Volume 29 — Board of Tax Appeals

1. In determining the installment basis upon a casual sale of personal and real property, held, the amount of mortgages assumed by the purchaser must be deducted from the selling price in determining… Held: the amount of mortgages assumed by the purchaser must be deducted from the selling price in determining the total contract price under section 44(b) of the Revenue Act of 1928. 2.

A corporation transferred to a new corporation all of its assets, except an amount of cash not in excess of earnings accumulated since… Held: The transaction is not within sec. 112(c)(2), Revenue Act of 1928, because, while there was a reorganization, sec. 112(i)(1)(B), the stockholders did not make an eschange of their old stock within sec. 112(b)(3), or receive money or other property within sec. 112(c)(1), both of which conditions are essential to the operation of sec.…

Subsequent to marriage, a husband took out four insurance policies on his own life, with the proceeds payable to his estate. While such policies were in effect, the wife of the insured died. Held, that under the law of Louisiana the cash surrender value of such policies falls into the estate of the marital community upon the dissolution thereof by death, and that one half of such value should be included in the estate of the deceased spouse for Federal estate tax purposes.

Held that on the receipt in 1928 of certain property in settlement of pending litigation petitioner received income.

1. Where petitioner constructed a roadway which, under the facts, was permanent in its nature, it will not be permitted to deduct its cost as current expense. 2. Where petitioner elected in 1927 to charge off specific items as bad debts, it will not be permitted in subsequent years to charge off other specific bad debts and set up a reserve for unspecified bad debts without the consent of the Commissioner of Internal Revenue.

1. Held, that in the taxable year the petitioner sold a one -sixth interest in certain real estate and realized profit therefrom as determined by the respondent. 2. Values of two certain parcels of real estate determined as of the date of the acquisition of interest therein by the petitioner. 3. Under the facts the petitioner is not entitled to report profit realized from sale of certain interests in real estate on the installment basis.

Held, that in the circumstances herein the city of New Orleans owed no money to petitioner at any time material to the issue in controversy and that no payment made to petitioner was interest on an… Held: that in the circumstances herein the city of New Orleans owed no money to petitioner at any time material to the issue in controversy and that no payment made to petitioner was interest on an obligation of such city.

Where petitioner bought and sold stock without identifying the particular lots, gain or loss on sales is to be computed on the basis of the cost of the earliest purchases. John A. Snyder,20 B.T.A. 778; affd., 54 Fed.(2d) 57.

Although domestic corporations are liable to income tax at the rate of 12 percent on their net income under section 13 of the Revenue Act of 1928, and fire insurance companies are liable to tax upon their net income at the same rate under section 204 of the Revenue Act of 1928, it is nevertheless held that for 1928 a domestic corporation not an insurance company may not file a consolidated return with the fire insurance company for 1928.

Upon a short sale of stock the amount paid to the lender by the vendor, equal to dividends on the borrowed stock, is not deductible by the vendor either as interest or an ordinary and necessary business expense, but is to be added to cost of the stock purchased to cover the short sale.

Many years prior to his death the decedent transferred in trust certain securities, the income from which was to be paid to him during his lifetime and upon his death to his wife for her lifetime… Held: that upon the death of the decedent subsequent to that of his wife and prior to that of his daughter the property contained in the trust is not to be included in his gross estate.

Held, the Commissioner of Internal Revenue correctly determined the cost base of corporation stock which the petitioner sold in the taxable year. Held: the Commissioner of Internal Revenue correctly determined the cost base of corporation stock which the petitioner sold in the taxable year.

Proceeds of life insurance policies, in excess of $40,000 exemption, should be included in gross estate where decedent, who was a resident of Louisiana and died in 1928, retained to the date of his death power to change the beneficiary, notwithstanding the policies (except one) were all taken out prior to the enactment of the Revenue Act of 1918, and the premiums on the policies were paid out of community income.

Where under a trust created in 1892 the settlor retained the right to dispose of the property by will in a manner contrary to that specified in the trust instrument, the trust is revocable and the value of the property is includable in the settlor's gross estate.

The amount of the principal of a promissory note payable on or before July 7, 1930, representing profit on a sale returnable on the installment basis, and interest thereon, is held to have been constructively received in 1929, where the agent of the maker in 1929 tendered payment in cash, and, upon refusal of the holder to accept payment, of his own volition deposited the amount in a savings account in his own name as trustee, and delivered to an officer of the bank the…

The petitioner Hattie B. Young having executed a waiver on behalf of a dissolved corporation as secretary and having affixed the corporate seal thereon, the pres dent of the corporation having… Held: further, that in accordance with the stipulation filed by the parties the petitioner, Hattie B. Young, is liable as transferee for the unpaid taxes of the corporation.

1. Where petitioner owned 90 per centum of stock in another corporation, the companies were not affiliated during the fiscal year ending January 31, 1929, in view of section 141, Revenue Act of 1928. 2.

Respondent sustained in treating as liquidating dividends the excess over the cost of corporate stock of the amounts received by petitioner from the corporation, including advances made to him in prior years.

Transfers of stock by the decedent to his children five months prior to his death held to have been made in contemplation of death.

1. In consideration of certain monthly royalties to be paid, petitioner on December 4, 1922, granted a corporation the sole and exclusive right and license to make, use and sell forever, or until the… Held: the petitioner, after such assignment, was the owner of and taxable with only one half of the royalties or income arising from his invention. 2.

A lease of land, together with water privileged, ran for a term of 15 years with a right of renewal by the lessee indefinitely for… Held: that the property or property rights surrendered by petitioner in consideration of the amount paid for cancellation of the lease were not in existence on March 1, 1913, but were acquired at the time of renewal in 1928, and that, since the renewal admittedly cost the petitioner nothing, there is no cost basis to be applied against the…

The petitioner did not sustain a deductible loss upon the surrender to a corporation of a pro rata part of the preferred stock of the corporation for the purpose of cancellation and the removal of an operating deficit.

1. The petitioner is a member of a group of affiliated corporations which for many years have filed consolidated returns upon the basis of a fiscal year ended June 30. Held: that the loss sustained by the petitioner in 1928 should be decreased by the losses of the liquidated corporation during the period of affiliation. 2.

In 1922 the petitioner issued 19,997 shares of its capital stock and assumed notes payable of $455,000 in exchange for 321,275 shares in the Miley-Keck Oil Co. and other assets. Held: that the petitioner sustained no deductible loss upon the exchange.

1. Where the deficiency notice was addressed to the original taxpayer, a corporation dissolved as the result of its consolidation with other corporations under the laws of the State of New York, and… Held: that the Board has jurisdiction. Bowman Hotel Corp.,24 B.T.A. 1193. 2.

Salary paid by a married woman to her husband as general manager of her business is deductible as an ordinary and necessary business expense where the salary is reasonable compensation for the services rendered.

A corporation offered to exchange preferred stock, previously authorized but then unissued, for outstanding common stock. Held: such exchanges effected a recapitalization of the company constituting a statutory reorganization and are transactions upon which gain or loss is not to be recognized.

An anteruptial contract entered into in Chile, providing that all the properties which the husband or wife then possessed or which he or she might by any kind of title acquire during marriage should be their separate property, was intended to include acquisitions of the parties after they had become residents of California, and is valid in that state.

- Petitioner was sole stockholder of a corporation which in 1924 became insolvent and went into the hands of a creditiors' committee, with a large aggregate indebtedness of which petitioner was… Held: petitioner has not shown deductible losses growing out of the transactions. John P. Dillon,9 B.T.A. 177, distinguished.

1. Where petitioner owned but 80 percent of the stock of a subsidiary, affiliation is denied under the Revenue Acts of 1924 and 1926. 2. Whether or not a transaction constituted a liquidating dividend and was taxable as such is to be determined in the light of the Federal taxing act rather than by the consequences attaching to the transaction under a state statute. Held, that the petitioner acquired the assets of its subsidiary in liquidation of the latter and the property so received was a liquidating dividend.

