Volume 26 — Board of Tax Appeals

1. By an instrument in writing dated July 18, 1923, the decedent transferred to a trustee certain corporate stock, to be held and used by the trustee for the benefit of persons named therein. The terms of the trust agreement were subject to be added to or modified by the joint written agreement of the decedent and five of the seven named beneficiaries. Decedent died in 1925. Held, that the value of said stock, constituting the corpus of the trust, is not includable in the value of the decedent's gross estate, under the provisions of section 302(d) of the Revenue Act of 1924. Colonial Trust Co. et al., Executors,22 B.T.A. 1377. 2. By amended answer, respondent alleged that in computing the deficiency he erred in allowing certain deductions from the value of the decedent's gross estate, and prayed that the deficiency be increased accordingly. Respondent offered no evidence in support of his affirmative allegation, nor do the essential facts otherwise appear in the record. Prayer for increased deficiency denied. Schilling Grain Co.,8 B.T.A. 1048.

1. Legal expenses paid by the executors of an estate in the process of administration in defending an action for an additional Federal estate tax held not to be an allowable deduction in determining the net income of the estate for the taxable year. 2. Prior to March 1, 1913, the decedent acquired certain corporate stocks which upon his death in 1918 passed to his executors who thereafter sold them.

A decedent was the principal owner of the stock of a preserving company and gave one-half of his time to serving this company as president, treasurer, general manager and director. He was active and spent about one-fourth of his time in the purchase and sale of stocks listed on the New York Stock Exchange and bonds. He did not sustain a statutory net loss when he sold all of his stockholdings in the preserving company.

Where an undivided one-half interest in property that was the subject of an accepted option to sell was, pursuant to an intention expressed previous to the acquisition of the property, deeded by… Held: that there was an effective gift of half the corpus of the property and the wife is taxable with profit on her share in the same.

Held, that payments made to a former official of a corporation after his resignation constituted additional compensation for services rendered and not a gift. Held: that payments made to a former official of a corporation after his resignation constituted additional compensation for services rendered and not a gift.

Value of Illinois real estate should be included in decedent's gross estate under section 302(a) of the Revenue Act of 1924, in view of the fact that under the Illinois statute such property is under certain conditions subject to the payment of the charges against decedent's estate and the expenses of its administration and is subject to distribution as a part of decedent's estate.

1. Bond discount should be recovered by pro rata deductions over the life of the bonds. 2. Where a new issue of bonds is sold and with part of the proceeds an earlier issue of bonds is retired, any unrecovered bond discount on account of the earlier issue should be recovered by deduction in the year of such retirement.

1. Broker's fees paid in connection with procuring a lease are to be deducted in pro rata amounts over the fixed life of the lease, excluding possible but not certain renewals. 2. Cost of a premium on a performance bond given to insure erection of a building on leased land should be spread over the fixed life of the lease where it is obvious that the building will outlive the lease term.

Petitioner exchanged with the Fishback Company certain real estate and cash for all the common stock of the Fishback Realty Company. Held: the leasehold was not included with the common stock of the Fishback Realty Company as part of the deal in which petitioner acquired said common stock; (2) the leasehold here involved had no fair market value.

1. In 1920 petitioner's subsidiary was insolvent, and petitioner caused it to discontinue business and assumed its liabilities. Held: that petitioner is entitled to deduct the cost of its stock in the subsidiary as a loss sustained in 1920; that petitioner is entitled to a bad debt deduction in the amount owed to it by the subsidiary; and that the amount estimated to be necessary to redeem trading stamps issued by the subsidiary is deductible as an accrued expense.…

Petitioner was organized January 31, 1922, as the result of the consolidation of three prior corporations under and pursuant to the business corporation law of the State of New York. Held: that the consolidated corporation, petitioner herein, is directly and primarily liable for the deficiencies in tax, if any, of its components as taxpayer, but is not secondarily liable as a transferee of assets, under section 280 of the Revenue Act of 1926.

1. Held, that petitioner has failed to show that the respondent erred in computing the deduction to which petitioner is entitled on account of depreciation of its machinery. 2. Held: that petitioner has failed to show that the respondent erred in computing the deduction to which petitioner is entitled on account of depreciation of its machinery. 2. Held, further, that petitioner has failed to prove that it is entitled to special assessment.

The statutory period of limitation for assessment had not run on October 10, 1928, where a return for a fiscal year ended April 30, 1925, was filed pursuant to the 1924 Act on July 15, 1925, and a return for the same period showing increased tax was filed on May 14, 1926, pursuant to the 1926 Act and T.D. 3843.

The only return filed for the fiscal year ended April 30, 1921, was one filed July 16, 1921. A credit of $2,000 was taken in this return as allowed by the Revenue Act of 1918. Held: that the return filed did not start the statutory period of limitations.

A testamentary trustee, pursuant to authority vested in her by the will, erected a building on real estate acquired from the testator, and paid for it out of trust funds and borrowed money, and continuously reserved from the rentals sufficient amounts to establish a fund to replace in the corpus so much of such investment as is lost by depreciation.

1. CAPITAL EXPENDITURES. The costs of building up and establishing the circulation of a national advertising directory, and enterprise which petitioner entered upon in 1916 and published the first edition thereof in 1918, were capital expenditures and petitioner was entitled to set up such items as were properly allocable thereto as capital assets on its books, and deduct same as a loss in the year when such enterprise was finally and definitely abandoned.

1. Taxpayer sustained deductible losses in the taxable year in the business of racing and breeding horses and of operating a farm. 2. A contribution to a fund for the purchase of insulin for use by a hospital in experiments for the cure of diabetes, held deductible.

Petitioner and his wife held title to real estate as tenants by the entirety. The property was mortgaged and petitioner and his wife were jointly and severally liable on the mortgage notes. Held: petitioner is entitled to deduct the full amounts so paid.

A state statute required the establishment of a trust fund equal to 10 per cent of the cost of a mausoleum as a condition precedent to the use thereof. The petitioner did not establish such a fund, but later borrowed a sum of money which it placed on deposit as a special interest fund. In the taxable year it repaid part of the loan. Hold that petitioner did not create a trust which would reduce income either by exclusion or deduction.

Gain on sale of stock rights by administrators pendente lite held to represent taxable income.

1. Allowances for exhaustion of patent and patent applications, acquired by petitioner in a transaction by which basis in hands of original owner is carried over, should be computed upon the basis of value thereof as of March 1, 1913, which value was previously determined by this Board. 2.

No deduction is allowable for depreciation on trust property in computing a beneficiary's share of the distributable income of the trust estate where such depreciation deduction is not provided for in the trust instrument and is not required by the laws of the state having jurisdiction.

1. In 1918 petitioner sold timber upon semiannual payments covering nine years. A profit was realized, but was not reported in petitioner's income-tax returns. Respondent asserted deficiencies based in part upon said profit and treated the transaction as an installment sale. Petitioner paid the deficiencies for 1918 to 1921, inclusive, without protesting the installment method of taxation Held, petitioner can not now repudiate that method with respect to later years and insist that all the profits accrued in the year 1918. 2. In 1921 petitioner executed a lease of oil and gas lands, receiving from the lessee $50,000 in 1921 and a like amount in 1922 as advance royalty and additional compensation for executing the lease. Petitioner did not report the $50,000 as income in either year because of a condition subsequent in the contract. Respondent asserted deficiencies for both years, based in part upon treating the payments of $50,000 as income in each year. Petitioner paid the deficiency for 1921 without protest. Held, it can not now repudiate that method of taxation with respect to 1922 and insist that the entire $100,000 constituted accrued income in 1921. 3. Upon the facts, held that sundry adjustments in computing income tax should be allowed.

