Volume 21 — Tax Court Memorandum

1. Held, that part of the salary which the petitioner corporation paid to its president during each of the years 1953 through 1956, after he had… Held: that part of the salary which the petitioner corporation paid to its president during each of the years 1953 through 1956, after he had become physically incapacitated and was confined to his home, represents excessive compensation which is not deductible by the corporation either as salary or as health insurance payments.

Held: Petitioner has failed to meet the burden of proving that her former husband, in the year 1955, suffered a loss of $17,299.54 within the meaning of sec. 165(a) of the Code of 1954 as limited by sec. 165(c)(1) or (2).

The administrator's attorney filed application in probate court for the allowance of an attorney fee of $53,000. After hearing, in which the administrator and heirs appeared in resistance, the court allowed a $50,000 fee, which was paid. Held, the $50,000 was deductible from the gross estate in computing estate tax under Sec. 2053(a)(2), I.R.C. of 1954.

Petitioner, owner of a minority stock interest in a dairy, sold his stock, pursuant to a written contract, for $63,000. Held: the agreement not to compete was a separate item of the transaction and the petitioner received ordinary income therefor.

Petitioner operated a dance studio and entered into contracts with students whereby she agreed to furnish dancing instruction and the students… Held: for the Commissioner. For tax accounting purposes, income accrued at the time a contract was entered under the authority of Mark E. Schlude, 32 T.C. 1271 (1959), revd. 283 F. 2d 234 (C.A. 8, 1960), vacated and remanded 367 U.S. 911 (1961), rehearing denied 368 U.S. 873 (1961), vacated 283 F. 2d 234 and affd. Tax Court F. 2d .

1. Petitioner, in 1945, purchased a historic house known as the General Wadsworth cottage for restoration. Held: That the expenditures in question are not deductible as ordinary and necessary expenses paid or incurred during the taxable year 1957 in carrying on any trade or business under sec. 162 of the 1954 Code. Held, further: That real estate taxes and interest are allowable as deductions in determining net income. 2.

Held, that the valuations of the shares of common stock which decedent owned in two closely held corporations at the time of his death were the valuations as determined by the Commissioner in the… Held: that the valuations of the shares of common stock which decedent owned in two closely held corporations at the time of his death were the valuations as determined by the Commissioner in the deficiency notice.

Held, that the petitioners have not carried their burden of proof to show error in the respondent's disallowance of certain expenses and losses… Held: that the petitioners have not carried their burden of proof to show error in the respondent's disallowance of certain expenses and losses claimed as deductions on their returns, and alleged by petitioners to have been incurred and sustained in carrying on a trade or business of research, experimentation and development.

Held, that the petitioner may not reduce taxable income for 1955 by amounts claimed to have been nontaxable but included in income in prior… Held: that the petitioner may not reduce taxable income for 1955 by amounts claimed to have been nontaxable but included in income in prior years; that amounts expended for meals are not deductible under section 162(a)(2) of the Internal Revenue Code of 1954, since the petitioner was not away from home in the pursuit of a trade or…

Held, on the facts advancements by a corporation to petitioner, which was the principal stockholder of said corporation, were dividends rather than loans, consequently petitioner was liable for personal holding company surtax under section 500, I.R.C. of 1939.

Petitioner, an experienced breeder of dairy cattle for many years, reentered the occupation in 1948 on his farm known as "Folly Farm." About 10 to 15 years are required to develop a breeding herd with a superior strain and of substantial commercial value. Throughout said experimental period a large number of totally or partially unproductive animals must be maintained at considerable expense. During the taxable years 1956 through 1958, inclusive, virtually all of petitioner's personal attention was devoted to his farm operations, including the supervision of 12 full time employees, planning of breeding operations, and the maintenance of detailed breeding records. Gross revenues from the over-all operations of the farm, including milk production, during the taxable years ranged from about $83,000 to $91,000. From the commencement of his operation in 1948, and throughout the taxable period, petitioner sustained a considerable net loss from the operation of said farm. Petitioner did not use the farm as a hobby, or for recreation or entertainment. Held: The farm was operated by petitioner as a business regularly carried on for profit, and petitioner is entitled to deduct the expenses and losses sustained during the taxable years in the farm operations under secs. 162(a) and 165(c)(1) of the 1954 Code.

1. C, lessee under a long-term lease, subleases to I, which in turn subleases to R. B contracts to manage the property for R. C and I are wholly-owned subsidiaries of U while R is owned equally by U… Held: Respondent sustained in disallowing C's deduction of the difference between its basis in the leasehold and what it received on the transfer, which is treated as a sham transaction. 2.

Petitioner, engaged in the real estate business, had a trust wholly controlled by him purchase an industrial building for the purpose of renting part of it to his son's manufacturing corporation. Held: loans made by petitioner to help his son's faltering corporation business were not business loans of petitioner and are not deductible as business bad debts.