The decedent was a member of a partnership which made its income tax returns upon the basis of cash receipts and disbursements. The partnership agreement provided that the death of a partner should not effect a dissolution of the partnership, but that the partnership should be continued for a period of six months thereafter, and that the estate of the deceased partner for such period and "as payment for the good will of the deceased partner in the practice" should share in the income and expenses of the firm to the same extent that he would have done if he had lived. Subsequent to the death of the decedent on June 19, 1929, the surviving partner paid over to the executor the decedent's share of profits which had accrued up to the date of the death of the decedent but which had been collected thereafter, and also an amount representing his estate's share of the earnings of the business during the six-month period following the death of the decedent. Held, that the amounts received by the petitioner are not liable to income tax.

1. Where the decedent created a trust, the corpus of which consisted of life insurance taken out by him upon his life (designated as the Primary Trust Fund) and shares of corporate stock (designated as the Secondary Trust Fund), the net income from the secondary fund to be used to pay premiums on the life insurance policies, and, upon the further trust, after December 27, 1933, or the prior death of the trustor, to pay over the income or trust corpus to trustor's wife and…

The decedent died November 25, 1922, owning property under a tenancy by the entirety, which property was acquired in 1915. Held, that the value of such property is not includable in the gross estate. Held: that the value of such property is not includable in the gross estate.

A distribution by a corporation to its shareholders in the course of a general plan to wind up the business as soon as it can best be done is held in all the circumstances to be a liquidation distribution, notwithstanding the continued, but narrowing, operation of the business.

Petitioner owned stock of corporation A. with other stockholders of that company he organized a new corporation, each subscribing to its stock in amounts equal to their holdings of A stock, and… Held: petitioner did not exchange old stock for new within the meaning of section 112(b)(5) of the Revenue Act of 1928, but made sale of one stock and purchase of another. Held, further, that petitioner sustained a deductible loss upon the sale of his A stock.

1. SALE OR OPTION - CONSTRUCTION OF A CONTRACT. - A certain agreement dated February 10, 1923, construed in connection with a certain trust agreement dated March 22, 1923, and held to constitute an… Held: section 44(d), 1928 Act, is not unconstitutional on the ground that it provides for inclusion as a part of decedent's income certain gains which are not income within the Sixteenth Amendment.

- Respondent's proof that petitioner was indicted for willful failure to file returns and evasion of taxes, to which he pleaded guilty and was sentenced, is sufficient, in the absence of any explanation by petitioner, to sustain the imposition of fraud penalties for those years covered by the plea and sentence.

Where a petition assails both the deficiency and the fraud penalty, a failure of the petitioner to file a reply to the affirmative allegations of the answer as required by Rule 15 is not sufficient foundation for a motion for judgment in the full amount of deficiency an penalty.

1. Two affiliated corporations filed separate returns for 1927 and the affiliation was terminated in that year; a new group of seven corporations was formed in 1928, which included the two… Held: the new group has an election and may make a consolidated return under section 142(a) of the Revenue Act of 1928. 2. Net losses sustained prior to affiliation may not be deducted from the consolidated net income in 1928.

Petitioners realized taxable income in 1928 from the sale of real estate. Held: without deciding whether the sale was an installment sale, that petitioners may not return the profit on the installment basis. Joe Goldberg,14 B.T.A. 465, followed.

Under a testamentary trust the testator's two children were to receive income for life and upon their death the trust was to terminate, specific sums to be paid to each of their children, and… Held: that, under the presumption of possibility of additional issue being born, it cannot be determined what amount, if any, will ultimately go to charity, and that no part of the profit from the sale of the trust corpus can be treated as permanently set aside for charitable purposes.

- A corporation, a national bank, transferred to a new corporation which it caused to be organized, part of its assets, to wit, $300,000 in cash, in… Held: this was a reorganization under section 112(i)(1)(B), Revenue Act of 1928, and that no gain to the stockholders may be recognized from the receipt of their beneficial interests in the new stock. Sec. 112(g); John G. Lonsdale,11 B.T.A. 659; Mrs. Frank Andrews,26 B.T.A. 642; Walter Hopkins,27 B.T.A. 1331, distinguished.

1. Petitioner's evidence fails to establish that it sold stock of another corporation on the installment plan. Respondent's use of the completed transaction basis for computing gain is approved. 2. Assessments paid on stock in a cooperative apartment during the period that petitioner was marketing the stock are not deductible as expenses, but are to be added to the cost of the stock.

Held, that certain corporate dividends received by the petitioner during the taxable years were liquidating dividends and not ordinary dividends. Held: that certain corporate dividends received by the petitioner during the taxable years were liquidating dividends and not ordinary dividends.

A member of an affiliated group is not entitled to pyramid net losses for successive taxable periods in determining consolidated net income for the group.

Held, that the manner in which the petitioner claimed and was allowed a deduction for Federal income taxes was not misrepresentation of a… Held: that the manner in which the petitioner claimed and was allowed a deduction for Federal income taxes was not misrepresentation of a material fact upon which a closing agreement, entered into pursuant to section 606 of the Revenue Act of 1928, might be disregarded for the purpose of imposing additional income tax liability for the…

Held, that during the taxable year 1929 the petitioner was not a merchant or dealer in securities within the meaning of article 105 of… Held: that during the taxable year 1929 the petitioner was not a merchant or dealer in securities within the meaning of article 105 of Regulations 74, and is not entitled, under sections 22(c) and 41 of the Revenue Act of 1928, to have its income determined by the use of inventories for the purpose of reducing tax liability on account of…

Mere intention to sell shares of stock, or mere declaration that shares sold were acquired at a certain time and price, without proof to identify shares sold with lots purchased, is not sufficient identification to avoid application of first in, first out rule of article 58, Regulations 74.

An instrument, as amended, construed and held to create three separate and distinct trusts.

A corporation whose principal or only business is the buying and selling of securities for profit through stock exchanges is not a dealer in securities within the meaning of that term as used in section 118 of the Revenue Act of 1928.

Where the grantor of a trust has the power, either alone or in conjunction with any person not a beneficiary of the trust, to cause to be distributed to him, or to be held or accumulated for future distribution to him, the income of the trust fund, such grantor is liable to income tax in respect of the income over which he has such authority.

1. Where taxpayer, engaged in the retail business, sells garments on an installment payment plan, retaining the garments until paid for in full, and, upon failure of customers to make payment in… Held: upon the evidence, not to be an allowable deduction in computing net income for the taxable year. 2.

The corporation income tax rates for the calendar year 1928 are not applicable to any part of the income of an association which was organized February 4, 1929, and which made its first return for the fiscal period ended November 30, 1929.

1. The guaranty income received by a carrier under section 209 of the Transportation Act, 1920, is taxable under the Revenue Act of 1918 at 10 percent. 2. The allowance made by the Director General for undermaintenance during Federal control must be subtracted from the total maintenance expenditure for 1920 to determine the carrier's deduction for maintenance expense.

1. Opinions respecting values of properties, although expressed by those in a position to know, in the absence of supporting data upon which they are based, will not be accepted in substitution for proof of positive facts. Tracy v. Commissioner, 53 Fed.(2d) 575. 2. Cost to be used for determining gain or loss on corporate stock acquired from a converted investment made prior to March 1, 1913, determined.

1. A distribution by a corporation of all of its assets in excess of an amount equal to the par value of its outstanding capital stock, held, a distribution in liquidation rather than an ordinary dividend, where, some months before the distribution, it had disposed of all of the assets with which it theretofore had conducted its business for stock and notes and thereafter limited its activities to the conversion into cash of some of the securities received and the retirement of stock of a certain class and, on the same day when the distribution, supra, was authorized and made, it passed a resolution to liquidate and distributed the remainder of its assets to the holders of its outstanding capital stock upon surrender of their shares. 2. The determination of a question of this kind is to be made upon a consideration of all the facts, and neither the fact that the resolution to distribute was adopted prior to the resolution to dissolve, nor the fact that the corporation failed to dissolve but was later revived with new shareholders and new property, is controlling. 3. Held, further, that part of the amount distributed upon surrender of the outstanding stock, representing the par value of shares received in prior years by way of stock dividend, likewise was received in liquidation and was not received in cancellation or redemption of the stock at such time and in such manner as to make it essentially equivalent to the distribution of a taxable dividend, within section 115(g), Revenue Act of 1928.

1. Certain adjustments of investment capital made by the respondent allowed in part and disallowed in part. 2. Established facts do not sustain petitioner's claim for special assessment.

