Volume 24 — Board of Tax Appeals

The petitioners, which kept their books of account and made their income-tax returns on the accrual basis, were advised in 1923 that their French branch had paid certain taxes for the years 1918,… Held: that the amount of these taxes was not a proper deduction in computing net income for the year 1923.

Held, payments made to the taxpayer of an agreed percentage of rentals, collected by his licensee, for use of an invention of which the taxpayer was part owner, are taxable income to him for the year received.

The respondent's action in holding that the payments involved constituted taxable income for 1924, approved. See Frank W. Elliott,24 B.T.A. 5.

The provisions of section 202(a)(2) of the Revenue Act of 1921 are not applicable to a valid and continuing trust taxable under section 219 of the same act.

1. Payment to a cooperative advertising agency allowed as a business expense. 2. Pro rata payment by taxpayer on account of attorney fees and court costs, incurred in connection with a lawsuit in which taxpayer and others were defendants, allowed as a deduction.

The respondent has failed to show that the petitioners are liable as transferees of the assets of the taxpayer.

1. The basic date for valuing stock received as part consideration upon the sale of property is the date when taxpayer is entitled to receive the stock and not the date the stock certificates were delivered to the vendor. 2. The fair market value of shares of stock determined.

1. Depletion deductions for 1921 with respect to oil royalty rights conveyed by the taxpayers are denied, an instrument executed in 1920 being held to be a… Held: where land inherited by a wife in Louisiana was administered by her husband and in the taxable year oil royalties pertaining to said land are sold, profit from such sale is the separate property of the wife and not community income, pursuant to Louisiana statutes. Lucas v. Bamma Baucum, 50 Fed.(2d) 806, followed.

1. Petitioner Davis is liable under section 280 of the Revenue Act of 1926 for the unpaid tax assessed against the Mountain Stores Company for the periods ended August 31, 1919, and January 31, 1920. 2. Liability of petitioner Titus for the unpaid tax of the Mountain Stores Company for the periods ended August 31, 1919, and January 31, 1920, is not established by the evidence.

Compensation for professional services rendered as attorney for certain municipal corporations held not exempt from taxation under section 1211 of the Revenue Act of 1926. Burnet v. Jones, 50 Fed.(2d) 14.

1. Where the tax shown on the return is not increased by the respondent the Board has no jurisdiction, notwithstanding the rejection of a claim in abatement. Estate of John Ballot,3 B.T.A. 583. 2. Respondent's determination of depreciation for each of the years is approved. 3. Petitioners have failed to establish their invested capital and respondent's determination thereof is approved. 4. March 1, 1913, value of coal mining leaseholds determined for purposes of depletion.

An amount credited to an employee who held a qualifying share as a director as additional compensation for the taxable year and two prior taxable years, held to be deductible in the taxable year.

1. Held that the assessment of tax against the taxpayer was made within the period of limitations properly applicable thereto and that the respondent's action in proceeding against the petitioners as transferees is timely. 2. Respondent's disallowance of a deduction for bad debts sustained.

Held, that the petitioner created a parol trust for his son and daughter with respect to a portion of the stock appearing of record in his name, and two-thirds of the dividends from such stock should be excluded from his gross income.

Where a deficiency notice is directed to a taxpayer corporation which has been dissolved, and such notice is received by a successor corporation of the same name, organized in the same State, but of distinctly separate legal identity, and such successor corporation files with this Board a petition for the redetermination of such deficiency, this Board is without jurisdiction.

In the taxable years the petitioner conducted a business for profit and for such years was an association taxable as a corporation. Hecht v. Malley,265 U.S. 144.

As a result of a decree in equity petitioner was paid by the Pangborn Corporation $30,108,94 in 1923. Held: that the receipt of that money constituted income to petitioner, and was taxable for the year 1923.

Petitioner is entitled to deduct exhaustion of players' contracts in the computation of its net taxable income and it is also entitled to deduct the cost, less exhaustion, of such contracts sold during the taxable years in determining the gain or loss sustained thereon.

EXPENSES. - Petitioner was one of several persons who entered into an agreement with the owners of certain property to act as agents for the owners in platting, surveying and preparing their property for sale as lots. The contract provided, inter alia, that the agents were to advance all necessary funds to carry out the contract up to a limited amount, and that, after the owners had received $400,000 from the sale of lots, the agents were entitled to all the lands remaining unsold. Petitioner, during the taxable year, and before the owners had received their $400,000, expended $7,921.62 as his share for platting, surveying and preparing the real estate for sale. Held, petitioner was entitled to deduct the amount so paid as an ordinary and necessary business expense.

During the years 1922 to 1924 each petitioner purchased over 600 shares of stock in the Morton Hotel Company, a Michigan corporation, at a price exceeding $130 a share. Held: petitioners did not in substance exchange old stock for new within the meaning of section 203(b)(2) of the Revenue Act of 1926, but actually and in substance sold old stock and purchased new; held, further, petitioners sustained a capital net loss on the sale of the old stock.

Held that the trust involved meets the requirements of section 704(b) of the Revenue Act of 1928 and that the income thereof, whether distributed or not, is taxable to the beneficiaries.

Petitioner held not to be liable as a transferee under section 280 of the Revenue Act of 1926.

1. Life insurance premiums held not deductible. 2. Loss from employee's misappropriation of funds determined. 3. Commissioner did not err in including evidences of indebtedness at face value in computing gain from sales of real estate.

1. Where petitioner has so far complied with the laws of the State relating to incorporation that the State authorities have issued a charter to him and his associates declaring them to be a body… Held: and certain statements required by law had not been filed with the State corporation commission within four months after the passage of the 1921 Act. 2.

Special assessment denied.

Federal estate and New York inheritance taxes paid in the taxable years allowed as deductions to the petitioner who claimed them on a joint return for himself and wife, where the wife was beneficiary of the estate and trust involved, returns were filed on behalf of the estate and the trust and the tax was not claimed as a deduction against any income taxable to either. Following Frances E. B. Lentz et al.,21 B.T.A. 1336.

A Federal estate tax was paid in 1924 rather than in 1923, for the purpose of a deduction under section 703 of the Revenue Act of 1928, where Liberty bonds and a check offered in payment in 1923 were not accepted and were returned in 1924, and later in the year 1924 the same or similar bonds were accepted in payment of the tax and interest was adjusted to November, 1923.

1. Held that a certain so-called trust agreement created a relationship of agency. N. H. Boynton,11 B.T.A. 1352, followed. 2. Where the owner of certain identifiable stock certificates establishes that he sold and delivered the same certain certificates, he is entitled to deduct the loss thereby sustained.

1. Petitioner is liable as transferee of taxes of a predecessor company. 2. Assessment is not barred by the statute of limitations.

The petitioner is not an "association" and should not be taxed as a corporation under section 230 of the Revenue Act of 1921.

1. If an insurance policy reserves to the insured, acting alone, the power to change the beneficiary, no absolute rights vest in the beneficiary and the transfer of the beneficial interest is incomplete until the death of the insured. 2.

