Volume 23 — Board of Tax Appeals

1. The petitioners reported in their returns for the years 1921, 1922, 1923, and 1924, upon the installment basis, the amounts of cash actually received by them in those years from their interests… Held: upon the facts that the petitioners are taxable in the years 1923 and 1924 upon the amounts of cash actually received by them and reported in their returns for those years. 2. Deductions for depletion allowances on the lease denied. H. C. Walker, Jr., et al.,6 B.T.A. 1142.

Deductibility of bad debts determined.

The Commissioner has determined that the petitioner derived a profit of $28,066.33 upon the sale in 1923 of its investment in a subsidiary corporation. Held: that for lack of evidence proving error on the part of the Commissioner, his action in determining a taxable profit of $28,066.33 from the transaction will not be disturbed.

The petitioner was sued for an unpaid balance of rent in the amount of $29,000. It settled the suit for $20,000. Part of this amount had been properly accrued and deducted on returns for prior years and should not be deducted again. Part had been accrued but the accruals reversed within the year under circumstances which would not permit the amount to be taken as a deduction for the year. This latter amount was a proper deduction in the year of settlement.

Held, respondent did not err in refusing to credit the petitioner with any part of its contribution to the total income and profits… Held: respondent did not err in refusing to credit the petitioner with any part of its contribution to the total income and profits taxes paid upon the consolidated net income of the petitioner and two other corporations, which were not affiliated within the meaning of the taxing statute during the taxable year, the total tax being paid by…

Where a corporation sells a part of its assets and the amount received therefor is paid directly to two stockholders owning all the stock except a single qualifying share, the transaction is a sale by the corporation and the profit realized, if any, is an element of its gross income.

1. DEPRECIATION OR OBSOLESCENCE. - Where it does not appear from the evidence that an extraordinary process of becoming obsolete actually set in at any time during the taxable year, no more is allowable than the deduction for depreciation based upon the ordinary sueful life of the property under a lease agreement. 2.

The evidence establishes the existence of a partnership between the petitioner and his wife during the taxable years.

Loss sustained in 1921 on certain securities held to have been incurred in a trade or business regularly carried on.

Petitioner was affiliated with another corporation for the last four months of 1926, for which period it filed a separate return. A consolidated return may not be filed for 1927 without permission of the Commissioner, the short period being a taxable year for the purpose of electing whether to file separate returns or a consolidated return.

1. Additional compensation of officers and employees for services in prior years held reasonable and proper and deductible from corporation's income year in which paid. 2. Losses claimed by reason of alleged worthlessness of oil and gas lease disallowed for lack of evidence. 3.

Where a taxpayer buys real estate upon which is located a building which he proceeds to raze within a short time thereafter with a view to erecting thereon another building, he has not sustained a deductible loss by reason of the demolition of the old building.

1. The disclosures in a patent application are addressed to those skilled in the art to which the inventions therein disclosed pertain, and therefore the valuation of such an application must be made in the light of the value which would be considered as attaching thereto by those skilled in that particular art. 2.

1. DEDUCTIONS - EXPENSES. - Payments made by petitioners, a realty holding company and a realty operating company, for advertising a mercantile house which was their principal tenant, largely indebted to them, and the maintaining of whose business in its present location was principal factor in maintaining a high rental scale on other property they controlled in the immediate vicinity, held to be reasonable and necessary business expenses deductible from gross income in the…

1. Under section 302(e) of the Revenue Act of 1924 there should be included in the gross estate of the decedent the full value of property acquired by the decedent and his wife as joint tenants prior to and subsequent to the passage of the Revenue Act of 1924. 2.

Where the principal stockholder of a corporation transfers promissory notes to it without consideration which are taken into its assets accounts and increase the book surplus thereof, the interest on such notes is income to the corporation.

Shares of capital stock owned by petitioner became worthless in 1924 and the cost thereof is a proper deduction from petitioner's gross income in that year.

The petitioner in 1905 purchased a piece of real estate for $2,500 for the purpose of erecting an ice plant on it, in the event the drilling of a well thereon would supply sufficient water. Held: That the cost of drilling the well, $5,396.99, in 1905 was a loss, so ascertained in that year and not, therefore, a deductible loss in 1925, when the property was sold to Thomas.

The respondent's determination of the amounts allowable as deductions for depletion approved.

Commissions and escrow expenses paid in connection with an installment sale of real property by one not a dealer in real property are not deductible in the year of sale, but are added to cost and serve to reduce the profit, thus being spread over the same period as the installment payments.

The cost of building up a magazine circulation structure is a capital expenditure while the cost of maintaining a circulation structure, once established, is an ordinary and necessary business expense.

Held, that petitioner comes within the provisions of section 204(a)(7) and (c) of the Revenue Acts of 1924 and 1926 and the basis for calculation of depreciation on assets acquired by petitioner is… Held: that petitioner comes within the provisions of section 204(a)(7) and (c) of the Revenue Acts of 1924 and 1926 and the basis for calculation of depreciation on assets acquired by petitioner is the basis in the hands of the transferor.

1. EXPENSES - COMPENSATION. - For 1927 the petitioner paid to its officers only a portion of the commissions earned by them respectively, upon insurance and surety bond business actually written by… Held: that the total amount paid to such officers constituted commissions earned by their personal efforts and deductible, and that respondent erred in determining a portion thereof to be dividends. 2.

1. INSTALLMENT SALES - REAL ESTATE. - In 1925 one petitioner sold at a profit certain real estate for $452,500 of which $252,500 was to be paid in cash and the balance by assumption of liability for a first mortgage then upon the property. By the contract of sale $78,500 was paid in cash in that year and the balance on installments in succeeding years. Held, that in applying section 212(d) of the Revenue Act of 1926, the "total contract price" was represented by the $252,500 cash and the "purchase price" by the $452,500 cash paid and mortgage liability assumed. 2. TRANSFEREES. - Two of the petitioners held to be severally liable for the unpaid tax deficiency of the third, one as the purchaser of all of its assets under an agreement whereby it was obligated to pay its debts, and the other as its stockholder to whom was distributed in liquidation the consideration received from the first petitioner in the transaction of sale, this consideration being in excess of the unpaid deficiency in question.

1. INCOME - BOND PREMIUM. - Petitioner issued and sold in 1925, $2,000,000 of its first mortgage 5 per cent 20-year bonds, receiving therefor in that year $2,125,400. Held: that the premium received represents taxable income, to be amortized over the life of the bonds. 2.

1. A railroad having defaulted in payment of interest on its outstanding bonds, its property was decreed to be sold as an entirety to discharge the bonds, and compliance with the… Held: that the difference between the par value of the new bonds distributed to the old bondholders and the par value of the old bonds surrendered was not discount, and the consolidated company, which was on the accrual basis, was not entitled to deduct any part thereof by way of amortization.

Subscribers to capital stock, after making partial payment on their subscription agreements, defaulted in meeting the remaining payments due. Held: the payments declared forfeited are not income to the corporation.

1. Held that numerous expenditures made by petitioner in a professional capacity as a lawyer on behalf of his clients are not deductible as ordinary and necessary business expenses of petitioner for… Held: further, that amounts paid petitioner in the following year as reimbursement for such expenditures did not constitute income to petitioner in such year and should be excluded from income reported for that year. 2.

