Volume 21 — Board of Tax Appeals

Where the person filing the petition is not shown to have authority to act for the taxpayer, a dissolved corporation, the petition will be dismissed for lack of jurisdiction.

The petitioners' decedent in 1909 was appointed trustee with power to appoint his successor and also power to change the beneficiaries, both of which powers he exercised on September 17, 1918, when he resigned as trustee, changed the beneficiaries of the trust, fixed the disposition of the corpus and date of the termination of the trust, and made such change of beneficiaries and their interest in the estate irrevocable, and reserved to himself the residue of income of the…

Where a contractor who kept his books of account on the cash receipts and disbursements basis, constructed public works on a unit basis, being paid 90 per cent of the contract price upon the completion of the work, the balance being retained in accordance with a city ordinance for a period of five days to guarantee the maintenance of the construction, held, that the amounts so retained are not includable in income until the year in which paid. Cleveland Trinidad Paving Co. et al.,20 B.T.A. 772, followed.

1. The phrasing of the notice of deficiency relating to the item in controversy, even if clear, is not the cause of action and does not frame the issues; and a petitioner may not, without an expressly pleaded admission or a stipulation, treat the notice as an official acquiescence by the Commissioner in all petitioner's propositions as to a particular item except those determined adversely to him. 2.

In the circumstances of the instant case, held, the proposed assessment against the estate of Charles H. Hulburd, deceased, as a transferee of assets of the Van Sicklen Co., is not barred by the… Held: the proposed assessment against the estate of Charles H. Hulburd, deceased, as a transferee of assets of the Van Sicklen Co., is not barred by the statute of limitations provided by section 280 of the Revenue Act of 1926.

Petitioner, in 1920, purchased certain notes from another banking institution and claimed to have ascertained the same year that they were worthless and as such charged them off. Held: the Commissioner committed no error in disallowing the face value of said notes as a proper deduction.

An individual transferred certain assets of a drug business to a corporation for its entire capital stock. Held: the corporation is not a transferee within the meaning of section 280 of the Revenue Act of 1926.

The petitioner is not entitled to deduct from his gross income for 1924 an amount which he paid in that year for the purpose of aiding a proposed lessee to defray its expenses of moving into a building in which he owned a one-half interest.

The evidence does not justify changing the Commissioner's adjustment of the petitioner's closing inventory.

A corporation, for which the petitioner had performed valuable services, surrendered to the petitioner the latter's notes in payment for the services rendered and for certain shares of stock which had cost the petitioner $16,000. The petitioner had income or profit in the amount of the difference between the cost of the stock and the face value of the notes.

1. TRANSFEREES. - A petitioner who appeals to this Board under section 280 of the Revenue Act of 1926, may not in such proceeding question they validity of said section. Henry Cappellini et al.,14 B.T.A. 1269. 2. Id. - The respondent having failed to show that the petitioner received any assets of the dissolved corporation, held that the petitioner is not liable, at law or in equity, for any unpaid tax of the corporation.

1. A gravel pit or deposit is not a mine within the meaning of that word as used in section 204(c)(1) of the Revenue Act of 1926, and may not be the subject matter of a deduction for depletion based on discovery value. 2. Deduction allowable for depreciation determined from the record. 3. Miscellaneous expenditures analyzed and held to be part capital, and part expense deductible from income.

Held that the Reading Co. distributed stock rights in 1924 and that under section 204(a)(9) of the Revenue Act of 1924 the basis of determining gain or loss on the sale of the stock in respect of which the distribution was made should be apportioned between such stock and the stock rights so distributed.

Legal expenses incurred in connection with a suit to break a will held not to be allowable deductions under section 214(a)(1) or section 214(a)(5) of the Revenue Act of 1926.

Where it is necessary to tear down certain portions of the interior of a building in order to alter and improve the property, the cost of demolition may not be deducted from gross income.

Where a corporation was dissolved in 1918 and distributed its assets and where such corporation filed returns under the Revenue Act of 1916 as amended by the Revenue Act of 1917, but no return was filed by, or on behalf of, the corporation under the Revenue Act of 1918, an additional tax against such corporation, pursuant to the Revenue Act of 1918, may be assessed against the transferee or transferees of its assets at any time.

The trustees and executors of an estate are separate and distinct legal entities and the Board has no jurisdiction of a petition filed by the trustees based upon a deficiency notice to the executors.

Fair market value on March 1, 1913, determined.

The petitioners prior to the sale of the entire capital stock of the Wilson Avenue Garage Co. had transferred to themselves assets of the corporation, which impaired its capital but left the corporation solvent. Held that the assets so transferred were not impressed with a trust so as to create any liability which would be enforceable under section 280 of the Revenue Act of 1926.

1. DEDUCTIONS - EXPENSE - REASONABLE SALARIES. - Petitioner, a corporation, all of whose stock was owned in equal amounts by its three general officers, credited in equal amounts to such… Held: that such action indicated merely an intended distribution of earnings to these individuals as stockholders and petitioner was entitled to take credit as an expense for only such portion of the amounts credited as represented reasonable compensation for services actually rendered. 2.

- Petitioner, an individual doing a regular installment sale business, made his return voluntarily for the year 1924 on the accrual basis. Held that upon the subsequent enactment of the Revenue Act of 1926 petitioner is entitled under the retroactive provisions of section 212(d) to recompute his income for that year upon the installment basis.

DEDUCTIONS - ESTATE TAX - ADJUSTMENT ON REFUND. - Petitioners, as beneficiaries of an estate, took credit in 1923 against gross income for the total amount of estate taxes paid in that year. A portion of these taxes was refunded in 1924 as a result of a suit brought. Held that in determining, subsequent to the refund, the correct tax liabilities of petitioners for 1923, the deductions taken that year should be adjusted by the refund later made and credit allowed only for the net amount of taxes and interest ultimately paid. Mary W. Leach,16 B.T.A. 781.

The fair market value of certain real estate on the date it was acquired by the petitioners, determined.

The Commissioner has successfully borne the burden of proof cast upon him to show that a petitioner is liable as a transferee of property of a taxpayer if he makes a prima facie case which is not answered or rebutted by the petitioner.

Certain amounts paid by the petitioners in litigation of claims for compensation for property condemned for public uses by the city of New York, held not deductible in the years when paid.

AFFILIATED CORPORATIONS. - The capital stock of the petitioner was held as follows: 2,100 shares by DuBois, 500 shares by Nettleton, and 400 shares by Welch. For his holdings Welch paid in assets of an undisputed value in excess of $32,000 and gave his note for the balance of $6,788.05 due on the stock, payable out of the dividends if and when declared by the petitioner. Neither Welch nor Nettleton held any interest whatever in the consolidated group of corporations with which affiliation is claimed. Held, petitioner is not affiliated with said group of corporations within the purview of section 240(e)(2) of the Revenue Act of 1921, Continental Products Co.,20 B.T.A. 818, followed.

- Where it appears that a change to the reserve method of accounting for bad debts was plainly evident upon the return filed by the petitioner for 1922 and such method, after field investigation, was… Held: the same method should be followed in computing net income for 1923.

In 1922 and 1923 the petitioner was a member of a partnership engaged in an export brokerage business. The partnership was dissolved in 1924, and the books of account abandoned. The Commissioner determined deficiencies due from the petitioner upon the basis that the partnership realized a taxable income in 1922 and 1923 of 2 per cent on the sales. Held that the petitioner's returns for 1922 and 1923 properly reflected his distributable portion of the partnership profits.

Petitioner corporation and two other corporations are held to have been affiliated in 1924 and 1925, at least 95 per cent of the stock of each being held to have been owned by the same interests during the taxable year.

Upon the evidence, held that certain metal plates owned by petitioner became obsolete during the taxable year, thereby entitling petitioner to a deduction from gross income for the remaining undepreciated cost thereof.

The respondent's estimate of the amount of the deposit or reserve applicable to each petitioner's interest in certain oil properties at the time of acquisition approved.

In 1922 petitioner exchanged certain improved real estate which he was holding as an investment for other improved real estate and an amount of money. The amount of money received was less than the cost to the petitioner of the real estate exchanged. Held that under section 202(c)(1) and (e) of the Revenue Act of 1921, neither gain nor loss is recognized.

