Volume 24 — Tax Court Reports

1. The petitioners owned one-third of the capital stock of Empire. Held: that the corporate identities of Dumelle and Belgrade and the transactions by them involving Empire stock are to be disregarded.

Exemption -- Sec. 101 (6) -- Foundation Selling Whiskey as the Result of Holding American Distilling Company Stock. -- A foundation, otherwise qualifying for exemption under section 101 (6) (1939 Code), does not fail to qualify because it purchased American Distilling Company stock, after the company had indicated that it would permit stockholders to purchase stated quantities of whiskey at its cost, purchased its allotted share, and sold the whiskey at a profit.

1. Income Deductions -- Expense -- Necessary -- Reimbursable. -- Automobile expenses, for which the taxpayer could have been reimbursed by his employer had he made claim therefor, are not necessary expenses of the taxpayer although paid by him. 2.

Excess profits tax relief under section 722 (b) (4), Internal Revenue Code of 1939, denied where the change in the character of petitioner's business is not shown to have been potentially productive of base period earnings sufficient to give petitioner excess profits tax credits greater than those allowed by respondent under sections 713 (f) and 714.

1. Land included in decedent's estate on which was located his homesite held, on facts and under applicable Florida law, homestead property in its entirety in which decedent's widow acquired no more… Held: on facts and under applicable Florida law, homestead property in its entirety in which decedent's widow acquired no more than a terminable interest excluded from the marital deduction under section 812 (e) (1) (B), Internal Revenue Code of 1939. 2.

Petitioner's constructive average base period net income determined.

Exchange of Property for Stock and Securities -- Recognition of Gain -- Sec. 112 (b) (5) -- Sec. 112 (c) (1), I. R. C. 1939. -- Partnership assets were exchanged for stock and drawing accounts in a… Held: that the drawing accounts were not securities under section 112 (b) (5) and were taxable as other property under section 112 (c) (1).

Held, petitioner was a bona fide resident of Argentina throughout the year 1948 within the meaning of section 116 (a), Internal Revenue Code of 1939. Held: petitioner was a bona fide resident of Argentina throughout the year 1948 within the meaning of section 116 (a), Internal Revenue Code of 1939.

Realization of Income -- Foreign Funds. -- In 1935, petitioner imported merchandise from England from its parent corporation. It did not pay for the merchandise. Held: that the difference of $ 2,063.30 represented gain to the petitioner. Held, further, that the gain was ordinary gain and was not capital gain.

Collateral Estoppel in Excess Profits Tax Cases. -- In a prior suit involving claims for excess profits tax relief for 1940-1942, petitioner based its claim under section 722 (b) (4) (1939 Code) on… Held: petitioner is precluded by the principle of collateral estoppel from litigating in this suit claims for relief under section 722 (b) (4) for later taxable years (1943-1945).

Petitioner was created in 1945 for the primary benefit of the grantor's wife and two children. Held: that the reformation decree is not to be deemed determinative of the number of trusts created by grantor for purposes of applying the Internal Revenue Code to the taxable years in question which were prior to the decree.

Petitioner, organized in 1912 under the general corporation law of California, always has carried on its business as a co-operative wholesale dealer in hardware selling only to its… Held: that the patronage refunds so paid, in certificates, were paid under legal obligation to and contracts with petitioner's members, and that the amount thereof is subject to exclusion in computing the net income of petitioner subject to tax.

Held, that, under section 12391.04 of the Revised Statutes of Hawaii, which were effective for the year 1947, the income from the separate property of petitioner's then husband was community income,… Held: that, under section 12391.04 of the Revised Statutes of Hawaii, which were effective for the year 1947, the income from the separate property of petitioner's then husband was community income, with existing and equal interests in the petitioner and the said husband.

Sec. 107(a), as Amended, 1939 Code. -- (1) Upon the facts, held, that services of Marion B. Pierce, deceased, as general counsel for Missouri… Held: that services of Marion B. Pierce, deceased, as general counsel for Missouri Pacific Railroad were separate and distinct from his services as an attorney appointed by the District Court to represent the railroad, a party to a reorganization under section 77 of the Bankruptcy Act, and the fee of $ 3,800 received in 1945 for such…

Petitioner Jesse Johnson was engaged in business as an independent building contractor. He helped organize two corporations whose purpose was the development of rental housing projects. Held: there was no arm's-length relationship between petitioner and his wholly owned corporations, and losses purportedly sustained by him under contracts with such corporations are nondeductible as losses but are contributions to the capital of the corporations.

1. Petitioners Robert J. Dial and Dwight S. Spreng were members and trustees of an incorporated nonprofit medical clinic and drew salaries for… Held: the receipt of such notes or bonds did not constitute taxable income to Robert and Dwight in 1945. 2. In 1944, the sum of $ 13,129.05 was credited to Dwight's salary account but was not withdrawn by him. The trustees made payments of $ 16,354 in excess of the amount due in that year on a first mortgage note owed by the Clinic.

