Volume 29 — Tax Court Reports

1. Petitioner's net income for 1944 and 1945 determined. 2. Additions to tax under section 293 (b), I. R. C. 1939, disallowed.

Deductions -- Net Operating Loss -- Termination of Part [ILLEGIBLE WORD] Business -- Sec. 122 (d) (5), I. R. C. 1939. -- The loss sustained on the sale of a herd of breeding cattle which had contracted Bang's disease was not a net operating loss attributable to the operation of a trade or business regularly carried on since breeding operations were thereby terminated.

The petitioner, a parimutuel calculator at racetracks, is a native of Louisville, Kentucky, and maintained a residence there. Held: the petitioner's home was Louisville, Kentucky, and that traveling expenses (including meals and lodging), the amounts of which are herein determined, are deductible under section 23 (a) (1) (A), I. R. C. 1939. James E. Peurifoy, 27 T. C. 149 (1956), followed.

Sec. 811 (g) (2) (A), I. R. C. 1939. Held: 1. Held: On the facts, insurance proceeds received by decedent's wife properly includible in the gross estate of decedent because decedent indirectly paid all premiums thereon. 2. This section is not unconstitutional as a direct unapportioned tax on property or as being an arbitrary and capricious taking of property without due process of law.

Excess Profits Tax -- Net Abnormal Income Attributable to Prior Years -- Sec. 456 (a) (2) (B). -- A producing discovery oil well or wells having been completed in an oil pool covered by petitioners' leases less than a year after the beginning of exploration, discovery, or prospecting by petitioners relating to the area covered by such leases, petitioners have failed to show that the income from such pool claimed to be abnormal resulted from exploration, discovery, or…

Petitioner operates an insurance agency. It kept its books on an accrual method and returned its income in accordance with that method. Held: for the respondent. Petitioner is not entitled to reduce its 1953 income, nor is it entitled to a deduction from 1953 gross income for the aggregate amount which, because of bookkeeping errors, was erroneously included in income in prior years.

Held, petitioner received all of the proceeds from the 1951 sale of stock under a claim of right so as to be taxable thereon in that year, despite the fact he was… Held: petitioner received all of the proceeds from the 1951 sale of stock under a claim of right so as to be taxable thereon in that year, despite the fact he was obliged in a later year to pay back the proceeds received from the sale of a portion of the stock, pursuant to the mandate of a State court decree.

1. An amount credited to petitioner's partnership capital account, held, to be additional taxable income in absence of contrary proof. 2. Held: to be additional taxable income in absence of contrary proof. 2. Cash basis seller required by purchaser to leave proceeds of corporate stock sale for disbursement to the corporation as a loan on open account, held, not to have realized income in year of sale in the absence of collection of debt from corporation. 3.

Amounts retained by the purchaser of an automobile dealer's deferred payment contracts and credited to a reserve account on the books of the purchaser, held to be accruable income to the dealer in the year of sale of the contracts even though the amount of the reserve at the close of the year was not sufficient to allow the dealer to demand payment of any part thereof. Shoemaker-Nash, Inc., 41 B. T. A. 417, and Albert M. Brodsky, 27 T. C. 216, followed.

Where petitioner and his spouse were divorced a mensa et thoro in 1951 and before the end of the taxable year, they appealed from the decree of divorce, and the appellate court did not affirm the… Held: petitioner and his spouse were legally separated under a decree of divorce as of the end of the taxable year and were not entitled to file a joint return for that year. Therefore, the spouse's personal exemption on the purported joint return was properly disallowed.

Deduction -- Contribution -- Pension Trust -- Accruability -- Sec. 23 (p) (1), I. R. C. 1939. -- A taxpayer on an accrual basis is not entitled to deduct a contribution to a pension fund where the record fails to show that it was an accruable liability for the taxable year, even though it was paid within 60 days following the close of that year.

A payment of $ 5,000 by a corporation to the widow of the deceased president of the corporation, held, to be a gift, excludible from gross income, rather than a dividend or compensation paid for past… Held: to be a gift, excludible from gross income, rather than a dividend or compensation paid for past services rendered by the deceased president.

From 1947 until the spring of 1950, petitioners Groucho Marx and John B. Guedel produced the You Bet Your Life radio show, through a partnership. Held: the fair market value of the partnership interests was $ 1,000,000 and no part thereof represented compensation for services.

1. A partnership, of which petitioner was a member, sold and assigned to a bank conditional sales contracts, which it acquired in the course of its business of selling used cars. Held: that the increments to the special reserve account constituted income to the partnership. 2.

Taxpayers filed a power of attorney with respondent requesting that copies of all communications addressed to them be sent to their attorneys. Held: such motion denied.

Loss From Stock -- Change of Purpose of Holding -- Capital Asset -- Stock Acquired to Obtain Scarce Whiskey. -- Distilling company stock purchased to obtain rights to purchase whiskey but not sold until years after exercise of those rights was a captial asset at the time of sale and a long-term capital loss resulted.

Petitioner Sidney Stark, in the taxable years 1948 and 1949, was the principal stockholder of Penn Overall Supply Company, Inc., and in such… Held: in determining the amount of earnings and profits of Penn Overall Supply Company, Inc., available for distribution to petitioner as dividends in the respective taxable years when such distributions were made to him, the interest due by Penn Overall on such deficiencies is to be accrued ratably by it in each year as it became due.

