Volume 28 — Board of Tax Appeals

1. BASIS FOR GAIN OR LOSS UNDER SECTION 204, REVENUE ACT OF 1926. - An option on oil stocks, acquired in 1925 by an individual, Pforzheimer,… Held: that the exchange of Homad Corporation stock for the stock of Satterfield Corporation is not within any of the exceptions listed under section 204(a) of the Revenue Act of 1926, and the basis of Homad Corporation stock in the hands of Satterfield Corporation was cost and that such cost was the then value of the Homad Corporation…

In December 1922, petitioner T. J. Primm made an oral declaration that he would operate a certain cotton-trading account for the benefit of his wife and children. Held: the income from the trading account was first income to Primm and taxable to the marital community in 1923.

Where a transfer of property is made by a mother in trust for her children for a consideration, less than the fair market value at the date thereof, the difference between such value and the actual consideration passed must be regarded as a gift and the basis for computing profit realized in subsequent sale of such property by the beneficiaries is the fair market value of the property at the date of the acquisition by the trustee.

A four-party partnership was terminated by the death of one of its members. Held: that under the laws of Texas liquidation in kind followed the death of the member of the first partnership and that the cost of the assets of the new partnership is the fair market value thereof in the hands of the contributing partners and that such cost is the basis for computing depreciation on the partnership assets acquired by…

In computing consolidated net income for 1928 of affiliated corporations having prior net losses, intercompany transactions which in any way effect the total net income or the separate net income or apportioned tax of any memebr must be eliminated.

The decedent as a stockholder of the Sandusky Cement Co. in 1926 received a distribution from that company of bonds of a railway company, which the Cement Co. had acquired by purchase in 1922. Held, that the bonds received constituted a taxable dividend to the decedent to the amount of their fair market value at the date of receipt.

The disposition, in 1928, by a corporation of a composite of all the shares of a second corporation and certain other assets to a third corporation for a composite consideration of some shares of the third corporation and cash, results in recognizable gain or loss, and is not within sections 112(b)(3) or 112(c)(1), Revenue Act of 1928.

Upon the evidence, held, that a gift of certain bonds was made in 1920 and not in 1925, as determined by the respondent.

1. A decedent bequeathed to his widow $1,000 per month, payable out of the income from his real estate. Held: petitioner's payments under that agreement were capital expenditures, not deductible in computing taxable net income. 2. In 1923 and also in 1925 petitioner sold stock in a corporation, at less than cost.

For many years petitioner was allowed depletion deductions upon the basis of the March 1, 1913, estimate of recoverable oil reserves. Held: respondent had authority to reestimate the amount of reserves and to compute allowable depletion deductions upon the new basis.

A taxpayer acquired stock from his daughter-in-law. He paid her more than the stock was worth at the time in order to help her out of financial difficulties. Later he sold the stock for less than he had paid for it and for less than it was worth at the time he acquired it. The Commissioner allowed him a deduction representing the difference between the amount received for the stock and the fair market value of the stock at the time it was acquired. The taxpayer was not entitled to any greater deduction.

1. The petitioner, a corporation, purchased assets of another corporation, giving in part payment 7,500 shares of its 7 percent cumulative preferred stock. Held: upon the petitioner's repurchase of the stock, under this agreement, the amount paid for each share in excess of its par value represented a part of the purchase price and not interest due upon a corporate obligation. 2.

1. In 1925 petitioner contracted to sell his interest in a corporation for a fixed price, about two thirds of which was to be paid in monthly installments, the balance in cash at the time of contract. Held: the sale was consummated and the loss occurred in 1926. 2. Year when loss was sustained upon money loaned determined.

A transferred the bulk of his personal property to trustees under a deed of trust which made final disposition of the property upon termination of the trust, and reserved to himself power of revocation and right to direct trustees in sales and reinvestment of trust property. On the same day he executed a codicil to his will. The trust was not revoked; there is no evidence respecting control exercised by A over trust property. Upon A's death, his widow elected to take under the will, which left the entire estate to her. The value of the trust property was subjected to Federal estate and state inheritance taxes. The trust income was paid to the widow after A's death, as provided in the trust instrument. Held: 1. Creation of the trust and transfer of property to trustees divested A of ownership and, since the property was not repossessed during A's lifetime, it was not a part of his estate upon his death in which his widow would have dower interest. 2. Relinquishment by the widow of dower right by election to take under the will did not serve to purchase for her an interest in the trust property, the value of which might be returned to her tax free.

SECTION 704(b), REVENUE ACT 1928 - TAXABILITY OF INCOME TO THE BENEFICIARY OF A TRUST FILING AN ELECTION TO BE TAXED THEREUNDER. - Where the trustee under a declaration of trust which was created and operated for the sole purpose of liquidating real property as a single venture, distributing the proceeds therefrom in due course to or for the benefit of the beneficiaries and discharging indebtedness secured by the trust property, elected to be taxed under section 704(b) of…

Deposit of stock with trustees under a separation agreement held to be deposit of collateral to insure performance of petitioner's obligations under the contract, and not an irrevocable transfer of title and ownership of the stock. Held, further, that the dividends thereafter paid on the stock, although received by the trustees, were income to petitioner.

1. Where the nontaxable profit resulting from the sale of the stock of a subsidiary corporation is included in a lump sum received for such stock and the bonds of the same subsidiary, and there are no facts establishing the separate cost of the stock, the claim for the noninclusion of such profit in income is not sustained by evidence and the determination of the Commissioner that the entire profit is taxable must be approved. 2.

The condemnation of a lot owned by taxpayers, the purchase of other lots, the transfer of the latter lots to an existing corporation of which taxpayers are the only shareholders, and the lending to… Held: in all the circumstances, not to be a transaction free from the recognition of gain within section 112(f), Revenue Act of 1928.

Return filed by petitioner which included the results of operations of its predecessor within the year without showing separately petitioner's income, deductions, and credits, does not comply with the statutory requirements regarding returns and is insufficient to put the statute of limitations in motion.

1. The decedent, who died a nonresident of the United States on September 4, 1925, created a trust fund January 1, 1920, the income of which was to be paid to his daughter for life, with remainder over. The instrument provided that if the daughter died prior to the decedent the principal of the fund should be paid to him. Held, the value of the remainder interest was not includable in decedent's gross estate. 2. At the date of his death the decedent owned property located in the United States consisting of shares of stock, bonds, etc., the symbolical evidences of which were located in the United States. Held, the value of such property constituted part of the decedent's gross estate.

On its income tax returns, which were filed on the basis of cash receipts and disbursements, the petitioner deducted amounts as salaries which it neither paid nor credited in the taxable years. Held: the deductions should be disallowed and the fraud penalties affirmed.

Respondent allowed amortization deduction in computing deficiency in tax for the fiscal year ending 1918. No appeal was taken, but the parties were in controversy over the matter for several years. Held: such deficiency was attributable to change in deduction tentatively allowed, and under section 278(b), Revenue Act of 1926, the statute of limitations became inoperative.

Under the terms of the trust instrument here involved it is held that only a single trust estate with three beneficiaries was created and in existence in the taxable year.

1. A corporation engaged in the life insurance business is entitled to a deduction for exhaustion of furniture and fixtures used in both the underwriting and investment departments of its business. Held: petitioner is entitled to deduct from its gross income in 1928 so much of the expenditure made to acquire the unexpired term of the old lease as is allocable to 1928, and also the unexhausted portion of the cost of the new lease.

