Volume 22 — Board of Tax Appeals

Where in 1917 one corporation owned all the stock of another and a consolidated return was filed in accordance with section 1331, Revenue Act of 1921, intercompany losses during the period of affiliation by reason of advances by one company to the other and the ownership of stock were not deductible in determining income subject to profits tax. Utica Knitting Co. v. United States,68 Ct.Cls. 77, followed.

1. Certain individuals engaged in the business of shipbuilding as partners organized a corporation to construct vessels under contracts with the Emergency Fleet Corporation which required a showing… Held: that the stock was not issued in exchange for the partnership assets and that the amount of cash deposited to the credit of the corporation was bona fide paid in for stock within section 326(a)(1), Revenue Act of 1918. 2.

1. The amount of debts ascertained to be worthless and charged off from the books of account for 1923 and 1924 determined. 2. Profits realized in 1923 and 1924 upon the sale in 1921 of certain shares of stock upon the installment basis, held not taxable as capital gains. 3.

Petitioner has failed to show abnormalities to entitle it to special assessment.

1. Income derived from the operation of a certain building held to be separate income of petitioner. 2. Loss, measured by the difference between the cost of stock and the amount of liquidating dividends received, allowed as a deduction. 3. Loss alleged to have been sustained on the sale of a tract of land disallowed in the absence of proof of the value of the property at the time of its acquisition by gift.

Held, under the evidence, that certain debts were ascertained to be worthless and charged off. Held: under the evidence, that certain debts were ascertained to be worthless and charged off.

1. Respondent determined deficiencies for 1924 and 1925, and mailed a deficiency letter to the petitioner on September 22, 1928. Held: as to the deficiency for 1924, the amended pleading constituted a new and different appeal, and not having been filed within the time provided in section 274, Revenue Act of 1926, the Board is without jurisdiction to redetermine the deficiency for said year. 2.

1. Value of certain contracts for the purchase of casing-head gas determined. 2. Cash value of contracts for the purchase of casing-head gas excluded from computation of invested capital, since the facts are clearly within the provisions of section 331 of the Revenue Act of 1918, excluding certain values from invested capital. 3.

1. A father was in partnership with his brother. Held: that the father was taxable upon his entire distributive share of the partnership profits; held, further, that the same result should be reached even if a subpartnership were found to exist between the father and his sons. 2. The fair market value of certain lands and timber on March 1, 1913, determined from the evidence. 3.

The decedent died on October 31, 1924, a citizen of Great Britain and a resident of Cuba. Held: that, with respect to said intangibles, the common law maxim mobilia sequuntur personam applies, and that said securities may not, under section 303(b) of the 1924 Revenue Act, be included in determining the value of that part of the decedent's gross estate which at the time of his death was situated in the United States.

GROSS INCOME. - The premium receipts of a mutual life insurance corporation within the taxable year except such portion of any actual premium received from any individual policyholder as is paid back or credited to or treated as an abatement of premium of such policyholder within the taxable year, are properly included in gross income. New York Life Ins. Co. v. Edwards,271 U.S. 109; Penn Mutual Life Ins. Co. v. Lederer,252 U.S. 523.

DEDUCTION - NET LOSSES. - Held, that the net loss of each of the petitioners for 1922 as a result of a loss sustained upon the sale of stock in that year did not constitute a statutory net loss resulting from the operation of a trade or business regularly carried on, within the meaning of section 204(a) of the Revenue Act of 1921, but instead constituted an isolated transaction.

The petitioner, not being the "taxpayer" within the meaning of section 204 of the Revenue Act of 1921, is not entitled to deduct in 1923 certain net losses in the determination of its net taxable income which were sustained by its predecessors in business in 1921 and 1922.

1. Petitioner held not entitled, under the provisions of section 206 of the Revenue Act of 1924, to deduct in 1924 the net losses of a predecessor corporation for 1922 and a part of 1923. 2. Amounts paid out by the petitioner upon obligations of a predecessor corporation, which it assumed as part consideration for the purchase of the assets of the predecessor corporation, constitute capital items and are not deductible from gross income as business expenses. 3.

1. The petitioner is entitled to a deduction as a loss in 1923 on account of the sale of certain shares of stock which he acquired from his wife and which he disposed of in the taxable year. 2. The evidence fails to establish that the sum of $5,000 received by the petitioner in 1923 was a gift rather than taxable income.

- During the year in controversy the petitioner not only acted as sales agent in marketing its stockholders' grain, but also purchased grain from its stockholders and sold the same on its own account. Held: that petitioner did not bring itself within the provisions of section 231(11) of the Revenue Act of 1918, and is not entitled to tax exemption for the fiscal year ended June 30, 1920.

The petitioners are beneficiaries of a certain trust and entitled to the income thereof. Held: that the amounts deducted for exhaustion, wear and tear of the trust property in the years 1921 to 1926, inclusive, were not income to the petitioners.

A corporate dividend declared and payable in 1927, check for which was mailed in 1927 and received by the stockholder in 1928, held within stockholder's gross income of 1927. Commissioner v. Bingham, 35 Fed.(2d) 503, followed. Cecil Q. Adams,20 B.T.A. 243, distinguished.

The legal reserves of a stock life insurance corporation are within its invested capital for 1920. Atlantic Life Insurance Co. v. Moncure, 44 Fed.(2d) 167; 35 Fed.(2d) 360, followed. Home Beneficial Association,15 B.T.A. 1319 overruled.

- On the facts, held, that gifts inter vivos by decedent to his wife and daughter of certain securities were not made in contemplation of death and the values thereof are not to be included in his… Held: that gifts inter vivos by decedent to his wife and daughter of certain securities were not made in contemplation of death and the values thereof are not to be included in his gross estate under section 302(c) of the Revenue Act of 1924.

The stockholders of a trust company which was carrying more than $400,000 of slow live stock loans, in order to allay public distrust on account of the failure of a related brokerage firm through which they had been negotiated, agreed to collectively indemnify the bank up to $200,000 for any loss it might sustain through failure to collect them. The indemnity contract set forth the shareholdings of each signor and in terms provided that the liabilities created were to be "several and not joint"; it also limited the amount each stockholder was bound to pay to such ratable portion of the whole $200,000, as the stock then held by him bore to the total outstanding capital stock of the company. Near the close of the year the officials of the bank estimated that a prospective loss of at least the amount underwritten by the stockholders was inevitable on account of these loans, and the petitioner, who was one of the subscribing stockholders, paid $23,480 as his portion of the agreed indemnity. Held, that under the facts, this payment did not constitute a deductible loss to the petitioner for the year paid.

Method of computing profit made on sale of margin stock determined.

1. Rate of depreciation on petitioner's "roofer" plant determined. 2. Where taxpayer abandoned a "roofer" plant in 1923 a deduction for depreciation thereon may not be taken in 1924.

RETURNS ON THE INSTALLMENT SALES BASIS - SECTION 705, REVENUE ACT OF 1928. - The petitioner filed an original return for the taxable year on the installment basis prior to February 26, 1926, changing… Held: certain inaccuracies in the computation of profits on the installment basis are immaterial since the allowable deductions exceed the gross income and there is no deficiency.

The depreciated cost of buildings demolished allowed as a deduction.

Held that the petitioner is entitled to the deduction taken in his income tax return for 1925 for a loss on corporate stock that became worthless during the taxable year.

1. CONTINGENT RESERVES NOT DEDUCTIBLE. - Where petitioner set up on its books during a taxable year certain reserves for the payment of salesmen's commissions which should come due in the following… Held: such reserves are not deductible in determining taxpayer's net income. 2. INVENTORIES used in computing the cost of goods sold must be computed at the beginning and end of each year on substantially the same basis.