Consideration received by petitioners-shareholders for individual covenants not to compete with vendee of their corporate stock, held, severable from price of stock and taxable to them as ordinary… Held: severable from price of stock and taxable to them as ordinary income.

1. Tax Court rules require that the petition contain clear and concise assignments of error as well as clear and concise statements of the facts relied upon as sustaining the assignments. Rule 7 (c) (4) (B) 4 and 5, Tax Court Rules of Practice.

Petitioners (two sisters and a brother) plus their mother and another brother owned all the stock of B corporation. Held: the agreement did not result in completed transfers subject to gift tax. Sec. 501, Rev. Act 1932.

Petitioner organized and controlled a corporation to own land and erect houses for sale thereon. Held: that the respondent did not err in his determination of partnership income under the contract. Standard Paving Co. v. Commissioner, 190 F. 2d 330, affirming 13 T. C. 425.

1. Petitioners' profits from sales pursuant to contracts with the War Department, held, renegotiable although items purchased by said Department were intended for resale, and said Department expected… Held: renegotiable although items purchased by said Department were intended for resale, and said Department expected reimbursement from nonappropriated funds of resale agencies for amounts paid under said contract from funds appropriated by Congress. 2.

Held, that in determining whether or not at least 80 per cent of the total compensation for personal services of petitioner, as trustee under a… Held: that in determining whether or not at least 80 per cent of the total compensation for personal services of petitioner, as trustee under a single appointment in a reorganization proceeding, in which his services and compensation therefor covered a period of more than 36 calendar months, was received in one taxable year, all…

Petitioner claimed a dependency credit for her mother who had partnership gross income in excess of $ 105, and other gross income of $ 499. Held: that the gross income of the partnership is gross income of the individual for the purpose of applying the gross income test; and as the mother's total gross income was in excess of $ 600, petitioner is not entitled under section 25 (b) (1) (D), I. R. C. 1939, to the dependency credit claimed.

Petitioner created five trusts in the year 1951, and transferred to the trustees of each, without consideration, securities valued at $ 21,645. Held: In the case of the four trusts for petitioner's children, the rights of the primary beneficiaries to receive income, but not their rights to receive possible advancements from principal, were present interests within the meaning of section 1003 (b), I. R. C. 1939; and that the values of such present interests were determinable…

1. Decedent's will created a trust over which his widow received an unlimited testamentary power of appointment. Held: the trust does not qualify for the marital deduction under section 812 (e) (1) (F), I. R. C. 1939. 2. A sum was paid to the State of Ohio on account of inheritance tax. Upon final determination of succession to the estate, such payment may prove to have been excessive, and refund may be obtained of the excess.

Petitioner claimed relief under section 722 (b) (1), (2), (3), (4), and (5). Held: Since the original applications asserted a specific ground for relief, change of product, the new ground subsequently raised by petitioner is barred by the statute of limitations. 2. The new matters raised after the statutory period constituted new and barred grounds for relief under subsection (b) (4), and not merely new evidence. 3.

Settlor of a trust retained the life income with power to alter and modify with consent of the trustee; and the trust instrument gave the… Held: the trust was not revoked, and, held, further, the settlement of litigation between the trustee and all beneficiaries, whereby decedent took one-half of the corpus but relinquished his power to amend, after naming his children as remaindermen, and, also relinquished his power to make testamentary disposition, did not amount to the…

1. The individual petitioners first sought to purchase the assets, primarily a paper mill, of Rondout 1935, which corporation possessed no value to purchasers other than the assets. Held: that the series of steps constitutes one transaction, viz, the purchase by Rondout 1945 of the assets of Rondout 1935. Therefore, the basis of the assets in the hands of Rondout 1945 is the purchase price of the stock.

Petitioner is a mutual insurance company taxable under section 207, I. R. C. 1939. Held: because the parties have agreed that the denominator of the credit-limiting ratio prescribed in section 131 (b) (1), I. R. C. 1939, consists of the entire United States and Canadian income from investments, the numerator of such fraction must contain only Canadian receipts from investments, which receipts would be income under…

Held, amounts received by petitioners represented by thrift certificates issued to customers do not qualify as borrowed capital within the purview of section 439 (b) (1), I. R. C. 1939. Held: amounts received by petitioners represented by thrift certificates issued to customers do not qualify as borrowed capital within the purview of section 439 (b) (1), I. R. C. 1939.

1. Petitioner, a physician, did not keep an accurate set of books. Held: although the net worth method is an acceptable method of determining income, it is less accurate in the circumstances of this case than the method adopted by the Commissioner. 2. Held, further, a part of the deficiency for each of the years 1939-1948 was due to fraud with intent to evade tax; fraud not proved for 1949. 3.

A shareholder of petitioner was plaintiff in a stockholder's derivative suit in which petitioner and some of its officers and directors were joined as defendants. Held: the amount paid by petitioner as costs pursuant to the decree of the District Court is deductible as an ordinary and necessary business expense within the meaning of section 23 (a) (1) (A), I. R. C. 1939.