1. Credit for state inheritance taxes paid allowed. 2. Respondent's determination of value of stock approved.

Held that respondent erroenously included certain property in the taxable estate of decedent.

Held, the evidence is insufficient to overcome the presumption of the correctness of the Commissioner's determination of deficiency in income tax. Held: the evidence is insufficient to overcome the presumption of the correctness of the Commissioner's determination of deficiency in income tax.

Petitioner, an advertising agency, held to be entitled to classification as a personal service corporation.

Amount of loss from unsuccessful efforts to develop certain processes determined.

1. Affiliation denied. 2. A corporation realizes no taxable gain in redeeming its own bonds at less than par. Independent Brewing Co.,4 B.T.A. 870, followed. 3.

Beneficiaries of a trust, each having a one-fourth interest in the income therefrom and in the residue and receiving royalties directly from the trustee, held to be entitled to deduct from royalties received a reasonable amount for depletion.

1. Where property is sold subject to a mortgage the amount of which exceeds the basis to the seller, the excess must be considered as a part of the initial payments in determining whether or not section 212(d) applies. 2. Unamortized bond discount is deductible when the mortgaged property is sold subject to the mortgage. Following S. & L. Building Corporation,19 B.T.A. 788. 3. Interest is not a part of the cost of a building.

1. Additions made to reserve for unearned premiums in 1920 and 1924 held to have been made, not from capital, surplus or nontaxable income, but from income received upon insurance written. 2. Net decreases in reserve for unearned premiums in 1921 and 1925 held to be properly included in gross income for said years.

1. Expenditures for additions to coal-mining machinery and equipment bought for the sole purpose of maintaining normal production are deductible as expenses of the year when purchased and installed. 2. The full value as of January 1, 1914, of the physical property and receivables acquired by the petitioner on May 1, 1912, together with the amount of cash then acquired, is includable in the invested capital of the petitioner for 1917. 3. The petitioner had no earned surplus at the beginning of the taxable year 1918 and made no distributions to stockholders from the date of its organization. Held that invested capital for 1918 based upon the cash value of the property at the time paid in for shares of stock should not be decreased by amounts in respect of depletion or depreciation alleged to have been sustained during prior years, nor by amounts in respect of taxes which had accrued for prior years. 4. A reduction in the amount of capital stock outstanding in 1915, without any distributions being made to the stockholders, did not operate to reduce invested capital.

Petitioner, a full-blood Creek Indian, acquired an allotment of 160 acres of land, of which 40 acres were "homestead" and 120 acres were "surplus" lands. During the taxable year 1922, she leased said lands for a one-eighth royalty and received cash bonuses of $21,500 on the leases pertaining to the homestead and $111,000 on the leases pertaining to the surplus lands. Held, that for reasons stated in the opinion both bonuses were subject to taxation. Held, further, that under our decision in Murphy Oil Co.,15 B.T.A. 1195, the entire amount of the bonuses totaling $132,500 was taxable income in 1922. Held, further, since the respondent has moved for an increased deficiency under section 274(e) of the 1926 Act to the extent of including in taxable income only half of the $21,500 bonus in addition to all of the $111,000 bonus, that the deficiency be redetermined by including in taxable income only $121,750 of the $132,500 bonuses received.

Loss sustained by petitioner upon sales of stocks and securities held to be a loss sustained in a trade or business regularly carried on and hence is deductible as a net loss.

Upon the evidence held that a partnership existed during the taxable year between the petitioner and his wife, and that the petitioner is taxable upon only one-half of the net income of the partnership.

1. In the deficiency notice, the respondent gave notice to the petitioner of overassessments for 1917 and 1918, but stated that they were barred from allowance by reason of the statute of limitations. Held: that for invested capital purposes, there should be accrued in each year of the lease up to the due date of the bonds, a proportionate part of the agreement of the lessee to pay the $1,250,000.

Where a fiduciary properly paid or credited to the beneficiaries during the year all income from the estate and any income which he received was to be distributed currently to the beneficiaries, the estate is not liable for any tax as a taxpayer.

The Commissioner committed no error in reducing invested capital at time notes were issued in payment of a dividend then declared.

The fair market value on March 1, 1913, of a tract of timber must be determined on the basis of what was then believed to be the timber content of the tract rather than on what was later discovered to have been the actual content.

1. The Commissioner did not err in computing profit from sales of real estate on the installment basis where title did not pass when initial payments were made and contract for sale entered into and where taxpayer reported on basis of installment sales. 2. Disallowance of part of officers' salaries approved.

Loss sustained on sale of a building owned by a corporation with which petitioner was affiliated held to have been the loss of the affiliate and not the petitioner's loss.

1. Deduction of loss claimed to have been sustained in joint venture entered into for profit denied for lack of proof as to agreement under which money was advanced or that such advances could not be recovered. 2. Deduction of fees paid for services in investigating advisability of investment propositions denied, since such payments were not made in connection with petitioner's trade or business and were not losses sustained in transactions entered into for profit. 3.

1. The determination of deficiencies against petitioner, the resident manager of insurance agencies doing business in the United States, in respect of shares of income of such agencies distributable… Held: upon the evidence, to be distributions to them of their distributive shares of income from businesses carried on by the several agencies in the United States, and not salaries or compensation for services and reimbursement of expenses. 4.

1. An amount paid by the executors of an estate pursuant to an agreement executed by decedent, in consideration of the marriage between his daughter and another, to pay into a trust fund a certain sum of money within six months after his death, is not deductible as a claim against the estate under section 303(a)(1), Revenue Act of 1926, since the consideration was not "money or money's worth." 2. The inclusion of the amount so paid in the gross estate does not result in the imposition of a tax retroactively upon a completed transfer, as it was not transferred at the time of the agreement and the promise did not remove it from his estate or restrict his ownership before his death. 3. The attack here made on the constitutionality of the tax, as impairing the obligation of the agreement, is without merit and can not be supported in legal theory.

The beneficiaries of a trust who, as such, have no remainder interest in the trust corpus, are not entitled to depletion deductions because of the removal of iron ore from properties forming a part of the trust corpus.

A domestic corporation, whose principal stockholder owned the controlling interest in a British partnership, permitted the partnership to hold and use the greater part of its capital and surplus and… Held: in the absence of proof that this tax was, under British law, a tax imposed upon the corporation, the corporation was not entitled to a credit for foreign taxes paid or accrued, within sec. 238(a), Revenue Act of 1926.

1. At the close of the year taxpayer had outstanding contracts to purchase coal, which was undelivered. Held: that title to such coal not delivered or loaded on cars for shipment to the taxpayer had not passed at the close of the year, that such coal could not be included in inventory, and that no deduction could be taken. 2.

Deductions by way of depreciation not allowed on account of expenditures made in connection with the exploration, drilling, and development of oil leases not represented by physical properties, A. T. Jergins Trust,22 B.T.A. 551, distinguished.

Claimed deduction allowed (a) as a loss, since there is no evidence that the loss was sustained within the taxable year, or (b) as a bad debt, since there is no evidence that the debt was charged off within the taxable year.