1. STATUTE OF LIMITATIONS. - MEANING OF "REQUIRED RETURN" AS USED IN SECTION 1009(b) OF THE REVENUE ACT OF 1924, AND SECTION 1109(a)(2) OF THE REVENUE ACT OF 1926. - Where decedent died March 4, 1920, and the estate tax return was not filed until June 29, 1925, the return was not the "required return" and assessment and collection were not barred on August 10, 1927, when the Commissioner mailed his deficiency notice. 2. ESTATE TAX - SHARES OF STOCK IN A DOMESTIC CORPORATION OWNED BY NONRESIDENT ALIEN. - Where at the time of his death, the decedent, a nonresident alien, owned shares of stock in domestic corporations and the certificates of stock were held by custodians in New York City, the value of such stock at the date of decedent's death is properly included as a part of his gross estate. First National Bank of Boston v. Commissioner, 63 Fed.(2d) 685; Burnet v. Brooks,288 U.S. 378. 3. STOCKS DEPOSITED IN ESCROW - OWNERSHIP. - Where prior to his death, decedent had contracted to purchase certain shares of stock from the estate of one of his brothers and had agreed to pay therefor in ten annual installments and the shares of stock so purchased were deposited in escrow with a custodian under an agreement that as fast as decedent made payments title to a proportionate part of the stock should be vested in him, only the value of the stock paid for at time of decedent's death, so far as the certificates of stock are concerned, should be included as a part of his gross estate. He did not own the stock held in escrow which had not been paid for. He only owned the right to purchase it. Anthony Schneider,3 B.T.A. 920. 4. CONTACT RIGHTS - SITUS IN CASE OF A NONRESIDENT ALIEN DECEDENT. - The value of the right which decedent had to purchase the balance of the stock at less than its fair market price and have the title thereto vest in him was intangible personal property. The contract providing for such purchase, together with the shares of stock to which it related, were deposited with the Guaranty Trust Company of New York City at the time of decedent's death and under the doctrine announced by the Supreme Court in Burnet v. Brooks, supra, the value thereof is properly included as a part of decedent's gross estate situated in the United States.

1. Expenses incurred in connection with the issuance of preferred stock which by its terms was to be retired at the rate of 3 percent per year, held not deductible either in the year paid, or ratably… Held: the difference between the sale price of the stock and its fair market value at the time the right to purchase it was acquired by service is deductible as additional compensation for services rendered. Haskell & Barker Car Co.,9 B.T.A. 1087, followed. 3.

Where the insured, at the time of his death, has the right to change the beneficiary and to direct under options in the policy how the proceeds shall be disposed of, and the instruction in force at death directs that the insurer shall retain the face amount and pay interest thereon at a prescribed minimum rate to successive beneficiaries for life, and then pay the remainder to another, the fund and interest are subject to disposition of the insured until his death, and the…

The Board has jurisdiction of a proceeding brought by a transferee for the redetermination of its liability for interest on a deficiency in tax of the transferor. So held where the deficiency had already been determined in a proceeding brought by the transferor and paid.

A taxpayer adopting the reserve method of treating bad accounts may not deduct as an addition thereto an amount in excess of that necessary to maintain a reserve commensurate with the taxpayer's experience and prospects at the time the addition is made; and an allowance by the Commissioner for a prior year does not bind the Commissioner to approve the method by which the amount was computed if such method results in an unreasonable addition for the year in question.

The petitioner, a newspaper corporation, purchased the circulation structure and part of the physical assets of a competing company for an agreed price based upon an appraisal of the assets taken… Held: under the facts shown, the petitioner's acquisition of the assets involved was by purchase and not through reorganization as defined in section 203 of the 1924 Act.

The decedent, the grantee of a special power of appointment of an interest less than a fee, by will appointed her husband to receive the income from certain trust property during his life. Held: no part of the trust property is to be included in the decedent's gross estate.

1. An amount representing bonus for an oil and gas lease which was impounded by a court pending decision as to the title to the land is income to its recipients as of the date the court rendered its… Held: that a certain instrument is not evidence of a sale of real estate but is an oil and gas lease in the usual form and amounts received thereunder as bonus and royalties constitute income subject to deductions for depletion.

In the absence of sufficient proof to overcome the presumption that the property acquired by the petitioner and his wife after marriage was community property under the laws of the State of California, held, that the income received by them in 1924 and 1925 from such property is taxable in its entirety to the petitioner as community income.

In 1919 a corporation of which the petitioner was an employee sold to the petitioner five shares of its capital stock at the par value of $100 per share, which stock at that time had a fair market… Held: that the basis for computing the profit realized by the petitioner on the sale of the stock in the taxable year 1928 is the fair market value at date of acquisition. Robinson v. Commissioner, 59 Fed.(2d) 1008.

Amounts of debit balances as of December 31, 1924, standing on books of corporation as accounts receivable and representing withdrawals previously made by petitioners from corporation in which they were stockholders held to be income to them not when withdrawals were made, but in 1928 when, by appropriate corporate action, the balances were canceled and charged against surplus.

1. Petitioner is the testamentary trustee of the residuary estate under the will of Theodore Roosevelt, who at the date of his death had a vested remainder interest in a testamentary trust created by… Held: that the petitioner acquired by bequest Theodore Roosevelt's remainder interest in the Cornelius Roosevelt trust as of the date of death of Theodore Roosevelt. 2.

1. By her will the decedent gave to her executors the sum of Two hundred thousand Dollars ($200,000) or such part of that amount as in their judgment may be required for the purpose of establishing a… Held: that the amount is a legal deduction from the gross estate in the determination of the net estate subject to estate tax under section 303(a)(3) of the Revenue Act of 1926.

1. Assessment and collection held not barred by the statute of limitations. 2. Held: the transfers were sales by petitioners to the new enterprise, rather than, in effect, distributions in kind to petitioners' stockholders.

In the circumstances herein it is held that the petitioner is not a dealer in personal property on the installment plan and, therefore, is not entitled to the benefit of the relief provision of section 705 of the Revenue Act of 1928.

1. BAD DEBT DEDUCTION. - An indebtedness which was not determined to be worthless until some time during the year 1928, and which was not charged off the books until subsequent to the close of 1928, may not be deducted from gross income for 1927. Rufus H. Syfers,22 B.T.A. 736. 2. FACTS RELATING TO TAXES FOR OTHER YEARS. - Petitioner having appealed for the redetermination of a deficiency for 1927, and having offered no proof to show that losses alleged to have been sustained on account of embezzlement in 1925 and 1926 would result in net losses affecting its tax liability for 1927, we are without jurisdiction to determine whether or not such losses are allowable for the prior years. Sec. 274(g), Revenue Act of 1926. 3. EMBEZZLEMENT LOSSES. - Where a stockholder who owned 50 percent of the petitioner's stock borrowed or withdrew corporate funds over a series of years and charged same to his open account on the corporation's books, with the knowledge and implied consent of the other stockholder, who likewise owned 50 percent of the stock, although such withdrawals were not authorized by formal action of the directors nor under the by-laws, said amounts, upon the subsequent insolvency of the borrowing stockholder, did not constitute allowable deductions as losses resulting from embezzlement.

1. Under the terms of the trust deed here involved it is held that only a single trust estate with specified beneficiaries was created. J. C. Wynne et al., Trustees,28 B.T.A. 125, followed. 2.

Where a municipality owns its water plant and operates it through a board, the members of which are appointed by the municipal authorities, held, the salary of the president of such board is subject… Held: the salary of the president of such board is subject to Federal income tax. Following C. S. Denman,27 B.T.A. 256.

