Volume 22 — Tax Court Memorandum

1. Held, that losses which the principal petitioner incurred for all the taxable years in attempting to build up a herd of cattle by the natural increase process, with the hope that the herd would eventually attain sufficient size to produce profit, are not deductible as losses incurred in a "business," under section 165(c)(1) of the 1954 Code. 2. Held, that none of the various expenditures which the principal petitioner made in connection with two Florida real estate projects is deductible as nonbusiness expenses under section 212(2) of the 1954 Code. Commissioner's determinations as to classification of items, sustained.

Petitioner, a Joplin, Missouri, college student who worked part-time as a clerk-typist, took a summer job in 1959 as a clerk-typist with the United States Department of the Interior in Washington,… Held: that amounts paid by petitioner for transportation to Washington and return and for meals and lodging while there were not deductible as traveling expenses while away from home in pursuit of her trade or business.

Israel Lewis was sole proprietor of a cigar business. He had acquired numerous brand names, trade-marks, and two patents at nominal cost. Held: The abandoned items did not become worthless prior to their abandonment. 2. Respondent is not estopped to deny a valuation of trade-marks and brand names agreed upon in an administrative settlement of petitioner's excess profits tax liability for the years 1942 to 1945, inclusive. 3.

Held, licensing agreements between petitioner and its parent organization for petitioner's use of patented or secret processes developed… Held: licensing agreements between petitioner and its parent organization for petitioner's use of patented or secret processes developed by the parent organization for making an instant coffee (Nescafe), an instant cocoa milk drink (Quik), and an acidified baby food milk product (Pelargon) were bona fide and valid, and the royalties paid…

Taxpayer purchased original issue discount 10-year notes. Held: the gain realized upon the assignment of the notes, before 10 years from issue, was in the nature of interest taxable as ordinary income. Richard B. Gibbons, 37 T.C. 569, followed.

- Petitioner failed to prove he provided more than half the support of his two children, who were living with his divorced wife during the taxable year.

Held, petitioner Leon B. Pullen was not a dealer in securities and was not holding the stock of Central American Life Insurance Company, of… Held: petitioner Leon B. Pullen was not a dealer in securities and was not holding the stock of Central American Life Insurance Company, of which company he was president, primarily for sale to customers in the ordinary course of his business, which stock he sold to P & R Investors, Inc., in four sales in 1957, 1958, and 1959 for the…

In 1959, the two daughters of James J. Thompson and Dorothy Fowler lived with their mother and her second husband, Albert J. Fowler. Thompson contributed $780 for the support of the older child and $520 for support of the younger. Both the Fowlers and Thompson claimed deductions for both girls for 1959. Thompson contributed more than one-half the total amount spent for support of the older daughter in 1959. The Fowlers contributed more than one-half the total amount spent for support of the younger daughter in 1959. Held, Thompson is entitled to a personal exemption deduction in 1959 for the older daughter, and the Fowlers are entitled to a personal exemption deduction for the younger daughter in that year.

Held, that certain instruments denominated debentures issued by the corporate petitioner to the individual petitioners, in proportion… Held: that certain instruments denominated debentures issued by the corporate petitioner to the individual petitioners, in proportion to their stock holdings, in exchange for the goodwill and other intangible assets of a partnership business did not represent indebtedness within the meaning of section 163(a) of the Internal Revenue Code of…

Held, that petitioners derived unreported gains from sales of real estate, in the amounts of $7,425 in the year 1953, $3,000 in the year 1954, and $1,300 in the year 1955. Held: that petitioners derived unreported gains from sales of real estate, in the amounts of $7,425 in the year 1953, $3,000 in the year 1954, and $1,300 in the year 1955.

Taxpayer sold in 1955 an undivided 30 percent interest in improved real estate encumbered with a first mortgage He received 2 purchase money notes and third mortgages in part payment. In taxable year 1957 the owners obtained a bank's agreement to refinance and increase first mortgage; his third mortgages were not in default. Held: Taxpayer is not entitled to deduct depreciation under sec. 167, 1954 Code in respect of the notes, mortgages, or the property interest securing the mortgagor's indebtedness. Held, further, issues raised on brief and not pleaded are not before the Court and may not be considered or decided.

Held: That petitioner has not established his right to a dependency deduction for either of his two children for the taxable year 1958.

Held, change in method of accounting was initiated by the partnership in which petitioners are partners. Held: change in method of accounting was initiated by the partnership in which petitioners are partners. The year of change was 1957 whereby the partnership changed to the accrual method of accounting.

