Volume 25 — Board of Tax Appeals

Decedent, until his death on November 30, 1927, was a member of a partnership. Both the decedent and the partnership were on the cash receipts and disbursements basis and both reported income on the calendar year basis. Held, following Maurice L. Goldman et al., Executors,15 B.T.A. 1341, that decedent's distributive share of the partnership income, whether distributed or not, for the period in 1927 ending with his death, should be included in decedent's income.

1. The petitioner, H. D. Shelden, made a valid gift to his children of a real estate subdivision business on or prior to November 3, 1920. The basis for computing gain or loss to the donees from sale of the property and from certain installment contracts is the fair market price or value at the date of the gift. 2.

1. At the time of his death decedent owned securities on deposit in banks in France and England. Held: that certain gifts made within two years of decedent's death were in fact not made in contemplation of death, and are not includable in the gross estate subject to tax. Estate of Robert Todd Lincoln,24 B.T.A. 334, followed.

Where a testator devised and bequeathed the residue of his estate to trustees, the trustees in this way acquired certain stock, and thereafter a liquidating dividend was paid in 1925 to the trustees on the stock, the proper basis upon which to compute the gain from the transaction to the trust is the fair market value of the stock at the death of the testator. Brewster v. Gage,280 U.S. 327.

1. ESTATE TAX. Under section 302(e) of the Revenue Act of 1926 the full amount of a joint bank account of decedent and wife must be included in decedent's gross estate in the absence of proof that any portion thereof was contributed by the wife. 2. Land contracts were received by decedent and his wife in the sale of real property in Michigan held by them as tenants by the entireties. Held, that petitioner has not shown that such land contracts were not held by decedent and his wife as joint tenants or as tenants by the entireties and hence has failed to show that the respondent erred in including the full value thereof in decedent's gross estate. 3. Decedent and his wife entered into a contract to purchase real property and later entered into a contract to sell their rights under such contract. Held, that petitioner has not shown that the contract to sell was not held by decedent and his wife as joint tenants and hence has failed to show that respondent erred in including the full value thereof in decedent's gross estate. 4. At the date of decedent's death decedent and his wife owned, as tenants by the entireties, certain real property in Michigan which had been purchased with the proceeds from the sale of other realty in Michigan which had also been held by them as tenants by the entireties. Held, that petitioner has failed to prove that any part of the property "originally belonged" to the wife, within the meaning of the revenue act.

A California utility district, organized by vote of the people to construct aqueduct lines and reservoirs for the purpose of supplying water to the district, held not engaged in essential governmental functions, and salary paid by it to an attorney is not exempt from Federal income tax.

Prior to 1920 petitioner did not charge off from the book value of its depreciable assets any amount for depreciation, but more than offset depreciation actually sustained by improvements,… Held: in determining the amount of the loss due to abandonment, only the depreciation sustained and allowed subsequent to the year 1919 should be considered.

The petitioner, attorney for a certain village and two school districts, held to be neither an officer nor an employee thereof, but an independent contractor, and compensation received therefrom for services rendered during the taxable years 1923, 1924 and 1926 is not exempt from Federal taxation.

1. COMMUNITY PROPERTY - SURVIVOR - FIDUCIARY. In Texas the surviving husband who has qualified as the administrator of the community estate has the exclusive management, control and disposition of the community property for the purpose of paying debts and settling its affairs and occupies a fiduciary relation thereto until there is a partition and settlement thereof.

1. Income from property of a revocable trust held taxable to the grantor under section 219(g) of the Revenue Act of 1926, notwithstanding the fact that such income was distributable to charitable… Held: that the respondent correctly disallowed deductions for repairs, insurance and depreciation in respect of such property.

A meeting of the petitioner's board of directors was held, at which three of the five members were present. The other two were not notified of the meeting prior thereto. Held: at which three of the five members were present. The other two were not notified of the meeting prior thereto. The declaration of a dividend at the above meeting served to reduce surplus for invested capital purposes.

Held, the petitioners are liable as transferees under section 280 of the Revenue Act of 1926, for the unpaid taxes of a corporation. Held: the petitioners are liable as transferees under section 280 of the Revenue Act of 1926, for the unpaid taxes of a corporation.

1. Held, under the facts shown, that petitioner sustained a loss of $10,000 in the taxable year through his investment in an oil lease, which is deductible under section 241(a) of the Revenue Act of… Held: under the facts shown, that petitioner sustained a loss of $10,000 in the taxable year through his investment in an oil lease, which is deductible under section 241(a) of the Revenue Act of 1924. 2.

Testimony taken by deposition will not be considered until offered and received in evidence. Rules 29 and 46, Rules of Practice before the United States Board of Tax Appeals.

1. During each of the years 1923 to 1926, inclusive, petitioner realized profits from sales of land which he had platted into city… Held: profits so realized during 1923 are taxable as capital gains under section 206(b) of the Revenue Act of 1921; (2) the lands sold in 1924, 1925 and 1926 constituted property held primarily for sale in the course of petitioner's business, under the Acts of 1924 and 1926, and profits therefrom are taxable under sections 210 and 211 of…

1. Deductions allowable for depreciation on oil wells include not only the depreciated cost of the physical equipment, but also amounts expended for wages, fuel, repairs, hauling, etc., in connection with the development and drilling of the wells. A. T. Jergins Trust,22 B.T.A. 551. 2.

1. DEDUCTION - EXPENSE. Held, that the petitioner may not deduct as an expense any amount in excess of cost to it of materials and supplies used by it during 1920. The amount of such excess is determined upon the facts of record. 2. Id. The expense incurred by petitioner in negotiating a settlement with the Director General in 1921 held to be deductible from gross income for that year.

In order to reestablish his credit and to secure customers for his individual business from among those who had been customers of a corporation of which he was an officer, petitioner partially… Held: that such amounts may not be deducted as ordinary and necessary expense.

A trust declared for the mere convenience of a group, with authority only to collect rent from an oil lease and disburse it among them in accordance with their respective interests as intervening cotenants, is not taxable as a corporation upon the income collected and disbursed from said lease.

During the taxable year certain of petitioner's creditors forgave portions of debts owing by petitioner to them. Held: that no part of the amount forgiven should be included in petitioner's gross income. Following Simmons Gin Co.,16 B.T.A. 793; affd., 43 Fed.(2d) 327.

The evidence fails to establish cost to petitioner of certain promissory notes disposed of in 1923.

1. Real estate which under State statutes is not subject to administration expenses can not be included as part of decedent's gross estate under the Revenue Act of 1924. 2. Held: such commissions are not deductible from decedent's gross estate within the meaning of section 303 of the Revenue Act of 1924. 4. During 1925 petitioners paid State and city taxes assessed for that year against decedent's real estate. The real estate was not subject to Federal estate taxes.

Where a corporation sells a group of installment notes, representing the unpaid portions of the purchase price of lands sold by it in a prior year, by blank endorsement to a bank, the amount received by it in said transaction, to the extent that it represents profits realized from the sale of the lands, is reportable as a part of its gross income for the year.

Where a trust is formed for a term of years for the purpose of conducting a business enterprise for profit it is taxable as an association.

1. The basis to a corporation for exhaustion of a contract held to have been the same as that to the one who transferred the contract to the corporation for more than 80 per cent of the outstanding stock of the corporation. 2. A contract for the exclusive use in New Orleans of a paving mixture, on which application for a patent had been made, held to have had no fair market value at the time paid in for stock.