In 1951 petitioner expended the sum of $ 98,586.76 in compromise and settlement of a lawsuit arising out of a dispute with its contractor for the construction of a paper machine. Held: the aggregate expenditure constituted additional cost of acquiring a capital asset having a useful life of more than 1 year and was not deductible either as an ordinary and necessary business expense or as a loss.

Petitioner filed timely applications for relief under section 722, I. R. C. 1939, for its fiscal years 1943 and 1944, but no mention was made of carryover or carryback of unused excess profits tax… Held: that the amended applications were barred by the statute of limitations.

Petitioner, a manufacturer of paper boxes, seeks relief under section 722 (b) (4), I. R. Held: petitioner has not shown a change in character within section 722 (b) (4) because it has failed to show that capacity for operation and production was a bottleneck; and it has failed to show that with increased capacity it would have captured additional business in its competitive area.

Petitioner is engaged in the business of providing medical, surgical, and hospital services upon contract. Held: to the extent of 100 per cent of the billings of the physicians, such payments represent compensation for services rendered and are reasonable in amount. Held, further, that such payments in excess of 100 per cent of physicians' billings are distributions of the earnings of petitioner.

1. Petitioner, an American travel bureau, was controlled by Bennett's Reisebureau A/S, Oslo, Norway, hereinafter called Bennett's Oslo. Held: upon discharge of said indebtedness in kroner, petitioner realized ordinary income in the amount of $ 25,077.61. 2. At petitioner's request, Krogh, manager of Bennett's Oslo, customarily entertained patrons of petitioner at his home in Norway.

Petitioners sustained a loss as a consequence of abandonment of their sublessee's interest in the permanent improvements affixed to leased business realty, which loss they characterize accelerated… Held: that such loss is not attributable to the operation of petitioners' business regularly carried on within the meaning of section 122 (d) (5), I. R. C. 1939, and cannot therefore be carried forward to the year 1953 as a net operating loss deduction.

Held, a bad debt resulting from loans which the taxpayer made to a California corporation which was organized by him to further and… Held: a bad debt resulting from loans which the taxpayer made to a California corporation which was organized by him to further and stimulate the sales in the Western States, including California, of a similar business which he had conducted for many years as a sole proprietorship with headquarters in Buffalo, New York, was proximately…

Where petitioner was in the business of acquiring and holding real property for the production of income, by way of rent or otherwise, and certain property on which it had planned to erect warehouses… Held: there was not sufficient similarity or relation in service and use to the converted property to entitle petitioner to nonrecognition of the gain upon the conversion under section 112 (f), I. R. C. 1939.

Land which was originally purchased as a plantation and later rendered useless for farming by the construction of a canal in the vicinity, was surveyed,… Held: the lots were held in the taxable years primarily for sale to customers in the ordinary course of a trade or business, and the gain realized is taxable as ordinary income rather than long-term capital gain. Held, further, the petitioner is liable for additions to the tax under section 294 (d) (2), I. R. C. 1939.

1. Best, an inventor of locks, in exchange for stock assigned patents to Best, Inc., which in 1928 licensed Best Lock to manufacture under… Held: Royalties paid by Best Lock under the 1949 licenses are not ordinary or necessary business expenses, following Thomas Flexible Coupling Co. v. Commissioner, 158 F. 2d 828; (2) royalties paid to Foundation are constructive dividends from Best Lock taxable to Best; (3) cost of 1953 catalog is capital item, not deductible expense in…

1. Held, that the vacation pay in question is to be considered a class of deductions for the purpose of section 433 (b) (9), I. R. C. 1939 (Korean War Excess Profits Tax… Held: that the vacation pay in question is to be considered a class of deductions for the purpose of section 433 (b) (9), I. R. C. 1939 (Korean War Excess Profits Tax Law). 2. Held, that none of the provisions of section 433 (b) (10) apply to bar petitioner from invoking the benefits of section 433 (b) (9).

A national bank, in which petitioner was a stockholder, owned all the shares of a subsidiary which performed functions related to the bank's activities. Held: the transfer by the bank of its subsidiary's stock to the trustees did not constitute a taxable dividend to the petitioner.

Petitioner created six irrevocable trusts, without consideration, for the primary benefit of six minor grandchildren. Held: that the interests of the several beneficiaries, both in the corpus and in the income of the trusts, were future interests within the meaning of section 1003 (b), I. R. C. 1939; and accordingly no exclusion is allowable in respect to such interests.

Petitioners owned less than 50 per cent of the stock of Pocahontas Tanning Company. Held: even though Pocahontas were merged into Howes, the merger was not a statutory merger or consolidation within the meaning of the Code, since petitioners were only creditors of Howes and retained no proprietary interest therein after the merger; they sold their Pocahontas shares and the entire gain realized on such sale is taxable as a…

1. The value of payments due decedent's wife on his death as a result of his naming her beneficiary of pension plans and a profit-sharing trust created by his employers in which he had enforceable vested rights is includible in his gross estate. Sec. 811 (a) and (f) (2), I. R. C. 1939. 2.

An informer's award of $ 68,837.96 did not qualify for treatment under section 107 (a), I. R. C. 1939, since services leading to award did not extend over a 36-month period.

Sec. 165 (b), 1939 Code -- Ordinary Income or Capital Gain. -- Petitioner was employed by X corporation which had an employees' pension trust. Held: the distributive share of the pension trust which petitioner received in 1951 was ordinary income and not long-term capital gain.

