Volume 27 — Board of Tax Appeals

1. Held, that the petitioners were not affiliated with J. A. Folger & Company, a California corporation, at any time in either of the taxable… Held: that the petitioners were not affiliated with J. A. Folger & Company, a California corporation, at any time in either of the taxable years. 2. The tax liability of each of the petitioners for the year 1921 was extinguished by the statute of limitations prior to the issue of the notices asserting deficiencies for that year. 3.

The petitioner's predecessor's ore reserve and its value on March 1, 1913, determined as the basis for depletion in 1924, 1925 and 1926.

Where a corporation purchases the capital stock of another, the cost basis of assets of the second company remains unchanged, even though the second company is reorganized and the purchasing corporation transfers its assets to the second company and dissolves.

The petitioner is a share capital cooperative corporation under the laws of Wisconsin. Its capital stock is owned by local cooperative organizations of producers and consumers. Held: in the facts established by the record, that it is not an organization of producers and that it fails to satisfy the conditions prescribed for exempt corporations in section 231(12) of the Revenue Act of 1926 and section 103(12) of the Revenue Act of 1928.

Held, under the facts shown, a loss which the petitioner claims to have sustained through a trespass committed in 1914, upon a timber lease owned by him, which expired June 1, 1922, does not constitute a legal deduction from his 1924 income.

The deficiency asserted for 1919 is barred by the statute of limitations.

1. Where the fee owner of real estate in Texas disposes of interests in oil and gas underlying her lands, retaining to herself an undivided fractional interest therein, held, such retained interest… Held: such retained interest is property and subject to conveyance or transfer. Held, further, after conveyance or transfer of such property the income arising therefrom belongs to the new owner, the transferee, and is not taxable to transferor. 2.

1. Holders of preferred stock, purchased at par, received socalled dividends which were paid out of capital. Held: such distributions reduced the base cost of their stocks, resulting in taxable gains when the stocks were later sold back to the corporation at par. 2. Preferred stock was acquired as a gift prior to March 1, 1913. The owner received so-called dividends which were paid out of capital.

1. The redemption in 1926 of preferred stock received by the petitioner in 1923 as a stock dividend held not to have been made under circumstances essentially equivalent to the distribution of a taxable dividend so as to make the amount distributed in redemption of the stock taxable as a dividend under the provisions of section 201(g) of the Revenue Act of 1926. 2.

The petitioner, as a stockholder of the American Telephone and Telegraph Company and the MissouriPacific Railroad Company, in 1929 received rights to subscribe for bonds of the issuing corporations convertible into shares of a new issue of stock at stated prices. Held that the market value of the subscription rights does not constitute taxable income.

Held, that attorneys' fees, court costs and other similar expenditures made by a lessor in connection with litigation involving a lease… Held: that attorneys' fees, court costs and other similar expenditures made by a lessor in connection with litigation involving a lease contract, are not deductible as ordinary and necessary business expenses, but the aggregate amount should be spread over the life of the contract and an aliquot portion deducted from gross income of each…

A corporate distribution made in 1917, in accordance with established custom, by the manager to the shareholders, which in 1918 was covered by a directors' resolution declaring a dividend of part of the amount distributed and directing that the remainder be charged on the books against the shareholders "to be deducted from any future dividends payable upon stock," and which was retained by the shareholders, held not within the corporation's invested capital for 1918 and 1919.

1. PARTNERSHIP - GIFT - DEPLETION. - Where one member of a partnership owning timber lands makes a gift of a part of his interest in the partnership to his children and thereupon a new partnership is formed, with the children taken in as partners, the new partnership having the same assets as the old, no new basis arises for the allowance for depletion of timber, but it remains as before. Henry Wilson,16 B.T.A. 1280, followed. 2.

Cancellation or redemption of stock and the resultant distribution may be treated as a taxable dividend under provisions of section 201(g) of the Revenue Act of 1926, although there is no proof of existing relation between the issuance of the stock and its redemption evidencing a continuing, unified plan for distribution of surplus.

Where the taxpayer for many years prior and subsequent to 1921 regularly kept its books of account on the basis of a fiscal year ended June 30, although it made its tax return on the basis of the calendar year, the Commissioner was without authority to compute net income, or to determine a consequent deficiency in tax, for the calendar year 1921. Great West Printing Co.,22 B.T.A. 346, followed.

1. DEPRECIATION ALLOWANCE - BURDEN OF PROOF. - Where the taxpayer has claimed certain deductions for depreciation on its income tax returns for the respective taxable years and the Commissioner has allowed these deductions in part and disallowed them in part, and the taxpayer appeals and assigns this action of the Commissioner as error, the burden of proof is on petitioner to show that the action of the Commissioner was wrong and, if so, what the correct base, rates and…

Held, that under the facts shown, the petitioners are liable to be taxed as an association upon their income derived from certain trust properties in the taxable year. Held: that under the facts shown, the petitioners are liable to be taxed as an association upon their income derived from certain trust properties in the taxable year.

Where petitioner corporation acquired, in a nontaxable reorganization, certain oil leases from its predecessor, a trust taxable as a corporation, it is held not to be entitled to compute depletion upon the basis of discovery value when discovery was by such predecessor.

1. When the owner of real property declares himself a trustee to receive income therefrom and to pay such income to another and there is no transfer of any part of the corpus of the income-producing property to the beneficiary either for life or in perpetuity, the income remains taxable to such owner. 2. In the circumstances herein the title to a certain incomeproducing contract was transferred by the owner to another and the income thereafter is taxable to the transferee. 3.

1. Whether or not there was a reorganization, as affecting a change from a predecessor to a successor corporation, under the 1924 Revenue Act, as well as under prior acts, such successor corporation is not entitled to carry forward a net loss of its predecessor to offset profits of its own, following Elliott-Granite Linen Corp.,26 B.T.A. 936. 2. Held, that the cost to the taxpayer of the assets acquired by it was $124,522.33, which cost, after being allocated among the several species of assets, should be used in computing depreciation and gain or loss.

Certain individuals and corporations agreed among themselves to cause the petitioner corporation to be organized and to have transferred to it the assets of another company, which was in receivership. Held: that the petitioner has not overcome the presumption in favor of the correctness of the respondent's determination that the sale was direct to the petitioner and that the basis for depreciation in petitioner's hands is the cost of such assets at such judicial sale.

1. Held, that in the circumstances herein the par value of stock issued as a bonus to officers as additional salary for services rendered is not deductible from petitioner's income as ordinary and… Held: that in the circumstances herein the par value of stock issued as a bonus to officers as additional salary for services rendered is not deductible from petitioner's income as ordinary and necessary expenses. 2. Petitioner's claim for additional depreciation denied.

Petitioner acquired 6 per cent demand promissory notes from its stockholders in partial payment for its capital stock. Held that, on an accrual basis of accounting, interest on the notes must be included in income.

When the owner of a property right assigns merely the income arising therefrom and retains the other incidents of ownership which are essential factors in the production of income, he, and not the assignee, must pay the Federal tax on such income.

1. ACCRUAL SYSTEM OF ACCOUNTING - WHEN INCOME SHOULD BE ACCRUED. - Amounts agreed to be paid petitioner on account of the cancellation of an old contract and in consideration of further agreements made in a new contract, which amounts are to be paid out of the proceeds of refinancing the property involved in the transactions, are income to petitioner, on the accrual basis, in the year when the obligation to pay petitioner such amounts became definite and fixed.

The petitioner and its affiliated corporation filed a consolidated return for the calendar year 1925, showing a large net loss for each company. Held: that only one return was required of the petitioner for the calendar year 1926, showing the consolidated income of it and its affiliated company for the period January 1 to February 15, and its separate income for the remainder of the year.

Liabilities of transferees determined.

1. Attorneys' fees paid for services in securing a lease on real estate must be capitalized and amortized over the term of the lease. 2. Certain payments on account of attorneys' fees and traveling expenses allowed as deductions in the taxable year. 3. In the circumstances herein, held that a part of the cost of a certain drainage ditch was a loss sustained by the petitioner in the taxable year.