The value of the petitioner's good will on March 1, 1913, was at least $14,999.

The action of the respondent in refusing to allow an allocation of advertising expenses over a period of years, affirmed.

1. SPECIAL ASSESSMENT - COMMISSIONER'S RIGHT TO REOPEN AND RECONSIDER HIS FORMER DETERMINATION. - Respondent granted taxpayer's request for special assessment, determined a tax liability thereunder less than the tax reported and paid, and refunded the taxpayer the overpayment thus determined.

- In 1921 petitioner took over certain assets for which it issued its stock to the transferors in substantially the same proportions as their interests in the assets had been prior thereto. No gain or loss was recognized to the transferors, pursuant to section 202(c)(3) of the Revenue Act of 1921 and section 203(b)(4) of the Revenue Acts of 1924 and 1926.

1. Minutes and income-tax returns of a corporation, and insurance policies in which it is designated as beneficiary, executed over a number of years and consistently describing the corporation as S. Hyman Co., may not, in the absence of any evidence of relationship or identity, be regarded as documents of or relating to a corporation bringing a proceeding under the name of L. Hyman & Co., Inc., particularly where the latter name, with minor variations, appears in later…

Statutory net loss denied for lack of evidence.

1. The value of property held by decedent and his wife as tenants by the entireties is to be included as a part of the gross estate whether such estate was created before or after the enactment of the taxing act. 2. The proceeds from the sale of property held by the entireties, including a land contract, is personalty and, in Michigan, is property held as tenants in common, only one-half being taxable to decedent.

Property held by decedent and his wife as tenants by the entirety is a part of the estate of the decedent subject to estate tax. Tyler v. United States,281 U.S. 497.

1. Property given by the decedent to his wife more than two years prior to his death held not to have been given in contemplation of death. 2. The value of personal property transferred by a husband to his wife and himself as tenants by the entirety held to be properly included in determining the value of the deceased husband's estate for estate tax.

1. The value of property held as tenant by the entirety, upon the death of one of the spouses, must be included in the gross estate of the decedent to the extent of the interest held by such decedent. 2. Under the 1924 Revenue Act it is specifically provided that such interest, whether acquired prior to or subsequent to the enactment of that act, must be included, and that statutory requirement is not unconstitutional. 3.

1. Tyler v. United States,281 U.S. 497, followed. 2. A trust created within two years of the decedent's death was not made in contemplation of death. 3. The Commissioner's disallowance of a deduction of certain pledges to churches approved where it does not appear that they were claims against the estate incurred or contracted bona fide and for a fair consideration in money or money's worth.

1. Under the facts in this case, the decedent is held to have been a resident of the United States at date of death. 2. Where, in a trust instrument, the grantor reserves the right to dispose of the corpus of the trust fund by will, and does so dispose of it, the title passes as per the will, and a revocable trust is created, the corpus of which should be included in the gross estate of the decedent.

Section 302 of the Revenue Act of 1924 requires the inclusion in the value of the gross estate of property owned by the decedent and his wife as tenants by the entirety at the time of decedent's death, and the Act is not unconstitutional as applied retroactively to tenancies created prior to the enactment of either the Revenue Act of 1924 or the Revenue Act of 1916. James E. Tyler, Jr., et al. v. United States,281 U.S. 497.

1. From the evidence, held that the gain or loss derived from the sale of an automobile should be recomputed. 2. Held that petitioner is entitled to a deduction in 1924 on account of stock becoming wholly worthless in that year.

NET LOSS. - Petitioner, in addition to large investments in various corporations which he directed, possessed large means from which he derived income during the course of many years by loaning them at interest. This practice was carried on regularly and consistently, loans being made to those corporations in which he was interested and to individuals with whom he was associated.

Petitioners were shareholders in a Massachusetts realty trust, which disposed of practically all of its assets, distributed the proceeds thereof to its shareholders and ceased to do business in 1920. Held: that the pro rata expense so incurred and paid in 1924 (the taxable year in issue) by petitioners was an ordinary and necessary expense and deductible as such in computing petitioner's net income.

1. DEDUCTION - AS BUSINESS EXPENSE OR LOSS. - The petitioner was organized as a result of the consolidation of four corporations, the assets and liabilities of which were transferred to petitioner. Held that the payment by petitioner of the liability incurred by each of the old corporations for an audit and an appraisal prior to the consolidation did not constitute a business expense or a loss. 2.

Disallowance of a loss from the sale of the petitioner's one-time residence approved.

Debt ascertained to be worthless and charged off allowed as a deduction.

- The petitioner was incorporated for the purpose of and engaged in the business of a general adjustment and mercantile collection agency and more particularly the work of gathering and disseminating mercantile and credit information, of acting as agent and representative of others in collecting and litigating claims, of holding, selling, encumbering and realizing upon real and personal property in the adjustment and settlement of claims and of bankrupt concerns, and of…

1. Taxpayer and her husband were the owners of real estate, some of which he had conveyed to her and some of which was owned jointly, and they had been engaged in buying the selling lands and… Held: attorney's fees paid by the taxpayer for defense of said suit are not deductible as ordinary and necessary expenses of carrying on a trade or business. 2.

Where petitioner was engaged in trading in securities and also president of a stock and bond brokerage company, held that the loss sustained by petitioner in his personal tradings constituted a net loss.

During the taxable year petitioner entered into numerous contracts for the sale of fixed quantities of sugar at specified prices, and, in the same year, breached them and sold the sugar at a higher… Held: The amount of damages ultimately paid or recognized was not deductible from gross income of the taxable year. Lucas v. American Code Co.,280 U.S. 445.

1. Contributions to an incorporated literary society, organized for the "intellectual and moral improvement of its members," held note deductible under section 214(a)(10)(B), Revenue Acts of 1924 and 1926, on the ground that the moral and intellectual improvement of its members was derived not only from literary and educational activities, but also by their living and eating together and otherwise enjoying social intercourse, and the contributions more importantly affect the social and living aspects of a fraternity (not per se within the statute), whose members automatically become members of the society and whose financial operations were interwoven with those of the society, than the literary aspects of the society. 2. An amount paid for the assignment of a lease containing an option to purchase the leased property may not be amortized by the assignee out of the rent received from his subtenant, where the principal object of the assignee was to acquire the option and the evidence affords no basis upon which the price paid for the assignment may be apportioned between the rights as lessee and the rights as owned of the option. 3. Nor may the price so paid be treated as cost of depreciable property constructed by the assignor, since the assignee, as lessee, was not the owner of such property.

The petitioner did not realize any taxable income from the transaction involved herein.

Special assessment allowed.

1. The partnership relation is not shown by the evidence to have existed among the petitioners and their wives during the years 1922, 1923, and the period January 1 to April 30, 1924. 2. The petitioners and their wives were equal partners in the firm of MacDonald & Harrington from May 1 to December 31, 1924, and during the years 1925 and 1926.

Held that article 522 of Regulations 65 is a reasonable interpretation of section 231(11) of the Revenue Act of 1924 and that petitioner is entitled to exemption.

1. Petitioners contention that the partnership in which each was entitled to receive one-half the distributable gains sustained a loss in the construction of a certain hotel in 1922 is not sustained by the evidence. 2. Loss claimed in 1924 on account of an investment in a Canadian land syndicate established by the evidence and the amount thereof determined. 3.

1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. Proposed assessment of amount of deficiency in tax against transferee petitioners is barred by the statute of limitations.

1. Transfers of securities by the decedent to his son, within two years prior to his death, are held, upon the evidence, not to have been made in contemplation of death. 2. Held: upon the evidence, not to have been made in contemplation of death. 2. The amount of the liability under a judgment which has become final through affirmance by the highest court of the State, is deductible as a claim against the estate. 3.

Where a valuable contract having a definite term is acquired by purchase and is used in the business of the taxpayer, its cost may be exhausted over the remainder of the term.

Held that in the absence of evidence of a bona fide indebtedness claimed as a debt ascertained to be worthless, the deduction is not allowable.

1. In the circumstances, held that a certain instrument issued by petitioner and denominated a certificate of preferred stock does not constitute a certificate of indebtedness. 2. Amounts paid to holders of such preferred stock during the taxable years 1926 and 1927 represented the payment of dividends and do not constitute allowable deductions in computing net income.