1. British income taxes paid by domestic partnership held deductible pro rata by the several partners, following W. J. Burns et al.,12 B.T.A. 1209.… Held: further, that, in accordance with said statutory provisions, there shall be included in the gross incomes of each of petitioners, all of whom are nonresident aliens, the dividends received from a foreign corporation, more than 50 per centum of whose income was derived from sources within the United States, even though the…

Held, upon the facts in this proceeding, that various items of income were not community income and are not taxable in their entirety to the petitioner, a resident of California.

1. The Commissioner erred in including note interest for three years in the income for one year where the taxpayer was on an accrual basis. 2. For five years beginning with 1918 the Commissioner allowed deductions for depreciation which were reasonable in amount in the light of what was known during those years. These deductions were at the rate of 20 per cent and were based on a 5-year life for the assets. In computing the deduction for the six year he properly eliminated from the computation the cost of the assets for the first year. He did not err in making similar adjustments for later years. In determining a reasonable deduction for a later year, due consideration must be given to proper deductions allowed in previous years.

The deposit certificates and accrued interest herein involved having been included at their fair market value as of the date of decedent's death in the taxable estate and the tax thereon paid, no income accrued to the estate on the occasion of the subsequent payments here involved.

Held that the settlement agreement between petitioner and the Shipping Board was a lump-sum settlement and did not make any allowance for amortization specifically as such.

Where sums are paid to procure the unexpired terms of leases held by tenants of buildings already owned in fee and other buildings acquired under 99-year leases and in fee, with the sole object in view of immediately demolishing the buildings to permit the erection of a new building for lease to a known tenant for a long term at a substantial rental, the amounts, under the circumstances, should be treated as a part of the cost of the new building and recovered ratably over…

1. STATUTE OF LIMITATIONS. Consolidated returns filed for 1918 and 1919 held to meet the statutory requirements as to filing returns. Held: amounts so paid by petitioners may not be deducted as interest. 4. INCOME. Parent company guaranteed the dividends on the preferred stock of one of petitioners, and in fulfillment of that guaranty paid certain sums to the petitioner. Held, such payments were not income to the petitioner.

The petitioner trust, with beneficiaries, voluntarily associated to acquire, subdivide, improve and sell a parcel of real estate for gainful purposes, is an association taxable as a corporation under the provisions of the Revenue Acts of 1921 and 1924.

1. Basis of computing profit from sale of coal land determined. 2. The petitioners and Panther Creek Mines, Inc., were not affiliated during the year 1923 within the meaning of section 240(c) of the Revenue Act of 1921.

1. DEPLETION. Fair market value of petitioner's property at date of discovery of oil held to be basis for depletion allowance. 2. Id. Equitable owner of leases on date of discovery held entitled to depletion on basis of discovery value.

Cost and actual cash value of tangible property paid in for stock at July 28, 1913, determined for purposes of invested capital and depletion.

Under a certain trust indenture executed February 7, 1925, the petitioner was made trustee of a certain trust fund consisting of securities conveyed to it by a husband and wife for the equal benefit of their nine grandchildren. Each grandchild was to have an equal beneficial interest in the trust estate. The indenture provided that the net income of the trust fund should be paid "all or part" for the education and support of the nine grandchildren whenever in the judgment of the trustee it was for the best interest of the grandchildren or any of them to do so. Any portion of the income not distributed annually was to be accumulated and invested by the trustee. During 1926, 1927, and 1928, the petitioner did not pay any moneys to any of the beneficiaries under the indenture of trust nor did it credit any amounts to the several beneficiaries. Held, that the indenture of trust created a single trust. Held, further, that the income of the trust fund not paid or credited to any of the beneficiaries was taxable to the petitioner.

The petitioner sustained a loss in the fiscal year ended June 30, 1923, when certain corporate stock owned by it became worthless, resulting in a net loss for that year which may be applied to its tax liability for two succeeding taxable years in conformity with the provisions of section 204 of the Revenue Act of 1921.

1. STATUTE OF LIMITATIONS. Collection of the deficiency held not barred. 2. Id. WAIVERS - DURESS. It is not duress on the part of the Commissioner to give the taxpayer notice that he is going to use the means provided by law to assess and collect the tax. Burnet v. Chicago Ry. Equipment Co.,282 U.S. 295.

The petitioners are life beneficiaries under certain trusts created pursuant to the will of a decedent who died a resident of the State of New York. Held: that the amounts so retained by the trustees do not constitute taxable income to the beneficiaries.

1. During that part of the fiscal year of an estate which fell within the calendar year 1923, the estate made certain distributions to a beneficiary. The beneficiary reported on the basis of cash receipts and a calendar year. These distributions were no part of the gross income of the beneficiary for the calendar year 1924. 2. Contributions to trusts held not deductible, where trusts were revocable at will of donor and where stated purposes included paying expenses of donor's residence.

The petitioners were stockholders in and managed and operated the business of several corporations engaged in retailing ladies' ready-to-wear clothing. Held: that a loss resulting from the sale of stock in one of such corporations was a loss sustained in carrying on a business and the amount thereof should be included in computing a net loss under section 206 of the Revenue Act of 1926.

Petitioner purchased 200 acres of land in 1918 for $80,000 in cash. The land was purchased solely as an oil prospect, or for its supposed oil content. Held: that no deductible loss was sustained in 1921.

1. In its original income-tax return for 1918 the petitioner deducted an amount for amortization of war facilities. Held: that the petitioner made a claim for an amortization allowance within the meaning of section 1209 of the Revenue Act of 1926. 2.

The petitioner's contention that he is entitled to the deduction as a loss sustained on the disposition of good will is denied.

The value on March 1, 1913, for a group of patents acquired by the taxpayer prior to that date determined, and held that a reasonable allowance for exhaustion of such value may be computed upon the basis of the average remaining life of the several patents as of that date.

1. Upon the record, held, that during the taxable year in question petitioners did not operate their seed business in partnership with their minor son. 2. Held: that during the taxable year in question petitioners did not operate their seed business in partnership with their minor son. 2. The evidence introduced by the respondent fails to prove that petitioners were guilty of fraud with intent to evade tax.

Where petitioners' decedent formally assigned to three of his children all his interest in the distribution of funds arising from the property formerly owned by a coal company, said company having been theretofore dissolved and being in a state of liquidation, such assignment transferred a property right and was not a mere assignment of future income.

The action of the Commissioner in holding that the proceeds derived by the petitioner from the operation of hotels, the possession of which he held under a void contract of sale, constituted taxable income to him, sustained.

1. The respondent's determination of the March 1, 1913, fair market value of petitioner's limestone deposits for depletion purposes sustained. 2. The deductibility of alleged business expenses, designated as contributions, subscriptions or donations, determined. 3. The amount of the amortization of discount on bonds issued by an affiliated corporation and held by petitioner is not deductible in computing consolidated net income.

Respondent's action in disallowing as a deduction from gross income for 1924 a loss alleged to have been incurred in that year is sustained.

Amounts accrued under an agreement with the People's Commissariat of Foreign Trade of the Union of Soviet Socialist Republics have not been shown to be deductible as taxes or as ordinary and necessary expenses.

Value of stock at date of decedent's death determined.