The payment of D corporation to the Government of a lump sum in compromise of the liability of N corporation, its predecessor, for taxes, interest and penalties of earlier years, the amount of which is equal to 25 per cent of the assessment plus interest, is not deductible by D as a payment of interest to the extent of 25 per cent of the interest assessed, because (1) no part of the payment is identifiable, (2) the whole payment was consideration for D's purchase of N's…

1. Where a stockholder, on behalf of the corporation, received payments due upon sales of real estate, paid therefrom operating expenses of the company and retained the balance, and was charged with… Held: such amounts were not income to stockholder in the years when received and retained. 2.

A trust is not revocable within the meaning of sections 166 and/or 167 of the Revenue Act of 1928 where the grantor's power to alter, amend or revoke the trust can be exercised only in conjunction with the two trustees who are contingent beneficiaries of the trust.

Respondent's determination of the year in which stock in a corporation became worthless approved.

Held, that petitioner's decedent was an officer of the State of New York. Held: that petitioner's decedent was an officer of the State of New York.

In respect of short sales of stock, gain or loss is ascertained by matching the short sale price against the cost of the covering purchase, even though the taxpayer at the same time maintains with the same broker a margin account containing similar shares previously purchased.

Where the petitioner on September 30, 1926, sold all of the capital stock of an affiliated company, held, that the transaction was a… Held: that the transaction was a taxable one upon which the petitioner had a taxable profit measured by the difference between the cost to it of the stock and its selling price, without consideration of the earnings of the subsidiary company reported in the consolidated return filed by the petitioner for the period of 1926 prior to the…

Waiver signed by a former president of a dissolved Kentucky corporation, who likewise became president of the successor corporation, held valid to extend the statutory period for assessment against such dissolved corporation.

Deductions for charitable and other contributions allowed by section 23(n) of the Revenue Act of 1928 are limited to an amount which does not exceed 15 per cent of the taxpayer's net income without such deductions, computed upon the basis of excluding all items of capital gain, capital loss and capital deductions.

The petitioners in 1927 sold at a loss their stockholdings in a corporation, of which they were president and vice president, respectively, engaged in operating a department store. Held: that the losses sustained upon the sale of the stock in 1927 were not statutory net losses of that year.

Trust made by decedent for the benefit of his wife for life, with reversion to decedent if he survived her, and, if not, with remainder to his children, was not a transfer to take effect in possession or enjoyment at or after his death within section 302(c) of the Revenue Act of 1926.

Petitioner, the only shareholder of U Company, caused A Company to be organized. U Company transferred assets, consisting of shares in M Company, to A Company, for which A Company issued all its shares to petitioner. A Company then liquidated by distributing its assets, consisting of shares in M Company, to petitioner, its only shareholder, and immediately dissolved. Petitioner then sold the shares in M Company. Held, A Company may not be disregarded, and tax to petitioner is predicated upon the statutory recognition of a reorganization, liquidation and sale, with consequent gain or loss, and not upon an assumed dividend to petitioner by U Company.

A corporation sold cemetery lots under purchase agreements that The purchase price hereof shall include perpetual care. Held: that the petitioner may not, in determining profits on the sales of the lots, add to the cost of lots sold $200,000 representing the amount intended to be set aside for perpetual care.

A taxpayer bought bonds in 1904. In 1912 it exchanged the original bonds for others. The fair market value of the bonds received in this exchange was less than the cost of the original bonds. Held: that the property received in the 1925 exchange was acquired after February 28, 1913, upon an exchange described in subdivision (b) of section 203 of the Revenue Act of 1926, and, therefore, under section 204(a)(6) its basis is the same as that of the property exchanged.

1. TRANSFEREE LIABILITY. - Where in 1926 petitioner, a corporation, purchased certain assets from another corporation and as a part of the consideration therefor agreed to pay all taxes, Federal, state, or otherwise, if and when determined, for all years prior to the year 1926, and where respondent has determined a deficiency against the transferor corporation for the year 1922, and where the value of the property so transferred is far greater than the amount of the tax…

The trustees of a municipally owned waterworks system do not exercise an essential governmental function in supplying water to the inhabitants of the proprietary city or to the city for its own uses.

1. The petitioner and the Gales Creek Logging Company were incorporated prior to the year 1924. Held: the two companies were not affiliated. 2. Respondent denied a request that the accounts of the two companies be consolidated for the year 1924. Held, no error. 3. The two companies became affiliated on November 15, 1928.

1. The case of Gold & Stock Telegraph Co.,26 B.T.A. 914, followed on the question of income to the taxpayer. 2. The petitioner held liable as transferee. The taxpayer corporations many years ago parted with all of their property under a long term lease to the petitioner, which lease provided for a certain rental and provided further than this rental should be paid directly to the stockholders of the taxpayer.

Expenditures made by petitioner in maintaining a chair in journalism in Tulane University for the purpose of bettering its service to the public as a news gatherer and dispenser, which were reasonably expected to bring returns to it in dollars and cents, constituted deductible items of expense under section 234(a) of the Revenue Act of 1926.

Where the grantor of a trust retains the independent right to dispose of the income thereof and during the taxable years designates the recipients of his bounty, held, the income of the trust is… Held: the income of the trust is taxable to him. Corliss v. Bowers,281 U.S. 376, followed.

Real estate in Illinois acquired by petitioner and her husband in 1919 as joint tenants was later sold by petitioner as surviving widow. Held: that under the provisions of section 113(a) of the Revenue Act of 1928, the basis for the determination of gain or loss upon such sale is the amount of the cost of such property, since none of the exceptions, more particularly the provisions of section 113(a)(5), dealing with the acquisition of property by intestacy, governs.

Where the taxpayer ascertained certain debts to be worthless and charged same off on its books, claimed and was allowed deductions therefor on its returns, and in later taxable years made collections with respect to the debts previously deducted, held, such collections constitute taxable income.

Where a 99-year lease is made with the purpose of having the lessee erect a new building on a lot occupied by an old building, the unextinguished cost of the old building is not deductible by the lessor as a loss in the year of its demolition, but should be exhausted over the term of the lease. (Anahma Realty Corp., 42 Fed.(2d) 128; Mary C. Young,20 B.T.A. 692.)

1. Commissioner's ruling upon the question of affiliation of petitioners and other corporations held under the facts not to have deprived… Held: the remaining corporations may not file a consolidated return, but must file separate returns. 3. Where petitioners elected to file separate returns for 1922, held an amended consolidated return for 1922 can not thereafter be filed, nor can a consolidated return for 1923 be filed without permission of the Commissioner. 4.

1. In 1916 decedent made a will bequeathing $35,000 to a childrens' home. Held: there was no valid bequest in excess of $35,000. 2. In 1923 decedent agreed with a federation of charities that he would assume all the running expenses of the childrens' home in lieu of his annual subscription to the work of the federation. That arrangement continued for several years until decedent's death.

1. Decedent, a native of this country living abroad, described himself as "of St. Louis, Missouri." Thereafter he took an oath of allegiance to Great Britain. He never returned to the United States to live, nor was he engaged in business here. After his death his administrators described him as being domiciled in this country at the time of death. Held, decedent was a nonresident alien when he died. 2. Decedent left property physically located in the United States. It consisted of domestic corporation stocks and securities, United States bonds and certificates, corporate and municipal bonds, cash on deposit, real estate in Missouri, and outstanding claims. Held, only the corporate stocks are subject to Federal estate tax. 3. Held, decedent's personal property located abroad is not subject to estate tax by this Government. 4. During his life decedent made voluntary payments to his mother's estate so that certain of her wishes might be carried out. Held, the amount so paid should not be included in decedent's gross estate. 5. Held, deductions for funeral and administration expenses, et cetera, may not exceed 10 per cent of the value of the property subject to tax.

