Volume 25 — Tax Court Memorandum

Gain on sale of rental property for cash recognized. Sections 1031, 1033, and 1034, I.R.C. 1954, not applicable.

Petitioner constructed an industrial building in 1960, and an addition thereto in 1961. Held: The placing of insulating materials on top of the roof put the building in its former efficient operating condition, permitted the continued use thereof in the same way as before, and constituted repair and maintenance work; it did not add to the value or prolong the useful life of the building and was not a capital expense.

Held, that no part of the consideration paid by the petitioner in connection with its purchase of a one-half stock interest in a corporation constituted consideration for a covenant not to compete and that therefore it is not entitled to deductions claimed in the years in question as representing ratable portions of the cost of such a covenant.

Petitioner, a former member of the Baltimore City Police Department, was retired on account of physical disability in 1947 and received payments through the taxable years involved from a Special Fund… Held: the payments are not excludable as accident or health insurance or as amounts received under workmen's compensation acts within the meaning of secs. 104 and 105 of the Internal Revenue Code of 1954.

In 1961 petitioner Donald W. Haney was employed by Lockheed Aircraft Corporation in San Jose, California. Held: the amount of such reimbursements constituted taxable income to the petitioners.

In 1960 cracks appeared in petitioners' home and new swimming pool. Held: Petitioners are not entitled to a deduction for a loss described in sec. 165 (c)(3), I.R.C. 1954, because they failed to prove that a casualty occurred and caused such damage.

Petitioner owns and operates cargo vessels. Held: Tower was organized for business purposes, engaged in business activities, and was not a sham. Tower must be recognized as a separate corporate entity having a tax identity separate from petitioner. Tower did not act as an agent of petitioner when it sold and delivered the Sumatra to the Canadian buyer.

Held, the income derived from the operation of two horse racing meets was earned by petitioner, and petitioner is subject to Federal income taxes on such income. Held: the income derived from the operation of two horse racing meets was earned by petitioner, and petitioner is subject to Federal income taxes on such income.

Business expenses: Deductibility: Expenses incurred preliminary to carrying on a business. - The petitioner, who was engaged in the public relations business, also engaged in other business activities. Planning to manufacture and sell a candy-dispensing toy, he employed an artist to make preliminary sketches, had models of the toy made and apparently incurred other expenses in connection with the venture.

In an agreement dated February 15, 1950, Remington Rand, Inc., agreed to pay petitioner, John C. Sims, Jr., a certain fixed amount upon receipt of stock owned by petitioner in a corporation and… Held: Payments received by petitioner from Sperry Rand Corporation in 1959 pursuant to a settlement agreement are taxable as capital gains.

Held: (1) In determining petitioner's taxable income for calendar years 1956 and 1957, adjusted under the net worth and expenditures… Held: In determining petitioner's taxable income for calendar years 1956 and 1957, adjusted under the net worth and expenditures method, respondent (a) failed to give petitioner credit for certain United States War Bonds held in a bank for safekeeping on December 31, 1955, and December 31, 1956, but withdrawn and cashed on May 6, 1957, (b)…

Held: 1. That respondent has failed to prove fraud for the years 1954 and 1955 by clear and convincing evidence. 2. Held: That respondent has failed to prove fraud for the years 1954 and 1955 by clear and convincing evidence. 2. That, in absence of fraud or waivers, the deficiencies determined by respondent are barred by the statute of limitations.

Held: (1) Gifts made in 1959, 1960, and 1961 by decedent, who died in 1961, were not made in contemplation of death; (2) Value of decedent's residence at time of death was $20,000. Held: Gifts made in 1959, 1960, and 1961 by decedent, who died in 1961, were not made in contemplation of death; (2) Value of decedent's residence at time of death was $20,000.

1. Held, that petitioner did not realize any taxable income from certain transactions with two North African firms named Mondial Investment Corporation and Victor Trading Company, that were, in form,… Held: that petitioner did not realize any taxable income from certain transactions with two North African firms named Mondial Investment Corporation and Victor Trading Company, that were, in form, export sales of merchandise.

