is not deductible by lessor as a loss in the year of their demolition, but should be exhausted over the term of the lease. 2. A commission and fees paid by the petitioners to procure a 99-year iease held not to constitute deductible expenses in the years in which paid, but capital expenditures to be ratably deducted over the term of the lease.

Held that certain trust instruments were not intended to take effect in possession and enjoyment at or after death and that accordingly certain trust property was improperly included in the taxable estate.

1. Rate of depreciation approved. 2. Special assessment denied.

Amounts withdrawn by two stockholders from a corporation whose stock was owned jointly by them held not to be deductible as salaries for the years 1922 and 1923.

In determining the gross estate of a deceased husband, residing in California at time of his death, for the purpose of Federal estate tax, there should be included the entire value of the community property acquired under the laws of the State of California prior to July 29, 1927.

The petitioner was the beneficiary under certain insurance policies under the terms of which the insurer was annually to pay to her 3 per cent interest and apportioned dividends on the face value of the policies, and on her death the principal sum was to be paid to other beneficiaries. Held that annual payment to petitioner is properly includable in gross income. (Section 213(b)(1), Revenue Act of 1926.)

Held that the respondent has failed to sustain the burden of proof to show that the petitioner is liable as the transferee of property of the taxpayer.

1. Where a life insurance policy issued on the life of decedent reserved a right of revocation by the insured permitting him full power to change the beneficiary, the proceeds of the policy in the hands of the beneficiaries are taxable under provisions of section 402(f) of the Revenue Act of 1921. 2.

1. The beneficiary under a policy of insurance which names a specific beneficiary and does not reserve to the insured a right to change the beneficiary has a vested interest of which he may not be deprived without consent. The transfer of the right to the proceeds of such a policy being complete before the passage of the Revenue Act, such proceeds are not properly to be included in the estate. 2.

Evidence held insufficient to overcome respondent's determination of a deficiency.

Where a stockholder in a corporation transfers part of his common stock and all of his preferred stock to an outside party in order to induce the recipient of the stock to assume management of the corporation and liquidate certain outstanding obligations of the corporation, and the preferred stock is subsequently turned in by the recipient and canceled, held that the taxpayer is entitled to deduct from gross income for 1923 the cost of the common stock and preferred stock…

The petitioner is entitled to have its tax liability recomputed in accordance with the provisions of section 328 of the Revenue Acts.

1. Taxpayers who did not sign or verify an original petition filed within the statutory period after deficiency notices were mailed, and who have not shown that the person who purported to sign and verify in their behalf had authority to do so, may not file an amended petition after the statutory period has run. Respondent's motion to dismiss as to such taxpayers, for want of jurisdiction, is granted. 2.

Additional compensation paid to petitioner's president, held to be a reasonable allowance for personal services actually rendered.

Certain stocks held to be capital assets within the meaning of sections 206 and 208 of the Revenue Acts of 1921 and 1924, respectively.

Amounts withheld by municipalities under paving contracts as funds to guarantee maintenance of the paving for a period of years and which funds the municipalities might themselves expend for maintenance and repairs held not accruable as income to the contractor during the withholding period.

Where the petitioner, buying and selling stocks on margin with no shares earmarked by having certificates issued in his own name, fails to show which of several lots of stock he sold and which he retained, the respondent's determination that he sold those first acquired is approved.

Where property is conveyed to a grantee by an irrevocable deed, the grantor reserving to herself the life use of said premises, the rents, issues, profits, management and control thereof to continue… Held: the property thus conveyed is not subject to the tax provided in section 302(c) of the Revenue Act of 1924. May v. Heiner,281 U.S. 238, followed.

Amounts paid by petitioner to the Kansas City Chamber of Commerce in the taxable year on account of subscriptions and membership dues therein are deductible from gross income in such year as ordinary and necessary expenses, under the provisions of section 234(a) of the Revenue Act of 1926.

1. Two partnerships engaged in business as insurance brokers organized a corporation the stock of which was paid in and held by the… Held: the fixed monthly payments were clearly not deductible as salaries of officers, but that, since they were in fact expended by the corporation in discharge of the legal obligation fixed by the contract, constituted an annual outlay payable as consideration for the gross income of the corporation, and bore no semblance to a dividend,…

Basis for reporting interest received on certain notes determined.

1. The petitioner was named the residuary legatee of her husband's estate and charged with a trust to expend such sums as she considered proper for the care and education of her four minor children. Held that the sums so expended should be reported as income of the children and are not properly included in her gross income. 2.