1. A corporation, after unsuccessful attempts to refinance itself, granted, with approval of its shareholders, an option to three shareholders, who were endorsers on its… Held: that the assets were acquired by the new corporation by purchase for the fixed amount of the liabilities assumed, and not by way of gift from its shareholders nor for shares of stock, and hence the cost, rather than the value of the assets when acquired, is the measure of its invested capital. 2.

As special counsel under the back-tax law of Arkansas, receiving commissions as compensation, petitioner was neither an officer nor employee of that State or of its subdivision.

Petitioners' claim for a deduction from income on account of charges to a reserve for bad debts disallowed.

Petitioner is not entitled to the benefit of the net loss provision of the Revenue Act of 1921 in the computation of his tax liability for 1924.

Losses claimed as deductions from income in the years 1922 and 1923 disallowed.

Held that petitioner should be taxed as a trust during all the years in question.

1. A corporation became financially involved and its bondholders instituted foreclosure proceedings for the protection of their… Held: that the bid price of $1,000,000 is not conclusive as to the measure of cost of the property to the petitioner, but that what occurred was an exchange of property (bonds of the old corporation) for property (assets of the old corporation) and that the basis for depreciation and depletion of the assets so received was the fair market…

1. Under articles of partnership petitioner was entitled to receive amounts equal to four shares of the firm profits for a period of three years after his retirement from the partnership. Held: that petitioner's interest was in the nature of a capital asset; that the assignment thereof transferred, not income but a property right, and that income subsequently arising therefrom was not taxable to petitioner. 2.

1. Installment method of reporting profits from sales of real estate denied where the petitioner's books and records were not kept upon the installment sales basis and do not permit of a determination of petitioner's true taxable income computed upon the installment basis. 2. Respondent's determination of bad debt deductions approved.

1. Where a corporation enters into eight contracts all attached to The General Conditions of the Contract, which sets forth the precise method by which all the obligations of the contractor are to be discharged and such General Conditions of the Contract and the eight contracts appended thereto cover construction of two buildings for a single owner, held that the work involved is a single job and is not completed until all the terms of The General Conditions of the Contract…

The transfers here involved were not made in contemplation of death.

The cancellation by a corporation, with the consent of its shareholders, of a debt from its president, who was its largest shareholder, created by withdrawals over a period of years, the corporation at the time of cancellation having substantial surplus and the debtor being solvent, is not a tax-free gift, but is taxable as a dividend.

1. Upon consideration of the services actually performed, the amount of $4,000 is determined to be a reasonable allowance for the… Held: that the resolution and book entries effected a distribution and reduction of the surplus, even though the reserve accounts in which the surplus had been carried were wiped out and the surplus was not distributed pro rata among the shareholders, and the accumulated surplus may not be included in the corporation's invested capital for…

Amounts received by the estate of a deceased lawyer pursuant to a contract with another lawyer, who had been substituted as attorney in condemnation proceedings in place of decedent, for the division of contingent fees, are taxable income of the estate and not gifts from the substituted attorney.

1. In 1917 stock in a corporation, a party to a reorganization, and money were exchanged for common stock and bonds in a new corporation a party to the reorganization. Held that this was not an exchange of stock or securities solely for stock or securities within the meaning of section 203(b)(2) of the Revenue Act of 1924. 2.

1. Time of accrual of income tax imposed by British Income Tax Act, 1918, upon a trade carried on in the United Kingdom, determined for purpose of credit under section 238, Revenue Act of 1918. 2. Held: that the British war-loan tax paid in 1920 was essentially an income tax, and the amount thereof constitutes a credit allowable for said year under section 238 of the 1918 Act.

1. Salaries received in 1926, 1927, and 1928 by the petitioner, a nonresident citizen, from domestric corporations held not exempt from taxation as earned income from sources without the United States, in the absence of proof that the petitioner actually performed services abroad for which the salaries were paid to him. 2.

Where the basis for loss on certain stock has not been shown and where it does not appear that the stock became worthless in 1923, the determination of the Commissioner disallowing a deduction of the alleged loss in 1923 will not be disturbed.

Petitioner and Farr's Clothes, Inc., held not affiliated under section 240 of the Revenue Act of 1926, where less than 95 per cent of the voting stock of both companies was owned by the same interests.

Amounts received by owners of mineral rights as bonus upon execution of the lease to develop such rights on a royalty basis are income in their entirety at the dates received.

Where husband and wife enter into an oral agreement for the conduct of a business to which each is to contribute service and the necessary capital is to be drawn from a joint bank account theretofore established and where each is to take one-half the profits or bear one-half the losses as the case may be, there is a partnership and each is taxable upon one-half the distributable income thereof.

Where a father gave his daughter certain stocks in 1924 which were sold by the donee in 1926 and such father was alive at date of sale, it is not material that such gift was made in contemplation of death and the profits from such sale must be computed under the provisions of section 204(a)(2) of the Revenue Act of 1926.

1. APPORTIONMENT OF TAXES AMONG AFFILIATED CORPORATIONS. Where petitioner and certain other corporations with which petitioner was affiliated for the taxable years 1918 and 1919 filed consolidated income-tax returns, the return for 1918 being filed by petitioner as the reporting company, and the return for 1919 being filed by the Stanley Company of America as the reporting company, and where the evidence shows that there was no agreement between the taxpayers that the entire amount of the tax should be assessed against and collected from petitioner, but that, on the contrary, the subsidiaries in each of the taxable years filed with the Commissioner on Form 1122 instructions as to how the taxes shown on the respective returns should be apportioned, the Commissioner is without authority to determine deficiences against petitioner to the extent that such deficiencies are based on increases in the income of the affiliated corporations for the respective taxable years. 2. ESTOPPEL. Where the Commissioner had full knowledge of the information returns which had been filed with the consolidated returns directing him as to how he should apportion the tax, he can not create an estoppel against petitioner by his own failure to perform the act directed by such information returns. 3. JURISDICTION OF SUBSIDIARIES WHICH NOT APPEALED. Where a notice of deficiency is sent to one member of an affiliated group asserting a deficiency based on the consolidated income of the group, but no mention is made of the affiliated corporations, either in the notice of deficiency or attached statements, the Board is without jurisdiction to consider the liabilities of such other corporations to whom no notice of deficiency was mailed and against which no deficiency has been determined and no appeal has been taken.

The facts herein show that decedent was a resident of the United States within the meaning of section 301(a) of the Revenue Act of 1924, as amended by section 322 of the Revenue Act of 1926.

1. A decedent left a residuary estate in trust. Included in the residuary estate were 100 shares of a certain kind of stock. These shares were sold by the trustee under this trust. Held: that the time of acquisition of such stock by the testamentary trustee was the date of the death of the decedent; therefore, the basis for determining gain or loss from the sale is the fair market value of the shares at the date of the death of the decedent. 2.

Where the purpose of a trust is to engage in business activities and such purpose is carried out along lines similar to that of a corporation, such trust is to be considered an association taxable as a corporation.

Where petitioner was organized to acquire all the assets of a taxpayer corporation, subject to certain liabilities, in exchange for common stock, which was delivered to the taxpayer and later distributed to its stockholders, it is held that the petitioner is liable as tranferee of such taxpayer.

Petitioner acquired certain creditors' notes in settlement of its receivables against a corporation and later exchanged such notes for bonds of the same corporation. In the taxable year it sold the bonds to its stockholders ratably as to their stockholdings. Held, that in absence of proof of the cost of the bonds no deduction from income is allowable on account of such sale.