1. Reductions from the recited figure above par, at which a corporation offers shares of stock, equal to 6 percent on the par value of the share between date of offer and date of issuance, do not constitute interest paid by the corporation. 2. Amounts paid to bankers and the costs of printing and listing, all of which are incidental to the issuance of common shares, are not deductible by the issuing corporation as ordinary and necessary expenses. 3.

1. Section 44(d) of Revenue Act of 1928, providing for recognition of gain or loss upon transmission of installment obligations, held valid, the transmission in this case being occasioned by the death of the owner, following Estate of Erskine M. Ross,29 B.T.A. 227. 2. The land sold by the decedent was a capital asset, and the income, represented by installment obligations, which became subject to tax upon the death of the owner of the obligations is taxable as capital gain.

1. Value of corporation stock at date of decedent's death determined. 2. Value of city lots determined. 3. Value of land in West Virginiaheld includable in decedent's estate under section 302(a), Revenue Act of 1924. West Virginia Code, 1923, ch. 86, § 3, which subjects all real estate of decedent to the decedent's debts and all lawful demands against his estate, construed as subjecting real estate to expenses of administration.

1. Fair market value of corporation stock acquired prior to March 1, 1913, determined. 2. Claim for credit on 1926 income tax obligation for the amount of an overassessment found for 1925 disallowed because of the statutory bar which petitioner failed to prove was avoided by the filing of a timely claim as required by section 284(a) and (b)(1) of the 1926 Act. 3. Petitioner's claim for a loss deductible from gross income in 1926 on its investment in Atlas Fertilizer Corporation stock denied, because of failure of proof showing the value of assets paid in for such stock. 4. A payment made by petitioner for services of a watchman which it employed to guard the property of another corporation, of which it was principal stockholder, held not deductible from its income in the year paid, as a business expense. 5. Matters not pleaded in the original petition, or by amendment thereto, will be disregarded as issues in determining the merits of the proceeding.

1. A corporation acquired a contract from an individual in an exchange upon which no gain or loss was recognized under the Revenue Act of 1921, and, under the Revenue Act of 1926, the basis for determining gain or loss to the corporation was the same as it would be in the hands of the transferor. Held, in determining gain or loss resulting from cancellation of the contract prior to the end of its term, the basis should be reduced, not only by the deductions for exhaustion of the contract allowable to the corporation, but also by those allowable to the transferor. 2. Where a stockholder receives shares of stock in another corporation, pursuant to a plan of reorganization, without surrender of its original shares, and thereafter sells the original shares, the gain or loss on the shares sold should be computed by allocating the basis of the shares originally held between those shares and the shares acquired in the reorganization, in proportion to the value of each stock at the date of reorganization, rather than in proportion to the number of shares of each stock held at that time. Bertha G. Bamberger,27 B.T.A. 785, followed.

1. DEDUCTIONS - LIFE INSURANCE COMPANIES - RESERVES. - Petitioner's reserve set up to meet its liability upon matured coupons under its guaranteed premium reduction coupon policies held to represent… Held: further, that for 1929 petitioner is entitled to depreciation upon its home office building without compliance with the condition required by that section. Independent Life Ins. Co. of America,17 B.T.A. 757, followed. 4.

1. The petitioner was president and general manager of a family corporation which he had dominated and controlled since its… Held: the petitioner having failed to show satisfactorily that such funds were invested, as contended by him, to the use and benefit of the corporation, the respondent's determination that they constituted dividends in his hands, within section 115(a) of the Revenue Act of 1928 (sec. 201(a), Acts of 1924 and 1926) will not be disturbed. 2.

1. Contributions made by petitioners to certain charitable organizations are not deductible as ordinary and necessary business expenses. 2. The evidence does not establish that petitioners were affiliated with P. Centemeri & Co. under section 142(c) of the Revenue Act of 1928.

Contributions to the League of Nations Association, Inc., held not deductible as contributions to a corporation organized and operated exclusively for educational purposes.

1. Under the provisions of a will and under the laws of Michigan the interests of certain remaindermen were vested and they acquired the property devised to them as of the date of the death of the testator. 2. The fair market value of certain real estate determined as of March 1, 1913. 3. The proper basis for determination of gain or loss on the sale of property devised subject to a life estate is the fair market value of the property as of the testator's death.

Under the Constitution and statutes of the State of Illinois, all stockholders of an Illinois corporation are entitled to vote in all elections for directors.

When shares of stock in a corporation or an association are sold from lots purchased at different dates and at different prices and the identity of the shares sold can be determined from the certificates delivered, gain or loss must be computed upon the cost or other basis of the shares represented by the certificates delivered.

Prior to its dissolution a corporation transferred its assets to one of its officers, who, by declaration of trust, agreed to hold the assets in trust, relieve them from liability by paying the… Held: that there was no distribution in kind of the corporate assets upon an exchange by the stockholders of shares of stock for trust certificates, nor was there a transaction whereby gain or loss resulted to the stockholders from the exchange.

The question of whether shares in a British corporation were held jointly or in common is decided under the laws of New York, the place where the assignment was made and the parties resided. Since there was no express declaration in the instrument that the shares were to be held jointly, they were held in common under the laws of New York.

1. Where a corporation canceled certain notes of its principal stockholders, which had been transferred to it in part payment of its capital stock, the amounts of the canceled debts are dividends and not tax-free gifts. 2. Where petitioners filed tax returns, to which were attached consents in writing waiving limitation, and did not question their authenticity, they will be accepted as part of the record and given effect accordingly.

1. Premiums paid a title insurance company for policies guaranteeing land titles are earned when paid and constitute gross income. 2. A reserve set up to meet future liabilities under title insurance policies is not deductible from gross income. 3. Quaere: Whether reserves set up to meet future liabilities under title insurance policies pursuant to Act No. 362, Laws of Pennsylvania, 1929, are reserves required by law within the meaning of the Revenue Act of 1928.

1. Distributions made by a corporation not in excess of earnings held under the circumstances to be ordinary and not liquidating dividends, no dissolution or winding up having at that time been decided upon or definitely planned, and notwithstanding the fact that liquidation had been suggested as a means of resolving a dispute between shareholders, and the fact that a later determination to liquidate and dissolve was carried out. 2. The statutory definition of reorganization is applicable to the events and occurrences therein described and does not embrace mere intends, plans or executory agreements among shareholders. 3. When a statutory reorganization through exchange of shares of one corporation for shares of another is authoritatively determined upon by the corporation which is to acquire voting control of the shares of the other, and promptly carried out by several partial acquisitions, each such partial acquisition may be treated as a step in reorganization and subject to the reorganization provisions of the Revenue Act of 1926.

The decedent bequeathed the residue of his estate to trustees for charitable purposes, with the provision, however, that the trustees shall make payments for the relief and support of certain… Held: that the value of the residuary estate at the time of decedent's death, without diminution on account of the contingent interests of the relatives, is deductible in computing the net taxable estate for estate tax purposes.

A established trusts for benefit of his relatives and, as trust property, transferred common stock to trustees upon gifts certain. Held: the transactions were not taxable exchanges of stock.

1. Where the decedent possessed a power of appointment over certain property, provided he died without leaving issue, to such person or persons as he should by his last will and testament direct, and the power was duly exercised, the value of such property is a part of the decedent's gross estate, for Federal estate tax purposes, as property passing under a general power of appointment. 2.

Petitioner transferred to its creditor property having a depreciated cost of $346,106.87, and received back canceled notes in the amount of $650,000 given to the creditor in prior years for loans. Held: that petitioner thereby realized a taxable gain in the amount of the difference between the cost of the property and the face amount of the notes.

Pursuant to an election given to stockholders in a resolution declaring corporate dividends, the petitioners elected to receive, and were paid, in corporation's preferred stock for their shares in… Held: in the circumstances shown, that the petitioners are taxable upon the stock they received as an ordinary corporate dividend.

The sale to an outsider at par during affiliation by one affiliated corporation of the bonds of another issued to it during affiliation in exchange for its assets of depreciated cost greater than the par value of the bonds thus received held to result in no deductible loss.