1. The entire stock of a corporation was issued for cash and patents, in varying amounts and at various times from 1920 to 1918, under an agreement that, for each share issued for cash at par, one… Held: that the evidence justified the inference that there was an agreement for the taxable years.

Amounts received during the taxable years under employment contracts providing for the payment of a fixed percentage of profits realized on the sale of timber lands are taxable in their entirety without any allowance for the March 1, 1913, value of contingent rights to receive the payments.

1. Expenses incurred by a partnership for experimental work on ideas and devices abandoned as worthless in 1919, allowed as a loss. 2. The Board is without authority to order the Commissioner to honor an agreement between husband and wife authorizing the application of tax credits due one of them to a deficiency of the other.

1. Loss sustained on loans disallowed as a deduction in 1925. 2. A widower maintaining, at his expense, a house for himself and his daughter and her husband, who are not dependent upon him for support, is not entitled to a personal exemption as the head of a family.

1. AFFILIATED CORPORATIONS. - During the years 1920 and 1921 the petitioner, the John Wunder Company, and the Trap Rock Company were operated under one management, all carrying on similar and related… Held: that the $151,000 par of the Trap Rock Company stock was not substantially all of that Company's stock and that the Trap Rock Company may not be consolidated with the other two companies under sections 240 of the Revenue Acts of 1918 and 1921. 2.

The guarantee capital of an Illinois life insurance company required to be deposited with the State auditor held not a reserve within the meaning of section 242 of the Revenue Act of 1926.

1. In each of the years 1922 and 1923 a corporation transferred from its surplus to its capital stock account an amount equal to 10 per cent… Held: the amount so credited to the stockholders was not taxable income. 2. The petitioner, in computing his income for the year 1921, was not entitled to deduct either as a loss sustained, or as a debt ascertained to have become worthless in that year, any amount on account of the payment by him of notes of one Weissbaum & Company. 3.

Upon the facts, held that the petitioner is not entitled to report income for 1922 and 1923 upon the installment sales basis. Packard Cleveland Motor Co.,14 B.T.A. 118, followed.

Collection of estate taxes due September 25, 1920, and assessed against the executrix October 9, 1922, is barred as against the distributees of the estate on February 25, 1927.

1. Amounts set up on the taxpayer's books as representing the cost of transportation of men and materials used in connection with betterments and improvements are not under the facts presented deductible as operating expenses. 2. The taxpayer and American Refrigerator Transit Company, held to be affiliated. American Refrigerator Transit Co.,14 B.T.A. 616, followed. 3. An amount paid by the taxpayer in 1920 to the Association of Railway Executivesheld to be deductible as an ordinary and necessary expense. 4. Where a railway company issued bonds at a discount which was at the date of issue charged to profit and loss and thereafter the company was reorganized, over 40 per cent of taxpayer's stock being issued to bondholders who had not been stockholders in the old corporation, resulting in a substantial shifting of interest; held, the taxpayer is not entitled to deduct any part of such discount from its gross income. 5. Payments made to Young Men's Christian Associations maintaining their organizations at division points and furnishing eating and rooming facilities and social and recreational activities to the taxpayer's employees, held deductible as business expenses. 6. Where a lump-sum settlement was made with the Director General of Railroads and, after such settlement, the Director General, without the knowledge of the taxpayer, placed upon his books an allocation of the lump sum to various items; held, that such allocation is not binding on the taxpayer, but an allocation made by the Commissioner raises a presumption that must be overcome by the taxpayer and this presumption is not overcome by showing that it was based upon the allocation made by the Director General. 7. The reasonable compensation of a railroad company for the use of its properties during the period of Federal control, awarded to a taxpayer keeping its accounts on an accrual basis, was income for each of the taxable years for which the compensation was allowed, although the precise amount to be paid was not determined until a later date. 8. Where at the end of the period of Federal control the Director General returned to the taxpayer materials and supplies equal in quantity, quality, and relative usefulness to materials and supplies taken over, but of a then greater monetary value, and the taxpayer used such materials and supplies during the taxable year; held, the amount deductible was the cost to the taxpayer of such materials and supplies, and not their value when returned. 9. Where during the period of Federal control property was retired and not replaced and there was a substantial dispute between the taxpayer and the Director General as to the amount of the liability therefor and subsequent to such period such dispute was settled and a certain amount was paid by the Director General; held, the excess of such payment over cost to the taxpayer was income in the year in which the dispute was settled. 10. Interest received by the taxpayer from the Federal Government on quarterly balances is not exempt from tax and is taxable in the year accrued. 11. Deductions of amounts paid in 1920 to maintain railroad property should not be reduced by amounts subsequently received from the Director General on account of undermaintenance of such property during the period of Federal control, where it appears such undermaintenance was not made up during that year. 12. The basis for the computation of deductible loss is cost or the value on March 1, 1913, and there may be no deductible loss based on replacement cost of the property when received back from the Director General. 13. Where the agreement between taxpayer and the Director General provided that costs of additions and betterments should be paid by the taxpayer and that, in addition to be agreed compensation, the taxpayer should be paid a reasonable rate of interest, to be fixed by the Director General, upon the amount of such costs, such interest is income in the years earned and accrued, even though the rate was not determined until after the end of such years. 14. An amount paid to a hospital which was essential to the taxpayer to provide hospitalization for its injured employees, is a deductible business expense. 15. Amounts paid to a railroad under section 209 of the Transportation Act are taxable as income in 1920. Gulf, Mobile & Northern Railroad Co.,22 B.T.A. 233, followed.

1. The saving effected by a corporation through the purchase and retirement of a portion of its outstanding bonds at a price less than their par value, is not taxable gain to it. 2. Assessments paid by a railroad corporation to the support of the Association of Railway Executives, held deductible as an operating expense from gross income for the year paid. Los Anaeles & Salt Lake R.R. Co.,18 B.T.A. 168, followed. 3.

1. The petitioner employed one Thurman to accompany him to Washington and introduce him to the authorities. Held: that the amount of $20,000 paid by the petitioner to one Knight in accordance with a contract by which Knight was to assist the petitioner in financing the sale of Camp Taylor and for Knight's services in assisting him in the sale of the camp is an allowable deduction. 3.

1. Where notes were given in consideration for the purchase of stock under a contract containing a contingency on the happening of which the makers would be relieved of payment and there was a reasonable probability of its happening generally known in the community, held, that the notes affected by such contingency did not have a fair market value when received. 2. Held, further, that certain of the notes were not affected by such contingency.

Payments by petitioner of premiums on an insurance policy issued on the life of its president, where the motive or purpose of such payments is not disclosed, are not shown to be deductible from gross income.

COMMUNITY PROPERTY. - Real estate acquired in Washington by a resident thereof prior to his marriage is separate property and remains his separate property after marriage. A building erected on the husband's separate property out of commingled separate and community funds is community property. Income from the property after erection of the building should be apportioned to the husband and the community on the ratio of the respective values of the land and the building to the total value.

1. INVESTED CAPITAL - PROPERTY PAID IN. - Value for invested capital purposes of contributed capital, being a certain leasehold estate, determined upon the evidence. 2. DEPRECIATION. - Value for depreciation purposes of the same leasehold estate as of March 1, 1913, determined upon the evidence.

ACCOUNTING PERIOD. - For many years prior to the taxable year the petitioner closed its books and determined its income for an accounting period of a fiscal year ending May 31. This regularly established custom was continued in 1921 and the books were closed as of May 31. Returns, however, were filed under the 1918 Act and also for 1921 upon the basis of calendar years. Held, these returns were not in accordance with the statutes, see sections 232 and 212(b) of the Revenue Acts of 1918 and 1921; the deficiency having been determined by the respondent from the books and for the accounting period ended May 31, 1921, and there being in the record no proof that the computation of the deficiency was erroneous, it may not be disturbed.