The petitioner in 1922 entered into an agreement to work for the Studebaker Corporation exclusively for a period of between four and five years. Held: that the agreement in question was essentially an employment contract and all that was realized therefrom by the petitioner constituted compensation for services.

Held, petitioner was taxable as a trust for the years 1922 and 1923.

1. Petitioner held to be an association taxable as a corporation for the years 1925, 1926 and 1927. 2. The reasonable allowance for depletion authorized as a deduction under the 1926 Act, in the case of oil and gas wells, is required to be equitably apportioned between lessor and lessee in case of leases.

Organization expenses which were capitalized upon incorporation in 1925 held not deductible in 1927, the year in which the corporation determined to liquidate, where the corporation is still in existence, owning and managing substantial property and assets.

A testator's will provided for the distribution of one-half of the "net interest and income" of the residue of his estate to petitioner's decedent. Held, no part of additional estate tax paid by the executor during the taxable year should be deducted from the gross income in ascertaining such "net interest and income" of the residue of the estate.

1. Commissioner valued decedent's interest in a partnership by including therein interest upon his capital investment and a share of the profits of the firm up to the time of his death, and the value, as of the date of death, of the right of his estate to receive a share of the profits for the remainder of the firm's fiscal year. The Commissioner's determination is sustained upon principle, and for lack of evidence that the right to share in subsequent profits had any value other than that determined. 2. Executor's commissions, although neither awarded by decree nor paid, held deductible from the gross estate where allowable by the laws of the jurisdiction in which the estate is being administered.

The testamentary trust herein is an estate within the meaning of section 23(c) of the Revenue Act of 1928 and is entitled to deduct inheritance taxes paid to the Commonwealth of Massachusetts.

The consolidated return filed by the petitioner and affiliated corporation for the fiscal year ended March 31, 1921, was the return required by law and was sufficient to start the running of the statute of limitations. The deficiency determined by the respondent held barred by the statute of limitations.

Net loss of a separate corporation for 1923 may not be deducted in computing consolidated net income for 1924 and 1925. Woolford Realty Co. v. Rose,286 U.S. 319, followed.

In April, 1925, petitioner caused a new corporation to be organized and thereafter during 1925 and 1926 the two were affiliated. Held: that in relation to 1924, for net loss purposes, the calendar year 1925 was petitioner's succeeding taxable year and the calendar year 1926 was the next succeeding taxable year.

Second Liberty loan bonds were purchased on the open market at less than par for a nonresident alien individual not engaged in business in the United States.

The credit for foreign taxes allowed by section 238(a) is a credit to be applied against the United States income tax computed after allowance for deductions permitted, including net loss deductions. Where, after allowance of such deductions, including net losses, no tax is due, there is nothing against which the taxpayer can apply the Cuban income tax as a credit.

Respondent's determination of depreciation on petitioner's casinghead gas plant upon the straight-line rather than the unit-of-production method is approved.

The Commissioner has failed to show that the petitioners are liable as transferees of property of the taxpayer.

Petitioners acquired a one-third interest in a partnership for $90,000. Held, that such payment is not deductible from income, either as an ordinary and necessary business expense or as a loss. Held: that such payment is not deductible from income, either as an ordinary and necessary business expense or as a loss.

1. The legal character of transactions covered by a written contract is determinable from the operative provisions of the contract, which prevail over the less clear recital. 2. Held: that the shareholders received a dividend of $400,000 and sold their shares for $200,000; and did not sell their shares for $630,000.

1. The petitioner, a corporation, acquired certain coal leases, agreeing to pay royalties on all coal mined therefrom at the rate of 8 cents per ton, four-tenths thereof to one lessor and… Held: that the action of the Commissioner in allowing deductions as indicated was correct and should be approved. 2. Additional deductions from gross income on account of cash royalties paid, expenditures made for mine equipment and for officers' salaries and directors' fees, determined.

1. JURISDICTION - DEFICIENCY. - Where the deficiency letter sets forth that a deficiency has been determined and states the amount, the Board has jurisdiction, even though it is stated that the deficiency will be used to adjust and reduce an overassessment and overpayment by petitioner's husband under a community income-tax agreement. 2. CONTRACTS INVOLVING SALE OF PROPERTY IN SAME TRANSACTION SHOULD BE READ TOGETHER.

One member of an affiliated group bought shares of the capital stock of another affiliate and later sold some of the shares at an advance over the purchase price. Held: no taxable gain resulted from such sale. Farmers Deposit National Bank,5 B.T.A. 520, followed.

The business Corporation Act of Louisiana of 1928, after prescribing the procedure for dissolution of corporations, provides that upon filing a certificate of dissolution the corporate existence shall terminate. No provision is made for continuing the corporate existence thereafter for any purpose. In this proceeding formal steps to dissolve were taken and certificate of dissolution was filed in 1930.

The petitioner was not entitled to assessment for 1917 as a business having no invested capital or not more than a nominal capital, as provided in section 209 of the Revenue Act of 1917, and was not a personal service corporation during the years 1918, 1919 and 1920 as defined by section 200 of the Revenue Act of 1918.

Petitioner exercised his option under article 225 of Regulations 65 to charge certain development costs to operating expense. Held: that such costs may not be capitalized to determine basis of gain or loss on sale of such property in a later year and after the statute of limitations has run against tax liability in the years in which deductions from income were taken for such expenditures.

Held, a net loss sustained by the petitioner's subsidiary in 1927 may not be added to the net loss of the same subsidiary for 1928 and allowed as a deduction in computing the consolidated net income… Held: a net loss sustained by the petitioner's subsidiary in 1927 may not be added to the net loss of the same subsidiary for 1928 and allowed as a deduction in computing the consolidated net income of the affiliated group for 1928. Woolford Realty Co. v. Rose,286 U.S. 319.

Where subsequent to the filing and adjudication of a first and final account, but prior to the determination of a deficiency in estate taxes which respondent proposed to assess against the beneficiaries as transferees, other assets came into the hands of the executrix of an estate, which funds were more than sufficient to satisfy the deficiency in taxes determined by respondent and which funds remained undistributed in the estate up to and after the date of the notice of…

The petitioners exchanged property for stock before Dec. 31, 1920. Held that the basis for computing profit upon sale of the stock is the fair market value of the property exchanged therefor.

1. Receipt of assets belonging to a taxpayer by a trustee in liquidation does not establish individual transferee liability. 2. Held: that the stockholders are not liable under section 280 of the Revenue Act of 1926 for income taxes due from the corporation. 3. The statutory liability of California corporation stockholders is not such a liability as may be asserted under section 280 of the Revenue Act of 1926.

1. In April, 1924, a partnership, consisting of three members owning equal shares, purchased a business and immediately transferred the… Held: that the Revenue Acts of 1924 and 1926 are applicable and that thereunder the basis to be used in the determination of gain or loss upon the sale of the merchandise and the basis to be used in computing depreciation deductions upon the fixtures transferred to petitioner is the cost of such merchandise and fixtures to the partnership.…

Where petitioner, a representative of a certain company, purchased an interest or participation in a syndicate organized by such company at a price less than the basis upon which such interests were sold to others, the reduction in selling price amounting to his customary commission on sales of such interests to others, held the difference between the usual selling price and the amount paid by petitioner is not taxable income to petitioner.

1. A partnership sold real estate under contracts providing for payment in installments and reported profit therefrom on the installment basis. Held: further, that commissions paid by the corporation based on a certain percentage of each payment collected should be deducted in computing net income where such commissions have not been taken into account in computing profit under the contracts. 2. Basis determined for depreciation on certain buildings.