On October 31, 1944, the Ryan School established a pension trust covering 110 rank and file employees and 5 officers. Held: the pension plan did not operate to discriminate in favor of the officers within the meaning of section 165 (a) (4) and the income of the trust was, therefore, exempt from taxation.

1. Petitioners' claim that the respondent erred in disallowing as deductions amounts charged to an expense account of $ 2,000 per month disapproved for lack of evidence showing that a substantial… Held: The income realized by decedent as a result of the preferred stock provisions constituted compensation for services and ordinary income.b. The income was taxable in 1949 and 1950, when the preferred stock was redeemed, and not in 1947 when the agreement was executed. 3.

1. The petitioners were equal partners in an offset printing business which they sold to a corporation wholly owned by them at a stated price exceeding the value of the tangible partnership assets by… Held: on the facts the partnership transferred to the corporation goodwill and other intangibles of a value of $ 45,000. 2. The petitioners on January 15, 1951, revised upward their estimated taxes for 1950 but failed to pay the full amount due.

Held, under the facts, that the transaction in issue was a sale by petitioners of their interests in a partnership. Held: under the facts, that the transaction in issue was a sale by petitioners of their interests in a partnership.

At the time of his death decedent owned three insurance policies which contained identical language with respect to the rights of his… Held: in the absence of authorities to the contrary, the trial court's construction of the terms of one policy is a controlling precedent for the construction of the identical terms of the others, and therefore the widow has the power under the applicable State law to appoint the principal proceeds of the remaining two policies in favor of…

Excess Profits Tax -- Pleadings -- Rule 50 -- Unused Excess Profits Credit Carry-Over -- Variable Credit Rule. -- A taxpayer granted section 722 relief on the basis of qualification under section 722 (b) (2) may have an unused excess profits credit carry-over from 1940 to 1941, previously claimed on its application for relief, computed on the basis of the constructive average base period net income, determined by the Court for 1941 and later years, routinely as a matter of…

Petitioner, an American Indian, duly enrolled as a member of the Kalispel Tribe, and a citizen of the United States, as heir of original Indian allottees, received during the taxable year… Held: that such income was subject to Federal income tax.

1. Stock or Evidence of Indebtedness -- Undercapitalization -- Principal or Dividends. -- The payment of the principal of notes by a corporation may not be regarded for tax purposes as the payment of taxable dividends upon the theory that the notes represented capital of an otherwise undercapitalized corporation where the facts show no undercapitalization. 2.

Assignment to Wife -- Tax Consequences. -- Taxpayer created an invention which was patented and sold to B. The contract of sale stipulated payments therefor were to be made by B quarterly each year… Held: the assignment to the wife transferred property and property rights of which she became the owner, and hence the payments made to her were not taxable to the taxpayer.

1. Cash gifts from husband to wife held not made in contemplation of death. 2. Premiums on an insurance policy on decedent's life were not paid directly or indirectly by him so as to require inclusion of the insurance proceeds in his gross estate. 3.

1. Petitioners engaged in a number of promotional business ventures up to 1939. Held: petitioners were not engaged in the business of organizing, promoting, managing, financing, and making loans to such corporation, and are entitled only to deductions for nonbusiness bad debts in accordance with the provisions of section 23 (k) (4) of the Internal Revenue Code of 1939. 2.

In 1946, petitioner E. W. Schuessler sold gas furnaces. Included in the purchase price of furnaces was a fee for his guarantee to turn on and cut off such furnaces for the next 5 years. Held: the reserve for servicing the furnaces was not a proper deduction in computing income for 1946.

1. Income -- Gain From Sale -- Who Was Seller. -- Two corporations were the sellers of their assets although the fiduciary of the estate which owned all of the stock of the two corporations did all of the negotiating with the purchaser and joined with the two corporations in the final contract of sale. 2.

1. Charles R. Brown (Charles) and Elmer L. Lautenberger (Elmer) were liable for income tax deficiencies and penalties for 1942 through 1946. Held: the returns for 1942 through 1945 were not intended by petitioners or their husbands to be joint and were not in fact joint. Consequently, petitioners are not jointly and severally liable with their husbands for the deficiencies and penalties applicable to those years. 2.

During the taxable years petitioner was a judge of a circuit court of the State of Indiana. 1. Held: petitioner's duties constituted the performance of services as an employee within the meaning of section 22 (n) (1), Internal Revenue Code of 1939. 2. Held, further, petitioner's expenses of travel to other circuits in connection with his duties were deductible under section 22 (n) (2) as expenses of travel while away from home.

1. Where the taxpayer's failure to file proper gift tax returns was due largely to erroneous advice on the part of his accountant, held, respondent was not estopped to determine a deficiency many… Held: respondent was not estopped to determine a deficiency many years later by reason of the taxpayer's having filed a return in the wrong year and the respondent's having requested additional information with reference thereto. 2.

On the facts, held: 1. Petitioner's net income for the taxable years in question was properly computed on the net worth expenditures basis. 2. Held: Petitioner's net income for the taxable years in question was properly computed on the net worth expenditures basis. 2. The 50 per cent addition to the tax for fraud in each of the taxable years 1942 to 1948, inclusive, approved. 3.