1. A reply under Rule 15 is solely for the purpose of admitting or denying facts or of setting forth facts upon which the petitioner relies as a defense against the affirmative contentions made by the respondent; and it can not be used to raise new issues in which the petitioner seeks affirmative relief. 2. A national bank acquired part of the assets of a state bank, for cash and the assumption of part of the liabilities. The state bank discontinued business and withdrew from the state depositors' guaranty fund, which gave it the right to a refund based on its contributions, and part of this right passed to the national bank with other assets transferred. Held, (a) the right to refund was an asset acquired by the national bank; amounts charged off by the latter in an account representing this asset may not be deducted as losses of the national bank; and amounts recovered as refunds may not be included in its income to increase a deficiency in the absence of evidence of the cost or other appropriate basis to it. (b) Assuming that the right to a refund was acquired in a statutory reorganization, the national bank may not use the basis prescribed by section 204(a)(6) of the Revenue Act of 1926, since the right was not acquired in an exchange described, nor did it consist in part of the type of property permitted to be received without recognition of gain or loss in the enumerated subdivisions of 203. (c) Assuming that the transaction falls within section 204(a)(7), authorizing the use of the basis of the transferor, adjusted on account of gain or loss recognized to it in the year of transfer, and that the basis in the hands of the transferor is established, the adjusted basis for gain or loss which the right to a retund would have in the hands of the transferee can not be computed in the absence of facts showing the amount of the gain or loss of the transferor from the sale of the assets. 3. On March 6, 1925, a state banking corporation caused two new corporations to be organized and transferred part of its assets to each of them for cash, subject to the assumption of liabilities. It discontinued business on that day and was dissolved on June 23, 1925. The two new corporations were affiliated from March 6 to December 31, 1925, their stockholders being the former stockholders of the original corporation who received for their old stock shares in each of the new corporations in proportion to the assets transferred. Held, that the three corporations were not affiliated and entitled to file a single consolidated return for the calendar year 1925, and that the income of the two new corporations was properly computed on the basis of a consolidated return for the period March 6 to December 31, 1925, without regard for losses of the original corporation prior to that period. 4. The net loss provisions of the revenue acts do not sanction the application of a net loss of the original corporation for the period January 1 to June 23, 1925, against the income of either or both of the new corporations for the period March 6 to December 31, 1925, since the "taxpayers" are different and there is no "succeeding taxable year" of the original corporation. 5. The right to apply the net loss of the original corporation from January 1 to June 23, 1925, against the income of its successors for the period March 6 to December 31, 1925, and to offset the resulting net loss of the latter period against the net income of the successors for 1926, need not be determined, since the record fails to show that the original corporation sustained a loss, or the amount thereof.

The organization herein held to be an association within the meaning of the revenue acts and is taxable as a corporation.

Held, that dividends declared when certain corporations sold all their assets and discontinued business, and paid out of the selling price of such assets, were distributions in liquidation. Held: that dividends declared when certain corporations sold all their assets and discontinued business, and paid out of the selling price of such assets, were distributions in liquidation.

1. California inheritance tax paid in January 1928 by a beneficiary of the estate is not deductible by him in computing his taxable net income for 1928. 2. A fee paid to petitioner's attorney for securing a tax refund from Californiaheld not deductible.

1. A fee paid by a trustee to a referee in a contested accounting, which under the trust is a factor which reduces trust income distributable to beneficiaries, may not increase the beneficiaries' distributable share of trust income above the amount received. 2. Fee paid by the beneficiary to lawyers representing her in such contested accounting is not deductible by her.

1. BUSINESS EXPENSE. - In 1926 the Producers & Consumers Bank of Philadelphia, a labor bank, failed and its assets were taken over by a newly organized bank which agreed to make immediate payment of 60 percent of all deposit liabilities and to pay the remaining 40 percent to all depositors who agreed to leave their deposits with the new bank. Also the new bank agreed to make good the losses to stockholders of the old bank who took an equivalent amount of stock in the new bank, such payments to be made in both cases out of the first profits earned by the new bank. Petitioner, a corporation, was closely allied with the new bank and, in order to create good will for the new bank and for itself, voluntarily agreed to pay and did pay in the taxable year the remaining 40 percent to the depositors and made good the losses of the stockholders of the old bank who took an equivalent amount of stock in the new bank. Held, such payments were voluntarily made by petitioner and are not deductible as ordinary and necessary business expenses incurred in its trade or business. Welch v. Helvering,290 U.S. 111. 2. Id. - Where taxpayer claims deduction for $100,000 for promoting an airplane service and no evidence is offered attempting to give any itemization as to how and in what amounts the $100,000 was expended, held, its rejection was proper. 3. Id. - COMMISSIONS. - Where petitioner was engaged in the management of a street car company and assisting in the sale of its securities, and at the same time promoting and selling the stock of a securities company, commissions paid employees for the sale of the stock of the latter company are deductible where petitioner made a profit from the use of the money deposited with it, which profit was included in its return and tax paid thereon.

In 1924 Corporation A exchanged substantially all of its assets for cash and shares of stock of Corporation B. In the same year Corporation A used a part of the cash received from Corporation B in… Held: that the gains received by the first preferred stockholders in 1924 from the redemption of their shares is the difference between the cash received and the cost or other applicable basis to them of the shares of first preferred stock redeemed.

In 1928 the petitioner sold his entire interest in a partnership, fractional portions of which had been acquired in 1918, 1924, and 1926, at a cost of $11,294.34. Held: that the basis for computing the gain upon the sale is $11,294.34.

Held that a partnership existed between the petitioner and his wife and two daughters during the taxable year.

Respondent's determinations of deficiency fraud penalty and interest affirmed.

Where a husband files a joint return for himself and wife, joint and several liability for any taxes, penalties, or interest later determined follows and the Commissioner may proceed against either husband or wife, or both, in the assessment and collection of the amounts determined to be due.

When a joint return representing the combined gross income and deduction therefrom of husband and wife is duly filed, the election granted in section 51 of the Revenue Act of 1928 is exhausted and the tax liability thereunder is a joint and several obligation of husband and wife and may be collected from either.

An agreement which merely provides for the transfer of property from one spouse to the other upon separation does not destroy the marital community composed of the parties thereto.

The petitioner acquired by bequest in 1921 two claims against the United States arising out of the detention in 1892 of certain whaling vessels, on which he recovered judgment and received payment in 1926 and 1928. The recoveries were measured by the average price of the probable catch the vessels might have made if not detained. The crews were to be paid for their services certain shares of the proceeds of the catch.

The petitioner acquired certain assets by the issue of its stock to three prior owners thereof in exact proportions to their interests therein. Held, that the basis for determining gain or loss on the subsequent sale of all its assets is cost to such prior owners, plus any capital addition after acquisition.

The petitioner, under a trust established by the will of his father, had an equitable life interest therein consisting of the right to… Held: that the $130.92 representing the proportionate part of the distributions made on November 20, 1929, to the assignees which had been collected by the trustees prior to the execution of the assignments, constituted taxable income of the petitioner for 1929; held, further, that the amounts paid to the assignees which were accumulated…

- Petitioner is a full-blood restricted Creek Indian. The income from his tax exempt allotted lands is received and held in trust for him by the Superintendent of the Five Civilized Tribes. Held: the income from the reinvested tax exempt income is subject to the Federal income tax, since there is no Federal statute, treaty or provisions of the Constitution providing for its exemption.

1. RETURNS - FRAUDULENT. - The personal income tax returns of Joseph Carroro for the years 1920, 1921, and 1922 fraudulently understated his income with intent to evade tax. Held: the taxpayer is subject to the 50 percent penalty under section 250(b) of the Revenue Acts of 1918 and 1921. 2.

1. Petitioner is entitled to include in income from its oil property a bonus received for granting an exclusive right to drill for oil at depths below 1,600 feet, where it appears that there was production from wells on the same property less than 1,600 feet deep and notwithstanding there were no producing wells of the greater depth. 2.

Held that the evidence fails to prove that respondent was in error in determining that certain payments were in the nature of additional compensation rather than a gift.

Under the provisions of section 113(a)(2) of the Revenue Act of 1928, the basis for determining gain or loss on the sale of property acquired by gift after December 31, 1920, from a person who also acquired ownership by gift, is the cost or March 1, 1913, value of the property to the last preceding owner by whom it was not acquired by gift.