Evidence held insufficient to establish that March 1, 1913, value of water-power site acquired prior to that date was in excess of its cost.

Special assessment denied.

A taxpayer invoking the provisions of section 240(d) of the Revenue Act of 1924, and section 240(f) of the Revenue Act of 1926, for the consolidation of its accounts with those of another corporation must show the necessity for the consolidation and a method of accurate distribution or apportionment of the income and expenses of the two companies engaged in related trades or businesses and owned or controlled by the same interests.

The testator by her will provided that trustees should hold property in trust, the income to be applied as specified, and at the end of a… Held: that when the petitioners herein, children of the decedent, received the property in question at the end of the trust period they received no new right, that their legal title related back to the date of death of the decedent, that the date of death of the decedent was the time of acquisition of the property by them within the…

1. Held, upon the evidence, that petitioner is not entitled to obsolescence deductions in the years 1925, 1926 and 1927 upon its banking property. 2. Held: upon the evidence, that petitioner is not entitled to obsolescence deductions in the years 1925, 1926 and 1927 upon its banking property. 2.

1. Petitioner was the settlor and also the trustee of a trust for his wife, but if he survived her the trust income was to be paid to him. Held: the trust income was taxable to the petitioner under section 219(h) of the Revenue Act of 1924. 2. Petitioner paid $25,000 for one-fifth the common stock of a corporation.

Held that the petitioner is not entitled to a greater allowance for earned income in the operation of a business school than 20 per cent of the net profit derived therefrom, the services of employees and the employment of capital having been material income-producing factors.

Petitioner in 1923 created a trust for the benefit of herself and the children of her husband (her stepchildren) making him trustee in the trust instrument and providing therein that should she… Held: (he being still alive) that the trust was revocable and in computing her net income for the years 1924 and 1925, the income therefrom should, under section 219(g) of the Revenue Acts of 1924 and 1926, be included.

1. The evidence failed to prove that in the taxable years an agreement of partnership existed between petitioner and her six children. 2. An earlier decision of the Board involving the same petitioner and the same general questions for previous tax years is conclusive as to the questions litigated for those years. The identical question having been involved, that decision is conclusive as to the construction of the will of petitioner's decedent.

Petitioner held not affiliated during the taxable years. Handy & Harmon v. Burnet,284 U.S. 136.

1. In computing deductions for alleged bad debts in 1920 petitioner charged off not only the debts ascertained to be worthless, but an additional sum sufficient to make up the difference between its… Held: such method was erroneous, and respondent properly disallowed such additional sum as a bad debt deduction. 2.

Held, that a certain transfer of corporate stock was not made in contemplation of death. Held: that a certain transfer of corporate stock was not made in contemplation of death.

1. The basis for computing profit from the sale of assets acquired in exchange for all of petitioner's capital stock is the cost of such property to the prior owner. Section 204(a)(8) of the Revenue Act of 1926. 2. Validity of section 204(a)(8) of the Revenue Act of 1926 upheld.

1. In 1928 petitioner held policies of insurance on the lives of its debtors, which policies had a greater face value but a lower cash surrender value than the amount of the debts. Held: further, that petitioner may deduct as a business expense the premiums paid on the insurance policies in the taxable year.

The petitioner and F. W. & M. L. Bell, Inc., held not affiliated under the Revenue Acts of 1926 and 1928, where less than 95 per cent of the voting stock of both corporations was owned by the same interests.

Upon the evidence, held that the partnership of Hind, Rolph & Company is not shown to have had no invested capital or not more than a nominal capital employed in its business in 1917 and is not entitled to have its profits tax for that year computed under the provisions of section 209 of the Revenue Act of 1917.

1. Where a corporate taxpayer purchased land and platted and improved the same, constructed homes thereon, leased the same to its common stockholders under a subscription for stock and lease… Held: such amounts are includable in taxable income, and the determination of respondent relative thereto is approved. 2.

1. The respondent's allowances for depreciation sustained in the absence of proof that the amounts are unreasonable. 2. Certain amounts paid to petitioner in 1921 and 1922 by two of its subsidiaries held to be distributions of profits. 3. A consolidated net loss sustained in 1921 may not be deducted in its entirety from consolidated net income of the same corporations in 1922, but must be apportioned in accordance with Swift & Co. v. United States, 38 Fed.(2d) 365. 4.

1. Filing of separate return for the year 1924 by one member of affiliated group held to constitute an election under section 240, Revenue Act of 1924, even though when return was filed the Commissioner's regulations and rulings, which denied the right to affiliation, were later repudiated and affiliation was admitted. Permission to change basis not having been obtained, right to include income of such member in consolidated return denied. 2.

Deductibility of (a) losses sustained upon sales of stock for nominal considerations and (b) had debts, determined.

Where an annuity was payable from the income and so much of the principal of the trust fund as may be needed or required from time to time, such annuities are a charge on the corpus of the trust and not taxable to the recipient.

1. Where annuities are payable from income or, if necessary, from the corpus of a trust fund created by a will and are thus a charge on the corpus and not taxable to the annuitants as income, such annuities are not allowable deductions from the income of the estate. 2. The evidence does not establish that any of the income of the trust was permanently set aside for certain possible ultimate charitable beneficiaries. 3.

Action of respondent in holding that a payment made by a corporation to its stockholder in the tax year was taxable income to him, sustained.

1. Payment of $100,000 made to petitioner by a corporation in virtue of his ownership of its capital stock held to be a taxable dividend and not a distribution of capital. 2. Under the facts the petitioner's taxable gain on stock sold in the taxable year is determinable under section 204(a)(6) of the Revenue Act of 1924, by using the cost of the assets exchanged by him for the stock, and not its par value when received. Newman, Saunders & Co. v. United States,281 U.S. 760.

The amount of certain advances made by petitioner in 1921 to its branch office in China, which it carried on its books as accounts receivable and charged off in 1923, held, upon the record, not to be… Held: upon the record, not to be shown to have represented a loss sustained in 1923.

Petitioner, in a "reorganization" within section 203 of the Revenue Act of 1924, received under the plan of reorganization bonds and certificates of indebtedness of the new corporation in place of bonds held by it in the old, these securities being of less face value than those surrendered. Held, that petitioner sustained no deductible loss upon the exchange and is not entitled to a deduction of the difference in face value of the securities under section 234(a)(5) as a debt ascertained to be partially worthless.

Expenditures connected with procuring and accomplishing a long-term lease should be prorated over the term of the lease.

1. Where the respondent determined that the petitioner kept his books on the cash receipts and disbursements basis and the evidence does not show that they were kept on the accrual basis, held that… Held: that the loss sustained by him as the result of the stock having become worthless does not constitute a net loss.

Where two affiliated corporations elected to file separate returns for the years 1925 and 1926, they may not, without permision of the Commissioner, file a consolidated return for 1927, even though in the taxable year two other corporations were added to the affiliated group.

Debts claimed as worthless in the taxable year were uncollectible in a prior year.

1. The net losses of affiliated corporations for 1922 may not be used as a consolidated net loss of the affiliated group to be carried forward as a unit and applied against the consolidated group net income of the succeeding year 1923. 2.