1. On April 30, 1926, the petitioner filed an income-tax return for the fiscal period January 1 to May 31, 1925, and marked it final return. On the same return it stated that for the balance of the year 1925 a consolidated return was being filed by the Johnson-Brinkman Motor Co., Lancaster, Pa. On the same date the Johnson-Brinkman Motor Co. filed a return of its income for the calendar year 1925, including therein the income of the petitioner from June 1 to December 31.

Where the petitioner contracted to paint a roof and repair it and guaranteed that the roof would be leak proof for ten years, but that if for any cause it could not be so maintained, it would refund so much of the contract price as the number of years the roof was not functioning bore to the term of ten years, and where in the year 1925 the roof leaked and was not susceptible of repair, but petitioner postponed admitting such fact until 1926, in which year demand for refund…

Where a corporation and two of its officers were indicted for an alleged offense which arose directly out of its business and where it was determined by the court that no such offense had been committed, held that fees paid by it to counsel to defend against such indictment are deductible as ordinary and necessary expenses of its business.

1. A corporation which acts as purchasing agent for the purpose of purchasing supplies for the members of a cooperative association at cost, but at the same time carries on a substantial amount of business with nonmembers at a profit, is not exempt from taxation under the provisions of section 231(11) of the Revenue Act of 1921. 2. Where a corporation of the character referred to above pays patronage dividends to its members on the basis of purchases made for such members, such dividends which are paid out of profits from nonmember business may not be considered a reduction of the cost of the supplies to the members in the sense that they are deductible in determining the taxable income of the corporation. Similarly, excess earnings of such a corporation may not be considered as deductible accrued partronage dividends, where such dividends have not been declared or set aside and where such earnings arise from both member and nonmember business.

ESTATE TAX. - In valuing the gross estate of a resident decedent it is proper to include the value of tangible personal property located in foreign countries.

1. Distributions made in 1923 by a corporation in liquidation held to be dividends within the meaning of section 201(a) of the Revenue Act of 1921 to the extent that they represented earnings or profits accumulated since February 28, 1913. 2. The remainder of the amounts distributed held to constitute the proper basis for computing the loss to the sole stockholder on the liquidation of the corporation.

Certain indebtedness of the decedent to educational institutions paid by his executors, held to be legal deductions from the value of the gross estate.

The petitioner acquired by assignment, at a cost of $110,000 with an agreement to pay a fixed rental, the unexpired terms of two leases on real property and thereafter during the same year conveyed… Held: That the latter conveyances were not assignments or contracts of sale but created the relation of landlord and tenant between the parties thereto. (2) That the amount received by petitioner on the execution of the instruments is taxable income and not a return of capital.

In 1918 the petitioner charged off its books of account an investment in stock determined by it to be worthless in that year, and claimed the loss as a deduction in its income-tax return for 1918. The deduction was disallowed by the Commissioner and the petitioner made a further claim for its deduction in its return for 1923. Held that the amount is not a legal deduction from gross income in its return for 1923.

1. The 50 per cent stock interest of D.E. and A. M. Hewitt in the Elk Creek Lumber Co. was not owned or controlled, during the period January 1 to November 12, 1920, by the same interests which owned or controlled the other 50 per cent stock interest in that company and all, or substantially all, of the stock of the petitioner. Accordingly, the petitioner and the Elk Creek Lumber Co. were not affiliated for the period mentioned. 2. Special assessment denied.

A net loss sustained by petitioner in the handling and closing out of a corporation business was, under the circumstances of this case, a loss sustained in a business regularly carried on by petitioner and is a deductible net loss.

1. Under the facts, petitioner held to be a personal service corporation. 2. Good will, although valuable and a revenue-producing factor, if built up and possessed by the present stockholders and not purchased for a valuable consideration, is not income-producing capital in contemplation of section 200(5) of the Revenue Act of 1921.

Evidence examined and depletion allowance determined on basis of fair market value of mine as of March 1, 1913.

Cost of certain property in 1915 determined for the purpose of computing the profit on its sale in 1922.

Where the person filing the petition is not shown to have authority to act for the taxpayer, the petitioner will be dismissed for lack of jurisdiction.

The sum which a lessee agreed to pay for modification of the lease, whereby it was relieved of certain restrictions in the original lease, it being provided that such sum should be treated as fully earned upon the lessor's execution of the instrument, is taxable income to the lessor in the year in which it accrues and may not be prorated over the term of the sublease.

1. A deficiency notice directed to a deceased person does not give the Board jurisdiction of a proceeding initiated on account thereof where the petition is filed by the former administrator and the chief beneficiary of the estate of such deceased person. 2. Evidence held insufficient to justify disturbing the Commissioner's action in including the entire income from certain property in petitioner's returns where such petitioner had heretofore shown for Federal estate and State inheritance-tax purposes that such property was her separate property and no evidence is here introduced by such petitioner as to the ownership of the property.

1. GAIN OR LOSS - BASIS. - In 1923 the petitioner purchased certain partnership assets for cash and less than 80 per cent of its stock. Held: further, that this petitioner's gain or loss on assets sold in 1926 should be computed on the basis of cost of the assets to it in 1923, diminished by depreciation from that date. 2. DEPRECIATION. - Held that allowable depreciation for 1926 should be computed on the basis of the cost of the assets to this petitioner.

The decedent left certain property in trust to pay the income thereof to his widow for life, and with power in the trustee to invade the principal if necessary for the comfort and support of the widow, and thereafter to pay the remainder to certain admitted charities.

1. Oral testimony of the petitioner to the effect that he made a short sale of stock to his wife and subsequently made a settlement by crediting her with an amount representing the difference between the contract price and the market price at the time of settlement, is held to lack the force to establish either a sale or other transaction entered into for profit or a loss sustained, where there was no proof either of consideration moving from the wife or or circumstances impelling the belief of a legal transaction, or that any payment was made by the petitioner (who was on the cash basis), and his testimony concerning the selling and settlement prices varied substantially from the facts reported in his return. 2. Taxes paid by a husband on real estate occupied by himself and his wife as a home and held in her name and in fact owned by her is not deductible by the husband on his separate return. 3. The payment by a husband of interest on mortgages on property owned by his wife is not a payment of interest on the husband's obligations and is not deductible on his separate return. 4. A deduction for interest paid on a loan on an insurance policy is disallowed for want of evidence establishing that the deduction was proper.

The liability for taxes asserted against the petitioners as transferees is barred by the statute of limitations.

1. Caroline J. Shaw, Executrix,21 B.T.A. 400, followed. 2. The Board has no jurisdiction where a deficiency notice is sent to a corporation and a partnership files a petition.

The statutory period of limitations provided in section 280(b)(1) of the Revenue Act of 1926 had expired before the mailing of the notice of the deficiency to the transferee.

1. Henry Cappellini,14 B.T.A. 1269, followed as to constitutionality of section 280 of the Revenue Act of 1926. 2. Assessments against transferee of income taxes due from estate not barred by statute of limitations.

Under a plan of reorganization, holders of bonds in a corporation, a party to reorganization, were entitled to exchange such bonds for preferred stock in another corporation, a party to the reorganization, and the right to purchase sufficient additional preferred stock at less than market value to bring the face value of stock received on exchange and on exercise of the right up to the face value of bonds exchanged.

Held that the petitioner sold its assets for cash paid and to be paid in the future and the transaction does not come within the reorganization provisions of the Revenue Act of 1926 relating to exchanges.

A corporation having first and second preferred stock and common stock made a 25 per cent reduction in its issued outstanding second preferred stock and simultaneously amended… Held: In the circumstances of the instant case, the transactions described worked a recapitalization and constituted a reorganization within the meaning of section 203(h)(1) of theRevenue Act of 1924. (2) No loss was sustained by the petitioners and the determination of the Commissioner is approved.

A reasonable addition to a reserve for bad debts for 1921 determined.

Petitioner entered into certain long-term contracts in 1922 and prior years, all of which were completed prior to the year 1924. Held: that since all of the long-term contracts entered into in 1922 or prior years were completed prior to the year 1924, none of the overhead expenses paid or incurred during the year 1922 may be deducted from gross income for the year 1924.

Where in 1918 the Alien Property Custodian for the United States seized petitioner's stock and sold it at a profit in the same year, and turned the proceeds over to petitioner in 1921, it is held that the profit is taxable to petitioner as income for the year 1918.

