Volume 24 — Tax Court Memorandum

1. Allendale tract was not held by the Belcher partnership primarily for sale to customers in the ordinary course of its trade or business in 1953, and, to the extent of their distributive shares… Held: respondent barred by collateral estoppel from relitigating issue with Abernathy. Held, further, respondent not barred by res judicata or collateral estoppel from relitigating issue with regard to partners other than Abernathy.

At the date of his death, decedent owned 25,000 shares of stock in a closely held corporation which was in the process of going public. Held: Fair market value of such shares was $8 per share. 2. Such shares do not qualify for the marital deduction because not shown to be held jointly by decedent and his surviving spouse. 3. The proceeds of certain insurance policies do not qualify for the marital deduction because not shown to have passed to decedent's surviving spouse.

On remand of our decision reported in 40 T.C. 166 by the United States Court of Appeals for the Tenth Circuit 331 F. 2d 344) an additional finding of fact is made to the effect that petitioner sustained and is entitled to a bad debt loss which it claims for the year 1958.

Loss on a sale of certain residential property held not deductible under section 165, I.R.C. 1954, because the property was not appropriated to income-producing purposes so as to constitute a transaction entered into for profit.

Petitioner, Morton Gilford, a 50-percent owner and general manager of a corporation engaged in the business of salvaging for insurance… Held: the $19,000 was not deductible by petitioners for the year 1957 either as an ordinary and necessary business expense (sec. 162), as a business bad debt (sec. 166), or as an ordinary and necessary expense incurred for the production or collection of income (sec. 212), and did not produce a net operating loss for 1957 which could be…

1. Petitioner was engaged in the canning and sale of beets and carrots during the taxable years ended March 31, 1957, through March 31, 1960, inclusive. Held: Under Sec. 531, I.R.C. 1954, petitioner was availed of during the taxable years involved for the purpose of preventing imposition of surtax upon its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed. 2.

Held, in 1960 and 1961 Julius provided more than half of the support of his daughter by a prior marriage so that petitioners are entitled to a dependency exemption for her. Held: in 1960 and 1961 Julius provided more than half of the support of his daughter by a prior marriage so that petitioners are entitled to a dependency exemption for her.

Petitioner established an inter vivos trust whereby the trustees had power to distribute the income and/or principal of the trust if they deemed it necessary for his wife's "adequate care, comfort, support and maintenance," with due regard to the availability of other funds to her, and with the remainder to third parties. Petitioner's wife consented to having the entire gift treated as having been made one-half by her. Held: The trust instrument provided measurable standards limiting the power of invasion of both income and principal. Estate of Mary Cotton Wood, 39 T.C. 919(1963), followed. Held further: On the facts, the possibility of invasion of the income was not so remote as to be negligible, but the invasion of the principal was so remote as to be negligible.

Sales commission agreement between brother-sister corporations held on the facts to have produced reasonable compensation ( sec. 162(a)(1), I.R.C. 1954) during the years before the Court.

Respondent failed to prove that taxpayer's returns for 1946, 1947, and 1948 were false and fraudulent with intent to evade tax. Assessment and collection of deficiencies for those years barred by the statute of limitations.

Walker owned all the stock of a corporation which was a common carrier transporting automobiles for Studebaker under authority granted by… Held: The expenses of maintaining the lake residence were not business expenses of the corporation except to the extent allowed by respondent; (2) California expenses properly disallowed by respondent; (3) Allowable expenses for travel or entertainment determined; (4) The corporation was availed of in 1957 for the purpose of avoiding the…

1. In 1954 petitioner issued 4 1/2 percent notes in redemption of its seven percent cumulative preferred stock. A maximum of 10 percent of the principal was payable annually on demand. Held: That the notes represented indebtedness within the meaning of sec. 163 of the Code 1Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954. and the interest paid was deductible. 2.

Held: (1) In determining petitioner's taxable income adjusted under the net worth method the cash on hand at the end of each of the… Held: In determining petitioner's taxable income adjusted under the net worth method the cash on hand at the end of each of the years 1956, 1957, 1958, and 1959 was $22,000, $16,600, $8,400 and $1,500, respectively; (2) A part of the underpayment of tax required to be shown on petitioner's returns for each of the years 1957, 1958, and 1959…

Fair market value in 1958 and 1959 of 51 architectural illustrations donated to the University of Southern California determined.

Held, that the salary and bonuses paid by petitioner to its executive vice president and to its secretary-treasurer in the taxable years 1959 and 1960 were fair and reasonable and were… Held: that the salary and bonuses paid by petitioner to its executive vice president and to its secretary-treasurer in the taxable years 1959 and 1960 were fair and reasonable and were deductible by petitioner as ordinary and necessary business expenses under section 162, I.R.C. 1954.

Petitioner failed to show that automobile expenses incurred to travel between her home and an Air Force base, where she taught two typing courses as an independent contractor, were deductible business expenses.

Petitioner, an attorney, received sums of money from clients throughout the years 1949 through 1952. Some of the money received was used by him to pay clients' litigation expenses. Held: Total gross receipts determined. 2. Respondent's determination of allowable deductions from gross receipts sustained. Respondent is not improperly holding any books of account of petitioner needed by petitioner to prove error in the assertion of deficiencies.