Consents to a determination, assessment, and collection after the expiration of the statutory period as set out in section 250(d) of the… Held: the former officers of the corporation were without authority to execute such consents; the consents were invalid and ineffective; the statutory period had expired prior to the enactment of the Revenue Act of 1926 and before any determination, assessment or collection of the deficiencies had been made by the Commissioner; and…

Where the county tax on the value of bank stock, assessed to the owners thereof but payable by the bank, is reduced by indebtedness of some of the stockholders, and the difference between what the tax would have been without the deductions and what it was with the deductions, is distributed by the bank to the shareholders whose debts were allowed by the county in computing the tax, the amount so distributed is not deductible from gross income as a tax.

1. Petitioner owned 66 2/3 per cent and held a proxy for the balance of M Company's stock; it owned 71.48 per cent and held proxies for the balance of O Company's stock; it… Held: insufficient to authorize affiliation. 2. Petitioner held certain promissory notes. The debtor was in poor financial condition in 1923, but it did not appear that any of the notes were past due in that year or that it was then known that the debtor would not be able to pay when the notes fell due.

On March 30, 1918, petitioner filed its 1917 income-tax return (Form 1031), which prima facie shows substantial compliance with the law and regulations, and which shows that it was not required to… Held: the proposed assessment is barred by the statute of limitations.

1. Whether or not there has been an abandonment of property depends on the intention of the owner, coupled with the act of abandonment, both to be ascertained and determined from all the surrounding facts and circumstances. 2. Mere nonuser does not constitute abandonment. 3. A lessee who places on leased property improvements which can not be removed after the expiration of the lease is entitled to amortize the cost of such improvements over the life of the lease.

1. Necessary expenses, such as engineering costs, costs of surveys and fees to lawyers and expert witnesses, incurred in connection with protecting taxpayer's interests in a condemnation suit, should be deducted in determining the amount of the net award which is used in computing profit, if any, arising therefrom. 2.

Held that attorney fees incurred in connection with a proceeding in court to partition certain properties and in other matters growing therefrom were not deductible as ordinary and necessary expenses paid or incurred in carrying on a trade or business.

The Board is unable to determine that the basis for loss on the disposition of an interest in a business was greater than that determined by the Commissioner.

1. Petitioner received income from a certain oil and gas lease in the taxable year at least in the amount reported on his income-tax return. 2. Value of oil reserve determined as of the date of its acquisition by devise.

The petitioner, which succeeded to the assets and going business of a corporation and thereafter conducted it without change in personal management, methods or forms from those employed by the corporation, is an association taxable as a corporation upon its income thus earned under the provisions of the effective revenue acts.

Prior to December 31, 1921, the petitioner, as vendor, executed contracts for the sale of real estate in California, wherein it was provided that deeds to the property sold would not be delivered until the purchase money had been paid in full. The purchase money was not fully paid and the deeds were not in fact delivered until subsequent to December 31, 1921. Held, the sales were consummated after December 31, 1921, and petitioner's profits on installment payments received in 1923 are taxable under the capital gain provisions of the Revenue Act of 1921.

1. Where paper evidences of shares of stock of a foreign corporation and bonds of foreign governments belonging to a nonresident alien were held within the United States for certain restricted… Held: may be included in decedent's estate by authority of section 303(d) of the Revenue Act of 1926, which is not unconstitutional. 3.

Where petitioners inherit an estate in real property limited in duration to the life of a person then in being, they are entitled to a deduction from 1925 income for depreciation on the improvements situated on said real estate, equitably apportioned between them and the remaindermen. Section 214(a)(8), Revenue Act of 1926. Deduction for depreciation apportioned in the same way also allowed from 1923 and 1924 income under Revenue Acts of 1921 and 1924.

After April 6, 1917, a corporation constructed a plant for the production of articles contributing to the prosecution of the war. Held: that a value of the war facilities thus recognized in a closed and completed transaction between a willing seller and a willing buyer is better evidence of their value at the date of the sale than expert testimony now submitted as of that time and that, since such recognized value was at least equal to the original cost, no…

Petitioner, a new corporation organized by taxpayer corporation to take over its business, acquired all the assets of the taxpayer and issued its stock therefor. The old corporation, while not legally dissolved, is not in business and its charter has been suspended under California law for failure to pay franchise taxes. Held that petitioner is liable in equity as a transferee under section 280.

1. Good will as of March 1, 1913, excluded from basis for computing gain for sale of petitioner's business in 1924. 2. Amounts paid monthly by sublessee, held to be allowable deduction from petitioner's taxable income for the years involved in this proceeding.

Affiliation denied upon the evidence.

1. March 1, 1913, value of a patent and patent applications determined. 2. Held that deductions for exhaustion should be spread over the average life of the several patents involved rather than over the life of the last patent granted.

A cash bonus received by petitioner in the taxable year under an oil and gas lease covering land owned by him is part of the net income from the property within the meaning of section 214(a)(10) of the Revenue Act of 1921.

In 1926 petitioner declared in partial liquidation of its capital stock a dividend of $80 per share payable in cash and in land contracts receivable. Held: that it derived no taxable income from the distribution to its stockholders of the installment notes in question. Virginia Beach Golf Course Annex Corporation,23 B.T.A. 1169, followed.

The petitioner's claim, based upon bad debts charged off as worthless in the taxable year, allowed.

1. The evidence is insufficient to establish what portion, if any, of the income received by certain beneficiaries of a trust represents taxes thereon. 2. In the circumstances herein amounts received by the petitioners taxes thereon. as beneficiaries of a trust can not be identified as dividends received from domestic corporations for the purpose of allowing credit in computing income subject to normal tax.

1. During 1928 the petitioner exchanged certain shares of common stock in a Colorado corporation which he had acquired subsequent to March 1, 1913, at a cost of… Held: that the transaction was not a reorganization within the meaning of subdivision (i) of section 112 of the Revenue Act of 1928. Held, further, that the transaction was one in which the entire amount of the gain thereon is to be recognized for the purpose of the tax under subdivision (a) of the same section. 2.

1. The petitioner, with her husband, owned large property interests under the community property laws of the State of Texas, consisting mostly of stocks and bonds in corporations, and, upon her… Held: that such loss was an investment loss and not a loss incurred by petitioner in operating a trade or business regularly carried on by her, within the meaning of section 204, Revenue Act of 1921, and can not be used in computing a net loss as provided in said section. 2.

The trust here in question was not an association taxable as a corporation.

Petitioner declared a dividend and discharged the same by distribution of purchase money notes which represented profits from the sale of a subdivision project. Held, that it realized income in the amount of such profits as of the date of distribution.

1. Balance of cost of a trade catalogue published in taxable year, ordinarily chargeable to the following year as operating expense, held, deductible as operating loss sustained in taxable year where… Held: deductible as operating loss sustained in taxable year where the catalogue became obsolete due to loss during taxable year of agency contract covering major line sold by petitioner and liability therefor has been fixed. 2.