Held that the petitioner and J. A. Folger & Company, a California corporation, were affiliated corporations within section 240 of the Acts of 1918 and 1921, during the periods involved.

The petitioner had a capital net loss, within the meaning of section 208 of the Revenue Act of 1924, for the year 1924 in the amount of $22,135.21. Held: that the provision of section 208(c) which imposes a tax on an individual sustaining a capital net loss and prescribes the method of computing such tax, is not unconstitutional.

1. A corporate taxpayer which assumes the bonded indebtedness of a predecessor in business, as part consideration for its predecessor's assets and business, realizes no taxable gain from the purchase, for retirement, of its predecessor's bonds, at a price less than the face or par value of such obligations. Any and all sums paid by the petitioner for the retirement of such obligations represent payments on the purchase price of the assets and business. 2.

1. AFFILIATION. - Whether three companies were affiliated in 1921, 1922, and 1923 could not be determined in those years as the ownership of two was in litigation not terminated until 1924. For two of the companies no returns were filed during the litigation and the third company filed a separate return in each year reporting such income as was not involved in litigation and advising the Commissioner of the peculiar conditions in respect to all three companies. Upon termination of the litigation, consolidated returns were filed for all of the three years. Held, that the filing for 1922 of a separate return by one company did not, under these facts, constitute the exercise by these companies of the option provided by section 240(a) of the Revenue Act of 1921. 2. INCOME. - One of the petitioner corporations contracted in 1920 for the sale and conveyance of most of its assets and business. This contract, after the first payment of $100,000 was made, was repudiated by the purchaser, who, as a result of suit brought against him, settled the controversy, petitioner retaining its property and the payment already made, and receiving in addition, payment of $755,000. The amount paid was measured by the losses incurred in operation of the properties for the purchaser following the execution of the contract. Held, that the items of $755,000 paid and $100,000 retained under the contract of settlement represented income to petitioner. Burnet v. Sanford & Brooks Co.,282 U.S. 359. Held, further, that these amounts should be included in income for 1924, in which year the litigation under which they were secured was terminated. Lucas v. American Code Co.,280 U.S. 445.

1. ESTATE TAX. - The amount of inheritance tax paid by the estate to the State of Missouri allowed as a credit, subject to the limitation contained in section 301(b) of the Revenue Act of 1924. 2. Land owned by the decedent in Missouri at the time of his death is not subject to the expenses of administration of the estate, and the value thereof is not includable in the gross estate. Crooks v. Harrelson,282 U.S. 55. 3.

There being no showing that the petitioner actually incurred in the taxable years in question the liability to pay out certain amounts set up as reserves for refilling a sand pit, such amounts are not deductible in computing net income for those years.

1. Held, that where a husband, resident in California purchases a half interest in real estate, paying for the same with community funds, and at his instance has the deed to the same made to his wife and himself, the presumption is - nothing more appearing - that the interest which the wife takes therein is as tenant in common and is her separate property and the respondent erred in including such interest in the gross estate of her deceased husband for estate-tax purposes. 2. Held, further, that the profits received by the wife from a business partnership with her husband and another, which profits or funds were by her turned over to her husband and with her knowledge and consent deposited in banks to his account and never to hers, were, in the circumstances of the instant case, community property and upon the death of the husband such funds then in banks to his credit were by the respondent properly included in the gross estate of the decedent for estate-tax purposes.

Held that a so-called supplemental agreement dated August 15, 1919, constituted a new contract between the parties and that income received in 1920 and 1921 pursuant to its provisions was not derived from a Government contract made between April 6, 1917, and November 11, 1918, both dates inclusive, and hence was not taxable under the provisions of section 301(c) of the Revenue Act of 1918 and section 301(b) of the Revenue Act of 1921. Goss Printing Press Co.,11 B.T.A. 365.

1. Held that there is no gift inter vivos where possession and control are retained by the alleged donor after the date of the alleged gift. 2. Held that the words actually paid, as they are used in section 301(b) of the Revenue Act of 1926, mean actually paid in cash, or its equivalent, by the estate of the deceased.

BAD DEBT. - Where the debtor was the holder or in possession of a valuable location for a filling station and the petitioner as creditor obtained a judgment against the debtor and became the purchaser of the leasehold and certain personal property under execution in November and December, 1921, and took possession thereof, and thereafter within the period of redemption made a settlement with the debtor in June, 1922, by which it obtained its entire debt, the debt was not…

- The petitioner set up a reserve for bad debts. The respondent allowed actual bad debts as a deduction. Held: that the respondent's determination will not be disturbed where petitioner fails to establish the reasonableness of the reserve claimed.

1. INCOME - SALE OF LAND. - Value as of March 1, 1913, as determined by respondent, accepted in the absence of proof of a higher value. 2. Id. - The value when received of certain notes secured by second mortgage on the property sold and evidencing the purchaser's indebtedness for the deferred payments, held, upon the evidence, to be $47,000. 3. Id. - DEPRECIATION, - The evidence disclosed that between March 1, 1913, and the year 1925, when sold, the orange grove in question was well cultivated and cared for and sustained no physical depreciation but, on the other hand, increased in productive capacity. Held, that on this showing respondent erred in decreasing the basis for computing gain on the sale, by an amount as representing depreciation sustained between those dates.

In the taxable year the petitioner expended certain amounts to secure the development of oil and gas property which he owned. Held: that in the absence of proof as to whether the completed well was nonproductive, the amount of such expenditure is not deductible from income.

Where real estate is sold and 20 per cent of the gross consideration is paid in cash and the remainder is represented by notes payable over a period of years, only a pro rata portion of the commission, based on the ratio of the payments made in the year of sale to the gross consideration, may be deducted as selling expenses in the year of sale.

Amounts paid by petitioner to his attorneys for services rendered and expenses incurred in connection with demands made on behalf of his divorced wife for an accounting of the administration of her financial affairs during marriage, which were handled through accounts with a partnership of which petitioner was a member, and over which petitioner exercised control only with her advice and cooperation, are held to have been related directly to petitioner's marital situation…

Stock acquired by gift before December 31, 1920, and after March 1, 1913, was sold in 1923 for a consideration amounting to less than the value at the date of the gift, which was payable over a period of years.

1. The proceeds of certain insurance policies should be included in the gross estate of decedent. 2. Where the settlor of a trust estate reserves to himself alone a power to change the ultimate beneficiaries of the trust, such reservation constitutes a power to alter or amend and renders the transfer incomplete until his death. The property is therefore properly included in his gross estate subject to tax under section 302(d) of the Revenue Act of 1924. 3.

From March 1, 1913, to the beginning of the taxable year, a corporation annually made distributions to its stockholders in excess of its taxable net income. The Commissioner increased the allowances for depletion for years prior to the taxable year. Such of which represented a liquidation of the corporation. The petitioner book value of its paid-in surplus. In the taxable year the decedent received distributions from this corporation, a portion of which represented a liquidation of the corporation. The pttitioner claims that such pro rata part of the distributions received as is applicable to the increases in allowances for depletion in prior years is not taxable to the recipient. Held, that such portion of the distributions received in the taxable year as represents earnings of the taxable year constitutes taxable income.