Promised gift of stock held not completed until delivery of certificates; and dividends received before that time held taxable as a part of petitioner's income although by him divided with his daughters.

1. An individual, owner of a lease on certain oil land, sold a limited number of shares of beneficial interests in the prospective production from an oil well to be sunk thereon to the petitioners,… Held: the interest holders so organized and operating were an association taxable as a corporation, as determined by the Commissioner. 2.

Held that assessment of the transferee liability of the petitioners for unpaid income and excess profits taxes of the Navarro Lumber Co. for 1919 and 1920 is not barred by the statute of limitations.

In the circumstances herein the petitioner received no dividends constructively in the taxable years.

Where a right to royalty of oil produced is reserved in an assignment of a lease covering oil land, the lessee-assignor is entitled to take depletion as a deduction. Palmer v. Bender,287 U.S. 551.

1. Interest allowed by the Director General of Railroads on the cost of additions and betterments made during the period of Federal control held to be income during the period rather than in a later year when final settlement was made. 2. Back mail pay allowed to the petitioner pursuant to an order of the Interstate Commerce Commissionheld to constitute taxable income in the year when received. International-Great Northern R.R. Co.,24 B.T.A. 726, followed.

1. A business conducted by a husband alone, to which his wife contributed funds which she was willing to loss if the business were not successful, held, upon the evidence, not to be the business of a… Held: upon the evidence, not to be the business of a partnership with distributable income, but the business of the husband alone, the income being entirely taxable to him. 2.

- Where in 1928 the taxpayer exchanged stock which it owned in three certain corporations for stock in another corporation and returned for taxation a profit resulting from such transaction based on what was designated in the income tax return of the taxpayer as a trading price of $117 per share and the Commissioner accepted this figure as representing the fair market value of the stock in question in his determination of the deficiency, the correctness of the Commissioner's…

1. Where all essential facts indicating worthlessness of a debt were known to the petitioner in 1927, he is not entitled to charge off the debt and deduct the amount thereof from gross income for… Held: amount constituted income to the petitioner for the year 1928. Wild v. Commissioner, 62 Fed.(2d) 777, distinguished. 3.

1. Corporate stock received by a partnership as compensation for services rendered should be included in partnership net income at its fair market value when received. 2. In the circumstances disclosed the fair market value of rights to subscribe to stock of a different corporation from the one issuing the rights did not constitute a taxable dividend.

1. Where a grantor created a trust but retained during his life absolute dominion over the personal property and the rents, issues, and profits of both real and personal property of the trust, the… Held: there is not sufficient distinction between acquisition and holding by such a trust under such circumstances and acquisition and holding by the taxpayer to permit a deduction for loss under section 214(a)(5). 7.

The petitioner entered into a contract for the sale of substantially all its tangible and intangible assets for a stated consideration in cash. At the same time it was a party to a second agreement in which it agreed to accept bonds and stock of the purchaser from a third party and to assign to such third corporation its right to receive cash from the purchaser in the amount of the par value of such securities. In accepting such securities the petitioner agreed to sell the entire amount thereof to the third corporation at stated intervals and in fixed amounts for cash. Held, that the petitioner sold its assets and is taxable on the gain resulting therefrom in the amount determined by the respondent.

Held, that the petitioner was not taxable as a corporation in any part of the taxable year and that a corporation return including income and deductions for two months of such year was filed in error.

Held, under the circumstances of this case, the distribution by a corporation of certain shares of its own stock, pursuant to a resolution of the… Held: under the circumstances of this case, the distribution by a corporation of certain shares of its own stock, pursuant to a resolution of the directors, amounted to a stock dividend, and the price paid for such stock by the corporation cannot be added to the cost of their stock holdings in determining the gain realized by the…

1. ASSOCIATION. - Where the owners of an oil lease create a trust for the purpose of engaging in business for profit by prospecting and drilling for oil and the marketing thereof, and the trust issues common participating oil agreements to the owners of the lease in payment for their transfer of the lease and subsequently sells to some 200 persons 1,200 shares of preferred participating oil agreements at $100 per share, and engages in business during the taxable years under…

The petitioner, in the year 1928, purchased certain of its bonds at a price less than the amount at which such bonds had been previously issued. It did not cancel such bonds, but held them in its treasury throughout the year 1928. Held that the eifference between the issuing price and the price at which petitioner purchased the bonds in 1928 constitutes taxable income in that year.

In 1925 petitioner contracted to purchase certain timber and in part payment therefor agreed to convey its own lands at an agreed valuation, the balance to be represented by its notes. Held: Under the contract petitioner's vendor became the beneficial owner of the lands, petitioner holding legal title in trust. 2. Sale of petitioner's lands was consummated in 1925 and the profit arising therefrom should be included in its income for that year.

Where petitioners, in anticipation of acquisition of new stock through exercise of stock rights, ordered sales of stock and delivered certificates to their broker, who sold shares then owned by them, held sales of old stock were completed transactions, despite petitioners' intention to sell stock not yet acquired, and basis to be used in determining profit is cost of old stock.

The determination by the Commissioner that the admitted book value of stock is its real value for purposes of taxation is not overcome by a bylaw of the corporation requiring stockholders desiring to sell their stock to offer it for sale first to the corporation at a stated price which is less than the admitted book value.

Held, that the petitioners are not taxable on the income in controversy under the doctrine of constructive receipt.

Held, the petitioner is an association taxable as a corporation. Held: the petitioner is an association taxable as a corporation.

The petitioner owns 50 percent of the stock of A corporation. Held: that the amount so paid is in the nature of a capital investment in A corporation and is income to him, taxable as and when received from B corporation.

Held, that decedent's will made no bequest either specifically to any charitable organization or to trustees for charitable purposes, but bequeathed and devised testator's entire estate to his wife… Held: that decedent's will made no bequest either specifically to any charitable organization or to trustees for charitable purposes, but bequeathed and devised testator's entire estate to his wife and two sons in fee simple.

1. Where a deficiency notice is sent to a corporation and its transferee files a petition from the notice, designating itself as the successor of the transferor corporation through change of name only, the Board has jurisdiction to hear the proceeding. Burnet v. San Joaquin Fruit & Investment Co., 52 Fed.(2d) 123, followed. 2.

1. Profits realized from the sale of oil and gas leases should not be included in the basis for computing depletion under section 204(c)(2) of the Revenue Act of 1926. Macon Oil & Gas Co.,23 B.T.A. 54, followed. 2. Where, after selling the bulk of its property for cash, a partnership composed of four individuals, with 1/24 interest held by trustees for undisclosed beneficiaries, transferred the remainder of its property, having a depreciated cost basis of $180,006.37, to a new partnership composed of the same four individuals with readjusted interests, but not including the trustees, for a recited consideration of $70,000, which was entered as an account receivable on the books of the old partnership and as an account payable on the new partnership books, no deductible loss is sustained.

1. Held, the money which petitioner's president invested in stock of a licensee corporation in 1922 and, which, while so invested, was lost… Held: the money which petitioner's president invested in stock of a licensee corporation in 1922 and, which, while so invested, was lost through embezzlement and conversion by said president, was a loss sustained in the prosecution of its regular business in 1922. 2, Held, under the facts shown, the several items which entered into a…

1. DEDUCTION - LOSS. - Held, that petitioner sustained a loss for the year in which its funds were wrongfully taken by misappropriation. 2. Id. - COMPENSATION. - Held, that the petitioner's claim or right of action against the now financially irresponsible persons who wrongfully took its funds did not defeat the asserted deduction in the year the petitioner's funds were wrongfully taken within the meaning of section 234(a)(4), Revenue Act of 1926. 3. NET LOSS. - Held, similar losses in 1924 and 1925 were attributable to the operation of petitioner's business regularly carried on and constitute a proper deduction in computing a statutory net loss deductible from petitioner's net income for 1926.