Hield: That amounts paid by the corporation for legal services performed in connection with a court action between its principal stockholder and his wife for separate maintenance, divorce, and… Held: further: That the amounts so paid by the corporation constituted constructive dividends to such principal stockholder. The amount of charitable contributions to which the individual petitioners are entitled determined.

Petitioner, a real estate dealer, together with a group of coventurers acquired several adjacent tracts of land, together with water stock and rights. They immediately resold the land. Held: Four of the sales of land and sales of water rights and stock held to be sales of properties which were not capital assets. Intent to hold them for sale to customers in ordinary course of business had not changed subsequent to original acquisition with that intent. 2.

The amount of the deduction to which the petitioner is entitled on account of the collapse of a portion of the roof of its building determined.

Held, that petitioners have not established that they are entitled to a deduction for a casualty loss, under section 165 of the Internal Revenue Code of 1954, for the taxable year 1959. Held: that petitioners have not established that they are entitled to a deduction for a casualty loss, under section 165 of the Internal Revenue Code of 1954, for the taxable year 1959.

Held: Net operating loss carryover deduction for 1958 denied. Petitioner failed to prove the actual occurrence of net operating losses in the prior years from which the carryovers were derived; he also failed to show that such losses, if any, were not entirely absorbed by carrybacks and carryforwards to other years prior to 1958.

Tip income: Failure to keep records. - The Commissioner's determination that the taxpayer's tip income bore a certain ratio to the amount of salary he received was reasonable inasmuch as the taxpayer failed to keep records and did not prove the actual amount of tip income he received.

Transferee liability. - Two motor carrier corporations, Truck and Freight, each received in 1952 an award from the Motor Carrier Claims… Held: The Tax Court decision entered against Truck is valid; (2) The statute of limitations does not bar these proceedings; (3) Petitioner is liable as transferee of assets of Truck for the deficiency; (4) Petitioner did not elect under section 99 of the Technical Amendments Act of 1958 to treat the award received by Truck as income…

1. A transaction planned in detail to be in form a sale of RF Corporation stock by all stockholders thereof to a selected individual, the adoption by such individual of a plan for dissolution of RF Corporation, and a sale of all the RF assets to newly formed R Corporation, some of the stockholders of RF Corporation who owned all of the stock of R Corporation receiving notes for their RF stock, and other stockholders of RF Corporation receiving part cash, which cash came from…

Held, on the facts, the fair market value of certain stock contributed by petitioners to their tax-exempt foundation, not to exceed $500 per share. Held: on the facts, the fair market value of certain stock contributed by petitioners to their tax-exempt foundation, not to exceed $500 per share.

Held, amounts withheld from the salary of petitioner during 1960 and contributed to the New Jersey Consolidated Police and Firemen's Pension Fund constitute income taxable to him under section 61(a),… Held: amounts withheld from the salary of petitioner during 1960 and contributed to the New Jersey Consolidated Police and Firemen's Pension Fund constitute income taxable to him under section 61(a), I.R.C. 1954.

FDM not entitled to exemption under sec. 501(c)(3) because it was not organized and operated exclusively for religious purposes. Its publication and distribution of various materials constituted a substantial nonexempt activity. Parker realized taxable income from certain items, including litigation expenses paid by FDM on his behalf.

Deductions: Medical expenses: Special additions to house: Cost: Fact finding. - The taxpayer's wife was suffering from a disease and in building a new house, the taxpayer had installed certain features which were designed for the care of her.

The corporation, of which the petitioners were the sole stockholders, made various payments to or on behalf of the petitioners for their personal benefit. Held: that such subsequent action was not effective to establish such payments as repayments of such loan, and that such payments constituted taxable dividends to the petitioners.

Petitioner failed to keep written records of his tip income. Respondent reconstructed such income by use of formulas. Held: (1) The amounts of tip income are redetermined under the Cohan rule. Held: The amounts of tip income are redetermined under the Cohan rule. (2) Petitioner was negligent in failing to maintain written records of tip income; the 5 percent addition to the tax under section 6653(a) is sustained.

1. Petitioners are not entitled to deduct loss on stock which became worthless in 1957 as an ordinary loss. Stock did not qualify as small business corporation stock under sec. 1244, I.R.C. 1954. 2. Loss on loan made to corporation of which petitioner was employee was a nonbusiness bad debt, deductible only as short-term capital loss. 3.

Held, that the petitioners have not shown that the respondent erred in disallowing a deduction claimed by them as a loss from the confiscation of property by the Czechoslovakian government. Held: that the petitioners have not shown that the respondent erred in disallowing a deduction claimed by them as a loss from the confiscation of property by the Czechoslovakian government.