1. When stock is issued for an aggregate of tangible and intangible assets, subject to liabilities, it should be allocated to the net value of tangibles and intangibles. Money paid in satisfaction of liabilities does not affect invested capital. 2. The method used by the respondent in calculating the credit on account of profits taxes, approved.

Action of respondent in including in gross estate entire value of certain property approved.

Dividends on preferred stock declarable out of net earnings only may not be regarded as interest on borrowed funds.

The petitioner owned two tracts of land which were damaged by flood. Held, that the shrinkage in market value resulting therefrom is not deductible from gross income for Federal tax purposes under the provisions of section 214(a)(4) of the Revenue Act of 1921 as a loss sustained in that year.

A lease not signed by the lessee transfers no property interest and is not evidence of a gift from one party to the other.

The prior decedent died intestate on August 4, 1918. From his estate the present decedent received certain corporate stock pursuant to an order of distribution made by the probate court on June 8, 1920. The present decedent died April 22, 1925. Held that in determining the net estate of the present decedent a deduction may not be taken under the provisions of section 303(a)(2) of the Revenue Act of 1924 on account of the corporate stock received from the estate of the prior decedent.

Petitioner sustained no deductible loss upon an exchange of stock of, and accounts against, another corporation, for certain shares of its own capital stock. Houston Brothers Co.,21 B.T.A. 804, followed.

1. A citizen of the United States, resident of the Philippine Islands, is required to satisfy both of the conditions set forth in subdivisions (a)(1) and (a)(3) of section 262 of the Revenue Acts of 1921, 1924, and 1926 requiring that 80 per centum or more of his gross income must be derived from sources within the Philippine Islands, and also that 50 per centum or more thereof must be derived from the active conduct of a trade or business within a possession of the United…

Where the terms of a will, under which a trust is created, do not authorize the withholding of a part of the income from the trust property for the purpose of replacing wasting assets on the termination of the trust, the amount so withheld by the trustees is distributable to the life beneficiaries of such trust and therefore taxable to them.

Under the terms of 99 proprietary leases, assessments were levied by petitioner, a cooperative apartment house corporation, on its stockholder-tenants for the purpose of amortizing mortgages on its… Held: that such assessments were contributions to the capital of the corporation and not taxable income.

Where the lessor of a building at its own expense made certain improvements of a permanent nature beyond those agreed upon in the original lease, which was to run for a period of twenty years, and the lessee, in consideration of the speeding up of the construction of the building and these additional permanent improvements, agreed to pay an additional rental of $833.33 1/3 a month for a period of two years, such payments, when made, are ordinary and necessary business…

1. A corporation discontinued business on March 31, 1921, and transferred all of its assets to the petitioner, sole stockholder of the… Held: that the transaction was in substance a liquidation of the corporation to the petitioner and that the petitioner is accordingly liable as transferee under the provisions of section 280 of the Revenue Act of 1926 on account of such transfer. 2. The value of assets received by the petitioner in the foregoing transfer determined. 3.

1. Taxpayer, who was in the business of building and selling houses, in 1919 purchased a tract of land for use in his business and in 1922 and 1923 built houses thereon and sold them for a profit. Held: inasmuch as the land was held for more than two years and was a capital asset within the meaning of section 206 of the Revenue Act of 1921, the taxpayer may elect to have the portion of the profit from the sale which is allocable to the land taxed to him as a capital gain. 2.

Petitioner held not affiliated with the Joyce-Koebel Company, Inc., during the taxable years 1923 and 1924.

The assignment of future income by the petitioner herein to her husband under the facts of this case does not divest her of the liability for payment of the tax thereon.

The petitioner in 1924 created an irrevocable trust fund for the support and maintenance of his wife and their two children, in contemplation of a divorce, which was obtained later in that year. Held: that the income from the fund in 1927 is not taxable to the petitioner.

1. An allowance determined for exhaustion, wear and tear of property used in the iron furnace business, including a reasonable allowance for obsolescence. 2. Held: that the entire amount received constituted income to the petitioner when received in 1920. 4. Commissioner's adjustment of invested capital under articles 845 and 845(a) of Regulations 45, sustained.

1. Where petitioner, as the result of investments made in his individual capacity but in order to benefit the partnership of which he was a member, expended amounts in defense of a law suit, held,… Held: that such expenditures are deductible from his individual gross income as ordinary and necessary expenses of his business. 2. Upon the evidence, held, that petitioner is not entitled to certain deductions claimed on account of losses. 3.

Decedent by his will directed that his residuary estate be divided into six equal shares, two of which shares he bequeathed and devised… Held: decedent did not, under the laws of Pennsylvania, create a legal trust in respect of the shares in the residuary estate devised to his sons, but the executors and trustees were merely agents of such devisees, who are taxable upon the income derived from the residuary estate and are entitled to deduct in their individual returns their…

1. The petitioner having filed separate returns for 1922 and 1923, is not entitled to have its tax computed for those years on a consolidated basis. 2. Advances to, and investment in capital stock of a corporation, held on the evidence to have been made by the petitioner, and since the corporation became bankrupt in 1922 without sufficient assets to pay unsecured creditors, of which petitioner was one, the amounts so advanced and invested were proper deductions from income for the taxable year and the Commissioner erred in disallowing them.

Held that petitioner has failed to prove the amount of stock, if any, which he claimed he was compelled to surrender to other stockholders without consideration, and that he has thus failed to prove that he sustained a deductible loss.

,1. Petitioner acquired the assets and assumed the liabilities of another corporation, and, during the taxable year, to assure fulfillment of its obligation, it made a deposit of cash and bonds with… Held: there was no loss or expense, and no basis for a deduction, in the taxable year. 2.

1. Upon the evidence held that a transaction whereby petitioner exchanged stock in one corporation for stock in another was consummated in the taxable year in question and that the respondent did not… Held: that a broker's fee paid by the petitioner in 1922 for negotiating the sale and exchange of stock is not deductible in the year paid as an ordinary and necessary business expense, but operates to reduce the ultimate profit upon such transaction.

1. Petitioner was adjudicated a bankrupt in 1923. Held: that the discharge in bankruptcy does not bar assessment and collection of additional tax, if any, due for the year 1921. 2. Upon the evidence, held that certain stock received by petitioner in exchange for other property had no readily realizable market value and that no taxable gain was derived by petitioner from the transaction.

Where petitioner, prior to March 1, 1913, rendered services to a corporation under an oral agreement that he was to be compensated therefor when the company came into funds, and where the amount of… Held: that as of that date his claim for compensation was contingent, indefinite and unliquidated and that the amount ultimately paid him is taxable when received.

Where a corporation engaged in manufacturing and selling speedometers sold all its assets in 1921, changed its name, and proceeded to engage in another line of business, but under the same charter, held, that there was no change in the legal entity and that a net loss sustained by it in 1921 is deductible from its 1922 net income.

