Volume 22 — Tax Court Reports

From January 1, 1944, through the taxable year 1947 the petitioners were members of a partnership which reported its income on the cash basis. Held: respondent's inclusion in the partnership income for 1947 of accounts receivable which had accrued in prior years is not authorized by law or by regulation. E. S. Iley, 19 T. C. 631, overruled. Caldwell v. Commissioner, 202 F. 2d 112, and Commissioner v. Dwyer, 203 F. 2d 522, followed.

The petitioners made their returns on the cash basis. The petitioners' business required the use of inventories. Held: the petitioners' books and records were kept on an accrual basis and petitioners' net income should be computed on that basis for the taxable year, and the respondent's determination is in error because it was not computed on an accrual basis. Commissioner v. Dwyer, 203 F. 2d 522, and Caldwell v. Commissioner, 202 F. 2d 112, followed.

Cash payment in amount of accumulated shares of film rentals held, ordinary income, not capital gain. Held: ordinary income, not capital gain.

1. Sec. 107 (a), I. R. C. -- Joint Return -- Split Income. -- The tax on long-term compensation of a husband included in a joint return for 1948 is computed by splitting it and attributing one-half thereof to the earning years as his wife's income and one-half as his own. 2.

Decedent, at the time of her death, was trustee of $ 15,000 for her son and $ 15,000 for her daughter. Held: the claims of the son and daughter were valid and enforceable ones which were paid by their taking as residuary legatees under decedent's will; and the estate was entitled to a $ 30,000 deduction therefor under section 812 (b) (3) of the Code.

Petitioner's average base period net income increased over the amount determined by respondent in his partial allowance of petitioner's applications for relief under section 722 (b) (4), Internal Revenue Code, by reason of a change in the character of its business to which petitioner was committed prior to January 1, 1940.

Petitioner held entitled to relief under section 722 (b) (4), Internal Revenue Code, by reason of a change in the character of its business during the base period years. A constructive average base period net income is determined from the record.

1. Depletion -- Percentage -- Gross Income From the Property -- Economic Interest of Separate Miner -- Sec. 114 (b) (4) (A), I. R. C. -- Regs. 111, Sec. 23 (m)-1 (f). -- A percentage of gross sales less rents, royalties, and sales commissions, paid to a separate entity for mining, producing, transporting, and loading coal from leased premises must be excluded from the gross income from the property of the lessee in computing percentage depletion of the lessee.

Petitioners undertook to transfer a franchise to sell automobiles to a corporation in return for all of the stock of the corporation and the corporation's promise to pay to them 50 per cent of its… Held: amounts received pursuant to the corporation's promise were in fact disguised dividends and taxable as such.

Transaction between husband and wife terminating their interests in community property by a settlement agreement embodied in a divorce decree was tantamount to a sale by the wife of her interest in certain community assets upon which a gain was realized, rather than a mere partition or division of community property. C. C. Rouse, 6 T. C. 908, followed. Frances R. Walz, Administratrix, 32 B. T. A. 718, distinguished.

1. The petitioner was married and owned an oil and gas business on July 26, 1945, the effective date of the Oklahoma community property law. Held: for carry-back purposes the portion of the loss resulting from the cancellation of leases, which were property acquired by petitioner prior to July 26, 1945, was his loss, and the remainder, in the absence of any evidence tracing all or some portion of it to property acquired by him prior to that date, was a community loss as…

Held: 1. On the facts, decedent reserved a power to alter or amend the provisions of an inter vivos trust so as to cause inclusion of the value of the corpus of the trust in his gross estate under… Held: On the facts, decedent reserved a power to alter or amend the provisions of an inter vivos trust so as to cause inclusion of the value of the corpus of the trust in his gross estate under section 811 (d), Internal Revenue Code.

Under a separation agreement which was embodied in the decree of divorce petitioner received certain payments from her former husband. Held: as applied to petitioner the tax was levied upon income within the meaning of the Sixteenth Amendment to the Constitution; the payments received from both her former husband and his estate were includible in petitioner's gross income under section 22 (k), Internal Revenue Code; and petitioner is not liable for the addition to tax…

Estate Tax -- Marital Deduction, Sec. 812 (e) (1) (A), I. R. C. -- Life Estate or Other Terminable Interest, Sec. 812 (e) (1) (B), I. R. C. -- The decedent and his wife owned United States savings… Held: the interest passing to the surviving spouse was a terminable interest and no marital deduction was allowable under section 812 (e) (1) (B).

In January 1946, petitioner obtained a divorce from her then husband, Alfred William Barteau, in a New York Supreme Court. Held: amounts paid petitioner in 1947 by her former husband, being solely for the support of petitioner's three minor children, are not includible in her income. Margaret Rice Sklar, 21 T. C. 349, followed. Robert L. Daine, 9 T. C. 47, affd. (C. A. 2) 168 F. 2d 449, and Peter Van Vlaanderen, 10 T. C. 706, affd.

1. Partnership Estate -- Deductions. -- Under State law, upon death of a partner the business was administered as a partnership estate in the Probate… Held: that certain expenses, including administrator's fees, attorneys' fees, court costs, etc., incurred in the administration and approved by the Probate Court, and being reasonable in amount, were deductible as ordinary and necessary expenses of the partnership. Section 162 and section 23 (a) (2), Internal Revenue Code. 2.

1. Assessments on stock, under the circumstances, constitute additional cost of the stock. No proof was made that the stock became worthless in 1948. 2. Held: on the facts, that cost of the elevator was a capital expenditure, and assuming that it was not, the amount is not deductible as a medical expense.

Petitioner manufactured coin-operated music boxes in 1946 and 1947. In 1946 it ceased manufacturing 5-cent boxes, and planned to manufacture boxes that could be operated by a nickel or a dime. Held: respondent did not err in his determination since that portion of the inventory write-down disallowed had not become obsolete by the end of 1946.

Estate Tax -- Transfer in Contemplation of Death -- Transfer in Trust With Reservation of Life Estate -- Sec. 811 (c) (1) (A), I. R. C. -- A transfer in trust of a large part of the grantor's assets with a life estate retained by the grantor and remainder to benefit her children and their issue was not made in contemplation of death. Welch v. Hassett, 90 F. 2d 833, followed.

In 1949, petitioners sold their manufacturing plant to the State of California under threat of condemnation. Held: repayment of the loan was a sufficient tracing of the award money into the replacement property to meet the requirements of section 112 (f) of the Internal Revenue Code, and gain is recognized only on the $ 48,823.70 which petitioners did not spend in acquiring or improving such replacement property.

Lessor, on the cash basis, agreed in lease contract to contribute a specified amount toward the cost of improvements to be made by lessee on leased premises, one-half of such contribution to be… Held: amounts thus withheld by lessee from rents constituted taxable income to lessor during the years involved.