1. Except where section 302(b) of the Revenue Act of 1950 applies, exempt organization information returns are not returns for statute of limitations purposes under the… Held: section 302(b) of the Revenue Act of 1950 is inapplicable. 3. Petitioner, a cooperative housing corporation, held to have leased, not sold, its dwelling units to its members. 4. Held: petitioner's dwelling units were depreciable property in its hands, since it held them for the production of income. 5.

Farmers' cooperative: Patronage dividends: Allocation to employees: Storage of gram. Held: amounts allocated by petitioner to its employees, based upon the amount of salary earned, are not excludable as true patronage dividends from petitioner's gross income.

Held, the advances made by petitioner to a corporation engaged in the business of representing radio and television stations were proximately related to his advertising business and deductible in the… Held: the advances made by petitioner to a corporation engaged in the business of representing radio and television stations were proximately related to his advertising business and deductible in the years 1953 and 1954 as business bad debts.

Held, that rentals paid pursuant to a percentage of sales lease between two corporations controlled by the same stockholders, were excessive. Held: that rentals paid pursuant to a percentage of sales lease between two corporations controlled by the same stockholders, were excessive.

Held, where petitioner acquired an insurance expiration list from the estate of a deceased sole proprietor of a casualty insurance agency… Held: where petitioner acquired an insurance expiration list from the estate of a deceased sole proprietor of a casualty insurance agency which sole proprietorship was not a going concern at the date of acquisition and where the expiration list was the sole intangible asset acquired, the list does not constitute an asset in the nature of…

Transferee liability - The transferor corporation transferred all its assets to another corporation in exchange for stock, and such other corporation agreed to… Held: that the agreement of such other corporation did not constitute a retained asset of the transferor for purposes of determining whether it was rendered insolvent by the distribution and hence did not relieve the petitioner of liability, as a transferee, for the unpaid income taxes of the transferor corporation.

Held, that amounts expended to tear out the front wall of a building occupied by petitioner, to erect a replacement wall, and to make necessary electrical connections in said new wall, are capital… Held: that amounts expended to tear out the front wall of a building occupied by petitioner, to erect a replacement wall, and to make necessary electrical connections in said new wall, are capital expenditures rather than currently deductible repair expenses.

Held, on the facts, petitioner did not contribute more than one-half the support of his minor daughter and is not entitled to the dependency exemption provided in sections 151(e) and 152(a), I.R.C.… Held: on the facts, petitioner did not contribute more than one-half the support of his minor daughter and is not entitled to the dependency exemption provided in sections 151(e) and 152(a), I.R.C. of 1954.

1. Part of excess of bank deposits over reported sales held to be additional sales rather than investments in the business from previously accumulated cash. 2. Petitioners not entitled to bad debt deduction for amount paid as guarantor of a customer's note. Amount of debt and worthlessness not proved. 3. Amount paid as guarantor of debt of corporation in which one of petitioners was 50 percent stockholder deductible as nonbusiness bad debt. 4.

Held: 1. Payments of $211,664.18 each by Dicker and Frank to a corporation in which they indirectly had a stock interest were not contributions to capital. Held: Payments of $211,664.18 each by Dicker and Frank to a corporation in which they indirectly had a stock interest were not contributions to capital. The payments were indemnity payments and represented deductible losses incurred in a closed transaction entered into for profit. 2.

Held: (a) That respondent properly made use of the net worth and expenditures method of determining taxable net income for all the years in… Held: That respondent properly made use of the net worth and expenditures method of determining taxable net income for all the years in issue and petitioners have failed to show error in said determinations. (b) That some part of the deficiency in income tax for each of the years involved was due to fraud with intent to evade taxes.

Net Worth Method - The respondent's determination of taxable income upon the net worth method approved, subject to certain corrections in his computation.

Held, petitioner qualified as a Western Hemisphere trade corporation. Barber-Greene Americas, 35 T.C. 365, and Pan American Eutectic Welding Alloys Co., 36 T.C. 284, followed. Held: petitioner qualified as a Western Hemisphere trade corporation. Barber-Greene Americas, 35 T.C. 365, and Pan American Eutectic Welding Alloys Co., 36 T.C. 284, followed.

Held: That petitioners have failed to meet the burden of proving error in respondent's determination of the fair market value of certain notes received in 1957 and 1958 from the Quality Foods… Held: That petitioners have failed to meet the burden of proving error in respondent's determination of the fair market value of certain notes received in 1957 and 1958 from the Quality Foods Co-Operative, Incorporated.

Held, that advances made by petitioner to a corporation in which it owned the controlling interest constituted contributions to capital and did not give rise to bona fide indebtedness on which a… Held: that advances made by petitioner to a corporation in which it owned the controlling interest constituted contributions to capital and did not give rise to bona fide indebtedness on which a deduction for a partially worthless debt can be taken under sec. 166(a)(2), 1954 Code.