Where, under the facts here presented, the liquidating trustees of a dissolved corporation actually distribute to the stockholders thereof in the year 1925 their pro rata share of the corporate assets, and the stock of the corporation is surrendered and canceled, a loss suffered by the stockholders is sustained as of that time and the deduction may not be postponed until the following year when the accounts of the trustees are finally approved by the court and the…

Section 319 of the Revenue Act of 1924, levying a tax upon gifts of property "wherever situated," held not to apply to gifts or real property situated outside the United States.

1. The petitioner executed a conditional contract for the sale of certain property in 1906. The purchase price was to be paid in installments to a trustee over a period of thirty-six years. Held: the amounts so paid to the trustee annually did not constitute income to the petitioner before the incumbent conditions had been fulfilled. 2. Reasonable allowances for wear, tear and exhaustion, including obsolescence, of petitioner's properties determined. 3.

Insurance companies taxable under section 246 of the Revenue Act of 1926 may not be included in a consolidated return with other corporations.

The income upon shares of stock held in trust by the petitioner for her minor son is not taxable to her.

1. Value of a lease for invested capital and exhaustion purposes determined. 2. Held: the bonus payment to petitioner was not a return of capital, but was income to it in the year when received. James M. Butler,19 B.T.A. 718; Douglas Properties, Inc.,21 B.T.A. 347, followed.

1. One of petitioner's officers contracted to serve petitioner for a number of years at an agreed annual compensation and to place his stock in trust for a term of years. Upon the death of the officer before the termination of the contract, petitioner paid to the officer's estate for a period of time the sums it had agreed to pay the officer.

1. Upon the evidence, held, that a contract for sale of certain properties entered into in June, 1919, was an executory contract with a… Held: that a contract for sale of certain properties entered into in June, 1919, was an executory contract with a condition precedent, and that the title to said properties did not pass until said condition precedent was complied with in 1924, and therefore no income was received by petitioner on the resale of a part of said properties…

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

1. Where the petitioner voluntarily changes its accounting period from a calendar year basis to a fiscal year basis ending November 30, held, that a… Held: that a statutory net loss incurred in the eleven-month period ending November 30, 1922, may not be carried forward to that part of the fiscal year ending November 30, 1924, which fell in 1923 and which is taxable under the Revenue Act of 1921. Dorsey Drug Co.,7 B.T.A. 229; Strain Bros., Inc.,19 B.T.A. 601, followed. 2.

The petitioner under his father's will took a vested remainder interest in certain real estate subject to a life estate in favor of petitioner's mother. Petitioner's father died April 12, 1913. On January 11, 1919, the petitioner and his mother entered into an agreement to sell the real estate upon a deferred payment plan. Petitioner's mother died June 9, 1921. Held, that the petitioner acquired his interest in the real estate upon his fathers' death on April 12, 1913, and that the value thereof on that date is the correct base to be used in computing petitioner's taxable gain. Held, further, that petitioner's gain in each of the years 1924, 1925, and 1926 was correctly computed by the respondent upon the basis of an installment sale in 1919.

A certain stock transaction involved herein held not to be an exchange of stock for stock within the meaning of the taxing act.

1. The fair market value of plant and equipment at the time paid in to the Connors Steel Company for stock and the rate of depreciation thereon determined. 2. Held: that the use of a certain process by the petitioners under the circumstances presented did not create an abnormal condition affecting their capital and income.

1. Petitioner created a trust, retaining the power, in conjunction with two others, to revest the corpus of the trust. Held: the income of such trust is taxable to the petitioner under section 219 (g) of the Revenue Acts of 1924 and 1926. 2.

An estate of joint tenancy in Illinois real estate was created in 1909 between the decedent and his wife. The decedent died in 1923. Held that only one-half of the value of such property is to be included in the gross estate of the decedent for the purpose of the estate tax. Mary Allen Emery, Executrix,21 B.T.A. 1038, followed.

1. Fair market value of notes in connection with the sale of real estate as determined by the respondent approved. 2. Petitioner held not entitled to the benefit of the capital gain provisions of section 208 of the Revenue Act of 1926. 3. A commission paid in connection with the purchase of real estate constitutes a part of the cost of the property and is not deductible as an expense.

Where the Commissioner sends a notice of deficiency to a taxpayer within the statutory period of limitations and the taxpayer does not appeal therefrom to the Board and, after the statutory period of limitations has tolled with respect to the determination of a deficiency, the Commissioner sends a further notice of deficiency to the taxpayer but within the period during which the statute of limitations is suspended for the purpose of the assessment and collection of the…

1. ESTATE TAX. - Upon the evidence held that respondent erred in including in the gross estate of the decedent certain stock which decedent had transferred to his wife. 2. Id. - Evidence held insufficient to establish that the Commissioner's valuation of stock of a closely held corporation was erroneous. 3. Id. - Entire amount of money in bank account held by decedent and his wife as joint tenants should be included in decedent's gross estate.

1. Petition in Docket No. 9689 dismissed as to the subsidiary corporations against which no deficiencies have been asserted. 2.

Petitioners owned shares in a corporation having a capital stock of $1,500,000 and a surplus March 1, 1913, of $4,332,684.78. Held: that the losses sustained, in the circumstances detailed in the findings of fact, were properly considered made good from the then existing surplus and the profits thereafter constituted the most recently accumulated earnings or profits since March 1, 1913, and to the extent same were received by the petitioners (after deducting the…

Depreciation allowed by the Commissioner on cotton mill machinery and buildings sustained.

1. Where petitioner in 1913 acquired stock in a corporation which he in 1923 exchanged for stock in another corporation on which transaction neither a gain nor loss was recognizable under the statute, and in 1924 sold at a loss part of the stock acquired in 1923, the loss is not a capital net loss under the provisions of section 208 of the Revenue Act of 1924, the new stock not having been held for more than two years. 2.

1. Section 611 of the Revenue Act of 1928, applied. 2. Certain waivers for the fiscal year 1918 were obtained after the statutory period for collection had expired, which were accompanied by letters containing certain specific reservations, and while the case for that year was pending before the Board. Held, that under the specific terms of such alleged waivers, as limited by said letters, no rights then barred by limitation were revived.

1. The cost to a corporation of a tract of land acquired for its entire stock, for computing gain or loss from subsequent sales of lots carved therefrom, is to be determined upon the basis of the fair market value of the land when acquired; and the finding of such fair market value is made upon the entire evidence, consisting of earlier transactions in other property, later sales of the stock and of some of the lots, opinions of witnesses, and detailed circumstances of the…

1. The profit derived from the exchange of deposit receipts for bonds of the State of West Virginia in 1920 was taxable in that year. 2. Profit derived upon the sale or exchange of securities representing the obligations of a State is taxable. 3. Interest paid to purchase or carry tax-exempt securities is not deductible from income. 4.

The facts in this case fail to establish that a loss sustained by reason of corporate stock becoming worthless was sustained in the taxable year involved and the determination of the respondent is approved.

Held, upon the evidence that the petitioner was not engaged during the taxable year in carrying on a business within the meaning of the revenue act and that certain expenditures made by the petitioner are not deductible as ordinary and necessary business expenses.