1. The entire community estate of a husband and wife, residents of California, is properly included in the gross estate of the husband. 2. The respondent is not estopped to reassert a tax liability theretofore abated by him. 3. Assessment and/or collection of the tax here involved is not barred by the statute of limitations.

The action of the Commissioner of Internal Revenue, in holding that certain rentals paid to the wife of a lessor of property under assignment made by the latter constituted income to the husband, is sustained.

1. The respondent was not barred by the statute of limitations from asserting liability against the petitioners herein as transferees. 2. The petitioner's objections to the validity of section 280(a) and (b) of the Revenue Act of 1926 are not sustained. 3. The opinion of a former solicitor of the Bureau of Internal Revenue is not conclusive and the Bureau of Internal Revenue is not bound thereby. 4. The Iowa-Burk Syndicate was not an association taxable as a corporation.

Deduction from income disallowed.

1. F. J. Thompson, inc.,1 B.T.A. 535, followed. 2. Held: respondent in determining petitioner's invested capital erred in finding that petitioner had not charged off sufficient depreciation in prior years. 3. Evidence held insufficient to overcome respondent's determination as to the remaining issues.

Held, no taxable income is derived from the purchase by a corporation of its outstanding bonds or notes at less than amount received upon issuance. Held: no taxable income is derived from the purchase by a corporation of its outstanding bonds or notes at less than amount received upon issuance.

A compromise payment to settle litigation and attorney fees paid in connection therewith, both growing out of and being incidental to petitioner's business dealings, are allowable deductions.

1. Where a corporation pays accrued interest on bond subscription payments in worthless bonds, in being at that time unable to pay the interest in cash, the recipient of the bonds does not realize taxable income. 2. Negligence penalty approved in the absence of any evidence to rebut the respondent's determination.

Where in 1922 a national bank acquired at foreclosure sale the plant of an iron company and operated it until January 17, 1923, and where the bank caused to be organized under the laws of California… Held: that the corporation and the bank became affiliated for the first time on January 17, 1923, and the filing of an erroneous return for 1922 in petitioner's name did not preclude the filing of a consolidated return for the period January 17, 1923, to December 31, 1923.

1. March 1, 1913, fair market value of land determined. 2. Amounts paid to acquire property with which to fulfill a contract of sale held to be part of the cost of the property sold.

A corporation filed its return for 1919 on March 15, 1920, and prior to the expiration of the five-year period for making assessments on account thereof a waiver was filed which extended the period… Held: that the assessment of the additional tax of the corporation against the petitioners is not barred.

1. TRANSFEREE. - Held, petitioner Lester L. Robison not liable as transferee. Petitioner Elmer D. Bryson liable as transferee. 2. Held: petitioner Lester L. Robison not liable as transferee. Petitioner Elmer D. Bryson liable as transferee. 2.

1. TRANSFEREE - LIABILITY. - Where the transferree corporation purchased all of the assets of the transferor corporaton, which assets had a net value in excess of the amount of the taxes due, and paid therefor stock of the transferee, which was issued and paid directly to the stockholders of the transferor, leaving the transferor without assets, the transferee is liable to the extent of the taxes legally due. 2.

1. Held, that petitioner's activities did not result in the production of an article contributing to the prosecution of the war and accordingly petitioner is not entitled to amortization of war… Held: that petitioner's activities did not result in the production of an article contributing to the prosecution of the war and accordingly petitioner is not entitled to amortization of war facilities under section 234(a)(8) of the Revenue Acts of 1918 and 1921. 2.

Where decedent made a gift to his wife of a property as her separate property, and such property was subsequently exchanged for other property, title to which was taken and held by decedent and wife as tenants by the entirety, the last acquired property does not fall within the exception of section 302(e) of the Revenue Act of 1924, and should be included in the gross estate of decedent.

A consent in writing signed by the taxpayer and the Commissioner for the year 1922, seven months ended July 31, is effectual for extending the time for assessment for the calendar year 1922.

The record does not furnish a basis for the determination of reasonable compensation for personal services actually rendered by officers of the corporation.

Held, under the evidence, that the corporation sold its assets to its stockholders, and their subsequent sale to another does not give rise to taxable gain to the corporation. Held: under the evidence, that the corporation sold its assets to its stockholders, and their subsequent sale to another does not give rise to taxable gain to the corporation.

1. DEDUCTIONS - LOSSES ON SALE OR DISPOSITION OF CORPORATE STOCKS. - During the years under review and for many years prior thereto the petitioner was and had been the owner of the majority of the stock of a corporation which had continued as a going concern from 1908 to 1926. From 1923 to 1926, inclusive, the business was in the hands of a creditors' committee.

1. Affiliation allowed. 2. Notes given petitioner covering the amount of an indebtedness that had been charged off as worthless held not to be accruable as taxable income under the facts in this case. 3. Value and useful life of certain rights to manufacture and sell shipbuilding machinery determined for exhaustion purposes. 4. Amount advanced for experimental work on inventions to acquire the manufacturing and selling rights thereto, allowed as a loss. 5.

1. HUSBAND AND WIFE. - Where husband and wife entered into a partnership prior to their marriage, while residing in North Dakota, to which each contributed capital in equal amounts and such partnership continued after their marriage, the income and proceeds of the business being invested in other enterprises, the property so acquired belonged one-half to the husband and one-half to the wife and a division between them in 1925 in that proportion was legal, and income from the…

1. STATUTE OF LIMITATIONS. - The statutory period for assessment is shown to have been extended by agreements in writing, consequently, the proposed deficiencies are not barred. Held: that the respondent's rejection of this method is approved, and that in redetermining the deficiencies the petitioner should have the benefit of the deduction of all discounts on accounts receivable actually accounted for during the accounting period. 4.

Held, that the purchase, in 1924, of stock known to petitioner to be worthless in 1923 as well as at the date of purchase, did not give rise to a deductible loss sustained in 1924, or in any other… Held: that the purchase, in 1924, of stock known to petitioner to be worthless in 1923 as well as at the date of purchase, did not give rise to a deductible loss sustained in 1924, or in any other taxable year.

1. Held, petitioner is a transferee of the assets of the New Savoy Hotel Company and liable for the tax involved in this proceeding. 2. Held: petitioner is a transferee of the assets of the New Savoy Hotel Company and liable for the tax involved in this proceeding. 2.

The loss resulting from damage to petitioner's trees caused by a sleet and ice storm in 1921 held deductible under the provisions of of section 214(a)(6) of the Revenue Act of 1921, and the amount of the loss determined.

Loss on account of abandonment of drawings and patterns determined.

The amount of allowable deduction on account of a fire loss determined.

1. Where the Commissioner determines an overassessment of taxes, which determination is due to the partial rejection of a claim in abatement, the Board has jurisdiction. 2. The Board has jurisdiction to determine the correct tax liability on all income for a fiscal year ending January 31, 1916. 3.

1. INCOME - ACCOUNTING - ACCRUAL BASIS. - That portion of charges, in excess of rates provided by State law and orders of the State Public Service Commission, made by petitioner and affiliated companies in the years 1916 to 1922, inclusive, for gas furnished their consumers in those years, such charges being permitted by court order under which the so-called excess monies were impounded to await final decision as to their rights to charge the higher rates, such final…

Where, subsequent to December 31, 1920, property is transferred to a corporation by an individual in exchange for more than 80 per cent, but less than 100 per cent, of the corporation's capital stock, and under section 203(b)(4) of the Revenue Act of 1924 no gain or loss is recognizable on account of such exchange, section 204(a)(8) of the Revenue Act of 1924 requires that the basis, in determining gain or loss on account of the sale of such property by the corporation,…

Notwithstanding the fact that items of salary and interest were charged as expense items and taken as expense deductions, without his knowledge, in estate tax returns, petitioner is not liable for income tax on such items when it is clearly shown that he did not in fact receive that money.