Gross Income -- Sec. 22 (a), 1939 Code -- Nature of Payment Received in Settlement of Antitrust Suit. -- Petitioners joined with others in suit against distributors and exhibitors of motion picture… Held: That petitioners have failed to prove that all or any part of the recovery constituted a return of capital and did not represent a recovery of profit or of lost profits.

After receipt of notice of transferee liability, a transferee is not relieved of liability by subsequent retransfers to the transferor.

Held, transaction by which petitioner acquired certain properties here in dispute was not one to which the nonrecognition provisions of… Held: transaction by which petitioner acquired certain properties here in dispute was not one to which the nonrecognition provisions of section 112 (b) (10) of the Internal Revenue Code of 1939 apply so as to give the same basis to such property in petitioner's hand as it had in the transferor's hands pursuant to section 113 (a) (22) of…

At the time of his death, March 6, 1947, the decedent was a member of a partnership which had and employed capital and exhaustible tangible property in the conduct of its… Held: that the right in question was of a character with respect to which exhaustion allowances were deductible; that the respondent erred in disallowing the deductions taken by the estate and increasing accordingly the petitioner's shares of distributable net income for the taxable years in controversy.

1. Corporation A, which was organized in 1945, had a franchise from the Studebaker Corporation under which it carried on a business of buying and selling automobiles. Held: that corporation A, rather than petitioner, was the owner of the 2 lots and of the new building, and that corporation A owned the lots and the building prior to a corporate reorganization. 2.

One of the petitioners received prizes in cash and merchandise following a telephone call to his home from a radio program in which he gave correct answers to two questions. Held: the prizes were received as a gift rather than as compensation for services rendered, and the value thereof does not constitute gross income to the petitioners.

Petitioner contracted to go on the coal lands owned by the National Steel Corporation and to strip mine, clean, and deliver to National such coal as National might direct. Held: petitioner did not possess an economic interest in the coal in place and, therefore, was not entitled to a percentage depletion deduction under sections 23(m) and 114(b) (4) of the Internal Revenue Code of 1939. Morrisdale Coal Mining Co., 19 T. C. 208, and Mammoth Coal Co., 22 T. C. 571, followed.

Deduction -- Expense or Capital Expenditure -- Fiduciary Account -- Attorney's Fees. -- Attorney's fees paid to conserve and maintain a remainder interest in trust corpus by supporting an executor's account which left as a part of the corpus reserves for depreciation and depletion were deductible under section 23 (a) (2) (1939 Code).

Held, a legacy by the decedent to the California Alumni Association is deductible from the gross estate under section 812 (d), Internal Revenue Code of 1939. Held: a legacy by the decedent to the California Alumni Association is deductible from the gross estate under section 812 (d), Internal Revenue Code of 1939.

Held, that anticipatory expenditures in the total amount of $ 23,299.03 for replacement facilities paid out of petitioner's general funds, and prior to payment of award, do not qualify for… Held: that anticipatory expenditures in the total amount of $ 23,299.03 for replacement facilities paid out of petitioner's general funds, and prior to payment of award, do not qualify for nonrecognition of gain under section 112(f), 1939 Code.

Decedent died within 3 years from the date of a conditional sales contract to purchase a business. After decedent died, the seller exercised his election under the contract. Held: The business did not revert to the seller immediately upon or as of decedent's death; the reversion was after his death; the loss was not sustained during the taxable period which ended with his death. Respondent's disallowance of loss deduction is sustained.

Estate Tax -- Citizen of the United States -- Domiciled in Virgin Islands -- Sec. 802, I. R. C. (1939). -- The decedent, a lifetime citizen of the United States, domiciled for over 12 years and at the time of his death in the Virgin Islands, held not a citizen of the United States within the meaning of section 802, 1939 Code, for Federal estate tax purposes.

The Tax Court having ruled that it has jurisdiction, held petitioner has failed to carry its burden of showing that its war contracts were not subject to renegotiation by reason of being an organization exempt from tax within the purview of section 101 (6), 1939 Code, as provided in section 403 (i) (1) (D) of the Renegotiation Act.

Petitioner was the controlling stockholder of two automobile dealer corporations. Held: the amount received attributable to the disposition of its preferred stock of each dealer company was part of the proceeds of the sale of petitioner's entire interest in that company and was not a dividend or essentially equivalent to the distribution of a taxable dividend. Zenz v. Quinlivan, (C. A. 6, 1954) 213 F. 2d 914, followed.

Petitioner, a national banking corporation in existence for a period of more than 20 years, used the loss ratio experience of another bank in the locality in computing its reserve for bad debts in… Held: petitioner has failed to show that the respondent's determination was either an arbitrary or an unreasonable exercise of his discretion.

A wife who filed with her husband a joint return and joined in a petition asking redetermination of the deficiency in tax and fraud penalty as determined by respondent, is jointly and severally liable for the tax and penalty.