1. Petitioner, Alfred B. Cenedella, was a practicing attorney and was elected district attorney for Worcester County, Massachusetts, in 1946. Held: respondent has failed to prove that petitioner's returns for the years 1945, 1946, and 1951 were fraudulent. Assessment and collection of deficiencies for the years 1945 and 1946 are barred by the statute of limitations.

Petitioner's 1956 and 1957 divorce decrees provided husband pay her $23,500, payable $100 a month, with directions to husband to secure a loan on business property awarded to him, at the expiration of existing loan on March 1, 1963, and pay the balance then due on the $23,500 obligation from the proceeds. Held, where husband agreed his obligation was to pay the $23,500 by the 1963 loan which he testified he would have no difficulty in securing, the payments in 1957 and 1958 were not periodic payments as being payments on a principal sum to be paid or that may be paid over a period ending more than 10 years from the date of the decree and therefore not taxable to petitioner under section 71(c)(2), I.R.C. of 1954.

The petitioner owned a controlling interest in a corporation and held its demand note. Held: that the transaction constituted a collection of the note by petitioner from the debtor through the factor as a conduit and that the petitioner's gain was not long-term capital gain. Conrad N. Hilton, 13 T.C. 623, followed.

Petitioners were partners in a business which performed auger-mining operations to extract coal for Westmoreland Coal Company, a lessee of coal mines in West Virginia. Held: petitioners had no economic interest in the coal in place and were therefore not entitled to the allowance for depletion under sections 611 and 613, I.R.C. of 1954.

Held, that during the taxable years 1955, 1956, and 1957, T & G Plumbing & Heating Supplies, a partnership organized in 1953 which filed… Held: that during the taxable years 1955, 1956, and 1957, T & G Plumbing & Heating Supplies, a partnership organized in 1953 which filed partnership information returns in each of the taxable years, was a separate entity from petitioner, Union Plumbing & Heating Inc., a corporation, although the two individuals who owned all the stock of…

Petitioner corporation purchased all the assets and going business of a proprietorship which engaged in furnishing janitor services to… Held: that petitioner is not entitled to deductions for amortization on such service contracts, including anticipated renewals thereof; for such service contracts together with such anticipated renewals were indivisible from the goodwill of the going business that petitioner purchased; and this precludes the establishment of either…

Respondent disallowed as unreasonable one-half the compensation paid by petitioner to its president, the owner of 50 percent of petitioner's stock, in each of the fiscal years ending April 30, 1956,… Held: the compensation was reasonable.

1. Capital gain v. ordinary income: Property held primarily for sale: Lease with option to purchase. - Petitioner pursuant to a lease agreement erected a building according to the plans and specifications of the lessee. The lease which was for a term of 21 years included a provision which granted the lessee an option to purchase the property at the end of the fifth year of the lease. The lessee exercised its option and purchased the property. Held: The property was held primarily for sale to customers in the ordinary course of business and the gain realized on the sale was ordinary income. 2. Interest paid: Amortization of loan premium. - Held: Petitioner is entitled to a deduction for loan premium amortization and a deduction for interest expense for the years 1954 and 1955.

1. Expenses and depreciation on yacht owned by corporation, used exclusively by controlling stockholder and family and their guests, held not deductible by corporation in excess of amounts allowed by the Commissioner. 2. Travel and entertainment expenses of controlling stockholder paid by corporation in excess of amounts allowed by the Commissioner held personal and not deductible by corporation. 3.

Laura K. Walton received 150 acres of farmland located on the outskirts of Lexington, Kentucky, an undivided one-half interest passing to her by deed from her grandparents prior to March 1, 1913,… Held: the property was not held for sale to customers in the ordinary course of a trade or business by Laura K. Walton, and petitioners are taxable on the net proceeds as capital gains. Held further, petitioners' basis for the property is $68,750.

Petitioner used proceeds from award of condemnation of improved realty to purchase unimproved parcel of realty. Held: the property purchased was not similar or related in service or use to converted property and the gain realized in the condemnation was to be recognized as the transaction was not within the nonrecognition of gain provisions of section 1033(a)(3)(A), I.R.C. of 1954.

Held, that the principal petitioner's tax home during the period that the living and transportation expenses here involved were incurred, was Pittsburgh, Pennsylvania, which was his only place of… Held: that the principal petitioner's tax home during the period that the living and transportation expenses here involved were incurred, was Pittsburgh, Pennsylvania, which was his only place of employment during such period.

1. Held, that of the sum of $35,000 which was paid by the purchaser to the sellers for a fuel oil business over and above the value of the physical assets sold, 50 percent was paid for the goodwill of the sellers and is taxable as long-term capital gain and 50 percent was paid for a covenant by the sellers that they would not compete for a period of 7 years and is taxable as ordinary income. 2. Held, that "All oil burner supplies, parts and tools" included in the sale were "property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year." The gain from such sale is taxable as ordinary income as the Commissioner has determined and not as long-term capital gain as petitioners contend.