1. The decedent established a trust, the corpus of which was shares of stock in two companies. Some of the shares were at the time pledged as collateral for loans made to decedent by a number of banks. The trust instrument provided that the income from the corpus of the trust should first be used to discharge such bank loans and certain unsecured obligations for which the decedent was personally liable, and should decedent during should his lifetime liquidate said indebtedness or after his death should his estate pay said debts, the income of the trust should be used to reimburse either decedent or his executors as the case might be, The indebtedness remaining unpaid at the time of decedent's death was paid by the executors of his estate. Held that the amount of the indebtedness paid by the executors is deductible from the gross income of the estate as a claim against the estate, and that the claim of the executors against the trust arising out of the payment should be included in the gross estate at a value of $38,181.38. 2. The right of decedent's estate to share in the profits of a partnership for an agreed period subsequent to his death constitutes property subject to be included in the gross estate.

1. Section 204(c) of the Revenue Act of 1924 held not to be unconstitutional because of its retroactive provisions. 2. In 1923 an affiliate of petitioner exchanged its stock for property in direct proportion to the transferors' interests in the asset, 85 per cent of the interests transferred having been acquired by the transferors without cost and the remainder at a cost of $52,314.31.

Where in 1920 the Commissioner made a specific ruling that taxpayer was a trust, taxable as such, and sent personal written notice of such ruling to taxpayer, the ruling was not reversed or revoked by various court decisions, departmental rulings or interpretations general in character. Such a ruling was not revoked prior to the receipt by taxpayer of a specific notice of revocation in 1927.

1. The respondent's determination of the value per cord on March 1, 1913, of petitioner's timber is sustained. 2. Held: that the petitioner is not entitled to deduct from gross income for 1917 legal expenses incurred by it in defense of its president in a criminal proceeding and of itself and its president in an equity proceeding, all of which arose from their connection with and participation in the activities of a certain organization which was…

Loss resulting from abandonment of a mining development determined and allowed.

1. Held, that petitioner was not domiciled in the State of Texas during the taxable years. 2. Held: that petitioner was not domiciled in the State of Texas during the taxable years. 2. The fact that petitioner forgot to file the tax returns of herself and her husband is not a reasonable cause for failure to perform such an important act, and does not relieve taxpayers of penalties for delinquent filing.

Where petitioner received deficiency warrants from the State of Texas and its political subdivisions in payment for machinery, and used such warrants as security in obtaining a loan, the interest paid on such loan constituted a deductible expense, and was not paid on indebtedness incurred to carry obligations or securities the interest upon which is wholly exempt from taxation.

1. Good will paid in to petitioner without consideration may not be included in invested capital. Herald Despatch Co.,4 B.T.A. 1096. 2. Held: further, that the claim for deductions was not timely filed.

1. During 1925 petitioner's decedent paid $20,000 to a broker as commission for negotiating a 99-year lease of certain real estate then owned by decedent. Held: in computing tax liability for 1925, the amount of the commission so paid should be spread ratably over the life of the lease according to its terms and an aliquot portion allowed as a deduction in the taxable year. Central Bank Block Association,19 B.T.A. 1183; affd., 57 Fed.(2d) 5. 2.

The amount advanced by petitioner to her son and nephew for the purpose of facilitating liquidation of the latter's partnership business, held, on the record, not to be a deductible bad debt. Held: on the record, not to be a deductible bad debt.

Where petitioner, a corporation, was organized in 1920 and in same year acquired a tract of land for cemetery lot purposes from another corporation and gave in payment therefor 10,000 shares of its common stock of a par value of $10 per share, and immediately thereafter such other corporation was in control of petitioner, the basis of cost for determining the profit on sales of cemetery lots by petitioner in the taxable years 1925 and 1926 is governed by section 204(a)(7) of…

1. STATUTE OF LIMITATIONS. Collection from transferees of tax asserted against a corporation, dissolved on September 17, 1917, under provisions of the Revenue Act of October 3, 1917, for part of year… Held: petitioner Roth is not liable as a transferee of the dissolved corporation because he was never a stockholder thereof and received no assets upon dissolution.

1. Under section 704(a), Revenue Act of 1928, petitioner held not taxable as an association in 1920 and 1921, having filed returns as a fiduciary and, because beneficiaries had not retained… Held: further, that, since the trust instrument required periodic distributions of income, under provisions of section 219(a)(4), Revenue Act of 1918, and (d) of same section, Revenue Act of 1921, the income of trust for 1920-1921, whether distributed or not, is taxable to beneficiaries.

1. Ethel Hopkins McLarry,8 B.T.A. 1257, and Laura Rumsey McMicken,10 B.T.A. 302, holding that the earned income of the husband in a community property state is not earned income of the wife, followed. 2.

Purchase of bank stock made by petitioner held to be an investment, rather than an expenditure made for the purchase of assets of a going business, or for the protection of petitioner's own business, or to eliminate a competitor, on which loss was sustained upon liquidation of the bank in the amount of the difference between the cost of the stock and the amount received upon liquidation.

Debts, ascertained to be worthless upon liquidation of debtor corporation, and charged off, allowed, reduced in part by a collection which creditor is assumed to have made, as a deduction, since the liquidation terminated the affiliation previously existing and the losses resulted from the liquidation and occurred outside the period of affiliation.

Payments of alimony by a resident alien to his divorced wife residing in Holland from income arising in the Kingdom of the Netherlands are not deductible in determining net taxable income of the resident alien in the United States, although such payments may, under the Netherlands income tax act, be allowable as deductions in that country.

Where certain property was subject to a general power of appointment and the power was exercised by the donee of the power, such property should be included in the taxable estate of decedent donee.

A reserve which is set up in the taxable year to cover a future liability is not deductible in determining net income for that year where it appears that the claimed deduction represents an estimate of the amount which petitioner may have to pay at some time during the following year and no definite liability has been incurred in the taxable year. William J. Ostheimer,1 B.T.A. 18, followed.

1. Affiliation denied for the period January 1 to May 24, 1926. where less than 95 per cent of the stock was owned by the same interests. 2. Upon the evidence the petitioner is not entitled to any redetermination of its tax liability under the provisions of section 240(f) of the Revenue Act of 1926.

Petitioner reported its income upon the calendar year basis. In July, 1925, there was organized a new corporation which immediately became affiliated with the petitioner. Held: that with relation to 1923, for net loss purposes, the calendar year 1924 was the petitioner's succeeding taxable year and the calendar year 1925 was the next succeeding taxable year.

The petitioner, incorporated under the laws of the State of Texas on April 19, 1922, became affiliated on that date with the Newblock Oil Company, a Delaware corporation, which was organized in 1920 and on April 19, 1922, acquired the entire stock of the petitioner in consideration of the transfer to it of certain Texas property which was thereafter owned and operated by the petitioner to December 31, 1922, and from which it realized a net income during said period. The Delaware corporation operated at a net loss in 1921 and also during 1922 prior to the date of affiliation, and also from said date to December 31, 1922. It filed a consolidated return for the calendar year 1922, including in its own operations for such year the operations of petitioner from date of its incorporation to December 31, 1922. Held, that a single consolidated return for the calendar year 1922 was all that was required. Held, further, since a consolidated return for the calendar year 1922 was all that is required and the net losses of the Delaware corporation in that year exceed in the aggregate the net income for said year of the petitioner (the Texas corporation), there is no consolidated net income and hence no deficiency in tax.

A corporation, a member of an affiliated group, sustained a net loss for 1925 which was in part absorbed in determining a consolidated net loss for 1925. Held: that the unabsorbed portion of the net loss for 1925 may not be carried forward and allowed as a deduction in computing net income for 1927.

Where a proceeding brought by the transferors was dismissed on motion of the transferors, the deficiency as determined by the respondent being approved, and no hearing held on the merits, the transferee, in a proceeding brought under section 280 of the Revenue Act of 1926, is not precluded from having such deficiency redetermined. Wayne Body Corporation,22 B.T.A. 401, followed. Petitioner's liability determined in accordance with stipulation.

