Volume 29 — Tax Court Memorandum

[Capital gain v. ordinary income: Capital asset defined: Compensation v. gain from capital asset: Identification of securities.] The individual petitioners, in a joing venture with Thomas R. Pansing,… Held: The gains from sales of Nebraska National stock by the petitioners were capital gains. (2) The gains from sales by the individual petitioners were not income to the corporate petitioner nor dividends to its stockholders.

[Joint returns: Requirements: Signature of both spouses.] Held: 1. Held: The income tax return filed by petitioner, Harry H. Goldberg, for the taxable year 1962, and signed by him alone, was not intended by his spouse to be a joint return, and, accordingly, the tax could not properly be computed at joint return rates. [Code Sec. 212(2)] [Legal fees: Property settlement: Relation of action to business…

[Business expenses: Education: Assistant supervisor schools: Tour of foreign countries: Comparative educational methods: Maintain or improve job skills.] Petitionerwife is an administrative assistant… Held: the cost of the trip represents a deductible education expense because the major portion of the trip maintained and improved skills required by the petitioner in her employment. Sec. 1.162-5, Income Tax Regs., as amended by T.D. 6918, 1967-1 C.B. 36.

Held, that gains upon sales of certain unimproved real estate sales of property held primarily for sale to customers in the ordinary course of a trade or business. Held: that gains upon sales of certain unimproved real estate sales of property held primarily for sale to customers in the ordinary course of a trade or business.

1. By the Cuban Urban Realty Reform Law which became effective October 15, 1960, petitioner, Luis Bosch, a resident Cuban national, was divested of two rental properties located in Havana. The Law provided a general scheme for the payment of indemnity for properties so divested subject to certain prerequisites and contingencies. Had Bosch met all the requirements for indemnification, he would have become entitled under the Law to receive indemnity payments of $570 peso dollars per month for 15 years. But without taking any of the steps which would have entitled him to receive the said payments, he departed Cuba October 24, 1960, with no intention of returning "until there was a change in the political climate existing in Cuba at that time." Up to the time of the trial, Bosch had never returned to Cuba. By Law 989 which became effective December 6, 1961, it was decreed that, with respect to Cuban nationals who had left Cuba and had not effected reentry within the period for which the exit permit had been authorized, it should be considered that the country had been permanently abandoned and "all their personal, real, or other property, rights, stocks and securities of any kind" should "be understood to be nationalized by confiscation, in favor of the Cuban State" and should "be assigned to the appropriate agencies." The period for which petitioners' exit permits had been authorized extended from October 21, 1960, the date of the said permits, to October 21, 1961. Held: That Bosch at no time after he became a resident alien in the United States had a subsisting right, with respect to which there was a reasonable prospect of recovery, under the Urban Realty Reform Law to indemnity for the two rental properties so as to be nationalized by confiscation by Law 989 when it became effective on December 6, 1961, and he was not entitled to a claimed loss deduction therefor for the taxable year ended January 31, 1962, or to net loss carryovers to the years ended January 31, 1964 and 1965, the years herein. 2. Bosch was the owner of a 20 percent interest in a partnership which was engaged in the textile manufacturing business in Havana. By Law 890 which became effective October 15, 1960, the textile manufacturing business belonging to the said partnership was nationalized "by forceful expropriation," adjudicating all properties, rights and investments thereof in favor of the Cuban Government and "subrogating the State in the place and grade of the natural or legal persons owning said" enterprise. Law 890 did not, as was true of the Urban Realty Reform Law, provide a general scheme for indemnifying property owners of the property interests expropriated under that Law. It did carry a provision to the effect that "the measures and forms for payment of indemnity to the natural or legal persons affected by the expropriation provisions of the law will be regulated by a future law" and "to that effect, the Central Planning Council will proceed to place before the Council of Ministers within as short a time as possible the corresponding project providing for such law." No indemnification statute has been enacted by the Cuban Government to provide indemnity payments to owners of business enterprises confiscated by Law 890. 285 Held: That Bosch at no time after he became a resident alien in the United States had a subsisting right to indemnification for his 20 percent interest in the textile manufacturing partnership and was not entitled to a claimed loss deduction therefor for the taxable year ended January 31, &962, or to net loss carryovers to the years ended January 31, 1964 and 1965, the years herein.