1. Petitioner is a contractor and also a real estate dealer and investor who sold certain pieces of real estate at a profit during the… Held: lots in a subdivision acquired and developed by petitioner for sale both in connection with contracts for house construction and otherwise, (b) vacant lots in a rental housing development, and (c) other vacant land were held primarily for sale to customers in the ordinary course of petitioner's business, and profits resulting from…

In 1943, petitioner was granted a divorce in Nevada. Held: that payment of $ 14,000 represented additional alimony payments for preceding years, and that it was taxable to petitioner as income in the year of receipt under section 22 (k) of the 1939 Code. Elsie B. Gale, 13 T. C. 661, affd. 191 F. 2d 79, followed; Frank J. Loverin, 10 T. C. 406, distinguished on the facts.

Petitioner prepared and submitted a Standard Form of Contractor's Report for its fiscal year ended December 31, 1944, to Chicago Ordnance Price Adjustment Division (hereinafter called Chicago P. A.… Held: renegotiation proceedings were not timely commenced.

1. Held, the respondent, not otherwise barred, may claim a deficiency in the amount of refunded taxes which had been collected under the pay as you go system.… Held: the respondent, not otherwise barred, may claim a deficiency in the amount of refunded taxes which had been collected under the pay as you go system. 2. Held, further, petitioner was a bona fide resident of a foreign country during 1947 within the meaning of section 116 (a) of the Internal Revenue Code of 1939.

In June 1947, the decedent conveyed property to a revocable trust. Under the trust agreement, the trust income was to be paid to the decedent for life and then to his wife for her life. Held: A decision entered by the District Court of Utah construing the instruments as creating two trusts amounted to a consent decree and it is not controlling. (2) The trust instruments executed by the decedent created only one trust.

Alimony Payments Under Sec. 22 (k), I. R. C. 1939. -- Decree of divorce required petitioner to pay $ 24,000 to his former wife as alimony, the payments to be made on the first day of each month in… Held: payments made by petitioner under the divorce decree were installment payments within the meaning of section 22 (k) and not deductible.

The absence of a written plan will not preclude a reorganization pursuant to plan within the meaning of section 112 (b), 1939 Code, if the actual circumstances warrant a finding that such a reorganization occurred. If 72 per cent of the shareholders of the transferor corporation participate and own 100 per cent control of the transferee, section 112 (g) (1) (D) is satisfied.

1. Held, that a royalty interest owned by petitioner became worthless prior to 1944 when petitioner's right of redemption therein expired and that its loss with respect to the royalty is therefore… Held: that a royalty interest owned by petitioner became worthless prior to 1944 when petitioner's right of redemption therein expired and that its loss with respect to the royalty is therefore not deductible in that year. 2.

Held: Petitioners sustained a net loss by theft in 1948, in the amount of $ 1,250. Mary Frances Allen, 16 T. C. 163, distinguished. Held: Petitioners sustained a net loss by theft in 1948, in the amount of $ 1,250. Mary Frances Allen, 16 T. C. 163, distinguished.

The petitioners, as of February 1, 1947, executed a bill of sale of their respective interests in a partnership, with an initial payment to be made within 30 days and the remainder to be paid in 3… Held: that the losses sustained by petitioners were capital losses within the meaning of the statute, and subject to the limitations therein provided.

Sec. 722 (c), 1939 Code. -- Petitioner failed to establish a fair and just amount representing normal earnings if petitioner had been in business during the base period years; relief denied.

Relief under section 722 of the Internal Revenue Code of 1939 denied on failure of proof that petitioner's base period earnings were depressed by reason of drought in its trade area.

Excess Profits Tax -- Relief Under Sec. 722 (b) (2). -- Petitioner, a lace manufacturer, claimed that its business was depressed in the base period due to the following temporary economic… Held: the circumstances complained of have not been shown to be temporary economic circumstances unusual in the case of petitioner, or of the industry of which petitioner was a member, within the meaning of section 722 (b) (2), Internal Revenue Code of 1939.

Capital Expenditure or Repair Expense -- General Plan of Rehabilitation -- Vieux Carre of the City of New Orleans -- Sec. 23 (a) (1) (A). -- The total cost of rehabilitating, restoring, and improving deteriorated and uninhabitable rental property in the Vieux Carre of the City of New Orleans was a capital expenditure and no part was deductible as repair expenses.

Deductions -- Ordinary and Necessary Expenses -- Depreciation, Meals, and Lodgings of an Owner-Operator of a Hotel. -- The expenses of operation of a hotel should be computed without eliminating portions of depreciation, cost of food, wages, and general expenses to represent the cost of meals and lodging furnished to an owner-operator of a hotel who lodged and ate in the hotel not for his own personal convenience but because it was necessary in connection with the operation…

1. Petitioner gave X corporation a license under which petitioner received royalties. Held: that a portion represented personal holding company income; a portion was compensation for services rendered; the total amount of personal holding company income received in each taxable year was as large as the prescribed percentages in section 501 (a) (1) and petitioner was a personal holding company. 2.

1. The petitioners were partners in an enterprise which conducted, inter alia, a handbook operation for the acceptance of bets on horse races. Held: on the facts, the books and records maintained by the partnership correctly set forth the hits or amounts payable by the partnership to winning bettors, and the respondent erred in determining that the partnership realized bookmaking income in each of the taxable years in an amount equal to 12 per cent of the wagers received. 2.