Where the petitioner acquired in 1916 all of the assets of a predecessor corporation in exchange for its capital stock, held that the gain or loss upon the sale of certain of the assets in 1922 is the difference between the selling price and the fair market value of the assets at the date of acquisition.

1. The liquidation of a subsidiary by the parent company during the taxable year is such a transaction in which a possible gain or loss should be recognized. Remington Rand, Inc., 33 Fed.(2d) 77, followed. 2. A certain dividend declared by the board of directors of the subsidiary on the day prior to the dissolution of the subsidiary held to have been "distributed in the liquidation of a corporation" within the meaning of section 201(c) of the Revenue Act of 1918.

1. Petitioner's income from an oil and gas lease upon lands owned by a municipal corporation is not exempt from Federal income and profits taxes. 2. Evidence held insufficient to establish the worthlessness of an oil and gas lease where it appeared that petitioner continued to pay the rentals necessary to prevent forfeiture. 3.

1. Trustees of what in fact was an association who filed their income tax return for 1924 on January 30, 1925, as a trust, are not… Held: that the organization is taxable as an association, although the ultimate purpose of the organization was the sale of the realty and a division of the proceeds and further that this is true though the certificate holders had no control over the actions of the trustees and though the organization was given no particular name and did…

The petitioner, an attorney, gave up private practice to become an assistant attorney general of a State, taking charge of a criminal investigation conducted by the attorney general. Held: that his compensation is not subject to Federal income tax.

By a written agreement executed December 31, 1923, between husband and wife, residents of California, it was provided that all their property and all the income arising therefrom or from compensation… Held: That said agreement did not, in the circumstances of the case (Docket No. 37355), affect either income or compensation for personal service in question for the year 1923, but both for said year are properly taxable to the petitioner. 2.

The petitioners are not liable as transferees, the respondent having failed to sustain the burden of proof placed upon him by the taxing act.

The sale evidenced by the facts in this proceeding held to have been a sale of the assets of the transferor corporation by the corporation itself, subsequently liquidated and dissolved, and not a sale of the stock by the stockholders of said corporation.

A consent in writing signed by a taxpayer prior to the passage of the Revenue Act of 1926, but not by the Commissioner until after the enactment of the Revenue Act of 1928, is not effective for extending the period for collection of taxes otherwise barred when the 1926 Act was passed.

Where it appears from the pleadings that the taxpayer, a corporation, was dissolved prior to the date of filing of the petition and it is not affirmatively shown that the parties filing the petition on behalf of the corporation have authority, under the laws of the State in which the corporation was incorporated, to represent the corporation, the Board, on its own motion, must dismiss the proceeding.

One corporation owned all of the stock of another corporation during the first six months of the taxable year. Held: there was no affiliation during the last six months of the year, and one consolidated return for the entire year was not proper. A net loss of one of the companies for the preceding year may be deducted only from its net income for the first six months of the taxable year here in question.

1. Losses sustained on a stock and under a contract of guaranty allowed as deductions. 2.

Value of certain leaseholds for purposes of computing depreciation and exhaustion, determined.

1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. The respondent has failed to sustain the burden of proof that the petitioner is liable as a transferee within the meaning of section 280 of the Revenue Act of 1926. 3. The statute of limitations does not bar the collection of the liability here in controversy.

The petitioner having invoked section 204 of the Revenue Act of 1926 for the relief sough and having failed to sustain the burden of proof thereunder, we must approve the respondent's determination, particularly in view of the fact that a computation of the loss under that section, when considered in the light of all the information before us, results in the same amount of loss found by the respondent.

A farm operated by a taxpayer primarily to supply himself with milk and other produce, upon which a bookkeeping charge is made, the incidental surplus being offered first to farm employees and the… Held: upon all the evidence, not to be operated as a business, and hence losses sustained are not deductible.

The petitioner was president and general manager and controlling stockholder of a corporation. Held: that said attorneys' fees and expenses are not proper deductions in computing the petitioner's net income.

1. The respondent's determination that a certain payment of money made by the petitioner to his sister in 1923 was a capital expenditure and not deductible in computing the petitioner's net income for that year, sustained. 2.

1. Assessment and collection of the deficiency from the transferees are not barred. 2. A petitioner appealing to the Board under section 280 of the Revenue Act of 1926, can not attack the constitutionality of that section. Henry Capellini,14 B.T.A. 1269. 3. The Board will raise a question of jurisdiction of its own volition. Martha M. Hanify et al.,21 B.T.A. 379. 4.

The gift by a taxpayer to his wife and children of part of his interest under a contract whereby he was given the right to receive as compensation for services rendered a percentage of the net profits from the operation of an oil lease whenever the lease was obtained, can not operate to relieve the taxpayer from liability for tax upon the amount received under the contract and distributed to his wife and children according to the agreement.

Held that no partnership existed composed of petitioner, his wife and his son, and that respondent correctly taxed petitioner upon the income from the business conducted in his name.

Following Edward Mallinckrodt, Sr.,4 B.T.A. 1112; Edward Mallinckrodt, Jr.,14 B.T.A. 194; Ida C. Calloway et al., Executors,18 B.T.A. 1059, the petitioner settlor is entitled to deduct losses based upon sales of securities to a trust.

1. TRANSFEREE PROCEEDINGS. - Where the Board has decided that there is no deficiency on the part of the taxpayer for certain years, and the time for taking an appeal has elapsed without appeal by either party, the respondent is bound by the decision and may not assert a transferee liability against the stockholders of the taxpayer. 2. Id. - LIMITATIONS. - Under section 280(b)(2) of the Revenue Act of 1926 notices mailed to transferees on February 26, 1927, are timely.

Four separate companies had net losses in 1921; three of them had net losses in the first two months of 1922 and one had a net income in that period. The four became affiliated on March 1, 1922, and remained affiliated throughout the remainder of that year and the calendar year 1923.

Where petitioner, at the beginning of the year 1927, elected to report income on the installment basis instead of the accrual method which it had theretofore employed, held that in computing taxable income for the year 1927 respondent did not err in including payments received in 1927 on installment sales made during the years 1925 and 1926 although such payments were received under sales the total profit from which had been returned as income during the years 1925 and 1926.

The proceeds, in excess of $40,000 of insurance policies taken out by the decedent upon her life in 1898 and 1903, in which decedent reserved the right, which was never exercised, to change the beneficiaries, provided the policies were not assigned, it being made to appear that the policies were not assigned, held properly included in gross estate of the decedent under the Revenue Act of 1924. Louis M. Weiller et al.,18 B.T.A. 1121, followed.

Promissory notes executed April 15, 1919, secured by a life insurance policy, one note for $2,500 due two years from date, and the other note for $5,000, due four years from date, are not deductible in the year 1920 as debts ascertained to be worthless, where such notes were not charged off on taxpayer's income tax return for that year, and taxpayer kept no books of account.

- The commission paid in 1924 by the petitioners as lessors, for procuring a 99-year lease, held not to constitute a deductible expense in that year, but a capital expenditure deductible ratably over the term of the lease, notwithstanding petitioner was on a cash receipts and disbursements basis.

Special assessment granted.

1. TRANSFEREE. - Held, petitioner is liable as transferee under the facts. 2. Held: petitioner is liable as transferee under the facts. 2. LIMITATION. - The burden of proof to establish the plea of limitation is on petitioner, and where it is not shown when the return was filed, the plea of limitation must fail, for lack of evidence to support it. 3.