A corporation, owning by cash purchase all the shares of its subsidiary, received all the subsidiary's assets and assumed all its liabilities pursuant to an agreement whereby it surrendered the shares for cancellation by the subsidiary. The difference between the cost of the shares and the net value of the subsidiary's assets when received, held to constitute a taxable gain to the corporation from a distribution in liquidation.

- Petitioner was engaged in buying and selling securities through brokers for its own account. It made no purchases or sales of securities for the account of customers. Held: petitioner is not a dealer in securities within the definition contained in article 105, Regulations 74, and is not, therefore, entitled to inventory its securities on hand at the close of the taxable year under section 22(c) of the Revenue Act of 1928 at cost or market, whichever is lower.

1. A general power of appointment by will is exercised by a general devise of real and personal property by the donee of the power if there is nothing in the will of the latter evidencing a contrary intention, and the value of the property subject to the power is includable in the gross estate of the donee of the power. 2.

1. DEDUCTIONS - DEPRECIATION. - Petitioner held to be entitled to a reasonable allowance for depreciation upon furniture and fixtures used in the underwriting as well as the investment department of its business. Lafayette Life Ins. Co.,26 B.T.A. 946; Missouri State Life Ins. Co.,29 B.T.A. 401, followed. 2. Id. - RESERVES. - The valuation or "separate liability" required by section 85 of the insurance statute of the State of New York held not to be a reserve required by law within contemplation of section 245(a)(2) of the Revenue Act of 1926 and section 203(a)(2) of the Revenue Act of 1928 and consequently not includable by petitioner in the total reserve upon which its deduction is computed under those sections.

Premiums paid in 1929 and 1930 on life insurance policies (1) on the life of an individual, the principal personality of a corporation acting as sales agent of the petitioner, and (2) on the life of an individual sales agent, of which the petitioner or its subsidiary was the beneficiary, are not legal deductions from gross income.

Where an individual trading on margin deposits with his broker a certificate for a given number of shares of a corporation as additional security, thereafter buys on margin a like number of shares of the same corporation and later sells one half of the shares standing to his credit in the margin account, the basis for the computation of gain or loss upon such sale is the cost of the shares first acquired by the individual even though he instructed his broker to sell the shares last acquired.

1. Upon the sale of property by a trustee under an irrevocable trust during the lifetime of the grantor, the basis for gain or loss is the same as it would be in the hands of the grantor. 2. Where no return is ever filed by the taxpayer the imposition of a 25 percent penalty is mandatory.

1. Where, pursuant to condemnation proceedings, property is taken, for public purposes, and an award is made for land and buildings so taken and severance damages, which award is paid by application against the assessment levied for benefits accruing to remaining property, the proceeding constitutes a closed transaction which may result in taxable gain. 2.

1. Petitioner received from its lessee a sum in settlement of a claim that the lessee had not produced from petitioner's lands one third of the lessee's total production of gas in accordance with the… Held: the amount so received is not income from the property and not subject to percentage depletion allowance. 2. Petitioner paid to its lessee one half the cost of drilling four gas wells under an option to do so in the operating agreement.

1. Fair market value of certain shares of stock determined as of the date of acquisition thereof by the petitioners. 2. Appraisals of value for estate tax purposes and values reported for capital stock purposes are not conclusive evidence of fair market value and do no more than establish a prima facie value that may be overcome by convincing evidence.

Where taxpayers, who so far as the record discloses maintained only long security accounts, directed the sales of certain stocks in a lesser quantity than that so held, which sales… Held: which sales were not ordered as short sales, but were executed as long sales and so recorded on the broker's books, though taxpayers may have intended them as short sales, held, they were sales of stock held by taxpayers and not short sales. Robert W. Bingham,27 B.T.A. 186, distinguished.

1. Under an agreement between petitioner and another national bank, petitioner sold all its assets to the other bank and agreed to liquidate, and in consideration the other bank assumed all… Held: the transaction was not a reorganization under section 112, Revenue Act of 1928, but a sale. Pinellas Ice & Cold Storage Co. v. Commissioner,287 U.S. 462, followed. 2.

1. Where, after the death of the owner, stock is distributed by his executors to a trust created by his will, and thereafter, while the stock is held as part of the corpus of the trust, the trustees receive an extraordinary cash dividend, the portion of such dividend paid out of surplus of the corporation existing at the date of decedent's death is not a return of capital to the trust, but a dividend and income within the revenue acts; and its character as such, for Federal…

In 1924 the decedent was the owner of 2,082 shares of preferred stock of the Woodward Iron Co. upon which there were past due dividends of $28,107. Held: that the decedent received a taxable dividend.

In lieu of her statutory dower interest in her deceased husband's estate the petitioner took under the provisions of the decedent's will, by which he left the residue of his estate in trust, the… Held: that the capital value of the statutory dower interest of the widow has no bearing upon the determination of petitioner's tax liability, but that she is taxable as a beneficiary upon the entire amount paid to her within the year by the trustees.

DELINQUENCY PENALTIES - REVENUE ACT OF 1926, SECTION 1103; REVENUE ACT OF 1928, SECTION 291. - Reasonable cause means such a cause as would prompt an ordinarily intelligent man to act under similar… Held: upon the facts, the delinquency penalties were properly imposed.

1. Petitioner is entitled to include in its reserves required by law the reserve required to cover liability under the coupons attached to the guaranteed premium reduction policies issued by petitioner. Standard Life Ins. Co. of America,13 B.T.A. 13; affd., 47 Fed.(2d) 218; Farmers Life Ins. Co.,27 B.T.A. 423. 2. Rental value of space occupied by petitioner in its home office building is not required to be included in gross income. Independent Life Ins.

Where a husband and wife domiciled in California enter into a valid agreement that the earnings and salary of the husband after the date thereof shall be the separate income and property of the husband, no part of such earnings and salary is taxable to the wife.

1. A consolidated return must be filed by the parent corporation. 2. The purported consolidated return filed by or for the corporations in this proceeding, being filed by a corporation other than the parent, is ineffectual and the tax should be computed as if separate returns were filed.

1. The same individual owned all the outstanding voting stock of one corporation in the years 1926, 1927, and 1928, and over 95 percent of the outstanding voting stock of a second corporation from… Held: the corporations were not entitled to file consolidated returns for the years 1927 and 1928 without first obtaining permission of the Commissioner. 2. Life insurance premiums paid by petitioner in 1928 on the life of its president held not deductible.

The earnings of the original corporations herein continued to be such in the hands of the new corporation and when distributed to the stockholders of the new corporation were taxable as dividends.

Held, upon the evidence, that a portion of petitioner's share of partnership earnings which was actually distributed to petitioner… Held: upon the evidence, that a portion of petitioner's share of partnership earnings which was actually distributed to petitioner after actual receipt of the whole of such earnings by the partnership was taxable to the petitioner in the year in which it was distributed, notwithstanding that out of deference to another of the partners such…

During the taxable period the petitioner, which kept its books and filed its tax return on the cash receipts and disbursements basis, deposited with the tax commission of New York State certain… Held: that the deposit of the bonds did not constitute payment of the tax and that the amount thereof is not an allowable deduction in determining the petitioner's taxable net income.

1. The petitioner, a corporation, was organized under a plan wherein it was agreed that, in consideration of its president agreeing to protect the purchasers of its securities against Federal tax… Held: that no part of the sum paid to the petitioner, as aforesaid, represented taxable income to it. 2. Held, further, that the payments made to the stockholders of the old company in distribution of the tax refund and interest did not constitute return of capital.

1. The amount paid by a corporation for all the stock held by the owners of 50 percent of its outstanding shares which are then held in its treasury is a statutory distribution made from the most recently accumulated earnings. Sec. 201(b), (c), Act of 1926. 2.

Prior to 1918 the decedent was employed under contracts which, in addition to cash salary, gave him the right to purchase stock of his corporate employer at $50 per share. The contracts were modified in 1918 to provide that decedent's account in respect of the stock should be credited with dividends declared thereon and if such dividends did not amount to $50 per share by stated times his account should be arbitrarily credited with sufficient amounts to make up the $50 on specified blocks of stock which would then be issued. In 1928, as the result of dividends and an arbitrary credit, 150 shares of stock were delivered to decedent. Held, the several contracts were essentially contracts of employment and the stock represented compensation received in 1928 to the extent of its fair market value.