1. INCOME - INTEREST. Corporate notes were received in 1920 in an amount equal to the preexisting indebtedness of a partnership and the interest accrued thereon. The notes in the aggregate were worth not more than the principal of the debt and the amount of the notes representing interest was not entered on the creditor's books as income in 1920. Held that the interest was income in 1922 when the notes were paid. 2. Id. PROFIT ON SALE OF BONDS. Partnership agreed to buy new issues of corporate bonds and stock at specified prices. The agreement was reduced to writing in which the method of payment was specified. In this contract the payment to be made upon delivery of each bond was less than the agreed cost and also less than the value of the bond, and the payment to be made upon delivery of each share of stock was greater than the agreed cost and also greater than the value of the stock. The bonds were received and sold by the partnership in 1922. Held that the proper basis for determining the profit realized in 1922 is the actual cost of the bonds rather than the amount set out in the contract specifying the method of payment, and, the tax having been reported on that basis, there is no deficiency for 1922 attributable to the bond transaction.

Fair market value of stock determined.

1. The value of the community interest of a wife, a resident of California, is includable in the gross estate of her deceased husband. 2. The petitioners not having proved that the value of past due notes owned by the decedent at the date of death was less than the value fixed by the Commissioner, the Commissioner's determination of value is sustained. 3.

1. Held that the sale of property by the petitioner was not a sale on the installment plan within the meaning of section 212 of the Revenue Act of 1926. 2. Respondent's determination of the fair market value of a purchase money first mortgage received by the petitioner in connection with the sale of its property sustained.

Dividends declared by a solvent corporation upon stock held by an estate during administration and prior to any distribution, constitute taxable income to the estate. Held: further, since ultimate beneficiaries were not tax-exempt person, assignments of their interests in the residuary estate did not affect the status of the dividends as income to the estate.

The widow of the decedent filed a petition in Superior Court for Los Angeles County, California, alleging that she is the sole legatee and devisee of her deceased husband and praying an allowance for… Held: that the payments so made are not deductible from the income of the estate in the respective years in which paid, but are a charge against the corpus of the estate.

Held, that under the provisions of subdivisions (a) and (c)(5) of section 101 of the Revenue Act of 1928 the petitioner may not elect to treat the gain from the sale of a portion of certain capital… Held: that under the provisions of subdivisions (a) and (c)(5) of section 101 of the Revenue Act of 1928 the petitioner may not elect to treat the gain from the sale of a portion of certain capital assets as capital net gain and the gain from the remainder as ordinary net income.

Held: (1) Applications for patents were acquired by petitioner by gift; (2) Applications for patents are property subject to valuation… Held: Applications for patents were acquired by petitioner by gift; (2) Applications for patents are property subject to valuation which may be recovered by depreciation allowances over the lives of the patents; (3) These applications having been acquired by gift prior to December 31, 1920, the basis for depreciation thereof is their fair…

Petitioners were the settlors and sole beneficiaries of a revocable trust. Two of the three were trustees of the trust and the third trustee was the husband of the third settlor-beneficiary. Held: that such sales were not of trust property within the meaning of the Revenue Act of 1921, and that petitioners are entitled to deduct from their personal incomes, pro rata, losses sustained on such sales. Held, further, that the sales to petitioners' mother were bona fide sales.

1. Taxes for interest on bonds and for maintenance, repairs and expenses of drainage, levee and road district, not of a kind tending to increase the value of the property assessed, are deductible under section 234(a)(3) of the Revenue Acts of 1921 and 1924. 2. Unit rate for depletion and amount of timber cut determined.

The deficiency herein for the year 1917 is barred by the statute of limitations.

In determining whether or not the profit on an installment sale of a 99-year lease, renewable forever, with privilege of purchasing the leased premises, which option need never be exercised, is taxable in the year of sale or may be spread over the life of the installment sale contract for taxation purposes, the amount payable on the exercise of the option to purchase may not be included either in the cost to the seller or in the amount received or to be received by him from…

1. Assessment and/or collection of taxes for 1924 and 1925 held not barred by the statute of limitations. 2. The petitioner is not entitled to deductions for depletion of certain gas-producing land, since it had no property interest in the mineral reserves. 3. Petitioner acquired certain casinghead gas contracts in connection with a reorganization.

1. Respondent's action in (1) rejecting petitioner's method of computing his taxable income derived from a short loan business, and (2) in denying deductions from gross income claimed for expenditures made in prospecting a mining lease, approved. 2. Petitioner's claim of right to deduct from the taxable income for 1929 an amount representing a loss sustained in that year of money invested in a corporation, sustained.

1. The petitioner sold the greater part of its products in can containers, so-called returnable packages, and included a separate and uniform charge for such containers in the invoices to its… Held: upon the evidence, that there was an actual transfer of such ownership and that the containers, not being owned by the petitioner or used in its trade or business, are not assets on which taxpayer is entitled to deductions for depreciation. 2.

1. Upon the evidence, held, that the exclusion from invested capital, pursuant to the provisions of section 326 of the Revenue Act of… Held: that the exclusion from invested capital, pursuant to the provisions of section 326 of the Revenue Act of 1918, of valuable intangibles developed in the petitioner's business creates an abnormality in capital within the meaning of section 327(d) of the Revenue Act of 1918, requiring that the petitioner's profits taxes for the years…

An Illinois corporation, organized and operated for profit, disposed of all its property to another Illinois corporation later created, not for profit, the latter corporation paying for the property… Held: the Commissioner's action in disallowing petitioner's claim of loss is approved.

1. Held that the petitioner has not overcome the presumption in favor of the respondent's determination that petitioner elected to charge costs of wages, fuel, repairs, hauling, etc., in connection with the exploration of property, drilling of wells, building of pipe lines, and development of property, as enumerated in article 223 of Regulations 45, to capital in computing its tax liability for the year 1918, and that the respondent correctly treated such items in each of…

Section 204(a)(8) of the Revenue Act of 1926, requiring cost to a transferor to be used as the basis for determining gain or loss to a transferee corporation of property, for which it has issued after December 31, 1920, more than 80 per cent of its stock in payment, the transferee thereby being immediately given control of the transferor corporation, is not unconstitutional.

Where any distribution or apportionment of deductions is proper under section 240(d) of the Revenue Act of 1921, it is incumbent upon the petitioner to prove an apportionment which is as accurate as reasonably may be under the circumstances.

Cancellation of an indebtedness held not to constitute income to the debtor.

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

Where the taxpayer and a corporation entered into agreements for the development and operation of certain oil and gas leases of the corporation, and the taxpayer's interest was charged with a… Held: only the distributive share of net earnings constitute taxable income to him.

Where a corporation sells its preferred stock at 75 per cent of par value and fails to exercise an option agreement providing for the repurchase of the stock at any time within two years of the sale, such corporation may not deduct from its gross income of the year in which the option expired the difference between the par value and the selling price of the stock as a loss sustained within the year.

Although affiliated with another corporation, the petitioner is bound by its election to file separate returns until permission is granted by the Commissioner to file consolidated returns. Section 240(a), Revenue Act of 1926.

Petitioner in 1926 acquired all the stock of two other corporations in exchange for its stock. Held: that the assets of the other corporations were acquired in connection with a reorganization under section 204(a)(7) of the Revenue Act of 1926, and the basis for determining the gain upon the sale of certain of the assets is the same as it would be in the hands of the transferor. Mente & Co.,24 B.T.A. 401, followed.

1. Upon the evidence, held, that petitioner's books of account were kept and its income-tax returns filed on the basis of actual receipts and disbursements. 2. Held: that petitioner's books of account were kept and its income-tax returns filed on the basis of actual receipts and disbursements. 2. The respondent's disallowance of amounts alleged to have been accrued as commissions upon real estate sales sustained. 3.