1. Affiliation denied. 2. Assessment and/or collection of taxes for the years 1918, 1919, and 1920 held not barred by the statute of limitations. 3. The Board is without power to adjudicate whether the circumstances upon which the Commissioner acted were such as to denote that the assessment or collection of the deficiency would be jeopardized by delay. Veeder v. Commissioner, 36 Fed.(2d) 342. 4. The petitioner's objections to the validity of section 274(d) of the Revenue Act of 1921 are not sustained.

The decedent received dividends on January 15, April 15, July 15, and October 15, 1922, from a corporation which on January 1, 1921, had no undistributed earnings or profits accumulated since February 28, 1913, and which corporation sustained a loss of $896,168.23 for the first six months of 1921, realized a profit of $346,724.17 for the last six months of 1921, sustained a loss of $141,175.74 for the first six months of 1922, and realized a profit of $390,365.92 for the…

1. The petitioner held to be liable as a transferee. 2. Held that the granting of a motion of the respondent to file an amendment to his answer, wherein he alleged that the prior determination by this Board of the tax liability of the petitioner's transferor was conclusive upon the petitioner, was proper. 3.

1. Amount of addition to reserve for bad debts determined. 2. Held that the respondent has not sustained the burden of proof with respect to his contention that a deficiency should be determined in excess of that shown in the notice of deficiency.

The decedent, until his death on December 30, 1926, was a member of a partnership which provided in its articles of agreement that in case of the death of a partner during the year the partnership business should be continued until the end of the year. The partnership was on the accrual basis and both the partnership and the decedent filed their returns on the calendar year basis.

Value of second-trust note determined.

JOINT PETITION. - The rules of the Board do not provide for the filing of a joint petition. Where one is filed properly verified, it will not be dismissed, but each petitioner will be required to file separate petitions and will be granted time in which that may be done.

JOINT PETITION. - Where a joint petition properly verified has been filed, each petitioner will be required to file separate petitions and will be granted time in which that may be done.

In 1922 petitioners, who were stockholders of the W. L. Phelps Co., transferred all of their stock (with the exception of W. L. Phelps, who retained 300 shares) to the corporation in exchange for $130 per share in cash. Held that the transaction is taxable under the provisions of sections 201, 213, 216, and 211 of the Revenue Act of 1921 rather than sections 202 and 206.

1. The respondent's determination that the entire income received by the petitioner was as a life beneficiary of a testamentary trust sustained. 2. A life beneficiary of trust income can not reduce gross income because of the depreciation of trust assets, even though under the laws of the State the depreciation deduction is distributable among those entitled to receive the trust income.

Under the facts shown it was error to include the widow's interest in community property in the taxable estate of the deceased husband.

Distributions made to owners of no par value shares of common stock of a corporation after a contract to dissolve within one year had been made by the directors and ratified by the stockholders held to be in the nature of liquidating dividends.

The amount of a fee paid in the defense of a proposed income-tax assessment disallowed as a deduction in the absence of proof that the sum was paid in the conduct of a trade or business.

Interest realized by the petitioner under a foreclosure suit instituted by him, in which he became the purchaser of the property, is taxable income.

Petitioner is liable as transferee for the unpaid income tax of the taxpayer for the taxable period involved herein.

Assessment and collection of additional taxes for the fiscal year ended April 30, 1919, are not barred by the statute of limitations.

In computing the amount of gain realized on the sale of an exhaustible asset, an allowance must be made for depreciation during the period the property was owned by the seller.

From evidence produced at the hearing the value, for estate-tax purposes, of the Pasadena property is determined agreeably to petitioner's estate-tax return, and for lack of sufficient evidence to the contrary the determination of the Commissioner as to the value, for estate-tax purposes, of the Hollywood or Los Angeles property, is approved.

Stock in a corporation, operated unsuccessfully, was exchanged in 1922 for stock in another corporation which proved to be insolvent and its stock worthless in 1923. There being no evidence that the stock acquired in 1922 was then or thereafter of any value, no deduction from gross income can be allowed therefor in 1923.

Under the Revenue Act of 1921, the proceeds of life insurance policies taken out in 1896, 1901, 1914, and 1917, where the insured reserved the right to change the beneficiary, should be included in the gross estate of the decedent for estate-tax purposes.

Special assessment denied.

Amount of deduction allowable to a motion picture corporation for expense of operation and maintenance of a yacht necessary for and used in making marine pictures, but also used for pleasure purposes, determined.