On November 23, 1964, respondent filed a motion to correct a statement of facts made by the Court in a Memorandum Opinion filed October 23, 1964, T.C. Memo 1964-280, in which we misconstrued the meaning of the parties of a fact stipulated by the parties in a stipulation of facts which they filed at the hearing. Respondent also filed a motion for reconsideration. Respondent's motions are granted and the Memorandum Opinion filed herein October 23, 1964, is revoked and this Memorandum Opinion is substituted therefor. It is held that at the time of decedent's death he possessed the right, without the consent of any beneficiary, to change, alter, or revoke a trust agreement which was entered into between decedent and an insurance company on February 25, 1931, and therefore the Commissioner's determination that the commuted value of the trust is includable as an asset of decedent's estate is sustained.

Petitioner transferred, by gift to a trust for his children, a contingent remainder interest in a trust created under the will of his grandfather, of which his sister was the life beneficiary. Held: Value on gift date of contingent remainder determined under section 25.2512-5(e), Gift Tax Regulations. Estate of Nellie H. Jennings, 10 T.C. 323, 327, distinguished.

Held: (1) The corporate petitioner was not availed of during the taxable years for the purpose of avoiding the income tax in respect of… Held: The corporate petitioner was not availed of during the taxable years for the purpose of avoiding the income tax in respect of its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed; (2) Anna did not realize dividend income by reason of her net withdrawals from the corporation during…

Held, that the petitioner has not shown error in the respondent's determination that he derived a net profit from a partnership operation of a… Held: that the petitioner has not shown error in the respondent's determination that he derived a net profit from a partnership operation of a toy store, instead of sustaining a net loss as claimed. Held, further, that the respondent properly determined an addition to tax under section 6653(a) of the Internal Revenue Code of 1954.

Petitioner's business was that of a real estate broker. Held: in disposing of the real property thus acquired petitioner was not engaged in the conduct of a business and his gains therefrom are to be treated as capital gains.

The petitioner, a teaching assistant at the University of Wisconsin in 1960 and 1961, continued his previously commenced graduate courses and was a candidate for the Ph.D. degree at that University in those years. He was not required to have a Ph.D. degree to be a teaching assistant. Held: The educational expenses incurred in 1960 and 1961 were not incurred primarily to maintain and improve petitioner's skills as a teaching assistant nor were they required by his employer to retain his employment, his salary, or his status. Such expenses were not ordinary and necessary expenses of the petitioner's trade or business, but were personal, incurred primarily for the purpose of fulfilling his educational aspirations and obtaining a new position or substantial advancement in the academic community in which he was employed.

Held, that the amount paid by a new employer to cover moving expenses of petitioner to his new place of employment constitutes taxable income to petitioner. Held: that the amount paid by a new employer to cover moving expenses of petitioner to his new place of employment constitutes taxable income to petitioner.

Bona fide sale at fair market value by taxpayer of stock acquired for investment purposes to a family-owned corporation whose regular business was investments in security held not to result in a dividend distribution to taxpayer. Damage during the taxable year to petitioners' residential lake-front property resulting from a combination of unusually high water levels and high wind velocities held deductible as casualty loss.

1. Held, that petitioners Milton and Beverly Chasin furnished more than half of the support for Beverly Chasin's son, Edward, for the year 1961; and that the Chasins, rather than Edward's father, petitioner Walter Lipiner, are entitled to a dependency deduction in respect of Edward for said year. 2. Amount of petitioner Walter Lipiner's deduction for medical expenses, determined.

Held, that the decedent, Carrie H. Cowan, forgave an indebtedness of her son prior to her death; and that such forgiveness constituted a gift. Held: that the decedent, Carrie H. Cowan, forgave an indebtedness of her son prior to her death; and that such forgiveness constituted a gift. Held, further, that said indebtedness was not forgiven in contemplation of death within the meaning of section 2035(a) of the Internal Revenue Code of 1954.

Petitioner Alexander Sas-Jaworsky and others formed a corporation for the purpose of publishing and promoting a book. Held: Petitioners may not deduct a loss incurred with respect to the book. Held further: Petitioners may not have a deduction for a casualty loss in connection with the destruction of some of the books by fire. Held further: Petitioners are not entitled to a nonbusiness bad debt deduction for the payment of the debt of another.

Payments received pursuant to agreements relating to Listerine and other discoveries made by petitioners' great-grandfather held taxable as ordinary income, since all substantial rights were not transferred. Payments received from a partnership of which petitioners' great-grandfather was a member held taxable as ordinary income, due to petitioners' failure of proof.

Held, that in the absence of a showing that the petitioner was required to bear the costs of use and operation of his personal automobile in carrying out his… Held: that in the absence of a showing that the petitioner was required to bear the costs of use and operation of his personal automobile in carrying out his duties as an employee, such costs are not deductible by him as ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 1954.

1. Debentures issued by taxpayer corporation to its stockholders and related parties represented genuine indebtedness of, rather than any equity interest in, petitioner, and interest paid thereon is deductible by petitioner. 2.

Held, that $64,450, which Nationwide Insurance Company advanced from time to time to petitioner in 1958 as its attorney who represented it in some 500 cases brought against Nationwide on contested claims, was burdened with an obligation and agreement as to how it should be used by the petitioner, and the Commissioner's determination that $47,000 of such amount represented income to petitioner in 1958, which he did not report, and that $4,350 of such amount represented taxable income to him in 1959, which he did not report, was erroneous. Petitioner correctly reported his income in this respect in both taxable years.