1. The petitioner, a Washington State corporation, was formed in 1927 by three devisees, who in that year transferred to it the residuary estate of their testator, in consideration of the issuance to… Held: petitioner sustained no loss by reason of such sale in 1928 and the abandonment of the lots in that year. 2.

- Where the owners of a partnership business agreed with a third party in the latter part of 1923 that they would organize a corporation… Held: on the facts, that the transaction by which the petitioner acquired the partnership assets was of the kind described in section 112(b)(5) of the Revenue Act of 1928, and that, therefore, under the provisions of sections 114 and 113(a)(8) of the Revenue Act of 1928, the basis upon which depreciation is to be allowed with respect to…

1. Where a corporation pays its debts with stock of another corporation, held, the difference between total amount of debts and cost of such stock is taxable gain. 2. Held: the difference between total amount of debts and cost of such stock is taxable gain. 2.

In computing gain or loss on the sale in 1927 of real estate subject to an unexpired lease, no adjustment need be made to the basis to represent the cost or value of improvements made by the lessee in 1920 where the lessor had never reported any portion of such cost or value in his income.

1. After consolidation under Illinois law of T corporation with other corporations to form R corporation and a subsequent determination and notice of deficiency to T, the Board has jurisdiction of a proceeding instituted in the name of either T or R or both. 2.

1. Compensation paid to the petitioner for services rendered as counsel to several political subdivisions of a state is not exempt from Federal taxation. 2. Compensation received by the petitioner as master or special master in chancery is exempt from Federal taxation. David K. Cochrane,26 B.T.A. 1167, followed.

1. Section 280 of the Revenue Act of 1926 is not unconstitutional, following Henry Cappellini,14 B.T.A. 1269, and Phillips v. Commissioner,283 U.S. 589. 2. Held: such period is not extended by section 280 of the 1926 Act and therefore petitioners are not liable as transferees for any part of the deficiency asserted against taxpayer corporation, or for any part of the unpaid portion of the original 1919 assessment. 4.

In 1919 decedent purchased from her mother, the prior decedent, shares of stock of a corporation, for which she executed promissory notes payable on or before ten years after date, with interest at 6 per cent per annum. The mother died in 1920, leaving a one-fifth interest in her estate to her said daughter, the present decedent, who died in 1924. Said interest of decedent in her mother's estate exceeded in value the aggregate principal amount of said notes. The administrators of the estate of the prior decedent charged the notes against the present decedent's interest in her mother's estate. Held, that the present decedent exchanged for said shares of stock property received from the estate of the prior decedent, and the value at which such prior taxed property was included in the gross estate of the prior decedent is deductible from the gross estate of the present decedent, under section 303(a)(2) of the Revenue Act of 1924.

1. INCOME - APPORTIONMENT OF COST. - Held, that the evidence does not overcome the presumptive correctness of the Commissioner's determination that the total cost of common and preferred stock, purchased for a lump consideration, was allocable to the preferred stock alone. 2. GAIN OR LOSS. - Held, that an exchange of stock for stock as the result of a merger in 1915 constituted a reorganization within the meaning of section 203(h)(1)(A) of the 1926 Act, and was an exchange such as described in section 203(b)(2), and that section 204(a)(6) is applicable for determining the basis for gain or loss. Held, further, that the exchange in 1915 constituted an isolated transaction not "incurred in trade" within the meaning of section II B of the 1913 Act; that the loss incurred was not recognized by that act; and that the basis for determining gain or loss upon sale in 1925 is the same as the property exchanged, without any adjustment. 3. INCOME - REORGANIZATION. - In 1926 petitioner exchanged common stock of A corporation for common stock of B corporation in a transaction whereby B acquired all the common stock but none of the preferred stock of A, which remained in existence. Held, there was no reorganization within the meaning of section 203(h)(1)(A) of the 1926 Act; that section 203(b)(2) is not applicable; and that the gain realized is recognized and taxable. 4. ID. - DIVIDEND. - In 1926 petitioner sold all the outstanding stock of A corporation to B corporation for cash and in addition thereto he received the net quick assets of A, amounting to $95,306.07. Held, that the facts do not establish that any part of such sum constituted an ordinary dividend received by petitioner from A corporation; and that Commissioner's determination that such amount constituted part of consideration for stock sold, sustained. 5. ID. - Held, that accumulated income of a trust on which the tax has been properly paid by the fiduciary for each of the years in which realized, is not taxable income to the distributee upon final distribution of the trust fund.

A taxpayer keeping its books and reporting its income on the accrual basis is not entitled under the statute to postpone the taking of credits for taxes paid to a foreign country beyond the year of accrual.

Petitioner, on a cash basis and indebted for principal and accrued interest on a promissory note, negotiated another loan from his creditor in a larger amount in the taxable year, the proceeds of which were applied by the creditor in payment of the first note and interest and the balance paid over to petitioner. Held, that petitioner is entitled to deduct the amount of interest so paid in the taxable year, under section 23 of the Revenue Act of 1928.

1. The petitioner during the taxable year was a member of a partnership which held substantially all of the common voting stock of an operating corporation.

1. Petitioner created certain dividend funds under its policy contracts by putting aside $2 from each renewal premium. Held: such funds did not constitute reserves required by law so as to entitle petitioner to a 4 per cent reserve deduction. 2.

Florida real property taxes which accrued and became liens against the properties assessed prior to their purchase by the petitioner, constitute a part of the cost of the properties, and no portion thereof is deductible in the year of acquisition as a tax of the petitioner.

Where stock, cash, and real estate are exchanged in 1929 for other real estate, gain is recognized on the disposition of the stock.

The cost of moving a dwelling house from a lot in a business district to another in a residential district is not deductible as a business expense.

Held, that under the provisions of the testator's will petitioner received a vested remainder interest and that the date of acquisition of the property sold in the tax years was the date of death of… Held: that under the provisions of the testator's will petitioner received a vested remainder interest and that the date of acquisition of the property sold in the tax years was the date of death of the testator and not the date of distribution to petitioner.

- Sec. 222(a)(3) of the 1924 and 1926 Acts construed. Held: that petitioner, a subject of Newfoundland and a resident alien of the United States is not entitled to credit income taxes paid to Great Britain against income taxes due this country, where it is not shown that Newfoundland allows a corresponding credit to American citizens resident there, i.e., it must be established that…

1. Where a statute is clear and unambiguous in its terms and provisions, resort should not be had to legislative history to determine the limits of its compass. 2. Held: a contribution to such organization is not deductible under section 23 of the Revenue Act of 1928. The activity of such an organization goes beyond the scope of education and enters the field of advocacy.

Where there has been a consolidation of banks and an exchange of stock for stock and cash, the cash, to the extent that it represents a distribution to the stockholders of the merged bank of surplus and profits accrued from the date of its organization, which was subsequent to March 1, 1913, is a taxable dividend within the provisions of section 112(c)(2) of the Revenue Act of 1928, and as such is taxable at surtax rates only.

Where the predominant purpose of the petitioner in purchasing residential property was to realize a pecuniary profit, a loss sustained upon the subsequent sale of the property is deductible even though the petitioner did occupy such property as a residence a short time each year during a part of the period it was owned by her. In computing such deductible loss the basis is not to be reduced by depreciation.

In 1926 petitioner purchased certain corporate stock to prevent loss and injury to its business, reputation and good will. The stock became worthless during that year. Held: petitioner sustained a deductible loss in 1926, which caused a net loss within the meaning of the statute, allowable as a deduction in the succeeding taxable year.

1. Petitioner, a domestic corporation, received from another domestic corporation stock dividends which were later redeemed at par for cash. Held: such redemption was not equivalent to the distribution of taxable dividends under section 201(g) of the Revenue Act of 1926. Held, further, the amounts paid to redeem the stock constituted amounts distributed in partial liquidation, under section 201(c) and (h) of the Revenue Act of 1926. 2.