Held, upon the facts established by the testimony here, that the donations here involved are deductible from the income of petitioner's decedent in the taxable year under the provisions of section… Held: upon the facts established by the testimony here, that the donations here involved are deductible from the income of petitioner's decedent in the taxable year under the provisions of section 23(n)(2) or (5) of the Revenue Act of 1928.

In 1929 the petitioner paid $20,000 for an undivided royalty interest in lands in Oklahoma, including prior owner's right to receive certain impounded royalties. In 1929 she received impounded royalties of $20,672.49 and royalties from current runs of oil of $11,196.37. In the absence of a showing that any part of the $20,000 specifically represented the cost of the prior owner's right to receive the impounded royalties the respondent computed depletion allowance on the basis of the total estimated oil reserve of the properties at the date of purchase and the total production to the end of 1929. Upon the evidence of record the respondent's action is sustained.

The taxpayer, a New Jersey corporation, transferred all of its assets to its successor, a Delaware corporation of the same name, on July 1, 1918, and was dissolved soon thereafter. Held: that said return was not in substantial compliance with the requirements of section 239, Revenue Act of 1918, and did not start the running of the period of limitations.

1. In 1917 the New York Central Railroad Co. paid to a wholly owned subsidiary coal corporation $309,244.64 to enable that corporation to carry certain unused coal lands as an investment. Held: the payment is not deductible as an ordinary and necessary expense. 2. An amount paid to the State of Illinois pursuant to state statute upon the issuance of petitioner's bonds, held deductible as taxes paid. 3.

The decedent and another individual, being the sole stockholders of X Co., sold to X Co. shares of stock in Y Co. Later, after several transactions in the Y Co. stock by which X Co. bought from and sold to outsiders, the X Co. sold to its stockholders (the decedent and his associate) some of the Y Co. stock it had bought from them and additional shares that it had bought from others. The decedent in this manner purchased 37,500 shares of Y Co. stock from X Co. which he sold shortly thereafter. Held, the sale by the decedent was not a sale of capital assets, since he had held the stock sold less than two years.

After contracting to sell its leasehold, petitioner corporation assigned the lease to its two stockholders, who thereafter consummated the sale and received the proceeds. Held that, in taking over and disposing of the leasehold, the individuals acted as agents for and on behalf of the corporation; that the profit from the sale inured and is taxable to the corporation.

1. Where a widow entitled to survivor's share of community property elects to relinquish her right therein and take under the will, she becomes a beneficiary under the will and may take after administration, only that part of the estate which was devised to her. 2.

The lessee of the petitioner's railroad properties assumed the obligation upon an issue of petitioner's bonds in the amount of $12,000,000, upon condition that the petitioner would refund these bonds… Held: that the petitioner's invested capital should not be increased by the amount of the bonds.

1. Where subsequent to the complete organization of a corporation it incurred expenditures for commissions, salaries, advertising, rent, etc., in connection with the sale of a portion of its authorized capital stock, held that such expenditures did not constitute organization expenses and that they do not constitute an allowable deduction as a loss in determining the net income of the corporation in a subsequent year when it surrendered its charter and was dissolved. 2. A deduction claimed as a loss sustained by a corporation upon dissolution and the abandonment of its business disallowed for lack of evidence.

1. Upon the facts herein the amounts of unamortized discounts and costs of issue of petitionerhs bonds and notes retired in the taxable year are allowable deductions from petitioner's income in such year. 2. Premiums incident to the retirement of the petitionerhs bonds in the taxable year, by another corporation, in conformity with terms of a merger agreement are deductible from petitioner's income in such year as a loss. 3.

1. Capital assets sold by executors of an estate within two years after the death of the decedent are not within the provisions of section 208 of the Revenue Act of 1926. 2. The basis for determining gain from the sale of assets of an estate on April 6, 1926, is the value of such property at the date of decedenths death.

1. A dividend declared on December 31, 1925, and credited on that date to the petitioners' account on the books of the corporation is income for 1925, even though not actually withdrawn until 1926. 2. An amount paid by the petitioners in the taxable year to reimburse a corporation for interest paid by it in 1924 and 1925 on indebtedness secured by their home, is not deductible.

On May 3, 1923, the decedent, then living in Shreveport, Louisiana, drew a draft upon his broker in Philadelphia in the amount of $32,500 and deposited same for collection, to which were attached certificates for 26,000 shares of stock of the Shreveport Producing & Refining Corporation; on May 15, 1923, he deposited a like draft drawn upon the broker for $29,177.50, to which were attached certificates for 23,342 shares of stock of the same corporation; on May 12, 1923, and again on May 21, 1923, the decedent loaned to an associate money for the repurchase of these shares from the broker at an advance of one cent per share. This money was loaned on two 90-day notes bearing interest at six per centum per annum, with certificates for the same number of shares of the same stock attached thereto as collateral. The notes were not paid at maturity, but were settled by decedent taking back from his associate the certificates for the share of stock claimed to have been purchased from the broker. Held, on the evidence, that the taxpayers sustained no deductible loss from the alleged sales of the stock.

1. Certain affiliated corporations each sustained net losses in three successive years and the combined net losses in the first and second years exceeded the combined net incomes of the other… Held: such net losses may not be added together and allowed as a consolidated net loss deduction in computing consolidated net income of the entire group for 1924. 2. Consolidated net losses determined.

Held, where corporate stock is transferred prior to payment dates of dividends theretofore declared, such dividends are reportable as gross income of the transferee in the year they become due and… Held: where corporate stock is transferred prior to payment dates of dividends theretofore declared, such dividends are reportable as gross income of the transferee in the year they become due and payable.

- Where the testator devised and bequeathed his estate in trust for the benefit of his wife and children and directed the trustees to hold such estate undivided until the death of the widow and the… Held: that only one trust was created to hold and manage the estate during the lifetime of the widow and until the youngest son reached the age of 30 years and this same trust was to continue to hold the shares of the daughters after the division, directed by the will.

Petitioner, organized as a social club, bought and sold securities in substantial amounts in 1929 and realized a profit therefrom. Held that it was not operated exclusively for the purposes specified in section 103(9) of the Revenue Act of 1928 and is not exempt from tax on its income.

An incorporated club organized to maintain a social club, and to acquire and maintain lands as fish and game preserves for the use of its members, held not entitled to exemption from tax under section 231(9), Revenue Act of 1926, with respect to the profit realized during the taxable year upon a sale of a tract of land acquired long before that year for use as a fish and game preserve, where the primary purpose of the sale was financial gain and part of the profit was…

1. Extra compensation based upon a percentage of annual net profits paid to two employees, from whom petitioner had acquired numerous patents and applications for letters patent, held, in the… Held: in the circumstances, to be deductible in the year in which paid. 2. By an original return filed for 1924, the petitioner changed from the accrual to the installment basis of reporting income.

1. TRANSFEREES. - Where the petitioners, as heirs at law, each received assets of the decedent's estate having a value in excess of the deficiency in estate tax, each is liable for the tax as a transferee, under section 316(a) of the Revenue Act of 1926, notwithstanding the amount of the deficiency had not been determined nor asserted by the Commissioner until subsequent to distribution of the residue of the estate. 2.

During the taxable years the petitioner operated oil wells on several separate properties. Some of these properties were owned and some were leased. In computing the reasonable allowance for depletion under section 204 of the Revenue Act of 1926, and section 114 of the Revenue Act of 1928, held, the computation should be made with respect to each property separately.