Petitioner, an independent oil producer, made substantial advances of funds on behalf of his brother, Jules, who was his manager of… Held: Petitioner failed to prove thathe and his brother intended to create a debtor-creditor relationship with respect to the advances or that they became worthless in 1958, and, therefore, petitioner is not entitled to a bad debt deduction under section 166 I.R.C. 1954. 1Unless otherwise indicated, all references are to the Internal…

Withdrawal of funds from a corporation by its president and majority stockholder held, on the facts, to be loans rather than dividends. Held: on the facts, to be loans rather than dividends.

An Ohio truck terminal corporation with a single stockholder owned a terminal in Cincinnati and a partially constructed terminal in Chicago. Held: petitioner sustained its burden of showing that securing the surtax exemption was not a major purpose of such transfer within section 1551, I.R.C. of 1954, and evasion or avoidance of tax was not the principal purpose of forming the new corporation under section 269, I.R.C. of 1954.

Held, that since the petitioner failed to show that the decedent held stock under a parol trust for the benefit of his brothers and sisters, the fair market value of such stock… Held: that since the petitioner failed to show that the decedent held stock under a parol trust for the benefit of his brothers and sisters, the fair market value of such stock is includable in the decedent's gross estate under either section 2033 or section 2035 of the Internal Revenue Code of 1954.

Held, petitioners' losses resulting from satisfaction of their obligations as guarantors of the indebtedness of Wobbers, Inc., a corporation in… Held: petitioners' losses resulting from satisfaction of their obligations as guarantors of the indebtedness of Wobbers, Inc., a corporation in which they were shareholders, to the Bank of America are nonbusiness bad debt losses deductible only under section 166(d) of the Internal Revenue Code of 1954 as short-term capital losses.

Held: (1) That the first note of a former employee, K, evidencing indebtedness to petitioner, had value at the beginning of 1961, but became worthless in 1961. Held: That the first note of a former employee, K, evidencing indebtedness to petitioner, had value at the beginning of 1961, but became worthless in 1961.

Held: That the useful life of a shopping center building with certain unique architectural features is 30 years, for purposes of the depreciation deduction. Held, further: That the petitioner is not entitled to a loss deduction for the amount of a defective marblette floor's depreciated cost attributable to the portion of the floor covered with carpeting.

A family controlled four corporations selling shoes at retail in different cities. The store at Cincinnati became insolvent, owing suppliers. Held: on the evidence, such payments did not constitute dividends.

Petitioners accrued bonuses payable to their stockholder-employees each year in a total amount which reduced corporate income below $25,000. Within 2 1/2 months after the close of each fiscal year petitioners issued checks in payment of the accrued bonuses. Though in some instances the petitioners' bank accounts were insufficient to cover the bonus checks on the day they were issued, all bonus checks were immediately deposited by their recipients and paid in due course. Within a few days after receipt of their bonuses the stockholder-employees would loan back to the petitioners the identical amounts. Held: The bonuses were actually paid by petitioners within the meaning of section 267(a)(2), I.R.C. 1954, and includable in the gross income of the recipients, on the dates the bonus checks were issued. Petitioners are entitled to deduct such bonus payments.

During the taxable years 1955, 1956, and 1957 petitioner was a self-employed masonry subcontractor. He kept his own books of account but they did not clearly reflect his income. It had been petitioner's custom to file his Federal income tax returns late and pay a penalty for such late filing.

Respondent mailed a notice of deficiency to the petitioners in care of their accountant, the address petitioners used on their 1961 return. Held: The purpose of sec. 6212, I.R.C. 1954, is to establish a procedure which results in a high probability that taxpayers will receive notice of any deficiency. Under all the facts and circumstances, respondent acted reasonably, and petitioners had an adequate opportunity to file a timely petition.

Held, that amounts expended by the petitioner in connection with his attendance at a university are not, under the circumstances obtaining, deductible as ordinary and necessary business expenses… Held: that amounts expended by the petitioner in connection with his attendance at a university are not, under the circumstances obtaining, deductible as ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 1954.

Petitioner James M. Hunley, a prominent Southern Illinois businessman, purchased shares of an Illinois life insurance company in 1959 for a price of $2 per share at a time when the fair market value of each share was $2.81. Respondent included the bargain element in petitioners' income in 1959. Held: The bargain element was not includable in gross income as compensation for services nor does the bargain element in the purchase of the shares, in and of itself, result in realization of income.