Petitioner has been a teacher of political science since 1946. Held: the expenditures are deductible under section 162(a), I.R.C. 1954, as interpreted in section 1.162-5, Income Tax Regulations.

Held, the portion of the sales price of houses sold by petitioner in the years 1955 and 1956, required to be deposited with the financing… Held: the portion of the sales price of houses sold by petitioner in the years 1955 and 1956, required to be deposited with the financing institutions as additional security to protect the financing institutions from loss through default by the purchaser of the houses, must be included in petitioners' income in the years of sale.

Held, that petitioner qualifies for all taxable periods involved, as a Western Hemisphere trade corporation within the meaning of section… Held: that petitioner qualifies for all taxable periods involved, as a Western Hemisphere trade corporation within the meaning of section 109 of the 1939 Code and section 921 of the 1954 Code; and that as such, it is entitled to the credits and special deductions provided for Western Hemisphere trade corporations, and also is exempt from…

Held, amounts of purported interest paid by petitioner with respect to so-called loans on certain single-premium deferred payment annuity contracts are not deductible… Held: amounts of purported interest paid by petitioner with respect to so-called loans on certain single-premium deferred payment annuity contracts are not deductible interest under section 23(b) of the 1939 Code and section 163(a) of the 1954 Code. Knetsch v. United States, 364 U.S. 361 (1960), followed.

Petitioner, an aircraft mechanic and ground instructor with Republic Aviation Corporation in Farmingdale, New York, was transferred by… Held: that the $7 per diem allowance is includible in petitioner's gross income, and held further, that no part thereof is deductible as traveling expenses while away from home under section 62(2)(B), I.R.C. 1954, or as transportation expenses under section 62(2)(C), I.R.C. 1954, paid or incurred in connection with the performance by him…

Travel Expenses - Secs. 62(2)(B), 162(a)(2), and 262, I.R.C. 1954. Husband was transferred by his employer to Johnstown, Pennsylvania, from Bethlehem, in 1956. Held: The expenses of his weekly trips and lodging at his place of employment were personal living expenses and not deductible in 1958 and 1959, the years in issue, as ordinary and necessary business expenses, incurred for travel while away from home in connection with employment or in pursuit of a trade or business.

Held, petitioner C. Leo Fender was not taxable on bonus payments received in 1956 and 1957 to the extent such bonuses were returned in the year of receipt to his employer. Held: petitioner C. Leo Fender was not taxable on bonus payments received in 1956 and 1957 to the extent such bonuses were returned in the year of receipt to his employer.

Taxpayer purportedly borrowed money to purchase United States Treasury notes which were to be pledged as collateral on his loans. Held: Amounts paid to the lender and denominated prepaid interest are not deductible as interest. (2) Petitioners' innocence of the lender's intention to dispose of the collateral is irrelevant.

1. Transfer of a house built for petitioner by an elderly friend on a lot adjoining her own home was a gift and the value thereof is not includable in petitioner's taxable income. 2. Petitioner's gain on sale of other property determined. 3. Petitioner failed to file an income tax return for the year 1957. Assessment of deficiency not barred by statute of limitations. 4.

Held: Legal fees incurred in an unsuccessful defense of a criminal prosecution under a state bribery statute against a managing partner of a partnership are not deductible as ordinary and necessary business expenses.

Held, petitioner failed to prove by competent evidence that he is entitled to deduct (1) a capital loss carryover; (2) a business bad debt; and (3) depreciation in excess of the amount allowed by… Held: petitioner failed to prove by competent evidence that he is entitled to deduct (1) a capital loss carryover; (2) a business bad debt; and (3) depreciation in excess of the amount allowed by respondent.

Held: Petitioners have failed to establish error in respondent's disallowance of claimed itemized deductions. Held: Petitioners have failed to establish error in respondent's disallowance of claimed itemized deductions.

Held: (1) Petitioner is not entitled to a claimed loss for theft or destruction of technological papers that he had on hand for 45 years or more in his occupation as an… Held: Petitioner is not entitled to a claimed loss for theft or destruction of technological papers that he had on hand for 45 years or more in his occupation as an engineer where neither cost of production of said papers nor their fair market value at the time they were stolen or destroyed is shown.

Petitioner was organized to buy and sell dairy farm equipment as a Western Hemisphere trade corporation. Held: Petitioner qualified as a Western Hemisphere trade corporation under section 109, 1939 Code and section 921, 1954 Code. (1) In order to qualify as a Western Hemisphere trade corporation, it is not necessary that the taxpayer be present and carrying on an active trade or business in foreign countries within the Western Hemisphere.