The prayer of respondent's answer, claiming the increased deficiency, if any, resulting from a redetermination, unsupported by any averments upon which an increased deficiency could be based, is held to be bad and is ordered stricken.

The petitioner's liability, as transferees, for the unpaid taxes of the transferor is barred as to the 1917 deficiency, but not as to the 1919 and 1920 deficiencies.

Where taxpayer sold certain stock and options for a proportionate interest in future income of certain property and previous to the taxable year received under the sale agreement a sum in excess of the basic fair market value of such stock and the cost of the options, all sums received in the taxable year constituted income.

1. What the parties actually do, i.e., the substance of an act rather than its mere form, is the controlling element in matters of income taxation. Weiss v. Stearn,265 U.S. 242. 2. Upon the record, held the petitioner's stockholders sold their stock to a competitor bank, who then took over petitioner's assets in complete liquidation of its affairs, in which liquidation petitioner realized neither a gain nor a loss.

1. Where a corporation acquired the assets of a predecessor organized under the laws of a different state by the issue of its stock for the stock of the predecessor, it is not entitled to discovery value for depletion purposes on the value of an ore body developed by the predecessor before the reorganization. 2. Petitioner is entitled to recover its entire capital investment by depletion and depreciation ratably over the terms of the lease under which it operated the mines. 3. Certain sales of ore were made in 1925, even though payment was not received until 1926, and the amounts thereof should, with proper adjustments, be included in income for 1925.

Upon the record, held, petitioners' wives owned a one-fourth interest each in the brokerage business conducted by their husbands and that respondent erred in determining that such interests owned by… Held: petitioners' wives owned a one-fourth interest each in the brokerage business conducted by their husbands and that respondent erred in determining that such interests owned by the wives were taxable first to petitioners.

1. TRUSTS - TAXABLE INCOME. Where settlors of a trust conveyed to a trustee oil lands, corporation stocks, promissory notes, and other… Held: it was mandatory on the trustee under the language of the trust deed to accumulate sufficient funds, either out of income or proceeds from the sale of property, to pay these burdens and obligations, and the trustee having in the taxable year accumulated out of income a sufficient sum with which to pay them, such income, to the extent…

1. Where oral negotiations for sale of timber land were commenced in 1917, followed by correspondence indicating further negotiations, the petitioner's board of directors authorized execution of deed… Held: for income-tax purposes, the sale was completed in 1918. 2. Current profits, or profits earned during the taxable year, are not includable in invested capital for such year. 3. Held that the transfer of property on which petitioner claims a loss was a bona fide sale. 4.

A corporation with an established taxable year ending July 31 became affiliated on January 5, 1927, with the petitioner, a new corporation then formed, which established a calendar year as its taxable year. The old corporation filed a separate return for the fiscal year ended July 31, 1927, and in September, 1927, requested and received permission for a change in its accounting period in order that it might file a return for the five-month period ended December 31, 1927, and place itself on a calendar year basis. No return was filed by the old corporation for the five-month period ended December 31, 1927, but instead a return was filed in March, 1928, in the names of both corporations which included the income of the petitioner for the entire year ended December 31, 1927, and that of the old corporation for the five-month period ended December 31, 1927. Held, that the tax liability of the two corporations may not be determined upon the basis of a consolidated return for the year ended December 31, 1927.

1. Where no petition has been filed with this Board against a deficiency notice issued pursuant to section 274 of the Revenue Act of… Held: petitioner acquired a valuable and exhaustible right of license or privilege to remove deposits of sand and gravel from a navigable stream under a contract between himself and the riparian property owner as required by the Maryland statue; (b) the subsequent owner of the property, by his conduct, ratified the contract, adopted it as…

1. Where, in conformity with a promoter's agreement, a corporation received assets in exchange for stock on a certain date and thereafter operated as a corporation under the laws of Delaware, the effective date of organization is that at which all the terms of such promoter's agreement are accomplished. 2. The capital assets definition in section 208 of the Revenue Act of 1924 includes the property used in the operation of a trade or business if held for more than two years.

1. A notice of liability under section 280 of the Revenue Act of 1926 was mailed within one year after the expiration of the statute of limitations against the original taxpayer. Held that such notice was timely. 2. Where a stockholder receives assets of a corporation on liquidation, he becomes liable as a transferee for any unpaid Federal taxes due by such corporation, subject to the restrictions set out in Grand Rapids National Bank,15 B.T.A. 1166.

1. Held that petitioners have not shown that the respondent erred in holding that a certain marginal stock-trading account was owned by petitioner William R. Tracy alone instead of by him and his wife equally, that the income therefrom is taxable to him alone, and that the interest paid to the broker for carrying the account is deductible by him alone. 2. Held that since the record does not disclose that any part of the taxes on real estate in Michigan owned by the petitioners "jointly" were paid by petitioner, Helen Gregory Tracy, the respondent's refusal to allow her to deduct any portion thereof must be approved. 3. Held that only one-half of the income from certain real property in Florida held by husband and wife "jointly" is taxable to the husband. 4. Upon the evidence held that petitioner William R. Tracy realized no income from the Mair Trust.

An individual owning timber entered into a contract in 1919 with a lumber company for the cutting thereof, under the terms of which he was to receive specified sums per thousand feet as the timber… Held: that the receipt of the contract in 1919 was not a closed transaction so as to give the individual a new basis for depletion.

Property conveyed by deed to wife and daughters of the decedent in 1906, although possession and control of it were retained by him until his death in 1925, nevertheless vested title in the grantees as and from the former date; and should not be included in the assets of the decedent's estate in computing Federal estate taxes on same.

1. Where petitioner receives under contracts for sales of lots, nonvoidable by vendee, cash and unconditional obligations applicable to the selling price, such cash and obligations constitute, at receipt, income derived from dealings in property. 2. Since petitioner acquired absolute ownership and control over such cash and obligations, it realized income irrespective of whether the transactions were sales. 3.

1. Waivers limited by their terms to assessment held, under the circumstances, to allow collection within the extension period. 2. Held: under the circumstances, to allow collection within the extension period. 2. The period for collection against the taxpayer not having expired until December 31, 1927, a transfered notice to the petitioner within a year thereafter is timely.

Throughout the entire term of its active business operations the petitioner kept its books on the cash receipts and disbursements basis and in its annual income-tax returns reported cash collected on… Held: that such method was in accordance with petitioner's regular accounting system and reflected its true income on the cash receipts and disbursements basis.

1. Where the Commissioner gave an unsound reason for including an item in a petitioner's income and the pleadings were framed to test the reason only, the Board will nevertheless sustain the Commissioner if upon a full disclosure of the facts it is convinced that there was a good reason for including the item in income. 2. One who is president and the owner of all of the stock of a solvent corporation doing a profitable business must include in his income all of the salary regularly credited to him on the books of the corporation during his taxable year, a part of which salary he withdrew and the balance of which he chose to leave in his account with the corporation. This is true whether the taxpayer kept his books and made his returns on an accrual or a receipts and disbursements basis. 3. The Commissioner's disallowance of part of a bad debt deduction approved where the evidence does not show that the amount was deductible as an addition to a reserve or as actual debts ascertained to be worthless and charged off.

Under the laws of the state of incorporation, the corporate existence of the taxpayer was continued for a period of three years after dissolution for the purpose of winding up its affairs. Held: the asserted deficiencies are not barred by the statute of limitations.