The petitioners, members of a partnership, caused a corporation to be organized to take over the business of the partnership. Held: that such accounts payable represented bona fide indebtedness of the corporation and payments made by the corporation in satisfaction thereof in the taxable years 1959 and 1960 did not constitute dividends to the petitioners.

Held, on the facts, the redemption in 1959 by National Real Estate and Management Company of 40 shares of its preferred stock from Diamond Investment Company, a partnership composed of petitioners, was the essential equivalent of the distribution to Diamond Investment Company of a taxable dividend. Held, further, on the facts, the redemption in 1960 by National Real Estate and Management Company of 100 shares of its preferred stock from petitioner Zelie Berenbaum did not result in the distribution to him of a taxable dividend.

1. The amount of a casualty loss for residence property located in Cuba and owned by United States citizens and expropriated by Castro government is determined. Sec. 165(i), I.R.C. of 1954. 2. Held: petitioners failed to substantiate claimed medical expenses in excess of 3 percent of their gross income. 3. Held, further, no issue is presented with respect to a claimed interest expense deduction since it was not specifically disallowed in the notice of deficiency.

Petitioner has failed to establish the existence of a joint venture for the importation of certain materials from Germany in 1952, and is thus taxable on the entire proceeds received therefrom.

Held: 1. Joseph Klugman realized no additional income in the years 1956 through 1958 from substantial deposits in bank accounts since they were made from cash acquired… Held: Joseph Klugman realized no additional income in the years 1956 through 1958 from substantial deposits in bank accounts since they were made from cash acquired by him and his brother in earlier years. 2. Petty cash expenses of General Stencils, Inc., were overstated during the years 1956 through 1959. 3.

Nils Wirstrom owned the controlling stock of two corporations: Bywater, which sold various products including a corrosion-preventive… Held: Respondent's disallowance of deductions for depreciation and losses on sale of assets transferred from Corrosion is sustained; (2) Amounts of personal expenses of Wirstrom paid by Bywater determined; (3) Respondent's disallowance of unreasonable compensation is sustained; (4) Amounts disallowed to Bywater as deductions for business…

Expenses incurred by the life beneficiary of a trust, held, deductible as to certain attorney and other fees paid, but not deductible as to amounts not sufficiently substantiated nor shown to have been ordinary and necessary for and reasonably and proximately related to the production and collection of income.

The petitioners in the conduct of their grocery business did not keep adequate books and records for the taxable years 1956 through 1959, but did keep correct records for the years 1960 and 1961. Held: that the respondent's method of reconstructing the total purchases, total sales, and gross profit from the business was reasonable.

1. Held, petitioner was not engaged during the taxable year 1960 in carrying on a trade or business of a theatrical producer; and accordingly he is not entitled to deductions under section 162(a) of the 1954 Code for amounts claimed to represent the ordinary and necessary expenses of carrying on such a trade or business. 2. Held, further, such amounts are not deductible as ordinary and necessary expenses paid or incurred for the production or collection of income, under section 212(1) of the 1954 Code.

In 1959 the petitioners abandoned the use of property as their residence and thereafter, until March 23, 1960, held such property with the intention of renting it. Held: that the property had not been appropriated or converted to income-producing purposes and hence there was no transaction entered into for profit as required by section 165(c)(2) of the Internal Revenue Code of 1954 for the deduction of any loss sustained upon the sale of the property.

Held, petitioner Beverly B. Cook is not entitled to deduct as business expenses for the years involved, amounts of automobile expenses which are in excess of the amounts actually paid or incurred. Held: petitioner Beverly B. Cook is not entitled to deduct as business expenses for the years involved, amounts of automobile expenses which are in excess of the amounts actually paid or incurred.

Held: (1) compensation paid to Chemold's two principal stockholder-officers (S and E) was not unreasonable; (2) and (3) acquisition by… Held: compensation paid to Chemold's two principal stockholder-officers (S and E) was not unreasonable; (2) and (3) acquisition by Chemold of Spazier property and acquisition by S and E of a second trust deed note on the Spazier property were two separate transactions, so that the amount of the note was part of Chemold's depreciable basis…

Held, that the deficiency in petitioners' income tax for 1958 was due, in major part, to fraud with intent to evade tax, within the meaning of section 6653(b) of the 1954 Code. Held: that the deficiency in petitioners' income tax for 1958 was due, in major part, to fraud with intent to evade tax, within the meaning of section 6653(b) of the 1954 Code. Imposition of addition to tax under said section for 1958, approved.

1. Petitioners failed to prove that they are entitled to a deduction in 1960 for a loss on certain Kingdom of Rumania bonds purchased in 1938. 2. Amount of deduction for business use of automobile determined.

Held, on the facts, the sum of $13,365.80 paid to petitioners during the year 1958 does not represent interest income. Held: on the facts, the sum of $13,365.80 paid to petitioners during the year 1958 does not represent interest income.

Petitioner paid $200,000 for certain assets of Five Star Oil Reports, Inc., and the noncompetition agreements of four shareholders. Held: that the entire $190,000 was paid for Five Star's circulation structure.