Petitioners constructed a theater building in 1950 which they operated as a business enterprise until March 1952. Held: that there is no evidence of any change in the character of the building as business property; that the property was not a capital asset within the meaning of section 117 (a) (1) (B), I. R. C. 1939; that the loss on foreclosure was an ordinary loss; and that petitioners are not entitled to a capital loss carryover to the year 1954…

Under Maryland law, the donee of a testamentary power of appointment could not appoint to herself, her creditors, or her estate. Held: the power of appointment does not qualify for the marital deduction under section 812 (e) (1) (F), I. R. C. 1939.

1. In 1934, 1935, and 1936, petitioner, a furniture and appliance retailer who did approximately 95 per cent of his business on a credit basis, went through his individual accounts receivable ledger… Held: petitioner was on the reserve method of accounting for bad debts, and reductions of his bad debt reserve account, because it was excessive in 1943 and 1945, constituted taxable income to him in those years. 2.

Held, certain gifts made in trust where trustee had to disburse the income annually to the beneficiaries and had full discretion to… Held: certain gifts made in trust where trustee had to disburse the income annually to the beneficiaries and had full discretion to distribute the corpus prior to the expiration date named in the trust instrument, were gifts of future interest and donors were not entitled to the exclusions of section 1003 (b) (3), I. R. C. 1939; held,…

Under a court-approved reorganization plan the bondholders of Sun Realty Company, a corporation under receivership, formed three new corporations in 1934, the Consolidated Office Buildings Company,… Held: that the transfers here made qualify as a reorganization with the requisite continuity of interest, in which no gain or loss is recognized within the meaning of section 112 (b) (10), I. R. C. 1939.

1. The principal petitioner purchased certain realty and, under agreement with the vendor, assumed and later paid certain city and county taxes thereon which had previously been assessed and had… Held: that such assumed taxes constituted part of petitioner's cost of the property, and that they are not deductible from his gross income. 2.

Upon the stipulated facts, an amount received by petitioner in the taxable year ended January 31, 1952, from a Canadian corporation, held, taxable as long-term capital gain rather than as ordinary… Held: taxable as long-term capital gain rather than as ordinary income.

In 1950, petitioners received a lump-sum commutation payment for the future amounts due under an employment contract which still had approximately 4 years to run. Held: respondent properly determined that such lump-sum payment was a substitute for future compensation due under the contract and was taxable as ordinary income.

Petitioner, a specialist in foreign economics, was employed in 1948 and prior thereto by the Federal Government and lived with his family in a home which he owned in Bethesda, Maryland. Held: petitioner entitled to benefits of section 112 (n), I. R. C. 1939.

Petitioner was an officer and director of a corporation which promoted and developed shopping centers and residential real estate developments. Held: on the facts, that this survey was for the purpose of determining whether petitioner would enter a new trade or business and, as such, the cost thereof is not deductible under section 23 (a) (1) (A), (a) (2), or (e), I. R. C. 1939.

1. Denise Coal Company, the owner and lessee of certain coal lands, entered into contracts with various strip miners whereby the strippers were to conduct strip-mining operations on Denise's property. Held: that in determining Denise's gross profit from the property for purposes of the computation of the percentage depletion allowance it must exclude the amount paid to the strippers since the strippers acquired an economic interest in the property. 2.

Petitioner is an automobile dealer and sells automobiles with downpayment of cash or trade-in payment with balance of purchase price being payable in monthly installments provided for in conditional… Held: the Commissioner is sustained.

Prior to 1941, the petitioner was a producer of book cloth, a chemically coated or impregnated fabric. In 1941 petitioner converted to the production of tent material for the Government. Held: under the record presented, the petitioner has not shown that any part of the income received from the production of tent material for the Government can be attributed to research and development in prior years within the meaning of section 721 (a) (2) (C), I. R. C. 1939.

1. Petitioner commenced business in 1928 and thereafter in each year, including the base period years, had substantial earnings. Held: that its base period net income, computed under section 713 (f), is not an inadequate standard of normal earnings and it does not qualify for relief under section 722 (b) (4), I. R. C. 1939. 2.

Petitioner, a producer of castings and finished metal products, claims relief from excess profits tax under section 722 (b) (4), I. R. C. 1939. Held: petitioner has shown that it increased its capacity for production during the base period but has failed to establish a resulting increase in the level of its base period net earnings.

1. The respondent determined deficiencies in income tax and additions to tax for fraud against the petitioners for the years 1943, 1944, 1945, 1946, and 1947 on the basis of bank deposits, the source… Held: that the respondent has failed to carry his burden of proving that the 1943, 1944, and 1945 returns were false and fraudulent with intent to evade tax.

Excess Profits Tax Credit Based on Income -- Korean War -- Purchase of Another Corporation -- Elimination of Duplication in Base Period Combined Earnings -- Sec. 474, I. R. C. 1939 -- Regs. 130, Sec. 40.474-4 (a) (1) and (a) (2) (ii). -- The fact that the petitioner in some base period years had a deficit in excess profits net income does not preclude the elimination of a duplication of earnings under section 474 and Regulations 130, sec. 40.474-4 (a) (1) and (a) (2) (ii), in combining the base period excess profits net income of the petitioner and that of the "selling" corporation for the purpose of computing excess profits tax credits.