1. Upon the incorporation of petitioner, its principal officer conveyed to it approximately 1,100 acres of real estate for shares of petitioner's stock; and such shares were then transferred to… Held: that petitioner did not, by reason of the compromise payment made to its officer's creditor, acquire a greater cost basis for the real estate than that allowable with respect to a complete and valid conveyance of its officer's entire property interest.

Shortly before his first and only marriage, which occurred at the age of 73, the decedent made a draft of a will under which at his death all of his property, with minor exceptions, would be placed in trust with the income therefrom to be paid to his wife during her life, thereafter to his two sisters and upon the death of the survivor of his sisters the corpus of the trust to be distributed, one-half to decedent's nephews and nieces and one-half to certain named charitable,…

Petitioner, a domestic corporation, owned a majority of the voting stock of a foreign corporation from which it received nonliquidating… Held: that the distribution in question was a dividend out of those earnings to the extent of the fair market value of the property distributed, and that petitioner is deemed by section 131 (f) of the 1939 Code to have paid a proper proportion of the foreign income taxes paid by the subsidiary upon or with respect to such earnings or…

Petitioner, who had been connected with the motion picture industry and had become engaged in his own individual business, organized a corporation in… Held: under the facts, (1) the payment of the $ 11,000 was a contribution to capital and did not give rise to a debt, (2) the advances of $ 53,273.65 did give rise to a debt, (3) the debt became worthless in the taxable year, and (4) it was not a nonbusiness debt under section 23 (k) (4) of the Internal Revenue Code of 1939.

Gifts on October 2, 1949, of shares in royalty interest owned and to be paid or delivered to donor from the production of * * * minerals but to become effective only as to production commencing January 1, 1950, held to consist of future interests precluding allowance of exclusions.

Sole purpose of administration of decedent's estate subject to Louisiana community property law having been in connection with estate taxes, expenses of administration held deductible in full.

Deductions -- Losses From Worthlessness of Securities -- War Losses -- I. R. C. 1939, Secs. 23 (k) (2) and 127. -- Held, petitioners have not met their burden of establishing that certain Rumanian… Held: petitioners have not met their burden of establishing that certain Rumanian bonds became worthless in 1947.

Installment Sales of Mortgaged Real Property Under Sec. 44 (b), I. R. C. 1939. -- Under terms of agreement of sale, buyer from petitioners of real property that had a mortgage on it did not assume the mortgage or take the property subject to the mortgage within the meaning of respondent's regulation relating to the determination of the percentage of taxable income to be returned on the installment basis.

1. A hotel corporation operated at a loss for several years. Held: that the old preferred and common stock did not become worthless at any time in 1949; held, further, that loss deductions by the Lincoln petitioners from their sales of common stock are not precluded by sec. 24 (b) (1) (A), 1939 Code. 2. On July 14, 1949, Macklin, a partner in Macklin Company, died.

1. Prior to March 1, 1913, petitioner made a distribution of its common stock upon common stock. Held: such distribution is not includible in petitioner's equity invested capital as a distribution of stock under section 718 (a) (3), 1939 Code. Owensboro Wagon Co., 18 T. C. 1107 (revd. 209 F. 2d 617), followed. 2.

1. Held, in computing gain or loss on properties destroyed by fire in 1943 and 1946, taxpayer railroad which, as of January 1, 1943, changed from retirement accounting to… Held: in computing gain or loss on properties destroyed by fire in 1943 and 1946, taxpayer railroad which, as of January 1, 1943, changed from retirement accounting to depreciation accounting, is not required to deduct from its basis any amount for depreciation allegedly sustained prior to 1943. 2.

Petitioner was incorporated on September 6, 1946. It reported its income on the basis of a fiscal year ending August 31. Held: the loss may not be carried over to the year ending August 31, 1950, under the provisions of section 122 (b) (2) (D), 1939 Code, since those provisions allow a carry-over to a third succeeding year in specified circumstances only where the corporation had the loss for a taxable year beginning after December 31, 1946.

A partnership, which computed its income on the completed contract basis, made certain accruals upon the completion in 1938 of a contract with the Government. Held: the amount of the judgment in excess of $ 2,500 was includible in the 1946 taxable income of the partnership. Held, further, the partnership was not entitled to deduct the difference between the amount accrued in 1938 which the Government refused to pay and the amount of the judgment rendered in 1946.

1 Personal Holding Company Income -- Interest or Profit -- Sec. 502 (a). -- The face amount of a note in excess of the sum loaned thereon constituted interest within the meaning of section 502 (a) of the Internal Revenue Code of 1939 and was not a share of the profits on a transaction for which the loan was given. 2.

Petitioner was a Hungarian national until he became a citizen of the United States in 1948. Held: Petitioner suffered war losses in 1942 within the meaning of section 127 of the Internal Revenue Code of 1939. 2. Certain of the war losses were attributable to petitioner's business of operating apartment houses or petitioner's individual jewelry business.