In 1917, the former counsel of petitioner in Austria, without authority from petitioner and under threat of sequestration by the… Held: that petitioner is entitled to a deduction from gross income for the year 1920, as a debt ascertained to be worthless and charged off in that year, of the amount of the cost of the Gold Rentes purchased subsequent to March 1, 1913, plus the March 1, 1913, value of those purchased prior to that date, reduced, however, by the value in…

Held, upon the evidence, that the petitioner issued its entire stock to an investment trust as part payment for certain real property, that there was no resulting trust in favor of the… Held: upon the evidence, that the petitioner issued its entire stock to an investment trust as part payment for certain real property, that there was no resulting trust in favor of the investment trust, and that upon the subsequent sale of the property, the profit is taxable to petitioner.

1. Expenditures made incident to securing renewal of a mortgage loan are not deductible when paid, but should be spread ratably over the term of the loan. 2. Expenditures made incident to procuring a long-term lease are not deductible when paid, but should be spread ratably over the term of the lease. 3.

Value of property at the time of its conversion to business uses determined for the purpose of computing the allowable loss on a subsequent sale.

Petitioner's returns for 1920 to 1923, inclusive, were filed on a calendar year basis, but were adjusted by respondent to fiscal year basis… Held: that the short period October 1 to December 31, 1922, is not a taxable year; that the calendar year 1923 is the next succeeding taxable year with relation to the fiscal year ended September 30, 1921, and that the net loss for the 1921 fiscal year computed under section 204(d) of the 1921 Act may be carried forward to the calendar…

The stock of a wholly-owned subsidiary of petitioner became worthless while petitioner owned it. Held: (1) That the stock cost petitioner $210,000. (2) That the worthlessness occurred in 1921. (3) That such worthlessness resulted in a net loss which may be carried forward to 1922 and 1923.

Upon the evidence held that a boat built by the petitioner and others was not built and used for purposes of pleasure, but was built for the purpose of deriving a profit from the sale thereof, and that any loss sustained upon its sale is deductible. Held, further, that in computing the amount of loss the cost should not be reduced by the depreciation sustained during the time it was owned by the petitioner.

In February, 1926, petitioner sold two parcels of real estate receiving cash payments not in excess of one-fourth of the purchase price and later in that year distributed the installment obligations, together with other assets of a lesser value, to its sole stockholder in payment of a liquidating dividend and a debt owing to the stockholder. The amounts received from the vendees during the year increased by the proportionate part of the installment obligations applied to the indebtedness exceeded one-fourth of the purchase price. Held, that the petitioner is not entitled to report the profits from the sales upon the installment basis.

1. Petitioners were stockholders in two corporations that were consolidated into a new corporation. Held: both in substance and in form petitioners exchanged stock in the old corporations for stock and securities in the new, and then, in a separate transaction, sold part of the stock and securities in the new corporation. The intermediate step can not be ignored in computing the tax liability resulting from the reorganization. 2.

Payments made in the acquisition of deposit accounts by petitioner from another bank are capital expenditures and not deductible as ordinary and necessary business expenses.

1. A transaction in which stock of one company was disposed of and stock in another company acquired through a stock broker at fixed prices over a period of ten days in order to better the owner's investment, held, on the facts presented, to have been a sale and purchase of stock rather than an exchange. 2. The Act of March 4, 1923, amending paragraph (1) of subdivision (c) of section 202 of the Revenue Act of 1921, effective January 1, 1923, is not unconstitutional because retroactive. Brushaber v. Union Pacific R.R. Co.,240 U.S. 1.

- Petitioner exchanged with the Fishback Company certain real estate and cash for all the common stock of the Fishback Realty Company and a leasehold then held by the Fishback Company as lessee of… Held: the record does not show what the fair market value of the leasehold was on the date of the exchange and the Board can not assume that it had no value.

1. NET LOSS - STATUTORY TAXABLE YEAR. - Incident to the voluntary change in 1925 of the accounting period of petitioner from a fiscal year ending November 30 to a calendar year, made with the full approval of the Commissioner, a separate return was filed and accepted for the month of December, 1925.

1. A transaction by which petitioner purchased certain oil and gas leases from another corporation in consideration of part cash and part in petitioner's fully paid and nonassessable capital stock was not a transaction falling within section 204(a)(8) of the Revenue Act of 1926, because after the transaction was completed, the corporation receiving petitioner's stock in payment for the leases was not in control of petitioner. 2.

Decedent's widow elected to take under the will in lieu of dower. In the taxable years the trustees under decedent's will paid over to the widow the sums to which she was entitled under the will and claimed deductions therefor in computing net income of the testamentary trust. The amounts so paid to the widow, plus the amounts similarly paid to her in previous years, were not equal to the value of the dower interest that she relinquished by electing to take under the will. Held that the amounts paid to the widow were paid to her in satisfaction of her dower right and not distributions of income within the meaning of section 219(b)(2) of the Revenue Act of 1924, and hence are not deductible in computing net income of the trust.

Payments made by trustee to decedent's widow, she having elected to take under the will in lieu of dower, are not deductible in computing trust income. Julia Butterworth et al., Trustees,23 B.TA. 838, followed.

1. Upon the evidence, held that a transaction whereby petitioner sold real property was not an installment sale and that petitioner is not entitled to return the profit upon the installment sales basis. 2. The value of real estate equities and notes of third persons received in such transaction determined.

Real estate acquired in 1915 by petitioner and her husband as tenants by the entirety was sold by the surviving widow in 1925. Held that the basis for determining gain on the sale is the cost of the property at the time of acquisition.

1. Upon evidence, held that stock became worthless in 1923 and that the loss resulting therefrom is deductible in that year. 2. Held: further, that such loss does not constitute a net loss within the meaning of section 204(a) of the Revenue Act of 1921.

1. Petitioner's contention, that its income was overstated in the amount of $15,000, denied. 2. Petitioner acquired a mixture of tangible and intangible assets for its capital stock and cash. Held: that for the purpose of determining the amount of intangibles acquired for stock to be used in the application of the 25 per cent limitation on intangibles, the cash, in the absence of evidence to the contrary, should be considered as having been paid for the tangibles.

Held, that a waiver executed by the taxpayer and Commissioner on December 30, 1927, after expiration of the statutory period for collection was ineffective to revive and extend such period, since… Held: that a waiver executed by the taxpayer and Commissioner on December 30, 1927, after expiration of the statutory period for collection was ineffective to revive and extend such period, since section 1106 of the Revenue Act of 1926, then in effect, exinguished the liability.

Upon the evidence, held that petitioner has not overcome the presumption of the correctness of the respondent's determination that an invention, patent for which had not been applied for on March 1, 1913, had no fair market price or value at that date.

Where petitioner, under contract, receives certain assets of another corporation and in consideration therefor issues its entire capital stock to said corporation and assumes liability for and pays certain state income taxes assessed against said other corporation, held that petitioner is not entitled to deduct the amount of such taxes under section 234(a)(3) of the Revenue Act of 1921.

Amounts of unclaimed wages included in and allowed as a part of petitioner's operating expenses for the periods in which accrued and subsequently credited to profit and loss account held to constitute taxable income to petitioner when so credited.

- Amounts expended by petitioner during 1925, 1926 and 1927, representing cost of drilling productive oil wells, of freight and haulage and of labor employed in installing equipment in the wells, all… Held: to be recoverable through depreciation rather than depletion. A. T. Jergins Trust,22 B.T.A. 551, followed.