In each of the years at issue, petitioners claimed certain cash charitable contributions which respondent disallowed in part as unsubstantiated. Petitioners donated certain tangible personal property consisting of house furnishings and marine equipment to a charitable organization in 1963 and deducted the alleged fair market value thereof as a charitable contribution. Respondent disallowed this deduction in its entirety. In 1962 and 1963, petitioners contributed certain real property to a charitable organization - a one-half interest in each year. Respondent contests the fair market value assigned to the building donated. 1. Held, petitioners made cash charitable contributions in excess of the amount allowed by respondent. 2. Held, further, the fair market value of the marine equipment determined, whereas petitioners did not establish the fair market value of the house furnishings. 3. Held, further, the fair market value of the building donated established to be in excess of that value determined by respondent.

C Corp., SD Corp., and XYZ Corps. were wholly owned by the Graves. C Corp. leased land from SD Corp. and slotmachines from XYZ Corps. Held: C may not deduct, under sec. 162(a)(3),I.R.C. 1954, the amounts paid to SD as rentals, to the extent that such amounts exceed the reasonable rental of the property. (2) The Graves are collaterally estopped from contesting our determination in The Challenger, Inc., 23 T.C.M. 2096, 33 P.-H. Memo.

Petitioner was a 50 percent partner and subsequently sole proprietor of a bookkeeping and tax service business. The business made a short-term loan of $1,000 to one of its clients, which loan was never repaid. In 1963, the business purchased a 31-year old house and garage. The house was converted for use as an office building by the business, and the garage was leased to a client for use as ashop building. Held: 1. The respondent correctly determined that the $1,000 business bad debt did not become totally worthless during the taxable year 1963 under the provisions of section 166(a)(1), I.R.C. 1954. 2. The useful lives for depreciation purposes of the office and shop buildings for the years 1963, 1964, and 1965 determined. 339

On the facts, held, (1) that the $125,000 paid by petitioner Albin Strandquist to his former wife Marjorie in 1960, pursuant to the terms… Held: that the $125,000 paid by petitioner Albin Strandquist to his former wife Marjorie in 1960, pursuant to the terms of an agreement incident to a divorce, dated March 11, 1960, was solely for the purchase of her one-half interest in the Jan-Ann Breeding Farm; and, hence, petitioners correctly reported their long-term capital gain in…

Held, in accordance with the mandate and opinion of Artnell Company v. Commissioner 400 F. 2d 981 (C.A. 7, 1969), the petitioner may defer the taxation of certain prepaid income until it is earned. Held: in accordance with the mandate and opinion of Artnell Company v. Commissioner 400 F. 2d 981 (C.A. 7, 1969), the petitioner may defer the taxation of certain prepaid income until it is earned.

Held: Income derived from taxpayer's manipulation of slot machines located abroad constitutes earned income within the meaning of section… Held: Income derived from taxpayer's manipulation of slot machines located abroad constitutes earned income within the meaning of section 911(b), I.R.C. 1954, and is excludable from gross income and exempt from taxation under section 911(a)(2), the other facts necessary to qualify this income for exclusion under section 911(a)(2), being…

Held, that for each of the taxable years 1954, 1957, 1958 and 1959 petitioners received taxable i income which was not reported in their joint income tax returns. Amounts of such unreported income are determined on the basis of respondent's net worth plus nondeductible expenditures computations. Held, further, that at least a part of the deficiencies for 1954 and 1957 through 1959 is due to fraud. Held, further, that assessment and collection of any deficiencies or additions to tax for such years are not barred by the statute of limitations. Held, further, assessment and collection of anydeficiencies or additions to tax for the years 1955 and 1956 are barred by the statute of limitations, no fraud having been proved in those years.

Petitioners were the sole shareholders of Bottled (Olson) Gas Shop, Inc., a corporation engaged in the distribution of propane gas and related equipment. Held: The compensation paid Ruby for the year 1965 was not excessive or unreasonable and was deductible by the corporation under the provisions of section 162(a), IRC 1954.