The petitioners and others inherited some 400 acres of farmland near Lexington, Kentucky, in 1930. Held: the property was not held by the heirs during 1953, 1954, or 1955 primarily for sale to customers in the ordinary course of any business of theirs. Held further, petitioners Eugene E. and Marguerite G. Simpson are liable for the additions to tax provided by section 291(a), Internal Revenue Code of 1939.

Held, that the premiums paid by H in 1957 pursuant to a divorce decree on five life insurance policies in which his former wife was the… Held: that the premiums paid by H in 1957 pursuant to a divorce decree on five life insurance policies in which his former wife was the primary beneficiary but in which she did not have the right to surrender for cash or any of the other rights of ownership (other than a veto power to prevent H from exercising specified rights of ownership…

Held: This Court has no jurisdiction to rule upon claims for refund for any year for which a deficiency has not been determined. Held: This Court has no jurisdiction to rule upon claims for refund for any year for which a deficiency has not been determined. Petitioner discovered in 1955 a claimed casualty loss, the insurance recovery on which was not determined until 1959.

Held: That the respondent did not err in disallowing as deductions amounts claimed by the petitioner as reasonable additions to its reserve for bad debts for the taxable years 1956 and 1957. Held: That the respondent did not err in disallowing as deductions amounts claimed by the petitioner as reasonable additions to its reserve for bad debts for the taxable years 1956 and 1957.

Held, amounts paid to an insurance company in 1954, 1955, and 1956 in the form of interest on purported annuity policy loans are not deductible. Held: amounts paid to an insurance company in 1954, 1955, and 1956 in the form of interest on purported annuity policy loans are not deductible. Knetsch v. United States, 364 U.S. 361 (1960), followed.

Business expenses incurred in selling real estate determined. Amount of deduction for amortization of a leasehold determined.

Petitioner, a certified public accountant, in making an independent audit, discovered that The Arthur L. Ellis Co., the company under audit, had borrowed money from a bank on fraudulent representations as to accounts receivable and payable. Petitioner reported the facts to the bank. In an effort to salvage as much as possible for the bank, petitioner organized the Ellis Curtain Company, Inc., largely for the purpose of monitoring the continuing activities of The Arthur L. Ellis Co. Petitioner acquired one-third of the stock of the curtain company, and became an officer and salaried employee of that company. With some hope of getting referral business from the bank, petitioner loaned $25,770.96 to the curtain company for its corporate purposes. The loans did not provide for payment of interest and were unsecured. The bank was not obligated to refer business to petitioner. The loans became worthless in 1954. Petitioner does not claim that he was in the business of lending money. Held: Petitioner has not established that he is entitled to a business bad debt deduction under the provisions of sec. 166 of the Code of 1954.

Testator's will left all his property to his wife upon the condition that she survive the "period of probate" of the will, with a provision for a gift over in the event she died during this period. Held, interpreting the term "period of probate" to mean the period of proving or establishing the will, the condition of the wife's survival during this period in order to take the interest under the will was one that did not necessarily have to occur within six months; consequently the interest is a terminable one within the meaning of subsection 812(e)(1)(B) and subsection 812(e)(1)(D) does not apply and the interest passing to the surviving spouse is disqualified as a marital deduction under section 812(e)(1)(A).

1. Respondent's use of increase in net worth and nondeductible expenditures method of computing petitioners' income approved. 2. Petitioners' unreported income determined. Opening cash on hand not established. 3. At least part of deficiency in each year found due to fraud with intent to evade tax. Additions to tax for fraud approved.

Petitioner's transferor, an accrual basis taxpayer, received partial payments pursuant to contract provisions providing therefor in contracts with the United States. It attempted to accrue these payments only upon final delivery of finished goods under the contract. Held: 1. Partial payments received under contract provision by an accrual basis taxpayer without restriction as to use constitute income upon receipt regardless of a possibility that such payments may later have to be returned. 2. Proper valuation of the transferor's closing inventory on August 31, 1951, determined. 3. Petitioner has failed to prove the reasonableness of an addition to reserve for bad debts. 4. A deduction of a disputed liability for compensation to a former employee denied during the pendency of the dispute. 5. Petitioner has failed to prove grounds for any alternative method of computing excess profits tax liability. 6. Failure to file an income tax return on time, after extension thereto had expired, was not due to reasonable cause.

Widow of decedent filed caveat against probate of decedent's will. Held: Petitioner failed to prove what part, if any, of the payment to the widow was a bona fide recognition of the widow's claim as an heir of decedent which would qualify as an interest in property passing from decedent to his surviving spouse under section 2056, I.R.C. 1954. Marital deduction not allowed.

1. Held, that part of the deficiency for each taxable year is due to fraud with intent to evade tax within the meaning of section 293(b), I.R.C. 1939. Additions to tax under said section approved. 2. Held, that petitioners' failure to file a return for 1948 was not due to reasonable cause. Addition to tax for said failure, imposed under section 291(a), is approved. 3. Held, that an addition to tax under section 294(d)(1)(A) for failure to file declarations of estimated tax for all taxable years involved except 1952, and also an addition to tax for 1952 under section 294(d)(2) for substantial underestimate of estimated tax, approved. 4. Held, that the return for each of the years 1949 through 1953 was false or fraudulent with intent to evade tax, within the meaning of section 276(a). Accordingly assessment of the deficiencies and additions to tax for each of the years 1949, 1950 and 1951, is not barred by limitation.