1. Salvage value of logging equipment determined from the evidence. 2. In determining the unit rate of depreciation per thousand feet as a step in computing depreciation upon the unit-of-production basis, both the additions to the physical equipment account and the additions to the available timber account should, in the absence of evidence showing the exact date such additions were made, be averaged over the entire year. 3.

1. The amount of earned surplus for the years 1918 to 1920 which resulted from a profitable transaction of 1902 determined. 2. The petitioner advanced money to a debtor corporation with which that corporation paid interest on its bonds to the petitioner and others who owned the bonds.

Certain gifts made by the decedent in March, 1922, to his wife and children, prior to his death in January, 1923, held, on the evidence, not to have been made in contemplation of death within the… Held: on the evidence, not to have been made in contemplation of death within the meaning of section 402(c), Revenue Act of 1921.

1. The Delaware River Bridge Joint Commission is a governmental instrumentality of Pennsylvania and New Jersey, and The Port of New York Authority is a governmental instrumentality of New York and New Jersey. 2. The petitioner was an employee of these governmental instrumentalities mentioned in the years 1925, 1926, and 1927, and the compensation received by him for services performed is exempt from income tax.

1. Held that certain distributions authorized by the formal action of the petitioner's directors and credited to the accounts of the respective stockholders were dividends, and that the unpaid… Held: further, that the debt was ascertained to be worthless in 1923 and the previous charge-off remaining on the books is sufficient to entitle petitioner to the deduction in 1923.

Where, pursuant to a plan of reorganization, common stock in one corporation is exchanged solely for common stock in another corporation, preferred stock is sold for cash, and additional stock is purchased by exercising stock rights, it is held that under the provisions of section 203(b)(2) of the Revenue Act of 1926 no gain or loss should be recognized from the exchange of common stock for common stock, that there is a realization of profit from the sale of preferred stock…

1. Where a taxpayer who traded entirely on margin made numerous purchases and sales of stock during the taxable year and, in the case of each sale, ordered… Held: assuming that the broker sold as directed, that the orders to the broker could be given no force as an identification of the stock sold so as to render article 39, Regulations 65, inapplicable in the determination of his taxable income, since the shares were never specifically owned or possessed by the taxpayer. 2.

- Respondent has allowed deductions of additions to the reserve for uncollectible accounts, computing the amounts thereof at a rate of 10 per cent of accounts receivable for the first taxable year,… Held: upon the evidence, that the rate of 10 per cent is allowable for all three taxable years.

- The taxpayer was a general contractor and in 1924 he was tried and convicted of conspiracy to defraud the Government in the location and building of Government hospitals. In defending himself against the criminal action the taxpayer expended $74,238.57 during the taxable year 1924. Held that such expenditure is not deductible as an ordinary and necessary business expense.

In order to enable its foreign subsidiaries to meet competition in the sale of goods and thereby to continue the outlet of the petitioner for its goods in the foreign market through such means, the petitioner found it necessary in 1923 to adjust and reduce the prices of inventory on hand representing goods already paid for, making a refund for the difference through credits on unpaid bills.

1. Since the record does not disclose that there were dificiencies for the taxable years 1923 and 1924, the proceeding will be dismissed as to those years. 2. In its returns for 1921 and 1922 the petitioner took deductions for specific bad debts actually charged off. It also took as deductions for bad debts certain additional amounts representing additions made to a reserve.

Respondent's determination of deficiencies in income tax and penalties approved.

Held, on the evidence, that a certain trading account carried with a brokerage firm in 1924 under the designation Milton A. Holmes No. 3 was the separate property of the petitioner's wife, and the… Held: on the evidence, that a certain trading account carried with a brokerage firm in 1924 under the designation Milton A. Holmes No. 3 was the separate property of the petitioner's wife, and the income therefrom for said year is therefore not taxable to the petitioner.

During 1917 and 1918 the decedent was chief executive officer of Crucible Steel Co. of America. As the executive head of that corporation he signed and made affidavit to its income and excess-profits-tax returns. Subsequently, he was indicted for conspiracy to defraud the United States out of taxes payable by the corporation.

1. Certain securities involved herein held to have been the personal property of the petitioners for more than two years prior to the dates on which they were sold in 1923, 1924, and 1925, and the profits from the sales should be taxed under section 206 of the Revenue Act of 1921, and section 208 of the Revenue Act of 1924. 2.

The petitioner and the Fontana Farms Co. were affiliated during the year 1922 and entitled to have their tax liability computed on the basis of a consolidated return.

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

1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. Held: the petitioner is a transferee of assets of the Decatur Brewing Co., a dissolved corporation, of a value in excess of the outstanding balance due upon an assessment of deficiencies in 1920 and 1922 income and profits taxes of said corporation and is liable for the payment of said balance.

1. The time within which an additional assessment of estate tax made prior to June 2, 1924, may be collected is not extended by section 311 of the Revenue Act of 1926 even though a deficiency notice on account thereof is mailed pursuant to the Revenue Act of 1926. 2. An additional assessment of estate tax on account of a return filed on December 11, 1920, was made in August, 1922, but not collected, a claim in abatement being filed.

1. The constitutionality of section 280, Revenue Act of 1926, will not be considered in a proceeding brought by one against whom a liability as a transferee has been assessed. 2.

1. A corporation fixed the salaries of officers who were substantial stockholders, at specified percentages of net sales for the current year, and each month tentatively credited to their accounts… Held: the full amount of salaries was not subject to their demand so as to require the application of the doctrine of constructive receipt. 2.

1. CAPITAL EXPENDITURES. - The cost of certain additions to the elevators belonging to the petitioner held, upon the evidence, to be properly chargeable to… Held: upon the evidence, to be properly chargeable to capital investment, returnable through allowances for depreciation. 2. CORPORATIONS SUBJECT TO TAX. - The evidence shows the petitioner is specifically subject to the tax on business corporations under section 230 of the Revenue Acts of 1921, 1924, and 1926. 3.

1. Held, following Henry cappellini et al.,14 B.T.A. 1269, that petitioner, having invoked before this Board the aid of section 316 of the Revenue Act of 1926, can not here attack its validity. 2. Held: following Henry cappellini et al.,14 B.T.A. 1269, that petitioner, having invoked before this Board the aid of section 316 of the Revenue Act of 1926, can not here attack its validity. 2.

A yacht owned by a corporation with which petitioner was affiliated held to be a business asset and the cost of work one on the craft to put it in a serviceable condition to be a business expense.

As a result of the reorganization of the Curtiss Aeroplane & Motor Corporation the petitioners received in exchange for each share of preferred stock in the original company one-half share of… Held: the latter transaction was one in which gain or loss should be determined under section 204(a)(6), Revenue Act of 1924.

1. Upon the evidence, held that petitioner changed its method of computing income to the installment basis by an original return for 1917, and respondent erred in determining deficiencies for 1917, 1919, and 1920 upon the basis of net incomes which included amounts collected in those years on account of installment sales made in 1916. 2.

1. As of July 15, 1920, the petitioner acquired the assets of E. W. Burt & Co. under an agreement by which all of petitioner's shares of stock, consisting of 10,000 no-par-value common shares and 5,000 shares of 6 per cent cumulative preferred stock, would, in the first instance, be issued to the stockholders of E. W. Burt & Co., who in turn within 30 days should transfer to one Julian all of the shares of common stock, Julian agreeing to loan to E. W. Burt, the principal…

The Board has no jurisdiction where a deficiency notice is sent to a dissolved Missouri corporation and a Delaware corporation, which acquired its assets and assumed its liabilities, files a petition.

1. Where trustees have discretion to accumulate or distribute the income of the trust, the beneficiaries are taxable upon the amount distributed and the trustees upon the amount undistributed. Sec. 219, Revenue Act of 1921. 2. Income distributed by trustees in the exercise of a discretion lodged in them by the trust instrument is income distributed pursuant to such instrument.

1. The depreciated cost of a certain building owned by the petitioner, removed in 1923 in order to obtain a 99-year lease upon the land held to represent cost of said lease to the petitioner, which should be capitalized and exhausted over the term of the lease. 2. Fees paid by the petitioner for services in securing said lease are capital expenditures and should be exhausted ratably over the term of the lease.