1. Deductions are personal to a taxpayer and one taxpayer may not take deductions properly belonging to another. 2. Expenses incurred by the president of a corporation on behalf of the corporation for traveling, entertaining, and similar purposes, paid by the president from personal funds and not reimbursed to him by the corporation, may not be deducted by the president on his individual return. 3.

The interest of the surviving wife in community property of the deceased husband and herself, both domiciled in California, is subject to the Federal estate tax imposed by the Revenue Act of 1921.

In 1925 the petitioner determined a certain debt to be worthless, charged it off his books and claimed a deduction therefor. Held: the petitioner is not entitled to the deduction claimed in 1925.

A wife's compensation for personal services, where an agreement exists between herself and her busband under the laws of the State of California that such compensation shall be her separate income and separate property, and where she has made separate income-tax returns, may not be added to and taxes as income of the husband.

The amount of $228,362.82 paid in 1925 to one Benjamin Bloom by the partnership of David Bloom & Co. held to be Benjamin Bloom's distributive share of the partnership assets and not a gift to him from the petitioner, Jonas Bloom, and David Bloom, deceased.

Information returns for the years 1920 to 1924 were, under an erroneous conception of the requirements of law, made on a fiscal year basis by a partnership of which petitioners were members, although… Held: that the returns filed by the partnership did not, under the circumstances, constitute an election to establish a fiscal year accounting period for the partnership.

1. Where the proof does not show that petitioner was engaged in a trade or business, deduction of attorneys' fees, salaries to secretary and bookkeeper, and rent of a room used as an office are not deductible as ordinary and necessary expenses. 2. Depreciation is not allowable where there is no evidence that the property was used in a trade or business.

Salary of a professor in the law school of the University of Maryland is aot exempt from tax.

1. In view of all the conditions and circumstances surrounding a transfer of his partnership business by a father to his sons, it is held that such transfer was made in contemplation of death. 2. The action of the Commissioner in his valuation of certain properties at date of death sustained for lack of convincing proof to the contrary. 3.

The Commissioner's disallowance of a reserve for bad debts claimed under section 234(a)(5) of the Revenue Act of 1924 approved.

Value of a lease for invested capital purposes and amounts of annual deduction for exhaustion of the lease determined.

An attorney appointed by the Attorney General of Illinois to assist in the investigation of certain municipal affairs of the city of Chicago and to aid in the prosecution of certain criminal cases in connection with charges of misconduct against certain members of the Chicago Board of Education and other city officials, is not an officer or employee of the State of Illinois or of Cook County and the compensation paid to him for such services from funds duly appropriated by…

1. A net loss for a period ended July 31, 1919, there being no income for the year ended July 31, 1920, may not be deducted in computing taxable income for the year ended July 31, 1921. 2. Held: not liable to penalty of 25 per cent of the tax imposed by section 3176 of the Revised Statues for willful neglect to file a return.

The Commissioner did not err in disallowing, either as a bad debt or as a loss, a deduction claimed by the petitioner from its gross income for 1920.

The Commissioner's determination of a deficiency in income-tax liability of $18,666.65, plus a 5 per cent penalty, for the years 1922 to 1925, inclusive, approved, there being no sufficient evidence adduced to overcome the correctness of such determination.

In returning taxable income, a residuary beneficiary under a will and a trust created thereby is not entitled, in the circumstances of the instant case, to deduct from his gross income any sums ordered by the court upon settlement of the trust and estate to be paid therefrom to the trustees and their attorneys for their services as such.

1. March 1, 1913, value of certain patents determined for exhaustion purposes. 2. The petitioner is entitled to deduct exhaustion upon that patent found to have been used in his trade or business within the meaning of section 214(a)(8) of the Revenue Acts of 1924 and 1926. 3. As to those patents owned by the petitioner but not used in his trade or business within the meaning of said section, he is not entitled to deduct exhaustion thereon. 4.

The petitioner and the Farmers Rice Milling Co. were owned or controlled by the same interests during the period February 6 to October 31, 1920, and they are entitled to file a consolidated return for that period.

The evidence does not establish that the Commissioner erred in including in the petitioner's income the total profits derived from a business during the years in question, which business was alleged to have been carried on by the petitioner and his wife as a partnership.

Petitioner subleased certain property to another for a term of 20 years, and received during the taxable years the sum of $20,000, being paid as a bonus for granting this sublease and being in… Held: that the entire amount should be included in petitioner's gross income for the taxable year.

By authority of Russell v. United States,278 U.S. 181, it is held that where no proceeding was instituted for the collection of income tax prior to the expiration of limitation period, regardless of the fact that assessment was made prior to the expiration of such period, the collection of the tax is barred.