Relief allowed petitioner under section 722, Internal Revenue Code, on showing that its department store sales and profits were depressed during the base period by a long and severe drought which seriously curtailed the purchasing power of petitioner's customers. Petitioner's average base period net income reconstructed on the evidence of record.

Assuming, without deciding, that income attributable to the natural growth of timber after the acquisition thereof is income from the development of tangible property within the meaning of section 721 (a) (2) (C) of the Internal Revenue Code, as petitioner contends, its claim that income received by it in the taxable years which did result from the growth of timber in prior years was abnormal income attributable to the years in which such growth occurred, must still be…

Where petitioner contracted to authorize his name to be used as a trade-mark for a term of years in return for payments based on sales and thereafter in 1949 consented to the use… Held: such consent is not a transfer of the perpetual right to use his name as a trade-mark; (2) the substance of the entire transaction is a license, not a sale; and (3) amounts received in 1949 and 1950 based on sales of products are ordinary income, not proceeds from the sale of a capital asset.

Petitioner, shortly prior to its base period, introduced a new type of garment in its manufactured line; brought about a change in method of retail selling from office fittings of its garments to… Held: only the introduction of the new garment constituted a change in the character of the business within the meaning of section 722 (b) (4), Internal Revenue Code. Petitioner's constructive average base period net income determined.

Petitioner, in 1948, received alimony from her former husband for her own care and support, as well as for the care and support of their two minor children. Held: the amount received by petitioner in 1948 is includible in her gross income under section 22 (k), Internal Revenue Code. Dora H. Moitoret, 7 T. C. 640, followed. Robert W. Budd, 7 T. C. 413, affd. 177 F. 2d 198, distinguished.

Recovery Exclusion -- Bad Debt -- Amount Which Did Not Reduce Tax -- Loss Shown on Return Controls -- Sec. 22 (b) (12) (D), I. R. C. -- The amount of the bad debt charge-offs which did not reduce the tax for the year of the charge-off is determined from the return filed by the taxpayer for the year and tacitly approved by the Commissioner and cannot be increased by considering additional deductions and exclusions which could have been but were not shown on the return.

Exemption -- Dependent -- Gross Income -- Support -- Sec. 25 (b) (1) (C) and (3), I. R. C. -- No exemption for a dependent is proper where it does not appear that the gross income of the alleged dependent was less than $ 500 or that she received more than one-half of her support from the petitioner.

1. Income Deduction -- Retirement of Bonds -- Expense or Cost of New Issue. -- The unamortized cost of issuance and the cost of retirement are deductible when bonds are unconditionally called and the debt is paid in cash even though in a separate transaction a new issue is sold at about the same time to the holders of the old bonds. 2.

Sec. 22 (a), I. R. C. -- Payments for Research -- Income. -- The University of Maryland received funds from the National Institutes of Health of the United States Public… Held: that there is no evidence that the fellowship payments were intended to be gifts. Held, further, that the fellowship payments were compensation for petitioner's services; that the payments constituted income under section 22 (a); and that the payments were not exempt from tax under section 22 (b) (3).

Addition to tax for substantial underestimate of estimated tax as sole basis for issuance of statutory notice of deficiency held proper determination of a deficiency within meaning of section 271 (a) so as to confer Tax Court jurisdiction under section 272 (a) (1), Internal Revenue Code.

Petitioner and her husband resided together in California prior to June 1947; thereafter, they lived apart. He continued to reside in California during 1948; she moved to Iowa in October of that year. Held: petitioner must include one-half of her husband's California earnings in her gross income for 1948 as community income. 2.

1. Petitioner was engaged in the cattle business as a cattle feeder; he purchased calves and yearlings which he fed for 9 to 18 months… Held: that although the petitioner is on a cash basis, he is required, nevertheless, by Regulations 111, section 29.22(a)-7 to defer deduction of the cost of cattle until the year of sale. 2. Petitioner sold cattle in 1945 and 1946 which were purchased prior to 1945, and the cost thereof deducted by the petitioner in the year of purchase.

1. Detroit Bankers was a holding corporation which owned no substantial assets except its stock in First National and certain other… Held: that the amounts of the assessment paid by the petitioners constituted an additional cost to them of their stock in Detroit Bankers; and held, further , that since, after receipt of distributions, there remained a substantial portion of their total cost of such stock which had not effected an offset in taxable income, they realized…

Capital Assets. -- Sec. 117 (a) (1), I. R. C. -- Executor Liquidating Furs of a Retail Store. -- Auction and bulk sales of furs made by executors of retail fur dealer were of capital assets and produced capital gains.

Petitioner corporation was organized to prepare and publish a widely accepted system for indexing library collections. Held: petitioner is entitled to exemption under section 101 (6) of the Internal Revenue Code as an educational organization.

The interlocutory and final decrees of divorce granted petitioner's former wife incorporated by reference a property settlement agreement which provided that petitioner pay her $ 270 a month alimony… Held: that petitioner has not shown that there was a material reduction in his earning capacity within the contemplation of the settlement agreement and the divorce decrees.

Divorce -- Periodic Payments -- Secs. 22 (k) and 23 (u), I. R. Held: the payments were in consideration for the wife's release and transfer of her community property interest in certain stocks and were not in the nature of support payments or in lieu of alimony. Thomas E. Hogg, 13 T. C. 361, distinguished.

1. Taxpayer arranged to open stock and commodity trading accounts with a broker in the names of each of eight relatives. Held: that taxpayer is accountable in full for the profits derived from the capital furnished by him.

Held, that total distributions out of retirement fund paid in one taxable year to petitioners on account of their separation from the service of their employer upon sale of employer's… Held: that total distributions out of retirement fund paid in one taxable year to petitioners on account of their separation from the service of their employer upon sale of employer's business, are to be treated as long-term capital gain pursuant to Internal Revenue Code section 165 (b).

Held, the reorganization here in question meets the requirement of section 112 (b) (5) of the Revenue Act of 1934 that the stock and securities received by each transferor be substantially in… Held: the reorganization here in question meets the requirement of section 112 (b) (5) of the Revenue Act of 1934 that the stock and securities received by each transferor be substantially in proportion to his interest in the property prior to the exchange.

1. In an earlier proceeding between the parties herein, involving the same partnership arrangement for the years 1942, 1943, and 1944, this Court held in an unreported Memorandum Opinion,… Held: the decision in the prior proceeding operates as collateral estoppel against the present proceeding. 2. Petitioners have not sustained their burden of proof to show that profits from the sale of cows is entitled to capital gain treatment under section 117 (j), Internal Revenue Code.