1. Held, the gifts here in controversy were not made in contemplation of nor intended to take effect in possession or enjoyment at or after the decedent's death, within the meaning of section 402(c)… Held: the gifts here in controversy were not made in contemplation of nor intended to take effect in possession or enjoyment at or after the decedent's death, within the meaning of section 402(c) of the Revenue Act of 1921. 2.

1. An employee of petitioner while driving its automobile had an accident resulting in an injury to another person, who brought suit and obtained judgment against him, which could not be collected in… Held: the amount of money so borrowed and used may not be deducted as an ordinary and necessary expense paid or incurred in the taxable year involved in carrying on the business of the petitioner and the Commissioner's action in disallowing such is approved. 2.

Fair market value of stock on April 28, 1926, determined for estate tax purposes.

1. Held that a certain payment of $25,000 was not the initial payment under the contract of sale here involved and that the sale may not be treated as an installment sale. 2. Held: further, that the sale was not a short sale.

Evidence examined and held not to establish any market value for a leasehold transferred to a corporation immediately after execution.

- Petitioner, an insurance company, writing both life and casualty insurance and whose reserve for life insurance contracts was less than 50 per cent of its total reserve and which was accordingly… Held: that such reserve constitutes unearned premiums within the meaning of sections 246(b)(5) of the Revenue Acts of 1921 and 1924.

Held, that petitioner's return should have been made on the basis of a fiscal year. Held: that petitioner's return should have been made on the basis of a fiscal year.

Held that the companies here involved were affiliated during the taxable years in question.

Cost and useful life of property determined.

In its income tax return for 1926, the petitioner deducted from gross income an addition to a reserve for bad debts in lieu of the debts ascertained to be worthless and charged off within the year. Held: that the petitioner is not entitled to deduct from gross income of 1926 an addition to a reserve for bad debts.

1. A transaction whereby one corporation agrees to sell, transfer and convey * * * certain fixed tangible assets for a sum certain, payable in cash and promissory notes, is a sale and not a reorganization within the meaning of section 203(h)(1)(A) of the Revenue Act of 1926. 2. Where a vendor receives more than one-half of the purchase price of certain property during a taxable period, the income realized from such a sale can not be reported on the installment basis.

1. INCOME - INTEREST - COMMUNITY PROPERTY. - Interest earned during 1923 upon moneys of the petitioner, a resident of Texas, deposited in banks in his name, is community income under the laws of Texas, Willcutt v. Willcutt,278 S.W. 236, and such interest should be reported for income tax purposes, one-half by the petitioner and one-half by his wife. Hopkins, Collector of Internal Revenue v. Bacon,282 U.S. 122. 2.

1. Loss sustained on the abandonment of bottling machinery allowed as a deduction. 2. Loss deduction claimed on a building disallowed in the absence of evidence proving loss of useful value.

1. In 1920, the petitioner purchased shares of stock in a corporation, which stock became utterly worthless in 1923. Held: that the petitioner's investment therein is a legal deduction from gross income of 1923 as a loss sustained in that year. 2. In 1920, 1921, 1922, and 1923, petitioner made advances to a corporation which became insolvent and voted to liquidate in 1923.

1. The taxpayer, a corporation organized under the laws of the State of Maine, engaged in business in Wisconsin, transferred all its assets, the most of which were located in Wisconsin, to… Held: that such waivers are invalid, and that assessment and collection against and from both the taxpayer and the petitioner, as transferee, are barred by the statute of limitation. 2. Held, upon the evidence, that petitioner is not estopped to deny the validity of the purported waivers.

Sale of stock by corporation to stockholders was a bona fide sale.

1. DEDUCTION - LOSS. - Petitioner's uncle's will created a trust and named petitioner and others as the beneficiaries thereof. Over a period of years while the trust was an active trust the property was completely absorbed by the payment of encumbrances thereon. The trust was terminated in 1924. Held, that petitioner did not sustain a deductible loss in 1924. 2. INCOME - JUDGMENT FOR DAMAGES. - On the basis of the rentals and income from a building which was the only asset of the corporation whose stock he purchased, the petitioner determined the amount he was willing to invest. The vendor breached its agreement by renewing certain leases without petitioner's knowledge and consent pending negotiations for the purchase and sale. Petitioner sued, and recovered in 1925 damages for such breach of contract. Held, that such amount did not constitute taxable income, but was a return of capital invested. 3. Id. - In 1925 petitioner received interest on said judgment from the date judgment was rendered to date of payment thereof. Held, that the interest constituted taxable income in that year.

1. Held, that petitioners' contention in regard to section 280 of the Revenue Act of 1926 is without merit. 2. Held: that petitioners' contention in regard to section 280 of the Revenue Act of 1926 is without merit. 2.

Held, that a $50,000 contribution made by the petitioner, the widow of William Northrup McMillan and legatee under his will, for the… Held: that a $50,000 contribution made by the petitioner, the widow of William Northrup McMillan and legatee under his will, for the purpose of effecting a final settlement of the estate of William McMillan, the father of William Northrup McMillan, who was a legatee under his father's will, is not deductible from gross income, either as an…

CAPITAL EXPENDITURE. - Petitioner's incorporators paid $9,337.07 for the tangible assets of a going concern and an additional $5,000 for which they acquired a Chevrolet dealer's contract, the going business, and the good will, if any, which were turned over to petitioner upon its incorporation. Held, that the $5,000 was not a deductible business expense, but a capital expenditure.

Held, that the evidence does not establish that $50,000 received by the decedent in 1923 from the Pond Creek Coal Company was a gift, and the amount should be included in gross income.

Petitioner and his wife were joint venturers and the respondent erred in including the wife's share of profits in petitioner's income.

1. Amounts expended for traveling and entertainment determined and allowed as ordinary and necessary business expenses. 2. Where a taxpayer at the close of the first year of its existence charges off its books debts ascertained to be worthless, and, in addition, sets up a reserve for bad debts, and the Commissioner allows the former and disallows the latter, the amount of the reserve account is deductible from gross income when proof is made that the aggregate of the two deductions taken is not in excess of a reasonable reserve for bad debts.

1. Period of limitation for 1922 begins to run from the date of filing of the completed return and not from date tentative return was filed. 2. Total compensation paid in 1922, 1923, 1924, and 1925 to stockholder-employees of the petitioner, held to be reasonable compensation for personal services actually rendered. 3.

1. Corporate stock owned by the petitioner became worthless in the taxable year and the cost thereof should be allowed as a deduction from gross income. 2. Cost of certain stock sold by the petitioner in the taxable year should be determined by charging the earliest sales against the earliest purchases in accordance with article 39 of Regulations 69.

Held that no interest in certain parcels of property ever passed to decedent under the terms of his father's will and that the value of such property should be excluded from the gross estate of decedent.

Held, that a certain contract was a contract of employment and did not create a partnership or relation of coownership of an enterprise.

Held, that petitioner, Detour Dock Company, was affiliated with Perry Iron Company and others. Held: that petitioner, Detour Dock Company, was affiliated with Perry Iron Company and others.

Held, that petitioner received no income on the liquidation of a coal company. Held: that petitioner received no income on the liquidation of a coal company.

1. Where petitioner and several others joined together in a group to buy and sell certain property in a joint venture, each contributing services or capital, petitioner is taxable only on his share of the profits. 2.

1. The amounts paid the petitioner under section 209 of the Transportation Act of 1920 held to be income within the meaning of the Constitution and taxable to it in 1920. 2. Compensation for the use of the petitioner's property during the period of Federal control allocated in conformity with decisions in Old Dominion Steamship Co.,16 B.T.A. 264; Kansas City Southern Railway Co. et al.,16 B.T.A. 665. 3.