Held: (1) Contracts in the taxable years between petitioner and merchants relating to books published by petitioner were contracts of sale, known as sale or return contracts, and not consignment… Held: Contracts in the taxable years between petitioner and merchants relating to books published by petitioner were contracts of sale, known as sale or return contracts, and not consignment contracts.

Held: The total of the amounts paid by petitioner Salzberg to his divorced wife, petitioner Van Oss, pursuant to a divorce settlement agreement, was alimony taxable to Van Oss and deductible by… Held: The total of the amounts paid by petitioner Salzberg to his divorced wife, petitioner Van Oss, pursuant to a divorce settlement agreement, was alimony taxable to Van Oss and deductible by Salzberg.

During the taxable years 1958 through 1960, petitioner, Bolen Webb, operated three retail liquor stores, and in July 1960, he began operating a fourth store. Held: Respondent was justified in reconstructing petitioners' income for the years in question by applying a percentage markup of gross profit on sales. (2) Petitioner understated his net taxable income for the years in question in the amounts determined by respondent.

Held, taxpayer's activities with respect to a few head of cattle he owned did not constitute a trade or business in the years involved, and amounts taxpayer paid to his brother, purportedly for the care and feeding of those cattle, are not deductible as ordinary and necessary expenses paid or incurred in carrying on a trade or business.

Held: Petitioner, having failed to prove that she was not a business partner of her husband during the year in question, as determined by respondent, is taxable on her distributable share of partnership business net income. Under local law her distributable share was one-half.

1. Held, on the facts, that petitioner Frank DeGoff sustained a loss of $60,000 from the fraudulent misappropriation of said sum by a man named Ichelson to whom petitioner had delivered the same in trust for the sole purpose of having Ichelson invest it on petitioner's behalf. And further held that, as a matter of law, said misappropriation constituted an "embezzlement"; that petitioner's loss from such embezzlement is deemed to have been sustained by him in the year 1960 when Ichelson disappeared and the embezzlement was first discovered by petitioner; and that a deduction for petitioner's said embezzlement loss is allowable to him for said year 1960, under the provisions of section 165(a) and (c)(3) of the 1954 Code and section 1.165-8(a)(2) and (d) of the Income Tax Regulations. 2. Held, that respondent's determination that certain payments which petitioner received from Ichelson in the aggregate amounts of $3,000 in 1959 and $743 in 1960, constituted "interest income" to petitioner for the respective years in which the same were received, is approved by reason of petitioner's failure to establish error in said determination of the respondent.

Petitioners, husband and wife, own a one-family dwelling at 33 Wileman Avenue, Walden, N. Y., which has been their residence since 1947, having previously resided in Walden since 1939 at another… Held: the evidence establishes that the employment of petitioner David on the telephone job was temporary in character and that petitioners are entitled to deduct the $2,500 as traveling expenses while away from home, as claimed on their joint return for 1961.

Petitioners' residence was destroyed by fire in 1957. The residence and contents were insured in the respective amounts of $25,000 and $10,000. Held: Petitioners' loss was $4,300; (2) The loss is deductible in the year of recovery; (3) Petitioners have not proved that deductions for business expenses claimed in 1959 and 1960 are allowable; (4) Petitioners are liable for an addition to tax for delinquency in filing their return for 1959.

Held: Petitioners, entertainers who traveled almost constantly during the taxable year performing as a comedy and dance act, were not "away from home" within the meaning of section 162, I.R.C. of 1954, and are not entitled to deduct the cost of meals and lodging incurred on their travels.

Corporation formed for the purpose of building and operating an apartment in Hawaii, held, not a collapsible corporation ( Sec. 341, I.R.C. 1954) where the plan to sell the stock of the corporate… Held: not a collapsible corporation ( Sec. 341, I.R.C. 1954) where the plan to sell the stock of the corporate owner was not conceived until after the apartment building was completed. Gain on the sale of the stock of corporate owner, held, taxable as capital gain.

Held, petitioner has failed to prove he supplied over one-half of the support of his two minor sons in the taxable year 1962. Held: petitioner has failed to prove he supplied over one-half of the support of his two minor sons in the taxable year 1962.

Held: That petitioners are not collaterally estopped from denying that certain properties were held primarily for sale to customers in the ordinary course of a trade or… Held: That petitioners are not collaterally estopped from denying that certain properties were held primarily for sale to customers in the ordinary course of a trade or business when the prior litigation in this Court was concerned with separate transactions involving different properties and tax years.