1. Periods of less than a year for which returns are required held, under the Revenue Act of 1924, to be taxable years for purpose of computation of net loss. 2. Held: under the Revenue Act of 1924, to be taxable years for purpose of computation of net loss. 2. Net losses sustained prior to affiliation may be used in computing consolidated net income. Ben Ginsburg Co.,19 B.T.A. 81, followed.

Upon cash retail sales of merchandise the petitioners issued to customers sales slips redeemable in merchandise. Held: that the petitioners are not entitled to a further deduction from gross income of any amount representing the liability of the petitioners to redeem the sales slips issued.

Petitioner filed a consolidated return for itself and another company for the year 1921, setting forth the assets and liabilities, the gross income, the expenses and profits, and the taxable income… Held: that the assessment of the proposed liability is barred by the statute of limitations.

1. Petitioner leased part of its building for theatrical purposes at a fixed annual rental. Held: the petitioner had no right to, and neither actually nor constructively received more than, the fixed rental, and, as the additional rent received and distributed by the trustee inured only to petitioner's lessee, the petitioner could not be taxed thereon. 2.

- Upon the record it is determined that certain uncollectible accounts of petitioner were determined by it to be worthless in the calendar years here in question and were charged off upon the books… Held: that such accounts represent proper deductions from gross income in those years.

A certain agreement held to have created a partnership; the petitioner, being a member thereof, is taxable upon its distributive share of the partnership net income, whether distributed or not.

1. By her will decedent gave certain premises with all property which shall be used for mission purposes at the time of my death in connection with them, to her son and her friend, Margaret… Held: that decedent effectually created a trust, and that since the work of the mission was religious, charitable and educational in character, the estate is entitled to deduct the value of the trust based on the life expectancy of Margaret A. Delany at the time of decedent's death. 2.

On January 5, 1920, decedent executed and delivered to his wife an instrument of gift purporting to transfer thereby title to certain stock to his wife, but reserving to himself certain rights and… Held: that the dividends were income to the decedent.

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

1. Cost of leases on oil property allowed as a deduction upon evidence that leases were worthless and that they expired within tax year. 2. Deduction as a loss of cost of other leases which did not expire until after tax year disallowed.

1. Claimed deductions for bad debts disallowed. 2. Loss sustained by petitioner, as a result of the failure of a corporation of which he was president and a stockholder, held not to constitute a net loss.

1. Valuation of coal properties determined for depletion purposes. 2. Royalties to be applied, in case of purchase of properties, to purchase price, retain their character as royalties.

The net loss of one of the affiliated corporations for the year 1926, at which time it was not a member of the affiliated group, operates to reduce the consolidated net income for the year 1927 under section 206(b) of the Revenue Act of 1926, even though such corporation having the net loss in 1926 also had a net loss in 1927. Ben Ginsburg Co.,19 B.T.A. 81, followed.

1. Decedent created a trust fund, the income from which was used for the purpose of maintaining the Nelson Memorial Chapel, wherein the decedent's remains and the remains of her immediate family were interred. Held that such trust fund is not an allowable deduction in computing decedent's net estate under section 303(a)(3) of the Revenue Act of 1926. 2.

1. A corporation which discharges its outstanding bonds by issuing to the bondholders shares of its preferred stock, par for par, may not deduct from its gross income, in the year in which the transaction takes place, the unamortized discount on the bonds, as the issuance of stock is a mere change in its capitalization and is not an outlay of either cash or property. The fact that the stock issued was actually worth par is immaterial. 2.

Held, that the sale of the property involved was consummated in the taxable year 1926. Held: that the sale of the property involved was consummated in the taxable year 1926.

By a plan of reorganization effected through cooperation of the stockholders and principal creditors, all claims held by the creditors, both secured and unsecured, against the taxpayer were acquired… Held: the petitioner is not liable, at law or in equity, as a transferee of the property of the taxpayer, within the meaning of section 280(a) of the Revenue Act of 1926.

A husband and wife, residents of Louisiana, held record title in community to an interest in certain realty. On a certain date an action, which had been brought by third persons to recover a part of this interest was compromised, the community being represented by an attorney in fact. In the compromise agreement it was stated that the title to the part interest was vested in said third persons who agreed and did on said date pay to the attorney the sum of $100,000 and agreed to pay the husband the further sum of $100,000 out of oil to be produce dfrom the property, but not until the third persons had received $225,000 out of oil. On the next succeeding day the husband attempted to make a donation of a part of the controverted interest in the realty to his children. The initial payment of $100,000 was paid to the husband. The whole of the deferred payment of $100,000 constituted income. The husband died and his spouse survived. Held, that one-half of the unpaid $100,000 was, when collected by the children, taxable to the surviving spouse.

In 1925 and 1926 the liquidation was effected of capital stock acquired by petitioner in an exchange in 1923. Under section 202(e) of the Revenue Act of 1921, petitioner was subject to tax in 1923 only on the cash received in the exchange.

Gain realized on the sale of property, a part of which was to be held in trust for decedent's widow until her death or remarriage, and a part until a child attained his majority, is not distributable income and is taxable to the fiduciary and not to the widow and minor child.

Held, under the circumstances in this proceeding, that the petitioner, a corporation, the majority of the stock of which was held by a mutual cooperative organization, exempt from tax under… Held: under the circumstances in this proceeding, that the petitioner, a corporation, the majority of the stock of which was held by a mutual cooperative organization, exempt from tax under section 231(11) of the Revenue Act of 1921, is not itself exempt from tax under said provision.

1. Where the settlor of a trust estate reserves to himself alone a power to alter, change or modify the trust, such reservation renders the transfer incomplete until his death. Held: allowable as a credit to petitioners against the Federal estate tax, to the extent it does not exceed the 80 per cent credit provided by section 301(b) of the Revenue Act of 1926.

1. Sufficient evidence not having been presented from which it can be determined that respondent was in error, held, that respondent's determination of deficiency for 1922 must be approved, 2. No error having been alleged and no testimony offered to show that respondent erred in his determination of a deficiency in the year 1923 held such determination of deficiency for the year 1923 approved.

In October, 1925, the petitioner irrevocably assigned certain insurance policies on his life to his wife as trustee. Held: with the exception of the premium payments and the cash surrender value allocable to the one beneficiary who does not come within section 214(a)(10), the petitioner is entitled to deduct the amounts thereof as contributions or gifts.

Where the petitioner, while president and director of a bank, joined with six other directors in borrowing money with which to purchase from the bank at their full face value certain notes… Held: in the absence of evidence of evidence to show what part, if any, of the debts evidenced by the notes so purchased was ascertained to be worthless and charged off in the taxable year, petitioner is not entitled to a deduction for a bad debt and no deductible loss has been sustained.

For the year 1924 petitioner's business, which had been previously conducted as a sole proprietorship, was reported as a partnership throughout the entire year. The evidence established the fact that the partnership was not created earlier than some time in November or December, 1924. The respondent's determination of a deficiency in income taxes, and of a penalty for fraud, sustained.