Petitioner failed to keep written records of his tip income. Respondent reconstructed such income by use of a formula. Held: The amount of tip income for each year is determined under the Cohan rule. (2) Petitioner was negligent in failing to keep written records of his exact tip income; the 5 percent addition to the tax for each year under section 6653(a) is sustained.

Upon the evidence, held: (1) Amount of tip income for each taxable year determined under rule of Cohan v. Commissioner, 39 F. 2d 540. Held: Amount of tip income for each taxable year determined under rule of Cohan v. Commissioner, 39 F. 2d 540. (2) Petitioner was extremely negligent in failing to keep any records of his tip income and is liable for the addition to the tax for each year under sec. 6653(a), 1954 Code. (3) Allowable deductions determined.

Upon the evidence, held: (1) Amounts of tip income determined under rule of Cohan v. Commissioner, 39 F. 2d 540. Held: Amounts of tip income determined under rule of Cohan v. Commissioner, 39 F. 2d 540. (2) Addition to tax for negligence under section 6653(a), 1954 Code, sustained. (3) Petitioner did not have income from other sources in each year. (4) Deductions for each year in excess of standard deduction not established.

Upon the evidence, held: (1) Petitioners, members of 969 Realty Co., taxable at ordinary income rates on gain from sale of properties in 1958 to 969 Park Corp. (2) Petitioners, members of 108 East… Held: Petitioners, members of 969 Realty Co., taxable at ordinary income rates on gain from sale of properties in 1958 to 969 Park Corp. (2) Petitioners, members of 108 East 82nd St., partnership, taxable at ordinary income rates on gain from sale of property.

Expenses incurred for psychoanalytic training held, not deductible as ordinary and necessary business expenses under section 162, I.R.C. 1954.

The petitioner, Newell W. Emerson, illegally appropriated to his own use in 1959, 1960, and 1961, funds of an organization of which he was treasurer. Held: The appropriations of funds constituted embezzlements in each year.

Held, that amounts expended by the petitioner, a patent examiner employed by the United States Patent Office, for tuition, books and… Held: that amounts expended by the petitioner, a patent examiner employed by the United States Patent Office, for tuition, books and supplies in connection with attendance at law school classes are not, in the circumstances, deductible as ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 1954.

Held: The filing of an unsigned Form 1040 for the taxable year 1954 was not the filing of a return within the meaning of the statute and regulations and did not start the running of the statutory… Held: The filing of an unsigned Form 1040 for the taxable year 1954 was not the filing of a return within the meaning of the statute and regulations and did not start the running of the statutory period of limitations.

Construction activities on a personal residence held, on the facts, to constitute, in part, research and experimental expenditures within the meaning of section 174, I.R.C. 1954. Held: on the facts, to constitute, in part, research and experimental expenditures within the meaning of section 174, I.R.C. 1954.

Petitioner, a practicing lawyer, made loans to client K corporation, in which he was a minority shareholder. Held: that under such circumstances the loans to K corporation were proximately related to petitioner's law practice, and the loss from their worthlessness is deductible as a business bad debt. Cf. Stuart Bart, 21 T.C. 880 (1954).

Held: On the facts, patents sold by Curtiss-Wright were purchased by partnership and licensed to Corporation. Held: On the facts, patents sold by Curtiss-Wright were purchased by partnership and licensed to Corporation. Held, Further: Corporation entitled to deduct as ordinary and necessary business expenses entire royalty payments made to partnership. Held Further: Amounts received by partnership from Corporation were not disguised dividends.

1. Held, where taxpayer was joined as a party defendant in a state receivership proceeding involving the affairs of a corporation in which he… Held: where taxpayer was joined as a party defendant in a state receivership proceeding involving the affairs of a corporation in which he had been a stockholder, the Commissioner was not precluded by Section 6871, I.R.C. 1954, from sending a notice of deficiency to the taxpayer in respect of his own income taxes, and this Court has…

Petitioner, Harry J. Alker, Jr., was convicted in a criminal trial in the United States District Court for the Eastern District of Pennsylvania of… Held: On the evidence that respondent's determination of fraud for the years 1947 to 1950, inclusive, is sustained but that respondent has failed to prove fraud for the years 1942 to 1946, inclusive. Held, further, the deficiencies determined for the prior years 1942 to 1945, inclusive, are barred by the statute of limitations.

Alimony: Periodic payments: Modification of decree. - Under a decree of divorce a husband was to pay his former wife a specified amount in monthly installments which would last for more than ten years. A higher court later accelerated the payments so that the principal amount would be paid within ten years. The Tax Court held that the period began at the time the final judgment of the higher court was entered rather than at the time the first decree was entered.

Held, petitioner has failed to prove: 1. That a true partnership, recognizable for tax purposes, existed between petitioner and his cousin, and 2. Held: petitioner has failed to prove: 1. That a true partnership, recognizable for tax purposes, existed between petitioner and his cousin, and 2. That respondent erred in disallowing certain claimed deductions for business entertainment and gratuities.