1. Following his retirement from the employment of Ford Motor Company, of which for a number of years he had been executive vice… Held: that the options were granted to petitioner as compensation; further, held, that the selling price of the options represented income to petitioner taxable as compensation and not as capital gain for the years in which the options were sold; and, further, held, that the income from the sale of the options may not be reported as income…

Held, petitioners were bona fide residents of China during the entire year 1948.

Petitioner, having failed to show that its average base period net income was an inadequate standard of normal earnings because of any of its alleged changes in the character of its business under… Held: not entitled to relief under that section.

1. The unexpired portion of the statute of limitations remaining at the time the deficiency notice was mailed may be carried over and added to the 60-day period allowed in section 277 of the Internal Revenue Code for the purpose of assessing a taxpayer for income taxes. Olds & Whipple, Inc. v. United States, (Ct. Cl.) 22 F. Supp. 809, followed. 2.

1. Petitioner was the sole owner of a wholesale whiskey business known as Royal Distillers Products. Held: the purported transfer was a sham, and petitioner is accountable for the income from the business. 2. Petitioner bought and sold whiskey on the black market. The greater portion of overceiling payments received by him was in turn used to pay overceiling prices to his suppliers.

Trust formed to hold property on behalf of former corporate shareholders pending discharge of mortgage liability thereon held, on facts, not conducting business and hence not taxable as a corporation… Held: on facts, not conducting business and hence not taxable as a corporation so as to result in realization of capital gain by beneficiary upon termination of trust.

1. Excess Profits Tax -- Net Operating Loss Carry-Back -- Accounting -- Accrual Year. -- A taxpayer using an accrual method of accounting for and reporting its income may not deduct excess profits taxes for 1943 paid in 1944 for the purpose of computing a 1944 net operating loss. Lewyt Corporation, 18 T. C. 1245, and Hunter Manufacturing Corporation, 21 T. C. 424, followed. 2.

In a prior proceeding, reported at 17 T. C. 786, it was held that certain additional rent was income to the petitioner, reporting income on the accrual basis, for the year with respect to which it… Held: that section 3801 of the Code is not applicable and that assessment of the deficiencies is barred by the expiration of the period of limitations.

Petitioners, beneficiaries of an estate, for 3 years prior to the taxable year authorized the executors-trustees to withhold distribution to them of income to which they were then entitled, to create… Held: that the petitioners were entitled to deduct on their individual returns in the taxable year, as taxes paid by them, their proportionate part of such fund used in the taxable year by the executors to pay such taxes.

Petitioner, a wholly owned subsidiary, received advances from its parent. The parent paid purchase invoices and petitioner deposited sales proceeds to parent's account. Held: the indebtedness was not evidenced by a note and was not borrowed capital within the meaning of section 719 (a) (1), Internal Revenue Code.

Estate Tax -- Marital Deduction -- Sec. 812 (e) (1) (F), I. R. C. -- No marital deduction is allowable under section 812 (e) (1) (F) of the Code where a decedent left property in trust, the income to be paid to his wife for life and she to have the power to take down the corpus, but with the proviso that she was to lose the power to take down corpus and all of the income did not have to be distributed to her, if she became legally incapacitated or a guardian, conservator, or…

1. Insured, prior to his death, made an election that payments to beneficiary under life insurance policy be made in 180 monthly installments of $ 106.80. Held: payments under new policy were amounts received as an annuity under an annuity * * * contract and excludible from gross income only to the extent provided in section 22 (b) (2) of the Internal Revenue Code. 2.

1. Held, that the deficiency notice dated September 15, 1950, relating to 1946, 1947, and 1949, involved in Docket No. 31657, addressed to… Held: that the deficiency notice dated September 15, 1950, relating to 1946, 1947, and 1949, involved in Docket No. 31657, addressed to W. Cleve Stokes and Alice Hill Stokes and which followed a second jeopardy assessment made on or about August 31, 1950, against petitioners was a valid deficiency notice and we have jurisdiction to hear…

In 1947, petitioners formed a partnership for the practice of medicine. They organized a nonprofit corporation which operated a private hospital, Collinwood Hospital. Held: that the amounts of the payments constituted ordinary and necessary business expenses of the medical partnership under section 23 (a) (1) (A) of the Internal Revenue Code. Interstate Transit Lines v. Commissioner, 319 U.S. 590, distinguished.

In 1945, 1946, and 1947, petitioner was granted options to purchase his employer's stock. When petitioner received the stock in 1946 and 1947, its fair market value exceeded the option price. Held: petitioner received no taxable compensation in 1946 and 1947 upon receipt of the stock. T. D. 5507, 1946-1 C. B. 18, and I. T. 3795, 1946-1 C. B. 15, to the contrary, are not justified by Commissioner v. Smith, 324 U.S. 177 (1945).

1. Conviction for income tax evasion on plea of nolo contendere held admissible to impeach a witness. 2. Held: on facts, not to be compensation for services. 3. Petitioner's gross understatement of income accompanied by other circumstances held, on facts, to constitute fraud with intent to evade tax. 4.

1. A. W. SoRelle (referred to as SoRelle) was a farmer and rancher who used a hybrid method of accounting, to wit, cash receipts and disbursements… Held: Use of a hybrid accounting method, as he used it, is improper; the accrual method more clearly reflects SoRelle's income and must be used by him. Receipts for 1945 sales collected and reported by SoRelle in 1946 may not be included in his 1946 income computed on the accrual basis. David W. Hughes, 22 T. C. 1, followed.

Petitioner's excessive profits for years 1942, 1943, and 1944 were settled by bilateral agreements. Held: on respondent's motion to dismiss that this Court has no jurisdiction of the action.

During 1949, petitioner earned and was paid $ 7,350 from sources without the United States while an accountant employed by Lockheed Aircraft Overseas Corporation at the Keflavik Airport, an… Held: petitioner was a bona fide resident of Iceland throughout the taxable year 1949 and the $ 7,350 is exempt from tax under section 116 (a) (1), Internal Revenue Code. Michael Downs, 7 T. C. 1053, affd. (C. A. 9) 166 F. 2d 504, certiorari denied 334 U.S. 832, distinguished.

Deductions -- Interest. -- Interest on loans on life insurance policies which the insurer was bound to deduct from settlement of the policies on death of the insured held paid and deductible in joint return filed by surviving spouse (who was also beneficiary of the policies) as executrix and in her individual capacity.

1. Petitioner was the sole beneficiary of two policies of insurance totaling $ 75,000 on the life of her deceased husband. Held: petitioner is not entitled to deduct as a nonbusiness bad debt any part of the amount of her claims against the estate since, to the extent that she did not recover the considerations paid by her for such claims, said claims were worthless at the time she acquired them. 2.