1. ALLOCATION OF COSTS. The petitioner acquired two tracts of land in 1922 for an aggregate purchase price and did not allocate to the respective tracts of land their proportional part of the cost. Held: the aggregate cost of the two tracts should be apportioned in accordance with their respective values at the time of purchase and the profits on the lots sold should be computed accordingly. 2. BAD DEBTS.

Income of a trust distributed to beneficiaries is taxable under the Revenue Acts of 1921 and 1924 to the beneficiaries. Income of the trust not so distributed is taxable to the trust.

Petitioner was a life beneficiary under two different trusts created under the wills of two deceased relatives. She had no interest in the corpus of either trust. held, the entire amounts distributed to her by the trustees were income to her, and she was not entitled to a deduction for depletion of the corpus.

Where two members of a syndicate bought in a certain property for the benefit of the members of the syndicate and transferred their title to a corporation organized by the trustees of the syndicate for the purpose of holding such title, which corporation issued no stock or other evidences of beneficial interest, held no corporate meetings, had no paid-in cash capital, and paid no dividends, the entire transaction being financed by contributions or borrowings of the syndicate…

1. The petitioner's distributive share of partnership income is taxable to him, notwithstanding his declaration of trust that he held such partnership interest in trust for the beneficiaries, where… Held: losses sustained by an irrevocable trust are not deductible by the cestuis que trustent on their individual returns.

Property was transferred by a deed to a trustee to pay the income therefrom to the grantor's estranged wife until her death or the prior termination of the trust, and then to convey the property to the grantor, if then living, or, if not, to his children. The husband died before the wife and before the termination of the trust. Held, that the transfer of the remainder interest to the children was one intended to take effect in possession or enjoyment at or after death, and was not a sale for a full and adequate consideration in money or money's worth. Held, further, that the Commissioner did not err in including in the husband's gross estate the value of the entire property at the date of his death where the value of the interest of the wife at the death of the husband has not been shown.

1. Held, that the evidence fails to support a claim for accelerated depreciation of hotel property owned by petitioner in the taxable years. 2. Held: that the evidence fails to support a claim for accelerated depreciation of hotel property owned by petitioner in the taxable years. 2. In the circumstances herein a mineral lease abandoned in 1926 resulted in loss, if any, in that year.

Petitioners surrendered their stock in a corporation and received payment therefor at a date when the taxpayer was solvent, and such payment did not result in insolvency. Held: that no liability under section 280 of the Revenue Act of 1926 resulted from such transaction.

Included in the improvement taxes which petitioners paid in the taxable years were certain amounts which the improvement district used to pay current interest and maintenance and repairs. Held: that so much of such improvement taxes as were so used are proper deductions from petitioners' gross income as and when made. Andrew Little,21 B.T.A. 911; See Lee Wilson & Co.,25 B.T.A. 840.

The American Anti-Vivisection Society was not organized and is not operated exclusively to prevent cruelty to animals.

1. The value of property held by decedent and his wife as tenants by the entirety since before the effective date of the Revenue Act of 1916 is within the gross estate. 2. The law of a state in respect of its taxing power or its taxing statutes does not control the determination of Federal estate tax. 3. The proceeds of life insurance policies in which decedent reserved until his death the right to change the beneficiary are within the gross estate. 4.

Held, that the petitioner was not an employee of a subdivision of a state. Held: that the petitioner was not an employee of a subdivision of a state.

The assignment by petitioner of future profits to his sons does not divest the petitioner of the liability for the payment of tax thereon when realized.

A corporation selling lots from a tract gave assurance that each lot owner would for 21 years have the privileges of a golf course and club house in the tract and stated that $100 of the price of… Held: that no trust existed in respect of such $100 and that such $100 is within the corporation's gross income.

The Board is not absolutely bound by the opinion as to value given by a single witness for the petitioner, but must weigh that opinion in the light of all of the evidence and the experience and general knowledge of the Board on the subject of inquiry. If, so tested, the opinion does not appear to be reliable, the determination of the Commissioner will not be disturbed.

1. TRUST, OR ASSOCIATION. Where the settlors of a trust were the owners of a large estate consisting of cotton gins, oil wells, farm lands, ranch property, etc., and desired to make a donation to their children and conveyed all their property to trustees for the equal benefit of their said children, after reserving to themselves a child's part, and conferred upon the trustees the power to hold, manage, and operate the property and to sell, invest and reinvest, and prohibited the beneficiaries from selling or otherwise disposing of their shares of the trust estate, and no beneficial certificates were issued to the beneficiaries and other corporate forms were not observed, the trust thereby created is not an association taxable as a corporation but is a fiduciary taxable under section 219 of the applicable revenue acts. Wilson Syndicate Trust,14 B.T.A. 508; affd., 39 Fed.(2d) 43; Wilson Trust,20 B.T.A. 549, followed. 2. INCOME - WHERE TRUSTEE HAS DISCRETION TO ACCUMULATE OR DISTRIBUTE. Where the original trust deed operative for two of the taxable years, contains a provision giving the trustees an option to declare dividends out of any profits that may accrue to said estate, which may be paid to each of the beneficiaries or retained in the business as the trustees may determine, the question whether the income shall be accumulated or distributed is one which rests within the discretion of the trustees, and whether the income is taxable to the fiduciary or is taxable to the beneficiaries depends upon the way the trustees exercise their discretion. William E. Scripps et al., Trustees,1 B.T.A. 491, followed. 3. INCOME - TRUSTEE REQUIRED TO DISTRIBUTE. Where early in 1924 a supplement to the original trust deed became effective which required the trustees to make annual distribution of income to the beneficiaries, the income of the trust thereafter is taxable to the beneficiaries and not to the fiduciary and this is true whether the income was actually distributed or not. Estate of Henry Mayer,16 B.T.A. 1164, followed. 4. PENALTIES - AD VALOREM. Where the fiduciary filed tentative information returns on Form 1041, but did not give thereon complete information as to income and deductions of the trust, but at a later date filed amended returns which did give such complete information, and where prior to the filing of such tentative returns the fiduciary had secured permission from the Commissioner of Internal Revenue to file such tentative returns, provided amended returns were filed later, giving the complete information required, and this was done within the permitted time, the Commissioner was in error in imposing penalties based upon the ground that petitioner had not filed returns on Form 1120, required of all corporations and associations doing business as corporations. This is especially true because we hold petitioner is not taxable as a corporation. 5. DIVIDENDS RECEIVED BY THE TRUST. Where in the taxable years in which the income is held to be taxable to the trust, dividends are received from corporations, these dividends should be added to the income of the trust and are taxable at surtax rates.

Respondent's determination that the petitioner did not sustain any deductible loss on the liquidation of a subsidiary corporation sustained for lack of evidence.

Held, that the evidence does not show that the petitioner had elected to use the reserve method of charging off bad debts and fails to show permission of the Commissioner… Held: that the evidence does not show that the petitioner had elected to use the reserve method of charging off bad debts and fails to show permission of the Commissioner to change to that method. The action of the respondent in refusing to allow a deduction of an addition to a reserve in 1925 is approved.

As the Revenue Act of 1926 provides for computation of depletion deductions in the case of oil wells on a percentage of income basis, as distinguished from discovery basis under prior acts, it was proper for respondent to apply the percentage of income method in computing depletion deductions for the years 1925 and 1926.