Held, that the trust here involved was not intended to take effect in possession or enjoyment at or after decedent's death, within the… Held: that the trust here involved was not intended to take effect in possession or enjoyment at or after decedent's death, within the purview of section 302(c) of the Revenue Act of 1926, and that the respondent erred in including in the decedent's gross estate the value of the corpus of the trust, less the estimated present value of the…

Held that dividends were constructively received and should be reported as income by taxpayer during the taxable year.

1. The petitioners owned the capital stock and were directors of Green's Advertising Agency. Held: the surplus so distributed was impressed with a trust and under section 280 of the Revenue Act of 1926 petitioners are liable for the deficiencies in income tax here asserted. 2. Petitioners made an offer in compromise accompanied by their checks for the amount so offered.

1. INCOME - TRUST REVOCABLE BY TRUSTEE ONLY - IRREVOCABLE AS TO GRANTOR OF THE TRUST PROPERTY. Held: gains and profits resulting from a sale of the trust corpus in 1928 are taxable to the trust and not to petitioner, because such gains and profits were not income to petitioner as the grantor of a revocable trust within the meaning of section 166 of the Revenue Act of 1928. 2. INCOME TO BE PERIODICALLY DISTRIBUTED.

1. DEDUCTION - LOSS. Held, no deductible loss was sustained on asserted abandonment of real estate, where taxpayer held title throughout tax period and… Held: no deductible loss was sustained on asserted abandonment of real estate, where taxpayer held title throughout tax period and no identifiable event occurred therein by which the asserted loss became a closed transaction. A. J. Schwarzler Co.,3 B.T.A. 535, followed. Brumback v. Denman, 58 Fed.(2d) 128, distinguished. 2.

Legal expenses incurred by taxpayer, the heir of a large estate, in prosecuting litigation whereby a large sum was recovered by the estate and petitioner's distributive share of the estate… Held: not to represent an expense incurred by the taxpayer in carrying on business and consequently not deductible under section 23(a) of the Revenue Act of 1928.

Interest received by the petitioners from New York City on a condemnation award is not exempt from tax under section 22(b)(4) of the Revenue Act of 1928, as such award is not the character of obligation meant in said section. (Kansas City Southern Railway Co.,16 B.T.A. 665; affd., 52 Fed.(2d) 372, followed.)

1. Where an affiliation occurs to break up a taxable year into shorter taxable periods, neither of which is taxpayer's first or last accounting period, such periods are not to be treated as separate taxable years, but taxpayer's income is to be determined upon the basis of a twelve-month period. 2.

The value of certain securities transferred by the taxpayer to his son to be pledged with a broker as security for the son's stock-trading account, which were sold by the broker and the proceeds applied on the son's indebtedness, leaving the latter hopelessly insolvent, held, on the record, not to represent a worthless debt deductible by the taxpayer under section 214(a)(7) of the Revenue Act of 1926.

Held, that the petitioner is not entitled to have the profit from the sale of real estate sold during the taxable year taxed as a "capital net gain."

In the taxable years petitioner credited the checking accounts of its stockholders with sums for the payment of taxes assessed against their stock of petitioner. The taxes were paid by the shareholders, none of whom have ever reimbursed petitioner for any part of the sums credited to their accounts.

Transactions in 1926 and 1927 between a corporation and certain stockholders, wherein the corporation paid par value to such stockholders for its own preferred stock, which it had issued in 1923 as a stock dividend, held actual sales by the stockholders to the corporation and not a distribution by the corporation of a taxable dividend under section 201(g) of the Revenue Act of 1926.

Respondent's action, in disallowing certain amounts as deductions for interest, sustained, where the evidence shows that the obligation in connection with which it is claimed the amounts were paid was not an obligation of the petitioner but was an obligation of its stockholders.

Decedent, until his death on November 11, 1927, was a special partner in a limited partnership. His death did not work a dissolution of the firm. Held: income of the partnership allocable to the decedent to the date of his death should be included in the income-tax return filed in his behalf for the period January 1 to November 11, 1927.

In 1917 petitioner entered into a contract for the cutting of timber owned by her. Held: the transaction was not an exchange of property resulting neither in gain nor loss but that the stock formed part of the consideration and constituted taxable income in 1921.

Corporations were actually affiliated for three years but filed separate returns for the first two years and a consolidated return for the third. Held: no part of B Company's losses for the first two years is deductible in computing the consolidated net income of the third year.

Where petitioner corporation had acquired assets of a partnership in consideration of assumption of its liabilities, which firm, in turn, had secured assets of an earlier partnership upon a like consideration, and petitioner had reimbursed members of the original partnership for attorney fees paid by them in defending asserted income-tax deficiency for 1917 against the original partnership, held, reimbursement was either voluntary payment of the debt of another or a capital expenditure and not an ordinary and necessary expense of doing business, deductible by petitioner corporation under section 234(a)(1) of the Revenue Act of 1926.

1. Consolidated invested capital determined. 2. Petitioner held not entitled to any deduction for obsolescence of a Boss burning system and steam drying equipment which had been used in connection with the plant and clay lands purchased by the petitioner, but were in the process of being dismantled at the time the purchase was made.

Ownership of stock and profit on sale of stock determined.

An amount paid by the petitioner to a retiring partner in connection with the acquisition by the petitioner and her husband of such retiring partner's interest in a partnership, of which they were all members, held to be a capital expenditure and as such not an allowable deduction in determining taxable net income.

"Actual cash value" of an option, paid in for capital stock, determined for invested capital purposes.

It not appearing that the trust or the transfer of property thereunder was intended to take effect in possession or enjoyment at or after settlor's death, the corpus of the trust property should not be included in the taxable estate of decedent (settlor) under section 302(c) of the Revenue Act of 1924.

1. Cost of securing a long-term lease should be spread ratably over the term of the lease. 2. On the facts consolidation of accounts is denied.

A partnership made its tax returns on the basis of a fiscal year ended August 31. A member of the firm who used a calendar year basis died June 11, 1924. Held that the executors or deceased member should include in their income-tax return for the period January 1, 1924, to June 11, 1924, a pro rata part of the earnings of the partnership up to the date of the member's death.

Difference between amounts advanced by petitioner to subsidiary corporation and amounts received in repayment prior to and upon liquidation thereof, held to be a loss sustained outside period of affiliation and deductible, either as debt ascertained to be worthless and charged off, or as loss upon investment in stock of subsidiary.

Petitioner sustained a net loss in 1925, and on May 5, 1926, became affiliated with another corporation through purchase of stock. Held: that the years 1926 and 1927 constituted the petitioner's succeeding taxable year and next succeeding taxable year, respectively, and that it is entitled to deduct its 1925 net loss in computing net income for said years.

Where in 1923 the losses of affiliated corporations exceeded the income of the group, the excess of loss must be apportioned to the losers and the statutory net loss of each computed separately. swift & Co. v.United States, 38 Fed.(2) 365. The separate statutory net loss of each may offset the net income of that company for 1924. But 1924 income of companies having no statutory net loss for 1923 may not be offset by the statutory net loss for 1923 of other companies in the group.