Taxpayer maintained a tract index and engaged in the title abstract business in Dane County, Wisconsin. Held: Taxpayer's purpose in purchasing the competitor's tract index was to eliminate competition, which elimination was effected whether or not the tract index was in physical existence, and accordingly taxpayer is not entitled to an abandonment deduction. 2.

Corporation organized after 1945 but which acquired all its assets from parent corporation in business since 1925, held, to have commenced business prior to 1945 for excess profits tax purposes under… Held: to have commenced business prior to 1945 for excess profits tax purposes under section 430 (e), I. R. C. 1939, Excess Profits Tax Act of 1950, so as to be barred from preferential tax rate as a new corporation.

Decedent, the principal beneficiary in a trust created by his father in 1935, was not subject to a gift tax in 1951 when the trustees of the 1935 trust transferred a portion of the trust assets to a new trust in which the decedent was again the principal beneficiary, but with the difference that in the new trust the decedent's spouse was entitled, at the absolute discretion of the trustees, to a distribution of principal and income for her welfare, while under the old trust…

Charles Zarkin owned and controlled a corporation which substantially financed the partnership petitioner. One individual managed both business entities. Held: the partnership petitioner and the corporation were under common control within the meaning of section 403 (c) (6) of the Renegotiation Act of 1943, and the partnership realized excessive profits in its fiscal years 1944 and 1945, of $ 10,000 and $ 35,000, respectively.

Corporate resolution authorized payment to petitioner of amounts equivalent to the salary of her deceased husband for 2 years and also authorized payments, similarly computed, to the wives of two… Held: the two objectives of the resolution are not interdependent and petitioner has sustained her burden of proving gift under section 22(b) (3), I. R. C. 1939.

1. Returns filed by petitioners, held, on the facts, fraudulent with intent to evade tax, making statute of limitations inapplicable. 2. Held: on the facts, fraudulent with intent to evade tax, making statute of limitations inapplicable. 2. Deficiencies determined, held, on the facts, not shown to be improper. 3. Part of each deficiency for both petitioners, held, on the facts, due to fraud. 4.

Taxpayer was properly on the cash basis for keeping its books and reporting its tax in 1949 when certain services were rendered. Held: taxpayer was properly on the accrual method for reporting income in 1950, but must include in income payments received in 1950 for services performed in 1949, under the provisions of section 42, I. R. C. 1939.

Petitioners' property that was used in a poultry business was sold under threat of condemnation and the proceeds used to acquire rental property and a gasoline filling station business. Held: the gain on the sale was taxable and petitioners were not entitled to the exemption provided for in section 112 (f), I. R. C. 1939, since the property acquired was not similar or related in service or use to the property converted.

Petitioner and her late husband owned a parcel of real estate as tenants by the entirety with the common law right of survivorship. Held: the basis for depreciation for petitioner in 1954 was the cost at the time the property was acquired and not the fair market value at the time of the husband's death in 1953.

Casualty Loss -- Sec. 23 (e) (3), I. R. C. 1939. -- In 1951, cracks developed in ceilings of rooms of petitioner's new residence, and at other places. Held: that in order to establish that damage to property is due to other casualty within the meaning of section 23 (e) (3), a taxpayer has the burden of proving the proximate cause of the damage.

The primary annuitant of an employee's annuity died prior to January 1, 1951, having recovered, tax free, his total contributions to the annuity fund, and the value of the survivor's interest was… Held: that the entire annuity payments received by the surviving annuitant are includible in his gross income.

1. A taxpayer cannot rely upon its alleged failure to comply with its own State law to avoid the effect of a Federal tax statute. 2. Assets received by the petitioner in exchange for stock were assets received in a nontaxable exchange within the meaning of section 112 (b) (5), I. R. C. 1939, and thus should be awarded the same basis for computing depreciation as they would have in the hands of the transferor. 3. Estoppel must be specially pleaded.

1. In 1949, the executor-trustees under the will of Mattie Hedgecoke, who held title to an undivided one-fourth interest in a ranch and other lands, joined with others referred to below holding title… Held: That the transaction by which the properties were conveyed to the corporation was a sale, and not an exchange for securities and cash under section 112 (b) (5) and (c) (1), I. R. C. 1939.

Petitioner, on December 29, 1952, transferred land with a market value of $ 66,000 in trust. Held: for the respondent. The $ 66,000 valuation of the remainder interest is upheld because of a failure of proof.

War Contracts -- Renegotiation Rebates. -- Held, that under section 403 (a) (4) (D) of the Renegotiation Act of 1943, renegotiation rebates may not be allowed to… Held: that under section 403 (a) (4) (D) of the Renegotiation Act of 1943, renegotiation rebates may not be allowed to the petitioner, a parent corporation, based on accelerated amortization of facilities owned by subsidiaries to which no excessive profits were allocated in prior bilateral renegotiation agreements.

X corporation which had 5 stockholders owned and operated 4 theaters in which it also operated the business of selling soft drinks, candy, popcorn, etc., known as a concession business. Held: respondent did not err in denying petitioner, pursuant to such section the use of such exemption. Held, further, petitioner not prevented from computing its income under section 430 (e) (1) (A) by reason of the provisions of sections 430 (e) (2) (B) (i) and 445 (g) (2) (A).