In 1959 Frances B. Hodgkins owned approximately 44 percent of the outstanding 2,010 shares of stock in Forster Mfg. Held: the corporate payments made to the Hodgkins children are not taxable as constructive dividends to Frances in 1959 to the extent of her stock ownership in the corporation.

Held, the accumulation of petitioner's undistributed earnings for the years involved was not beyond the reasonable needs of its business. Held: the accumulation of petitioner's undistributed earnings for the years involved was not beyond the reasonable needs of its business.

Held, petitioners are not entitled to deduct as a medical expense the cost of food prescribed for them as a medical diet which was a substitute for their regular diet, satisfied their nutritional… Held: petitioners are not entitled to deduct as a medical expense the cost of food prescribed for them as a medical diet which was a substitute for their regular diet, satisfied their nutritional needs, and was not consumed in addition to their regular diet.

Held, petitioners failed to prove that $35,000 deposited in their bank account purportedly as the purchase price of stock in a corporation owned 50 percent by petitioners was not taxable income as determined by respondent. Held, further: Respondent failed to prove that any part of petitioners' underpayment of tax for 1956 was due to fraud. Addition to tax for fraud disallowed.

Held, that the petitioner corporation is not entitled to deduct as ordinary and necessary expenses for its taxable year 1961, the respective sums… Held: that the petitioner corporation is not entitled to deduct as ordinary and necessary expenses for its taxable year 1961, the respective sums of $6,000, $2,000 and $2,000 which it paid in said year to three individuals who at that time, or at least shortly prior thereto, held most of the corporation's shares of capital stock.

Decedent's will established a trust of $300,000 from which income to the extent of $12,000 annually was to be paid to his widow for life, and if income from the trust was… Held: decedent's estate is not entitled to a charitable deduction with respect to any amount of the $300,000 trust fund since petitioners have failed to show that there is an ascertainable amount of the trust corpus with respect to which the possibility of invasion is so remote as to be negligible.

1. Petitioner sold 10 ships to Moore-McCormack Lines, Inc., for cash, notes and 300,000 shares of Moore-McCormack stock. Held: For purposes of determining petitioner's gain on the sale of its ships, the 300,000 shares received had a value of $30 per share. Moore-McCormack Lines, Inc., 44 T.C. (August 27, 1965), a companion case involving the same question of fact, followed. 2.

On the evidence, held, respondent's determination of fraud under the increase in net worth method, for the years 1947, 1948, and 1949 as to Max Steinberg's individual returns, not sustained. Held: respondent's determination of fraud under the increase in net worth method, for the years 1947, 1948, and 1949 as to Max Steinberg's individual returns, not sustained. Respondent's determination of fraud in the joint returns filed by petitioners for 1950 and 1951, sustained.

1. As regards each of the taxable years 1950 and 1951, petitioner Nelson H. Rittenhouse was not the owner of a steam heating plant known as Kable Square Heating Plant, which was then operated under his direction in supplying heat to buildings located on the former campus of Mount Morris College, in Mount Morris, Illinois. None of the net income, if any, from the operation of said heating plant is chargeable to said petitioner for either of said years. 2. As regards each of the taxable years 1950 through 1952, the correct net income that petitioner derived from a small trucking business that he operated as a sole proprietor (Kable Brothers Transport) is determined. 3. As regard each of the years 1950 through 1952, no part of any deficiency is due to fraud with intent to evade tax, within the meaning of section 293(b) of the 1939 Code. 4. As regards the taxable years 1950 and 1951, the joint return filed by petitioner and his wife for each of the years is not false or fraudulent with intent to evade tax; and assessment and collection of any deficiencies for these years are barred by the statute of limitations. Assessment and collection of a deficiency for 1952 is not barred, however, since petitioners filed waivers extending the time for assessment for that year to a date beyond that on which the deficiency notice was mailed.

Held: Petitioner failed to establish by competent evidence that his losses from wagering transactions were equal to or in excess of his gains from such transactions. Section 165(d), I.R.C. 1954. Held: Petitioner failed to establish by competent evidence that his losses from wagering transactions were equal to or in excess of his gains from such transactions. Section 165(d), I.R.C. 1954.

Petitioner was employed as a writer in the Los Angeles, California, area by various film and teleplay producers in 1957 and 1958. Held: Petitioner's principal place of business and employment was California in 1957 and 1958, and the expenses he seeks to deduct were nondeductible personal expenses. Respondent's determinations sustained.

Held, the useful life, for computing depreciation, of petitioners' water distribution system was eight years. Held: the useful life, for computing depreciation, of petitioners' water distribution system was eight years.

Held, that where during the taxable year an indebtedness of $17,500 that was owned by the principal petitioner to a corporation of… Held: that where during the taxable year an indebtedness of $17,500 that was owned by the principal petitioner to a corporation of which he held most of the voting stock issued and outstanding, was cancelled by said corporation in connection with its redemption of 250 of said petitioner's 1,450 shares therein, such cancellation constituted…

Held, that the petitioners have failed to show error in the respondent's determination of the basis used by him in computing gain upon the sale by them of stock which had been acquired by gift. Held: that the petitioners have failed to show error in the respondent's determination of the basis used by him in computing gain upon the sale by them of stock which had been acquired by gift.