Each of the petitioners, in computing his net income for 1923, is entitled to deduct, as a loss sustained in that year, the cost of shares of the capital stock of Super-Refining Process Corporation involved herein.

The petitioner has failed to show that it sustained a deductible loss through the purchase and sale of corporate stock in the taxable year.

Attorney fees paid in prosecuting claims for refund before the Bureau of Internal Revenue held not to be deductible as ordinary and necessary expenses paid in carrying on a trade or business under the facts in this proceeding.

Under the Revenue Act of 1924, and regulations promulgated pursuant thereto, where it is shown that at least certain amounts were expended for traveling expenses, such minimum amounts may be allowed as deductions from gross income even though detailed records thereof were not kept.

1. Attorney fees paid to recover securities of a nonresident alien seized by the Alien Property Custodian, plus accumulated income and cash, are not ordinary and necessary expenses paid or incurred in a trade or business, where the facts fail to show that petitioner was engaged in a trade or business. 2.

- Incident to the voluntary change in 1924 of the accounting period of the petitioner from a fiscal year ending November 30 to a calendar year, made with the full approval of the Commissioner, a separate return was filed and accepted for the month of December, 1924.

Cost to the petitioner of an option to purchase lands, acquired by petitioner in exchange for its capital stock, determined.

Where the Commissioner has determined a deficiency in the consolidated tax of an affiliated group of corporations and asserted the whole thereof against one of such corporations and that corporation… Held: that the pendency of such proceeding does not preclude him from subsequently apportioning the same amount of deficiency against the respective corporations in proportion to the net income assignable to each.

1. No taxable gain resulted from the sale by the petitioner in 1921 of certain water-power rights acquired by it in 1917 in exchange for capital stock, the value of which at the date of acquisition was not less than the sale price. 2. A payment of $25,000 received by petitioner under an installment sale contract held taxable in the year when received.

CAPITAL GAIN. - Land essentially different in character from the improved building sites customarily acquired and used by petitioner in his business of an operative builder is shown by the evidence to have been purchased by him in a transaction unrelated to the business and to have been held as an investment until sold more than two years thereafter.

- Held that petitioner was entitled to a deduction of $19,894.60 from gross income for 1922, where evidence establishes that the debt in that amount was ascertained to be worthless and charged off during that year.

Under a declaration of trust dated November 1, 1920, certain property in Texas was managed by W. P. Luse as sole trustee for himself, his wife, and his brother. The business was carried on under the name of Commercial Trust Co. The distributable income was credited to the beneficiaries upon the books of the trust, who returned such distributable amounts as income in their individual income-tax returns and paid the tax shown by such returns to be due.

Where a trust discounted real estate notes secured by mortgages, collected interest thereon, and reinvested such collections in additional mortgage notes, it is held that the trust constituted an association taxable as a corporation within the meaning of section 2(a) of the Revenue Act of 1924.

1. DEDUCTION - INTEREST. - The petitioner, a cooperative corporation, paid a fixed rate of 6 per cent on its shares of stock. Held: that such amounts constituted dividends and not interest on loans. 2. TAXES - ACCRUED. - Petitioner's taxes for the years 1924 and 1925, deductible from gross income, accrued in those years respectively. The petitioner kept its books and made its returns on the accrual basis.

Commissioner's disallowance of an amount claimed as a net loss carried over from a prior year sustained.

A payment of one-half of the income collected by an executor of a deceased husband's community estate, in California, to the surviving widow before final settlement is deductible from gross income of such estate in making up its income-tax return for the year. Riker v. Commissioner of Internal Revenue, 52 Fed.(2d) 150.

Deductions from income on account of salaries regularly authorized disallowed in the absence of any proof of reasonableness.

1. Held, the Commissioner's grounds for making a jeopardy assessment under section 279 of the Act of 1926 are not subject to review. 2. Held: the Commissioner's grounds for making a jeopardy assessment under section 279 of the Act of 1926 are not subject to review. 2.

1. The decedent was manager of an insurance Exchange and through powers of attorney issued to him by subscribers thereof he was authorized to deduct 30 per cent of all moneys received by said… Held: although 30 per cent of premiums was set aside in each of the taxable years, the undrawn amounts did not constitute income to the decedent, either actually or constructively, during the years in controversy. 2.

Upon the facts in this proceeding, held that a dividend rereceived by the petitioner in 1914 from the Joseph Dixon Crucible Co. was a stock dividend.

1. Due to the bad faith or incompetence of a contractor labor and materials furnished for the making of a certain alteration were wasted as the result of which the cost of the alteration was in… Held: under the facts here presented, that such additional cost over what another contractor estimated the cost should be and its fair and reasonable value does not constitute a deductible loss. 2.

Petitioner, on account of conditions over which it had no control, was impelled to surrender, without consideration, one-half of its holding in stock of another corporation. Held that it is entitled to take the amount of the cost of the stock surrendered as a deduction from gross income.

1. In determining whether the receipt by a corporation of its own stock in exchange for some of its assets may be regarded as the receipt of property within the provisions of the Revenue Act of 1924 for determining gain or loss, and whether the corporation in fact realized any gain, the statute must be so construed that the same standards for its application will be used for losses as well as for gains. 2.

GAIN OR LOSS. - Where petitioner had a claim for unliquidated damages and accepted shares of its own capital stock in a settlement thereof, and immediately canceled and retired the stock and added the par value thereof to surplus, no gain or loss resulted.

DEDUCTION - BAD DEBT. - Held that petitioner properly deducted $10,929.13 from his gross income for 1922, where evidence establishes that the debt in that amount was ascertained to be worthless and charged off in that year.

1. Petitioner, Ezra Gould, held to have acted merely as agent in the transactions which culminated in the liquidation of the taxpayer and, having received no assets of the taxpayer, is not liable as a transferee. 2. Petitioner, Merchants Bank & Trust Co., having received assets of the taxpayer in liquidation, is held to be liable as a transferee. 3. Transfer of a bank building by the taxpayer in liquidation did not give rise to gain. 4.

The petitioner has failed to establish that he is entitled to an allowance for depletion based on discovery value.

1. Evidence not sufficient to establish deductibility of a debt alleged as worthless in 1920. 2. Petitioner's claim that it sustained a loss in 1921, when a subsidiary corporation was liquidated, not proved. 3. Effect given to respondent's admission that invested capital was erroneously computed.

An election to file separate returns by three affiliated corporations for 1922, precludes those three corporations, together with a fourth corporation which was brought into the group in 1923, from making a consolidated return for 1923 without the Commissioner's permission.

1. The personal earnings of a husband, resident of California, for 1923 and 1924 are to be returned as income by him and may not be returned in equal parts by husband and wife under section 1212, Revenue, Act of 1926. 2. The amendments to the laws of California, enacted in 1923, are insufficient to give the wife a vested interest in earnings of the husband. 3.

Additional compensation received by the petitioners for services rendered to a corporation in the form of shares of stock of the corporation held to constitute taxable income to the amount of their fair market value at the date of receipt.

Amount of debt ascertained to be worthless and charged off in the taxable year within the meaning of the statute, allowed as a deduction.

Petitioner is held to have been domiciled in the State of Washington in 1924 and 1925 and it was proper for him and his wife to file separate returns, each reporting one-half of the community income.

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.

March 1, 1913, value of a group of patents determined for the purpose of computing annual allowance for exhaustion based upon the average life of the group.

1. The ownership of property in the State of Washington on March 1 is the event which determines the liability for real estate taxes and fixes the amount, although not ascertainable on that date. 2. Taxes which accrued and became a lien upon real estate in 1921, while petitioner was not the owner of the property, are not deductible in 1922, when petitioner did become the owner of the property, although not due and payable until the latter year.

Taxpayer, on the cash receipts and disbursements basis, received a certificate of stock prior to tax year for legal services rendered to promoters of a corporation, which he immediately deposited in… Held: the stock constituted income in the year in which the certificate was received by the petitioner.

Where a corporation filed a separate return for the year 1922, in which year it sustained a net loss, and for the year 1923 filed a consolidated return with other affiliated corporations, its net loss for 1922 is deductible only to the extent of its own net income, and where it has no net income no deduction from the consolidated net income is allowable. Alabama By-Products Co.,18 B.T.A. 919.