Pursuant to the child support provision of a decree of divorce of the Circuit Court for Wayne County, Michigan, as later modified, petitioner… Held: petitioners are not entitled to an exemption deduction of $600 for each of the two children under sections 151 and 152 of the Internal Revenue Code of 1954, since it has not been shown that the amount paid constituted over half of the children's support in that year. Held, further, sections 151 and 152 are not unconstitutional.

Basis of land referred to herein as Lot A and basis of land and buildings referred to herein as Lot B determined for purpose of computation of gain on sale.

Petitioners, as partners in two partnerships, gave a fee simple deed to the mineral rights in certain lands held by the partnerships. The deed was made for a cash payment. Held: The petitioners did not retain an economic interest in the minerals; thus, the gain on the sale of the mineral rights was capital gain. Maud W. Olinger, 27 T.C. 93 (1956), and Charles H. Remer, 28 T.C. 85 (1957), affd. 260 F. 2d 337 (C.A. 8, 1958), followed.

The amount of casualty loss, deductible under section 165 of the Internal Revenue Code of 1954, sustained by the petitioner upon his residential property resulting from two storms occurring in 1955, determined.

1. Unsecured, noninterest-bearing advances made by petitioner on open account to a corporation, 50 percent of whose stock it had recently acquired for no tangible consideration, held to be contributions of capital rather than loans. Bad debt deduction denied. 2.

On January 1, 1956, petitioner acquired a going coal mining enterprise consisting of plants, equipment, and coal leaseholds in Virginia and West Virginia. Petitioner entered on its books the depreciable property so acquired as having a cost equal to the price paid to the seller for the entire coal mining enterprise. Petitioner allocated no cost to the coal leases acquired in the transaction. Respondent, in his deficiency notice, has disallowed $687,087 of the depreciation deduction claimed by petitioner on its return and in doing so has allocated $2,500,000 as the cost of the coal leases to petitioner. Held, that the tangible property purchased by petitioner was worth the price which petitioner allocated to it on its books and petitioner paid that much for it in the transaction. Held, further, that the coal leases acquired by petitioner were worth no more than the royalties which petitioner obligated itself to pay the lessors if, when, and as coal was mined. Petitioner paid nothing more than that for the leases. The depreciation disallowance which the Commissioner made in his deficiency notice is not sustained.

The petitioners acquired trucks, concrete mixers, and other equipment, some by purchase and some by lease. The leases gave the lessees no option of renewal or purchase. At the end of the lease term the petitioners negotiated an extension or new lease for a reduced rental or purchased the equipment for a price then agreed upon. Held, the petitioners acquired no equity by the lease payments and they are deductible as rentals. Held further, the useful lives of equipment determined. Held further, discounts granted by the petitioners as reductions in price, and not as cash discounts for prompt payment only, should be taken into account in the year of sale.

Held, gain realized from the condemnation of property was gain realized from the sale or exchange of property within the meaning of section 337(a), Internal Revenue Code of 1954. Held: gain realized from the condemnation of property was gain realized from the sale or exchange of property within the meaning of section 337(a), Internal Revenue Code of 1954.

Held: 1. Under the facts of this case the Commissioner is sustained in adding to petitioner's gross income the amount for which he was reimbursed as an outside salesman by… Held: Under the facts of this case the Commissioner is sustained in adding to petitioner's gross income the amount for which he was reimbursed as an outside salesman by his employer where it clearly appears that some of the items for which he was reimbursed did not represent deductible business expenses.

Petitioner, Charles E. Bishop, owned and operated several movie theaters and rental properties during the taxable years involved herein. Held: 1. Held: That respondent was justified in resorting to the net worth plus nondeductible expenditures method to show understatements of income for the years in issue. Adjustments and understatements determined. 2.

1. Held, that insurance agency commissions paid by a life insurance company to a stockholder-officer of each of the petitioner… Held: that insurance agency commissions paid by a life insurance company to a stockholder-officer of each of the petitioner corporations (which were engaged in the business of making small loans), in respect of sales of life and accident and health insurance to certain borrowers from the petitioners, are not includible in the gross incomes…

Petitioner purchased a hotel in 1953 for a stated purchase price of $3,240,000. Sellers took back an 11-year note in the stated amount of $1,548,739.10. Held: that the stated purchase price of $3,240,000 included $440,000 of prepaid interest, a proportional part of which petitioner is entitled to deduct in each of the taxable years.