Held: (1) Petitioner did not file false or fraudulent returns with intent to evade tax for the calendar years 1946 through 1955. (2) Since the statute of limitations for the calendar year 1955 was not specifically pleaded and was raised for the first time by petitioner in his brief, that issue is not before us. Given v. Commissioner, 238 F. 2d 579 (C.A. 8, 1956), affirming a Memorandum Opinion of this Court, followed. (3) Taxable income for calendar year 1955 determined.

Held, a part of the deficiency for the year 1953 and a part of the underpayments determined by the respondent for each of the years 1954 and 1955 were due to fraud with intent to evade tax. Held: a part of the deficiency for the year 1953 and a part of the underpayments determined by the respondent for each of the years 1954 and 1955 were due to fraud with intent to evade tax.

Amounts paid by petitioner in settlement of a tenant's suit for damages for invasion of privacy and legal fees paid in connection with that litigation were not deductible as expenses paid to protect petitioner's business of selling and renting real estate. They were nondeductible personal expenses.

Held, deficiencies determined by the net worth plus personal expenditures method barred by the statute of limitations.

Held, that petitioner Seymour Katz did not furnish more than one-half the support of his two minor sons during the taxable year, hence he is not entitled to claim them as dependents in said year. The Commissioner is sustained.

Held, a loss sustained by tenants-in-common on the sale of unimproved real estate which they had received upon the liquidation of a family corporation was a capital loss. Held: a loss sustained by tenants-in-common on the sale of unimproved real estate which they had received upon the liquidation of a family corporation was a capital loss.

1. The father of petitioner's president and principal stockholder advanced $100,000 to petitioner at the time of its organization in May 1955, taking petitioner's note secured by a third… Held: the first advance was a contribution of risk capital, with respect to which no interest expense deductions are allowable; and the second advance created a bona fide indebtedness, with respect to which interest expense deductions are allowable at the rate provided for in the note. 2.

Held, the value of lodgings furnished petitioners by their corporate employer is excluded from their gross income under the provisions of section 119, I.R.C. 1954, such lodgings being… Held: the value of lodgings furnished petitioners by their corporate employer is excluded from their gross income under the provisions of section 119, I.R.C. 1954, such lodgings being furnished by the employer for its convenience and as a necessary condition of petitioners' employment.

A transferred a business in corporate form to B, a charitable foundation. Held: the transfer from A to B in this case constituted a bona fide sale of a capital asset. (2) C's rental payments were made for the use of the leased property and are deductible as ordinary and necessary business expenses.

Held, that subdivision lots sold by petitioner during 1957 and 1958 were held by him primarily for sale to customers in the ordinary course of a trade or business. Gains realized on such sales are taxable as ordinary income.

James and Mary Bryan were equal partners in Bryan Rock and Sand Company, engaged in the quarrying business, prior to James' death in 1953. Under James' will he appointed a bank executor of his estate with directions to pay all obligations and then bequeathed the residue of his estate to the bank, as trustee, to pay the net income therefrom to Mary for life. The will also directed the trustee to become a limited partner with Mary as general partner for the continued operation of the business. The partnership interest comprised by far the largest asset in James' estate. The bank entered into a limited partnership agreement with Mary shortly after James' death as executor and trustee under James' will. Formal administration of James' estate was not completed prior to Mary's death in 1957, nor had all of its obligations been paid at that time. Held: 1. James' estate was the owner of the limited partnership interest throughout the period involved, and was taxable on the limited partner's share of partnership income. Mary was not taxable on any part thereof. 2. The value for estate tax purposes in Mary's estate of her claim against James' estate for undistributed income determined to be the amount agreed upon by the executors of the two estates. 3. Respondent erred in disallowing deductions for costs of labor in opening up the Rawlings and Elm City quarries. 4. Deductibility of expenditures for maintenance, repair, or replacement of equipment determined. (a) For maintenance and repairs during development stage, deductible. (b) For replacements of dippers, dipper sticks, and shovel booms, capitalized. (c) For replacement of air compressor and conveyor equipment damaged in explosion, capitalized. (d) For miscellaneous equipment, capitalized because of lack of evidence. 5. Cost of repair parts purchased and used in 1953 but not billed or paid for until 1957, deductible in 1957. 6. Bryan Rock may not aggregate its 12 quarries for purposes of computing percentage depletion. No proper election filed. 7. Rates of depreciation used by partnership on its returns with respect to its equipment held to be correct. 8. Under the circumstances, partnership not required to reduce its basis for depreciation by salvage value.