After the expiration of the statutory period for the filing of a claim for refund for the fiscal year ended August 31, 1942, petitioner… Held: that petitioner, under the applicable provisions of the Code and regulations, is not entitled to a refund of excess profits tax paid for the year ended August 31, 1942, on the basis of a carry-over credit from the fiscal year 1941 attributable to the determination of a constructive average base period net income for the fiscal year…

Petitioners, and another shareholder, sold all the capital stock of a newspaper for $ 383,572.26. Held: on the facts, the total consideration was paid for the capital stock of the newspaper. The value of the covenant was not bargained for, and it was incidental to the transfer of the newspaper's goodwill.

World War II housing was built by Pinecrest Housing, Inc., for rental purposes and was so used by the corporation between 1943 and 1945. Held: the 90 houses sold by Pinecrest Housing, Inc., in 1946 were held by the corporation primarily for sale to customers in the ordinary course of its business.

Petitioner, organized in 1941, claimed relief under section 722 (c) (1) of the Internal Revenue Code. Held: that the proof with respect to both claims fails to establish any factual basis for the relief sought.

Excess Profits Tax -- Sec. 722, I. R. C. -- Applications for Relief -- Period of Limitations -- Secs. 722 (d) and 322 (b) (4), I. R. C. -- The period of limitation on the filing of applications for relief under section 722 for years beginning prior to December 31, 1941, begins with the date the return or the payment relied upon was due rather than the earlier date upon which the return was filed and the tax was paid.

1. Although petitioner kept books on a calendar year basis it filed returns for the fiscal years ended November 30, 1942, 1943, and 1944. Held: such returns were sufficient to start the running of the statute of limitations against assessment with respect to the 2 calendar years (1942 and 1943) which were fully embraced within those fiscal years.

Payments made by petitioner according to a settlement agreement incident to divorce from his ex-wife were installments on a principal sum specified in the agreement and not deductible under section 23 (u), Internal Revenue Code.

During the taxable year the petitioner, a minister of the gospel, was employed by a church which did not furnish him a dwelling house in kind but as a part of his compensation paid him a stated sum… Held: that the amount of the house allowance was not excluded from the gross income of the petitioner and exempt from tax by section 22 (b) (6) of the Internal Revenue Code.

Petitioner, the owner of coal properties, entered into contracts with various companies for mining its coal at a specified price per ton. Held: the independent contractors had no economic interest in the coal in place and the amounts paid to them are not to be excluded from petitioner's gross income in the computation of depletion deductions for the taxable years involved.

Petitioner, a common carrier by motor coach under jurisdiction of the Illinois Commerce Commission, operated certain lines in an outlying district in Chicago. Held: petitioner not entitled to relief under either section 722 (b) (1) or section 722 (b) (2).

Petitioner, a corporation manufacturing ladies hosiery, sold silk and nylon hosiery to one of its customers in 1945 under an arrangement whereby the customer remitted the full O. P. A. ceiling price… Held: the entire profit on the sale represented taxable income to petitioner within the purview of section 22 (a), Internal Revenue Code.

The petitioner was not a bona fide resident of a foreign country or countries for a period of at least 2 years prior to the date in 1946 on which he changed his residence to the United States, under section 116 (a) (2), Internal Revenue Code, where he abandoned his foreign residence before the end of the 2-year period, even though he may have acquired no other residence until after that period.

1. Held, receipt by Lime Cola Company (referred to as transferor) of $ 3,018.42 in 1941 found on the facts to have been reported as income in… Held: receipt by Lime Cola Company (referred to as transferor) of $ 3,018.42 in 1941 found on the facts to have been reported as income in 1942, and is not to be added again to 1942 income. 2. In 1930, transferor purchased $ 1,294.65 worth of flavoring for use in making its concentrate and credited the price to an account payable.

A settlement payment made by the executor of decedent's estate to the surviving husband to compromise his claim to a share in the estate and permit the decedent's will to be probated without contest is allowable as a marital deduction.

1. Charles and Beulah Weil entered into an agreement which was incident to a decree of divorce. Charles agreed to pay premiums on insurance policies insuring his life. Held: on the facts, that none of the insurance policies were assigned to Beulah, and she did not become the owner of any of them; her interest in them was contingent.

Petitioner and her former husband, residents of California, reported only their separate incomes on their individual returns for 1946, 1947, and 1948, although they were married and living together… Held: petitioner is liable for the payment of taxes on her share of community income, and the respondent cannot be required to apply an overpayment by her former husband to petitioner's deficiencies.

Income -- Ordinary Income or Return of Capital. -- Minority stockholders sued the Corporation and its majority stockholder for mismanagement, etc. They recovered a money judgment. Held: amounts received by petitioner in payment of the money judgment were not taxable to it as ordinary income.

The petitioners were furnished food and housing by their employer. Held: that the value of the food and housing so furnished petitioners, being a part of their compensation, constituted part of their gross income regardless of the fact that the items were furnished for the convenience of their employer.

Estate Tax -- Marital Deduction -- Terminable Interest -- Insurance Proceeds -- Sec. 812 (e) (1) (B) and (G), I. R. C. -- No marital deduction based upon proceeds of insurance on the life of the decedent is allowed where the proceeds were payable in installments and upon the death of the surviving spouse before all installments became due the remaining proceeds would go to others named by the decedent.

Deduction -- Medical Expense -- Sec. 23 (x), I. R. C. -- The cost of installing an inclinator is a capital expenditure and is not a medical expense within section 23 (x).

Petitioner, in a tax-free reorganization of two railroad corporations, acquired the roadway assets of its predecessors on February 1, 1944. Held: That petitioner, a new taxable entity, is entitled to adopt the straight-line depreciation method of accounting without obtaining prior consent of the Commissioner; it is not obliged to use the retirement method.

Taxpayer was the executrix and residuary legatee of the will of her husband. One of the assets of his estate was a block of shares in a holding company which owned the stock of certain national banks. Held: The receipt of principal by taxpayer was tax free. Estate of Fred T. Murphy, 22 T. C. 242; Tuttle v. United States, 101 F. Supp. 532 (Ct. Cl.). 2. The amount designated as interest was in fact interest and taxable as such. Tuttle v. United States, supra.

Donations by petitioners to two organizations held not subject to deduction under section 23 (o), Internal Revenue Code, and donations by them to another organization held to be deductible under that section. Further held that donations by petitioner Murray Seasongood to the first two organizations do not constitute business expenses deductible under section 23 (a) (1) (A), Internal Revenue Code.

Petitioners filed their income tax returns for the short period from March 1, 1946, to December 31, 1946, in the process of changing from a fiscal year to a calendar year basis. Held: petitioners did not sustain their burden of proving that the Commissioner's determinations were based upon an improper taxable period and, hence, were invalid. Petitioners are not entitled to the benefits of section 47 (c) (2) of the Code where they did not properly make application therefor.