1. Petitioner purchased certain stock in 1916 and 1917, which stock became worthless in 1922. Petitioner did not have knowledge of the worthlessness of the stock until 1924, when he sold it for one dollar. Held, the loss resulting therefrom was sustained in 1922 and not in 1924. 2. Upon the evidence, held, petitioner was ergularly operating a trade or business. 3. Amount of "net loss" for 1922 determined and applied against the net income for the years 1923 and 1924.

A note, given as a donation to a university, payable one year after death of both the maker and his wife, is not a claim deductible from the gross estate.

In an estate-tax case, the interest of the decedent in real estate held by decedent and his wife as tenants by the entirety should be included in his gross estate.

1. It being conceded that petitioner is the transferee on dissolution of all the assets of the Herff Motor Corporation, and that the value of such assets exceeded the amount of deficiency as determined in this proceeding, he is liable, as transferee, for the deficiency so determined. 2. Amount of deficiency of the Herff Motor Corporation for the year ended February 28, 1923, redetermined.

1. The Commissioner is not estopped to reassert a deficiency theretofore abated by him. 2. The whole of a community estate in California should be included in the gross estate of the deceased husband. 3. The tax here involved is not barred by limitation. Section 1400(b) of the Revenue Act of 1921, authorizes the collection of a tax under the 1918 Act, although the 1921 Act became effective in less than one year after the date of the decedent's death.

Held that the petitioner was merely a nominal or dummy stockholder in the Memphis Chero Cola Bottling Corporation and that he sustained no loss in 1923, 1924 or 1925, by reason of his transfer of certain shares of stock issued in his name, or by reason of receivership and liquidation of the corporation.

A husband and wife, by deed of gift, acquired real estate as tenants by the entirety; on the death of the husband one-half of the value of that real estate was included in his gross estate. The wife having died within five years after the death of the husband, and the whole value of that real estate being included in her gross estate, there should be allowed, as a deduction under section 303(a)(2) of the Revenue Act of 1924, one-half of that value.

A decedent and her son held property in Alifornia as joint tenants since before the Federal estate tax, the decedent dying October 5, 1924. In the circumstances of the instant case and under the applicable provisions of the Revenue Act of 1924, subdivisions (e) and (h) of section 302, held, the respondent in computing estate tax committed no error in including one-half the value of the joint estate in the gross estate of the decedent.

1. Under the circumstances of this case, held that no basis exists for the allowance of a deduction for an alleged bad debt. 2. The action of the Commissioner in determining that certain rent had accrued, sustained.

Petitioner, in filing a separate return for the calendar year 1922, exercised an election, under the circumstances here, which binds it to make all returns thereafter upon the same basis. It may not later file consolidated returns for 1922, 1923, or subsequent years, unless permission to change the basis is granted by the Commissioner.

1. The whole of a community estate in California should be included in the gross estate of the deceased husband. 2. The Commissioner is not estopped from reasserting a deficiency by reason of his having theretofore erroneously abated the assessment and refunded the tax paid. The interest paid on the amount of refund does not constitute a part of the reasserted deficiency. 3. The assessment and collection of the tax here involved are not barred by limitation.

1. Where the period for collection of additional taxes for 1917 and 1918 which were assessed in 1922 expired while the Revenue Act of 1926 was in effect, and waivers further extending the time for collection were executed after the enactment of the Revenue Act of 1928 and before January 1, 1929, it is held that the effect of such waivers under section 506 of the Revenue Act of 1928 is to remove the bar laid down by the Revenue Act of 1926 and permit subsequent collection. 2.

As relating to real property situated in California, deposit of deeds in escrow in March, 1921, in accordance with an agreement to sell real property, delivery of the deeds to await a final payment on the purchase price to be made in 1924 did not constitute a sale consummated prior to December 31, 1921.

Pursuant to a plan adopted by the petitioner in 1911, and amended in February, 1918, the petitioner entered into contracts with certain of its employees to sell to them shares of its capital stock at $100 per share, purchase price to be paid by credits of dividends payable on shares. Interest upon deferred payments was to be at the rate of 5 per centum per annum.

The petitioner, the Welfare Loan Society of Lancaster, Pa., a Pennsylvania corporation, had no assets, did no business and received no income in the year 1925. Held: there is no deficiency against petitioner; (2) the Board had no jurisdiction over the Delaware corporation; (3) the Board has no authority in this case over the petitioner as a transferee.