Loss: Worthless stock: Sale price in excess of underlying asset value: Failure to establish worthlessness. - A claimed capital loss was disallowed in the absence of proof of worthlessness of the stock, where the sale price of the stock had exceeded the fair market value of the corporation's assets.

1. The fair market value of 62,982 shares of the capital stock of Seatrain Lines, Inc. included in the estate of the decedent was, on the applicable alternate valuation date, $5.50 per share or a total of $346,401. 2.

Held, under the facts, that 50 percent of the expenditures which petitioner expended for travel, meals and lodging on a European tour… Held: under the facts, that 50 percent of the expenditures which petitioner expended for travel, meals and lodging on a European tour which he took in 1959 under the auspices of Temple University, Philadelphia, Pennsylvania, is attributable to maintaining and improving his skills required by him as a school teacher in the elementary grades…

Held: (1) Petitioners realized taxable income from real estate transactions in the years 1955 and 1956 in the amounts determined. Held: Petitioners realized taxable income from real estate transactions in the years 1955 and 1956 in the amounts determined. (2) Petitioners have not established that they sustained a loss on the sale of the Skrmetti Building in 1955.

A decedent left his residuary estate in trust with the income payable to his sister for her life. Held: The purposes for which the principal may be invaded are not limited by any ascertainable standard. Consequently, the charitable deduction cannot be valued and is not allowable under section 2055 of the Internal Revenue Code of 1954.

Held, a portion of the amounts paid during the years 1952 to 1956, inclusive, by petitioner to its general manager, who was the father of petitioner's controlling shareholders, represented… Held: a portion of the amounts paid during the years 1952 to 1956, inclusive, by petitioner to its general manager, who was the father of petitioner's controlling shareholders, represented unreasonable compensation.

Held, a part of the deficiencies for each of the years 1944 through 1947 and a part of the deficiencies for each of the years 1949 and 1950 were due to fraud with intent to evade tax. Held: a part of the deficiencies for each of the years 1944 through 1947 and a part of the deficiencies for each of the years 1949 and 1950 were due to fraud with intent to evade tax.

S transferred a business in corporate form to University Hill Foundation. Held: The transfer from S to Foundation in this case constituted a bona fide sale of a capital asset. 2. A's rental payments accrued during the term of the lease were made for the use of the leased property and are deductible as ordinary and necessary business expense. 3.

Petitioner, who is primarily engaged in the business of an architect, also owned either individually or with associates, some six parcels of… Held: under section 1234 I.R.C. of 1954 petitioner was entitled to an ordinary loss for the amount he paid for the option, $4,000, plus subsequent expenditures on the parcel, as the optioned property was of the character of real estate used in his business within the meaning of section 1221(2) and section 1231(a), I.R.C. of 1954.

Reasonableness of compensation paid officer-stockholders determined.

Held, petitioners failed to prove a theft loss in 1957. Held: petitioners failed to prove a theft loss in 1957.

Respondent disallowed business losses taken as deductions by petitioner, a full-time employee (as a supervisor and administrator) of Lockheed… Held: petitioner was engaged in conducting a separate business in the basement of his home as a free lance engineer and inventor and entitled to the business loss deductions. In petitioner's employment contract with Lockheed he executed their usual contract wherein the employee, in effect, agrees to assign patents to employer.

Held: 1. Petitioner is not entitled to deduct expenses incurred while seeking new employment under the provisions of section 212, I.R.C. 1954, for the year 1956. 2. Held: Petitioner is not entitled to deduct expenses incurred while seeking new employment under the provisions of section 212, I.R.C. 1954, for the year 1956. 2.

On August 7, 1959, petitioner created a trust for the benefit of her children, naming a bank as trustee. By the terms of the trust its validity, construction, and administration were to be determined in accordance with the laws of Texas. The trust was established for a period of 121 months and provided that, at any time after the expiration of 10 years from the date of its establishment, it could be revoked upon written direction of the grantor. On February 26, 1962, after the income tax returns of petitioner for the years 1959 and 1960 were examined by respondent, a written direction was served on the trustee revoking the trust and demanding a return of the corpus. On March 14, 1962, the trustee brought an action in a Texas State Court to determine whether the trust was irrevocable. A notice of deficiency was issued to petitioner on March 20, 1962. With all parties before the court and represented by counsel in an adversary proceeding, the State court entered a judgment holding the trust to be irrevocable for 10 years. Held: 1. A State court judgment, rendered in an adversary proceeding, which construes the terms of a trust and determines the legal rights of the parties, is binding on the Tax Court. 2. The trust was irrevocable for a period of 10 years and, therefore, the income therefrom was not taxable to petitioner.