1. The creditors of a bankrupt corporation bought in the property of the bankrupt at a receiver's sale free of all claims and liens. Held, that the cost of such property to the creditors is the amount paid at the receiver's sale. 2. The creditors then organized the petitioner corporation and conveyed the property so acquired to it in exchange for its stock; no gain or loss was recognized to them upon this transfer and they were in control of the corporation immediately after the transfer. Held, that under section 204(a)(8) of the Revenue Acts of 1924 and 1926 the basis upon which depletion and depreciation is to be allowed upon such property is the cost of the property in the hands of the transferor.

1. Independent Brewing Co. of Pittsburgh,4 B.T.A. 870, followed. 2. Where a taxpayer, keeping its books on an accrual basis, acquired certain of its own bonds with interest coupons attached thereto, the excess of the face value of the coupons over the amount paid for them is taxable as income.

1. Where a joint bank deposit is held by decedent and wife and no evidence is offered of the amount contributed by the surviving spouse, held the whole amount of the deposit is includable in gross estate. 2. Where the evidence of an absolute gift of an automobile by the surviving spouse to decedent is uncontradicted, held value of gift is includable in gross estate. 3.

1. Expenditures for fuel, wages, repairs, hauling, etc., in connection with the drilling of oil wells are capital expenses recoverable through depreciation rather than depletion. 2. Expenses of shooting oil wells with nitroglycerine incurred before the wells are placed in commercial production is a capital expense. 3.

1. BAD DEBTS. Where the petitioner claimed deductions for bad debts for 1921 by the charge-off method, it may not change to the reserve method for subsequent years without the consent of the Commissioner. Kay Manufacturing Co.,18 B.T.A. 753, followed. 2. Id. ELECTION. The fact that petitioner had no actual knowledge of its right to make an election does not excuse it from the consequences of its act. Gustave Rader Co.,19 B.T.A. 12, followed.

1. Loss due to abandonment of coke ovens held not substantiated. 2. Depreciated cost of coke ovens as at January 1, 1920, determined for invested capital purposes. 3. Cost of mining equipment necessary to maintain the normal output of a mine allowed as a deduction from gross income.

1. Additional taxes for 1917, timely assessed in 1922 and 1923, held uncollectible under the decision in Russell v. United States,278 U.S. 181. 2. Held: that section 611 of the Revenue Act of 1928 is a limitation on section 284(e) of the Revenue Act of 1926 and section 507 of the Revenue Act of 1928, and bars recovery by the petitioner. 3.

1. The petitioner in 1921, 1922, and 1923 owned all of the outstanding shares of stock of the Newport & Richford Railroad Company, which, together with other property, it had leased in 1887 for a period of 99 years. Held, that the petitioner and the Newport & Richford Railroad Company were affiliated during 1921, 1922, and 1923. 2. In the taxable years 1921, 1922, and 1923 the petitioner had outstanding certain bonds which it had issued and sold at a premium in 1911. It kept its books and made its income-tax returns for those years upon the accrual basis. In each of such returns it deducted an amount representing interest payments on the bonded indebtedness. Held, that the bond premium received in 1911 should be amortized over the life of the bonds and that an aliquot part thereof should be included in the gross income of each of the years 1921, 1922, and 1923. Commissioner v. Old Colony R.R. Co., 50 Fed.(2d) 896.

Petitioner in 1925 acquired all the stock of another company in exchange for its own stock and bonds. On the same day the other company was dissolved and its assets conveyed to petitioner. Following these transactions, petitioner's stock was owned by the same persons who had formerly owned the stock of the other company.

1. Where a corporation having only common stock sold all of its assets to a new corporation for all of its common stock and half of its preferred and the remaining half of the preferred was later sold to the public, the preferred stock being 7 per cent cumulative and having priority over common stock in event of sale or dissolution, a stockholder of the second corporation, to whom the stock was distributed, received something really different from what he theretofore had and…

Where method of accounting was changed by taxpayer January 1, 1924, from cash receipts and disbursements basis, to an accrual basis, held, items actually accured in 1923, some of which were reported… Held: items actually accured in 1923, some of which were reported as income in 1923 income-tax return, are not deductible in 1924.

Held that petitioner is entitled to a deduction as a loss on account of a payment made to settle a controversy over stock fraudulently issued.

An amount expended by the petitioner in settlement of a controversy between it and a competitor as to which of them had the prior use of a trade-mark and as a result of which the petitioner acquired certain merchandise and other assets of the competitor, together with the competitor's promise immediately to discontinue the use of the trade-mark, held to be an expenditure of capital nature and as such not an allowable deduction from gross income.

1. Petitioner has failed to establish that the fair market value of assets acquired prior to March 1, 1913, was higher than the figure used by the respondent in computing depreciation under the Revenue Act of 1921, and the respondent's determination is sustained. 2.

1. Actual cash value of property acquired for cash and stock determined, and held that in computing invested capital the cash paid is to be allocated to the tangibles, and the stock to the tangibles in excess of the cash and to the intangibles in accordance with the rules announced in Evansville Courier,23 B.T.A. 862, and St. Louis Screw Co.,2 B.T.A. 649. 2. Respondent's finding of the current earnings available for the payment of dividends sustained in the absence of evidence proving the determination to be erroneous. 3. Special assessment denied. 4. Respondent's allowance for depreciation on machinery, furniture and fixtures at a composite rate not shown to be unreasonable.

1. Personal property bequeathed in trust for an indeterminate period, not to exceed five years, held to have been acquired by the legatees on the date of decedent's death. 2. Value of certain corporate stocks at date of acquisition determined.

1. Where a notice of deficiency is mailed, and the tax is assessed and paid, within the five-year period prescribed by sec. 277(a)(3), Revenue Act of 1926, a second determination, made within 60 days… Held: the share of the proceeds received by the husband was received in behalf of the community, and one-half thereof was taxable to him as gain from the sale, the cost having been recovered by him in prior years. 4.

On or about February 8, 1925, the petitioner's warehouse was burglarized and goods in the amount of $23,984.72 were stolen. Held: that the loss was not sustained until 1928 and is a legal deduction from the gross income of that year.

1. Value of personalty located abroad held properly included in gross estate of a resident decedent. Guaranty Trust Co., Executor,21 B.T.A. 330, followed. 2. Inclusion in decedent's gross estate of value of property transferred within two years prior to death, the transfer not being admitted or shown in fact to have been made in contemplation of or intended to take effect at or after death, held to be erroneous, following Estate of Robert Todd Lincoln,24 B.T.A. 334. 3.

Under the facts and circumstances here the practical effect of the things done constituted a sale of the petitioner's properties for tax purposes, irrespective of a so-called lease and option agreement entered into purporting to lease said properties for a term of months with an option to purchase upon expiration of the term for the nominal sum of $1.

1. Cost of certain shares of stock sold by petitioner determined. 2. Evidence held insufficient to establish amount, if any, of entertainment expenses for business purposes.

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 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…

Earnings of partnership business accumulated from date of death of one partner to date of settlement of his interest in partnership, divided and included in income of surviving partner on basis of agreement subsequently made between surviving partner and representatives of deceased partner's estate.