Held: That petitioners are not entitled to a nonbusiness bad debt deduction for unreimbursed advancements which were used to pay the… Held: That petitioners are not entitled to a nonbusiness bad debt deduction for unreimbursed advancements which were used to pay the compaign expenses of the Citizens Committee Against Fluoridation, Inc., when repayment was impliedly contingent upon the receipt of sufficient contributions and no features of an enforceable debtor-creditor…

Petitioners A and B owned 3 tracts of land containing undeveloped deposits of stone. Held: The contracts did not effect a sale of each tract of land or a sale of the deposits of stone and materials in place. (2) A and B retained an economic interest in the stone and materials. (3) The payments received by A and B from the corporations are taxable as ordinary income subject to depletion.

Held, that amounts paid by each of two law firms to their clients, to provide for the personal living expenses of such clients while… Held: that amounts paid by each of two law firms to their clients, to provide for the personal living expenses of such clients while their cases were awaiting trial in the courts, and of which a substantial portion was actually repaid by the clients when their cases were settled or otherwise disposed of, are not deductible by said firms as…

Held, that the petitioner has established its right to deduct depreciation with respect to some of its depreciable assets sold in the taxable year, but not with respect to others, since the salvage… Held: that the petitioner has established its right to deduct depreciation with respect to some of its depreciable assets sold in the taxable year, but not with respect to others, since the salvage value thereof was not shown.

Held: 1. Respondent's determination that petitioner, Harold Gross, received substantial additional sums as payments for services rendered in each of the tax years in question, sustained. 2. Held: Respondent's determination that petitioner, Harold Gross, received substantial additional sums as payments for services rendered in each of the tax years in question, sustained. 2.

In 1954 petitioners transferred 70,000 shares of S Corporation stock to four irrevocable trusts they created for their children. In 1955, pursuant to the trust agreement, the corporate trustee timely paid petitioners' 1954 gift tax liability out of accumulated trust income and funds borrowed on the security of the trust corpus. Held, that the 1956 trust income used by the trustee to pay the balance of the 1955 loan is not taxable to petitioners under sec. 677(a), I.R.C. 1954. Estate of Annette S. Morgan, 37 T.C. 981 (1962), affirmed per curiam 316 F. 2d 238 (C.A. 6, 1963), certiorari denied 375 U.S. 825 (1963), followed. In 1957 petitioners and respondent agreed on the amount of gift tax deficiency plus interest owed by petitioners. In 1958 the trustee timely paid such amount with accumulated 1957 trust income and funds borrowed on the security of the trust corpus prior to the receipt by the trusts of any 1958 income. Held, that 1958 trust income, in an amount equal to petitioners' gift tax deficiency plus interest paid by the trustee in 1958, is taxable to petitioners under sec. 677(a), I.R.C. 1954 and sec. 1.677(a)-1(d), Income Tax Regs.Estate of Craig R. Sheaffer, 37 T.C. 99 (1961), affirmed 313 F. 2d 738 (C.A. 8, 1962) certiorari denied 375 U.S. 818 (1963), followed.

Held, (1) income in respect of a negotiable note which T obtained in 1957 and sold in 1958 may not be attributed to him in 1959 in the… Held: income in respect of a negotiable note which T obtained in 1957 and sold in 1958 may not be attributed to him in 1959 in the light of the facts before the Court; (2) T was the sole owner of certain property in 1959 and was therefore chargeable with the stipulated rentals in respect thereof and the stipulated capital gain realized at…

Held, that expenses of the husband-petitioner in attending law school during the taxable year involved are not deductible as ordinary and necessary expenses paid or incurred in carrying on… Held: that expenses of the husband-petitioner in attending law school during the taxable year involved are not deductible as ordinary and necessary expenses paid or incurred in carrying on any trade or business, within the meaning of section 162(a) of the Internal Revenue Code of 1954.

1. Respondent's determination of petitioners' taxable income by the increase in net worth and nondeductible expenditures method approved, with certain adjustments. 2. Respondent failed to prove fraud by the clear and convincing evidence required. Additions to tax for fraud disapproved. 3. Assessment and collection of deficiency in tax for 1959 not barred by statute of limitations. Six-year period for assessment provided in section 6501(e)(1), I.R.C. 1954, applicable.