Where the owners of the entire capital stock of a corporation contracted to sell their shares of stock for $400,000, and before the contract was completed or performed an alleged dividend of $103,919.40 was declared and ordered paid by the directors of the corporation, but on account of lack of available funds to pay it the purchasers of the stock paid said sum into the treasury of the corporation at the request of the stockholders and were given credit therefor as part of…

1. In his allowance of depletion on oil and gas producing property of petitioner the respondent designated a stated amount as allowed on cost and the remainder on discovery value, the amounts allowed on cost for some of the years being based on cost to petitioner's assignor instead of fair market value at the time of acquisition. Where allowances were made on discovery value, the basis included such cost. In a recomputation made to ascertain the amount previously allowed for depletion on cost the respondent used the original allowance in cases where depletion sustained on the correct basis was in excess thereof, and in cases where the original allowance for both cost and discovery value was in excess of the amount which should have been allowed on cost, the amount originally allowed on cost was increased to the amount allowable. Held that the respondent's recomputation reflects the amount previously allowed on cost within the meaning of section 202(b) of the Revenue Act of 1924. 2. The petitioner having elected to treat certain items as expense deductions under the option granted by the regulations, such costs may not be capitalized to increase the cost basis in computing gain on a sale of the assets in a later year. W. R. Ramsey,26 B.T.A. 277, followed.

A widow electing under the laws of Connecticut to take under her husband's will in lieu of dower is taxable on her profit represented by the excess of the aggregate annuity payments received under the will over the value of her dower interest at the date of her husband's death.

Prior to 1923 petitioner sold its products for cash or on sight draft and followed the method of charging off debts ascertained to be worthless. For 1928 it used the reserve method. Held: as permission to change methods had not been granted by respondent, petitioner is not entitled to deduct additions to a reserve for bad debts.

Each of the petitioners created a trust in which his children were beneficiaries and in which the grantor and the other petitioners were trustees. Power was reserved to revest the corpus in the grantor upon the concurrence of all four trustees.

Attorney fees paid in defense of a suit instituted against petitioner held to be deductible as a business expense.

Affiliated corporations each had a net loss in 1923 and a net income in 1925. Income of the group for 1924 was absorbed by net losses for 1922. The respondent in computing consolidated net income for 1925 allowed as a deduction the consolidated net loss for 1923. Held that only the net loss of each company for 1923, separately considered, may be carried forward and deducted in computing its income separately for the year 1925.

Held, that certain payments made to field representatives of the petitioner were compensation for services rendered in soliciting and securing new business and that the amount of such payments in the… Held: that certain payments made to field representatives of the petitioner were compensation for services rendered in soliciting and securing new business and that the amount of such payments in the taxable year is deductible from income as ordinary and necessary expenses.

Additional amounts paid to the petitioners by a corporation of which they were all officers and directors, to reimburse them for the amount of State and Federal income taxes paid by reason of the salaries received from the corporation, held to be income to them. Old Colony Trust Co. v. Commissioner,279 U.S. 716.

In computing the tax due under a single joint return filed by husband and wife, each should be treated as an individual taxpayer in applying the provisions of section 118 of the Revenue Act of 1928 to purchases and sales of stock.

1. Under section 113(a)(5) of the Revenue Act of 1928, the basis for determining gain or loss on the sale of personal property acquired by will, upon the termination of a trust, is the fair market value of the property at the time of the distribution to the taxpayer in 1925. 2. In determining the 15 per cent deduction for contributions within the purview of section 23(n) of the Revenue Act of 1928, the taxpayer having realized a capital net gain during that year and having elected to have that gain taxed at the rate provided in section 101(a) of the Revenue Act of 1928, the amount of the capital net gain should be excluded from the amount of the taxpayer's ordinary net income.

1. A distribution among shareholders of a greater number of new shares in exchange for old may be as much a stock dividend as a distribution of new shares in addition to the old, which are retained. 2. Sec. 201(g), Revenue Act of 1926, is a special provision, and is not applicable arbitrarily to every cash redemption of shares issued as a stock dividend, but only in accordance with its terms to such cancellation and redemption as, by reason of its particular circumstances in time and manner, is essentially equivalent to a taxable dividend.

On January 23, 1923, a corporation declared a dividend, payable February 10, 1923, to stockholders of record on January 26, 1923. Held: neither under the law of corporations nor by the terms of the contract of sale did the dividend belong to the investment company and petitioner is taxable on same, as income received.

1. The taxpayer leased all of its properties for $300,000 annual rental, the lessee, a stockholder, to pay the rental directly to the stockholders of the lessor. The entire rental was income to the lessor. American Telegraph & Cable Co.,2 B.T.A. 991, followed. 2. A taxpayer has no excess-profits-tax liability where facts show that although its exact invested capital is unknown it had sufficient invested capital at least to give it a credit in excess of its income.

Where the petitioner corporation owned all the capital stock of three corporations and wxchanged such stock in 1923 for all the capital stock of a newly organized corporation, which thereupon surrendered the stock of the three respective corporations for cancellation and took over all of their assets in liquidation, held, the basis for computing depreciation in 1927 on the assets in the hands of the transferee corporation is the same as it would be in the hands of the transferors, under the provisions of section 204(a)(7) and (c) of the Revenue Act of 1926.

1. Petitioner held not entitled, under the provisions of section 206(b) of the Revenue Act of 1926, to deduct in 1926 the net losses of predecessor corporations for 1925. 2. In 1926 petitioner took over certain assets for which it issued its stock to the transferors. No question of gain or loss is involved. Held, that petitioner's depreciation basis with respect to said assets is the cost of the assets to the transferors, without diminution for prior accumulated depreciation up to the date of transfer. Held, further, no depreciation allowable with respect to assets whose cost had been fully consumed by depreciation allowances prior to the transfer to petitioner.

1. Petitioner issued deferred dividend life insurance policies. Held: such voluntary payments did not constitute interest paid upon indebtedness under the statute and are not deductible from gross income. 2.

The respondent's determination of the amount of the credits to which the petitioners are entitled for the purpose of computing normal tax on account of dividends received by them from an estate in which they each had a one-fourth beneficial interest is sustained.

1. Collection of the deficiency proposed against Paul H. Quinn for 1918 held not to be barred by the statute of limitations. 2. On the evidence held that the three petitioners Quinn acquired interests in an oil lease in 1917 by purchase. 3.

INCOME. Held, that the sale of the assets of the petitioner corporation resulted in taxable gain to the petitioner and was not a sale of property by its stockholders as individuals. Held: that the sale of the assets of the petitioner corporation resulted in taxable gain to the petitioner and was not a sale of property by its stockholders as individuals. Taylor Oil & Gas Co., 47 Fed.(2d) 108; Hellebush et al., Trustees,24 B.T.A. 660, followed.

The petitioners, as sole stockholders of the taxpayer corporation, distributed to themselves practically all of its assets in 1925, leaving the corporation without assets of value. Held: that they are liable as transferees for the unpaid taxes of the corporation for 1925 to the extent of the assets received by them.

1. Petitioner leased certain land for 99 years and, subject to such lease, sold the building situated thereon. Held: that under the terms of the instruments there was a lease of the land and building for 99 years for which petitioner received a bonus of $186,269.46. 2. Commissions paid by a lessor to secure a 99-year lease on property owned by him are capital expenditures, which must be amortized over the term of the lease. 3.

1. Minnesota property taxes which become a liability on May 1 are not deductible by the petitioner, although paid by it, where the property taxed was not acquired until June. Held: that the amount actually paid should be deducted.

Attorneys representing the superintendent of banks of the State of Georgia in legal matters pertaining to insolvent banks, under a contract prescribing minimum and maximum retainer fees for each insolvent bank handled plus commissions paid for collecting debts due the banks, were not employees within the law exempting compensation paid to an officer or employee of the state or political subdivision thereof.

The petitioner, a lessor of oil property, held to be entitled to depletion on sums received on his one-third interest in the profits from the lessee's operations in addition to depletion on his 3/32 royalty interest.