1. Petitioner has failed to show that there was a change in the capacity for production or operation of its business consummated subsequent to December 31, 1939, as a result of a course of action to… Held: that the partnerships did perform services for petitioner, that the commissions did not represent distributions of earnings to shareholders, and that they were ordinary and necessary business expenses deductible under section 23 (a) (1) (A), I. R. C. 1939. 3.

Petitioner, organized after December 31, 1939, was required to compute its excess profits credits based on invested capital. Held: petitioner has not shown that it qualifies for relief under the cited sections of the Internal Revenue Code of 1939.

Petitioner's timely claims for relief under section 722, I. R. C. 1939, for the years 1943 and 1944 made no claim for carryback of unused excess profits credit based on CABPNI from 1945. Held: the amended claims are barred by the statute of limitations.

Taxpayer filed timely applications for relief under section 722 for 1943 claiming the right to the benefits of unused excess profits… Held: taxpayer, under the 1939 Code and the regulations, is not entitled to a refund of excess profits tax paid for 1943 based on a carryback to that year of any unused excess profits credit from 1944, since taxpayer did not file a timely claim or amendments thereto asserting such rights and the Commissioner has not waived his regulatory…

Exclusion From Gross Income -- Lodging Occupied by Employee for Convenience of Employer -- Sec. 119, I. R. C. 1954. -- Veterans' Administration employee-physician required to occupy quarters at hospital for convenience of his employers and to pay fair rental therefor by deduction from his basic salary, held not entitled to exclude the rental from his gross income under section 119, I. R. C. 1954.

Special Death Benefits paid by a corporation to estates or beneficiaries of deceased stockholder-employees held not to constitute compensation for services previously rendered, and accordingly are not deductible under section 23 (a) (1) (A), I. R. C. 1939. Estate of Albert L. Salt, 17 T. C. 92, distinguished.

The corporate petitioner sold its real estate to Farm Industries, a corporation whose stock was owned personally by children, or held in trust for children, of the… Held: on the basis of the record before us, the sales price of the corporate petitioner's property was not less than its fair market value. Held, further, the rental accrued by Southern Ford was required to be paid under the lease as a condition to the continued use of the property and is therefore deductible.

Trust was created by purchasing and executing form instruments to own and operate certain properties. Held: the Elmer Irvin Trust is an association taxable as a corporation where trust agreement, among other things, contemplated continuity, limited liability, and authorized trustees to manage property through a general manager.

Patent royalty payments received in 1951, 1952, and 1953 pursuant to an agreement whereby all patent interests were assigned for the period of the agreement, said agreement being subject to… Held: not received from the transfer of all substantial interests in the patents within the purview of section 117 (q), I. R. C. 1939, and are therefore taxable as ordinary income.

Proof of contents of returns claimed to be fraudulent, held, necessary to sustain respondent's burden of proving inapplicability of statute of limitations on ground that returns filed were false or… Held: necessary to sustain respondent's burden of proving inapplicability of statute of limitations on ground that returns filed were false or fraudulent, with intent to evade tax under section 276 (a), I. R. C. 1939.

1. Held, that the transfer of November 6, 1947, by Irma Crall, administratrix, was intended to and did transfer to A. E. Hickman the… Held: that the transfer of November 6, 1947, by Irma Crall, administratrix, was intended to and did transfer to A. E. Hickman the entire, undivided one-half interest of the Estate of William R. Crall in a pending patent application and any patent granted thereunder; that said Irma Crall individually and A. E. Hickman, on the same date,…

1. Petitioner carried on farming, livestock, and packing activities through the medium of four proprietorships in Mexico, Texas, Florida, and the Bahamas. Held: two of the principal proprietorships constituted several and separate businesses and their losses cannot be aggregated in determining losses disallowable under section 130, I. R. C. 1939. 2. In 1949 petitioner and respondent agreed on deficiencies for the years 1944 and 1945 and signed Form 870-TS (Modified).

Secs. 1311 to 1314, I. R. C. 1954 -- Mitigation of Limitations. -- The petitioners received $ 12,000 in 1944 and some $ 30,000 in 1945 as proceeds from publication of a book. Held: the position maintained by the petitioners that only $ 12,000 was received in 1944, which position was adopted in the determination of this Court, was inconsistent with the erroneous inclusion of $ 42,000 in their 1944 return.

Where an individual, the purchasing agent and nominal president of the petitioner, received the amounts in question under a claim of right from the petitioner's suppliers during the tax years… Held: the amounts in question did not constitute accruable income to the petitioner during the tax years in question.

1. Shortly after its creation in 1828 Canton Company, a subsidiary of petitioner, became the owner of approximately 5,000 acres of land adjacent to and now a part of the city and port of Baltimore. Held: that the properties so sold were held by Canton primarily for sale to customers in the ordinary course of its trade or business, and were not capital assets, within the meaning of section 117 (a), I. R. C. 1939. 2.

During the early part of 1951, William and Harry Goldstein were equal partners in a business which bought, stored, processed, and sold scrap metal. Held: that the income of the business for the period January 1 through April 21, 1951, is the distributable income to the partners, 50 per cent to William and 50 per cent to Harry, and is to be accounted for as such in computing the gain realized by Harry from the sale of his partnership interest.