Under the terms of a contract of sale of real estate made subject to a mortgage given to secure initial bonds, the purchasing corporation agreed to make 180 specified monthly payments without interest until after maturity. In accordance with the terms of the contract, upon making the initial monthly payment, the purchaser was put in possession of the property sold and a deed conveying the premises in fee simple was placed in escrow for delivery to the purchasing corporation upon its compliance with the terms of the contract of sale. Held, that the contract was a completed contract of sale when the initial payments had been made, the purchaser had been put in possession and the deed had been delivered to the escrow agent. Held, further, that the petitioner, who acquired by purchase the seller's rights under the contract of sale, would derive no taxable income from the monthly payments until he recovered therefrom the costs to him of his interest in the contract.

Petitioners held not liable as transferees.

Held that the transaction of exchange of property here involved resulted in no taxable income to petitioners.

- Certain deductions claimed by the petitioner as ordinary and necessary business expenses disallowed because the contract under which such payments were made provided for repayment to petitioner of such amounts. George M. Cohan,11 B.T.A. 743; 39 Fed.(2d) 540; H. R. MacMillan,14 B.T.A. 1367; Henry F. Cochrane,23 B.T.A. 202, followed.

Section 212(d) of the Revenue Act of 1926 does not permit taxpayers to take deductions for losses upon the installment basis.

Petitioner, an attorney, and other attorneys contracted in writing to conduct law proceedings to establish the rights of an individual in a certain trust estate. Said contract provided that the attorneys were to share equally in 40 per cent of any amount which might be recovered for the client. It was understood and orally agreed among all the parties concerned that petitioner should not be required to render any services in such litigation, subsequent to the making of the contract, in order to receive his portion of the amount recovered, and he did not render services subsequently. He had rendered some professional services previous to the making of the contract. Before any amount was recovered and before there was any assurance that any would be recovered, petitioner made a gift to his wife of one-half of his interest in the contract. Later an amount was recovered and a portion thereof was paid to petitioner's wife in accordance with the assignment of the contract interest to her. Held, that such amount as petitioner's wife was entitled to and received under the assignment is taxable to petitioner, following Lucas v. Earl,281 U.S. 111; Edward J. Luce,18 B.T.A. 923; and John Leo Stack,22 B.T.A. 707.

1. Upon change from the accrual to installment basis of accounting, double taxation does not result from the inclusion in gross income of amounts actually received in a taxable year on account of installment sales made and reported on an accrual basis of accounting as income in previous years. 2.

1. Deductions allowable from income for the taxable years on account of expenses and bad debts determined from the evidence. 2. Factors for computing depreciation and depletion deductions in the taxable years by unit-of-production method, determined. 3. On the facts, held that, for purposes of depreciation and depletion, timber purchased by the petitioner during the taxable years became available only on dates of actual purchase.

1. CAPITAL NET LOSSES. - Held, that section 208(c) of the 1924 Act does not permit the taxpayer to elect how capital net losses shall be treated in computing the tax liability. 2. DEDUCTIONS - CONTRIBUTIONS. - During 1924 petitioner made contributions, totaling $8,632.65, of the kind described as deductible under section 214(a)(10) of the 1924 Act. During the same year petitioner sustained a capital net loss and her tax must be computed pursuant to section 208(c), i.e., the normal and surtaxes must be computed upon her "ordinary net income" after excluding the capital net loss and such total tax must be reduced by 12 1/2 per cent of such capital net loss. Held, that said contributions are deductible in determining the "ordinary net income" taxable at the rates and in the manner provided in sections 210 and 211 of the 1924 Act. Held, further, that the respondent erred in determining that capital net losses may not be excluded in computing net income for the purpose of determining the amount of contributions that are deductible.

1. During the taxable years petitioner was engaged in mining coal by the open-pit or stripping method, which operation completely destroyed the market value of the surface of the lands so mined. Held: that the cost of the land should be added to the cost of the coal in determining a reasonable allowance for depletion. 2. Amounts expended for equipment for the purpose of maintaining normal production are deductible as expenses.

Where a taxpayer on the accrual basis is allowed interest on refunds under section 1116 of the Revenue Act of 1926, the interest constitutes taxable income for the year in which the Commissioner first signs the schedule of overassessments, and can not be accrued ratably from date of overpayment to date of allowance of refund.

1. Payments made by the petitioner, under the guise of commissions, to a partnership composed of all of petitioner's common stock holders, the interest of each member of the partnership being fixed… Held: to have been in the nature of distributions of profits and not proper deductions in computing net income. 2.

Where the petitioner acquired all the assets of a taxpayer corporation and assumed its liabilities, exchanging therefor capital stock of a par value equal to the fair market value of the assets as determined by the parties, the petitioner is liable for any income or excess-profits taxes due from the taxpayer.

1. Special assessment denied. 2. Where income is reported on a completed-contract basis, no part of the lump-sum payment on a certain contract should have been reported before the completion of the contract as damages on a previous unfulfilled contract with the same customer. 3. Income was derived in 1919 from a Government contract or contracts made between April 6, 1917, and November 11, 1918.

1. The petitioner and the Greer Steel Company were affiliated during the year 1920. 2. The value of petitioner's coal lands at March 1, 1913, determined for depletion purposes. 3. The deductibility of the cost of certain items of coal mine and plant equipment purchased in 1920 and charged to expense account of that year determined. 4. Invested capital for 1920 adjusted with respect to an amount of $15,386.43 representing the cost to the petitioner of certain surface lands. 5.

The cash consideration received in 1922 for certain oil and gas leases which, under the laws of the State of Texas, conveyed a vested fee title in the oil and gas in place is taxable as capital gains under the provisions of section 206 of the Revenue Act of 1921. Ferguson v. Commissioner of Internal Revenue, 45 Fed.(2d) 573.

Held, sale of the assets of the corporation involved in this proceeding was a sale in dissolution of the corporation and resulted in taxable gain… Held: sale of the assets of the corporation involved in this proceeding was a sale in dissolution of the corporation and resulted in taxable gain to the corporation, and was not a sale of the property of individual stockholders. Taylor Oil & Gas Co.,15 B.T.A. 609; affd., 47 Fed.(2d) 108; certiorari denied, 283 U.S. 862, followed.

Petitioner and his wife filed joint returns for 1925 and 1926. Held: following Rodman E. Griscom,22 B.T.A. 979, that March 1, 1913, is the basic date for determining gain or loss. Held, further, that the basis is the value of the remainderman's interest as distinguished from the value of the stock itself. Rodman E. Griscom, supra, overruled on this point.

Held, that a branch business capitalized and conducted by the petitioner was not a separate taxable entity in any of the taxable years. Held: that a branch business capitalized and conducted by the petitioner was not a separate taxable entity in any of the taxable years.

Certain oil and gas leases were transferred to petitioner by assignments. Held: the deferred payments out of oil and gas were not royalties, but were capital transactions, not deductible as expenses.

A syndicate, which was not a taxable entity under the revenue acts earned net income which was not distributed to the members during the years when earned. Held: the distributive net earnings of the syndicate constituted taxable income to the members in proportion to their respective interests.