Held, that the petitioners are not entitled to deductions for depreciation with respect to certain dance studio franchises, since they failed to show either the bases or the useful lives of such… Held: that the petitioners are not entitled to deductions for depreciation with respect to certain dance studio franchises, since they failed to show either the bases or the useful lives of such franchises.

Petitioners' property was sold by judicial order and checks representing their share of the proceeds of the sale and rental were refused by them in belief that acceptance would prejudice their right to collaterally attack the sale. Held: Petitioners constructively received income when the checks were delivered to them. Held further: Petitioners are entitled to a depreciation deduction for the year in which their property was sold.

Educational expenses: Improvement. - The amounts expended by the petitioner in attending a university were not deductible. The petitioner came to the United States on a student visa and there was no evidence that he ever changed his visa status. Furthermore, the courses which he took were not sufficiently related to his business activities to justify a finding that his education was directed toward maintaining or improving his skills.

Held, that the petitioner has not shown error in the respondent's determination that it received in excess of 30% of the selling price of a lease in… Held: that the petitioner has not shown error in the respondent's determination that it received in excess of 30% of the selling price of a lease in the taxable year of the sale and that therefore it may not report the gain from the sale on the installment method set forth in section 453 of the Internal Revenue Code of 1954.

Held: (1) During the taxable years in issue petitioner Malcolm L. Tinker's employment in Pawtucket, Rhode Island, was indefinite, rather… Held: During the taxable years in issue petitioner Malcolm L. Tinker's employment in Pawtucket, Rhode Island, was indefinite, rather than temporary, in nature; therefore, the cost of his meals and lodging in Rhode Island is not deductible under section 162, I.R.C. 1954, as traveling expense incurred while away from home; (2) On the facts…

1. Held: Petitioners failed to file income tax returns for the taxable years 1957, 1958, and 1959 and are therefore liable for the maximum additions to the tax under sec. 6651(a), I.R.C. 1954, for… Held: Petitioners failed to file income tax returns for the taxable years 1957, 1958, and 1959 and are therefore liable for the maximum additions to the tax under sec. 6651(a), I.R.C. 1954, for each of such taxable years. 2.

Held: Payments made by the former husband of the petitioner, pursuant to court orders, were wholly for the support of 2 minor children; no… Held: Payments made by the former husband of the petitioner, pursuant to court orders, were wholly for the support of 2 minor children; no part thereof was for the support of the petitioner; and the total sum of the payments in each of the taxable years is excludable from petitioner's income. Gloria P. Johnson, 45 T.C. 530, followed.

Held: That net withdrawals of corporate funds by a corporation's president, charged to a withdrawal account, were intended as loans and therefore did not constitute taxable distributions of the… Held: That net withdrawals of corporate funds by a corporation's president, charged to a withdrawal account, were intended as loans and therefore did not constitute taxable distributions of the corporation's funds to him.

The petitioners filed a lawsuit in Chancery in the Superior Court of Cook County, Illinois against the Clark Oil & Refining Corporation. Held: under the agreement: (1) That the individual petitioners sold their improved real estate on Vermont Street to Clark, and Clark purchased it, for $222,500, the amount of the arbitrators' award and decision, which sum represented the replacement value and reproduction-new value of the Vermont Street land and improvements.

Held, that the petitioners have failed to show error in the respondent's disallowance of portions of deductions claimed by their partnership as advertising, promotion, and travel and entertainment expenses and portions of deductions claimed by the partnership as depreciation allowances, and the respondent's determination that the sale by the partnership of certain cattle constituted ordinary income. Held, further, that the petitioner Mears has failed to show error in the respondent's disallowance of deductions claimed by him in the taxable year 1962 as charitable contributions, taxes, and unreimbursed travel expenses. Held, further, that the petitioners have not shown error in the respondent's determination that they are liable for additions to tax under section 6653(a) of the Internal Revenue Code of 1954 for the taxable years 1959 and 1960.

In November 1960 petitioners purchased a used automobile that had been driven about 6,400 miles. About 2 years later, in December 1962, while returning from Florida, the motor overheated. For approximately 2 months thereafter petitioner Lyle W. Mader drove the car to and from work, a distance of about 8 miles one way. About March 3, 1963, he had the car repaired at a net cost to him of $561.80. At that time the speedometer registered 42,262 miles. Held, petitioners are not entitled to deduct for the taxable year 1962 the cost of repairs as a "casualty" loss under section 165(c)(3), I.R.C. 1954.