1. Held, the returns of Harry Schneider were false and fraudulent and a part of each deficiency was due to fraud with intent to evade tax for each of the years 1944 through 1950. 2. Held: the returns of Harry Schneider were false and fraudulent and a part of each deficiency was due to fraud with intent to evade tax for each of the years 1944 through 1950. 2.

1. Reliance at the hearing on section 117 (m), I. R. Held: not new matter shifting the burden of proof to respondent in a proceeding where the deficiency was determined generally under the provisions of I. R. C. 1939. Thomas Wilson, 25 T. C. 1058, distinguished. 2.

Excess Profits Tax -- Sec. 722 -- Constructive Average Base Period Net Income. -- The Commissioner concedes that the taxpayer qualifies for relief under section 722 (b) (1) and constructive average base period net income has been determined from the evidence.

Petitioner, a manufacturer of coated fabrics, engaged in a program of research resulting in the development of a resin coating known as… Held: a portion of the income resulting from the sale of Tolex constitutes net abnormal income resulting from research and development within the meaning of section 721 (a) (2) (C), I. R. C. 1939, and is allocable to the years during which the research and development program was in operation, pursuant to section 721 (b), I. R. C. 1939.

1. Petitioner owned 93.66 per cent of the stock of a railroad company referred to as Omaha. Held: in view of the large amount of past due indebtedness, it was unreasonable to expect that Omaha could pay petitioner any of the current interest due in 1942 and 1943 within a reasonable time thereafter and that respondent erred in determining that petitioner should accrue and report as income such current interest which became due in…

Petitioner corporation was an authorized dealer in Chevrolet automobiles. Held: that the insurance commissions here involved were not earned by petitioner, were not received by petitioner, and were not includible in petitioner's income for either of the years involved.

Petitioner, a corporation, acquired all of the stock of two corporations which were operating at a loss at the time of their acquisition… Held: the petitioner has failed to show by a preponderance of the evidence that the principal purpose of the acquisitions in question was not the evasion or avoidance of Federal income tax, so that the Commissioner did not err in disallowing, under section 129 of the Internal Revenue Code of 1939, the deduction by the petitioner of the…

Excess Profits Tax -- Sec. 722 (b) (4), I. R. C. 1939 -- Constructive Average Base Period Net Income. -- The Commissioner recognized that the petitioner qualified for relief under section 722 (b) (4) and granted partial relief under section 722. A fair and just amount representing constructive average base period net income determined herein.

In 1950, petitioner and one Davis entered into an arrangement whereby Davis was to operate farmlands owned by petitioner. Held: deduction disallowed. Petitioner failed to prove either (1) the existence of a debt in his favor, or (2) that the estate was in fact insolvent and any indebtedness to him uncollectible.

Petitioner is a boilermaker by trade. He resides in Jasper, Alabama, with his wife and children. Held: the Commissioner's determination is sustained.

Petitioner purchased 900 of its 1,500 outstanding shares of capital stock in 1948 and simultaneously entered into contracts with two of its employees to resell such shares to them equally over a… Held: in determining petitioner's excess profits credit based on income under section 435, I. R. C. 1939, the proceeds from the resale of the stock in 1951 and 1952 do not constitute money * * * paid in for stock as that phrase is used in section 435 (g) (3) (A) of the Code.

1. Petitioner mined oyster shells by suction dredging them from the bottom of Matagorda Bay, Texas. Held: petitioner's first commercially marketable mineral product was oyster shells loaded for shipment on shore, and so much of its gross receipts as were attributable to hauling the shells up to a distance of 50 miles is includible in computing its total gross income from mining for purposes of the statutory percentage depletion…

Percentage Depletion -- Net Income From the Mining Property -- Charitable Contributions -- Secs. 114 (b) (4) and 23 (q)I. R. C. 1939. -- A contribution to a hospital fund was deductible under section 23 (q), not under section 23 (a) (1) (A), and like other 23 (q) deductions was not deductible in computing the net income from the property limitation under section 114 (b) (4).

Petitioner Culley was an equal partner in the firm of Culley and Alexander and Culley contributed to the firm 28 acres of land which had cost him $ 9,800. Held: the profit should have been computed on the basis of $ 9,800, or the cost to Culley, and one-half of the income as so computed was taxable to Culley. Held, further, advances made by the petitioners at various times to certain corporations were contributions to capital and not loans.

1. Section 117 (j), I. R. C. 1939, limits capital asset treatment regarding breeding cattle to those held for 12 months or more. 2. Reasonable cause not a defense to penalty of section 294 (d) (2), I. R. C. 1939.

1. An allocated portion of petitioner's periodic payments under agreement with his divorced wife was for support and care of her minor son. Held: nondeductible since not shown that payments were for benefit of wife under section 22 (k), I. R. C. 1939. 2.

Held, amounts received by petitioners during the years in issue from Pacific Telephone & Telegraph Company, pursuant to the terms of a lease agreement executed April 8, 1947, constitute rental income… Held: amounts received by petitioners during the years in issue from Pacific Telephone & Telegraph Company, pursuant to the terms of a lease agreement executed April 8, 1947, constitute rental income taxable under section 22 (a), I. R. C. 1939.