1. Opinion testimony of the taxpayer and an accountant that stock was not readily marketable or ready collateral for loans is held insufficient to overcome respondent's determination that shares received by taxpayer in exchange for assets had a fair market value when received equal to par, since respondent's determination finds support in contemporaneous sales to taxpayer and other incorporators of six-sevenths of the entire stock for cash at par, in the worth of the assets…

1. ESTATE TAXES. - Held that respondent did not err in including in the gross estate of the decedent the value of the real estate situated… Held: further, the fact that real estate in Missouri may not be included in the gross estate of a decedent under the provisions of section 302(a), Act of 1924 (Crooks v. Harrelson,282 U.S. 55) does not operate to prevent property held by the decedent and another as tenants by the entirety from being included in the gross estate where it…

In 1915 the petitioner was permitted by the principal stockholder of the Libbey Glass Co. to purchase from him 200 shares of the capital stock of the company,… Held: that the evidence does not support the contention of the petitioner that the difference between the purchase price in 1915 and its real value at that date was a gift to the petitioner, but that the purchase price is the basis for the determination of the profit realized in 1922 upon the disposition of the stock.

- The petitioner, during the year here under consideration, was the owner of certain real property included in a statutory irrigation district in the State of Idaho. During the year 1923 he paid $4,630.72 assessed against his property as the pro rata part of the interest accruing upon the irrigation district bonds.

1. The statute of limitations held not to have expired at the time an assessment for the calendar year 1918 was made on June 5, 1925. 2. Held: respondent erred in restoring to petitioner's opening and closing inventories for the years 1918, 1919, and 1920, a deduction of 10 per cent made by petitioner to allow for the goods that were sold during the period the inventory was being taken. 5.

The value of patents acquired in exchange for stock determined for the purpose of exhaustion.

Held that the petitioner and the Wales Adding Machine Co. were not affiliated in 1923.

Losses claimed by the petitioner as net losses disallowed as such for lack of proof to show that said amounts constitute net losses within the meaning of sections 204(a) and 206(a) of the Revenue Acts of 1921 and 1924, respectively.

CAPITAL EXPENDITURE AND/OR ORDINARY AND NECESSARY EXPENSE. - Early in the year 1924 the petitioner procured the organization of an associated corporation expected to furnish additional capital for the benefit of the petitioner and its other associated corporations. During 1924 and 1925 petitioner paid certain sums toward the cost of procuring subscriptions from the investing public to the capital stock of the said associated corporation. The stock-selling campaign produced results from which petitioner derived such good will as the general advertising could furnish. Petitioner also secured the benefit of the use of the capital of the associated corporation. Held, that the good will thus acquired was a benefit to the petitioner over an indeterminate period of time and that the benefit derived from the use or control of the additional capital of the associated corporation was a benefit to the petitioner over a period of time not less than the existence and continued operations of the associated corporation. Held, further, that the payments made by petitioner were of a capital nature and that there is no provision in section 234 of the Revenue Acts of 1924 and 1926 under which said payments may be amortized or otherwise written off against the annual income of petitioner.

The value at date of death of insurance policies upon the life of a testate decedent of the State of Maine, whose estate is not insolvent, payable to the decedent's executors, administrators, or assigns, is includable in the value of the gross estate.

1. Where the respondent made jeopardy assessments for the years 1918 and 1919 prior to the expiration of the five-year statutory period, and where the petitioner and the respondent consented to extensions of time within which the assessment and collection of additional taxes for each of those years might be made, which periods as extended had not expired prior to the filing of a petition, held that the statute of limitations had not run for the collection of the jeopardy…

Held that the inclusion by the Court of Claims in a suit against the United States of interest on a claim as a means of determining just compensation for the taking of property for public use is not interest on a bond, note, or other interest bearing obligation of a resident, corporate or otherwise, in determining the taxable income of a foreign corporation from sources within the United States, and since the total amount received was less than cost of the property, no…

1. A person required by law to withhold the tax on interest payable to nonresident aliens on tax-free covenant bonds and expressly made liable for the tax, is not a taxpayer within section 274, Revenue Act of 1924, and is incompetent to bring a proceeding before the Board based on a notice of liability sent by the Commissioner prior to the enactment of the Revenue Act of 1926. 2.

Where an affiliated group of corporations filed a consolidated return for 1921 which disclosed a net loss, but did not file a consolidated return for 1922, the amount of the net loss sustained by the affiliated group, treated as a tax-computing unit, should be apportioned among the several members of the group which, considered separately, sustained net losses in proportion to the amount of the net loss sustained by each, and the part of the net loss attributable to each…

1. The petitioner, a judgment debtor under decree of the United States District Court for the District of Massachusetts, by order of the court, posted Liberty bonds of a value equal to his entire estate with a receiver appointed by the court, pending appeal from the judgment to the Circuit Court of Appeals. The lower court was reversed on appeal and the bonds with the income therefrom were returned to the petitioner during the following year. Held, that the income from the bonds during the part of the year 1926 while they were held by the receiver is taxable to the petitioner in his individual income-tax return for that year. 2. An alleged payment of interest by means of his promissory note is not deductible from gross income by a taxpayer making his income-tax returns on the cash receipts and disbursements basis.

The fact that petitioner originally reported income from the sale of real estate on the installment basis does not preclude it from changing to the deferred payment basis where the installment basis does not correctly reflect income.

1. Under the facts in this case, petitioner having elected to report the sale of real estate according to the installment method, may not change to the deferred payment plan not on the installment basis. 2. Claimed deductions for accrued expenses disallowed because of failure to establish that books of account were kept on the accrual basis.

Under the facts in this case, petitioner having elected to report the sale of real estate according to the installment method, may not change to the deferred payment plan not on the installment basis.

1. Bequests to charitable and other corporations of the classes described in section 303(a)(3), Revenue Act of 1924, are deductible, in determining the value of the net estate of a decedent, only when both the organization and operations of the corporation concur in fulfilling the statutory purposes, and then only when the purposes are confined exclusively to those expressly described in the statute. 2.

1. Petitioner's father died prior to March 1, 1913, leaving a will in which he gave, bequeathed and devised all his property, both real and personal to petitioner and his… Held: petitioner and his sister made a gift with a condition subsequent attached to a donee of the class specified in section 214(a)(11) of the Revenue Act of 1921. 3. A gift otherwise absolute in form is not invalidated by reason of a condition subsequent attached which condition may or may not arise. 4.

1. Ownership of property determined. 2. Where an estate of joint tenancy was created in 1920 between the decedent and his wife and the decedent died on December 25, 1921, only one-half of the value of such property should be included in the gross estate of the decedent for estate-tax purposes.

1. Where the question is raised as to the constitutionality of a provision of the taxing act, the Board will consider it. Where, after consideration, a substantial doubt remains, the statute will be followed until the doubt is dispelled by a court decision. Where such question involves the consideration of many decisions of the Supreme Court, from which differing conclusions may reasonably be reached, the Board will follow the words of the statute. 2.

1. Deduction for loss resulting from sale of residence at sheriff's sale disallowed. 2. Where the petitioner acquired stock of a corporation in return for services, the fair market value of the stock at the time acquired represents the cost of the stock and on a subsequent sale or exchange of the stock the measure of profit is the difference between the cost and the sale or exchange price of the stock. 3.

Petitioner's books being kept in accordance with the completed-contract method of accounting, respondent acted correctly in computing petitioner's income on the completed-contract basis.

1. PROCEDURE IN THE OFFICE OF THE COMMISSIONER. - The petitioner has been accorded full opportunity in a hearing before this Board on the merits; consequently, a complaint with respect to procedure in the office of the Commissioner is of no significance. 2.

Basis for computation of profit from the sale of stock subscription rights determined.

1. Petitioner held to have met the requirements of section 705 of the Revenue Act of 1928 and the respondent erred in determining deficiencies on account of collections made in the taxable years on installment sales of years prior to 1920. Grand Rapids Show Case Co.,12 B.T.A. 1024, followed. 2.

In 1922, the petitioner exchanged stock in one corporation, held for investment, for stock in another corporation of a like kind and use, plus a small amount of cash. Held: that no deductible loss resulted from such transaction under section 202(c)(1) of the Revenue Act of 1921.