Dividends declared in 1925 and 1926 by the board of directors of a New Jersey corporation without the consent of the stockholders were not liquidating dividends even though so styled, especially where the directors in these two years declared other dividends in the nature of ordinary dividends, and where the payment of all dividends did not impair the capital stock and where the corporation continued to function, but to a less degree, up to December, 1931, at which time it had not been dissolved.

1. Profit from certain sales of property held to belong to decedent's wife, and from certain other sales held to belong to decedent. 2. Rent income from certain property held to belong to decedent's wife. 3. Upon special circumstances stated in opinion, held, that pleadings were sufficient to place in issue the fair market value of certain purchase money mortgages. 4. The fair market value of certain purchase money mortgages and second mortgages determined from the record.

1. Where assets are transferred by one corporation to another pursuant to a definite plan of organization, the steps necessary to complete the plan will be considered as a single transaction in determining whether or not there was a statutory reorganization. 2. Where stock of a new corporation and cash are paid for the tangible assets of a taxpayer having a value greatly in excess of the cash payment, the amount of which is insufficient to discharge the taxpayer's indebtedness, it is held that the new corporation is liable as transferee for income taxes due from the taxpayer.

1. Petitioners filed their returns on calendar year forms, including therein as income for a given year the dividends received from March 15 of one year to March 15 of the following year. Held: that respondent's action was correct and is approved. 2.

The fair market value as of March 1, 1913, of that portion of the petitioner's real estate which was sold for cemetery purposes during the taxable years, determined from the evidence.

Petitioner, a domestic corporation, all of the stock of which was owned by citizens of the United States, paid to the Union of Socialist Soviet Republics an amount equal to 17 per cent of the value… Held: that the payment made is deductible as an ordinary and necessary expense.

1. In September, 1926, petitioner invested $100,000 in a syndicate or pool for the purpose of buying certain stock, which the vendors agreed to repurchase at a specified price, and as a guaranty of their agreement deposited a like number of shares of the stock purchased with the syndicate manager. In December, 1926, the vendors, being unable to repurchase the stock, paid to the syndicate $3 per share as a "present profit * * * in the transaction"; the petitioner received $19,354.80 of the amount so paid. Held, there being no sale of the stock and no diminution of the petitioner's capital investment in 1926, he realized a profit in the amount of the distribution received in 1926. 2. In 1927 there were distributions of cash and stock, by which petitioner received $138,709.60 in cash and 2,150 shares of stock. The syndicate or pool was liquidated. Held, the excess of the amount of the cash and the fair market value of the stock over the amount of petitioner's capital investment, consituted profit in 1927. 3. In May, 1927, the duly appointed receivers for the corporation, whose stock had been dealt in by the syndicate or pool, threatened to sue petitioner for treble the amount of his profits, charging that he and his associates had violated the usury laws of the State of California. In order to avoid such a suit and in settlement of all claims that might arise against him in connection with the stock pool transaction, petitioner surrendered to the receivers all of the cash profits and stock which he had received. Held, petitioner sustained a deductible loss in the amount of the cash and fair market value of the stock so surrendered in 1927.

1. Action of the Commissioner sustained in holding that the readily realizable market value of stock received by petitioners in a reorganization which took place in 1923 was at least equal to the fair market value of the stock of a corporation, a party to the reorganization, held by petitioners March 1, 1913, and that therefore the cash received by them in 1923 in excess of the stock received in the reorganization represented taxable gain to them. 2.

The taxpayer acquired a valuable painting from her deceased father by a specific bequest in his will. More than two years later she sold the painting for less than its value at her father's death. She was not entitled to deduct the loss under section 208(c) of the Revenue Act of 1926.

Throughout the year 1926 petitioner was affiliated with a parent company. Held: filing the separate return by the parent corporation constituted an election which precluded petitioner from the benefits of a consolidated return.

In 1927 petitioner received from the United States a refund of overpaid income taxes, together with interest thereon, Held, such interest does not constitute gross income from sources within the… Held: such interest does not constitute gross income from sources within the United States as defined in section 217(a)(1) of the Revenue Act of 1926.

The respondent's refusal to allow a deduction in 1928 for a net loss brought forward from the preceding year is approved, where the evidence does not show that a statutory net loss was sustained in such preceding year.

1. In the absence of evidence showing that the petitioner was the owner of a certain levee which was damaged by a flood, held that the petitioner is not entitled to any deduction on account of the damage done to the levee. 2. During 1927 certain farm land owned by the petitioner was damaged as a result of flood waters washing sand upon it and the buildings on such farm land were destroyed. Held that since the deductions provided for in sections 242 to 245 inclusive of the Revenue Act of 1926 do not include any provision for losses, the petitioner may not deduct any amount representing the loss sustained by it on account of the damage to its land and the destruction of its buildings. Midland National Life Insurance Co.,18 B.T.A. 1240, followed. 3. The requirement of section 245(b) of the Revenue Act of 1926 that no deduction shall be made of taxes, expenses and depreciation in respect of real estate owned and occupied in whole or in part by a life insurance company unless the rental value of such real estate be included in gross income in computing taxable net income held invalid. Independence Life Insurance Co. of America,17 B.T.A. 757, followed.

1. Held, that an amount received by the petitioner during the taxable year, in connection with the transfer to other parties of certain… Held: that an amount received by the petitioner during the taxable year, in connection with the transfer to other parties of certain corporate stock in which the petitioner was interested, accrued prior to the taxable year and, since petitioner's books were kept on the accrual basis, it does not constitute taxable income to the petitioner…

In 1923, a partnership, of which the taxpayers were members, and another brokerage firm purchased 125,000 shares of Class A stock (fair market value $25.50 per share) and 20,000 shares of common… Held: the profit should be recomputed by allocating the cost between the Class A stock and the common stock in the proportion that the fair market value of each class bears to the total fair market value of both classes.

1. Where the widow elected to take under decedent's will in lieu of dower, held that income of the trust estate paid over to the widow during the taxable years in accordance with the terms of the… Held: that the respondent did not err in failing to allow as a deduction on that account any portion of the income so paid to the widow during the taxable years.

At the date of discovery of an oil well a partnership owned an undivided interest in a lease on the property, which interest had been acquired at a nominal cost. After discovery the partnership purchased the outstanding interest for a substantial sum. Held that under the Revenue Acts of 1921 and 1924 depletion may be computed on the discovery basis as to the interest owned by the partnership at the time of discovery and on cost as to the interest thereafter purchased. Held, further, that under the Revenue Act of 1926 depletion should be computed on the percentage of income basis, without reference to discovery value.

1. DEDUCTION - INVOLUNTARY CONVERSION. In 1918 the Alien Property Custodian seized and sold petitioner's stock in a domestic corporation engaged in the manufacture of textiles. The stock was sold for a sum in excess of cost to petitioner or its March 1, 1913, value and the proceeds were turned over to petitioner in October, 1921.

Held, the so-called bonus exacted from corporations by the State of Pennsylvania for the privilege of increasing authorized capital stock is not a tax, and does not constitute… Held: the so-called bonus exacted from corporations by the State of Pennsylvania for the privilege of increasing authorized capital stock is not a tax, and does not constitute an allowable deduction in computing taxable net income under the provisions of section 234(a)(3) of the Revenue Act of 1926.

Petitioner, an attorney, was employed by University of Maryland as a part-time instructor in its law school. Held: the law school is an integral part of the University, which is a state institution, in the maintenance and operation of which the state is engaged in an essential function of government.