Held, that the fair market value of certain unimproved realty which was transferred to the petitioner by his brother-in-law and sister-in-law for $11,500, was not less than $35,000. Held, further, that said transfer was made when the transferors were insolvent and heavily indebted to the Government for unpaid income taxes, and was without adequate consideration; and that petitioner is liable as a transferee to the extent of the excess of the fair market value of the property over the consideration which he paid therefor.

Held: (1) Respondent's use of the net worth plus nondeductible expenditures method in reconstructing petitioners' net income for each of the years in issue was… Held: Respondent's use of the net worth plus nondeductible expenditures method in reconstructing petitioners' net income for each of the years in issue was justified. (2) Petitioners realized net income in each of the years 1944 to 1953, inclusive, in excess of the amounts set forth in their income tax returns.

Held: 1. Respondent's use of increase in net worth and nondeductible expenditures method of computing petitioner's income approved and opening net… Held: Respondent's use of increase in net worth and nondeductible expenditures method of computing petitioner's income approved and opening net worth determined. 2. Trade accounts receivable and payable not includible as petitioner's assets and liabilities, respectively, in a net worth computation of a cash basis taxpayer. 3.

Itemized deductions: Proof: Business expenses, charitable contributions and medical expenses: Dependency exemption. - Deductions totalling $5,794.24 claimed by taxpayer on his 1957 tax return were disallowed by the Commissioner. These deductions, among other items, involved business deductions of $2,252 listed as "other business deductions," without further clarification and deductions of $975 listed as "drugs, special medicines & supplies" without further explanation. The taxpayer itemized the remainder of his alleged expenses but offered no proof to substantiate them. The Tax Court allowed $1,725 in deductions under the Cohan rule in the following amounts: $950 for other business expenses, $75 for charitable contributions, and $700 for medical and drug expense. Taxpayer's claim of dependency for his mother-in-law was denied for lack of proof of her support.

1. Advances made to corporation by its president and sole stockholder and subsequently transferred from loans payable account to capital surplus account at the stockholder's request and to obtain bank credit for the corporation represent contibutions of equity capital and not loans. Subsequent repayment of the advances to the stockholder were constructive dividends, taxable as such, rather than repayment of loans. 2.

March 1, 1913, fair market value of iron ore deposit determined.

Petitioner J. A. Tiberti owned and operated as a sole proprietorship a general construction business. Held: the transfers in trust were bona fide and each of the trusts owned a one-fifth capital interest in a bona fide partnership in which capital was a material income-producing factor. The distributable shares of partnership income were properly includible in the gross income of the trusts.

Held: Certain amounts paid in 1954 to an insurance company in the form of interest on purported annuity contract loans are not deductible. Held: Certain amounts paid in 1954 to an insurance company in the form of interest on purported annuity contract loans are not deductible.

Held, petitioners' gains on sales of lots and real estate during the taxable years 1952, 1953, and 1954, and collections from sales made in prior years are taxable as ordinary income and not as… Held: petitioners' gains on sales of lots and real estate during the taxable years 1952, 1953, and 1954, and collections from sales made in prior years are taxable as ordinary income and not as capital gain.

Held, that certain expenses of education, which an Assistant Professor of Business at a state college incurred and paid in taking university courses related to the field in which… Held: that certain expenses of education, which an Assistant Professor of Business at a state college incurred and paid in taking university courses related to the field in which he was teaching, are deductible under section 162(a) of the 1954 Code, as interpreted in sec. 1.162-5, Income Tax Regs.

During 1958 petitioner liquidated its wholly owned subsidiary, on which liquidation no gain or loss was recognized under section 332(a), I.R.C. 1954, 1All cited sections refer to the… Held: the gain from the liquidation was not income wholly exempt from the taxes imposed by subtitle A as that phrase is used in section 265(1), and petitioner is therefore entitled to deduct, under section 164, the taxes it paid to Virginia. Bertha Gassie McDonald, 36 T.C. 1108, followed.

Held: (1) Amounts paid to an insurance company in the form of interest on purported annuity policy loans not deductible; (2) Commissioner not estopped to deny deductions since petitioner is not entitled to rely on private letter rulings issued to persons other than petitioner; and (3) out-of-pocket costs not allowable either as expenses orlosses.

Petitioner bought a 45 percent interest in a coal lease and stripping agreement from his father and mother for $180,000, the price being fixed by an accountant and an attorney who represented… Held: loss is deductible by petitioner in 1954.

Taxpayers, in a joint return, took the husband's father and stepmother as dependents. They had contributed $850 for their joint support but the father had received $720 from Social Security. Held: contribution of over half of the amount available for the support of the father and stepmother was sufficient to make them both petitioners' dependents.

Held: (1) Petitioner is entitled to deduct business entertainment expenses in each of the taxable years somewhat greater than the amounts determined by respondent, Cohan v. Commissioner, 39 F. 2d 540; (2) where respondent has determined that secured notes received by petitioner have no fair market value, proper method for reporting petitioner's income from the notes is on a yearly collections received basis to the extent that such collections exceed his costs; and (3) additions to tax under section 6653 (a), I.R.C. 1954, disapproved.