1. Held, on the evidence, that the taxes in controversy have not been paid by others as contended by the petitioner. 2. Held: on the evidence, that the taxes in controversy have not been paid by others as contended by the petitioner. 2. Held, further, that the statute of limitations does not bar assessment and collection of the deficiencies in controversy, since the returns were false and fraudulent.

The March 1, 1913, fair market value of certain real estate sold by the petitioner in 1925, determined.

The petitioners were members of a partnership which settled some of the debts of one member. Held: the amount of the settlement is not deductible, either as a loss or as an ordinary and necessary business expense.

Certain rentals received in 1920 by the Aldrich Land Co., a corporation affiliated with the petitioner, held to be the income of the Aldrich Land Co.

Where an individual coming within the conditions of section 229 of the Revenue Act of 1921 exercises the option granted therein to have the 1921 income of the business organized as a corporation taxed as a corporation, such tax may not be assessed against the corporation, overruling James B. Clark,12 B.T.A. 615, in so far as it is inconsistent therewith.

On January 18, 1921, D. E. Armstrong deeded the oil and mineral rights on his farm, on which the original discovery well in the State of Arkansas was brought in on January 10, 1921, to his son-in-law… Held: that the petitioners, beneficiaries of the trust, are entitled to deduct from gross income received reasonable amounts for depletion.

- Petitioner, an attorney, asks deduction for each of four years of amounts totaling more than $36,000, represented by personal checks… Held: that the expending for business purposes of the amounts represented by these checks or any amount thereof is not sufficiently proven by petitioner's general recollection that most of the money was thus expended, together with proof that his general household bills and office expenses were paid by checks made payable to the various…

SALARIES. - The evidence shows that the petitioner paid the premiums on certain life insurance policies on the lives of its officers, and the petitioner was not a beneficiary thereunder. Held: the salaries are allowable as deductions from income, and the amounts are to be computed on the accrual basis.

1. The date of filing the original return and not that of filing the amended return starts the period of limitation. 2.

The petitioner purchased two lots of stock in a corporation, one in 1917 and one in 1923. In 1924 he disposed of 770 shares of this stock. Held: that the evidence does not warrant a finding that the shares in question disposed of in 1924 were from the lot purchased in 1923.

Transfers of corporate stock by the decedent to his children within two years prior to his death, are held, upon the evidence, not to have been made in contemplation of death. Held: upon the evidence, not to have been made in contemplation of death.

1. DEPRECIATION. - The value, solely for the purpose of serving as a basis for computing allowances for depreciation, of certain plant buildings of petitioner as of March 1, 1913, determined from the… Held: there is no basis for a claim for special assessment.

Upon the evidence, held, that a so-called bonus of $15,000 paid by petitioner in the acquisition of a mixed aggregate of assets was in fact a part of the cost of the class of assets acquired under… Held: that a so-called bonus of $15,000 paid by petitioner in the acquisition of a mixed aggregate of assets was in fact a part of the cost of the class of assets acquired under the heading of Merchandise, and, as such, was a part of the cost of goods sold during the taxable year.

1. Held that the Board has jurisdiction to hear and determine the issues presented under section 280. 2. The amount of the liability of the petitioner as a transferee determined from the evidence. 3. Held: further, under the facts presented that the period of limitation for proceeding against the transferee as to the years 1919 and 1920 had expired. 4.

INSTALLMENT SALES - METHOD OF REPORTING INCOME - Where a taxpayer corporation had, at the end of the year, accounts receivable which included installment sales made in a previous year at a rate of profit different from the current year, a determination for income-tax purposes of income on the installment sales basis can not satisfactorily be made in the absence of a segregation of the installment accounts receivable which will reasonably show the profits from collections in…

1. The petitioners, having appealed to the Board under section 280 of the Revenue Act of 1926 to secure a redetermination of their liability as transferees, may not, in these proceedings, question the validity of said section. Henry Cappellini,14 B.T.A. 1269. 2. Respondent asserts liability under section 280 of the Revenue Act of 1926 against the respective petitioners as transferees of the assets of the Kentucky Production Co. for an alleged deficiency in income tax assessed against said company for the period October 1 to November 10, 1922. Held, that said Kentucky Production Co. was a trust, and under the provisions of section 704 of the Revenue Act of 1928 is taxable only as such. The income of the trust estate being distributable to the beneficiaries periodically, no tax thereon was payable by the fiduciary, but the distributable shares of the net income were taxable to the beneficiaries, under section 219(d) of the Revenue Act of 1921. There being no tax due from the said Kentucky Production Co., there is no tax liability on the part of the petitioners as transferees of its assets under section 280 of the Revenue Act of 1926.

1. The turnover tax instituted by the law of the Republic of France of June 25, 1920, held to be an excise or sales tax and not an income or profit tax. The amounts so paid by the petitioners to France in the taxable years are, therefore, not allowable as credits against the income tax due the United States under section 238 of the Revenue Acts of 1921, 1924 and 1926. 2. On the facts, held, that the respondent erred in disallowing deductions as business expenses claimed by the petitioners (a) of the amount of $2,000 per month paid in lump sums to the petitioners' officers during the taxable years for entertainment and traveling expenses, an excess of that amount having been expended, and (b) of the amount of $37,500 paid in the same year to one Ahern in consideration of his covenant not to enter into competition with the petitioners, but did not err in disallowing a deduction of $25,750 contributed to the Charity Chest of the Fur Industry of the City of New York.

- On the facts, held, certain stock, purchased by the petitioner in 1913, in a corporation which went into receivership the following… Held: certain stock, purchased by the petitioner in 1913, in a corporation which went into receivership the following year and which was in liquidation until 1928, retained some prospective value during all of the the years and accordingly a loss sustained through the sale of the stock for a cash consideration lower than cost is properly…

1. The petitioner is entitled to have its profits tax computed under the provisions of section 328 of the Revenue Act of 1918 for the period January 1 to May 31, 1919. 2. The petitioner is entitled to deduct accrued salesmen's commissions for the period january 1 to May 31, 1919, in the computation of its net income.

The petitioner owned and operated a cemetery and sold lots therein under agreements with purchasers thereof that a part of the purchase price of each lot would be set aside as a trust fund for the… Held: such amounts constitute a trust fund and may not be included in gross income of the petitioner and therefore are not taxable income to it.

1. Evidence fails to show that amounts claimed as deductions from income in the several taxable years here involved as ordinary and necessary expenses were reasonable compensation for personal services rendered in such years. 2.

1. Where a bequest for benevolent purposes can, consistently with the will, be applied to other purposes than such religious, charitable, scientific, literary or educational purposes as are meant by section 403(a)(3) of the Revenue Act of 1921, there can be no deduction under this section. 2. A bequest to charity upon certain conditions held not deductible under section 403(a)(3). 3.

A trust is not taxable as an association where it was organized for the purpose of managing property pending advantageous disposition and distribution of the proceeds to the beneficiaries and where the business activities carried on were merely incidental to the main purpose of distribution.

Stockholders who, at the time of dissolution of a corporation, received all of its net assets are liable as transferees for a deficiency determined against the corporation.

A corporation had at the beginning of the year 1924 a deficit, or impairment of capital, caused by making distributions in prior years in amounts greater than its then accumulated earnings or profits. Held: that in determining the amount available for the payment of dividends, such earnings or profits should not be reduced by the amount of the deficit, or impairment of capital.

1. Held that certain salaries claimed as deductions from petitioner's gross income in the years 1921 and 1922, were incurred and accruable in such years, and were proper deductions from income as ordinary and necessary business expense. 2. Amount of net losses for 1921 and 1922 determined for reduction of petitioner's tax liability in 1923.

1. Amounts expended by a physician in attending medical conventions allowed as business expenses. 2. The depreciated cost of improvements made to property leased with an option to purchase allowed as a loss in the year in which the lease expired and the improvements reverted to the lessors.

A loss sustained upon the sale of certain shares of stock which were acquired as payment for services in erecting an apartment house building, held a capital loss within the meaning of section 208 of the Revenue Act of 1926, since the shares of stock were not held primarily for sale in the course of trade or business.

Where the Commissioner asserts liability against a petitioner as a transferee of corporate assets and offers evidence tending to show only that the petitioner received assets of some value without… Held: that the Commissioner has not discharged the burden of proof placed upon him by section 602 of the Revenue Act of 1928, and the petitioner is entitled to judgment.