1. Attorney fees and amount paid by the trustee in compromise and settlement of a lawsuit involving the trust and trust property held necessary and proper expenditures by the trustee under the trust… Held: such payment was made from the distributable net income of the trust and was taxable to the beneficiaries.

A redemption in 1928 of stock owned by petitioner held not to have been made under circumstances essentially equivalent to the distribution of a taxable dividend so as to make the whole amount distributed in redemption of the stock taxable as a dividend under the provisions of section 115(g) of the 1928 Act.

Petitioner and her husband bought real estate in 1923, each paying one-half the purchase price. They took title as joint tenants. The husband died in 1926. Thereafter petitioner sold the property. Held: the proper basis for determining taxable gain to petitioner is one-half the purchase price of the property, plus one-half its fair market value at the time of the death of the cotenant.

1. Petitioner held to be engaged in business as a trader in securities, having devoted considerable time to such activities for the purpose of deriving profits therefrom, consummated numerous transactions of purchase and sale, borrowed money, and maintained an officer from which her activities were carried on, and the loss sustained resulted from the operation of a trade or business regularly carried on. 2.

Interest paid by the city of New York on a condemnation award and received by petitioner as life beneficiary of a trust is not exempt from income tax under section 213(b)(4) of the Revenue Act of 1926.

Stock dividends upon stock held by the petitioners effect a dilution of such shares and thereafter petitioners' capital interest in the corporation is evidenced by a larger number of units or shares. Subsequent dispositions of such shares to the life beneficiary pro rata reduce the petitioners' capital interest in the corporation and the basis for determining gain or loss upon subsequent sales of the stock. The respondent's determination of gain upon the sale of such stock by the petitioners sustained.

Held, on the record petitioner is not proven to be liable as a transferee. Held: on the record petitioner is not proven to be liable as a transferee.

The petitioner is not an association taxable as a corporation.

Petitioner is not an association taxable as a corporation.

In 1927 claim was filed against the petitioner for excessive commission charges paid under a contract for the sale of goods. After negotiations, and without admitting liability for any amount, in 1928 the petitioner agreed to a compromise adjustment of the demand. Held that the amount for which the claim was adjusted is deductible in 1928.

1. Held that the Crocker First National Bank of San Francisco is the transferee of the assets of the First National Bank of San Francisco and that the Board has jurisdiction to determine its liability for the taxes of the latter company for the years 1924 and 1925. 2. Held that since the deficiency notice is not a notice to the other two petitioners, the Board does not have jurisdiction of the proceeding in so far as it relates to them. 3.

1. Intangibles allowable for invested capital purposes under section 326(a)(4) of the Revenue Acts of 1918 and 1921, determined. 2. Where a taxpayer voluntarily changes its accounting period from a fiscal year basis ending January 31 to a calendar year basis, held, that a net loss sustained in the 11-month period ended December 31, 1921, the period preceding the first calendar year, may not be availed of under the provisions of section 204 of the Revenue Act of 1921 in determining net income subject to tax for the calendar year 1922.

Where in Massachusetts a trust estate was created under the terms of which the wife of the testator was given the net income therefrom during her life and upon his death she elected to take under the… Held: that she was not liable for income tax on amounts paid her by the trustees under the trust until there was thus returned to her amounts in excess of the value of her statutory interest at the date of her husband's death.

Interest received by a holder of the obligation of a private corporation, which interest was payable out of interest received by such corporation or its trustee from a state, is not excluded from gross income under section 213(b)(4), Revenue Acts of 1924 and 1926.

Held, that petitioners are liable as transferees. Held: that petitioners are liable as transferees.

Petitioner, having filed an original return for the taxable year 1928 on the accrual basis, is not entitled to have its tax liability computed upon the installment sales basis as shown by an amended return subsequently filed.

1. The value of property acquired by the decedent and his wife as tenants by the entirety prior to the effective date of the Revenue Act of 1916 is within the gross estate. Held: only one-half of the balance due on the mortgage bonds at decedent's death should be included in the gross estate.

Where assets were transferred to a corporation for its stock, and upon receipt of the stock it was retransferred for cash, all being done pursuant to an agreed plan of organization, held, the steps… Held: the steps necessary to carry out the agreement constituted a single transaction in determining the basis for computing depreciation.

1. DONATIONS. Petitioners received donations for construction of facilities and entered into contracts with the donors providing for the refund of the donations on the basis of the amount of revenue… Held: further, that commissions paid on the sale of such bonds may not be amortized and no deduction therefor is allowable in the taxable years. 9. OPERATING EXPENSES - BASIS FOR CHARGING MATERIALS AND SUPPLIES.

1. INCOME - RECEIVER - ACCUMULATED FOR UNASCERTAINED PERSONS. Where income from royalties is impounded in the custody of a court receiver during litigation to determine the unknown heirs of the original owner, the receiver is a fiduciary and under section 2(b), Act of 1916, and section 219, Acts of 1918 and 1921, should file returns and pay the income taxes thereon. And when said funds are released and paid to the beneficiary determined by the court to be entitled to receive them, they are not income taxable to the beneficiary in that year. 2. DEPLETION. The basis for depletion is the cost of the property and not its appreciated value except where depletion is allowed on a discovery basis. United States v. Ludey,274 U.S. 295.

Where a taxpayer on the cash basis has consistently followed the practice over a long period of years of excluding from his return income which he did not receive in such years, but which he could have received had he so desired, he may not invoke the doctrine of constructive receipt when such income is actually received and thus have the income placed in a year where a tax thereon may not be collected.

During 1920, while married and a resident of Texas, petitioner entered into an oral contract to prosecute a lawsuit, and receive compensation therefor… Held: that under the community property laws of Texas, since the right to the fee received by petitioner had its inception during the existence of the community, the fee when received was impressed with the character of community property and belonged one-half to petitioner, and one-half to the estate of his deceased wife.

The compensation in the form of fees received by the petitioner as master in chancery of the Superior Court of Cook County, Illinois, a statutory office, is not includable in gross income subject to the Federal income tax.

Held, that the trust involed was not an association taxable as a corporation. Held: that the trust involed was not an association taxable as a corporation.

1. CORPORATION - DISSOLUTION. Where a corporation was dissolved and under the laws of the State of Washington its assets were turned over to trustees in dissolution for liquidation and distribution,… Held: this does not constitute a distribution to or a receipt of assets by the stockholders. Wells Fargo Bank v. Blair, 26 Fed.(2d) 532, followed. 2.

Where the grantor of a trust reserved the power to revoke the trust and revest in himself title to the trust property upon giving notice of his intention to the trustees within the first fifteen days… Held: such notice not having been given, the income of the trust is not taxable to the grantor under section 219(g) of the Revenue Act of 1926.

1. Various expenditures incident to incorporation, a bond issue, and erection of a hotel held not deductible in full in the year made. 2. Other expenditures made to hasten the erection of the new building held not deductible in full from income of the period prior to the estimated date for completion of the building without such expenditures.

Payments made by petitioner during the taxable years on its subscription to stock of a nonprofit corporation, organized for the purpose of increasing the retail sales of local merchants, including petitioner, through industrial development of the contiguous trade territory, held deductible from gross income as business expense.

Where the decedent in 1926 and 1928 purchased on margin through a broker at various times sundry lots of stock of United Gas Improvement Company, and in 1928 sold through the broker a portion of the stock thus held on margin, the respondent's determination that he sold those first acquired is approved.