The petitioner and her five sisters were named residuary legatees under the will of their brother who died in 1917, a resident of the State of New Jersey. Held: that the foreign sisters, being alien enemies, were barred from taking title to the real estate situated within the State of New York.

1. To the extent that it was in excess of the capital cost of destroyed property not then recovered tax free, an award of the Mixed Claims Commission was income to this taxpayer in 1928. 2. Interest included in an award by the Mixed Claims Commission is taxable income in the year in which it was received.

1. Proceeds from the sale of oil impounded by a receiver appointed by the Supreme Court, held to be income in the year in which payment is made to the owner of the well by such receiver. 2. Depletion should be computed under the provisions of the revenue act effective at the date when such income is realized.

The acts of the Commissioner of Internal Revenue in holding the petitioner's firm to be a partnership in the years involved, sustained under the facts shown.

1. The liability notices herein were timely mailed under the provisions of section 275(a) and 311(b) of the Revenue Act of 1928. 2. Where a taxpayer has no assets at the date of the determination of a deficiency, the respondent, under section 311 of the Revenue Act of 1928, may proceed at once to collect the deficiency from stockholders who have acquired the assets of such taxpayer without consideration. 3.

TRANSFEREE LIABILITY - BURDEN OF PROOF - SECTION 602, REVENUE ACT OF 1928. - Where the Commissioner has asserted a liability against petitioner as the transferee of the assets of a corporate taxpayer and in his petition the petitioner alleges certain errors by the Commissioner in his determination of the tax against the corporation, and admits that he is a transferee of the assets of the corporation but makes no admission as to the value of assets received, or that he is…

1. Fair market value of timber and timber lands on March 1, 1913, determined. 2. Petitioner's right to take deductions from its gross income for funds embezzled by its secretary and treasurer, sustained.

1. The acquisition by one corporation of substantially all the properties of another corporation is not, of itself, a statutory reorganization under section 112(i)(1), Revenue Act of 1928. Held: not a statutory reorganization, the local corporation being taxable upon a gain measured by the difference between the cost of the assets transferred and the sum of the cash and value of shares received, and the individuals being taxable upon the cash dividend received.

1. Discovery value for the purpose of computing depletion on petitioners' interest in a producing oil lease determined. 2. The petitioners are not entitled to deductions for depreciation in 1923 where the depreciable property was sold in 1924, and tax liability on profit from such sale settled under section 606 of the Revenue Act of 1928 without adjustment for depreciation in 1923. 3.

The gratuitous forgiveness by a parent corporation of the indebtedness of a subsidiary to it, for the sole purpose of assisting the subsidiary in its operations and in its business generally, and to improve [its] financial position, does not give rise to taxable income to the subsidiary benefited thereby. The transaction amounts to a contribution by the parent to the capital of its subsidiary.

Where more than 75 percent of the purchase price of personal property was placed in escrow as security for petitioners' agreement to refrain from entering a competing business, and the escrow agent was instructed to release one fifth of the escrow funds each year provided the vendor had not entered a competing business, the vendor is entitled to report the profits resulting from the sale on the installment basis, and receipt of the balance of the purchase price by the escrow agent does not constitute constructive receipt to the vendor, even though the latter has the right to invest and reinvest the funds held in escrow.

Respondent's determination of fair market value of corporate stock, based upon sales of scattered shares, sustained where facts concerning financial condition and business prospects of the corporation and record of stock sales on the Exchange indicate that the stock owned by decedent's estate could have been marketed within a reasonable time at prices at least equal thereto.

Held, under authority of Sterling Oil & Gas Co. v. Lucas, 62 Fed.(2d) 951, the taxpayers' contentions respecting classification of drilling expenses under the optional provisions of articles 223 and… Held: under authority of Sterling Oil & Gas Co. v. Lucas, 62 Fed.(2d) 951, the taxpayers' contentions respecting classification of drilling expenses under the optional provisions of articles 223 and 225, respectively, of Regulations 62 and 65, are sustained.

Where a surviving wife sold during 1927 two parcels of real estate which she and her deceased husband acquired in 1899 and in 1916, as tenants by entireties, held, the basis for… Held: the basis for determining gain or loss is the fair market value as of March 1, 1913, of that acquired in 1899 (it being greater than cost) and the cost of that acquired in 1916; held, further, the date of the death of the deceased husband is not the basic date in such determination.

1. Held, that under the law of New Jersey the petitioner acquired under his father's will a vested interest in certain securities held in trust, and that the time of such acquisition within… Held: that under the law of New Jersey the petitioner acquired under his father's will a vested interest in certain securities held in trust, and that the time of such acquisition within the meaning of section 204(a)(5) of the Revenue Act of 1926 was the date of his father's death. 2.

1. Upon the record, held, that the transfer by the Columbia River Packers Association of its assets to the Columbia River Packers Association,… Held: that the transfer by the Columbia River Packers Association of its assets to the Columbia River Packers Association, Inc., for $1,578,600 and 17,540 shares of no par common stock of the Columbia River Packers Association, Inc., constituted a reorganization within the provisions of section 203 of the Revenue Act of 1924. 2.

1. FRAUD PENALTIES - BURDEN OF PROOF. - In any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade the tax, the burden of proof is placed upon the Commissioner by section 907(a) of the Revenue Act of 1924, as amended by section 601 of the Revenue Act of 1928, and must be sustained by a preponderance of the evidence, and this evidence must be clear and convincing. In these proceedings the Commissioner has not sustained the burden of proof and fraud penalties are denied. 2. DEDUCTIONS - SO-CALLED SALARIES AND BONUSES HELD NOT TO BE SUCH AND THEREFORE NOT DEDUCTIBLE. - In the taxable years certain payments were made to officers and employees of petitioners in a group known as Group I, in addition to their regular salaries which had been agreed upon and these so-called additional salaries and bonuses were immediately paid over to the president of the corporations as a part of a plan whereby the president was to accumulate a million dollars out of the profits of the businesses and then turn over the management to the members of said Group I and retire. Held, that such payments were in the nature of dividend distributions to the president of petitioners and were not allowable deductions to the corporations in determining their net income. 3. CONSOLIDATION OF ACCOUNTS. - Section 240(f) of the Revenue Act of 1926 permits consolidation of accounts only where the facts show that it is necessary to do so in order to make an accurate distribution or apportionment of gains, profits, income, deductions or capital between or among related trades or businesses owned or controlled directly or indirectly by the same interests. In these proceedings the facts show that the books of each corporation were separately kept and accurately reflected all items of income and deductions of each corporation. Under such circumstances respondent's action in making a partial consolidation of accounts and prorating certain expenses was error. 4. INCREASED DEFICIENCIES - SUFFICIENCY OF COMMISSIONER'S AFFIRMATIVE ALLEGATIONS. - Where the Commissioner's amended answer includes an appropriately framed prayer for an additional deficiency against one of petitioners, the prayer must have the support of specific claims in each case based on specific grounds. Cascade Milling & Elevator Co.,25 B.T.A. 946, followed. Held, Commissioner's allegations of specific grounds are insufficient to support the claims made in his behalf as to one series of transactions and as to this claim for increased deficiency, he fails; held, further, that as to another series of transactions, the Commissioner's allegations of specific grounds are sufficient so far as pleadings go, but the evidence is not sufficient to sustain the burden of proof required under Rule 30 of the Board's rules of practice and the Commissioner's claim for an increased deficiency against one of the petitioners on these grounds is denied.