A corporation which derives income from mining operations conducted under a sublease on land which was directly leased by the State of Minnesota to two individuals, the land being a portion of the property held in trust by the State of Minnesota for its state university, is liable to income tax upon the income derived from such mining operations.

1. During the taxable year a corporation of which I. C. Iverson was the sole stockholder made certain payments. Held: that under the circumstances here presented such payments constituted taxable dividends. 2. Respondent's determination of penalty not sustained.

A dividend declared and payable in 1929 and paid by check mailed by the corporation in 1929, which is received in 1930 by a shareholder who makes his return on the receipts basis is within the shareholder's income for 1929.

RES JUDICATE. - The instant proceedings involve taxes for the years 1924 to 1929, inclusive. Held: the deficiencies for the several taxable years constitute different causes of action, but that the facts and the issue involved in the former proceedings are substantially the same as in the instant proceedings and therefore the judgment of the Supreme Court in the former proceedings is an estoppel against petitioner making the same…

In a prior proceeding between the same parties involving tax liability for 1918, the fair market value at March 1, 1913, of petitioner's mineral deposit was finally determined. Held: in the present proceedings, involving the identical issue of fact, the former determination is res judicata and conclusive. Tait v. Western Marhland Ry. Co.,289 U.S. 620.

Petitioner undertook to inventory feeder lambs on hand at the end of the taxable year on the so-called farm-price method and deduct from the gross income the difference between the cost of lambs and… Held: that the inventory method used did not truly reflect income for the year in question and that petitioner, even if entitled to use the farm-price method, failed to comply with the plain requirements of article 106(2)(b) of Regulations 74.

Trust funds held by trustees in New York and deposited by them with bankers there produced interest which the bankers paid to the trustees, who paid it to the sole beneficiary, a nonresident alien. Held: the beneficiary is not exempt from income tax thereon under section 217(a)(1)(A) of the Revenue Acts of 1924 and 1926.

A corporation and its stockholders agreed upon a plan to procure additional working capital for the corporation, which involved a surrender of 75 percent of outstanding stock by the stockholders, an… Held: that under the plan as consummated, a recapitalization resulted, and no gain or loss is recognizable under section 112(b)(3) of the Revenue Act of 1928.

In 1928 petitioner exchanged 1,116 shares of its preferred stock and 1,803 shares of its common stock for all the business and assets of another corporation, pursuant to a plan of reorganization. At the time of exchange, petitioner owned approximately 68 percent of the common stock of the transferor corporation, and immediately thereafter the latter corporation distributed among its stockholders in final liquidation the shares of petitioner's common stock acquired in exchange for its original assets. Petitioner received back 1,232 shares of its own common stock as a liquidating dividend, and thereby derived a profit. Held, the gain so derived is not recognizable for tax purposes under section 112(b)(3), Revenue Act of 1928.

Where a petitioner has acquired all the assets of another trust in exchange for certificates of beneficial interest, a determination of tax liability, regardless of form, will be considered as a notice of liability as a transferee.

In the case of a taxpayer who sustains a capital net loss, section 101(b), Revenue Act of 1928, provides that a partial tax shall be computed upon the basis of the ordinary net income at the rates and in the manner as if section 101 had not been enacted, and that the total tax shall be that amount minus 12 1/2 percent of the capital net loss, "but in no case shall the tax of a taxpayer who has sustained a capital net loss be less than the tax computed without regard to the provisions of this section." Held, the quoted provision means that in no event shall the amount which a taxpayer is required to pay as his tax be less than the amount which he would have been required to pay had section 101 never been enacted; and the word "tax", as used therein, means, not the mere total of normal and surtax, but the tax liability of the taxpayer for the year involved, after a complete computation thereof in accordance with the statute, including the subtractions necessary to give him the benefit of a credit for earned income and of any other credit to which he may be entitled.

- In 1928 petitioner D. G. Wood was an employee of Hidalgo County Water Control and Improvement District No. 6, organized under the laws and Constitution of the State of Texas. Held: such district is a political subdivision of the State of Texas. It was not engaged during the taxable year in the performance of essential governmental functions. The salary of petitioner as manager of the district is not exempt from taxation. T. P. Wittschen,25 B.T.A. 46, followed.

1. Value of timber reserves as of March 1, 1913, must be determined upon facts known, or reasonably to have been anticipated at that time. J. J. White Lumber Co.,24 B.T.A. 274, followed. 2. Overrun of about 11 percent in aggregate cut over aggregate estimate is not "gross error" as to any fact known at the basic date nor cause for revaluation of reserves. 3. Respondent's action in reducing the unit rate of depletion so that basic value may be extinguished upon exhaustion of reserves, approved.

DEDUCTIONS - PAYMENTS MADE BY TRUSTEES UNDER A WILL, OF ANNUITY TO A WIDOW WHO ELECTED TO TAKE UNDER THE WILL IN LIEU OF DOWER RIGHTS, NOT DEDUCTIBLE FROM TRUST INCOME. - Where the decedent in his will directed the trustees of his estate to pay his widow an annuity of $24,000 per year and made such annuity a specific charge against property belonging to his estate and the widow elected to take under the will in lieu of the interest allowed her in decedent's estate by the laws of Ohio, held, that the sums distributed by the trustees to the widow in payment of such annuity are not deductible from the income of the trust estate although paid out of income. Helvering v. Pardee,290 U.S. 365.

The petitioner was the owner in 1930 of both common and class A preferred shares of stock of the Monarch Royalty Corporation. Held: that the petitioner's shares of common stock became worthless in 1930 and that the cost thereof is deductible from gross income of that year. Held, further, that the evidence fails to show that the class A preferred stock became worthless in 1930, and petitioner is not entitled to a deduction of the cost thereof in that year.

A purported transaction in corporate shares between parents and child, held, under all the circumstances, lacking in intent to transfer ownership and therefore not a sale giving rise to a deduction… Held: under all the circumstances, lacking in intent to transfer ownership and therefore not a sale giving rise to a deduction for loss.

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

1. Held, that petitioner is liable at law as a transferee on its contract of assumption of all obligations of the taxpayer corporation, and that such contractual liability may be enforced by the remedy provided in section 280 of the Revenue Act of 1926. American Equitable Assurance Co. of New York,27 B.T.A. 247, affirmed by the Circuit Court of Appeals, Second Circuit, December 11, 1933. 2. Where a corporation sustained a net loss in 1923 and thereafter became affiliated with another corporation on March 31, 1924, and on or about June 5, 1924, transferred its assets to the taxpayer corporation, held, that since the taxpayer corporation is a new and wholly different taxable entity it is not entitled to deduct any portion of the net loss sustained by the predecessor corporation in computing net income for the year 1925 under section 206(b), Revenue Act of 1926.

In 1925 Edward E. Ayer transferred to the University of Chicago and the Newberry Library of Chicago, both educational institutions, cash and property under an agreement that annuities should be paid… Held: that the present worth of the annuities to the widow and daughter at the date of the transfers to the educational institutions constituted gifts subject to the gift tax imposed by the Revenue Act of 1924.

Where an insurance company issues its stock for sufficient cash consideration to enable it to deposit paid-in capital as a condition precedent to receiving a license to transact business, and afterwards redeems such stock at a price in excess of the amount for which it was issued, such excess must be regarded as a dividend incident to the redemption of the stock.

During the taxable year the petitioner sold certain corporate stock and received payment in full therefor. Pursuant to the contract under which the stock was sold the petitioner deposited a portion of the selling price in a bank to insure the fulfillment of certain obligations assumed by him in the contract of sale. Held, that the full amount of the profit received from the sale of the stock constituted income taxable to the petitioner for the year in which received.

1. The petitioner, a corporation, affiliated in 1928 with several other corporations, requested permission of the Commissioner to be allowed to file separate returns for that year instead of filing,… Held: that they were bound by such election and the Commissioner did not err in treating the separate returns as property filed and refusing thereafter to permit the filing of a consolidated return. 2.