Petitioner, during the base period, had a change in management and operation and has qualified for relief under section 722 (b), Internal Revenue Code. Constructive average base period net income, determined.

Held, the excess profits tax computed without the benefit of section 722, Internal Revenue Code, has not been shown to result in an excessive and discriminatory tax because of the qualifying factors… Held: the excess profits tax computed without the benefit of section 722, Internal Revenue Code, has not been shown to result in an excessive and discriminatory tax because of the qualifying factors found in section 722 (b), Internal Revenue Code.

Deduction -- Attorney Fees. -- In 1950 petitioner employed attorneys in connection with an examination of his income tax returns for previous years where failure to report all business income and… Held: fees deductible in 1950.

Petitioner operates a military school for boys. It filed claims for relief under section 722 of the Internal Revenue Code for the years ended June 30, 1943, to June 30, 1946, inclusive. Held: petitioner is not entitled to relief under section 722 (a) and (b) (4) of the Code.

Held, upon the facts, that there is no substantial reason for adjusting the discount factor of 4 per cent applied in accordance with the provisions of section 81.10 (i) of Regulations 105, in valuing… Held: upon the facts, that there is no substantial reason for adjusting the discount factor of 4 per cent applied in accordance with the provisions of section 81.10 (i) of Regulations 105, in valuing the remainder interests involved in the instant case.

The Dennis Group purchased the Camp Wolters land (then under lease to the United States) along with restoration rights applicable to that land. Held: The transfer of the building notes and $ 1,424 cash for the contract and restoration rights was a section 112 (b) (5)-112 (c) (1) exchange. The Dennis Group's basis for those assets was $ 50,000 and petitioner's basis therefor (under section 113 (a) (8)) was $ 51,424.

Payments made by a lessee of property to the mortgagee in reduction of the outstanding mortgage indebtedness constituted rental income to petitioner-lessor, even though petitioner was not personally liable on the mortgage.

First year payments on noncompetitive oil and gas leases issued by the United States and various State governments, held, deductible as rentals under section 23(a)(1)(A), Internal Revenue Code. Held: deductible as rentals under section 23(a)(1)(A), Internal Revenue Code.

Section 722 claim for relief denied where excess profits credits based on the most favorable constructive average base period net income allowable on the evidence would not exceed the credits allowed by the respondent based on invested capital.

Petitioner, a corporation, is engaged in the wholesale and retail hardware business at Amarillo, Texas, and has a trade territory extending over northwestern Texas, eastern New Mexico, and the Oklahoma Panhandle. The bulk of petitioner's business was wholesale and, exclusive of oil companies and companies engaged in other industrial operations, its wholesale customers were local retail hardware stores and general stores in its trade territory.

1. During its taxable year 1942, H. S. D. Co. established a profit sharing plan for its executive employees and its hourly-paid employees… Held: that while the court's decision as to the status of the trusts for the taxable year 1944 is not conclusive of their status during the year of the distribution involved herein, its holdings with respect to such facts and legal questions as were there involved and are also involved here are persuasive authority and are to be accorded…

1. In Louisiana a surviving widow renounced her usufruct. Held: the renunciation was effective for Federal tax purposes from the date of its execution rather than retroactive to the date of her husband's death. 2. A jointly owned business was operated by one of the joint owners.

In 1942, petitioner's three stockholders, who were also its officers and directors and who owned equal amounts of stock, agreed upon a plan to conceal part of… Held: Under the facts and circumstances of this case, petitioner has failed to prove that income improperly omitted from its books and returns in each of the taxable years was offset by a deductible embezzlement loss. 2 The scheme was entered into by all of the stockholders to evade payment of petitioner's taxes. 3.

Trust Income -- Taxable to Grantor -- Parol Trust -- Secs. 22 (a), 166, and 167, I. R. C. -- The record fails to establish that there were provisions of a parol trust for a minor son stated by the petitioner and understood by his wife as trustee which would relieve him of tax on the income of the trust.

The petitioners' decedent, W. Von Dattan, inherited in 1924 an interest in real estate in Germany. The property in which he had an interest was income producing property and it was rented. Held: assuming a loss in 1941 and a recovery in 1945, petitioners have failed to prove that Von Dattan subsequently, in 1945, sustained a loss of his interest in property within section 23 (e) (2).

1. Losses realized by petitioner in trading in commodity futures contracts were capital losses subject to the limitations of section 117 (d), Internal Revenue Code. 2. Expenses incurred in planning and preliminary organization of an investment advisory service are not deductible as ordinary and necessary expenses of carrying on a trade or business. 3.

1. A taxpayer who inherited a one-third interest in property on which a building had been constructed by the lessee without cost to the lessor, under a 66-year lease was not… Held: the unrecovered basis of the decedent in the demolished buildings was an income tax advantage to which she was entitled and which was not wholly availed of in her lifetime. Held, further, this tax advantage was not of such nature as to be subject to transmission by inheritance to her heirs.

Funds representing nonresident alien decedent's remainder interest in a trust were, pursuant to a decree of the Surrogate's Court, paid… Held: disregarding for tax purposes the vesting of title to the deposited funds by the Custodian, as required by section 36 of the Trading with the Enemy Act, they qualify for exemption from estate tax under the provisions of section 863 (b) of the Internal Revenue Code as moneys deposited with any person carrying on the banking business,…

Income -- Corporation Dealing in Its Own Shares. -- A corporation sold shares of its own stock, which it had acquired from former stockholders as part consideration in sale of a flour mill and which… Held: the corporation realized taxable gain under Regulations 111, section 29.22(a)-15.

1. Petitioner was an organizer, stockholder, officer, and director of Paramount Exposition Shows, Inc. (referred to as the corporation). Held: upon payment of the $ 3,000 by petitioner a debt arose in his favor from the corporation despite the fact that such debt was worthless when it arose. Consequently, petitioner may only deduct the $ 3,000 as a nonbusiness bad debt under section 23 (k) (4) of the Internal Revenue Code, rather than as a loss under section 23 (e) (2). 2.

Petitioners filed joint estimates of income but no return for 1943. Returns signed by the husband alone and naming both as taxpayers were filed for 1944 and 1945. Held: Deficiencies determined from income as computed are not arbitrary and unreasonable and are sustained with minor modifications; 2. Taxpayers are jointly liable for deficiencies and additions to the tax for all years; and 3. Deficiency for 1943 was not due to fraud with intent to evade tax.