During the calendar year 1960 petitioner was employed as an engineering aide. During the period from January through August petitioner incurred expenses in going to night school in the amount of $960. Held: the expenditures are deductible under section 162(a), I.R.C. 1954, as interpreted in section 1.162-5(a)(1), Income Tax Regulations.

Business deductions: Farming expenses: Farming as a trade or business. - An oil tanker corporation that operated a farm which it had purchased from its sole stockholder was entitled to a deduction for expenses incurred in the operation of the farm because there was sufficient evidence to show that the farm was operated as a trade or business for the purpose of making a profit.

Value of partially improved subdivision lots and option to purchase additional acreage received in liquidation of collapsible corporation determined.

Held, that the loss sustained by petitioner from the worthlessness of a debt arising from advances to a corporation of which he was an officer and a stockholder constituted a loss from a… Held: that the loss sustained by petitioner from the worthlessness of a debt arising from advances to a corporation of which he was an officer and a stockholder constituted a loss from a nonbusiness bad debt, deductible only to the limited extent provided for short-term capital losses.

Held, petitioner, John J. Frick, did not provide more than one-half of the support of Nancy Frick and Timothy Frick, his children by a previous marriage, during the calendar year 1959. Held: petitioner, John J. Frick, did not provide more than one-half of the support of Nancy Frick and Timothy Frick, his children by a previous marriage, during the calendar year 1959.

Held, withdrawals of funds by petitioner from his wholly owned corporation were distributions tributions of earnings and profits, taxable as dividends, rather than loans as they were characterized on… Held: withdrawals of funds by petitioner from his wholly owned corporation were distributions tributions of earnings and profits, taxable as dividends, rather than loans as they were characterized on the corporation's books.

1. Withdrawals by petitioner from controlled corporations held to be bona fide loans, not disguised dividends. 2. Fair market value of lots purchased by petitioner from controlled corporation and sold by petitioner to another controlled corporation determined. 3. Excess of fair market value of lots purchased from controlled corporation over amounts paid by petitioner to corporation for the lots constituted dividend income to petitioner. 4.

The petitioner, an estate and gift tax examiner-reviewer for the Internal Revenue Service, completed a previously commenced night law school course in 1958. Held: That the educational expenses were incurred primarily to maintain and improve petitioner's skills required by him in his employment and that such expenses are therefore deductible under section 162 of the 1954 Internal Revenue Code.

Capital v. ordinary loss: Sale or exchange of capital asset: Worthless security: Settlement of action for failure to deliver stock. - The taxpayer paid for shares of stock in a corporation which were never delivered to him. He ultimately settled out of court with the seller for an amount substantially less than he paid. He then claimed a casulty loss due to fraud for the difference.

1. Husband signed wife's name to waivers extending time within which to assess deficiencies on joint returns for 1951 and 1952. Held: assessment of deficiencies against wife for those years barred by statute of limitations. 2. Held, petitioner not entitled to deductions for purchases in excess of amounts allowed by respondent for the years 1953 and 1954. 3. Held, petitioner is entitled to dependency credit for son for year 1953. 4.

Held: 1. Amounts incurred by a corporation in the operation of hydroplane racing boats, which were for the dominant purpose of advertising… Held: Amounts incurred by a corporation in the operation of hydroplane racing boats, which were for the dominant purpose of advertising its business, were proximately related thereto, and from which the corporation derived substantial economic benefits, are deductible as ordinary and necessary business expenses under sec. 162(a), I.R.C.…

Held, an involuntary sale of petitioner's real property occurred on August 7, 1957, at the time the City of New York acquired title to its… Held: an involuntary sale of petitioner's real property occurred on August 7, 1957, at the time the City of New York acquired title to its property upon the issuance by the Supreme Court of the State of New York of its order of condemnation. 44 West 3rd Street Corporation, 39 T.C. 809 (1963), on appeal (C.A. 2, May 13, 1963) followed.

1. Held, adjustments with respect to principal petitioner's proprietorship's opening inventory, and accounts receivable and payable,… Held: adjustments with respect to principal petitioner's proprietorship's opening inventory, and accounts receivable and payable, made by respondent acting pursuant to section 481, I.R.C. 1954, to prevent duplications and omissions, following petitioner's voluntary change in 1954 from the cash to a modified accrual method of accounting for…

A trust instrument conveying oil and gas royalties and grantor's reversionary interest to a trustee for the benefit of grantor and his four children, created a single trust, not five separate trusts. Incorporation by reference of provisions of The Texas Trust Act into the trust instrument entitled the trustee to allocate all allowable depletion deductions to the trust and none to the beneficiaries.

1. Legal expenses paid in 1956 and 1957 were directly related to petitioner's acquisition of an interest in a corporation, and cannot be deducted from ordinary income. 2. No Bad Debt deductions are allowable as to loans that are worthless when made.