Where under the state law capital gain from the sale of stock becomes a part of the corpus and is not distributable to the beneficiaries as income from the trust estate, and under the terms of the will corpus is distributable only at the discretion of the trustees, capital gain so realized but not actually distributed is not taxable to the beneficiaries as income distributable to them.

An alleged transaction whereby an individual, through an auctioneer, offers property for sale and at the same time, through a broker, bids a prescribed price for himself as sole trustee of a trust at… Held: under all the circumstances, to lack intent of sale and not to result in deductible loss.

Division orders entered in these proceedings, redetermining the amount of liability of the petitioners as transferees for unpaid taxes of the Navarro Lumber Co., reviewed by the Board. Following Henry Cappellini,16 B.T.A. 802, the order entered in the case of petitioner Buzard is affirmed, and the order entered in the case of petitioner Dusenbury is modified.

Petitioner, a domestic corporation, maintained a branch in India which purchased and shipped skins to fill orders transmitted to it through the home office in the United States. Held: the sales were consummated in India and the income was from sources without the United States; hence petitioner is entitled to credit for foreign income taxes on such income. Section 131, Revenue Act of 1928.

A, who owned all the stock of X, agreed to sell a 51 percent interest therein to B. In order to escape income tax A thereupon caused corporations Y and Z to be organized. Held: under section 204(a)(7) of the Revenue Acts of 1924 and 1926, A was in control of Z prior to the sale to B.

On August 1, 1925, the petitioner was given by her mother a 10 percent interest in her share in the estate of T. H. Given, in process of administration. Held: that the gain is taxable as other gain on sales of property held for a period of less than two years.

1. Held, in determining whether preferred stock under the provisions of section 240(d) of the Revenue Act of 1926 is nonvoting stock which is… Held: in determining whether preferred stock under the provisions of section 240(d) of the Revenue Act of 1926 is nonvoting stock which is limited and preferred as to dividends, it is the situation actually existing with respect to such stock during a taxable period that is controlling rather than the possibility that under certain…

The petitioner, a resident of Massachusetts, borrowed certain sums of money from his wife, also a resident of Massachusetts, agreeing to repay the sums borrowed and also to pay her interest thereon. Held: that the interest paid during the taxable year by the petitioner to his wife pursuant to their agreement is an allowable deduction in determining his net income.

1. Fraud is never presumed; accordingly, no presumption of correctness attaches to the finding by respondent that a taxpayer has been guilty of fraud. 2. Where the respondent has determined a deficiency and fraud penalty and taxpayer states in his petition that the deficiency, which represents tax and penalty, is all in controversy, the issue of fraud is before the Board. 3.

Held, that the partnership of which the petitioners were members was not a dealer in securities within the meaning of article 105 of Regulations 74, and, therefore, not entitled to use an inventory… Held: that the partnership of which the petitioners were members was not a dealer in securities within the meaning of article 105 of Regulations 74, and, therefore, not entitled to use an inventory in computing income for the taxable year.

The benefits of section 116(a) of the Revenue Act of 1928 are limited to a bona fide nonresident of the United States for more than six months during the taxable year, the taxable year being determined by the method of accounting employed rather than by the period in which the services were performed and not only must all of the requirements of that section be satisfied, but the income in question must meet the provisions of section 31 of that act.

Amounts paid by a corporation to the estate of a deceased officer equal to the salary formerly paid him during his life held not deductible.

1. Petitioner's father devised and bequeathed the residue of his estate to a trustee to divide the same into two equal shares and hold one share for the benefit of petitioner, paying the net income… Held: petitioner's interest was vested at testator's death, subject to being divested if she died before the specified events. 2.

The status of husband and wife on the last day of their taxable year determines their right to file a joint return under section 223 of the Revenue Act of 1924.

1. Income from the sale of cartoons created by petitioner, and from licenses granted to use the characters portrayed in the cartoons, is taxable to petitioner and may not be divided with his father and mother, who contributed nothing to the partnership through the books of which the income was passed. 2. The evidence does not establish that racing and breeding stables were established with the expectation of profit, and a loss sustained in the operation may not be deducted.

1. Shares of stock purchased within two years of the date of sale thereof, although purchased under rights to subscribe received on stock held more than two years, are not capital assets within section 101(c)(8) of the Revenue Act of 1928. 2. A stock dividend received on stock purchased under rights to subscribe in the same year such stock dividend was sold is not a capital asset within section 101(c)(8)(C) of the Revenue Act of 1928. 3.

1. The provisions of section 311 of the Revenue Act of 1928, specifying the period of limitation for assessment of liability against an initial… Held: that under section 277(b), Revenue Act of 1926, the running of the statute of limitations was suspended from the date of notice of deficiency until the date of the final decision of the Board and 60 days thereafter - the period during which the Commissioner was prohibited from making an assessment; and that the portion of the…

Where, by a contract between a corporation and the stockholders of another corporation, the first corporation acquired all of the stock of the second, three fourths for cash and one fourth by exchange for a minority interest of its own stock, held, there was no reorganization within the meaning of section 112(i)(1) of the Revenue Act of 1928.

Petitioner acquired certain stocks and bonds by general bequest under the will of her mother, who died on March 28, 1926. Held: the respondent correctly determined that the date of distribution establishes the beginning of the period the securities were held by the petitioner, within the meaning of section 101 of the Revenue Act of 1928, and the petitioner is not entitled to report as capital net gain the profit from the sales of these securities.

1. In a former proceeding between the same parties, reported at 19 B.T.A. 1260; affd., 57 Fed.(2d) 633 (so far as material here); certiorari denied, 287 U.S. 621, the point or question litigated and… Held: as to the same stocks involved in the present proceedings, no evidence having been offered to establish a subsequent gift, our original decision is res judicata and the parties are concluded thereby. Tait v. Western Maryland Ry. Co.,289 U.S. 620. 2.

Depletion adjustments on the basis of a new estimate of ore reserves and a revaluation thereof denied. J. J. White Lumber Co.,24 B.T.A. 274, followed.

Income derived by the petitioner from the purchase of its bonds is taxable in the year of such purchase, Garland Coal & Mining Co.,28 B.T.A. 348, followed, and the measure of income is the difference between the issuing and purchase price and not the difference between their March 1, 1913, value and the purchase price.

A corporation agreed to sell two separate groups of assets theretofore used in its manufacturing business at a price fixed for each group and thereafter declared a dividend in kind, payable by… Held: that the stockholders received the agreed purchase price for such assets and not the book value thereof as a taxable dividend.

Where three old corporations are merged into a new corporation and all the stockholders of the old concerns, for their stocks therein, receive all the stocks and bonds of the new corporation and nothing additional in cash, the transaction is one in which neither gain nor loss is recognized as provided in section 112 of the Revenue Act of 1928.

Where a notice of deficiency is erroneously addressed to a certain individual as administrator of the estate of the deceased taxpayer, which notice clearly shows that the proposed deficiency is asserted against the estate of the deceased taxpayer for the taxable year, and a timely petition for redetermination of the tax is filed with the Board by the duly appointed administratrix of the decedent's estate, containing no allegation with respect to the misnomer in the deficiency notice, it is held that the petitioner has not been misled by the method of addressing and, by appearing before the Board and invoking the Board's jurisdiction to obtain redetermination of the tax, the petitioner has cured any defect in the notice of which she might previously have complained.

Income received by petitioner from school districts in the State of Washington for transporting school children is not exempt from Federal income tax.

Held, no loss was sustained by petitioner in 1927 by reason of certain margin trading accounts being closed out, where the loss in the accounts was… Held: no loss was sustained by petitioner in 1927 by reason of certain margin trading accounts being closed out, where the loss in the accounts was not borne by taxpayer, the accounts in question having been opened for petitioner by Payne Whitney who guaranteed the accounts and the loss having been paid by Whitney or his estate.

It appearing that the Albany Port District Commission was established by the State of New York to serve the broad purpose of developing an integral link in a transportation project of national significance and was given powers and duties which in their nature were such as can be exercised only by an arm of the government, including the fixing of rates and the determination of deficits which are made up by taxation, the making of orders binding on municipal corporations, corporations and individuals for the violation of which orders penalties are provided and other comparable powers: Held, that the Commission is performing an essential governmental function and the salaries of its members are exempt from Federal tax.