1. INVESTED CAPITAL - APPLICABILITY OF SECTION 331, REVENUE ACTS OF 1918 AND 1921. - Where one person is the owner of all the stock of one corporation at the time it transfers its assets to a newly… Held: on the facts of the instant case, petitioner has not shown itself entitled to the valuation claimed by it for good will and contracts separate from the valuation given it for tangible assets paid in for stock. 4.

1. Held, that under section 113(a)(5) of the Revenue Act of 1928 the basis for determining gain or loss from the sale of personal property acquired upon the termination of a testamentary trust is the fair market value of the property when distributed to the taxpayer after the trust was ended. 2. Petitioner realized a capital net gain during the year 1929 and elected to have it taxed at the rate provided in section 101(a) of the Revenue Act of 1928. Held, the capital net gain should be excluded from ordinary net income in computing the 15 per cent deduction for contributions under section 23(n) of the statute.

A trust, engaged in business as a trader in securities, sold certain stocks to the wife of a trustee and mother of the beneficiaries at a price closely approximating the market as reflected by… Held: the sale by the trust was valid and bona fide, and the loss sustained thereon is deductible from income.

A payment made to procure the withdrawal of a partner, whose activities were damaging the partnership business, which payment directly benefited the business, is deductible from gross income A. King Aitkin,12 B.T.A. 692, followed.

Held, that the transaction relating to the sale of petitioner's stock was consummated in the year 1926 and loss suffered thereby was deductible in that year. Held: that the transaction relating to the sale of petitioner's stock was consummated in the year 1926 and loss suffered thereby was deductible in that year.

A corporation executed a contract of sale for a large quantity of its capital assets, upon which it was paid a part of the purchase price in cash. Subsequently, it transferred such assets to trustees, who completed the sale by delivery of the assets to the purchaser and collecting the purchase price. Held, that the profits of the sale and income from the corpus, pending liquidation, constituted income of the corporation.

Petitioner and his wife, residents of Michigan, disposed of certain real property in that state held by them as an estate by the entirety, the contract of sale merely providing for payment of… Held: that petitioner and his wife held this contract of sale, together with the principal and interest received thereon, as joint tenants, and that of the interest received in each of the taxable years only one-half represented income to petitioner.

The petitioner leased for a period of 100 years a residential apartment in a building owned by the lessor corporation, which corporation maintained and operated the building. Held: that the amounts so paid by the petitioner in the taxable years 1928 and 1929, on account of interest and taxes representing liabilities of the corporation, are not deductible from his gross income under section 23(b) and (c) of the Revenue Act of 1928.

1. The amount paid by petitioners in 1923 as consideration for the cancellation of a lease on property owned by them, held not a business… Held: the cost of permanent partitions installed during 1923 in the Borland Building, which did not increase the value of the building as a whole, did not constitute an ordinary business expense deductible in its entirety from income of said year, but was a capital expenditure to be recovered through deductions spread ratably over the…

Petitioner, the parent corporation of an affiliated group, changed its accounting period from a calendar to a fiscal year ended June 30, and… Held: such consolidated return was limited under article 14, Regulations 75 to the period January 1, 1929, to June 30, 1929, and petitioner's subsidiary whose fiscal year ended October 30, 1928, was required to file a return for the period November 1, 1928, to December 31, 1928, which period constituted its third taxable year in the…

Where by will a remainder was left to certain charities after the death of a daughter without issue, and prior to the death of the decedent an operation had been performed upon the daughter which rendered her incapable of childbearing, the law nevertheless assumes that she may bear children and thus defeat the charitable remainder; therefore the Commissioner did not err in denying a deduction under section 303(a)(3) of the Revenue Act of 1926.

1. Evidence held insufficient to establish that the respondent's valuation of stocks owned by the decedent in closely held corporations was erroneous. 2. Under the circumstances of this case, the respondent erred in refusing to deduct from the gross estate as a bequest to charity the value of the remainder interest in one-third of the residuary estate.

Petitioner purchased stock, paying part in cash and giving his notes for the balance, the stock being deposited under a contract with a trustee as collateral security for… Held: that the wife, having assumed, as between herself and petitioner, the payment of the unpaid purchase price of the stock in the amount of the dividends paid thereon in the taxable years, which she collected and applied in accordance therewith, these dividends were income to her and not to petitioner.

Compensation paid to the petitioner for services rendered as director of the port of the City of Beaumont, Texas, and performed under contract made with the Board of Dock and Wharf Commissioners of the city, held subject to Federal income tax.

A payment of $50,000 by a corporation to petitioner, under the circumstances involved, not proven to be a gift.

The petitioners did not sustain a deductible loss upon the voluntary surrender of certain promissory notes held by them, where the notes are not shown to have been worthless when surrendered to the maker and canceled.

1. The petitioner authorized an individual to act as her agent for the sale of real estate in Florida. Held: the amounts paid are a legal deduction from gross income. 2. In 1923, the agent received certain moneys which belonged to the petitioner.

Held, that respondent improperly included the corpus of certain trusts in petitioners' taxable estate.

Under the facts, the respondent acted within a reasonable time after the execution of a waiver, unlimited as to time, in mailing a notice of deficiency.

A cemetery corporation exchanged its capital stock for land to be sold for burials. Later it canceled its stock and substituted therefor certificates of participation in the cemetery assets. The company also declared itself a trustee of all its assets, but carried on active business. The certificate holders had all the rights and privileges of stockholders. Held, money distributed to a certificate holder in proportion to her shares constituted a dividend within the meaning of section 115(a), (b) of the Revenue Act of 1928. Held, further, no part of such distribution was in payment for land originally conveyed to the company.

Petitioner and his wife were the sole stockholders of the Arcade Department Store, Inc. Its stock in trade was sold to the Burroughs Stores, Inc., in 1926 for shares of the latter's capital stock, which were issued directly to petitioner and his wife. The shares had a value in excess of the deficiencies in income tax previously asserted against the Arcade Department Store, Inc. Held, petitioner is liable as a transferee.

Where a corporation canceled certain indebtedness of its president and principal stockholder at a time when it had a substantial surplus and when the debtor was solvent, it is held that the amount of such canceled indebtedness is taxable to the debtor as a dividend.

Organization expenses of a corporation, including the amount paid by it for the sale of its capital stock, may not be deducted in computing its net income nor amortized and recovered by pro rata exhaustion deductions over the years of its corporate life.

A copartnership contracted for the sale of a quantity of commercial securities which it controlled through an option. Held: that the profits resulting from the sale constituted income to the corporation and not the copartnership.

1. Where there is a bona fide sale of a chose in action (in this case a debt due to the petitioner for money loaned) for a consideration, and the debt is not in fact worthless, the taxpayer sustained… Held: that the payments received represented in part a realization of taxable income and in part a return of capital and should be taxed accordingly.

1. Petitioner and his wife, living in Oregon, owned a business as equal partners. Held: the petitioner owned only one-half the stock issued in his name and is taxable upon only one-half the profits from its sale. 2. Petitioner and his wife each owned one-half interest in certain corporate stock, but most of the stock stood in petitioner's name. They withdrew profits as earned, without any formal declaration of dividends.

1. Petitioner and a corporation in which it owned all the stock after May 16, 1926, filed separate income tax returns for the year 1926. Held, that such filing constituted an election to make separate returns under the provisions of section 240(a) of the Revenue Act of 1926 and thereafter it was necessary to obtain permission from the Commissioner to authorize a change to a consolidated returns basis. 2. Amounts spent in the investigation of processes for the manufacture of chemical products from destructive distillation of wood are not deductible in the years expended as ordinary and necessary expenses. 3. Certain payments of bonuses to employees for services rendered in the taxable years, together with regular salaries, were reasonable compensation for services rendered in such years.

When a corporation that has just acquired all the stock of its predecessor pays attorney's fees for services rendered prior to its incorporation, such fees are not deductible as operating expenses during its first taxable period, since they represent payments in acquiring the stock of the predecessor.

1. Where tax liability for a given year has been determined on the basis of a petitioner's agreed net income and the parties have entered into a closing agreement under the provisions of section 606 of the Revenue Act of 1928, the petitioner may prove a net loss in such year for the purpose of reducing its tax liability in a subsequent year. 2.