Petitioner paid a certain amount to secure the cancellation of a 20-year sublease of premises on which it owned a 99-year lease, in order that it might secure immediate possession. Held: that the amount so paid is ratably amortizable over the remaining life of the 99-year lease.

The loss of $91,125, sustained by the petitioner in 1923, resulted from the operation of his business as a textile commission merchant, and he is therefore entitled to the benefit of the net loss provisions of the Revenue Act of 1924.

Where stock is sold by an agent for cash and the net proceeds thereof retained as a loan from the principal, the profit on the transaction is taxable income to the principal in the year of its receipt by his agent.

The petitioner acquired certain real estate in 1911 through the issuance of its stock therefor. Held: that in the absence of the production of satisfactory evidence on the part of the petitioner as to the cost of the property sold or its fair market value on March 1, 1913, the Commissioner's action is approved.

An amount charged off in order to balance books may not be deducted as a loss where it is not shown that any loss was sustained during the taxable year.

Certain stock owned by petitioner was worthless in 1925, and the cost thereof was a proper deduction from gross income as a loss sustained in that year.

Under the fact in this proceeding it is held that the Commissioner was correct in holding the petitioner to be an association taxable as a corporation.

Upon the evidence, held that the petitioner is not entitled to the deduction claimed on account of a debt ascertained to be worthless and charged off within the taxable year.

1. In 1919 stockholders of a corporation, who were also creditors, paid in to the corporation the sum of $100,000 for the purpose of increasing its capital. Held: that under section 201 of the Revenue Act of 1921 there was a distribution of the earnings of the corporation, taxable as a dividend. 2.

1. A franchise granted by a city to the petitioner permitted it to extend its railway within the city limits and required it to furnish electricity at prescribed rates. Held: that the payment to the charitable institution was one required to be made as a condition to the continued use of the franchise and deductible under section 234(a)(1) of the Revenue Acts of 1918 and 1921 in computing taxable income. 2.

1. The period for assessment having been extended by a consent in writing, deficiencies asserted within the period as so extended are not barred from assessment and collection. 2. The action of the Commissioner will not be disturbed where no error with respect thereto was asserted in the pleadings nor tried at the hearing and where it was raised for the first time in the brief filed for petitioner. 3.

The Chamberlain of the City of New York is taxable as trustee for remaindermen where he holds and invests a fund under court orders until such time as the court can determine those who are entitled to the fund awarded as compensation for a remainder interest in land taken by right of eminent domain.

The petitioner having reported income from sales of real property in 1925 and 1926 upon a basis other than the installment sales basis and the evidence failing to disclose that the method used by the petitioner does not correctly reflect its income, held that the petitioner may not now change to the installment sales basis for those years.

1. Section 703, Revenue Act of 1928, provides that, in determining the net income of a beneficiary or of an estate for any taxable year, under prior revenue acts,… Held: That the return referred to in section 703 is not the fiduciary return of income, but is the statutory tax return which provides the initial assessment, and the claim must be construed to mean the substantial application of the amounts of inheritance taxes against gross income in arriving at the taxable net.

Where a sole beneficiary is entitled to the income of an estate and in the taxable year the executor of the estate pays both a Federal estate tax and a New Jersey inheritance tax and files a… Held: that the payment of the Federal estate tax and the New Jersey inheritance tax is claimed as a deduction by the beneficiary. Frances E. B. Lentz,21 B.T.A. 1336, followed.

1. ESTATE TAX - GROSS ESTATE. - The value of Missouri real estate owned by decedent and his wife as tenants by the entirety must be included in the gross estate, Mary S. Garrison et al.,21 B.T.A.… Held: that respondent did not err in including in the gross estate the value of all of decedent's personal property. 3. DEDUCTIONS. - Total executors' commissions paid allowed as a deduction from the gross estate.

1. ESTATE TAX - GROSS ESTATE. - The value of the interest of the decedent in Missouri real estate at the time of his death forms no part of his gross estate for purposes of Federal estate tax under… Held: that respondent did not err in including in the gross estate the value of all of decedent's personal property. Mercantile-Commerce National Bank in St. Louis et al., Executors and Trustees,21 B.T.A. 1347.

PARTNERSHIP OR TRUST. - The petitioner was a partnership during years in question, and not a trust or association taxable as a corporation.

- The gross income of a life insurance company, occupying a portion of space in an office building owned by it, may not be increased by an estimated rental value of the space so occupied; and deductions for taxes and other expenses incurred in respect of said office building, and allowed by section 245(a)(6) of the Revenue Act of 1924, may not be denied or abridged on account of the omission of said estimated rental value from gross income.

The determination by the Board of the tax liability of a transferor corporation is binding upon the transferee stockholders.

In a proceeding before the Board which involves a penalty for fraud with intent to evade tax, the burden of proof as to such issue is by statute on the Commissioner; and where petitioner in such proceeding fails to appear at the trial and respondent makes no proof, but moves for dismissal and judgment, the fraud penalty is not sustained and is excluded from the judgment.

TRUSTS. - Four individuals purchased a tract of land and created a trust in which each held an equal interest and with a single trustee, who held title and liquidated the property by subdivision and… Held: that for the years in question, the trust must be considered as a trust and not as an association, and its income, whether distributed or not, taxed in equal amounts to its four beneficiaries.

- During the taxable years here under review the petitioner owned and used in its business a large collection of engineering and surveying records, books, plats, drawings, etc. Held, that these… Held: that these properties were during said years subject to exhaustion, wear and tear and did depreciate during those years.

1. In the absence of evidence that any part of an estate held as tenants by the entirety originally belonged to the surviving spouse, held, that the entire value of the estate is includable in the… Held: that the entire value of the estate is includable in the gross estate of a decedent, a resident of Michigan, dying after the effective date of the Revenue Act of 1924. 2. The decedent and his wife owned certain mortgages payable to the decedent and his wife.

Where a husband and wife living in State of Washington filed separate returns, and the husband reported a major part of the community income, held, the deficiency should be computed by including in… Held: the deficiency should be computed by including in petitioner's gross income only his one-half of the community income.

1. From the evidence, held that the petitioner and an association operated under the name of the Stockholders Investment Fund should be treated as separate taxable entities and the loss of the Stockholders Investment Fund is not the loss of petitioner. 2. Inasmuch as the Stockholders Investment Fund transacted no business in 1925 and was not required to file a return for that year as an association doing business as a corporation, the statutory net loss of the consolidated group for 1924 is not a proper deduction from gross income of the petitioner for the year 1925. 3. Held that the respondent was in error in refusing to allow the petitioner to deduct from gross income for the year 1925 its own statutory net loss for the year 1924.

Deductions claimed on account of certain investments becoming worthless allowed in part and denied in part.

BAD DEBTS. - Certain notes held by the Robert Smith Corporation became worthless during the taxable year 1925. The officers of that company, during the taxable year 1925, determined such notes to be worthless and charged them off the corporation's books. Held, the amount so determined to be worthless and charged off, was deductible from the corporation's gross income under the provisions of section 234(a)(5) of the Revenue Act of 1926.

- So much of the paid-in capital as represents the circulation structure of a newspaper plant constitutes intangible assets within section 326 of the Revenue Act of 1918.

1. An amount credited by a taxpayer to a pension fund set up by it for the benefit of its employees may not be deducted as an ordinary and necessary business expense in the absence of evidence establishing that an enforceable trust was created. 2. In determining whether such a trust was created, the fact that the taxpayer, experienced in trust matters, deliberately refrained from making a trust agreement or declaration can not be casually regarded. 3.

Loss sustained on loans allowed as a deduction.

Petitioner received as compensation for personal services an undivided one-eighth interest in a certain oil and gas working agreement. Held: that the petitioner has not overcome the prima facie correctness of the respondent's determination. Held, further, that the $16,500 value of petitioner's interest in the working agreement should be exhausted ratably over the life of the interest.

The petitioners charged the cost of certain road-construction equipment against the income derived from the jobs for which the equipment was first purchased. Held, that as to the equipment continued in use on subsequent jobs, the cost thereof should be capitalized and depreciated over its useful life.

Held that petitioner corporations were entitled to have their taxes determined on the basis of a consolidated return.