1. Held, that the Fullerton Parkway Land Trust was, in 1925 and 1926, an association taxable as a corporation. 2. Held: that the Fullerton Parkway Land Trust was, in 1925 and 1926, an association taxable as a corporation. 2.

The petitioner is the owner of oil and gas properties and converts casing head gas produced therefrom into commercial gasoline in its own… Held: that the casing head gas is a raw material used in manufacturing operations and that only the fair market value thereof at the mouth of the well is an element in the computation of gross income from the property for the purpose of determining depletion deduction under the provisions of section 204(c)(2) of the Revenue Act of 1926.

The decedent on February 21, 1930, conveyed certain property in trust, reserving to herself the income for life. The trust was revocable only with the consent of her husband, who was a beneficiary. Held, that the property conveyed in trust is not includable in her gross estate.

- Petitioners owned shares in a corporation organized on June 1, 1920, with a paid-in capital of $3,326,502.88, of which $326,502.88 was set up on the… Held: that the loss of $532,026.24 must be made good by subsequent earnings before there are available for dividends any earnings or profits accumulated and that the respondent erred in determining that such loss had been made partially good to the extent of the paid-in surplus. Louise Glassell Shorb,22 B.T.A. 644, followed.

1. Taxes paid to the Municipality and Province of Havana, Cuba, by the petitioner, a New Jersey corporation, upon the doing of business in Havana, Cuba, can not be used as a credit on petitioner's liability for United States income taxes, although the amounts of the taxes were computed on the net earnings of the petitioner. 2.

1. During the taxable years 1927 and 1928 the taxpayer, a trust estate, paid to the trustees the sum of $75,000 as compensation for personal services in managing two newspaper publishing companies… Held: the items of $75,000 and $150,000 affect only the tax liability of the life tenant and the trustees, individually, and do not constitute deductions allowable in computing capital net gain. 2.

On the facts of the case, held, petitioner suffered a loss upon the settlement of his contract under the order and the decree of the court, due to the insolvency of the estate and its inability to meet its obligation to him.

1. The transfer of stock to the wife of the petitioner's decedent was made in contemplation of death. 2. Taxes on property held by the executors of an estate, which are accrued and paid after the estate came into being, are not deductible from the corpus as administrative expenses.

Compensation in addition to fixed salaries of the executive officers of a corporation not shown to be reasonable, held, not deductible as ordinary and necessary expense by the corporation. Held: not deductible as ordinary and necessary expense by the corporation.

Petitioner sold all its assets for cash and a portion of its own stock then outstanding. Held: that it realized taxable gain on the sale to the extent of the difference between cost of the assets and the amount of cash received plus the value of its own stock surrendered.

Petitioner acquired an annuity in consideration of a surrender of a part of her interest in her father's estate. Held: that the unrecovered cost of the annuity at date of termination was a loss in the year the contract was terminated.

1. Where, under provisions of a lease for 21 years with three possible renewals for like terms, lessee erected a building of an agreed useful life of 40 years, title to which building, subject to the lease, passed to the lessor immediately on erection, respondent properly determined that the estimated depreciated value of the building at the date of expiration of the original term of the lease represented income to lessor and added an aliquot part to income for the taxable…

1. Where a corporation owns 85 percent of the stock of another corporation, and the remainder is owned by individuals some of whom are also owners of about 3 percent of the stock of the former, and… Held: The question of estoppel by representation need not be decided, in view of the admission by the Commissioner that all relevant facts (concerning stock ownership, etc.) were at all times known to him.

The petitioner and other corporations affiliated with it changed their accounting period from a fiscal to a calendar year and filed a consolidated return for the last eight months of 1923. Held: that, under the circumstances, section 606 of the Revenue Act of 1928 authorized the execution of the agreement.

1. ESTATE TAX - WHETHER DECEDENT DIED POSSESSED OF REVERSIONARY INTERESTS IN NINE DIFFERENT TRUSTS. - Decedent created nine trusts. Held: the remainder interests in the several trusts were vested rather than contingent, and formed no part of decedent's gross estate under section 302(c), Revenue Act of 1926. Elizabeth b. Wallace, Executrix,27 B.T.A. 902, followed. 2.

1. In connection with a reorganization petitioners agreed to exchange common and preferred stocks of A corporation for amounts certain of common stock of B corporation, which further agreed to repurchase upon petitioners' demand, all of its stock exchanged for A preferred stock and a part of its stock exchanged for A common stock. Shortly after the contract was made petitioners have notice that repurchase would be demanded. Thereafter, the stocks were delivered in accordance with the contract and two days later corporation B made repurchases. Held, notwithstanding the result ultimately effected under the contract as agreed to and consummated, there were two transactions; first, an exchange of stock for stock on which gain is not recognized; and second, a sale of part of the stock so received. 2. Corporation A purchased its preferred stock from the estate of a deceased stockholder and distributed same to its common stockholders. Held, assuming, as petitioners contend, that the distribution was not a stock dividend, and that upon subsequent disposition of the stock so received the cost basis is the fair market value thereof when so distributed, in the absence of evidence as to such value, no basis is allowed.

Where a partnership, of which petitioners were members, purchased securities for resale to customers at a profit and not for purposes of speculation or investment, and in its books of account regularly inventoried at market unsold securities on hand at the end of each year, and in its tax returns computed net income on the same basis, such partnership was a dealer in securities within the meaning of article 105 of Regulations 74, and petitioners are entitled to have their…

The contract between petitioner and his associates and a partnership provided for the sale of the business and good will of a corporation which petitioner and his associates controlled; for the unqualified payment of a fixed sum during the first two years and a percentage of the profits of the partnership during the next three years and nine months, such payments being irrespective of petitioner's employment by the partnership; for the payment of a fixed salary while…

Fees received by the petitioner as compensation for services rendered as a receiver under appointment of the Court of Chancery of the State of New Jersey held to be includable in gross income subject to the Federal income tax.

1. Where a corporation, by issuing its own stock and paying cash, acquires a majority of the voting stock of another but less than a majority of the nonvoting stock, the transaction is not a… Held: there was no error in respondent's use of the value of the stock on that date as the measure of gain to the stockholders, rather than the value on an earlier date when the purchase plan was declared effective by the president of the purchasing corporation. 3.

1. A prior ruling concerning the exemption status of petitioner, made by respondent's predecessor in office, is not binding on respondent, who may reconsider the matter and make his own determination in respect thereto. 2.

The effect of consolidation was to create a new corporation which is not entitled to deduct a net loss sustained by one of its predecessor corporations.

1. A corporation which, after December 31, 1920, in computing its net taxable income deducted individual debts ascertained to be worthless and charged off, may not use its reserve for bad debts in computing its earnings and profits available for dividends, although it had carried on its books such a reserve for many years prior thereto. 2.

Attorney fees paid by a taxpayer engaged in the real estate and investment business in resisting an illegal attempt by a city to condemn and acquire certain of his property are diductible as ordinary and necessary expenses of such business.

- Petitioner owed certain obligations and to satisfy them borrowed the necessary funds from the Equitable Trust Co., which as a nominal trustee held title to certain stock belonging to petitioner, agreeing to deposit the stock as security for the loan.

1. No ambiguity appearing on the face of certain insurance contracts, the interpretation of the contracts is a matter for the Board and evidence of the interpretation that would have been given by the insurance company, or of procedure, not provided by the contract, that would have been prescribed in obtaining loans or exercising other privileges, is not admissible. 2.

1. VALUATION. - March 1, 1913, fair market value of certain oil and gas leases determined. See issue (e). 2. Held: the partnership is entitled to depreciation for the period in 1919 at rates stated in opinion. Held, further, with the exception of adjustment to be made under issue (f) and adjustment to be made for the period in 1919, respondent's action in deducting $1,567,048.50 from the basis is approved. See issues (g) and (h). 4.

Under the facts herein, held that petitioner was not required to accrue as income rentals owing to it under lease which in all probability it would never receive.

Petitioners and others gave an option on corporate stock, and after receiving notice of the optionee's election to exercise it, petitioners, in order to escape tax on the profit on the sale,… Held: that the partnership was but a conduit for the passing of title for petitioners, who were the real vendors, and they are subject to tax on income computed on the basis of cost to them.