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

1. Fraud penalties disallowed for lack of evidence on the part of respondent. 2. Statute of limitations held to have run against collection of deficiency assessed for 1921. 3. Respondent's determination of deficiencies in tax for the years 1922 to 1925, inclusive, affirmed for lack of evidence to show error.

1. Petitioner's payments to holders of its full-paid stock and savings pass-book shares, determined to be dividends rather than interest, and, therefore, not deductible from income. 2. Petitioner's payments to holders of certificates of subscription to permanent stock held to represent interest payments.

1. Where a father creates a trust and constitutes his sons trustees, the avowed purpose of the trust being the liquidation of the settlor's property, no control over the trustees being vested in the beneficiaries, held, a trust and not an association. (Trust No. 1.) 2. Where the settlors of a trust are two brothers, and their children are made trustees and beneficiaries, the purpose being liquidation of the property, the control of trustees by beneficiaries being limited and the beneficiaries' certificates of interest nontransferable, held, a trust and not an association. (Trust No. 2.)

Development costs of oil wells on leased lands are capital expenditures returnable through depreciation rather than through depletion deductions. A. T. Jergins Trust,22 B.T.A. 551.

1. Where books are regularly kept on a fiscal year basis, income must be reported on that basis. 2. The taxpayer's method of bookkeeping regularly used for many years reflected income more clearly than the only other method which has been suggested (accruing one-twelfth of the amount of yearly subscriptions in each month), and the Commissioner did not err in determining deficiencies on the basis of that method. 3.

Held, that the two trusts here in question were not intended to take effect in possession or enjoyment at or after the decedent's death, within the… Held: that the two trusts here in question were not intended to take effect in possession or enjoyment at or after the decedent's death, within the purview of section 302(c) of the Revenue Act of 1924, and that the respondent erred in including in the decedent's gross estate the value of the property embraced in said trusts.

Held, that a note representing a deferred payment on real estate in Florida is not shown to have had a fair market value when received less than that determined by the Commissioner.

The Commissioner's refusal to carry forward an alleged net loss approved, where the amount was not shown and where the proof does not show the alleged loss resulted from the operation of any trade or business regulary carried on by the petitioner.

Upon the evidence, held that certain contributions made by the petitioner corporation were ordinary and necessary expenses of its business and are deductible.

Where petitioner in 1925 issued $250,000 par value of its capital stock for certain real property, the remaining $10,000 authorized capital stock being unissued, and where petitioner, in 1926, sold the property, held, that the basis for determining gain or loss to the petitioner upon the sale is the same as the basis would be in the hands of the transferor. Section 204(a)(8) of the Revenue Act of 1926.

Petitioner in 1925 paid gift taxes. Thereafter and before petitioner filed its income-tax return for the year 1925, the Revenue Act of 1926 was passed, reducing retroactively the rate of tax on gifts. Respondent thereupon in 1926 refunded to petitioner a part of the gift tax paid in 1925.

Petitioner acquired in 1904 by devise under the will of her deceased husband property theretofore used by them as a residence. Petitioner continued to use the property as her residence until 1924, when it was abandoned for that purpose and offered for sale. It was never leased or rented, but was sold at a loss in 1926. Held, the loss so resulting is not deductible under section 214(a)(5) of the Revenue Act of 1926, not having been incurred in a transaction entered into for profit.

1. Income and profits taxes of the petitioner were paid by the lessee of its property during the years 1920, 1921, 1922 and 1923 for the years 1919, 1920, 1921 and 1922 under the belief that it was required to do so by the terms of the lease. Subsequent litigation as to the payment of the petitioner's income tax for a year subsequent to 1923 established that the lease did not require the lessee to make such payments.

Upon the transfer of property held in a joint venture, with the distribution of the resulting proceeds a taxable transaction occurs upon which gain or loss should be computed, even though the joint adventurers remain liable on their purchase money mortgage.

1. Value of leasehold determined. 2. Held, an oral assignment of a leasehold is not void, but voidable only, and where the parties themselves have recognized the assignment as valid, it can not be… Held: an oral assignment of a leasehold is not void, but voidable only, and where the parties themselves have recognized the assignment as valid, it can not be attached by a third party.

1. The Commissioner's decision on a question of law does not estop him from reversing his opinion though after his first decision a part of the tax paid had been refunded. 2.

In 1926 the petitioner declared a dividend in kind and paid same by installment notes secured on real estate which it had sold. Held: that it derived no taxable income from the distribution to its stockholders of the installment notes in question, and that its 1926 return was properly made upon the installment basis.

1. Commissions and legal fees incident to procuring a long-term lease of real estate should be deducted ratably over the life of the lease. 2. Bonus payment consisting of real estate received for executing a long-term lease constitutes income to the extent of its fair market value in the year in which received. 3.

Claim for special assessment denied.

The value of certain parcels of real estate owned by the decedent at the time of his death determined.

1. The petitioner, as executor and trustee under the will of a decedent, received as such in the years 1916 to 1923, inclusive, royalties from coal leases entered into prior to March 1,… Held: such royalties to the extent determined by the respondent represent ordinary income and are taxable as such to the trust estate. 2. Held, the petitioner is entitled to deductions for expenses incurred in the administration of the trust in the amounts and for the years as stipulated. 3.

Held that the fair market value of the stock involved in this proceeding on March 1, 1913, was the equivalent of the book value on that date; that the sale of such stock for part cash and the balance in notes was a completed transaction in 1923, the notes received being the equivalent of cash and that the record does not support the petitioner's contention that the taxpayer made a gift to his nephews in 1923 of three notes which were surrendered to them in a later year.

Special assessment denied.

Petitioner and the Pantlind Building Company are not entitled to file an affiliated return for the taxable period involved.

Petitioner, his wife and daughter were residents of Michigan, and conducted a business under the name of the American Metal Weatherstrip Company. Held: that one-third of the income of such business belonged to the wife and one-third to the daughter. L. F. Sunlin, 6. B.T.A. 1232, and other cases, followed.

The Commissioner's allowance of deductions for bad debts and depreciation approved.

In entering into a plan for the combination of several corporations, petitioner transferred all of its property to one of the companies, which immediately transferred back to petitioner all of its accounts and bills receivable. Such receivables amounted to about 32 per cent of all of petitioner's assets.

1. BASIS OF COST. Where partners sell the assets of a partnership to a corporation and receive in payment therefor the common stock of the corporation and are immediately in control of more than 80 per cent of all the outstanding voting stock of such corporation, and there was no preferred stock outstanding at that time, the basis of cost of such assets to the corporation in determining the profit on a subsequent sale of such assets is their cost to the partnership from which the purchase was made. 2. DEPRECIATION. Respondent's determination on amount of depreciation sustained, for lack of any evidence to show that taxpayer sustained any greater amount of depreciation than that which respondent has allowed.

1. A waiver entered into between the parties after the period of limitation had expired and subsequent to the passage of the Revenue Act of 1926 and prior to the Revenue Act of 1928, is ineffective,… Held: that section 611 of the Revenue Act of 1928 bars the recovery by the taxpayer of the amount so paid. Graham v. Goodcell,282 U.S. 409. 3.