1. A syndicate which was not a taxable entity under the revenue acts earned net income which was not distributed during the years when earned. Held: the distributive net earnings of the syndicate constituted taxable income to the members in proportion to their respective interests. 2. In 1925 a syndicate earned, net, and distributed to its members, an amount greater than the amount of its capital.

Under a resolution of a corporation dated March 13, 1917, 40 shares of the capital stock of the corporation were issued annually to a trustee as additional compensation to each of the petitioners. Held: that each of the petitioners was liable to income tax in 1922 upon the fair market value of the 200 shares of stock received in such year.

The grantor of oil and gas leases in Texas is not entitled to deductions for depletion in respect of oil paid as a bonus for the leases.

1. HUSBAND AND WIFE - SEPARATE PROPERTY - TEXAS. Where the husband acquired title to property in Texas and paid part of the purchase price prior to his marriage, the fact that some of the purchase price was paid from community property or separate estate of the wife after marriage does not convert the property into community property, but it remains the separate estate of the husband. 2.

Under section 203(b)(4) and 203(b)(2) of the Revenue Act of 1926 there is no recognized taxable gain to the petitioner upon the exchange of common stock in one corporation for securities and stock of two other corporations by means of certain corporate reorganizations and intermediate transactions.

1. In 1920 the petitioner's transferor was awarded additional compensation for the use of its properties during the period of Federal control and accrued such additional… Held: that the additional compensation received was taxable ratably over the period of Federal control. 2. In 1920 the petitioner's transferor received additional compensation for transporting United States mail during the years 1916 and 1917 and accrued such income upon its books of account in 1920.

1. No option or election exists in section 234 of the Revenue Act of 1926 by which a taxpayer may take a deduction on account of a loss arising from a worthless debt, either in the year when the debt became worthless or in the year when the debt was ascertained to be worthless and charged off, but such deduction can only be allowed in the year when ascertained to be worthless and charged off. 2. Deductions denied on account of debts which were not ascertained to be worthless and charged off within the taxable year.

1. Held, where the majority stockholder in a corporation transferred to it valuable property and received no stock, money, or other property in… Held: where the majority stockholder in a corporation transferred to it valuable property and received no stock, money, or other property in payment or as a consideration therefor, but where the corporation agreed as part of the consideration for such transfer, that it would set up the value of such property on its books as paid-in…

1. Corporation held liable as transferee of dissolved affiliated corporation, but only for that portion of total tax on consolidated income property allocable to such dissolved corporation. 2. Notes determined to be worthless and uncollectible, and written off during taxable period, allowed as deduction from income. 3. Special assessment allowed. 4. Organization expenses disallowed as deduction from income as business expense. 5.

1. During her lifetime decedent created an irrevocable trust in real estate, with a provision for reversion to herself in case she survived two… Held: the property involved was not subject to Federal estate tax under section 302(c) of the Revenue Act of 1924. 2. The petitioner created a revocable trust in 1918, and in 1924 amended the trust instrument, disposing of her interest and making the trust irrevocable. These instruments were not made in contemplation of death.

1. Held that petitioner has failed to show that the respondent erred in refusing to allow depreciation deductions upon certain claimed additions to depreciable property. 2. Upon the evidence, held that a rate of depreciation of 10 per cent instead of 5 per cent should be allowed upon certain assets.

1. The amounts of deductions to which petitioners are entitled as ordinary and necessary business expenses determined. 2. Claimed deduction of loss on abandonment of inadequate electrical machinery disallowed in absence of proof that it was used in a business. 3.

Held, evidence insufficient to overcome the presumption or correctness of Commissioner's determination. Held: evidence insufficient to overcome the presumption or correctness of Commissioner's determination.

Lessors received income from improvements made by lessee to leased premises.

- On June 1, 1922, petitioner acquired by gift a one-third of one-sixth interest in and to all of the minerals, oil and gas in and under certain property known to be oil-bearing and owned in fee by… Held: that depletion is based upon the fair market value of the petitioner's interest in the property at the date she acquired it. Angie E. Reid,22 B.T.A. 1150, followed.

Under the Revenue Act of 1921, held, the basis to be used for the fiscal year ended March 31, 1923, in the computation of depreciation… Held: the basis to be used for the fiscal year ended March 31, 1923, in the computation of depreciation on new vessels acquired and paid for in part with a replacement fund, established as a result of the involuntary conversion of certain other vessels, is the depreciated cost of the old vessels on the date of conversion, plus the cost of…

TRANSFEREES. Petitioner acquired for cash all of the assets of the taxpayer corporation and as an additional consideration agreed in the contract of purchase to assume the debts of the taxpayer, including taxes arising from matters transpiring subsequent to the calendar year 1923. The taxpayer, on receiving the cash consideration, immediately distributed this money to its stockholders and ceased business. Held, that petitioner having as an incident of the transfer of this property assumed the liability for payment of income tax of the transferor for 1925, such liability may be assessed and collected under section 280 of the Revenue Act of 1926.

TRANSFEREES. The taxpayer corporation in 1924 sold its assets and business for cash and immediately liquidated by distribution of the cash to its stockholders and ceased business. Held: that petitioners are severally liable for the amount of such tax irrespective of the fact that the corporation on the sale of its assets contracted with the purchaser for the assumption by the latter of the tax liability in question.

The petitioner and the Taylor Furniture Company, separate corporations, became affiliated March 21, 1925, and affiliation continued through the… Held: each of said periods is, within the meaning of the Revenue Act of 1926, a taxable year and the net losses of the Taylor Furniture Company for the calendar year 1924 and the period January 1 to March 20, 1925, may be carried forward and allowed as deductions in computing the consolidated net income of petitioner and the Taylor…

1. NET LOSS - HUSBAND AND WIFE. Where petitioner and his wife filed joint returns for 1923 and 1924 and separate returns for 1925, the business net loss of petitioner for 1923 should be computed in accordance with the rule laid down in Samuel G. Adams,19 B.T.A. 781. 2.

Special assessment denied for 1919, 1920 and 1921.

1. Where a taxpayer kept its books of account and made its income-tax returns for 1921, 1922, and 1923 upon the accrual basis and deducted from gross income the interest paid upon all bonds… Held: that the amount did not constitute a part of the petitioner's taxable income of 1921.

1. DEDUCTION FROM GROSS INCOME OF ESTATE. During 1924 the trustees paid to decedent's widow the amount of $10,000 pursuant to the directions of the decedent's will, she having elected to take under the will in lieu of dower. Held, that the amounts so paid were paid to the widow in purchase and satisfaction of her dower right and not as distributions of income of the estate and hence are not deductible by the trustees in computing net income of the estate. Julia Butterworth et al.,23 B.T.A. 838, followed. 2. CAPITAL EXPENDITURES. All of the income-producing assets of said estate were transferred by the testator's three sons as individuals to a corporation for its capital stock. The corporation paid the said annuity to the widow during 1925, 1926 and 1927. Held, that the corporation acquired said assets by purchase subject to the charge against them of the said annuity and that such payments constituted a portion of the purchase price of the widow's dower interest in assets of the estate, were capital expenditures and therefore not deductible in computing net income of the corporation.