In 1928 the petitioner transferred to its principal creditor certain real estate in consideration of the cancellation of its indebtedness, which indebtedness was in excess of the petitioner's net equity in the property. Held, the transfer of the real estate constituted a sale upon which the petitioner realized taxable profit in an amount equal to the difference between the depreciated cost of said real estate and the total amount of the canceled indebtedness.

- Where the petitioners, husband and wife, were the settlors of separate trusts, each conveying certain property owned by the settlor to… Held: gains and profits resulting from sale of the trust corpus and income from dividends paid on stocks held as a part of the trust corpus are taxable to the trust and not to petitioners, because such amounts are not income to the petitioners as the grantor of a revocable trust within the meaning of section 219(g) and (h) of the Revenue…

Petitioner, a star in the theatrical profession, in order to make contacts, exchange ideas and viewpoints and to meet personally authors, critics, directors, newspaper writers and others, donated in… Held: the expense so incurred is not deductible as ordinary any necessary expense of carrying on petitioner's business.

1. More than four and one-half years prior to the taxable years the Southern Railway Company received certain payments, representing the… Held: that the unrefundable portions of the payments so received, which, during the taxable years, were credited by the railway company to Account 606, Donations, in accordance with the Interstate Commerce Commission's classification of accounts, are contributions received by a public utility in aid of construction, and are not income…

Petitioner owned all the outstanding stock of a corporation which he had organized to carry on his individual business of producing plays. Held: the loss thus sustained by the petitioner in 1922 did not result from the operation of a business regularly carried on by the petitioner in that year, within the meaning of section 204 of the Revenue Act of 1921, and the unabsorbed portion thereof may not be deducted as a net loss in computing petitioner's taxable income for 1924.

1. The respondent's inclusion in the gross estate of the decedent of the value, in excess of $5,000, of gifts made within two years prior to the decedent's death, does not relieve the petitioners of… Held: that the transfers involved herein were made in contemplation of death. 3. Value of certain property determined.

The petitioner and his wife, residents of Maryland, owned personal property as tenants by the entirety. Held that in the absence of an agreement between them for the distribution of the earnings on a contrary basis, the husband is taxable on one-half of the income from such property.

1. Evidence does not establish petitioner's claim for deduction of certain alleged business expenses in the taxable years. 2. Advances to a corporation by its principal stockholder, represented by unpaid corporation notes, are in the nature of additional capital contributions to the extent of the amount of such notes unpaid at the date of their surrender and cancellation in consideration for stock, and their face value, representing the amount of such advances, is the cost of the stock issued thereor.

BUILDING AND LOAN ASSOCIATION - EXEMPTION. Petitioner, which was incorporated as a rural savings and loan company under the laws of the State of Indiana and is recognized as a building and loan association under the laws of that state, in accordance with which it conducts its business, is held exempt from Federal taxation under section 231(4) of the Revenue Act of 1926, though control of the organization is by statute placed in the hands of guaranty stockholders and such stockholders are entitled to receive certain preferential treatment in the distribution of profits and are subject to the claims of creditors; entitled upon dissolution to the surplus created. United States v. Cambridge Loan & Building Co.,278 U.S. 55.

Held, that the cost of a lease, the original term of which was for a period of 21 years, with an option to renew for three like additional… Held: that the cost of a lease, the original term of which was for a period of 21 years, with an option to renew for three like additional periods, the rentals for the renewal periods to be based on an appraisal of the land, should be exhausted over the original term. Bonwit Teller & Co. v. Commissioner, 53 Fed.(2d) 381, followed.

Where petitioner was employed on a salary plus a percentage of the profits as bonus and commissions and kept his accounts on an accrual basis and for a good many years rendered his income, including such bonuses and commissions, for taxation on an accrual basis, it was error for him to change his method of reporting income for taxation to the cash receipts and disbursements basis without first obtaining permission from the Commissioner of Internal Revenue to make such change.

1. Invested capital can not be determined, therefore the profits taxes must be determined as provided in section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918. 2. Disallowance of an additional deduction for officers' salaries approved where the amounts paid represented a distribution of profits in the guise of salaries.

1. The income of trusts created by petitioner was used by the trustee to pay premiums on insurance on petitioner's life. Held that such income is taxable to petitioner under section 167, Revenue Act of 1928. Frederick B. Wells,19 B.T.A. 1213, and Irenee DuPont v. Commissioner, 63 Fed.(2d) 44, followed. 2. Corporations, of which petitioner was president, paid premiums on insurance on petitioner's life.

1. STOCK DISTRIBUTION - BASIS OF COST TO OLD AND NEW SHARES. Held: the cost of the stock in B Company was properly apportioned between such stock and the distributed shares of A, N, and C Companies in proportion to their respective values at the time of distribution and the gain derived by petitioners upon the complete liquidation of their stock in A and N Companies should be computed upon the basis…

1. Where decedent, prior to the amendment on July 29, 1927, of the California Civil Code, made applications for two patents, and the patents were granted after the amendment, the entire profit from… Held: that an assignment of a third patent to the decedent from his father on January 16, 1928, was a gift to decedent from his father, and as such was decedent's separate property; and that the entire profit from the sale thereof in 1928 was taxable to the decedent. 3.

1. Interest on an award made as just compensation for property taken through an exercise of the power of condemnation by the city of New York is not interest upon the obligation of a political subdivision of a state within the meaning of section 22(b)(4) of the Revenue Act of 1928. 2. The portion of the award which represents gain to the taxpayer upon the disposition of his property is a part of his gross income for Federal tax purposes. 3. A taxpayer who fails to prove what part of the award was invested in other property, the date of acquisition, and the cost of that property has not shown that he is entitled to the relief afforded by section 112(f) of the Revenue Act of 1928.

An agreement dxisted between the petitioner and his wife, residents of California, that compensation received by her for personal services should be her separate income and separate property. Held: that the compensation may not be treated as community income and taxed to the husband.

1. The initial payment of $50,000 on a contract purporting to be a lease with privilege to purchase, but executed to carry into effect an offer by the lessee to purchase the property of the lessor, and held to be a sale, is not amortizable over the years mentioned in the purported lease as deductible expense therefor. 2. Where no evidence is offered to establish alleged error of the Commissioner in reference to depreciation allowed, he is sustained.

Amounts retained by trustees from the income of a trust for depreciation of trust property and for the undepreciated cost of obsolete buildings are distributable to the beneficiaries under the terms of the trust instrument and are taxable to them, though a local state court decided that the beneficiaries could not recover the amounts so retained by the trustees. Commissioner v. Freuler, 62 Fed.(2d) 733, followed.

1. Held, that petitioner acquired a vested remainder in real estate upon the death of the testator in 1912; hence, value at March 1, 1913, is basis for determining gain on the sale of the property in 1924. 2. Decedent's widow elected to take under the will, in lieu of dower, and petitioner purchased her rights in the estate, agreeing to pay her the annual sum specified in the will. Held that, in the absence of evidence of the value of the widow's rights in the estate, no part of the sums paid her by petitioner may be treated as cost of the property. 3. The sale of stock for a nominal sum in 1924 will not support a loss deduction in that year when the evidence establishes that the loss was sustained in a prior year.

Contributions by Texas state banks to depositors' guaranty fund are ordinary expenses as and when made and recoveries from the liquidation of failed state banks on account of such contributions are income when received. First State Bank of Brackettville,9 B.T.A. 975, followed.

1. Statute of limitations had tolled deficiency asserted at Docket No. 20409 when notice of deficiency was issued. 2. Earnings and profits of a corporation accrued after March 1, 1913, must be combined with operating losses sustained during the same period in order to determine the amount of earnings and profits accumulated after March 1, 1913, which may be distributed to stockholders subject to surtaxes.