Petitioners claimed cash charitable contributions of $605 during 1967 which respondent disallowed entirely as unsubstantiated. During this same year, petitioner was designated official representative of a taxexempt organization at an international meeting in Tokyo. He traveled to Tokyo, Djakarta and Bangkok, and deducted $600 as out-of-pocket expenses incurred incident to this trip. Respondent disallowed this deduction in its entirety. 1. Held, petitioners made deductible cash charitable contributions in the amount of $320 during 1967. 2. Held, further, petitioner is entitled to deduct $258.50 in out-of-pocket expenses incurred while in Tokyo, as well as the $550 air fare to Tokyo. However, petitioner has not succeeded in proving that any of the expenditures incurred while traveling from Tokyo to Djakarta, Bangkok, and return were made incident to the rendition of services to an organization described in section 170(c), and, therefore, no deduction for those expenses is allowed.

Each petitioner claimed their only son as a dependent during the year 1966. Held: petitioner Joseph Perusich did not provide over one-half of his son's support in 1966, and the deduction, therefore, is accordingly denied. Held, further, petitioner Kathleen Perusich, having provided over one-half of her son's support, is entitled to a dependency exemption deduction for him in 1966.

Held, Petitioners' failure to prove that 700 pounds of suppositories, donated to a home for the aged, had any fair market value necessitates the disallowance of a deduction for a charitable contribution under sec. 170, I.R.C. 1954.

Held: Interest deductions were not allowable, in the computation of petitioners' distributive shares of partnership income, for the taxable year in which certain loans, net of various loan fees, were… Held: Interest deductions were not allowable, in the computation of petitioners' distributive shares of partnership income, for the taxable year in which certain loans, net of various loan fees, were made to the cashbasis partnerships here involved.

Held, the petitioner has failed to establish that casualty losses that casualty losses sustained by him in 1967 resulted in a net operating loss for that year, whic carried back to the year in issue, 1964. Herbert P. Phillips, 91 Merrimack St., Haverhill, Mass., for the p Haverhill, Mass., for the petitioner. Joel Gerber, for the respondent. 13 Simpson

Held: Petitioners have failed to prove that they provided more than one-half of the support of Ian's two minor children in 1966, and, therefore, are exemptions. Held: Petitioners have failed to prove that they provided more than one-half of the support of Ian's two minor children in 1966, and, therefore, are exemptions. Secs. 151(a), 151(e), and 152(a), I.R.C. 1954.

Held: On the facts presented, the amounts paid by petitioner as compensation to its chief executive officer were unreasonable and excessive. Reasonable compensation determined. Held: On the facts presented, the amounts paid by petitioner as compensation to its chief executive officer were unreasonable and excessive. Reasonable compensation determined.

Equal sums of $14,500 were transferred from the checking account of the corporate petitioner herein to each of its two officer-shareholders. Held: such amounts constituted a dividend distribution rather than additional compensation for services rendered by the two officer-shareholders.

Petitioner conducted an insurance agency business by selling insurance to the customers of the bank petitionercontrolled. Held: under the particular facts of this case the said loans were incurred in connection with petitioner's business and the accumulations to pay off said loans were within the reasonable needs of petitioner's business and petitioner was not formed or availed of for the purpose of avoiding income tax with respect to its stockholder (who…

1. During the years in issue, 1964 and 1965, petitioner was in the business of leasing and managing real properties in which he had an interest. Held: these expenses are not deductible under sec. 162(a) because petitioner failed to prove that the expenses were incurred in connection with his existing business; furthermore, that they are not deductible under sec. 165 because no loss occurred in the year in issue. 2.

Petitioner, a construction worker, maintained a residence for his family approximately 150 miles from his principal place of employment at the John Day Dam… Held: the meals, lodging, and transportation expenses incurredby petitioner in the vicinity of the construction site during 1966 were not deductibleaway from home travel expenses within the meaning of sec. 162(a)(2), I.R.C. 1954, but instead were nondeductible personal expenditures under sec. 262 I.R.C. 1954.

1. Held, the amounts paid in 1960 and 1961 by the petitioner-company as salaries and bonuses to each of its officers (Bradt, Glenn, and Killian) constituted reasonable compensation for services… Held: the amounts paid in 1960 and 1961 by the petitioner-company as salaries and bonuses to each of its officers (Bradt, Glenn, and Killian) constituted reasonable compensation for services rendered and are deductible under sec. 162(a)(1), I.R.C. 1954. 2.