Held, that an amount of commission paid by petitioner to A for A's services in procuring a construction loan from B to petitioner is not… Held: that an amount of commission paid by petitioner to A for A's services in procuring a construction loan from B to petitioner is not deductible by petitioner as an ordinary and necessary business expense in the year in which paid, but is in the nature of a capital expenditure which is deductible pro rata over the term of the loan.

1. Merchandise purchased by petitioner, title to which remained in seller, can not be included in inventory, if any, kept by petitioner. 2. Held: petitioner not entitled to benefit of special assessment provision.

1. Value of lease acquired May 18, 1921, may not be included in invested capital under section 331 of the Revenue Act of 1921, where prior owner acquired same without cost and received and retained all but three of the shares of capital stock of petitioner in payment thereof. 2. Value of lease determined for purpose of exhaustion thereof for years 1921 and 1923. 3.

A new and separate corporation, organized to take over the business, assets and liabilities of its predecessor, is not entitled to carry forward net losses of its predecessor for 1921 and the period January 1, 1922, to April 13, 1922, in computing its income for the period April 14, 1922, to December 31, 1922.

The petitioner in making loans deducted the commissions for making the loans from the principal and delivered to the borrower the balance. Notes, however, we prepared for the full amount of the Loan. Held: that the commissions may not be considered as received by the petitioner until the notes are paid or sold.

1. The petitioner having failed to prove the useful life of its depreciable assets, the determination of the respondent as to depreciation thereon is approved. 2. Basis for reasonable deductions for depletion of petitioner's coal reserves determined. 3. The evidence is insufficient to overcome the respondent's determination that petitioner's invested capital should be reduced by an amount determined to represent a nonoperating deficit. 4.

1. Waivers adduced in evidence by the respondent prove that petitioners' tax liability for 1921 has never been barred by the statute of limitations. 2. The amount of deficiencies for a prior year barred by the statute of limitations should be included in the computation of invested capital for the taxable year.

1. If a corporation purchases and retires any of its bonds at a price less than the issuing price, the excess of the issuing price over the purchase price is gain or income for the taxable year. 2. Where a taxpayer keeping its books on an accrual basis, acquired certain of its own bonds with interest coupons attached thereto, the excess of the face value of the coupons over the amount paid for them is taxable as income.

1. INCOME - DIVIDENDS FROM FOREIGN CORPORATION. Held: that the accumulated earnings or profits of such corporation within the purview of section 201 of the Revenue Act of 1921 are those accumulated portions of its gross income for each year representing earnings and profits in the sense in which those terms are used in that act, and not those lesser portions taxed as earnings or profits…

In the circumstances herein the petitioner's tax liability should be settled in conformity with section 206 of the Revenue Act of 1926.

1. Where a corporation distributed assets to its stockholders as a final liquidating dividend, and the assets had a known value, such stockholders are transferees within the meaning of section 280 of the Revenue Act of 1926. 2. The statute of limitations has not barred assessment against the petitioners as transferees of the assets of a corporation.

The total amount of compensation to a railroad company for the use of its property during the period of Federal control, as finally agreed upon, and also interest on the cost of additions and betterments, received from the United States Government, constituted income for each of the accounting periods for which the allowances were made, although the exact amounts of such compensation and interest, were not determined until a later date.

1. In 1918 the petitioner and the United States Shipping Board Emergency Fleet Corporation entered into two contracts for the construction of 12 ocean-going tugs at a flat contract price per tug. These contracts were canceled and the petitioner's compensation fixed by an agreement executed on October 28, 1919. The tugs were completed and delivered to the Fleet Corporation in 1919. An audit contemplated by the contract was not completed until some time in 1920, when petitioner received a small balance due it. Held, that the income realized by the petitioner under the settlement agreement accrued in 1919. 2. For the completion of its contracts the petitioner borrowed money from the Fleet Corporation, which was secured by mortgages upon its plant. The petitioner became financially embarrassed and was unable to pay interest upon its loans from some time in 1920. In 1922 the Fleet Corporation, being unable to collect its indebtedness in full, accepted $45,000 in satisfaction of its claim for $200,000 and released the mortgages upon the petitioner's plant. Held, that this settlement reduced the amortizable cost of the war facilities borne by the petitioner to the extent of $155,000. 3. The respondent has spread the amortization allowance over the amortization period in accordance with the petitioner's sales in the period. Held, that the amortization allowance should be spread in accordance with the net incomes of the taxable periods comprehended by the amortization period. 4. The claim of a loss of useful value of the petitioner's plate and angle shop in 1920 is disallowed.

Obsolescence on petitioner's ferry boats allowed.

1. For purposes of depreciation, value of fixed assets determined as of date of acquisition by petitioner. 2. Values of items appearing in petitioner's opening inventory determined.

1. The evidence does not warrant a holding that it was sufficiently ascertained prior to 1923 that a certain obstruction in the Colorado River would be removed to justify deductions for… Held: further, that petitioners are entitled to spread all of the depreciated cost of their pumping plants and 64 per cent of the depreciated cost of their canals and laterals ratably over a period commencing in 1923 and ending when the facilities became wholly or partially obsolete. 3.

In 1923 the petitioner sold to outside interests its stockholdings in a corporation that prior to, but not during, 1923 was affiliated with the petitioner. Upon the consolidated returns for such prior years the net income of petitioner had been offset by the net losses of the affiliated company. Held, that the loss sustained by the petitioner upon the sale of the stock in 1923 is not affected by the net losses of the affiliated company during the period of affiliation.

1. STATUTE OF LIMITATIONS - WAIVER. A waiver extending the time for assessment and collection of 1921 taxes to a stated date and executed by petitioner in 1926, held to be subject to the provisions of the 1926 Act, and as the notice of deficiency was mailed to petitioner within the stated period and appeal filed within 60 days thereafter, the date of expiration agreed upon is extended by section 277(b) of that Act and assessment and collection is not barred. 2. AFFILIATION. Upon the evidence it is held that petitioner has not sustained the burden of proving that it was not affiliated with the Logan Mining Company in 1921, and the action of respondent in computing the tax upon a consolidated basis is approved, the requiring of mandatory consolidation of affiliated corporations for tax purposes, even though resulting in a greater aggregate tax than if computed in each instance on a separate basis being within the power of Congress. 3. MINIMUM ROYALTIES. Held to be deductible in the year in which paid. 4. EXPENSE. The cost of certain equipment bought and used in the taxable year to maintain normal production, held, to represent deductible expense for such year. West Virginia-Pittsburgh Coal Co.,24 B.T.A. 234.