1. Upon a sale by a partnership of property contributed by a partner at the time of organization at its then value, which was greater than the partner's cost or other basis, for a price greater than the value when contributed, the basis for computing the gain of the partnership is such value; and neither the individual partner's distributive share of partnership income nor his other income may include as gain the earlier increment. 2. Upon the organization of a partnership, the contribution by an individual partner of property having a value greater than its cost or other basis to him is not a realization by him of such increment and may not be included in his income as a gain at the time of contribution.

1. Securities were distributed in 1926 to petitioner as remainderman under testamentary trusts created in 1915. Held that the date of testator's death is the time of acquisition of the securities by petitioner and value at that date is the basis for determining gain or loss on the sale in 1927. Chandler v. Field, 58 Fed.(2d) 370, followed. 2. Dividends declared and payable in 1927, checks for which were mailed in that year and received by petitioner in 1928, were properly included by respondent in 1927 income. Mary Miller Braxton,22 B.T.A. 128, followed.

The value of property owned by the decedent and his wife as joint tenants is includable in his gross estate even though the joint tenancies were created prior to the passage of the first estate tax law, Revenue Act of 1916.

A corporation, operating under a separate contract with each of its shareholders, to graze and market the shareholders' livestock without taking title and divide among them the net proceeds in proportion to the number of livestock contributed by each, which makes such distribution pursuant to such contracts, held to have no net taxable income from such operations.

1. Section 201(g), Revenue Act of 1926, does not apply to a distribution made before January 1, 1926, in cancellation and redemption of corporate stock, not issued as a stock dividend. Section 201(f), Revenue Act of 1924, remained in effect until January 1, 1926, with respect to such transaction. 2.

Held, that the redemption of certain stock in question was not made at such time and in such manner as to make it, in whole or in part, essentially equivalent to the distribution of a taxable… Held: that the redemption of certain stock in question was not made at such time and in such manner as to make it, in whole or in part, essentially equivalent to the distribution of a taxable dividend.

Petitioner removed with his family from Seattle to Los Angeles under a contract of employment that made necessary his residence in Los Angeles, either permanently or for an indefinite time, sold his residence in Seattle, resigned his membership in social clubs there and declared his intention to make Los Angeles his permanent home. Held, petitioner was not thereafter domiciled in the State of Washington.

Where petitioner, in exchange for all of the taxpayer's assets, transferred to the taxpayer shares of its capital stock and assumed all existing liabilities of the taxpayer, petitioner is liable as transferee for additional Federal taxes due from the taxpayer.

The petitioner and his associate leased certain real estate in 1914 for a period of 99 years, the lease contract being executed in the name of the petitioner's associate, with an… Held: the leasehold estate merged in the fee when the fee title was acquired by the petitioner and his associate in 1923, and since the fee was sold and transferred by them within the year of purchase it did not constitute a capital asset within the meaning of section 206(a), Revenue Act of 1921.

Payment by a holding company to petitioner, who had been an employee of a subsidiary, in recognition of long and faithful service constitutes taxable income and is not exempt as a gift. Schumacher v. United States,74 Ct.Cls. 720; 55 Fed.(2d) 1007, and Bass v. Hawley, 62 Fed.(2d) 721, followed; William C. Barnes,17 B.T.A. 1002, overruled.

Market value of assets owned by petitioner at March 1, 1913, determined.

In 1920, the decedent transferred certain property to a trustee, to pay the income thereof to her during her life and upon her death to pay the corpus of the trust over to her daughter, if she be… Held: under New York law the daughter took a vested remainder by the execution of the trust instrument in 1920.

A dividend declared upon cumulative nonvoting preferred shares payable in common voting shares is, as to the preferred shareholder, not a tax-free stock dividend; and when the preferred shares are later sold, the basis for determining gain is the entire original cost of the preferred shares.

AFFILIATION - CORPORATIONS - 1929 AND SUBSEQUENT YEARS. Section 141(d), Revenue Act of 1928, defines affiliation for 1929 and subsequent years to be where "(1) at least 95 per centum of the stock of each of the corporations (except the common parent corporation) is owned directly by one or more of the other corporations; and (2) the common parent corporation owns directly at least 95 per centum of the stock of at least one of the other corporations." Where facts show that more than 95 per centum of petitioner's stock and the stock of another corporation are owned by the same individual but that neither corporation owns any of the other's stock, there is no affiliation for 1929.

1. Contribution made by corporation to Community Chest is not deductible from gross income, in the absence of express statutory provision for allowance as such, unless it is an ordinary and necessary expense of carrying on the business of the donor. 2.

1. Petitioner, a corporation organized to acquire the assets and business of a West Virginia corporation of the same name, paid to the West Virginia corporation in… Held: that petitioner is not liable in equity as a transferee for the taxes of the West Virginia corporation for the year 1919. 2. Held, further, that petitioner did not expressly assume the liability of the West Virginia corporation for Federal taxes for the year in question, and is not liable at law therefor.

The petitioner is not entitled to the maximum earned income credit provided for in section 31(a) of the Revenue Act of 1928 in respect of royalties, computed upon a per ton basis, received under certain contracts with licensees embodying the use of patents relating to the process of sintering.

1. BUILDING AND LOAN ASSOCIATION. - Held, that petitioner is not exempt from tax as a building and loan association. 2. PENALTIES. Held: that petitioner is not exempt from tax as a building and loan association. 2. PENALTIES. Held, 25 per cent penalty properly imposed where petitioner failed to file returns. 3. STATUTE OF LIMITATIONS. Held, assessment and/or collection not barred.

Where upon execution of an oil and gas lease a lump sum is received by the lessor in lieu of bonus and royalties, the amount thereof is income in the year in which it is received.

1. The petitioner was eligible to file his election not to come within the provisions of section 702(a) of the Revenue Act of 1928 in the computation of gain or loss from the sale of property in his hands as executor of an estate, but if exercised, such election results only in the recomputation of gain or loss from the sale of assets in the hands of an estate under provisions of law effective at date of filing the return. 2.

The petitioner acquired certain property in exchange for its capital stock and is taxable on the income therefrom.

1. COMMISSIONS - ACCRUAL BASIS. - The petitioner made real estate mortgage loans bearing interest at a specific rate. Held: the total amount of commissions on loans so made in any particular year is taxable income for that year. (Columbia State Savings Bank,15 B.T.A. 219, followed.) 2. DEDUCTIONS.

In December 1918, decedent created two trusts for the benefit of his two daughters, providing that the income therefrom should be paid to them during their lives, and, upon their respective deaths,… Held: the value at decedent's death of the corpus of the trusts is taxable as a part of decedent's gross estate. Klein v. United States,283 U.S. 231.

Upon the facts, the respondent is sustained in his determination that certain taxes and interest were paid by the petitioner in 1923 as a part of the purchase price of the real estate acquired at the time of the payment thereof.

The petitioner is not an exempt corporation within the meaning of sections 231(7) and 103(7), respectively, of the Revenue Acts of 1926 and 1928.

1. TENANTS BY THE ENTIRETY - INCOME THEREFROM IN MASSACHUSETTS TAXABLE TO THE HUSBAND. - Petitioner and his wife were domiciled in the… Held: that under the laws of the State of Massachusetts the husband has the absolute and exclusive right to the control, use, possession, rents, issues and profits of property held as tenants by the entirety and therefore dividends and interest received from such property during the taxable year in question were all taxable to the husband.…

No petition may be filed with the Board in the name of a dissolved corporation of Maryland by a receiver appointed by a state court of equity. Sec. 274(a), Revenue Act of 1928.

On September 23, 1924, the decedent then being retired from business and 76 years of age, and suffering from hardening of the arteries, conveyed certain real estate to his wife and children as a gift. Held: upon the evidence, that the gifts were made in contemplation of death and that the property should be included in the decedent's gross estate.

Where individuals carrying on a business in a partnership permit the net earnings of the partnership to be applied against a corporation's indebtedness for which they are liable as endorsers, held,… Held: their distributive shares of such net earnings are properly included in computing their net incomes.