Fraud -- Proof -- Unexplained Bank Deposits -- Statute of Limitations -- Penalties. -- Unexplained bank deposits involved herein are not clear and convincing proof of fraud.

1. Capital Gain or Ordinary Income -- Employee Trust -- Distribution on Termination -- Separation From Service. -- The principal of a nonexempt employee profit-sharing trust, distributed upon its termination, is taxable as ordinary income, and not as capital gain under section 165 (b), to an employee-participant who continued in the service of the employer. 2.

Travel Expenses -- Sec. 23 (a) (1) (A), I. R. C. 1939. -- Petitioner was employed at Thule, Greenland, for the greater part of 1952 as a project engineer on a construction project being constructed… Held: the employment was of indefinite duration, and petitioner's main post of duty or principal place of business was at Thule, Greenland, in 1952, and his expenses for food and lodging while there were nondeductible personal living expenses.

1. Deficiency notices were sent more than 3 years but within a 5-year period (as extended by waivers) after income tax returns for 1943… Held: assessment of deficiencies barred. In determining whether there had been an omission of more than 25 per cent of gross income within the meaning of section 275 (c), 1939 Code, the individual returns filed by petitioners must be considered together with a partnership return that was filed with respect to a business owned by them as…

Petitioner, a screw machine parts manufacturer, experienced net operating losses for the fiscal period July 20, 1936, to June 30, 1937, and for the fiscal years ended June 30, 1938 and 1939. Held: even assuming petitioner established the existence of the qualifying factors for relief under that section, it did not show that its average base period net income was an inadequate standard of its normal earnings because of such qualifying factors.

Petitioner acquired real estate and other assets in 1930 as collateral for a loan. Held: the real estate was held as collateral and petitioner did not realize a capital gain or loss on its sale.

Truax-Traer acquired 80.19 per cent of the only outstanding class of stock of Binkley for a part of its own voting stock and also acquired the remainder of the stock of… Held: that the transaction did not constitute a nontaxable exchange under section 12 (b) (3), 1939 Code, to the extent that stock was exchanged for stock, since it did not qualify as a reorganization within the meaning of section 112 (g) (1) (B) which requires that such acquisition be solely for stock.

Gift Tax -- Exclusions -- Net Value. -- Petitioner contributed money to a trust created by him for the benefit of his wife, children, and grandchildren. Held: that because of lack of proof of need of the contributions to meet trust obligations and the present value of the contributions, the gifts are not subject to exclusions for each of the children and grandchildren.

During the year 1945, petitioner's outstanding stock was owned by three brothers, who also operated a retail furniture and jewelry store as a partnership. Held: the $ 20,000 rental payment received by petitioner in 1945 was personal holding company income within the meaning of section 502 (f) of the 1939 Code. Held, further, petitioner's failure to file a personal holding company return was due to reasonable cause.

1 and 2. Exchanges Solely in Kind -- Capital Gain -- Sec. 117 (j), I. R. C. 1939. -- Petitioners exchanged oil payments for land. Held: that the property was of unlike kind within the meaning of section 112 (b) (1), and the gain was taxable as capital gain. 3. Interest -- Paid and Accrued. -- Under two settlement agreements the proceeds of two endowment policies for petitioner Mary D. Walsh were retained by the insurance company at maturity.

1. Decedent was a citizen and resident of the Netherlands and died there on July 23, 1943. Held: in the circumstances of this case, that the transfers of property to the Stiftungs, which did not engage in business, were by trust or otherwise, subject to a power to amend or revoke, within the meaning of section 811 (d) of the 1939 Code, and the assets so transferred are includible in the gross estate of the decedent as property…

Held: 1. The estate of each decedent is taxable only on one-half of the income derived during administration from community property in Texas. Held: The estate of each decedent is taxable only on one-half of the income derived during administration from community property in Texas. Estate of J. T. Sneed, Jr., 17 T. C. 1344, affd. 220 F. 2d 313. 2.

1. Polish Army Veterans Post 147 was an organization which paid death, sick, and disability benefits to its active members. Held: the Post was not exempt from taxation as a fraternal beneficiary society under section 101 (3) or as a social club under section 101 (9) of the Internal Revenue Code of 1939. 2. Polish Army Veterans Post 147 Home Association was a corporation which acquired and rented to the Post the building which it occupied.

Sale of inherited option to buy stock below market held to have resulted in no gain since basis exceeded sales price. J. Gordon Mack, 3 T. C. 390, affd. (C. A. 3) 148 F. 2d 62, certiorari denied 326 U.S. 719, distinguished.

Royalties on oil and gas leases held not rents within the meaning of section 201 (c) (1), Internal Revenue Code of 1939, and hence not includible in the income of petitioner, a life insurance company. Campbell v. Great National Life Insurance Company, (C. A. 5, 1955) 219 F. 2d 693, followed.

Amounts received under mineral lease involving sand and gravel on petitioners' property held ordinary income.

1. Petitioner Warren H. Corning established a long-term trust in 1929 for the benefit of members of his intimate family group. Held: petitioner's power to substitute trustees without cause requires that the powers of the trustee be attributed to him. The income of the trust is, therefore, taxable to petitioner under the Clifford doctrine because of his power to allocate income or corpus among the beneficiaries. 2.