Petitioner owned and operated a profitable rigging business during the years 1945 through 1949, and during 1951. Held: 1. Held: Petitioner substantially understated his income for each of the years involved. 2. At least a part of the deficiencies for each of the years was due to fraud with intent to evade tax. 3. None of the years is barred by the statute of limitations. 4.

1. Petitioner bought numerous lots at tax sales, cleared the titles and paid liens against them, and sold them at a profit. Held, the lots were held by petitioner in 1954 and 1955 primarily for sale to customers in the ordinary course of his business and the profit on the sale of these lots was taxable as ordinary income. 2. Held, petitioner is liable for additions to tax under section 294(d)(1)(A), I.R.C. 1939, for 1954, and under section 6654, I.R.C. 1954, for 1955.

Held, that petitioner did not make a taxable gift to Hull Enterprises, a corporation, when on January 3, 1955, she assigned a one-half interest in an oil lease to the corporation in… Held: that petitioner did not make a taxable gift to Hull Enterprises, a corporation, when on January 3, 1955, she assigned a one-half interest in an oil lease to the corporation in consideration of the corporation's agreeing to pay her an annuity of $15,000 annually as long as she lived.

Petitioner acquired real property for the purpose of developing a rental project. Held: the property was not held by petitioner primarily for sale to customers in the ordinary course of a trade or business, and the proceeds were properly reported as capital gains.

Held, petitioners have not established they furnished more than one-half the total support of each of two daughters during the taxable years involved. Held: petitioners have not established they furnished more than one-half the total support of each of two daughters during the taxable years involved.

Petitioners received certain amounts in the compromise settlement of an antitrust suit they had filed. Held: the sums were received in lieu of profits lost because of alleged violations of the antitrust laws and are, accordingly, taxable as ordinary income.

Petitioners created recorded mortgage liens on two income-producing items of Indiana realty, and then conveyed said realty by gift and… Held: that, under Indiana law, the primary source of funds for satisfaction and payment of the encumbrance was the realty in the hands of the trustees; and that the effect of the petitioners' conveyance to the trustees of all their interest in said realty was to change their position to that of surety for any deficiency in the mortgage…

Petitioners held a ticket in the Irish Sweepstakes. Two days prior to the running of the race, they received a notice of assignment of a horse. Held: A gift of the proceeds of an Irish Sweepstakes ticket prior to the race is tantamount to a gift of the ticket as such. 2.

Petitioner Maynard K. Baird, a union representative for AFL-CIO and I.A.T.S.E., received reimbursement for expenses and per diem allowances which were not reported on his 1956, 1957, and 1958 income… Held: Such amounts were includable in gross income. 2. Offsetting deductions for actual expenses determined. Cohan v. Commissioner, 39 F. 2d 540 (C.A. 2, 1930).

Petitioners purchased a home in Duxbury, Massachusetts, in 1953 from Winthrop A. Clarke. Clarke had owned the property since 1950 and had made extensive alterations. Held: That the damage was shown to have occurred with the degree of suddenness required to support a casualty loss deduction within the purview of sec. 165(c)(3) of the Code of 1954. Amount and year of loss deduction determined.

1. Petitioner, a funeral director, purposefully padded the direct expenses itemized for each funeral in his records purportedly to cover indirect expenses, and had his tax returns prepared from his… Held: a part of the deficiencies for each of the years involved was due to fraud with intent to evade tax. 2.

The donors, petitioners, in these consolidated dockets made gifts of stock to members of their immediate families and transfers of identical stock, in identical amounts, to members of each other's… Held: such cross-transfers were without substance and in reality each donor gave to the members of his or her immediate family all of the stock he or she transferred and the number of exclusions would be ruled by the number of recipients in his or her immediate family.

1. Expenses incurred in building up a herd of beef cattle with the hope that at some future time sales of cattle from the herd might produce a profit are not deductible under section 162(a) of the 1954 Code, as ordinary and necessary expenses of carrying on a trade or business for profit. 2. Issue raised for the first time on brief will not be considered.

Where petitioner was sole legatee and executrix of her husband's estate, the administration of that estate was not terminated for income tax purposes until December 31, 1959. The duties of the executrix were not completed until that date since it was reasonable for her to liquidate a close family corporation managed by her deceased husband before terminating his estate. The date of the death of petitioner's husband, Lester A. Russell, was May 29, 1955.

Petitioner was in the illegal liquor business in 1950 and 1951. He was a jockeys' agent during 1950, 1951, and 1952, and made individual wagers in 1950 to 1953, inclusive. Held: Petitioner's income for each of the years 1950 to 1953, inclusive, determined. 2. Petitioner is liable for additions to tax for failure to file income tax returns for each of the years 1950 to 1953, inclusive. 3.

Petitioner, a textile jobber during the years 1946 and 1947, in addition to the sales made by him through his regular business, which were fully reported in income, transacted 27 sales through… Held: That petitioner understated his net income from sales for the taxable years 1946 and 1947. Held, further: That a part of the deficiency for each year was due to fraud with intent to evade tax.