During the taxable years ended February 29, 1924, and February 28, 1925, the petitioner rendered architectural and engineering services to the State of North Carolina under contracts by which he was to receive and did receive a percentage upon the appropriation made for each institution erecting a building during those years; under his contracts he devoted his entire time and attention to the work to be performed for the State and rendered the services subject to the control…

1. Held that the evidence is not sufficient to overcome the presumption that certain transfers of corporate stock by gift made by decedent within two years prior to his death were made in contemplation of death. 2. Held that the provisions of the Revenue Act of 1924 are applicable to transfers by way of gift of corporate stock made in 1923 in contemplation of death where the decedent died in 1924 subsequent to the enactment of the Revenue Act of that year.

1. An instrument in the form of a lease, whereby property is expressly leased with an option to the lessee to purchase within the term,… Held: the book entries supported the Commissioner's conclusion that the first entry was a joint advance to petitioner and F and the closing of the accounts was in substance a distribution of profits of the corporation; that the receipt of the unused funds by F for the joint account of petitioner and F constituted a constructive receipt by…

1. An amount paid by a lessee in 1920 to a lessor in connection with the execution of a lease, which amount was paid on account of the prospective losses which the lessor might suffer from the time the lease was executed until its term began, is not an ordinary and necessary expense of the lessee for 1920, but should be capitalized and exhausted over the term of the lease beginning in 1922. 2.

The testator, by will, provided inter alia for annuities of $300 a year, during the life of his three daughters, for every grandchild of his who might be born after his death. A minimum deductible value for a remainder left to charity determined, where it appears that grandchildren can be born with incredible rapidity and in improbable numbers without impairing this value.

Evidence held insufficient to show that debt claimed as a deduction in 1924 was then ascertained to be worthless.

Personal service classification denied.

1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. The provisions of section 280 of the Revenue Act of 1926 are applicable as well to transferees who acquired assets of a taxpayer prior to the enactment of the statute as to those thereafter acquiring such assets. 3.

1. The original cost of stock, with respect to which stock rights have been received and exercised, must be adjusted to give effect to the acquisition of the new stock in determining the basis for computing gain or loss upon the sale of a portion of such stock. Miles v. Safe Deposit Co.,259 U.S. 247, and Frederick Ayer,6 B.T.A. 152; affd., 25 Fed.(2d) 534, followed. 2.

The petitioner, a man of large resources and actively interested in many businesses operated in his city, devoted the usual business hours of each day to his affairs, maintaining an office and employees. It was his practice to operate each business venture through a corporation and not as a personal venture. Through the failure of one of such corporations he sustained a loss.

The amount of additional salaries for services performed in 1918 is not allowable as a deduction from income for 1918 where the liability to pay the salary was not incurred until after 1918.

The petitioner, a corporation, paid to certain stockholders reasonable salaries in money for their services, which amounts so paid were allowed as proper deductions in… Held: the evidence is insufficient to show said stockholders entitled to any more salary than what had been allowed as a proper deduction and that, in the circumstances of the instant case, the additional issue of stock had the same effect as a stock dividend and hence was not a deductible item of expense.

Petitioner held not to have been an employee of a State or a political subdivision thereof and not entitled to the benefits of section 1211 of the Revenue Act of 1926.

Petitioner held not entitled to the deduction of an alleged loss resulting from the sale in 1923 of residential property given him by his father as a personal home after his marriage and never used otherwise by petitioner.

1. Amounts deducted by petitioner for salaries to officers and stockholder-employees for the taxable year 1920 held to have been reasonable compensation for services actually rendered during that year. 2. A written consent entered into between the petitioner, by its secretary-treasurer, and the Commissioner more than five years after the filing of its income and profits-tax return for the fiscal year ended February 29, 1920, but prior to the enactment of the Revenue Act of 1926, held valid.

1. Where a lumber company extends its railroad facilities for the purpose of making more accessible timber which had not previously been served by any track and placing itself in a position to negotiate a contract for the operation of the timber tract, the cost of the railroad extension is not deductible as an expense item. 2. Rate of depreciation on certain assets determined.

1. Fee paid to counsel in a will contest and settlement thereof is not deductible from gross income. (Marion Stone Burt Lansill et al.,17 B.T.A. 413.) 2. Attorney fee, paid in the defense of a suit claiming the right to receive one-half of the net proceeds of leased lands in which the petitioner owned an undivided one-sixth interest, is not a deductible expense where the suit was not directly connected with or proximately resulted from petitioner's business.

Contribution made to the endowment fund of a local college, to assure its continuation as a substantial patron of petitioner, allowed as an ordinary and necessary business expense.

Loss sustained in loan transactions held to be deductible in 1922.