1. At the time of his death decedent owned securities on deposit in banks in France and England. After decedent's death one of the executors went to those countries to obtain possession of said securities. The banks refused to turn the securities over to the executor until certain death taxes claimed by the French Government, and inland revenue dues claimed by the British Government, were first paid. The executors paid the said taxes out of moneys forming part of the estate in the United States and the securities thereby were brought into the administration of the estate in this country. Respondent included in the gross estate the value of the securities without deduction of the foreign taxes. Action of the respondent reversed on authority of Frick v. Pennsylvania,268 U.S. 473. 2. A confession of error by the respondent, or stipulation of the parties, which constitutes substantially an erroneous conclusion of law in direct contravention of a statute, will not be given effect in redetermining the deficiency. 3. On the evidence, held, that certain gifts made within two years of decedent's death were in fact not made in contemplation of death, and are not includable in the gross estate subject to tax. Estate of Robert Todd Lincoln,24 B.T.A. 334 followed.

Held, that respondent has not established that petitioner was liable as a transferee. Held: that respondent has not established that petitioner was liable as a transferee.

1. The value of certain applications for patents paid into the petitioner for stock determined for invested capital purposes. 2. The amount at which intangible property acquired for stock may be included in the petitioner's invested capital determined. 3. The action of the respondent in reducing petitioner's invested capital on account of additional taxes for prior years sustained. 4. The value of certain patents determined for the purpose of computing the annual deduction to which the petitioner is entitled for exhaustion. 5. The respondent's action in reducing the deduction taken by the petitioner for depreciation for 1924 sustained for lack of evidence. 6. Held, that expenditures made by the petitioner in connection with the changing of its capital stock from that having a par value to that having no par value are not, except as to taxes paid, deductible in determining net income.

Action of the Commissioner in determining that the unrealized profit contained in a second mortgage which was received in a prior sale was realized when the petitioner used such second mortgage at its face value in satisfaction of a part of the purchase price of a piece of real estate, sustained.

In 1923 the petitioners were equally interested in a contract entered into in 1919 by which they carried on the business of a corporation. Under the contract the stockholders were to receive the book value of their shares, after which the shares were to belong to the petitioners. The shares of stock were placed in the hands of trustees and payments were made to the trustees as provided in the contract. The corporation had earnings in 1922 and 1923 and the Commissioner held that to the extent of such earnings paid to the trustees in 1923 the petitioners received income as from dividends declared by a corporation. Held, that the petitioners received no taxable income from the amounts paid to the trustees in 1923.

1. Held, upon the evidence, that an amount paid in cash by petitioner at the time of the execution of a 99-year lease was part of the consideration paid for the lease instead of a payment for the improvements upon the land, and that such amount is deductible pro rata each year over the term of the lease, rather than over the useful life of the improvements. 2. Under the circumstances in this proceeding certain claimed bad debts were not charged off in the year in question within the meaning of the Revenue Act of 1926.

1. Distributions, as "special compensation," to two inventors who together owned approximately 7 1/2 per cent of petitioner's outstanding common stock, of "five per centum (5%) of the net profits" of petitioner, held to be capital expenditures. 2. For 1918 to 1923, inclusive, petitioner filed returns on accrual basis. Its return for 1924 was timely filed on installment basis. Respondent approved such change and made refunds for 1918 to 1923, inclusive. Returns for 1925 and 1926 also were made on installment basis. Held, that collections made in 1924, 1925 and 1926 on account of installment sales made prior to 1924 are not taxable as income in those years. 3. Held, under the circumstances here, that "unrealized profits" on installment sales are not taxable where in 1926 petitioner, as a party to a reorganization, transferred substantially all its assets for stock of the second party in the reorganization and $2,000,000 in cash, and such stock and cash were immediately disposed of by petitioner in accordance with the plan of reorganization. Charles F. Meagher,20 B.T.A. 68, followed.

Where a trust which is taxed as a corporation buys in part of its own units (or shares) of ownership it does not thereby increase the basis for computing depletion on its assets.

Held that the petitioner has not shown error in respondent's denial of affiliation between petitioner and another corporation during the year 1925.

The taxpayer realized income upon the purchase of its bonds at a price less than the amount received upon the issuance of such bonds. United States v. Kirby Lumber Co.,284 U.S. 1.

Where two corporations were operated as an economic unit under the management of an individual owning all of the stock of one and 75 per cent of the stock of another, the remaining 25 per cent being… Held: the corporations were not affiliated under the 1926 Act, where the evidence fails to show that the minority stockholder constituted the same interest as the majority.

1. Assessment and collection of income and excess-profits taxes for the year in question are not barred by the statute of limitations. 2. Evidence held insufficient to entitle the petitioner to special assessment.

1. Held, that petitioner is liable as a transferee and that the deficiency is not barred by the statute of limitations. 2. Held: that petitioner is liable as a transferee and that the deficiency is not barred by the statute of limitations. 2. Invested capital of the transferor corporation for 1920 should not be reduced on account of outlawed taxes for 1918. 3. The transferor corporation held affiliated with a corporation in which it owned all the stock.

Amounts paid by the petitioners to a retiring member of a partnership, of which they also were members, in settlement of a claim made by him for payment for his share or interest in the partnership good will, held to be capital expenditures and as such not allowable deductions in determining taxable net income.

Held, that a bona fide partnership was created by certain agreements herein and that petitioner is taxable on but one-fourth of the income thereof.

Petitioner, a mutual fire insurance company, assessing its members for deposits to provide for losses and expenses and subject to taxes imposed by sections 230 of the Revenue Acts of 1924 and 1926,… Held: that all the requirements of sections 234(a)(11) of the Revenue Acts of 1924 and 1926 are met, and that the deduction of the premium deposits for the several years, as claimed by petitioner, is allowable.

1. Petitioner Galbreath Lease, Trust No. 314, held to be a trust and not an association, taxable as a corporation. 2. Held, further, that petitioner E. B. Galbreath is entitled to a deduction in 1924 for depletion.

1. Where the executor of an estate who is the residuary legatee and has in his possession the bulk of the devised property has been discharged and thereafter receives a deficiency notice and files a petition for the redetermination of the asserted deficiency, all the requirements of section 308(a) of the Revenue Acts of 1924 and 1926 have been satisfied and the Board of Tax Appeals has jurisdiction. 2.

An organization created in the form of a trust to hold and operate property for convenience in the management thereof held to be an association taxable as a corporation.

Under the facts shown, the action of the Commissioner of Internal Revenue, in holding that the trust estate derived a taxable profit of $114,590 from the sale of trust real estate in 1923, is sustained.

Petitioners sustained in 1927 losses by reason of stock owned by them in a corporation becoming worthless due to its liquidation in bankruptcy, all assets being distributed to creditors. Held, that the loss sustained by each can not be deemed to be upon an exchange of the stock within the purview of section 201(c) of the Revenue Act of 1926, and consequently is not a capital loss within the meaning of section 208 of that act.

1. DEDUCTIONS - EXHAUSTION. Petitioner received royalties for 1925 and 1926 from certain licenses of a patent granted him in 1919. Held, that he is not entitled to exhaustion based upon the value of this patent, but upon its cost, and that in the present case no deduction is allowable, due to his failure to establish any amount as representing such cost. 2. Id. In the absence of evidence as to the fair market value of residential property when rented, no deduction for depreciation is allowable.

1. Petitioner operated a sugar mill in the Philippine Islands under contracts with planters of sugar cane, whereby it milled the cane produced by the planters, and accepted as compensation for its… Held: the sugar so received constituted income at the time and place received to the extent of its fair market value. 2.