The petitioner accepted a position as a chemical engineer in Newburgh, New York, intending to stay about a year. Because of unexpected difficulties in completing the work, the job lasted 20 months. During that period, he traveled most weekends to the Boston, 8on, Massachusetts, area, where he and his wife maintained a residence, and he contributed substantial services to a business operated there by his wife. Held, under the circumstances, the petitioner's employment in Newburgh was temporary, and amounts spent for lodging there are deductible under sec. 162(a)(2), I.R.C. 1954 However, the expenditures for weekend travel were not properly substantiated under sec. 274(d), I.R.C. 1954, and the regulations thereunder.

In 1961 T's father and mother because of marital difficulties entered into a marital settlement agreement which among other things provided that the mother was to receive $127,400 ($15,000 down and… Held: the agreement was a property settlement agreement and the payments received thereunder byT after her mother's death were not taxable to her as income in respect of a decedent under sec. 691(a)(1) and (3), I.R.C. 1954.

The petitioner showed that he contributed more than one-half of the total support of his minor children, who were in the custody of their mother. Held: he is entitled to dependency exemptions for his children.

In the latter part of 1964 or early 1965 petitioners discovered a crack in the concrete foundation slabupon which 900 their house was constructed, which petitioners claim was caused by subsoil… Held: petitioners failed to prove they are entitled to a casualty loss deduction for 1966 in the amount of the loss they incurred on disposition of the property.

Held: Insurance proceeds from life insurance policies not includable in decedent's gross estate because he lacked incidents of ownership in said policy within the meaning of sec. 2042, I.R.C. 1954. Held: Insurance proceeds from life insurance policies not includable in decedent's gross estate because he lacked incidents of ownership in said policy within the meaning of sec. 2042, I.R.C. 1954.

During the years 1961 through 1964, the 909 petitionerhusband embezzled money from his employer. Held: for each of the taxable years 1961 through 1964: (1) The amounts embezzled by the petitioner-husband are includable in the petitioners' gross income; (2) No part of the underpayment by the petitioners is due to fraud; and (3) The liability of the petitioners for the tax is joint and several.

Abe Saperstein, who was sole proprietor of the Harlem Globetrotters basketball team, advanced funds to the American Basketball League in order to help it meet operating expenses. Held: the advances were proximately related to Abe Saperstein's soleproprietorship, the Harlem Globetrotters. Accordingly, he is entitled to a business bad debt deduction therefor.

Held: That the evidence is not clear and convincing that any part of any of the deficiencies here involved is due to fraud and additions to tax under sec. 6653(b), I.R.C. 1954, are not to be applied. Held: That the evidence is not clear and convincing that any part of any of the deficiencies here involved is due to fraud and additions to tax under sec. 6653(b), I.R.C. 1954, are not to be applied.

Held, fee expended in order to secure employment is deductible as an ordinary and necessary business expense within the meaning of Sec. 162, I.R.C. 1954. Held: fee expended in order to secure employment is deductible as an ordinary and necessary business expense within the meaning of Sec. 162, I.R.C. 1954. David J. Primuth [Dec. 29,985], 54 T.C. 374 (1970).

Held: Petitioners failed to prove they furnished over half of the support of two chlidren of petitioner-husband by a former marriage during year 1966. Provision in divorce decree that mother should not claim children as exemptions under the internal revenue laws is not binding on respondent and does not prove that father paid over half the support of the children. Petitioners are not entitled to dependency exemptions for the two children for 1966.

Soon after he was employed as a staff accountant for a firm of certified public accountants, petitioner took a review course to help prepare him for the C.P.A. examination. Held, the expenses incurred in connection with the course do not constitute deductible business expenses for education since the education was required of the taxpayer in order to meet the minimum requirements for qualification or establishment in his intended trade or business as a certified public accountant, and was not undertaken primarily to maintain or improve his skills in his employment.

Issue 1: (a) Held, upon the facts: That petitioner, Martn Melcher, did not enter into a bona fide transaction in 1953 for the purchase… Held: upon the facts: That petitioner, Martn Melcher, did not enter into a bona fide transaction in 1953 for the purchase of $3,000,000 Federal Land Bank bonds; the transaction was without substance; it was a sham; and cannot be recognized for tax purposes; that petitioner did not borrow and was not indebted for $3,156,000; that in reality…

Under the terms of an executory contract to sell closing was to be effective 12:01 a.m., Jan. 1, 1966. Title and possession passed to the purchaser on Jan. 1, 1966. Held: the loss incurred on the sale by the seller, a partnership that maintained its books on a calendar year basis, was sustained during 1966.