Petitioner, an employee of the Post Office Department, elected to retire for disability on January 1, 1954. Held: petitioner's contributions to the Civil Service retirement fund were fully recovered prior to the tax year in question and amounts received by petitioner in 1959 were annuity payments includable in gross income pursuant to Sec. 72(d), I.R.C. 1954.

Held: Petitioner is not entitled to deduct as losses on his individual income tax returns for 1959, 1960 and 1961, a proportionate part of the losses sustained by a business, included as an asset in… Held: Petitioner is not entitled to deduct as losses on his individual income tax returns for 1959, 1960 and 1961, a proportionate part of the losses sustained by a business, included as an asset in a trust of which he was trustee and a substantial beneficiary.

Petitioner sold costume jewelry as agent for Barclay Company, a manufacturer, and sustained losses prior to 1958. Held: Petitioner continued to carry on a trade or business substantially the same as that conducted before March 1958 and is not barred by section 382(a), I.R.C. 1954, from using the net operating loss carryovers from prior years.

1. Held, that petitioners' incomes from tips as waiters were properly determined by the respondent through use of a formula based upon data obtained from the records of the petitioners' employer and through respondent's city-wide investigation of tipping practices in the New York City area, where such waiters either did not keep or did not make available to the respondent or to this Court, any records of their tip incomes for the taxable years. Barry Meneguzzo, 43 T.C. 824, follwed. 2. Held, that all petitioners except Anton Pollack (Docket No. 1037-62), are liable for additions to tax for negligence under section 6653(a) for each of the years involved. Barry Meneguzzo, supra, followed.

1. Held, that the $749,177 which National Publishing Company received from the Redevelopment Authority of the City of Philadelphia in 1960 was received in payment of its real estate and buildings and the gain resulting therefrom was not taxable, National having stated in its 1960 income tax return that "National Publishing Company hereby elects non-recognition of gain under the involuntary conversion provisions of section 1033 of the internal revenue code." 2. The amount of depreciation allowable to National Publishing Company in 1960 on the new plant which it acquired after its old plant was taken by the Redevelopment Authority will be determined under Rule 50 in accordance with the facts which have been found with respect to that issue.

A corporation owned equally by petitioner-husbands controlled the right, as lessor of a certain well-located service station, to designate the brand of gasoline and related products to be sold… Held: Receipt by the petitioner-husbands of the proceeds of the sale by the corporation of the right to designate the exclusive supplier constituted ordinary income to them as a dividend distribution from the corporation.

Held, that a sale of lots by a trust and the subsequent construction of a building by the trust (using a part of the proceeds from the sale in part payment for such… Held: that a sale of lots by a trust and the subsequent construction of a building by the trust (using a part of the proceeds from the sale in part payment for such construction), did not constitute a nontaxable exchange within the contemplation of section 1031 of the Internal Revenue Code of 1954.

Petitioner corporation formed a subsidiary for the purpose of expanding its business in foreign countries beyond sales activities and subsequently turned the majority of its foreign… Held: the subsidiary was a viable entity. Held further, the transactions attributed to the subsidiary were correctly attributed. Held further, respondent's allocation to petitioner of 100 percent of the income of the subsidiary was a clear abuse of discretion. Correct allocation determined.

On the facts, held: (1) Payments to parochial schools attended by petitioners' children for their tuition are not contributions to a church organization, but are nondeductible personal expenses. Held: Payments to parochial schools attended by petitioners' children for their tuition are not contributions to a church organization, but are nondeductible personal expenses.

Petitioners each owned a 12 1/2 percent interest in 11 corporations of a group of 90 corporations utilized by Joseph Brickman in constructing houses in large real estate subdivisions in the Chicago… Held: respondent did not err in disallowing the $25,000 surtax exemptions claimed by each of the corporations and allocating one surtax exemption among them in the manner he did.

In 1958, First National Bank in Walsenburg, a newly formed national bank, assumed the obligations of First State Bank of Walsenburg, a Colorado state bank, arising out of the latter's depositors'… Held: National is not liable as a transferee for State's Federal income tax liabilities.

Sec. 162(a)(2), 1954 Code, away from home expenses: Petitioner, a design engineer, was employed in Cleveland and vicinity, beginning in… Held: petitioner's principal place of employment from November 1960 to the end of July 1962 was in Cleveland and its area, for an indefinite period of time, and the expenses incurred there for meals, lodging, and automobile mileage during 1962 are not deductible as away from home traveling expenses under sections 162(a)(2) and 62(2)(B),…

During the taxable years 1957 through 1960 petitioners, husband and wife, maintained a residence in Forest Hills, Long Island, New York. Held: the cost of Harold's meals and lodging while in Washington is personal, living expenses, and not allowable as ordinary and necessary expenses of traveling while away from home as that phrase is used in sections 62(2)(B) and 162(a)(2), I.R.C. 1954.

Held, that a distribution of $7,500 from a corporation to its sole shareholder is taxable as a dividend to the shareholder, where in the year of the distribution the corporation had current earnings and profits in excess of the amount of the distribution; and it is immaterial that the corporation had a deficit in accumulated earnings and profits at the beginning of the year, which was in excess of said current earnings and profits.