Complete liquidations: 12-month period: Distribution of assets: Assets retained. - Gain on the sale of an apartment building in complete liquidation of a corporation was taxable to the corporation where it continued to receive payments on a purchase money mortgage received as part of the consideration for the sale and where it continued to maintain a bank account from which payments were made therefrom well beyond the statutory 12-month period. Taxable year of inclusion for the corporation's transferees determined. Additions to tax: Negligence penalty: Failure to file returns: Proof. - Since it appeared that the officers of a corporation in good faith believed that a purchase money mortgage had, for tax purposes, been constructively distributed to stockholders immediately after the sale of an apartment building on February 1, 1956, and on that basis concluded that the corporation's income for 1956 was more than offset by allowable deductions, and that it had no income for 1957, the negligence penalty and a penalty for failure to file returns were not assessed.

Deductions: Alimony payments: Lump-sum payment: Property settlement. - $2,500 of a $27,500 divorce property settlement did not amount to a lump-sum alimony payment deductible under Code Sec. 215. Dependency deductions: Children of divorced parents: Support test. - The taxpayer's claimed dependency deductions for his two sons were denied where he failed to prove that he had contributed more than one-half of their total support so as to qualify them as dependents.

1. Petitioner was availed of during its fiscal years 1957 and 1958 for the purpose of avoiding income tax with respect to its shareholders by permitting its earnings and profits to accumulate beyond the reasonable needs of its business and was liable for the accumulated earnings tax imposed by section 531, I.R.C. 1954, for those years. Accumulated taxable income for those years determined. 2.

Held, funds advanced by unrelated partnership to petitioner corporation were not capital contributions but constituted bona fide loans; accordingly, amount paid for use of such… Held: funds advanced by unrelated partnership to petitioner corporation were not capital contributions but constituted bona fide loans; accordingly, amount paid for use of such funds constituted deductible interest. Held further, petitioner was entitled to deductions claimed for office services.

Damage to the basement walls of petitioners' residence held not a casualty within the meaning of section 165(c)(3), I.R.C. 1954.

Upon the facts, held: That petitioner and his mother purchased property and operated a tourist home business on the property as a joint… Held: That petitioner and his mother purchased property and operated a tourist home business on the property as a joint venture; and that petitioner is entitled to deduct 50 percent of the loss from the operation of the business in the taxable year, the amount of the loss to be recomputed under Rule 50, on the basis of the Court's findings.

With the proceeds of a bank loan on which he was personally liable, petitioner, Millard F. Machen, purchased a set of power tongs to be used in his oil field service business. Held: Petitioner, Millard F. Machen, and not his daughter, was the owner of the power tongs. Petitioners, therefore, are not entitled to any rent expense deduction.

Held: Certain payments made to petitioner by Sinclair Refining Company in the taxable years involved pursuant to an agreement for the sale of a retail fuel oil business were payments made in… Held: Certain payments made to petitioner by Sinclair Refining Company in the taxable years involved pursuant to an agreement for the sale of a retail fuel oil business were payments made in consideration of a covenant not to compete and not for the sale of goodwill.

Petitioner, a broker, had a written agreement with the executors of an estate that if he secured purchasers for and a sale was completed of… Held: That the total purchase price of the shares was $760,000 and petitioner's commission was $38,000; that in 1960, petitioner earned $38,000 and the estate was obligated to pay the entire amount thereof; that as between himself and the executors, petitioner did not waive, and they were not relieved from the obligation of paying him,…

In 1958 P was commissioned by the Springfield Library and Museums Association to procure a large male elephant for mounting and display at its Museum of Natural History. Held: that P received a taxable dividend to the extent the proceeds of the stock redemption were used to satisfy his indebtedness to J.

Land development company constructed sewer and water systems to serve its subdivision and provided such service to neighboring subdivisions. Held: Because development company's primary purpose in constructing the systems was to further the sale of lots by it and because it parted with material property rights in the systems for the benefit of homeowners, development company was entitled to add the cost of the systems to its basis in lots sold by it.