Petitioner, Selma M. Hellstrom, was paid $ 28,933.32 in 1952 by the corporation of which her husband had been president and a director until his death on February 20, 1952. Held: such payment was a gift and, hence, excludible from gross income under section 22 (b) (3) of the 1939 Code.

During 1948 and 1949 petitioner, a citizen and resident of Canada, was a member of a partnership engaged in the cattle business in the United States. Held, his distributive share of partnership income was fully taxable by the United States under the provisions of sections 22 (a), 182, 211 (b), and 219 of the 1939 Code; held, further, no reasonable cause was shown which excuses petitioner's failure to file United States income tax returns for such years, and the respondent, therefore, properly determined penalties under section 291 (a).

Three equal partners determined to operate their business in corporate form. Held: the sum representing the declared value of the stock was grossly inadequate to operate the business and the low stated value was a fiction; the risk capital actually contributed to the corporation was represented by the operating assets and cash; no bona fide indebtedness was created by the notes; and the true consideration for the…

Prior to and during 1948, petitioner and decedent were members of a partnership which was engaged in the business of developing and operating oil and gas leases. Held: petitioners are entitled to treat the gain from the sale of the oil payment as gain from the sale of a capital asset under section 117 (j), Internal Revenue Code of 1939.

1. Respondent's computation of income by means of the so-called increase in net worth method approved subject to certain adjustments. 2. Held: some part of the deficiency for the year 1947 was due to fraud with intent to evade tax. 3. Held, the statute of limitations bars assessment and collection of the deficiency for certain of the taxable years.

Division of Profits -- Money Furnished at Risk of Job. -- A taxpayer contractor is not taxable with entire profits from a job where, in order to obtain required $ 75,000 of funds subrogated to the rights of all creditors, it agreed that the corporation furnishing the funds should have one-half of the profits from the job.

Capital Expenditures or Ordinary and Necessary Expense -- Defense of Title -- Sec. 23 (a). -- Amounts paid for attorneys' fees and litigation expense by the owner of property, a defendant in a suit by a wife claiming that the property belonged to her estranged husband who had transferred it to the taxpayer in fraud of her claim, were capital expenditures not deductible as expenses under section 23 (a).

In 1948, the petitioner trusts paid additional estate taxes on the estate of decedent Jules S. Bache pursuant to the respondent's determination that their corpora were gifts in contemplation of death. Held: the estate taxes paid by petitioner trusts were not payments to protect and preserve their assets within the meaning of section 113 (b) (1) (A) of the 1939 Code and, hence, were not proper additions to the bases of such assets.

Estate Tax Payments -- Effect on Value of Marital Deduction Property. -- In determining the value of property claimed as a marital deduction under sections 812 (e) (1) (A) and 812 (e) (1) (E) (i), I.… Held: under the facts and the law of the State where the administration is pending, the value of such property is not to be reduced by any part of the Federal and State estate taxes paid by the executors from the residuum of the estate.

Respondent sustained in his determination that petitioners, whose books were kept on an accrual basis, should have reported their income for taxation on an accrual basis in conformity with the books of account.

In 1948, the petitioners, by purchase, acquired from the Wingfield brothers 94 1/2 acres of fee land and a waiver of a preference for the summer grazing of 286 head of cattle on what was designated… Held: that the grazing privileges so acquired being of indefinite duration, the petitioners may not amortize the payments made to the Wingfields under section 23 (l) of the Internal Revenue Code of 1939.

Basis of stock acquired by petitioner from the father of its principal stockholders held, on the facts and in the absence of other evidence, to be the basis determined by respondent, whether acquired… Held: on the facts and in the absence of other evidence, to be the basis determined by respondent, whether acquired by purchase, by contribution to capital, or by gift. James E. Caldwell & Co., 24 T. C. 597, followed.

Petitioners were shareholders of a corporation which distributed cash and property to them during the taxable years 1948 and 1949. Held: the total fair market value of the distributions made during each year is taxable as a dividend to shareholders only in an amount equal to the then total accumulated and current earnings or profits of the corporation, and the excess is applied against and reduces the basis of the stock in the hands of each shareholder with the excess…

1. Capital Gain -- Oil and Gas -- Undivided Interest in Minerals in Place Until Production Equaled a Stated Amount. -- The petitioner realized long-term capital gain and not ordinary income when in 1950, in consideration of the cancellation of an indebtedness of $ 600,000, it transferred 25 per cent of seven-eighths of all oil and gas upon two leases owned by it to its creditor until such time as the payments received by the latter equaled the amount of the debt plus…

Held, upon the facts the assessment and collection of the deficiencies and additions to tax because of fraud herein determined are not precluded by reason of a compromise within the purview of… Held: upon the facts the assessment and collection of the deficiencies and additions to tax because of fraud herein determined are not precluded by reason of a compromise within the purview of section 3761, Internal Revenue Code of 1939.