Where the transferee corporation purchased all of the assets of the transferor corporation, and which assets had a net value in excess of the liabilities assumed and the taxes due, and paid therefor stock of the transferee, which was issued and paid directly to the stockholders of the transferor, leaving the transferor without assets, the transferee is liable for taxes legally due.

Where a taxpayer on an accrual basis sold property in 1926, the profit from the sale must be computed without regard to an agreement made in a later year by which the taxpayer took back some of the property and to some extent placed the purchaser in the position he was in before the sale.

1. Decedent, contemporaneously with the execution of his will leaving his estate to another, agreed to provide a trust fund for his daughter, either in his lifetime or after his death, in consideration of her promise to accept the agreement in full satisfaction of all claims, legal, moral and sentimental, growing out of her relationship to him, and to make no further claim or demand whatsoever against him or his estate, and not to contest any will theretofore or thereafter…

Where, upon reorganization, merger and consolidation of one corporation with another, a stockholder in the absorbed corporation receives one-half share of stock and $45 in cash for each share of stock held in the absorbed corporation, such cash payment being substantially equal to the stockholder's pro rata share in the surplus of said corporation, the cash payment has the effect of a distribution of a taxable dividend under section 203(d)(2) of the Revenue Act of 1926. Such a payment is not taxable as a capital gain.

Respondent's determination of value of a lease approved.

Where decedent purchased certain property and caused the title to be transferred directly to his wife as a gift, and this property was subsequently transferred by the wife, through a third person, to decedent and his wife as tenants by the entirety, such property does not fall within the exception contained in section 302(e) of the Revenue Act of 1924 and should be included in the gross taxable estate of decedent.

Evidence held sufficient to sustain the affirmative allegations of the Commissioner as to depreciation sustained.

Amount in excess of subscription payments made by petitioner to a building and loan association, paid to petitioner upon completion of its subscription payments and withdrawal thereof, held to be dividends, and excluded from petitioner's taxable income under the provisions of section 234(a) of the Revenue Act of 1924.

1. Payments made to a dissatisfied minority stockholder to secure his acquiescence in a transaction regarded by the manager of the corporation as necessary for the good of the corporation, are not ordinary and necessary business expenses within the meaning of section 234(a)(1), Revenue Act of 1924. 2.

Where a jeopardy assessment was timely made under section 274(d) of the Revenue Act of 1924 and no claim in abatement was filed, no further notice from the Commissioner was necessary in order to fix the amount of the deficiency. A transferee notice within six years thereof was timely.

1. A taxpayer, keeping its accounts on an accrual basis, may not refuse to return, as uncollectible, all interest due it on average daily balances, where such interest was included in a running account to which credits and debits were constantly being made. 2. A taxpayer has made no election to take as deductions individual bad debts or reasonable additions to a reserve for bad debts until it has had occasion to take a deduction of one or the other. 3.

A distribution to the principal shareholders of a corporation not strictly in proportion to their holdings, is held to be within the statutory definition of a dividend, and the fact that it was referred to as a gift in the corporate resolution authorizing it, together with oral testimony of other principal shareholders and directors that the amount distributed to one of them (the petitioner) was prompted by their gratitude for his service in preserving an estate of which…

Value of patents and patent applications determined.

1. Prior to 1918 decedent took out twelve policies of insurance upon his own life, naming as beneficiaries therein persons other than his… Held: that as to the nine policies in which decedent made reservations, the proceeds should be included in his gross estate, under the rule announced in the Chase National Bank v. United States,278 U.S. 327, and that as to the remaining three policies the determination of the respondent must be approved, since petitioner failed to show…

Where a copartnership, under and in accordance with the provisions of section 229 of the Revenue Act of 1921, elects to have its income for the calendar year 1921 taxed as the income of a corporation is taxed, the respondent's action in asserting a deficiency for 1921 against the copartnership's successor, a corporation, is erroneous.

The petitioner held liable as a transferee under section 280 of the Revenue Act of 1926.

A waiver of the statute of limitations covering the calendar year 1921 and given by a taxpayer to his attorney, who holds a power of attorney authorizing him generally to do, execute, and perform every act and thing whatever necessary or proper to be done with respect to the premises for the year 1920 as well as for 1921, and who changes the waiver to cover the year 1920, and then gives it to the Commissioner, who accepts it, is a valid waiver extending the time within which…

A waiver of the time within which the assessment of a deficiency in income and profits tax for 1918 may be made authorizes the collection of a deficiency in tax theretofore assessed.

1. Value of good will owned by petitioner on March 1, 1913, recognized and determined. 2. The evidence in this case fails to establish the fact that petitioner parted with any of its good will in a sale of a part of its business in 1920, or that the purchaser acquired any part of such good will.

An amount expended by the petitioner during the taxable year in acquiring the franchise of a competitor, and obtaining such competitor's promise to remove a pontoon bridge which was being operated free of tolls in competition with petitioner's bridge and which endangered the safety of petitioner's bridge, held to constitute a capital expenditure exhaustible over the unexpired life of the franchise.

1. Petitioner sustained a loss of $16,606.33 in 1923 in exchange and cancellation of bonds of Beaumont & Great Northern Railroad Company for securities received by him from reorganization managers of the Missouri, Kansas & Texas Railway Company. 2. Petitioner sustained a loss of $2,392.72 in 1924, which was not a capital loss chargeable against capital gains of that year. The net loss if any, resulting therefrom is a proper deduction on petitioner's return for 1925.

On April 1, 1920, petitioners executed a contract by which they were given stock interests in a corporation for the purpose of retaining their services. Held: that said stock interests constituted property, and that the difference between the fair market value in 1920 and the selling price in 1925 constituted capital gain taxable to the petitioners in the latter year at the rate applicable to capital gains.

1. Respondent's determination of petitioner's opening inventory for 1923 approved, for lack of evidence showing such determination to be erroneous. 2. The amount of a reasonable addition to the petitioner's reserve for bad debts determined.

1. Commissioner's determination of amount of income received by the taxpayer in 1924, in the acquisition of the assets of the Neely Lumber Company, sustained for want of reliable evidence to overthrow the prima facie case. 2. Commissioner's action as to bonuses approved, with slight correction.

Upon incorporation in December, 1925, the petitioner issued its capital stock in exchange for the assets of the predecessor business carried on as a sole proprietorship. Among the assets thus acquired was a promissory note of the Fairmont Market Company in the principal amount of $11,000, together with accrued interest thereon of $330. The Fairmont Market Company was insolvent at December 31, 1924, and at December 31, 1925. In order to save the Fairmont Market Company from bankruptcy, the petitioner relinquished its claim for payment of the note and accrued interest and charged same off its books of account to surplus in 1926. Held, that the petitioner is not entitled to deduct from its gross income of 1926 any amount in respect of the charge-off made.

Loss resulting from making good s guarantee of credit extended to a bank was not a capital loss.

Petitioner, not being the taxpayer, within the meaning of section 206 of the Revenue Act of 1924, is not entitled to deduct from its income a net loss sustained by one of its predecessor corporations.

A domestic corporation was formed for the purpose of acting as purchasing and forwarding agent in this country for a foreign principal and was designed to carry on its activities without profit or loss.