Held, that amounts paid by the petitioner to an employment agency and to a telephone answering service in seeking employment are not deductible under either section 162 or section 212 of the Internal… Held: that amounts paid by the petitioner to an employment agency and to a telephone answering service in seeking employment are not deductible under either section 162 or section 212 of the Internal Revenue Code of 1954.

Petitioner was employed in April 1958 by a Chicago-based architectural firm and assigned to work in Washington, D.C. Petitioner remained at his assignment in Washington until October 1961. Held: Petitioner could reasonably foresee by the beginning of the taxable year 1960 that his assignment in Washington would probably last for a long period of time. His assignment, examined at the beginning of 1960, was of indefinite duration and not temporary in nature.

1. Tussaud's Wax Museums, Inc., a Washington corporation, operated a wax museum at the Seattle World's Fair. Held: due to a dispute between Hicks and Crysdale the plan was not put into operation during the period here involved and the purported royalty payments are not deductible by Tussaud's in an amount greater than that allowed by respondent. 2.

Held, on the facts presented: (1) That petitioner did not realize ordinary taxable income upon the receipt of 10,000 shares of Javelin… Held: on the facts presented: (1) That petitioner did not realize ordinary taxable income upon the receipt of 10,000 shares of Javelin stock in January 1956, or upon the receipt of 7,000 shares in July 1957; (2) That 2,000 shares of Javelin stock received by petitioner in June 1956 and 2,000 shares received in October 1957 were not gifts…

1. Held, that the notice of income tax deficiency issued to petitioners William F. and Erma Bard for their taxable year 1959 was timely issued. 2. Held: that the notice of income tax deficiency issued to petitioners William F. and Erma Bard for their taxable year 1959 was timely issued. 2.

Held, embezzled funds are taxable as income to the embezzler in the years they were received even though the victim of the embezzlement instituted proceedings to recover the full amount of the embezzled funds prior to the assessment of any tax liability on that amount by the Government. Held, further, petitioner-wife, who admittedly filed joint returns with her husband who embezzled the funds, is jointly and severally liable for the tax due on such funds.

Held, that sums which petitioner Sidney Lifschultz paid in each of 5 transactions involving various issues of Treasury bonds,… Held: that sums which petitioner Sidney Lifschultz paid in each of 5 transactions involving various issues of Treasury bonds, purportedly as prepaid interest on 5 newly created items of indebtedness, did not in substance and reality constitute interest on indebtdeness within the intendment of section 163(a), 1954 Code, and, therefore, the…

Deductions: Interest expense v. dividend distribution: Advances by shareholder to corporation. - Advances made by a shareholder to his corporation as a purported loan were not entitled to interest deductions by the corporation. The shareholder (taxpayer) who held 996 shares of the 1000 outstanding shares failed to prove that the payment was a dividend.

Capital gains v. ordinary income: Employment contract: Covenant not to compete: Sales of capital stock. - The taxpayer transferred a majority interest in his corporation to the C corporation and… Held: the agreement was no sham. The payments were received by the taxpayer for his covenant not to compete and his availability for consulting services, even though he performed no services. Accordingly, the payments are taxable as ordinary income and not at capital gains rates.

Petitioners claimed depreciation on furnished apartment buildings they operated. Their claimed basis was not shown on the returns or otherwise. Held: Petitioners have failed to prove error in respondent's determination.

On December 15, 1958, respondent determined joint deficiencies and 50 percent additions thereto for fraud for the calendar years 1953… Held: The assessment and collection of the taxes and additions to the tax for the years 1953 and 1954 are not barred by the statute of limitations; (2) petitioners are jointly and severally liable for the deficiencies and additions to the tax for the years 1953 through 1956; (3) only petitioner Albert H. Murray is liable for the deficiency…

Petitioner and his former wife were divorced in 1960. Pursuant to a decree of divorce a $13,600 payment denominated alimony by the state court was made. Held: the $13,600 was a property settlement and therefore not includible in the gross income of the wife and not deductible to the petitioner.