1. Where a husband and wife are domiciled in California and the wife acquires property by gift, bequest, devise, or descent, such property, with the rents, issues, and profits thereof, is her… Held: the property was properly reported by the executors as community property and the interest therein of the surviving wife is subject to the Federal estate tax imposed by the Revenue Act of 1921.

1. Fair market value of corporate asserts distributed as liquidating dividend, determined. 2. Several years prior to dissolution of a corporation shares of its stock were assigned by decedent to his wife, who thereafter, until the corporation was dissolved, exercised dominion and control over such shares, although decedent retained possession of them at his wife's request. Held, decedent was not the owner of such shares at the time the company's assets were distributed.

Where the grantor had, during the taxable year, the right to revest in herself the property of certain revocable trusts, held that under section 166 of the Revenue Act of 1928 the income from such trusts was taxable to the grantor, notwithstanding a provision in the trust agreements that in case she exercised the right of revocation she should give the trustees notice of twelve months and one day.

1. The petitioner, having failed to prove the cost of a certain franchise, has failed to show error in respondent's determination of deductions for exhaustion thereof. 2. The cost of improvements to the floor supports and roof of a building held not to have been been ordinary and necessary expenses incurred in a trade or business and therefore not deductible.

1. Amounts properly deductible from gross income as ordinary and necessary business expense determined. 2. Determination by respondent of amounts of reasonable salary allowable as a deduction from gross income approved. 3. Respondent's disallowing deduction of amount representing bad debts approved, since taxpayer knew accounts to be worthless prior to taxable year and no evidence presented showing that accounts were actually charged off in taxable year.

1. BAD DEBTS. Evidence examined and claims for deduction of bad debts allowed. 2. FAIR MARKET VALUE MARCH 1, 1913. Evidence examined and the value of certain land and building as of March 1, 1913, determined for purpose of computation of depreciation on building in the taxable years and determination of profit on sale of land and building in 1927.

Petitioner created revocable trusts in 1917; in 1925 he relinquished his powers of revocation. Held: that the relinquishment of the powers constituted gifts within the meaning of the gift-tax provisions of the Revenue Act of 1924, and amendments thereto by the Revenue Act of 1926.

1. Where a taxpayer corporation, incorporated under the laws of the State of New York, is consolidating with another corporation of the same State under the laws of the State of New York relating to the consolidation of corporations forming a new corporation, such new corporation is a proper party to prosecute an appeal from deficiency letters addressed to and mailed to such consolidating corporation for taxes incurred by it in years prior to the consolidation. 2. Capital-stock taxes accrued in 1926 but not paid until 1928 are properly deductible from 1926 income where the books of the corporation were kept on the accrual basis. Aluminum Castings Co. v. Routzahn,282 U.S. 92. 3. Net losses sustained by four certain corporations in taxable period first two months of 1924, before affiliation, may not be carried forward and deducted in determining the net income for the period March 1, 1924, to December 31, 1924 and 1925, of the affiliated group of which they had become members, where the admitted facts are that the same four corporations had losses and not net income in the periods from March 1, 1924, to December 31, 1924, and for 1925. Commissioner v. Ginsburg Co., 54 Fed.(2d) 238, followed. 4. In November, 1916, petitioner acquired a certain leasehold and building agreement and issued its capital stock of the par value of $1,999,500 in payment therefor. Under the evidence, held that the leasehold and building agreement at the time it was acquired by petitioner had an actual cash value of $1,000,000 and that petitioner is entitled to include said leasehold and building agreement in its invested capital at $1,000,000 and to compute the annual allowance for the exhaustion of the leasehold on that basis. A. H. Woods Theatre Co.,12 B.T.A. 827, followed.

Deductions - Insurance Companies - Net policy Reserves. Petitioner, a life insurance company doing business in Germany, Austria and elsewhere, and computing and maintaining its policy reserves required by the laws of those two foreign countries in their respective currencies had for the taxable year 1920 a net addition of 1,830,253 marks required by the laws of Germany in its German reserve and a net decrease of 6,250,887 kronen in the reserve upon its Austrian business required by the laws of that country. On its business other than German and Austrian it had a net addition required by law of $36,235,398. Held, that the total net addition to petitioner's reserve funds required by law for such year and allowable as a deduction under section 234 of the Revenue Act of 1918 is the combination of these three figures, the net addition in the German reserve and the reduction in the Austrian reserve to be converted, for purposes of combination, on the basis of the exchange value of the German mark and the Austrian krone at the end of that year.

1. EXCHANGE OF STOCK FOR OTHER STOCK AND CASH. Held: that the difference between the $139,200 (fair market value of new stock and cash) and March 1, 1913, value of the 91 shares, plus cost to donor of the 25 shares, is gain to petitioner, but under the provisions of the latter part of section 202(e) of the Revenue Act of 1921, as amended by Act of March 4, 1923, only the $69,000 cash…

The operation during the years 1923, 1924, and 1925 of a breeding farm and racing stable by decedent at a considerable loss in each year held, under the facts proven, to have been the operation of a… Held: under the facts proven, to have been the operation of a business for profit, and the excess of expenditures incident to such operation over receipts for such of these years are deductible as business losses in computing decedent's net income.

Pursuant to statute, petitioner was appointed by the Superior Court of Massachusetts as auditor in certain proceedings therein pending. Held: that he was not an independent contractor, but was an officer or employee of the Commonwealth, or a political subdivision thereof, an instrumentality of the Commonwealth, engaged in administering or executing its governmental functions and that his compensation as such is exempt from Federal taxation.

1. STATUTE OF LIMITATIONS. Waivers executed on behalf of dissolved corporations after the time provided by the laws of the respective corporations' domiciles for winding up their affairs have expired, are invalid and will not extend the statute for making any assessment against such dissolved corporations. Newport Co.,22 B.T.A. 833. 2.

1. The proper method of computing consolidated invested capital determined. 2. Respondent's action in reducing 1919 consolidated invested capital on account of 1918 taxes prorated sustained. 3. Respondent's action in determining deficiency in consolidated tax liability for 1919 and 1920 against one member of a consolidated group sustained. 4.

1. The Commissioner's determination that the petitioner and the Contractors Machinery & Export Company were affiliated during the taxable year sustained upon the evidence. 2. The deductibility of alleged bad debts determined.

In 1921 the petitioner acquired all the assets of the Contractors Machinery & Export Company subject to its liabilities as they existed at the close of business on December 31, 1920, issuing in payment therefor to the Contractors Machinery &m Export Company 370 shares of its own common capital stock. Held, that the petitioner is liable for the income and excess-profits tax of the Contractors Machinery & Export Company for 1920 under section 280 of the Revenue Act of 1926.

1. TRANSFEREES - DIVIDEND - IMPAIRMENT OF CAPITAL STOCK. Held: petitioners in this proceeding are liable as transferees of property under section 280 of the Revenue Act of 1926, to the extent of the percentage of the dividend which they received which was paid out of the capital of the transferor corporation, a West Virginia corporation. 2.