During the years 1948 through 1953, the present decedent made regular weekly payments of from $125 to $300, totaling $82,541, to a woman,… Held: that since repayment to the decedent was contingent and conditional upon the woman-payee's realization of proceeds from the lawsuit and this event never occurred, no debtor-creditor relationship and no debt within the meaning of section 166 of the 1954 Code ever came into existence; and hence, no existing debt became worthless in…

The petitioners leased warehouse space to a large manufacturing company and had already constructed one warehouse specifically for its use. Held: In substance this was simply a financing arrangement whereby the petitioners were acquiring an equity in the property with each payment. Consequently no rental deduction is allowable under section 162(a)(3) of the 1954 Code.

1. Petitioners incurred sizeable losses over a number of years in the operation of a farm used for dairying and raising purebred herds of cattle for breeding purposes. Held: the operation of the farm was a business and the losses incurred therefrom in 1956 and 1957 were deductible. 2. Clerical and accounting expenses incurred in petitioner's New York office were deductible. 3. Deduction for sales tax claimed on returns denied for lack of proof.

1. Held, that petitioner Archbold van Beuren, in publishing Cue Magazine during the years 1955, 1956, 1957 and to October 31, 1958, under a… Held: that petitioner Archbold van Beuren, in publishing Cue Magazine during the years 1955, 1956, 1957 and to October 31, 1958, under a license agreement with Cue Publishing Company, Inc., dated December 16, 1954, was engaged in a trade or business conducted for profit and is entitled to deduct whatever losses resulted from such…

Held, that the petitioner corporation is entitled to a deduction of $15,000 for its fiscal year 1957, representing the amount which it paid during said year in compromise settlement of a judgment for damages, entered against it in the Superior Court of Massachusetts, for causing loss of business profits and income to the plaintiff in said suit.

Held, that the subfranchises which were sold during the taxable years by a partnership of which petitioner Vern H. Moberg was a member were not held primarily for sale to customers in the ordinary course of business but represented capital assets sold and the gains from such sales are taxable as long-term capital gains; held, further, that the sellers were entitled to allocate to each sale a part of the cost basis of the master franchise; and held, further, that the purchase price of such sales consisted of the lump-sum payments and the gallonage payments, and the royalties were not a part of the sale price. The royalties are taxable as ordinary income.

A sum of $35,000 received by the surviving husband of the decedent from the decedent's estate in settlement of his claims to share in the estate held allowable as a marital deduction under section 2056 of the Internal Revenue Code of 1954.

Held, that the principal petitioner is not entitled to a deduction for prepaid interest paid to a bank in connection with a tax reduction scheme conceived and engineered by M. Eli… Held: that the principal petitioner is not entitled to a deduction for prepaid interest paid to a bank in connection with a tax reduction scheme conceived and engineered by M. Eli Livingstone, involving the purported purchase of United States Treasury Notes with allegedly borrowed funds.

Expenditures held not incurred in the course of travel away from home in pursuit of taxpayers' trade or business.

In the years 1944 to 1957, inclusive, the president and majority stockholder of a family corporation withdrew corporate funds most of which were used to pay for the majority stock which was being purchased by him under a deferred payment contract. The corporation carried an account receivable on its books which showed a balance due when he died in 1957. The balance of this account had been carried as an asset by the corporation on all of its balance sheets through the years. The day following his death a bank was appointed administrator of his estate, and during administration held decedent's majority stock. After consulting the bank's trust officer about the account and being advised that it would not be paid, the corporation's accountant credited the unpaid balance of decedent's withdrawals to this account on the books of the corporation and charged it against surplus in 1958. At that time earned surplus and undivided profits exceeded the charge-off. Held: The crediting of decedent's account with the amount of the debt and the charge-off against surplus constituted the cancellation of an indebtedness owed by decedent to the corporation and thus a dividend to the estate in 1958.

Provisions of a separate maintenance judgment and of an amended judgment allocated a portion of the annual payments for tax purposes only for the support of the children. Held: such provisions did not fix any portion of the payments for the support of the children within the meaning of section 71(b) of the Internal Revenue Code of 1954 and, therefore, petitioner is entitled to deduct the annual payments in full under section 215(a) of the Internal Revenue Code of 1954.

1. Petitioners' advances to two corporations in which they were the only stockholders held to be nonbusiness bad debts or additional investments in the corporations, the losses on which were deductible as a capital loss. 2. Petitioners are liable for additions to tax for failure to file a declaration of estimated tax for 1954 and for late filing of their income tax returns for 1957 and 1958.