Smith Municipal Supplies, Inc. had in existence a medical benefits plan for the purpose of benefiting officers, who were also the shareholders of the corporation, in their capacity as employees. Held: The medical reimbursement payments received by the officers are excludable from their gross income under sec. 105(b), I.R.C. 1954, and (2) those payments are deductible by the corporation under sec. 162(a), I.R.C. 1954.

Held, payments to wife for her support pursuant to State court decree taxable to her.

The petitioner deposited $10,000 with an offer in compromise of assessed liability for tax, penalties and interest. The deposit was not accepted as payment on the taxpayer's liability until 1965. Held: No part of the deposit gave rise to an interest deduction in 1964. James F. Keith, 35 T.C. 1130 (1961) followed.

B and B acquired and exercised an option on gas producing properties and thereafter assigned it to York in consideration of York's… Held: short-term capital gain was realized as a result of B and B's assignment to Alamo; the nonrecognition provisions of sec. 721, I.R.C. 1954, do not apply, because B and B did not contribute property to the joint venture and they acquired beneficial interests in the property itself, rather than merely an interest in the joint venture;…

Petitioner, a retired legal stenographer, maintained her home in Tampa, Florida. She was over 70 years of age during 1967, the taxable year, and unable to obtain employment in Tampa. At the end of April she went to New York City, where she had previously been able to secure jobs during the summer and fall months, substituting for secretaries who were temporarily absent from their employment. She went to New York for the sole purpose of obtaining work. She had temporary employment with a number of employers during the period from May to December which she obtained through advertisements in the New York Law Journal. She then returned to her home in Florida. In her income tax return for 1967 she deducted her advertising expenses, her railroad fare and lodging expenses in New York City. Respondent disallowed these deductions stating that the taxpayer "did not furnish information needed to support the claimed deduction." At trial he conceded that petitioner was entitled to deduct the portion of her advertising expense she had substantiated prior thereto. Held, petitioner has substantiated the claimed deductions and lodging expense in excess of the amount claimed; the expenditures were made by petitioner to obtain 1188 employment in her trade of being an expert legal stenographer and her "tax home" was not in New York City during the year before us. Respondent erred in disallowing the claimed deductions.

Held: (1) A part of the underpayment of tax for each of the years 1957 through 1959 was due to fraud within the meaning of sec. 6653(b), I.R.C. 1954, and additions to tax under that section are sustained. Held: (2) The return for 1957 was false or fraudulent with intent to evade tax. Consequently, the statute of limitations did not bar the assessment of a deficiency for 1957. Section 6501(c)(1), I.R.C. 1954. Held: (3) Petitioner's conviction, pursuant to a plea of guilty, under sec. 7201, I.R.C. 1954, for tax evasion in the years 1960, 1961, 1962 and 1963 collaterally estops him from denying that a part of the underpayments for those years was due to fraud.

Held: Petitioner is not collaterally estopped from denying that she is liable for civil fraud penalties under section 6653(b), I.R.C. 1954, for the years 1960 through 1963 because she filed joint Federal income tax returns with her husband who was indicted, convicted on a plea of guilty, and sentenced for criminal income tax evasion under section 7201, I.R.C. 1954, for each of the years 1960, 1961, 1962 and 1963.