1. Petitioner failed to establish that he furnished over half of the support of his mother whom he claimed as a dependent in 1948. 2. Held: expenses for food and lodging for him and his wife in Tokyo are not deductible as traveling expenses merely because, while he was so employed, they engaged in certain activities in Japan alleged to constitute the carrying on of a trade or business; moreover, the evidence does not justify treating such activities as trade or business.

Held: 1. Income of taxpayer determined by use of increase in net worth plus expenditures method. 2. Held: Income of taxpayer determined by use of increase in net worth plus expenditures method. 2. Petitioner, during each of the taxable years, was married and living with his wife and is therefore entitled to the marital exemption for each of the years. 3. Various properties acquired were purchased with funds owned by petitioner. 4.

The business of a corporation was wiped out by the termination of the war and the corporation began liquidating its assets. Held: a statutory reorganization was effected under section 112 (g) of the Internal Revenue Code, and the stock of the new corporation was received in a tax-free exchange under section 112 (b) (3).

1. Petitioner excluded $ 10,000 of a lump-sum settlement against his employer from his 1946 return as being damages arising out of a physical assault and exempt from taxation. Held: that the evidence not only does not establish, but tends to refute, petitioner's claim that $ 10,000, or any part, of the lump-sum settlement was received by him as damages for physical assault, and his claim is accordingly denied. 2.

Held, on the facts, that the lots sold were held primarily for sale to customers in the ordinary course of a business and that the resulting gain is taxable as ordinary income. Held: on the facts, that the lots sold were held primarily for sale to customers in the ordinary course of a business and that the resulting gain is taxable as ordinary income.

1. Petitioner, a corporation which in July and November of 1949 acquired the stock of two other corporations, may not carry back and apply against its income for the year ending June 30, 1948, the loss sustained by one of its subsidiaries during the year ending June 30, 1950, for which year petitioner and its subsidiaries joined in a consolidated return. 2.

The decedent bequeathed his residuary estate to his surviving spouse for life. Upon her death the entire corpus shall go to the decedent's two sons, or the survivor. Held: that the interest passing to the surviving spouse was a terminable interest under section 812 (e) (1) (B) of the Internal Revenue Code, and, therefore, no marital deduction is allowable.

Held: 1. Bad debt deduction claimed under section 23 (k) ( 1) of the Internal Revenue Code by petitioners, the majority stockholders… Held: Bad debt deduction claimed under section 23 (k) ( 1) of the Internal Revenue Code by petitioners, the majority stockholders and officers of the corporate debtor, disallowed because debt did not become worthless within the taxable year. 2. Issue not raised by assignment of error in petition is not before the Court for consideration. 3.

Petitioner's only motive in coming to the United States was to obtain a license to unblock his property, and to create a trust which would eliminate the danger of seizure of his property by a… Held: petitioner has failed to overcome the presumptive correctness of respondent's determination that he was not a resident of the United States in 1948 within the meaning of section 1004 (a) (1) of the Internal Revenue Code.

Petitioner is a corporation organized under the laws of Texas and during the year 1949 was engaged in the title insurance business conducted as required by article 1302a of the Revised Civil Statutes… Held: the Commissioner is sustained. The amount is not deductible from income or excludible from gross income under any provisions of section 204, Internal Revenue Code, under which petitioner is taxable.

1. Partnership interest acquired with funds borrowed on petitioner's individual credit held, under Washington law, not to be community property but to give rise to income taxable to petitioner… Held: under Washington law, not to be community property but to give rise to income taxable to petitioner individually. E. C. Olson, 10 T. C. 458, followed. 2. Western Construction Co., 14 T. C. 453, affirmed

Petitioner operated a restaurant, bar, and night club. Except with respect to the close of the second year involved, he failed to maintain inventory records. Held: Petitioner's books and records were incomplete and failed to clearly reflect income. 2. The determination of net income on the basis of the use of the net worth increase method was justified. 3.

1. Held, renewal insurance commissions received by petitioner in the taxable year by reason of bona fide assignments for value from various insurance agents… Held: renewal insurance commissions received by petitioner in the taxable year by reason of bona fide assignments for value from various insurance agents constituted taxable income to petitioner to the extent which the aggregate amount thereof exceeded the total consideration paid by him for such assignments. 2.

1. The sales of standard commercial articles made by petitioner, a sole proprietorship engaged primarily in the wholesale distribution of foundry supplies, should not be excluded from its renegotiable business. 2. Salary allowance and amount of excessive profits made by petitioner from its renegotiable business determined.

1. Held, accounts acquired by petitioner prior to the taxable years constituted a single capital asset composed of a list of customers; each individual customer's account lost… Held: accounts acquired by petitioner prior to the taxable years constituted a single capital asset composed of a list of customers; each individual customer's account lost by petitioner during the taxable years was a partial loss of such capital investment and no deduction is allowable therefor. 2.

1. Where petitioner's husband transferred assets to her without consideration as a part of a preconceived plan to hinder, delay, and defeat the collection of his 1949 income taxes, petitioner is liable as a transferee. The amount of transferee liability is reduced, however, to the extent of funds retransferred by petitioner to her husband. Fada Gobins, 18 T.C. 1159. 2.

Held, petitioner's transactions in cotton futures contracts during the years involved were directly related to its business of manufacture… Held: petitioner's transactions in cotton futures contracts during the years involved were directly related to its business of manufacture and sale of cotton bags; were entered into by petitioner for the sole purpose of providing insurance against the possibility of market decline in the value of its inventory of raw cotton, of goods in…

Petitioner assigned and transferred for a lump sum all his right and interest in a master lease and certain subleases with respect to the erection and operation of a shopping center. Held: the entire amount received was from the sale of capital assets and is subject to tax on the basis of a capital gain.

1. A dealer in securities realized a gain upon the sale of certain stocks to its customers in the ordinary course of its dealer business. Held: the gain constituted ordinary income rather than a capital gain. 2. Petitioner was released from his liability as endorser of a note upon part payment of the amount due. The creditor retained the note upon which there was an unpaid balance.

Petitioner opened its Mine No. 4 in 1944, and its projected plans were to extract coal by the room and pillar method of mining. Held: that the driving of the entryways in 1947 and 1948 was for the development of additional ore for mining and, by reason thereof, Mine No. 4 during those years was in the development stage within the meaning of section 29.23 (m)-15 of Regulations 111, and that the respondent did not err in his determination that petitioner's…

1. On April 23, 1948, petitioner entered into a lease for a period of 7 years 8 months from February 1, 1947. Held: petitioner's obligation to expend the $ 250,000 was not contingent. Such obligation constituted consideration for a lease and as such is amortizable over the term of the lease plus 1 renewal period, i. e., 17 years 8 months. 2.