Upon the evidence held that the purchase by petitioner in 1910 of a house which he used as a residence was not a transaction entered into for profit and that upon its sale in a subsequent year at a loss no deduction is allowable.

A broker's commission paid by the petitioner as lessor for obtaining a lease is not deductible in the year paid as an ordinary and necessary business expense, but is in the nature of a capital expenditure which is deductible pro rata each year as the lease is exhausted.

The respondent's disallowance of claimed deduction from petitioner's gross income for 1925 as ordinary and necessary business expenses of accountants' and attorneys' fees paid by petitioner in that year in contesting the assessment of Wisconsin State income taxes for the years 1918 and 1920 approved in the absence of evidence that the transactions giving rise to such assessments were incidents of petitioner's business.

1. Petitioner's father died November 10, 1912, leaving a will under the terms of which the residue of his estate was to be held in trust and the income paid to petitioner's mother… Held: that the basis to be employed in determining gain or loss on the sales was the fair market value of the shares on March 1, 1913. 2. In 1925 the petitioner sold certain securities a part of which came from his father's estate and a part of which were acquired subsequent to July 1, 1923.

Stock purchased in 1918 by the parent company of an affiliated group became worthless in 1924. During the years prior to 1924 the profits and losses of the two were reported in consolidated returns. Held: that the parent company is entitled to a deduction in 1924 on account of the stock becoming worthless. Riggs National Bank,17 B.T.A. 615, distinguished.

1. The value of shares of stock of J. B. Blood Co. for estate tax purposes determined. 2. Held: that no part of the value of those policies payable to other beneficiaries than the decedent's executors or his estate as to which the decedent had no right to change the beneficiary up to the date of his death should be included in the gross estate. 3.

1. Where, upon the sale of a business, title passed to the vendee and part of the purchase price was paid in cash and the remainder in Liberty bonds which were placed in escrow to be delivered to vendor in installments over a period of years upon the filing by him each year of an affidavit that he had not competed in business, held, although the transaction was closed in the year of sale, the right to the deferred payments was not the equivalent of cash and the installment payments were not income to the petitioner, the vendor, until received. 2. Held, further, that where petitioner failed to establish the cost of the business sold, the action of the respondent in including in petitioner's income the total amount received each year must be approved. 3. Amount of exemption from surtax of interest upon Liberty bonds determined.

1. Held that respondent has sustained the burden of showing that petitioner is liable as a transferee of a corporation by showing that petitioner withdrew assets of such corporation thereby rendering… Held: that assessment and collection against and from petitioner as transferee are not barred. Section 280(b)(3) of the Revenue Act of 1926. 4.

Held that certain alleged debts were not ascertained to be worthless in the taxable year.

A taxpayer who purchased unimproved real property in 1905 as an investment, and later subdivided it into lots, some of which were sold in 1923, is entitled to have his tax on the profit derived therefrom computed under the provisions of section 206, Act of 1921, regardless of whether or not he was a dealer in real estate.

A bank on cash receipts and disbursements basis may not deduct amount of bank-stock taxes which became a lien on the bank property in the taxable year but were not actually paid until a succeeding year.

Held that when unearned premium reserves of an insurance company are released to the general corporate uses they should be included in income.

1. A corporation of which the decedent was president and the principal stockholder voted the decedent a nominal monthly salary at the beginning of each of the years 1923 and 1924, and an additional large amount of salary based upon the financial condition of the company at the close of each year. The additional amount of salary voted in each year was paid to the decedent when the corporation was in funds to make such payment. The decedent made his income tax returns upon the cash receipts and disbursements basis. Held, that the decedent is taxable upon only the amounts of salary actually received by him during each of the years. 2. The corporation in 1923 issued to the decedent certain shares of its 6 per cent cumulative preferred stock at par value in payment of accumulated salary. At the hearing counsel for the respondent moved to increase the deficiency for 1923 by including in the decedent's taxable income for 1923 the par value of the shares of preferred stock paid to him as compensation. Held, that the par value of the preferred stock received in 1923 is taxable to the decedent as salary received in 1923.

1. INCOME. - Rents and income from property were impounded in the hands of a receiver during litigation to determine the true owner thereof. Held: that the receiver was a fiduciary who should have filed returns and paid the tax on such income. Held, further, that when the funds were released and paid over to petitioner in 1922, they were not an item of income to her in that year. 2.

1. The fair market value of shares of stock at the date of the death of the decedent determined. 2. Where a taxpayer in 1923 sold shares of stock for cash and bonds of another corporation, and the bonds have no readily realizable market value, the gain realized from the transaction is the excess of the cash received over the basis prescribed by the statute for computing gain or loss.

1. Amounts deductible from the gross estate as representing the value of property included in the value of the estate of a prior decedent who died within five years of the date of decedent's death determined. 2. Only such portion of the proceeds of insurance policies as was included in the prior estate is deductible in arriving at the net taxable estate.

Year in which loss sustained by partnership keeping its books and filing returns on accrual basis deductible by partners keeping books and filing returns on cash basis, determined.

Petitioner's transferror sold a tugboat in 1918 under a contract providing for a $50,000 down payment with a balance of $250,000 to be paid in 1919 and 1920, with interest on the unpaid balance and… Held: That the profit realized on said sale is taxable in 1918.

1. On December 19, 1922, decedent executed an irrevocable deed of trust by which he conveyed to trustees named therein his entire interest in… Held: that no part of the corpus of said trust may be included in the gross estate of decedent subject to the Federal estate tax. Reinecke v. Northern Trust Co.,278 U.S. 339. 2. Prior to his death, decedent subscribed $5,000 to the Welfare Federation of Philadelphia, a community chest, in consideration of the subscriptions of others.

1. Held that the petitioner's two daughters were members of the partnership of W. H. Simmons & Company. 2. Respondent's determination that the rentals on certain buildings were income to the petitioner disapproved.

Fraud charge abandoned by the respondent; petitioner's claim for a 50 per cent charge-off of a certain claim due a partnership in which he held a one-half interest disallowed.

The statute of limitations has not tolled the petitioner's liability for income and excess profits taxes for the year 1917.

The petitioner is entitled to have its tax liability recomputed in accordance with the provisions of section 328 of the Revenue Act of 1921.

1. Depreciation of petitioner's plant and operating equipment should be computed on a unit-of-production basis. 2. Depletion of a gravel deposit based on discovery value is disallowed. Parker Gravel Co.,21 B.T.A. 51, followed.

Basis determined for depletion of lead and zinc mine.

Loss on sale of property disallowed for insufficiency of evidence to establish the cost thereof.

1. BAD DEBTS. - Loans made by a bank in the regular course of its business, where it is not shown that the proceeds of the loans went to the president of the bank, who was responsible for making them, and where the loans are evidenced by notes bearing interest and which are carried as assets, are debts and not losses, and must be ascertained to be worthless and charged off during the taxable year in order to be deductible. 2. LOSSES RATHER THAN BAD DEBTS. - Upon the evidence, held, that certain transfers of money to the Olymphia Oil Corporation by the president and minority stockholder of the petitioner, who was, himself, the sole stockholder in the Olymphia Oil Corporation, the latter corporation being insolvent at the time the loans were made and at all times thereafter amounted to a fraudulent appropriation of the petitioner's funds and the losses suffered by the petitioner on account thereof were deductible as losses sustained during the taxable year 1921, instead of as debts ascertained to be worthless and charged off in subsequent years.