Held, the gain resulting from W. F. Weed's sale and transfer of a sulphur payment carved out of his pooled royalty interests in sulphur… Held: the gain resulting from W. F. Weed's sale and transfer of a sulphur payment carved out of his pooled royalty interests in sulphur produced from deposits in place, which interests Weed had owned for several years prior to the date of sale, was taxable as long-term capital gain on the installment basis and not as ordinary income.

Determination made of a fair and just amount representing normal earnings to be used as petitioner's constructive average base period net income for the years 1940, 1941, 1942 and the taxable period January 1 to July 21, 1943.

Respondent concedes that petitioner qualifies for excess profits tax relief under section 722 (c) of the Internal Revenue Code (1939). Petitioner's average base period net income reconstructed for the years ending October 31, 1943 (after application of the variable credit rule), 1944, and 1945.

1. Changes resulting from merger of petitioner's largest customer and lessening of interest on the part of merged corporation in making sales of petitioner's plastic closures held to cause depression… Held: further, such depression was because of temporary economic circumstances unusual in the case of petitioner (sec. 722 (b) (2), I. R. C. 1939) and its average base period net income was an inadequate standard of normal earnings. 2.

Respondent issued a notice of deficiency with respect to income and excess profits taxes for 1941 after petitioner filed its 1942 return… Held: that petitioner's claim for refund of 1941 taxes, based upon the carry-back of an excess profits tax credit unused in 1942 was not timely filed within the terms of section 322 (b) (6) as incorporated by reference in section 322 (g) providing an exception to section 322 (c) in the case of certain overpayments, and that petitioner's…

Petitioner commenced business during the base period and was committed, prior to January 1, 1940, to a change in its operational capacity which was consummated after December 31, 1939. Held: petitioner has established grounds for relief under section 722 (b) (4) but has failed to prove fair and just amount representing normal earnings, in excess of its average base period net income computed under section 713 (f), to be used as a constructive average base period net income.

Estoppel. -- Petitioners marked their 1948 income tax return Tenative and later acquiesced in respondent's advice that the return could not be considered a final return. Held: petitioners estopped from contending that their Tenative return started the period of limitations for the assessment of their 1948 tax.

Delaware ad valorem taxes on real estate for 1949 were deductible under section 23 (c), I. R. C. 1939, where petitioner acquired the realty on May 2, 1949, and subsequently in that year the taxes became due and payable and a lien against the land.

Held, the Commissioner's determination that $ 2,918.17, which petitioners received in 1950 from the Alien Property Custodian as royalty… Held: the Commissioner's determination that $ 2,918.17, which petitioners received in 1950 from the Alien Property Custodian as royalty income from property owned by petitioners should be allocated to the years 1945, 1946, and 1947, the years in which it was earned and received by the Alien Property Custodian, is taxable to the petitioners…

Petitioners entered into agreements in the form of a lease and option to purchase with respect to a parcel of land to be used in conducting their farming and ranching business. Held: that petitioners, through the said payment, which was excessive in relation to the fair rental value of the property, intended to and did acquire an equity in the property.

In 1943 petitioner filed an application for relief under section 722 of the Internal Revenue Code of 1939 in respect of its fiscal year 1942, in which it did not claim a carry-over of an unused… Held: petitioner's right to the carry-over is conditioned upon the making of such claim. Lockhart Creamery, 17 T. C. 1123, followed.

The will of a decedent provided that the executors, in their absolute discretion, could require or waive refunding bonds before paying income to the residuary legatees. Held: such provision prevents the right of the legatees to current income from being vested and absolute, and such income, to the extent not actually distributed or irrevocably credited to them is not includible in their taxable incomes. Sec. 162 (b), I. R. C. 1939.

Petitioner and her husband were equal partners in a retail women's dress store in Newark, New Jersey. Held: petitioner received her deceased husband's one-half interest in the partnership under the terms of the partnership agreement and not by inheritance and section 113 (a) (5) is not applicable in the determination of the basis. Respondent's determination of the basis is sustained.

Cost of debentures of plywood manufacturer bought by petitioner, a lumber dealer, in 1946 to insure it a source of plywood held deductible in full in 1950 as a business expense or loss upon worthlessness of debentures and failure of issuer as a supplier of plywood. Bagley & Sewall Co., 20 T. C. 983, affirmed sub nom. Commissioner v. Bagley & Sewall Co., (C. A. 2) 221 F. 2d 944.

Petitioner's father in substantial part financed petitioner's college and medical education. Held: that petitioner, by his proof, has not overcome the presumption that the money advanced for his college and medical education was a gift or advancement.

One of the petitioners was invited to attend an annual function of a club. A portion of the program consisted of a drawing for prizes, the grand prize consisting of a new automobile. Held: since a consideration had been paid for the right of petitioner to participate in the drawing, he realized income measured by the fair market value of the automobile won. Max Silver, 42 B. T. A. 461, followed.

Amounts received by petitioner pursuant to a 15-year agreement transferring rights to sand and gravel and fixing the payments by reference to price per unit, subject to advance and minimum payments, held taxable as ordinary income subject to an allowance for depletion.