Petitioner, a textile jobber during the fiscal year ended July 31, 1946, transacted sales through fictitious companies in an effort to conceal… Held: That petitioner understated net taxable income on his return for the fiscal year ended July 31, 1946, in the amount of $8,307.26. Held, further, that a part of the deficiency for said year was due to fraud with intent to evade tax. Held, further, that an addition to tax under Sec. 294(d)(2), I.R.C. 1939, was properly imposed.

In 1930 the major creditors of an estate agreed to a plan which transferred certain coal-bearing estate property to a corporation whose stock was held in trust as security for the payment of the… Held: the gains realized from the payments made to petitioner in 1955 and 1956 on his certificates did not result from a sale or exchange of such certificates and are therefore taxable as ordinary income.

Held: That petitioner has not established by a preponderance of the evidence that he is entitled to deduct, as an ordinary and necessary business expense, the sum of $5,200 paid by him to his father… Held: That petitioner has not established by a preponderance of the evidence that he is entitled to deduct, as an ordinary and necessary business expense, the sum of $5,200 paid by him to his father in 1957.

During the years 1942 to 1949, inclusive, while manager of a branch bank in Chattanooga, E. C. Dodd conducted, as a separate operation, a business of making cash loans out of private funds placed at… Held: Petitioners are liable for the additions to tax imposed by section 293(b), I.R.C. of 1939, for each of the years 1942 to 1949, inclusive. (2) None of the years 1942 to 1949, inclusive, is barred by the statute of limitations. Section 276(a), I.R.C. of 1939.

Attorney fees paid by the petitioner for the purpose of obtaining title to property by contesting the will of her mother and by attempting to set aside an inter vivos trust created by her mother held not deductible under section 212(2) of the Internal Revenue Code of 1954 as expenses paid or incurred for the management, conservation or maintenance of property held for the production of income.

Held, that petitioners did not constructively receive a dividend in 1957 from a corporation of which they were the sole stockholders. They received this dividend in 1958 and properly returned it for taxation on their joint income tax return for that year.

Held, petitioners Rosalie Lala Reyer and George Reyer had no unreported, taxable income from the partnerships 407, Monticello, Pat's or Riverview… Held: petitioners Rosalie Lala Reyer and George Reyer had no unreported, taxable income from the partnerships 407, Monticello, Pat's or Riverview Clubs during the taxable years 1948 through 1951. Held, further, they did not sustain a loss of $11,345, during the taxable year 1949 in the operation of the Alton and Reyer partnership.

Petitioner corporation which had engaged for many years in a coal-mining business, sold all of its operating assets in 1951, and as a result thereof sustained a net operating loss in said year. Thereafter, said corporation acquired the stock of three other corporations which manufactured precision electronic components, dissolved said corporations, took over the assets and going businesses thereof, and continued to operate an electronics business throughout the taxable year. Held, that there was no "continuity of business enterprise" between the former mining business and the subsequent electronics business; and, accordingly, that petitioner is not entitled to carry over and deduct the 1951 net operating loss against its 1954 income realized in its new and different business of manufacturing electronic components. Libson Shops, Inc. v. Koehler, 353 U.S. 382, and Huyler's, 38 T.C. - (Aug. 30, 1962), followed.

Held, that the statute of limitations does not bar assessment of the tax because no return was filed by petitioner for the year 1947. Held: that the statute of limitations does not bar assessment of the tax because no return was filed by petitioner for the year 1947. Held, further, that petitioner had no taxable income in 1947; therefore, the deficiency and additions to tax determined by the Commissioner were erroneous.

1. Held, that the principal petitioner is not entitled to deduct from his individual gross incomes for the taxable years involved certain expenses and depreciation relating to the business… Held: that the principal petitioner is not entitled to deduct from his individual gross incomes for the taxable years involved certain expenses and depreciation relating to the business operations and improved real estate of a corporation of which he was the sole stockholder. 2.

Held: Expenses of work clothes and educational costs are nondeductible personal expenses; the amounts of business expenses for automobile, entertainment, and miscellaneous business expenses… Held: Expenses of work clothes and educational costs are nondeductible personal expenses; the amounts of business expenses for automobile, entertainment, and miscellaneous business expenses determined.

BAD DEBT - Sec. 166(a)(1), I.R.C. 1954 - Held, that an indebtedness owing to petitioner became wholly worthless in 1955, and the right to a bad debt deduction in that year is not precluded by the fact of partial recoupment in a subsequent year.

Held, allocation is approved of attorneys' fees and legal expenses of a derivative action taxed against petitioner based upon the recovery in such action of both income and capital. That portion of the fees and expenses attributable to the recovery of capital is not deductible as an ordinary and necessary business expense under section 162(a) of the Internal Revenue Code of 1954. Pennroad Corporation, 21 T.C. 1087, affd. 228 F.2d 329, followed.