1. Where the taxpayer and others transferred their interests in certain oil royalties to a common law trust and received in payment therefor beneficial units in the common law trust, and subsequently the common law trust conveyed the oil and gas royalties to a corporation in exchange for its capital stock, to be distributed to holders of beneficial units in the same proportion as they were holders of beneficial units in the common law trust, and the taxpayer subsequently…

A home for nurses, the primary purpose of which was to operate a registry but which also provided rooms and meals for nurses, held, upon the evidence not to be a corporation organized and operated… Held: upon the evidence not to be a corporation organized and operated exclusively for charitable or educational purposes and a contribution thereto is not deductible.

- Where in 1922 the taxpayer's husband made her a gift of a one-half interest in the fee of oil-bearing property, depletion is based upon the fair market value of the property at the time she received it, and not upon discovery basis or cost to donor, under the Revenue Act of 1921.

Deductions for depreciation, allowed by respondent in connection with the determination of deficiencies for 1926 and 1927, approved for lack of evidence to show error. Proximity Manufacturing Co.,18 B.T.A. 691.

An amount expended for a new brick foundation to a building, occasioned by an excavation on adjoining property, held not deductible as an ordinary and necessary business expense or as a loss.

Petitioner's claim for depreciation disallowed for failure of proof.

Amount voted by directors of corporation to petitioner in 1925, payment to be made at such time as in the opinion of the directors the corporation's cash position will permit, was accrued on books of… Held: on the evidence, the amount was not constructively received by petitioner in 1925.

A corporation was organized in 1921 to engage in the manufacture and sale of silk and other products and took over the assets and assumed the liabilities of a silk-manufacturing company. Held: that the amount of $112,500 received in 1923 by the petitioner as a stockholder of the dissolved corporation, which sum is not in excess of the cost of his stock, was a distribution of capital and is not taxable as a dividend under the Revenue Act of 1921.

Year in which stock became worthless and resulting loss determined.

A petitioner must prove by competent evidence the pertinent and vital facts essential to a decision favorable to his contentions. A decision can not be based on assumption and speculation.

1. Held that by the terms of a certain agreement the parties thereto became joint venturers. 2. Held: further, that an agreement constituted an executory contract of sale and payments pursuant thereto did not become income until an unconditional liability was created on the part of the vendee.

1. Ownership of an oil and gas lease determined. 2. The El Dorado Syndicate was not an association taxable as a corporation. 3. The respondent properly imposed a delinquency penalty against the petitioner, Coulter, for 1926.

Where a corporation assigns property to its majority stockholder without consideration and the stockholder, within the same year, 1919, reassigns such property to the corporation, the transaction falls within the provisions of the section 331 of the Revenue Act of 1918 and there is no addition to the invested capital of the corporation.

1. The Board of tax Appeals may consider and decide proceedings under section 280 of the Revenue Act of 1926. Held: further, that the petitioners, who were stockholders of the corporation and shared in the distribution of the income, in the circumstances are liable respectively under the provisions of section 280(a) of the Revenue Act of 1926 for the unpaid tax of the corporation, to the extent of the portion of such income received by each.

1. Verification of petition in an appeal proceeding is not a matter of jurisdiction and where the petition is signed by petitioner's attorney of record and verified by an officer of another corporation which owns all the capital stock of petitioner and where the respondent has filed his answer, a motion by the petitioner at the hearing to dismiss the appeal for lack of jurisdiction, will be denied. 2.

1. Verification of petition in an appeal proceeding is not a matter of jurisdiction and where the petition is signed by petitioner's attorney of record and verified by an officer of another corporation which owns all the capital stock of petitioner and where the respondent has filed his answer, a motion by the petitioner at the hearing to dismiss the appeal for lack of jurisdiction, will be denied. 2.

Held, the petitioners were not affiliated during the years 1918, 1919, and 1920, within the meaning of section 240(b) of the Revenue Act of 1918. Held: the petitioners were not affiliated during the years 1918, 1919, and 1920, within the meaning of section 240(b) of the Revenue Act of 1918.

Waivers executed by petitioner, to which the Commissioner's name was affixed by employees in the Bureau of Internal Revenue or in the office of the Collector at the direction of persons authorized by the Commissioner to sign his name, are valid and extend the statutory period.

Waivers executed by the decedent, to which the Commissioner's name was affixed by employees at the direction of persons authorized by the Commissioner to sign his name, are valid and extend the statutory period.

Waivers executed by the decedent, to which the Commissioner's name was affixed by employees at the direction of persons authorized by the Commissioner to sign his name, are valid and extend the statutory period.

Cost of a lease determined for exhaustion purposes.

When a stockholder of a corporation assumes and pays an obligation due such corporation for the purpose of protecting it from suit and probable bankruptcy, such payment is not a deductible loss in the year in which it is made.

1. In a sale of stock in a corporation, basis of gain or loss under Revenue Act of 1921, is the cost of the stock.

Where a mother makes a valid transfer of leasehold interests in her land to her daughters and the daughters later sell such interests, the income resulting from such sales is not taxable to her.

Gain from repossession of real estate by cancellation of purchase money note secured by mortgage on the property determined in conformity with Henry Heldt,16 B.T.A. 1035.

1. When a taxpayer claims a deductible loss resulting from the sale of stock he must show ownership, cost, sale and selling price thereof. On the facts of record herein the petitioner has failed to prove any deductible loss from the disposition of certain stock of which he surrendered custody in the taxable year. 2.

In 1925 the decedent sold real estate receiving in payment therefor two 10-year bonds of the vendee secured on the property sold. Held: that the transaction was not an installment sale of real estate with thin the meaning of section 212(d) of the Revenue Act of 1926.

Petitioner's decedent, while president and director of a bank, paid in a substantial sum to prevent the closing of the bank following embezzlement by the treasurer. Held that the amount paid is not deductible either as a loss or bad debt. B. Estes Vaughan,17 B.T.A. 620, followed.

Held that the original return for the calendar year 1917, filed on May 16, 1918, by the husband of the petitioner, who was a resident of and domiciled in the State of New Mexico, in which he reported all the income of himself and wife (petitioner in this proceeding), and the wife filed no separate return, is the joint return required by law and that the statute of limitations began to run on the day following the filing of the original return, and its running can not be in…

1. The terms "sale" and "exchange" are to be applied to promote the intendment of the taxing act, and, while for other purposes they may be interchangeable, for its own purposes the revenue act applies the word "sale" to a transaction in terms of money. 2. Petitioner agreed to "sell, transfer and deliver" its property to another corporation and to distribute its assets among its stockholders and dissolve. At the same time its stock was surrendered and the purchase price was paid to petitioner, and, after payment of debts, the remainder was distributed to its stockholders. Neither petitioner nor its stockholders acquired any stock of the purchasing corporation. Held, that the transaction was a sale for cash, upon which the gain or loss, based on cost of property acquired after March 1, 1913, must be recognized under the Revenue Act of 1926.

A corporation which, in order to reflect on its books ascertained appreciation in value of its assets, issues bonds to its stockholders in proportion to their stockholdings, and subsequently purchases part of the bonds for less than their face value, realizes no taxable gain.

1. In all cases before the Board, the primary issue is the correctness of the ultimate determination of deficiency, and the usual presumption of correctness of the Commissioner's determination is not destroyed by the reason given, even if it be unsound or badly expressed. 2. Where a corporation, after consummating a sale of its assets under a contract requiring it promptly to take steps to dissolve, declares and pays a dividend many times greater than the usual annual rate from the cash received from the sale, and the evidence clearly indicates that sale, liquidation and dissolution were the dominating considerations from the time the offer to purchase was made and subsequent activities were not in ordinary course of carrying on business for current profit, the distribution will be treated as one in liquidation. 3. The activities of the corporation in disposing of finished goods and goods in process for a brief period after the sale of the other assets, including the purchase and sale of a substantial quantity of new material, were within the contemplation of the agreement to dissolve and were consistent with rather than a departure from the plan of liquidation. 4. Neither the question whether the particular distribution reduced assets below the par value of outstanding shares - "impaired capital," nor the designation of the distribution in the corporate resolution, is determinative of its character; and the fact that a mere resolution to dissolve is insufficient under the State law to bring about a state of dissolution is not important. 5. The distribution in question was "one of a series in complete cancellation or redemption of all or a portion of [the corporation's] stock," within section 201(h), Revenue Act of 1926.