Gain derived by petitioner upon maturity of endowment insurance policy issued prior to March 1, 1913, determined. E. A. Armstrong,1 B.T.A. 296, followed, except as modified by Lucas v. Alexander,279 U.S. 573, holding that value of policy as of March 1, 1913, shall be determined by adding to reserve established by company to meet its liability on policy during the policy year including March 1, 1913, the dividend accumulations provisionally apportioned to the policy as of that date.

Where a corporation took out insurance policies in 1916 and 1921 upon the lives of its officers who were also stockholders, made itself the beneficiary of the policies, and paid the premiums thereon… Held: no loss was sustained by the corporation upon the sale of the policies. Standard Brewing Co.,6 B.T.A. 980, followed.

The profit realized by the petitioners in 1928 under the sale of whiskey previously manufactured from permits, held to be taxable as ordinary income.

1. Decedent created an irrevocable trust in 1903, under the terms of which she received the income for life. Upon her death part of the corpus was to be distributed to named beneficiaries and the balance was to remain in trust until the death of the grantor's husband or until her children reached a specified age, whichever occurred later, whereupon the trust was to terminate and the property be distributed to the children or their heirs. Held, following May v. Heiner,281 U.S. 238, that under the Revenue Act of 1921 the value of the trust property may bot be included in gross estate. 2. At the time of decedent's death she held certain unmatured notes which, by their terms and the terms of a contract executed at the same time, were payable only in the event she was alive on the due date, and, if not, then all obligation of the maker was to cease. Held, that such notes may not be included in gross estate.

On April 1, 1926, petitioner acquired the stock of a subsidiary in exchange for its stock. On April 12, 1926, it was voted to dissolve the subsidiary, and on April 30, 1926, dissolution and liquidation were effected, the assets of the subsidiary being distributed in kind to the petitioner. Held that the acquisition of assets was "in connection with a reorganization" under section 204(a)(7) of the Revenue Act of 1926 and that in computing gain or loss on the sale thereof petitioner's basis is cost to the transferor.

Purchase of stock for cash and preferred stock of the purchaser, followed by redemption of the preferred stock for cash and the liquidation of the companies the stock of which was so purchased - all within the year - does not constitute a reorganization, but the liquidation is a transaction on which gain or loss is recognized and the acquiring corporation may use cost to it of the properties acquired in liquidation as the basis for computing depreciation and depletion.

1. The sale in 1920 by the L.E. & W.R.R. Co. of its shares of the N.O. Ry. Co., its leasehold interest in that corporation's properties, and its claims against that corporation for advances, resulted in no deductible loss, as there was no statutory basis for such loss, and the claim was worthless prior to the taxable year. 2.

1. A decedent's statutory gross estate includes property transferred by decedent in trust during his life, the income from which was payable to decedent, but the corpus of which was to be paid to another upon decedent's death if such other survived decedent, or to decedent if he survived the other. Revenue Act of 1924, sec. 302(c). 2.

1. Petitioner received deficiency warrants from states, counties, municipalities and townships in payment for metal culverts. Held: in the circumstances shown, that petitioner borrowed money, using the warrants as collateral security. Held, further, that amounts paid as interest to the bank in the taxable years were not paid on indebtedness incurred to carry tax-exempt securities. 2.

1. Losses sustained by petitioner, upon sales of securities to a trust, allowed as deductions from income. Lee B. Foster,22 B.T.A. 717, followed. 2.

The three stockholders of the petitioner corporation, who were also its officers and directors, authorized the sale of corporate real estate to petitioner's president, who had procured a purchaser… Held: that, in substance, under the law of Pennsylvania, the sale was made by the corporation and the profit realized thereon is taxable to the corporation.

Where a corporation is a member of an affiliated group for part of a taxable year and its income for such part of the year is included in a consolidated return filed by a parent corporation, and files a separate return including income for the fractional part of the year during which it was unaffiliated, it is only entitled on its separate return to a pro rata part of the specific credit allowed corporations for a taxable year.

1. Petitioner, keeping its books of account upon the basis of a fiscal year ended September 30, was required to file income-tax returns upon the fiscal year basis. 2. Held: that in restating the account the respondent should have determined the deficiency upon the basis of its fiscal year ended September 30, 1926.

Attorney fees paid by corporations A and B in connection with the sale, in a nontaxable transaction, of their assets and business to corporation C are not deductible by corporations A and B, either as ordinary and necessary expenses of that year, or as losses incurred upon their dissolution within the taxable year.

Cases involving a similar issue were consolidated for hearing. In all except one case this issue was raised by assignments of error in the petitions. The evidence in those cases does not overcome the presumptive correctness of the Commissioner's determination. In the one case the issue was raised by the Commissioner through affirmative pleadings in his answer.

Where the petitioner filed its returns for the years 1928 and 1929 on the basis of completed contracts, which method it had consistently followed for several years, and its net income computed on… Held: that the respondent erroneously changed its returns for those years to show income reported on the accrual basis.

Two existing corporations became affiliated on July 1, 1924. Held: separate returns were required for the two periods of 1924 before and after the date of affiliation, and that each of said periods was a taxable year within the meaning of section 200 (a) of the Revenue Act of 1924, for the purpose of applying to petitioner's income its net loss sustained in 1922.

Compensation paid to the petitioners as trustees of the Boston Elevated Railway Company during the taxable years 1926 to 1929, inclusive, held subject to Federal income tax.

A solvent purchaser had taken manufacturing equipment and finished products into its accounts at the full price which it agreed to pay for these items. Held: the face amount of the notes canceled should be taken into income in the year of the adjustment.

Payments made to individuals, who had been partners in a brokerage business, for services rendered pursuant to a comtract which expressly provided that no part of such payments were for good will of the former partnership, such payments being reasonable for the services actually performed, held deductible as ordinary and necessary expenses.

No deduction for loss or bad debts may be taken by an individual for the last taxable period during his life in respect of the cost of shares in a corporation and loans made to it from time to time until his death, the worthlessness of which was occasioned by his death.

Held, that dividends paid to the petitioner's wife upon corporation stock standing in her name and subsequently paid to him as credits upon a promissory note given to him by the wife, in payment for said stocks, in the circumstances shown, are not properly a part of his taxable income.

1. Where a corporation in 1922 declares and pays a stock dividend, the par value of which exceeds the earnings or profits of such corporation accumulated since February 28, 1913, and the recipients… Held: that the basis for the computation of gain or loss is the fair market value of the shares at the date of the death of the decedent and not the date when the shares were distributed to them.

In Texas, income received by a wife as beneficiary of a trust created by will is community income, taxable one-half each to the wife and the husband.

1. Where petitioner's wholly owned subsidiary was insolvent and discontinued business on the last day of the year, resulting in allowable deductions to petitioner for losses, bad debts, and accrued expenses, the deductions may be taken against petitioner's income for the year and are not limited to the income for the period between the close of business on the last day of the year and the end of the year. Canal-Commercial National Bank,22 B.T.A. 541, not followed. 2.

Petitioner sustained a net loss in 1925. On May 5, 1926, it became affiliated with another corporation, and thereafter filed a consolidated return for the year 1926. Held, separate returns were required for the periods of 1926 before and after affiliation, and that each such period was a "taxable year" within the meaning of section 200(a) of the Revenue Act of 1926, for the purpose of applying the net loss sustained in 1925. Weissberger Moving & Storage Co.,26 B.T.A. 1375, followed.

Where petitioner became affiliated with another corporation during the fiscal year 1927 and filed a separate return for that part of the year when not affiliated, that period constitutes a taxable year for the purpose of applying a net loss sustained in the fiscal year 1926.

When amounts embezzled and offset against income in prior years are recovered, they must be reported as income for the year of the recovery.