1. Section 731 of the 1954 Code not applicable with respect to partnership taxable year beginning October 1, 1954. 2. Petitioner E. Comer Smith not entitled to deduct credit balance in his partnership capital account equal to deficit balance in other partner's capital account upon closing of partnership books in 1955. Deficit represented other partner's 50-percent share of partnership losses over the years which Smith made no effort to collect.

Held, that where the principal petitioner purchased from a corporation in a single transaction, substantially all the assets of a going business, and caused a separate "purchase price" to be assigned to each of the numerous assets acquired in said transaction, the Commissioner, in computing the petitioner's deductible loss on the immediate resale of a portion of said assets, is not bound to accept such assigned "purchase prices" as the cost basis of the assets so resold, where the evidence establishes that these "prices" were not realistic or bona fide. Held, further, that the cost basis which the Commissioner determined for said resold items is sustained by reason of petitioner's failure to prove error therein.

Held: Amount paid by petitioner in 1956 to X pursuant to a prior agreement to indemnify X for all losses incurred because of X's advances… Held: Amount paid by petitioner in 1956 to X pursuant to a prior agreement to indemnify X for all losses incurred because of X's advances to a corporation upon the corporation's bankruptcy, such agreement made in consideration of X giving petitioner one-half of the corporation's stock, constituted a capital loss on the worthlessness of…

Business deductions: Accrued salaries: Deductibility in later years determined. - Deductions were denied the corporate taxpayer, under the accrual method of accounting, for the payment of salaries, in 1957 and 1958, which had accrued for prior years. Accrued but unpaid salaries for prior years and for 1957 were not deductible in 1957, the deduction for unpaid 1957 salaries being denied under Code Sec. 267(a).

Held, shares of stock issued to petitioner in a taxable exchange had an ascertainable fair market value on December 24, 1954; value determined. Held: shares of stock issued to petitioner in a taxable exchange had an ascertainable fair market value on December 24, 1954; value determined.

Held, under Maryland law, the donee of a testamentary power of appointment could not appoint to herself or to her estate, absent express provision therefor, and the power of appointment does not… Held: under Maryland law, the donee of a testamentary power of appointment could not appoint to herself or to her estate, absent express provision therefor, and the power of appointment does not qualify for the marital deduction under section 2056(b)(5), I.R.C. 1954.

Held, that certain bad debt losses incurred by a partnership of which the present petitioners were the members, were nonbusiness bad debts within the meaning of section 166(d) of the 1954 Code, which… Held: that certain bad debt losses incurred by a partnership of which the present petitioners were the members, were nonbusiness bad debts within the meaning of section 166(d) of the 1954 Code, which are not deductible in computing the amounts of the partnership's net incomes.

Held: Claimed depreciation deduction on an asset disallowed for taxable year in which the asset was sold at a price substantially in excess of its undepreciated cost as of the beginning of the… Held: Claimed depreciation deduction on an asset disallowed for taxable year in which the asset was sold at a price substantially in excess of its undepreciated cost as of the beginning of the taxable year. Randolph D. Rouse, 39 T.C. , (October 10, 1962), followed.

1. Office expenses paid by petitioner, an attorney, allocable to a corporation of which his wife was sole stockholder, are not deductible by petitioner. 2. Petitioner is not entitled to deduct in 1955 his cost in stock of a corporation which went out of business in 1952, which he purportedly canceled and surrendered in 1955 to satisfy an obligation to a trust of which he was trustee. Petitioner failed to prove the stock had any value in 1955. 3.

On May 15, 1930, petitioner exchanged 100 of its mortgage bonds for and in proportion to the ownership of all its outstanding capital stock. Held: Petitioner has failed to establish that the debenture bonds represent a debtorcreditor relationship rather than a capital investment and the respondent's determination is sustained.

Held: That losses of petitioners from sale of rough timber to James River Lumber Company, Inc., were between an individual and a… Held: That losses of petitioners from sale of rough timber to James River Lumber Company, Inc., were between an individual and a corporation more than 50 percent in value of the outstanding stock of which was owned, directly or indirectly, by or for such individual, within the meaning of sec. 267(a)(1), (b)(2) and (c)(2) and (4), and no…

Petitioner was a salaried employee of several corporations during the taxable year 1955. Held: that attorney's fees and miscellaneous expenses incurred by petitioner in efforts to secure the passage of such legislation are not deductible from gross income. Cammarano v. U.S., 358 U.S. 498, followed.

Held, petitioner was availed of in the year 1956 for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings and profits to accumulate instead of being divided… Held: petitioner was availed of in the year 1956 for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed.

Petitioners operated a numbers lottery as a partnership during 1954 to 1956, inclusive, and petitioner Williams operated the lottery as a sole… Held: Understatements of income from the numbers lottery determined for each of the years 1954 to 1957, inclusive; (2) Petitioners are liable for additions to tax for fraud pursuant to section 6653(b), I.R.C. of 1954, for each of the years involved; (3) Petitioners are liable for additions to tax for failure to file declarations of…