1. A net loss sustained by a corporation prior to affiliation may be applied against, and to the amount of, its income for the succeeding year, after it becomes a member of the affiliated group. The excess of the loss, however, may not be applied against the consolidated income of the group. 2. A corporation keeping its accounts upon an accrual basis may not credit against its domestic tax liability for 1928 amounts paid by it in that year to a foreign government in discharge of additional tax liabilities for prior years, since such amounts are proper accruals for those years to which the tax demands relate.

1. Upon the evidence herein, held, the petitioner is entitled to have its profits tax for 1917 computed under the provisions of section 209 of the Revenue Act… Held: the petitioner is entitled to have its profits tax for 1917 computed under the provisions of section 209 of the Revenue Act of 1917. 2. An amount representing accrued and unpaid wages at the close of the year 1922, deducted by petitioner in computing its net income for that year, allowed as a proper deduction.

1. Amounts received by an attorney from two other attorneys, with whom he entered into partnership on an equal basis, as "differential in division of fees and income of the firm business, due to the conceded excess value of good will and unearned fees of said O'Rear put into the firm" are a part of gross income and the petitioner is not entitled to any offset or deduction in this connection. 2. Basis for deduction for loss arising from fire determined.

Where stock of one corporation, a party to a reorganization, is exchanged, in pursuance of the plan of reorganization, for stock of another corporation, the cost of the stock thus acquired must be allocated equally to the separate shares acquired. The cost of some particular lot of the old shares may not be allocated to some particular lot of the new shares.

In 1926 the decedent received $665,000 dividends from the New Jersey General Security Co. Held, that the entire amount received constituted taxable dividends. Held: that the entire amount received constituted taxable dividends.

1. Real property in the State of Washington, purchased and improved by a husband with capital accumulated by him in a noncommunity property state before he and his wife became domiciled in… Held: Federal income taxes arising from gains in the hands of the trustee or executrix are payable by the fiduciary.

The distributions in controversy were pursuant to a bequest within the meaning of subsection (b)(3) of section 213 of the Revenue Act of 1926 and subsection (b)(3) of section 22 of the Revenue Act of 1928, hence exempt from taxation and may not be deducted by the petitioners in determining the taxable net income of the trust.

Petitioners were directors of a corporation which sold certain stock upon which its customers sustained losses. Held: the loss sustained upon the purchase of the stock from the customers is not deductible from income as one sustained in a transaction entered into for profit.

1. Where the Commissioner sent a deficiency notice addressed in the name of a deceased taxpayer and the executors filed a petition with this Board based upon such deficiency notice, they not having… Held: upon the evidence, that certain stock received by the stockholders in the reorganization of a corporation did not have a readily realizable market value at the time received by them and that they did not derive taxable gain upon such transaction.

A contribution to a community chest by a local newspaper of large circulation, especially devoted to local interests, held to be deductible as a business expense where it is shown that the paper in line with its policy of long duration took the lead in campaigns for contributions to the chest, and its contribution was reasonably motivated by or related to the proper conduct of its business.

1. The word mutual used in a postnuptial contract which provided that each spouse should own a certain share of mutual property and income, constructed to cover only property which was joint or… Held: the wife had a joint equitable interest in the stock.

1. GAIN OR LOSS - BASIS. - The retroactive provision of section 204(a)(3) of the Revenue Act of 1926, which includes gifts effected by a transfer in trust subsequent to December 31, 1920, is not unconstitutional. New York Trust Co., Trustee,27 B.T.A. 1127, followed. 2. Id. - Where a gift to beneficiaries was effected in 1922 by a transfer of stock to a trust, held, the basis for determining gain or loss on the sale of the stock by the trustee in 1926 is its cost to grantor, under provisions of section 204(a)(3), Revenue Act of 1926. New York Trust Co., Trustee,27 B.T.A. 1127, followed. 3. Id. - Where the occurrence, giving rise to the disputed tax, as here, is not a transfer of an interest to take effect in possession or enjoyment at or after death or of property passing under a general power of appointment exercised by a decedent by will or deed executed in contemplation of or to take effect in possession or enjoyment at or after death, the last sentence of section 204(a)(3), supra, does not prevent the application of the provisions of this section. 4. INCOME - STOCK DIVIDEND REDEEMED. - Upon the facts, held, that the presumption of correctness following the respondent's determination that the redemption of preferred stock in 1927 was equivalent to and therefore taxable as an ordinary dividend, within section 201(g) of the Revenue Act of 1926, is not overcome. 5. Id. - If and when a distribution of corporate earnings by the redemption of a stock dividend satisfies the requirements of that section, it is characterized as income thereby, as of the date of the issuance of the stock dividend but is taxable thereunder in the year of redemption. 6. Id. - FIDUCIARY. - Where a trust agreement provides for the distribution of "all the income from said trust", amounts received by the trustee representing the redemption of a stock dividend theretofore received by him, which amounts are not shown to have been distributed to or credited to the beneficiary, are not deductible by the trustee under section 219(b) of the Revenue Act of 1926 in computing net income of the trust subject to tax, even though they are held to represent redemption of stock dividend under conditions bringing them within section 201(g) of that act and subject to tax as cash dividends.

1. Petitioner purchased all of the capital stock of another corporation and immediately proceeded to liquidate that corporation and take over its assets. Held: the fair market value of the assets is the amount realized upon distribution under sec. 202(c), Revenue Act of 1926, and petitioner is entitled to deduct from its income in 1925 the loss resulting from the complete liquidation of the corporation in that year. 2.

1. In the early part of 1927 the petitioner sold certain shares of stock, which cost him $45,000, for $87,500, receiving in payment therefor $17,500 in cash and sixteen promissory notes, four payable on the first of March of each of the years 1928, 1929, 1930 and 1931, each four aggregating $17,500. Later in the year 1927, the petitioner, in part payment of certain real estate then purchased by him, transferred at their face value the eight notes having the earliest maturity dates. Held, the petitioner is not entitled to report the profit realized from the sale of his stock on an installment basis. E. E. Chapman,19 B.T.A. 878, followed. 2. In the circumstances shown by the record, held, petitioner is not entitled to have considered, as a part of the cost of his stock, the amounts alleged to have been paid into the corporation in the way of undrawn salary and contributions.

A taxpayer, in timely tax returns reflecting a claim against another for an uninsured fire loss, the occurrence and amounts of which are not in… Held: under section 234(a)(4), Revenue Acts of 1924 and 1926, applicable to such subsequent years respectively, such uninsured fire loss was not deductible until such subsequent years, in which it was actually, in good faith, thus finally adjudicated and determined that such loss was not compensated for and was genuinely real.

1. Held, the deficiencies asserted for the years 1922 and 1923 are not barred by the statute of limitations. 2. The Board will not consider issues involving a question of fact which are raised for the first time in the brief. 3. The petitioner is liable as transferee of the assets of the A. J. Morgan Coal Co., under the provisions of section 280 of the Revenue Act of 1926, for a deficiency of that company for the year 1920. 4. Invested capital, and depletion deductions determined. 5. Loss on sale of Taplin properties by the Morgan Co. and depreciation of Johnson River tipple, determined. 6. Judgment was entered against petitioner in a trial court for a principal amount and interest in 1922. The judgment was appealed to the circuit court of appeals and, upon affirmance by that court, writ of certiorari was applied for to the United States Supreme preme Court, which was denied on June 5, 1924. Petitioner deposited Liberty bonds in the trial court as a supersedeas in an amount more than the amount of the judgment and interest. It claims such deposit was a payment of the judgment and seeks to deduct the interest therein in 1922. Held, such interest became a proper accrual in 1924, when certiorari was denied by the Supreme Court. Held, further, that interest on said judgment for 1922 and 1923 is not a proper deduction for any year prior to 1924, when petitioner's liability was finally determined. 7. Earnings of a syndicate in 1923 of which the petitioner was a member, which earnings were not distributed, do not constitute taxable income to the petitioner in that year.