Issue 1: Government Bonds Transactions. (a) Held, upon the facts: That in each one of the four transactions involving $1,000,000 Federal Land Bank bonds, $100,000 U.S. Treasury bonds, $100,000 Treasury bonds, and $500,000 Treasury notes, respectively, the petitioner. Samuel P. Norton, did not enter into a bond fide transaction in each instance, on February 11, 1953, February 26, 1954, March 1, 1954, and December 23, 1955, respectively, for the purchase of the securities which purportedly were involved; that each transaction was without substance and reality and was a sham transaction; that none of the transactions can be recognized for tax purposes; that in reality petitioner did not purchase the securities referred to in each transaction; that petitioner did not borrow and was not indebted for, in the respective transactions, $1,052,000, $105,000, $105,000, $475,000 (note to Gibraltar), and $25,000 (note to CHK); and that the amounts paid by Norton during the 7 taxable years, 1953-1959, pursuant to his several "notes" were not interest paid on indebtedness and, therefore, were not deductible under section 23(b), 1939 Code, and section 163(a), 1954 Code. (b) Held, That as each purported transaction was a sham, there shall be excluded from taxable income, under Rule 50, for the taxable years the respective amounts which petitioner reported and included in income as "interest" on the Government securities, and the so-called "capital gain" from purported sales of the securities. (c) Held, upon the facts: That, with respect to Transaction A, which is the only transaction involved under petitioner's alternative claim for a loss deduction since, inter alia, the years 1960 and 1961 are not before the in Transaction A, $9,322.88, as a loss under either sections 165(c)(2), 212(2) or 1234, 1954 Code. Issue 2: Income in 1953 from BRNM Law Partnership. Held, upon the facts: That petitioner, Norton, did not realize unreported income from the BRNM law partnership in the amount of $9,876.59, and that his share of the partnership income did not exceed $17,989.44; and therefore respondent's determination was not correct. Issue 3: Addition to 1954 Income Tax. Held: That for 1954, in each one of the separate income tax returns of the petitioner, Docket Nos. 74913 and 74914, there was a substantial underestimation of the estimated tax and, therefore, each petitioner is liable for an addition to the 1954 tax under section 294(d)(2), 1939 Code, applicable to the year 1954. DeWitt M. Sherwood, 20 T.C. 733, 734 (1953), followed.

Held, petitioner was not legally separated from her spouse under a decree of divorce at the close of the year 1967, as that phrase is used in sec. 214(d)(5), I.R.C. 1954, where she… Held: petitioner was not legally separated from her spouse under a decree of divorce at the close of the year 1967, as that phrase is used in sec. 214(d)(5), I.R.C. 1954, where she had obtained an interlocutory decree of divorce in California in 1967 which did not become final until May 7, 1968.

Held, amounts petitioner received as per diem living expense allowances during the taxable years 1965 and 1966 are includable in his gross income under sec. 61(a), I.R.C. 1954. Held: amounts petitioner received as per diem living expense allowances during the taxable years 1965 and 1966 are includable in his gross income under sec. 61(a), I.R.C. 1954.

The petitioners failed to provide the Court with sufficient evidence to support their position on the issues presented. Held, 1. Held: The petitioners may not deduct $2,287 in the year 1961 under section 165 of the 1954 Code as a loss incident to a forfeiture; 2. The petitioners may not deduct $201 in the year 1962 under section 165 of the 1954 Code as a loss incurred in the sale of a water heater and a washer-dryer; 3.

Held: Legal and other professional fees expended for the defense and settlement of a legal action brought in connection with the construction of a drive-in theatre are capital expenditures and are not deductible as ordinary and necessary business expenses.

Petitioner fraudulently obtained and converted to her own use certain checks issued by the State of West Virginia, and payable to the… Held: The money unlawfully obtained and converted to her own use by petitioner is includable in her taxable income for the year 1964; (2) at least a part of the underpayment of tax herein was due to fraud within the meaning of section 6653(b), I.R.C. 1954; (3) the return filed by petitioner for the year 1964 was false or fraudulent with…

Dependency exemptions: Children of divorced parents: Support test. - Which of divorced parents are entitled to dependency exemptions for two children of marriage determined.

Held: The funds received by petitioner from another in each of the years 1960 through 1964 were not loans in that petitioner received the money in each of… Held: The funds received by petitioner from another in each of the years 1960 through 1964 were not loans in that petitioner received the money in each of those years without any intention of repaying it. Therefore, petitioner received taxable income in the amount of money received in each of the years 1960 through 1964.

Held, the petitioner has failed to prove that she provided more than one-half of the support of a dependent for whom she claimed a deduction. Held: the petitioner has failed to prove that she provided more than one-half of the support of a dependent for whom she claimed a deduction.