A donation by petitioner to a foundation organized for charitable purposes, held, deductible for gift tax purposes under section 1004 (a) (2) (B), Internal Revenue Code of 1939. Held: deductible for gift tax purposes under section 1004 (a) (2) (B), Internal Revenue Code of 1939.

1. Payment received for miscellaneous, unconnected legal services, no one of which exceeded 36-month period held not qualified for reallocation to prior years under section 107 (a), Internal Revenue Code of 1939, notwithstanding that bill was rendered to cover all services performed over period in excess of 36 months. 2.

Sec. 117 (j) (2), I. R. C., 1939. -- Partnership Loss and Individual Gain. -- Partnership long-term losses from noncapital assets became ordinary losses of partnership under section 117 (j) of the Internal Revenue Code of 1939 in computing its distributable income where partnership had no section 117 (j) gains, and a partner's share of such losses does not offset his long-term gains from individually owned noncapital assets.

1. Held: (a) Petitioner, the sole proprietor of an automobile agency, maintained his books in accordance with an accrual method of accounting for 1949 and 1950 and must report his income on that… Held: Petitioner, the sole proprietor of an automobile agency, maintained his books in accordance with an accrual method of accounting for 1949 and 1950 and must report his income on that accrual basis.

During the taxable year petitioner was postmaster of the United States post office at Taylorsville, Kentucky. Held: that the business of the petitioner consisted of the performance of services by him as an employee within the meaning of section 22 (n) (1) of the Internal Revenue Code of 1939; and, as a consequence, he is not entitled under that section to deduct the expenses in question from his gross income in arriving at his adjusted gross…

1. Receipt from transferee corporation of its preferred stock in exchange for petitioner's preferred stock in transferor corporation, which upon turning over its physical properties and dissolution became insolvent, held to create transferee liability in petitioner up to the value of preferred stock received. Bates Motor Transport Lines, Inc., 17 T. C. 151, affd. (C. A. 7) 200 F. 2d 20, followed. 2.

Deduction -- Contribution -- Oil and Gas -- Undivided Interest in Minerals in Place Until Production Equaled a Stated Amount -- Sec. 23 (o), I. R. C., 1939. -- A transfer by deed of oil, gas, and minerals in place to a church until $ 115,000 would be received from production was a gift and its fair market value at the date of transfer was a contribution deductible under section 23 (o) of the Internal Revenue Code of 1939 for the year of the transfer even though payments from…

Installment Method -- Satisfaction or Disposition of Installment Obligation -- Sec. 44, I. R. C., 1939. -- The previously unreported gain from a sale being reported under section 44 (b) of the Internal Revenue Code of 1939 became taxable when the installment obligations were satisfied by the acceptance of obligations of a third party who purchased the property from the original obligee.

A payment in settlement of a suit for the rescission of a sale of stock, on the ground that it was induced by fraud, represents payment for the stock, resulting only in capital gain and not ordinary income. The position maintained by the defendants and here relied upon by the respondent that the payment was not related to the grounds of the suit but represented severance pay was unfounded in fact.

Petitioners purchased real estate which was subject to a lease granted by a previous owner. Held: petitioners have failed to establish the facts essential to the right to an allowance either for depreciation on their interest in the improvements so acquired or for the amortization of any premium value attributable to the lease.

In 1946, upon receipt of additional capital stock therefor, petitioner voluntarily canceled $ 650,000 of alleged indebtedness owed to it by its two wholly owned subsidiaries. Held: the voluntary cancellation of indebtedness was an additional capital contribution by petitioner to its two subsidiaries, and no deduction is allowable for a bad debt loss, in whole or in part, or for a business loss or business expense.

A closely held corporation, possessing cash in excess of its business requirements and equaling at least half its total assets, canceled one-half its shares of stock and made a cash… Held: the pro rata cash distribution in redemption of stock, to the extent of earnings and profits, was made at such a time and in such a manner as to be essentially equivalent to the distribution of a taxable dividend within the purview of section 115 (g), Internal Revenue Code of 1939.

Decedent purchased 37 United States savings bonds entirely with his own funds. Held: United States savings bonds purchased, registered, and held as above were held by the coowners as joint tenants within the meaning of section 811 (e) of the Internal Revenue Code of 1939. 2.

Petitioner acquired property, herein referred to as the old property, intending promptly to erect thereon a plant suitable for its business. Held: the use, purpose, and function for which the new property was acquired (through the medium of purchase of stock of the owner corporation) was identical with that of the old property and petitioner is entitled to nonrecognition of gain within the meaning of section 112 (f) of the Internal Revenue Code of 1939.

1. Compensation earned in a prior year and allocated at that time to previous years under section 107, Internal Revenue Code of 1939, held, to require consideration in computation under… Held: to require consideration in computation under section 107 for additional income of a later year both as inclusion in income and as tax paid thereon, as though it had been earned ratably over only those previous years included in the period of allocation of the later year's income. 2.

Petitioners' decedent devised his residuary estate in trust. Held: no part of the transfer in trust qualifies for a marital deduction within section 812 (e) (1) (F), Internal Revenue Code of 1939.

Deduction -- Depreciation -- Basis -- Basis of Buildings Does Not Include Separate Identifiable Cost of Acquiring Fee. -- The basis for depreciation of buildings includes no part of option prices paid for the underlying land by the petitioner which acquired the buildings at the same time by purchasing the stock of and merging into itself the corporations which owned the buildings and had long leases on the land.

Held, the Foundation for World Government was not organized and operated exclusively for educational purposes within the meaning of sections 23 (o) (2) and 1004 (a) (2) (B) of… Held: the Foundation for World Government was not organized and operated exclusively for educational purposes within the meaning of sections 23 (o) (2) and 1004 (a) (2) (B) of the Internal Revenue Code of 1939; accordingly, the gifts in controversy are not deductible in computing income or gift taxes.

Value of community property originally derived from her then husband's separate property and transferred to a trust in which decedent had a life estate held not includible in decedent's gross estate under provisions of section 811 (c) and (d), Internal Revenue Code of 1939, as in effect in 1945, the year of decedent's death.

Reorganization -- Distribution in Liquidation -- Sec. 112 (c) (2) -- Sec. 115 (c), I. R. C. of 1939. -- An old corporation in liquidation sold some of its assets to a new corporation. Held: that the liquidation of the old corporation was under a plan of reorganization, and the gain resulting from the liquidation of the old corporation was taxable to petitioners under section 112 (c) (2).

Held, the Commissioner was justified in computing the taxpayer's net income by the net worth method; various disputed items determined, and the manner of applying the… Held: the Commissioner was justified in computing the taxpayer's net income by the net worth method; various disputed items determined, and the manner of applying the net worth method approved. Held, further, a bad debt deduction was allowable for the final period involved in the circumstances of this case.