1. ESTATE TAX - WHETHER EXISTING TRUST WAS REVOKED AND A NEW TRUST CREATED. - Two instruments executed on December 30, 1927, are construed. Held: the value of the life estate vested in the wife should not be included as a part of decedent's gross estate because as to her the trust conveyance was irrevocable, she being a beneficiary and the trust instrument requiring her written consent before it could be revoked. Irving Lee Stone, Estate,26 B.T.A. 1, followed.

1. BASIS FOR GAIN OR LOSS - COST OF PROPERTY ACQUIRED FOR STOCK AND CASH. - Where a corporation issues its capital stock for property plus some cash, the cost of the property to the corporation is the fair market value of the stock plus the cash paid. Seymour Mfg. Co.,19 B.T.A. 1280, followed. 2. BASIC DATE FOR VALUING STOCK. - Where a corporation agrees in 1920 to issue its capital stock in part payment for property but does not actually issue the stock until 1923, the basic date for valuing the stock to determine the cost of the property is in 1920 when the obligation to issue the stock was incurred. 3. DEPLETION - OIL AND GAS WELLS - PERCENTAGE BASIS - MEANING OF "NET INCOME OF TAXPAYER FROM THE PROPERTY" AS USED IN SECTION 204(c)(2), REVENUE ACT OF 1926. - Under section 204(c)(2) of the Revenue Act of 1926, if a taxpayer elects to treat development expenditures as ordinary and necessary business expenses deductible in computing taxable net income, such expenditures must also be deducted in determining the "net income from the property", which amount is used as a limitation in the computation of the percentage depletion allowance based on gross income.

1. Amounts transferred to an irrevocable trust by a cemetery association in 1928 and 1929 for perpetual care of the lots are not deductible from gross income. 2. The portion of the sales price on lots sold during the taxable years which the association was obligated to set aside for perpetual care was not income to the association.

1. Certain transfers involved herein were made in contemplation of death. 2. Held: as a result of this transaction the policies were, within the meaning of the statute, taken out by the decedent and hence to the extent of its excess over $40,000 the amount of the proceeds of the policies, as of the date of the decedent's death, should be included in the gross estate. 5.

1. Upon the facts developed in these cases it is concluded, (1) that petitioner, Tex-Penn Oil Co., received both cash and stock of the Transcontinental… Held: that the transaction does not come within those portions of section 202(b) of the Revenue Act of 1918 and article 1567 of Regulations 45 which provide for the nonrecognition of gain or loss from certain types of exchanges, and consequently any gain realized by either Tex-Penn or its stockholders is subject to tax. 2.

In addition to the regular salaries paid in cash to its officers, who were rendering valuable services of a specialized nature,… Held: the liability of petitioner to its officers under the agreement was not for a specific sum in terms of dollars and cents, but for a number of shares of stock of an aggregate par value equal to the amount of profits in which the officers were entitled to participate, that amount being merely the measure of the number of shares to be…

1. Petitioner transferred oil leases to a newly organized corporation in exchange for its entire capital stock, all of which stock, pursuant to… Held: under the Revenue Act of 1918, (a) that the first exchange was a separate and completed transaction, the gain or loss upon which must be computed on the difference between the cost to petitioner of the leases and the fair market value of the stock received; and the separate character of the transaction was not affected by the…

1. A percentage of gross sales, set up on petitioner's records as "Improvement Fund", to be expended for permanent improvements of property, held includable in petitioner's income because not received upon trust, and consequently subsequent disposition, assignment or restriction as to use did not affect taxability when received. 2. Costs of defending a suit to enjoin petitioner from using its property for cemetery purposes held to be ordinary and necessary expense of business, deductible from income. 3. Where petitioner's accounts were kept on the basis of cash receipts and disbursements, officer's salary held to be deductible from income when paid.

Life insurance policies were procured by a corporation on the life of its president, the corporation being named as beneficiary. Held: that the distributions by the corporation in 1929 of such proceeds to its stockholders, including the petitioners herein, were cash dividends subject to taxation.

1. The Delaware River Bridge Joint Commission is a governmental instrumentality of Pennsylvania and New Jersey. Leon S. Moisseiff,21 B.T.A. 515, followed. 2. Petitioner was an employee of the commission in 1927 and the compensation received by him is exempt from Federal income tax.

The transaction herein detailed not resulting in a reorganization, gain or loss is to be recognized to petitioners.

- After contracting to sell corporate stocks which it owned and which were at the time of the contract held by banks as collateral security for indebtedness of petitioner to them, petitioner… Held: that the profit resulting from the sale of the stock is taxable to petitioner, and that the efforts to consummate the transaction in such a manner as would result in no tax to the selling corporation were ineffectual.

1. The petitioner, an insurance company other than a life or mutual, reinsured a portion of each risk assumed, and received from the reinsurer so-called flat commissions based upon the net premiums… Held: that the amounts are taxable income, being reimbursement for commissions paid by the petitioner to its agents on the reinsurance or an offset against premiums on the reinsurance. 2.

1. Petitioner and his divorced wife effected a settlement whereby petitioner, in lieu of alimony, delivered to the wife a note for $150,000 and agreed that a portion of his share of a… Held: that payments made to the wife in satisfaction of the note are taxable to petitioner as part of his distributive share of the trust estate. 2. Petitioner irrevocably assigned to trustees for the benefit of his children a portion of his interest in the trust created by his father's will.

1. DIVIDENDS - ORDINARY OR LIQUIDATING DIVIDENDS. - Where petitioner, a holding corporation, owned practically all the stock of another corporation, and such other corporation granted an option for the sale of its department store business, assets (with certain exceptions), good will and corporate name, which option was exercised on October 29, 1926, and thereafter on November 10, 1926, the corporation declared a distribution of $50 per share, and on November 17, 1926, declared another distribution of all surplus profits on hand on November 19, 1926, and was disincorporated on or about December 24, 1926, when all the remaining assets were distributed in liquidation, held, that said distributions of November 10 and November 19, 1926, were "amounts distributed in partial liquidation" of a corporation as that term is used in section 201(c) and defined in section 201(h) of the Revenue Act of 1926, rather than ordinary dividends as the term "dividend" is defined in section 201(a) of the same act. Held, further, that the entire distributions were steps in a plan of complete liquidation of the selling corporation's stock and petitioner is taxable on the profits resulting therefrom. 2. COST OF STOCK ACQUIRED FOR STOCK OF HOLDING CORPORATION. - Petitioner, a holding corporation, issued all of its capital stock to an individual who was the owner of shares in several other corporations, in consideration for the transfer to it of the shares owned by the individual in such other corporations. Held, the basis of the cost of these latter shares is not the cost to the transferor, because of the parenthetical clauses in section 204(a)(7)(8) of the Revenue Act of 1926. The cost of the shares so acquired is the fair market value of the stock of the holding corporation so issued. Stires Corp.,28 B.T.A. 1, followed.

1. Losses allowable on account of the abandonment or other disposition of oil leases determined. 2. Held: that the proper basis for depreciatioin for corporation C on account of the assets received in liquidation of corporation B is the fair market value of the assets at the date received. 5. Amounts expended during 1926 for drilling productive oil wells held to be recoverable through depletion rather then by depreciation allowances.