The petitioner and five other individuals entered into a partnership agreement in 1923 which, due to the death during the term of a member of the partnership and controversy between the surviving… Held: the Commissioner's action is approved.

1. Where stockholders make advances to a corporation and the debts to them are subsequently assumed, first, by a partnership of which they are the sole members and, second, by a corporation in succession to such partnership in which they are the principal stockholders, held, that such debts were not worthless in the taxable year. 2. Where petitioner, on the cash basis, as endorser, during the taxable year gave his individual promissory note for $10,000, and paid, in cash, accrued interest amounting to $99.17, in taking up the note of an insolvent maker, only the interest payment will be allowed as a deduction from his income in that year, where payment of the principal left is postponed to a future period. United States v. Whitehall,271 U.S. 9 3. Other bad debt claims and losses made in these proceedings are disallowed for the want of proof to sustain them. 4. Under the facts shown, negligence penalties imposed by the respondent under section 275(a) of the Revenue Act of 1924 are justified and must be sustained.

The petitioner was placed in receivership by order of a United States District Court in 1925. Held: that the petitioner is not entitled to any deduction in the taxable year ended August 31, 1928, on account of the expenses of the litigation, in the absence of proof as to what part, if any, of the expenses was a liability incurred by it in that year.

1. In 1926 one of the petitioners owned an undivided two-thirds interest, and another an undivided one-third interest, in certain real estate which was sold in said year for a total lump sum or… Held: that the owner of the two-thirds interest received an initial payment in excess of one-fourth of the purchase price, and that the transaction was not an installment sale within the meaning of section 212(d) of the Revenue Act of 1926. 2.

In the circumstances herein it is held that petitioner and his wife elected to file separate income tax returns for the year 1924 under the provisions of section 223(b) of the Revenue Act of 1924.

When two affiliated corporations make a consolidated return and include therein a duly executed Form 1122, directing that none of the tax due therein shall be assessed to the subsidiary corporation, the Commissioner must assess such tax in conformity with the agreement between the corporations. In such circumstances the parent corporation only is subject to assessment.

The owner of a note secured by collateral took no steps prior to or within the taxable year to reduce collateral to ownership and was in possession thereof at the end of such year. Held: that in such circumstances there is no identifiable event to indicate a closed transaction resulting in loss; held, also, that the evidence does not show that the note was worthless in the year in which it was charged off and the amount thereof, less certain credits, deducted from income.

Where funds were withdrawn from a joint bank account of husband and wife in which the owners have equal rights, and invested in shares of stock with the understanding that profits from the stock would be divided equally between them, only one-half of the gain realized from the sale of shares of the stock is taxable to the husband.

Distributions to a widow who elected to take under the will of her husband instead of her statutory dower rights under the statutes of Massachusetts, may not be deducted by the trustees in the computation of net taxable income of the trust.

1. On September 27, 1923, decedent created a trust in favor of his wife, consisting of certain shares of stock of Central Steel Company. The decedent reserved the right to revoke the trust by a notice to be given during the month of December, 1924, or December of any subsequent year, the revocation to be effective on or after the first day of January next succeeding. Held, that the value of the trust property is includable in the gross estate of the decedent. 2. In May, 1923, the decedent received $170,000 for certain extraordinary services to be rendered by him in the construction of a blast furnace and coke plant. He died before any such services were rendered and a claim was made against his estate for the return of the money, which claim was settled by his executrices by the payment of property and cash of a value of $133,000. Held, that the claim against the estate settled in the amount of $133,000 is a legal deduction from the gross estate.

1. SALE - WHEN COMPLETED AND TAXABLE. Where vendor corporation entered into a contract in October, 1922, to sell its hydroelectric power plant to the Commonwealth Power, Railway and Light Company and the purchase price was agreed upon and 10 per cent thereof was paid in 1922 and where under the terms of the contract the seller was to retain possession of the property and operate it and retain the revenues therefrom until in 1923, when the deed to the property was to pass and the balance of the purchase price was to be paid, held, the sale was consummated and taxable in 1923. Lucas v. North Texas Lumber Co.,281 U.S. 11. 2. March 1, 1913, value of hydroelectric plant determined. 3. Installment Sales. Where facts are as stated in headnote 1, petitioner is not entitled to have profits computed on the installment basis under the provisions of section 212(d) of the Revenue Act of 1926, retroactively applied by section 1208 thereof. The sale was consummated in 1923 and in that year petitioner received more than 25 per cent of the agreed purchase price. Warren National Bank,22 B.T.A. 759, followed. 4. Accruals of Interest. Interest liabilities of a taxpayer on an accrual basis should be accrued when all events have occurred which fix the time of accrual. Continental Tie & Lumber Co. v. United States,286 U.S. 290. Held, under the facts of the instant case, petitioner was entitled to no greater deduction for interest accrued in 1923 than that shown to have been accrued on its books in that year and taken as a deduction in its income tax return for 1923.

1. PENSION TRUST FUND - REQUIREMENTS FOR DEDUCTIBILITY OF PAYMENTS THERETO UNDER SECTION 23(Q), REVENUE ACT OF 1928. Where petitioner's stockholders and directors in 1929 passed resolutions to create a pension fund to pension its employees and during the taxable year set up as a liability on its books a reserve of $8,000 labeled "Pension Reserve Fund," this book entry was not such a transfer or paying into a pension trust fund as is contemplated by section 23(q), Revenue Act of 1928, to make such amounts deductible. Merrill Trust Co.,21 B.T.A. 1409, followed 2. INSURANCE RESERVE. Where the petitioner set up a reserve as a life insurance fund to protect its president, who was too old to take out life insurance at anything like a reasonable rate, instead of purchasing life insurance, said fund is not deductible in the taxable year as no liability was incurred nor payment made therefrom. Spring Canyon Coal Co.,13 B.T.A. 189, followed. 3. DEPRECIATION. Evidence examined and respondent's findings approved.

The deduction to which a taxpayer is entitled under section 23(n) of the Revenue Act of 1928 is the same amount, whether or not he elects to be taxed in accordance with section 101(a).

1. The former estate of a decedent is not liable as a transferee or as the representative of a deceased transferee for the deficiency of a dissolved corporation after the bona fide discharge of the executors if the dissolution and liquidation of the corporation occurred long before the decedent's death and the executors had no notice of or claim for transferee liability before their discharge. 2. Semble that a notice to an estate of "its liability as a transferee" means that the estate and not the decedent has been determined by the Commissioner to be the transferee.

1. Under the circumstances herein, held that petitioner has not shown that certain stock was not acquired by gift after December 31, 1920, within the meaning of section 202(a)(2) of the Revenue Act of 1921. The basis to be used in determining gain or loss upon the sale thereof by the trustee is the cost of such stock to the grantor. 2. Section 202(a)(2) of the Revenue Act of 1921 is constitutional. Taft v. Bowers,278 U.S. 470. 3. Held, petitioner is not entitled to have its tax computed under section 206 of the Revenue Act of 1921, since the property was not held for more than two years.

1. Since this Board is given by statute authority to prescribe the rules of practice and procedure under which proceedings before it shall be conducted, it has the power to consider, and to take such action thereon as its sound discretion dictates, motions to vacate decision, to grant new trial, to reconsider, to reopen, and the like, at any time before its decision becomes final as provided by statute, and the cause then passes beyond its control. 2.

1. The gross income of a life insurance company may not be increased by the amount of the rental value of space occupied for business purposes in the home office building owned by it, and deductions for expenses pertaining to such building may not be denied because such rental value is excluded from gross income. LaFayette Life Insurance Co.,26 B.T.A. 946. 2.

In order to compose family differences arising out of a business transaction the petitioners paid $50,000 to a relative in California. Held: in the circumstances of the case, that the amount paid was a gift.

Held, that income derived from brokerage accounts opened and operated by the petitioner in the names of his three minor daughters was in fact income of said daughters, and is not taxable to the… Held: that income derived from brokerage accounts opened and operated by the petitioner in the names of his three minor daughters was in fact income of said daughters, and is not taxable to the petitioner.