Taxpayer Gordon Oil Company assigned two producing oil and gas leases and certain tangible property connected therewith. Held: in the absence of evidence that a portion of the remaining consideration was not properly allocable to the tangible property, the taxpayer failed to carry its burden of proving that the tangible property was sold for only $ 250,000, and the deduction must therefore be disallowed.

1. Contracts, terminable at will, for strip mining coal, whereby a partnership, strip miner, agreed to deliver all coal mined to the lessor, owner, and receive a specified price per ton of coal… Held: did not give the partnership an economic interest in the coal in place so as to entitle the partnership to a depletion deduction under sections 23 (m) and 114 (b) (4), I. R. C. 1939. 2.

1. Payments by petitioner of State unincorporated business taxes, personal income taxes, and interest thereon, allocable to his former partners, and for… Held: not deductible by him as taxes paid, as ordinary and necessary business expense, or as losses in a transaction entered into for profit. 2. Payments by petitioner for legal services in connection with the foregoing, coupled with claims against himself and penalties thereon, held, on the facts, deductible in full.

1. Petitioner Darwin O. Nichols was a member of a partnership engaged in the manufacture of dies and metal stamps used in producing metal parts for other manufacturers to incorporate in their… Held: that petitioner is not entitled to a business bad debt deduction under section 23 (k) (1) in connection with the loans to the corporation since the aforesaid losses were not incurred in, or proximately related to, any trade or business of the petitioner. 2.

Income -- Rent -- Additional Rent or Purchase Price of Service Station Goodwill by Tenant. -- Goodwill of going gasoline stations held separately acquired by the petitioner and separately sold to the petitioner's tenants at prices not exceeding cost.

1. Held, respondent properly reconstructed petitioners' income by the use of the net worth method, and the deficiencies determined thereby are sustained. Held: respondent properly reconstructed petitioners' income by the use of the net worth method, and the deficiencies determined thereby are sustained.

Under the law of the State of California, jointly owned property is not property subject to general claims for the purpose of computing the deduction for property previously taxed under section 812 (e), I. R. C. 1939.

B and his associates desired to purchase Algam stock. B approached A, who was acquainted with all of Algam's stockholders, and they agreed to be partners in the purchase. Held: A received compensation for services rendered in the form of Algam securities with a fair market value of $ 45,208.33.

The decedent executed general warranty deeds conveying certain income-producing real properties to his children but thereafter continued to receive and treat as his own all of the rents from said… Held: on the facts, the decedent retained for his life the possession or enjoyment of the income from the properties so that their value is properly included in his gross estate under section 811 (c) (1) (B), I. R. C. 1939.

1. Collateral Estoppel. -- Held, that the prior decision in the case of this petitioner, 44 B. T. A. 1170, fixing the unit rate to be used in… Held: that the prior decision in the case of this petitioner, 44 B. T. A. 1170, fixing the unit rate to be used in computing a reasonable allowance for depreciation of plant and equipment, does not preclude reconsideration and fixing of proper unit rate for later years, in view of changed facts and conditions in intervening years. 2.

1. Held, the amounts received by the petitioner June during the taxable years and claimed by petitioners to be loans from Gilbert System Hotels, Inc., constituted distributions of earnings and… Held: the amounts received by the petitioner June during the taxable years and claimed by petitioners to be loans from Gilbert System Hotels, Inc., constituted distributions of earnings and profits under section 115, I. R.

1. Petitioner, a general contractor, filed a consolidated return for 1953 with two wholly owned subsidiaries, Forest Hills and Loxley Annex. Held: that the respondent's determination is erroneous and that the amount to be eliminated as unrealized profit is the gross profit less any other expenses reasonably related or incidental to the performance of the contracts. 2.

1. An order of a State court administering certain funds of a deceased executor and trustee (one of the original petitioners herein) adjudged that unless the United States asserted in proceedings… Held: no order of the State court rendered the issues presented in these proceedings res judicata. 2.

Petitioner corporation established a so-called savings plan for its employees, under which eligible employees who chose to become members authorized petitioner to withhold from their compensation and… Held: That such savings plan was not a stock bonus, pension, or annuity plan within the meaning of section 23 (p) (1), I. R. C. 1939. 2. That such savings plan was not a profit-sharing plan, within the meaning of said section. 3.

Petitioner in good faith and on advice of counsel excluded certain gross receipts from its City and School District mercantile tax returns for 1948. Held: the penalties are not deductible as interest. Held, further, the penalties are not deductible as ordinary and necessary business expenses. Tank Truck Rentals v. Commissioner, 356 U.S. 30 (1958), followed.

Excess Profits Tax. -- Sec. 722 (a) and (b) (4). -- Sec. 742 (h). -- Section 722 (a) requires a new computation of constructive average base period net income and does not permit retention of the growth formula average base period net income and addition of an adjustment for changes in character of the business.

Triboro, an accrual basis taxpayer, operated suburban bus lines in Queens County, New York. Held: the additional 1 cent per ride was income in 1952 and was not accruable in 1949 and 1950 since Triboro had no right fixed by law or contract to receive it in those years. Jamaica Water Supply Co., 42 B. T. A. 359 (1940), affd. 125 F. 2d 512 (C. A. 2, 1942).