1. Corporations A and B and certain individual stockholders of B in 1897 entered into a contract by which B appointed A its sole selling agent and agreed to sell to A its entire manufactured output… Held: that the contract did not constitute an exhaustible capital asset in the hands of corporation B in the taxable years 1923 and 1927. 2. In 1927 petitioner paid $525,000 to suppress a competitive trade brand and to eliminate competition.

Where the stockholders in 1928 exchanged their stock in A corporation, a party to a reorganization, for stock only in B corporation, also a party to the reorganization, and A corporation sold its real estate and part of its personal property to B corporation for a cash consideration of $200,000 and declared dividends of $200,000 out of surplus, held, that the two transactions were separate both in substance and in form, although part of a general plan; that the stockholders of A corporation exchanged stock for stock only, and not for stock and cash, and that under the provisions of section 112(b)(3) of the Revenue Act of 1928, neither gain nor loss is recognizable on the transaction to the stockholders.

Where the grantor of a trust reserves a power to reacquire a portion of the property turned over to the trustees upon the payment of a small amount therefor, the trust is revocable within the meaning of section 219(g) of the Revenue Acts of 1924 and 1926 and section 166 of the Revenue Act of 1928, as to the excess value of the property which may be reacquired over the amount to be paid therefor by the grantor.

1. The Industrial Accident Commission of Maryland is a governmental instrumentality. 2. Petitioner was an employee of the commission in 1929 and the compensation received by him is exempt from Federal income tax.

1. Shares of stock, received in a reorganization under an agreement, stamped on the certificates, not to sell them for a year without the banker's consent, held not to be without fair market value. 2.

Where a testator bequeathed and devised the residue of his estate to his two sons and another as executors for the term of five years and directed them to pay all the income to the sons and at the end of the period to distribute and turn over the corpus to them, but providing that if either died during the period his share of the income should be paid to his heirs and the corpus at the end of the period should be distributed to the heirs of his body, and where it appears that the postponement was not for any reason personal to the sons, held, that the interests of the sons were vested as of the testator's death, subject to be divested by death, and that, the petitioner having survived, the basis for the computation of gain or loss by him on the sale of stocks acquired from the estate is their fair market value at the testator's death if they were received by the executors from the testator, and their cost where purchased by the executors.

1. Upon the evidence, held, that petitioner was the owner of and abandoned certain machinery and equipment in 1920 and is therefore entitled to deduction in the amount stipulated on… Held: that petitioner was the owner of and abandoned certain machinery and equipment in 1920 and is therefore entitled to deduction in the amount stipulated on account thereof. 2. Upon the evidence, held further, that petitioner is not entitled to take any deduction for depreciation in 1920.

A municipal engineer who receives from the municipality a small annual retainer and also fees amounting to five percent of the contract cost of construction projects, held not immune from Federal income tax in respect of such percentage amount, since from the evidence it can not be determined whether the projects or the petitioner's functions and services in respect thereof were governmental in character.

Petitions filed to contest the disallowance of a deduction taken by an individual on the cash basis for a net loss in 1926 and 1927 because in 1926 a suit had been instituted against him to recover an unpaid syndicate subscription made in 1920, in which suit he denied liability and which was pending in 1926 and 1927, held to be without merit, frivolous, and filed merely for delay.

The city architect of San Francisco who, in addition to his own work for the city, conducted a private practice as an architect, and who was compensated by the city upon the basis of a percentage of the cost of construction projects in respect of which his services were performed, held not immune from Federal income tax upon such compensation.

1. STOCK DIVIDEND - SEC. 201(f), REVENUE ACT OF 1926. - A distribution among shareholders in exchange for old common stock, of preferred stock and an increased amount of common stock, in the same… Held: is a stock dividend, therefore non-taxable, and does not change the basis for determining gain upon later disposition of the stock received in such exchange. Pearl B. Brown, Executrix,26 B.T.A. 901, followed. 2.

The redemption and cancellation by a corporation of 97 1/2 percent of its outstanding shares, all of which were owned by petitioner, held, upon respondent's determination, to be essentially the… Held: upon respondent's determination, to be essentially the equivalent of a taxable dividend to the extent of the corporation's surplus, and by section 115(g), Revenue Act of 1928, such amount held taxable to petitioner as an ordinary dividend.

An agreement by the petitioner to pay his wife a sum of money in full settlement of property rights arising out of the marriage relation, providing for payment in part out of the petitioner's share, as beneficiary, of future income of an estate, held not to constitute an assignment of part of the petitioner's right to the income, but a mere agreement to pay out of income which first became income of the petitioner; and amounts paid by the trustees to his wife, pursuant to…

A loss sustained by an individual upon the sale through a broker of stock previously purchased for profit is no less deductible because in a separate transaction his wife buys similar shares through the same broker and finances the purchase on her own account, giving her own note and pledging the shares, the certificates being issued in her name.

Under a trust created by petitioner the trust income was distributable to his children during their minority. Power to withdraw securities or money from the trust was given to petitioner's wife, and a similar power was reserved to petitioner but could be exercised by him only upon the death of the wife. Held that petitioner retained no powers that would bring him within section 166 or 167 of the Revenue Act of 1928, and the trust income is not taxable to him.

The provisions of a trust deed permitted the petitioner to direct distribution of the trust income and corpus to such persons or for such uses as she might designate. The power so given to petitioner did not prevent her from directing distribution to herself. Held that the trust income is taxable to petitioner as income to be distributed currently.

In 1928 the petitioner acquired, in exchange for shares of its capital stock, all the assets of corporation B, in which it owned slightly more than 68 percent of the common stock and which… Held: that the distribution was in complete liquidation of corporation B, and, under section 115(c) of the Revenue Act of 1928, must be treated as in full payment in exchange for its stock.

Right to have their gains from the sale of real estate treated as capital gains denied for the reason that the taxpayers held the lands primarily for sale in the course of their business.

The petitioner, a national banking association, was consolidated with the Metropolitan National Bank on March 15, 1925, and the consolidated association continued under the charter of the petitioner. Held: that the single return filed by the petitioner improperly included the income and deductions of the Metropolitan, which should have filed a separate return for that part of the year 1925 preceding consolidation.

Where the facts fail to establish that certain property was acquired in connection with a reorganization, held that taxpayer is entitled to use as a basis for depletion the cost of such property to its subsidiary.

A distribution by a corporation in partial liquidation held to be applicable not to all the outstanding shares, but only to those shares which were canceled.

The petitioners' books of account were kept on the calendar year basis for the years from 1924 to 1930, inclusive, and their income tax returns were duly filed in accordance therewith. Held: that deficiencies for the fiscal years ended at July 31, 1926 and 1927, were erroneously determined.

- Petitioners were beneficiaries under a trust and also the remaindermen. During the taxable years the sole income of the trust was distributed to the beneficiaries. Held: petitioners are not entitled to deduct such losses on their individual income tax returns.

1. The sale by the petitioner of common stock and bonds of a corporation for cash and preferred stock of the same corporation, thereafter to be authorized and issued to the purchaser, or of its… Held: that, while the aforementioned sale was not completed and closed in 1924, identifiable events of that year established a loss reasonably certain in fact and ascertainable in amount, and that the loss is a proper deduction in computing taxable net income for that year. 3.

A claim for adjustment of depreciation rates based on 1913 value of depreciable property alleged to exceed cost must be supported by convincing evidence of the value claimed and proof of the remaining useful life of the property at such date.