Issue 1: Government Bonds Transactions. (a) Held, upon the facts: That in each one of the four transactions involving $1,000,000 Federal… Held: upon the facts: That in each one of the four transactions involving $1,000,000 Federal Land Bank bonds, $100,000 U.S. Treasury bonds, $100,000 Treasury bonds, and $750,000 Treasury notes, respectively, the petitioner, Jerome B. Rosenthal, did not enter into a bona fide transaction in each instance on February 17, 1953, February 26,…

Held: Compensation received by petitioner Edward as a resident physician in obstetrics and gynecology at Gorgas Hospital, Panama Canal Zone, was… Held: Compensation received by petitioner Edward as a resident physician in obstetrics and gynecology at Gorgas Hospital, Panama Canal Zone, was compensation for services rendered for the benefit of the hospital and no part thereof was a scholarship or fellowship grant excludable from income under sec. 117(a), I.R.C. 1954.

Held, during the year 1966, the petitioners were not carrying on the business of farming, and expenditures by them in that year in connection with their small farm are therefore not deductible under… Held: during the year 1966, the petitioners were not carrying on the business of farming, and expenditures by them in that year in connection with their small farm are therefore not deductible under sec. 162 of the 1954 Code.

Morris A. Stoltzfus and corporate petitioner engaged in certain horse-related activities during the years at issue and deducted certain expenses with respect thereto which the… Held: individual petitioner was not engaged in the business of breeding, raising, and selling American saddle bred horses in 1961 since he lacked requisite profit-making intention. Accordingly, disallowed deductions were proper. However, he was so engaged in 1962. Disallowed amounts were improper.

Petitioner claimed rental losses in connection with certain property allegedly owned by him during the years in question. Held: petitioner is not entitled to report income and loss with respect to real property that he did not own. He also claimed dependency exemptions for his mother in each of the years 1964 and 1965, and he used head of household rates in computing his tax liability for 1965.

In order to secure the release of a Federal tax lien upon the assets of a corporation, petitioner's husband, who was president and director and held at least 64 percent of the corporation's stock,… Held: the loss sustained upon the transfer of the property was a business bad debt loss.

Some 20-odd individuals operated 55 sight-seeing horse-drawn carriages on Mackinac Island in Lake Michigan under 55 sight-seeing carriage licenses, one for each carriage, granted by the City of Mackinac Island and 55 sight-seeing carriage licenses, one for each carriage, granted by the Michigan State Park Commission. In 1947 they organized petitioner-corporation to carry on the sight-seeing carriage business on the Island. The Articles provided for the issuance of all of petitioner's 55 shares of stock to the said 20-odd individuals, each receiving a share of stock for each licensed carriage he had operated in the 1947 season. The stockholders leased their city licensed carriages to petitioner and thereafter, beginning with the 1948 season, petitioner operated the sight-seeing carriage business on the Island. The Park Commission granted licenses direct to petitioner each year to operate 55 carriages but the city continued to grant its 55 licenses each year in the names of the former individual operators. The leases in effect in the years in issue provided the stockholder-lessors were leasing to petitioner the use of their city sight-seeing carriage licenses at a maximum annual rental of $2,500 a license which could be less depending on petitioner's profits. During the years in issue petitioner paid the stockholders under these leases for each city license the amounts of $1,200, $1,350, and $1,550 in the fiscal years 1961, 1962, and 1963, respectively, and took deductions for same as rent. Respondent determined petitioner was not entitled to deduct more than $600 annually for each license and it is held petitioner failed to prove it was entitled to more. Held, further, on the evidence presented that petitioner was entitled to deduct as rent the full amounts paid under leases with holders of Class B stock and some nonstockholders wherein they leased four licensed horse-drawn livery carriages in 1961 and five such carriages in 1962 and 1963 and wherein they leased three licensed horse-drawn taxicabs in each of said three years.

1. Held, petitioners failed to carry their burden of proving that they were entitled to certain business deductions claimed with respect to the Liberty Station Wagon Service in 1960 in excess of the… Held: petitioners failed to carry their burden of proving that they were entitled to certain business deductions claimed with respect to the Liberty Station Wagon Service in 1960 in excess of the amounts allowed by the respondent. 2.

Petitioner claimed dependency exemption deductions in his 1967 income tax return for his two daughters by a former marriage terminated by divorce. Held: Petitioner and his former wife, the divorced parents of Deborah, did not provide more than one-half of Deborah's support during 1967; therefore, the special support test of section 152(e), I.R.C. 1954, did not apply.