Respondent's motion for judgment on the pleadings as to fraud granted and decision entered for respondent without further proof where petitioner failed to reply to the affirmative allegations of fraud in respondent's answer, those allegations were deemed admitted under Rule 18(c)(1), Tax Court Rules of Practice, and the allegations are sufficient to support a finding of fact that a part of the deficiency or underpayment of tax for each year was due to fraud with intent to…

Petitioner Floyd Patterson and Constantine D'Amato incorporated petitioner Floyd Patterson Enterprises, Ltd. for the purpose of exploiting the ancillary rights from Floyd's boxing matches. Held, under the facts presented, Enterprises was not a separate taxable entity. Held, further, that there was no deficiency in 1958 Federal income tax due to failure to report an amount withheld to cover possible liabilities for California taxes.

Held: That petitioner has failed to show that she is entitled to a dependency exemption on account of support furnished her father. Held: That petitioner has failed to show that she is entitled to a dependency exemption on account of support furnished her father.

Held: Petitioner Benjamin E. Adams gave up his employment as a salesman and devoted his full time to being an artist. Held: Petitioner Benjamin E. Adams gave up his employment as a salesman and devoted his full time to being an artist. Although in the taxable years 1961 and 1962, he received no income from his art activities, he engaged in such activities with the intent to make a profit and was therefore engaged in a trade or business.

Held: Petitioners are not entitled to a claimed theft loss deduction for lack of proof. Held: Petitioners are not entitled to a claimed theft loss deduction for lack of proof.

1. Individual petitioners rented a residence to their son-in-law and his family at an inadequate rental. Held: deductions for depreciation and expenses in connection with such residence were properly disallowed. It was not property used in a trade or business, nor property held for production of income. 2.

1. Payments made by Harold to his former wife, Donna, for the support of their two minor children, pursuant to the terms of a settlement agreement incorporated in the divorce decree, are not deductible by petitioners as periodic payments of alimony. 2. Payments made by Harold on a mortgage on a residence conveyed to Donna, pursuant to the terms of the separation agreement, are not deductible by petitioners as alimony. 3.

Petitioner acquired 710 acres from its sole stockholder in 1956. A part of this, some 115 acres, had been laid out as a subdivision and some blocks had previously been sold. Petitioner contracted with a builder to transfer to the builder a parcel for home construction and to transfer successive parcels as the builder could pay for them with a certain acreage to be taken each year. In 1961 petitioner transferred to this builder a parcel for cash and notes. In the same year petitioner took a single 30-day note in place of several existing notes and discounted the note at a bank. Held: (1) Petitioner "disposed" of the note within the meaning of section 453(d) and is not entitled to return the gain on the installment method; (2) Petitioner did not hold the property primarily for sale to customers in the ordinary course of its trade or business.

Burnett and Loewenstein acquired valuable option rights to purchase a tract of land. They owned all the stock of the petitioner, which acquired the option rights from them. Held: The transfers of the option rights were equity contributions, and the promissory notes are regarded for tax purposes as preferred stock. The transactions are governed by sec. 351, I.R.C. 1954, and the basis provisions of sec. 362 are applicable.

Held: Monthly payments in the total amount of $4,112.20 received by petitioner in 1961 pursuant to a separation agreement are taxable as income from alimony. Held: Monthly payments in the total amount of $4,112.20 received by petitioner in 1961 pursuant to a separation agreement are taxable as income from alimony.

Net operating loss carryover deduction allowed in 1958 on account of net operating losses for the years 1953 to 1957, inclusive, of a corporation whose stock it acquired in 1958. Held: deductible as ordinary and necessary business expenses. Amounts paid out by acquired company to principal stockholder, and de facto head of the business, held, reasonable compensation for services rendered by him.

Held, that amounts expended in the taxable year 1961 by the petitioner, part owner of a farm in Indiana, for the purpose of increasing… Held: that amounts expended in the taxable year 1961 by the petitioner, part owner of a farm in Indiana, for the purpose of increasing his farm income by attempting to effect changes in certain farm legislation pending before Congress, constituted expenditures for the promotion of legislation, which are not deductible under either section…

The distribution in redemption of preferred stock held by petitioners in a corporation, held, not essentially equivalent to a dividend within the meaning of section 302(b)(1) of the Internal Revenue Code of 1954.

Held, that the respondent did not err in disallowing as a deduction a portion of the amount of the petitioner's addition to its reserve for bad debts for the taxable year in question. Held: that the respondent did not err in disallowing as a deduction a portion of the amount of the petitioner's addition to its reserve for bad debts for the taxable year in question.