Sometime after January 23, 1956, two brothers acquired control of a corporation engaged in the manufacture and sale of ice. Held: The principal purpose for the acquisition of control of the ice corporation by petitioner was the evasion or avoidance of Federal income tax by securing the benefit of deductions for net operating losses which it would not otherwise enjoy, and consequently the respondent properly disallowed the use of these losses under section 269…

On remand by the United States Court of Appeals for the Eighth Circuit, following a decision of the United States Supreme Court, petitioners filed a motion for a further hearing. This motion concerns a redetermination of deficiencies resulting from the inclusion in gross income of amounts payable for dancing lessons under contracts where the lessons had not yet been given and where the amounts were not due and payable in the taxable periods involved. Held, said motion is granted. Held, further, that petitioner's motion to set these proceedings for further hearing to permit the raising of the issue and the hearing of evidence thereon as to the fair market value of negotiable notes taken from students in part payment for dancing lessons, is denied. No such issue has been remanded to us for further hearing.

Petitioner's decedent, C. W. Smith, was a fifty percent partner in the C. W. Smith Company during the years 1952, 1953, and 1954, and accordingly is liable for income taxes on fifty percent of the distributable income of the partnership for those years.

Petitioner made leasehold improvements on premises leased from its sole stockholders. Held: petitioner must depreciate the cost of the improvements based on their useful life. There was a reasonable certainty that petitioner's lease would be renewed.

Depreciation: Useful life: Repairs: Capital expenditures. - The petitioners were in the business of buying property in a run-down condition which they would remodel and sell. Held: All of the improvement expenses should be capitalized since they were part of a general plan of renovation. The useful lives of the building and improvements are determined. A carpet which was sold with another piece of property was found to be an addition to capital.

Amount of tips received by petitioner determined.

Amount of tips received by petitioner determined.

In 1952 the petitioner, a real estate business run by two brothers, amended its articles of incorporation to allow it to charter boats and engage in other marine activities. Held: The petitioner was not engaged in the trade or business of chartering fishing boats within the meaning of sections 162(a) and 167(a) of the 1954 Code, and expenses incurred in owning and operating such boats are not deductible in either 1958 or 1959.

Contract for removal of gravel from a gravel deposit on petitioners' land held to be a sale of the gravel deposit in place and proceeds received by petitioners thereunder were taxable as capital gain rather than ordinary income.

1. Held, that petitioner derived unreported taxable income for each of the years here involved. Amounts of such unreported income determined. 2. Held: that petitioner derived unreported taxable income for each of the years here involved. Amounts of such unreported income determined. 2.

Dependency credit exemption for infant son living with divorced wife denied. Petitioner failed to prove he provided more than one-half of the son's support.

Petitioner Denise received $25,000 in cash from her mother, Katherine L. Montgomery, in 1952, $16,000 as gifts to Denise and $9,000 as gifts to Katherine's three grandsons. Held: The statute of limitations does not bar the proceedings against petitioners as transferees; (2) Denise is liable as transferee and Michael as transferee of a transferee to the extent of $16,000.

Held: That under the decedent's will there passed to the surviving spouse a one-third interest in the entire net probate estate and that the value of such one-third interest is allowable as a marital deduction under section 2056 of the Internal Revenue Code of 1954. Held, further, that the petitioner is liable for an addition to tax under section 6651 of the Internal Revenue Code of 1954, for failure timely to file an estate tax return.

Petitioners understated taxable income on their income tax returns for the years 1939, 1941, and 1943 to 1957, inclusive. Held: Part of the deficiency for each of the years in issue was due to fraud with intent to evade tax; (2) The income tax returns filed by petitioners for the years involved were false and fraudulent with intent to evade tax; (3) Additions to tax under section 294(d)(2), I.R.C. 1939, are inapplicable; (4) Additions to tax under section…

(1) The fair market value of the rights to produce a musical play and the rights to produce a motion picture based upon said musical play, based upon George Bernard Shaw's play, Pygmalion, as of the death of decedent, Gabriel Pascal, July 6, 1954, determined. (2) The fair market value of a right to produce a motion picture based upon Shaw's play, Devil's Disciple, determined.

Held: Unimproved real estate purchased at tax-delinquency sales and held for substantial periods without development or sales activity was not held for sale to customers in the ordinary course of… Held: Unimproved real estate purchased at tax-delinquency sales and held for substantial periods without development or sales activity was not held for sale to customers in the ordinary course of taxpayer's trade or business. Proper years to report certain income determined.

Held, that the petitioners are not entitled to deductions for depreciation on or amortization on account of an atomic bomb shelter. Held: that the petitioners are not entitled to deductions for depreciation on or amortization on account of an atomic bomb shelter.