1. Petitioner was organized in 1914 for the purpose of acquiring certain bonds owned by another corporation and in that year it issued its entire stock, except qualifying shares, in exchange for such… Held: that the basis for determining gain or loss from subsequent sales of the bonds, under the Revenue Act of 1926, was cost to the petitioner, i.e., the value of the stock measured by the stipulated value of the bonds received therefor. 2.

- In 1918 the decedent loaned his wife $100,000 to be used as collateral and she gave him her note in that amount payable to him on demand with 6 per cent interest. Held: that decedent was entitled to a bad debt deduction of said amount in 1920, pursuant to section 214(a)(7) of the Revenue Act of 1918.

Certain sums paid by petitioner's decedent in 1923 and representing legal expenses incurred in unsuccessfully defending a suit brought against him to void a contract whereby he was attempting to secure control of a corporation by acquisition of 160 additional shares of stock, held to be deductible from gross income as a loss sustained in that year.

The petitioner in 1919 issued to certain of its stockholders shares of its capital stock of the par value, and actual value, of $71,000, as a consideration of their guaranteeing the payment, both of… Held: that the value of said shares of stock represented an expense of the sale of said bonds which should be amortized and deducted from income ratably over the life of the bonds.

Where petitioner, a corporation, issued the majority of its shares of stock to a corporation from which it had received certain property, but such corporation immediately transferred a part of such… Held: that section 331 of the Revenue Act of 1921 should not be applied to limit the amount to be included in petitioner's invested capital on account of the assets which petitioner had received from such corporation. H. L. Neuman Co. et al.,16 B.T.A. 533, followed.

The evidence is not sufficient to establish the petitioner's right to any greater deductions for exhaustion, wear and tear of patterns than those allowed by the respondent.

1. The respondent's determination as to the amount at which certain tracts of land acquired by the petitioner in 1869 for shares of its capital stock should be included in invested capital for 1920… Held: that the petitioner's invested capital for 1920 and 1921 should not be reduced by the amount of said depreciation sustained during the years 1901 to 1919, inclusive. H. Northwood & Co.,4 B.T.A. 697, followed. 3.

GAIN OR LOSS. - The basis for determining gain or loss on the sale in 1923 by an executor of assets of an estate received by him in 1922 held to be the value of such assets as of the date of the testator's death.

Inasmuch as the evidence failed to establish that the partnership of which petitioner was a member was entitled to any greater deduction than was allowed by the respondent for depreciation or on account of the cost of office equipment, and since certain alleged bad debts were not ascertained to be worthless within the taxable year, the action of the respondent in increasing petitioner's income derived from the partnership is approved.

1. Amount expended for the preparation of a sketch showing desirable improvements on land being held for sale, held to be deductible as an ordinary and necessary business expense. 2. Fees paid for preparing plans and specifications for the construction of buildings disallowed as deductible losses because of failure to show that the projects were abandoned in the taxable year.

A net loss sustained in 1923 by one member of an affiliated group may not be deducted in computing net income of the other member in 1925, for which year it filed a separate return.

The evidence fails to establish that petitioner bought good will in connection with a business acquired in 1920, and a loss claimed to have been sustained upon the sale of the business and good will in 1925 at less than cost is disallowed.

Waivers signed by a former officer of a dissolved corporation, after dissolution, and without authorization to act for the corporation, held invalid to extend the statutory period for assessment against the corporation.

The evidence, consisting, among other things, of an instrument executed by a decedent declaring himself trustee of part of his interest in a partnership for the benefit of his wife and daughters, for life, a declaration of intention to make a gift to them of an interest in a separate business owned entirely by him, and detailed facts concerning the extent of the donees' participation in the conduct of the businesses, and the method of keeping accounts and distributing…

NET LOSSES. - Statutory net losses sustained by the petitioners in the calendar years 1923 and 1924, during which time they were affiliated but filed separate returns, held, to be proper deductions… Held: to be proper deductions in arriving at the consolidated net income of petitioners for 1925 and 1926, in which years they filed consolidated returns.

Where in the sale of real property at a purchase price of $32,000 the petitioner receives initial payments of $8,040 and pays back to the purchaser $458.52, the amount of mortgage interest, taxes, and assessments, together with interest thereon, accruing up to the date of sale, which were liabilities of the petitioner, the initial payment is not reduced thereby, and, being in excess of one-fourth of the purchase price, the income from the sale can not be reported upon the…

Where a corporation and its stockholders owned from 87.7 per cent to 92.7 per cent of the stock of another corporation for the years 1924 to 1927, inclusive, the corporations were not affiliated.

1. Where a corporate taxpayer filed no income and profits tax return for the fiscal year ended March 31, 1920, the statute of limitations has not run to bar assessment and collection even though the… Held: that the amounts so spent and charged to expense in the years in which spent are not includable in invested capital. 3.

Where distributions are made to heirs during the period of administration of an estate and in the year of distribution the estate had receipts from the sale of capital assets and receipts of income and the Commissioner determines that a portion of the distributions is from income, and the evidence does not show to the contrary, the Commissioner's determination will not be disturbed.

- In a proceeding reported in 6 B.T.A. 1149, this petitioner brought before us for redetermination the matter of its tax liability for its fiscal years ended March 31, 1918, and March 31, 1920, and… Held: the inventories of March 31, 1921, and March 31, 1922, should be valued at cost and any net loss for the year ended March 31, 1922, found by the use of inventories so valued, may be carried forward and deducted in the next two succeeding years, as provided in the statutes.

1. Transaction here involved held to have been a bona fide purchase of stock by petitioner and the subsequent sale at a lower price resulted in deductible loss. 2. Amount of deductible loss determined under the rule in Riggs National Bank,17 B.T.A. 615.

1. During 1920 and 1921 petitioner was engaged in the business of electrical construction as an independent contractor, and considerable amounts of capital were necessarily used in fulfilling such… Held: petitioner was not entitled to classification as a personal service corporation. 2.

In March, 1919, the decedent conveyed to trustees certain property to hold in trust for the benefit of his children and their issue, to pay the income from said property to said children and their… Held: that no part of said property transferred to said trustees should be included in the estate of the decedent subject to the Federal estate tax.

Commissions on renewal insurance premiums paid to the assignee of petitioner held to be taxable to the assignor.

Compensation of petitioner under a construction contract with the State Hospital at Raleigh, N.C., is not exempt from tax.

1. The respondent's action in holding that the earnings of a partnership firm belonged in equal shares to two members, and not five, sustained. 2. Held: in Docket No. 29501, that the evidence sustains the allegations of fraud in respect to the filing of the returns for all of the years involved.

Held, that petitioner's racing stable was undertaken and operated as a business and that losses sustained are deductible from income. Held: that petitioner's racing stable was undertaken and operated as a business and that losses sustained are deductible from income.

Royalties received by petitioners under provisions of a long-term lease of Minnesota ore lands are income to petitioners and not payments on account of the corpus of the estate, the character of the royalties not being altered by reason of having been obtained through bequest or inheritance.

1. On March 1, 1920, the petitioner's properties were turned back to it by the Director General of Railroads in an undermaintained condition. Held: that only $3,263,523 of the maintenance expenditures for 1920 should be disallowed on this account. 2.