Petitioner gave his business address on his 1945 income tax return. Thereafter he abandoned this address and on waivers for the year 1945 gave his subsequent business address. Held: the notice constituted a valid notice to petitioner's last known address under section 272 (k), Internal Revenue Code of 1939, and respondent's motion to dismiss for lack of jurisdiction is granted.

Sec. 117 (j) (2), I. R. C., 1939 -- Partnership Gain and Individual Loss. -- Partnership long-term gains from non-capital assets were long-term capital gains under section 117 (j) in computing the distributable shares of the partnership income, and a partner's share of such gains does not offset his long-term losses from individually owned non-capital assets under section 117 (j) (2).

Net Operating Loss Deduction Adjustment -- Interest Deduction -- Sec. 711 (a) (2) (L) (i), I. R. C. of 1939. -- No adjustment to the interest deduction is proper in computing the net operating loss of 1947 for which no excess profits credit is computed or allowed.

Held, upon the facts, that petitioners have established that the sum of $ 14,375 was paid for a covenant not to compete for a period of 3 years… Held: upon the facts, that petitioners have established that the sum of $ 14,375 was paid for a covenant not to compete for a period of 3 years beginning January 10, 1944. Held, further, that said amount is to be amortized ratably over the period of the covenant, one-third thereof being attributable to the taxable year in issue.

1. Held, salaries and bonuses which petitioner paid to two of its officers in the taxable years involved represented reasonable compensation for services actually rendered. 2. Held: salaries and bonuses which petitioner paid to two of its officers in the taxable years involved represented reasonable compensation for services actually rendered. 2.

1. Held, under the facts, respondent was justified in computing net income by the net worth method. 2. Held: under the facts, respondent was justified in computing net income by the net worth method. 2. The net worth statement for 1947 showed an increase in net income of about 50 per cent of the amount of gross income stated in the return.

Where, under the terms of agreements among the members of a partnership, the decedent was prohibited from disposing of his partnership interest during his lifetime and the surviving partners were authorized and obligated to purchase decedent's interest at a determinable price based on book value at his death, the amount payable under those agreements is the proper valuation of decedent's partnership interest for estate tax purposes.

The lump-sum payment received by petitioner Francis T. Donahoe on separation from Federal service in 1951 for leave accumulated prior to 1943 does not constitute back pay under section 107 (d), Internal Revenue Code of 1939.

Petitioner was incorporated to develop, as a residential subdivision, a tract of land situated on the outskirts of Tucson, Arizona. Held: that in accepting the bonds and stock in part payment of lots, petitioner was dealing in those securities as it would in the securities of another, and that such acceptance did not constitute a partial liquidation of the petitioner.

Excess Profits Credit Based on Income -- Base Period Capital Addition -- Reduction of Deficit -- Sec. 435 (f) (2), I. R. C. of 1939 -- Equity Capital -- Sec. 437 (c). -- Earnings of base period left in business which merely reduce deficit resulting from excess of liabilities over assets do not create a capital addition.

Amounts received for cutting rights under timber lease, transferred by petitioners 20 days after acquisition subject to retained interest in cutting proceeds, and thereafter acquired by another transferee with petitioners' consent more than 6 months later but subject to petitioners' retained interest held ordinary income or short-term capital gain, rather than long-term gain from sale of capital asset.

Held, income earned by decedent's estate during 1938-1944 was, pursuant to the terms of decedent's will, permanently set aside for charitable or related purposes within the meaning of section 162… Held: income earned by decedent's estate during 1938-1944 was, pursuant to the terms of decedent's will, permanently set aside for charitable or related purposes within the meaning of section 162 (a), Internal Revenue Code of 1939.

1. Petitioners held certificates of ownership 1The terms certificates of ownership, units of ownership, shares, and stock are used interchangeably hereinafter, as are the terms certificate holders,… Held: the organizations were legal entities separate and distinct from the certificate holders. 2.

Petitioner Lois C. Hockaday was married to Hubert W. Green until May 31, 1948, when they were divorced. They were domiciled in Texas, a community property State. Held: Lois had an eleven-twelfths community property interest in one-half of Green's one-half of the partnership income for the partnership fiscal year ended June 30, 1948, and is taxable thereon. The Commissioner's determination is sustained.

Respondent determined that petitioner was entitled to deduct as rental expense, for each of its fiscal years ended June 30, 1947, through 1950, only $ 10,000 rather than the greater amounts… Held: had petitioner and lessor corporation dealt at arm's length petitioner would not have been required, under section 23 (a) (1) (A) of the 1939 Code, to pay rent in excess of $ 6,000 per annum until January 1, 1948, the termination date of the unexpired lease from the former owner.

Allocation of Deductions -- Distortion of Income -- Clear Reflection -- Sec. 45, I. R. C., 1939. -- The Commissioner, in order to reflect income clearly, may allocate or apportion a deduction for real estate taxes for 12 months, accrued by the owner corporation, for a tax period of 11 days preceding transfer of the rental real estate in complete liquidation to another corporation, which owned all of its stock.

1. The unused excess profits credit of the petitioner for a taxable year beginning December 1, 1943, is to be computed on the prorated basis under both the 1943 and 1944 laws, as required by section 710 (a) (6), Internal Revenue Code of 1939, added by section 203 (a), Revenue Act of 1943, notwithstanding the provision that the 1943 amendments were applicable only to years beginning after December 31, 1943. 2.

Bonds on which interest had accrued but remained unpaid were exchanged in 1949, pursuant to a plan of reorganization, for new bonds of equal face amount, plus capital stock,… Held: The receipt of the cash and interest certificates did not constitute the receipt of interest income. 2. The interest certificates were securities within the meaning of section 112 (b) (3) of the Internal Revenue Code of 1939 and were not other property or money under section 112 (c) (1).

1. Petitioner received all the assets of her deceased husband's estate upon its final distribution, except for $ 150,000 in Treasury notes and $ 19,428.66 in cash… Held: respondent is sustained since petitioner has failed to prove that the income earned by the estate in its final year of administration was not distributed to her. 2. In computing the amount of a net operating loss, petitioner deducted State income taxes from her gross income received from trade or business.

1. In a prior decision this Court concluded that the taxpayer's proof, consisting solely of stipulated facts, was insufficient to establish error in the determination of the Commissioner. Held: the prior decision was a decision on the merits that can serve to preclude relitigation of the identical issues arising in a determination of the taxpayer's liability for a later year. 2.

Petitioner entered into a Lease and Option to Purchase agreement with the R. F. C., with respect to a certain property, in part of which it was at the time conducting its business. Under the agreement, petitioner was to pay as rent $ 100,000 in 60 monthly installments, after which it had the option to purchase the property for $ 50,000.