Amounts, based upon its net profits, paid by a partnership to the estate of a deceased member of a former partnership to satisfy, in part, the liability of its members for the purchase price of assets acquired from the estate on the dissolution of the old partnership, held not to be deductible in determining the net profits of the partnership distributable to its members.

1. The maintenance of a park by a city for the sole benefit of the public and not for private profit to the municipal corporation is a governmental or public function. 2. Salary received by the superintendent of parks of New Bedford, Massachusetts, held to be exempt from taxation under the Revenue Act of 1928.

The contracts under the stock subscription plan here involved being contracts of purchase and sale of stock and not contracts of employment, the difference between the subscription price of stock and its market value when issued is not deductible as additional compensation to employees; nor is the value of preferred stock issued in lieu of dividends deductible as additional compensation.

1. Held that the income of a trust which was accumulated in the discretion of the trustees, and not paid or credited to the beneficiaries, is taxable to the trust. 2. The provisions of a will construed and held to create a single trust.

1. Liability for additional income and profits taxes was incurred by the petitioner corporation for the years 1920 and 1921, during which years all of its capital stock was owned by another… Held: the collection of said deficiencies from the petitioner corporation would not constitute a taking of the property of its present stockholders without due process of law, in violation of the Fifth Amendment to the Constitution. 2.

A testamentary trust was created to conserve an estate, with powers to the trustees to change the form of investments. Held: the estate was not engaged in a trade or business regularly carried on, within the meaning of section 204(a) of the Revenue Act of 1921, and was not entitled to the benefit of the net loss provisions for the years 1924 and 1925.

Petitioner is the sole distributee of the assets of an estate against which the Board on November 19, 1929, redetermined a deficiency. Held: that a proceeding to collect such deficiency from him as a transferee was timely begun on December 4, 1930.

A dividend declared by petitioner corporation, payable in stock of another corporation and so paid, did not give rise to taxable gain.

A loss sustained by a parent corporation upon the sale of its subsidiary's stock, which sale terminates the affiliated status, is not deductible from consolidated income for the period of affiliation, but is deductible from the parent corporation's income for that portion of its taxable year which falls outside the period of affiliation. Remington Rand, Inc. v. Commissioner, 33 Fed.(2d) 77; Riggs National Bank,17 B.T.A. 615.

A corporation organized for the clearance of contracts made on the New York Produce Exchange is held not to be a business league exempt from income tax.

Petitioner, a married man who filed a separate income tax return for the year 1927, is not entitled to deduct from his gross income the amount of real property taxes paid by him upon property which he had in a previous year transferred to his wife and which in the year in question was owned by her, since such taxes were not imposed upon him by the taxing authority.

In his lifetime the decedent created three trusts, reserving to himself no interest whatever in the first two, but reserving the right to dispose of by will the remainder after the life estate of the… Held: the corpus of the first two trusts is not to be included in the decedent's gross estate; the present value (as of the date of the decedent's death) of the remainder interest in the third trust should be included in the decedent's gross estate.

Held that the community property laws of Louisiana, where petitioner was married, do not attach to personal property acquired after he abandoned his domicile in that State.

Fee paid by petitioner to attorney for services rendered in recovering award from Mixed Claims Commission compensating for seizure of private automobile during war held a personal expense, not deductible from gross income.

Where the petitioners purchased certain shares of corporate stock shortly prior to the declaration of a dividend, which dividend they expected to be declared and which influenced them in the price… Held: the Commissioner did not err in including in the taxable income of the petitioners for the year 1926 the full amount of the dividends received by them during that year.

1. A contract is not divisible where its terms are made interdependent and to be performed simultaneously. 2. Purchases and sales at par, of corporate preferred stocks, upon which the dividends are regularly paid, are evidence that the fair market value of the stocks is at least par.

1. Petitioner held to be an association taxable as a corporation. Trust No. 5833, Security-First Nat. Bank of Los Angeles v. Welch, 54 Fed.(2d) 323, followed. 2. Held: upon the evidence, that the sales contracts did not have a fair market value in excess of 50 per cent of their face at the time of the sales. 3. Under the sales contracts the purchasers of lots agreed to pay the city and county taxes on such lots.

1. The taxpayer was one of seven beneficiaries under a will which placed certain property in trust and provided that the income therefrom should be paid to these beneficiaries. Held: that the amounts thus paid were properly included in the taxpayer's gross income for the respective years; held, further, that the amounts were not deductible from the taxpayer's income as ordinary and necessary expenses paid in carrying on any trade or business. 2.

1. Bonus payments received in consideration of leases on oil lands may not be reduced by an allowance for depletion where there is no well on the property; 2. And are not to be taxed as capital net gain. 3. Amounts paid as assessments for interest on bonds of reclamation district are deductible from income.

Under date of December 31, 1917, petitioner acquired all the assets of its wholly owned subsidiary in liquidation and thereby realized a profit on the disposition of its stock in the subsidiary in an… Held: under the principles enunciated in Burnet v. Aluminum Goods Mfg.

A net loss of a New York corporation for 1924 and 1925 may not be deducted in 1926 by a Maryland corporation with different powers and different capitalization which has bought the New York corporation's shares and business and files a separate return.

In 1927 the petitioner's husband, in contemplation of death, made a gift to the petitioner of shares of stock. Held: that under section 204(a)(5) of the Revenue Act of 1926 the proper basis for the computation of gain or loss upon such sale is the value of the stock at the time the gift was made, that being the time of such acquisition.

The petitioner, a California private corporation, and a California reclamation district, a public corporation, are separate and distinct entities. Upon the sale of property by the petitioner to the reclamation district, the petitioner realized taxable gain in the amount of the difference between the cost of the property sold and the amount received therefor.

Petitioner contracted to pay a fixed charter hire for seven cargo ships, and to operate them. Held: payments made by petitioner under the contract, over and above the fixed charter hire, did not constitute taxable income to the petitioner.

1. The fair market value on March 1, 1913, of shares of American Wire Fabrics Companyheld upon the evidence to be $200 each. 2. The fair market value on July 1, 1919, of shares of American Wire Fabrics Companyheld upon the evidence to be $250 each. 3. The amount received in 1922 by petitioners, shareholders of American Wire Fabrics Company, in respect of each share, held in the circumstances to be part dividend and part sale price in amounts established by the evidence.

The relinquishment of claim to dividends upon stock owned by a trust by a beneficiary entitled to receive the net income of the trust does not constitute such an assignment as will relieve the assignor from tax thereon.

Where the facts reveal cogent reasons for the issuance by a corporation of a stock dividend of preferred stock and equally sound reasons for the subsequent retirement of part of such preferred stock, there appearing no concerted plan or observable connection between the two transactions and the corporate cash dividend policy evidencing no studied intent to avoid taxation, the redemption of such stock is not essentially equivalent to the distribution of a taxable dividend…

The petitioner holds the legal title to securities belonging to many beneficiaries. At the behest of a "managing company" it makes purchases and sales of securities. The income and profits are distributed to the beneficiaries upon the order of the managing company. Held, that the petitioner is an association within the contemplation of the Revenue Act of 1928.

Amount paid to petitioner as interest, in addition to the principal sum awarded by the Mixed Claims Commission as damages for personal injuries, should be included in gross income.

Interest paid on an open account by a resident individual to nonresident aliens, held income from sources in the United States within the meaning of section 119(a)(1) of the Revenue Act of 1928.

1. In 1924 petitioners and other ice companies acquired all the stock of the Louisville Ice and Storage Company. Held: the evidence establishes that that stock became worthless in 1930 and petitioners are entitled to a loss deduction for that year in the amount of the cost of the stock. 2.

1. The petitioners sold in 1928 shares of stock in a corporation which they had purchased in December 1927, through the exercise of an option to purchase given to them in 1922. Held: that the profits realized by them upon the sale constitute ordinary income and not capital gain. 2.