In 1938, decedent Gilbert H. Gleason created a trust for the benefit of his son, Anthony H. Gleason. Decedent made himself trustee, along with a corporate trustee. Held: the value of the property in the Anthony H. Gleason trust at the time of decedent's death is includible in decedent's estate under the provisions of section 2036(a)(2), I.R.C. 1954.

Held, that withdrawals of funds by petitioner from a closely held corporation of which he was a stockholder constituted dividends rather than loans. Held: that withdrawals of funds by petitioner from a closely held corporation of which he was a stockholder constituted dividends rather than loans.

Held: On the facts presented, the series of events in which petitioners disposed of their Orange County property and acquired property in Imperial County was not a sale and purchase but was a… Held: On the facts presented, the series of events in which petitioners disposed of their Orange County property and acquired property in Imperial County was not a sale and purchase but was a tax-free exchange of properties of like kind within the meaning of section 1031, I.R.C. 1954.

Held: Petitioners failed to prove that an investment in the total amount of $3,000 was made in 1960 under an agreement to purchase stock which resulted in a loss in that amount in 1960; therefore, they are not entitled to a deduction for 1962 under sections 1211(b) and 1212, 1954 Code, of $1,000 for a capital loss carryover from 1960.

Held: On the facts presented, distributions to petitioners from employee profit-sharing trusts of which they were beneficiaries were made on account of the termination of the profit-sharing plans and… Held: On the facts presented, distributions to petitioners from employee profit-sharing trusts of which they were beneficiaries were made on account of the termination of the profit-sharing plans and not on account of petitioners' separation from the service of their employer.

The sale of certain television films held, not to be a sale of property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Held: not to be a sale of property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Held further, depreciation deduction with respect to television films in the year of their sale allowed. Macabe Co., 42 T.C. 1105 (1964) followed.

Petitioner Paul H. Schweitzer, a Hungarian by birth but an American citizen by naturalization, sustained certain losses in 1949 and 1952 because of… Held: the facts do not show that in the years that the confiscations occurred there was any reasonable prospect that petitioner would recover his losses in some future year. Hence, petitioner's losses were deductible in the years that the confiscations took place and petitioner is not entitled to take such deductions in 1959.

Held, Petitioner accumulated earnings and profits beyond the reasonable needs of its business, and petitioner was availed of for the purpose of avoiding the income tax with respect to its shareholders during the years in issue.

Held: Respondent, under his burden of proof, failed to establish that petitioner received taxable income in 1957 of at least $14,900. Held: Respondent, under his burden of proof, failed to establish that petitioner received taxable income in 1957 of at least $14,900.

Held: Subdivision lots sold during the years in question were property held for sale to customers in ordinary course of petitioner's real estate business even… Held: Subdivision lots sold during the years in question were property held for sale to customers in ordinary course of petitioner's real estate business even though the property had been originally acquired and used for many years as a farm. Gain from sales of lots is ordinary income and not long-term capital gain.

A 1955 divorce decree required petitioner, Pinkney, to make weekly payments to petitioner, Alberta P. Thompson, as permanent alimony for the maintenance of herself and their minor child. Held: payments under the decree during 1959 and 1960 constituted alimony.

Held, that petitioner, in the years in question, did not possess an economic interest in coal in place, and that he is therefore not entitled to deductions claimed for percentage depletion with… Held: that petitioner, in the years in question, did not possess an economic interest in coal in place, and that he is therefore not entitled to deductions claimed for percentage depletion with respect to the coal which he mined.

In 1955 Congress enacted legislation which, for the first time, gave certain nationals of the United States an enforceable right against… Held: the payment received by the estate in 1959 was taxable to it in full as ordinary income, with deduction for the distribution in 1959. The claim had no determinable value at the time of decedent's death in 1940. Held, further, the distribution made by the estate to the beneficiary Woldemar is similarly taxable as ordinary income.

The petitioner, a vice president of one of the largest companies in the coal industry, was required, with other officers of the company, to… Held: That the meals furnished to the petitioner by the company at such conferences were furnished for the convenience of the employer and on the business premises of the employer and that therefore the fair market value of such meals is excludable from petitioner's gross income under section 119 of the Internal Revenue Code of 1954.

Held, the petitioner was not availed of during the taxable years for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings and profits to accumulate instead… Held: the petitioner was not availed of during the taxable years for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed.

Held, $200 monthly cash housing allowance paid to petitioner by his employer in 1962 is includable in petitioner's gross income and is not deductible in arriving at petitioner's taxable income for… Held: $200 monthly cash housing allowance paid to petitioner by his employer in 1962 is includable in petitioner's gross income and is not deductible in arriving at petitioner's taxable income for that year.

1. Character for tax purposes of various real estate transactions determined - whether profit was ordinary income or capital gain. 2. Exchange of improved rental real estate for unimproved real estate to be used for subdivision purposes held not to qualify for nonrecognition of gain under section 1031, I.R.C. 1954. 3. Payments made in settlement of reopened bankruptcy proceeding held not deductible. 4.