Volume 3 — Board of Tax Appeals

The taxpayer was one of a group of corporations which filed a consolidated return for the year 1920. Held: that the determination by Commissioner Blair was not an overruling of Commissioner Williams with respect to the year 1920. Held, further, that in the computation of the deficiency against the taxpayer, credit should be given for the pro rata portion of the tax paid by the parent corporation theretofore advanced by the taxpayer.

The taxpayer and wife entered into a partnership agreement on or about December 31, 1919, by which enterprises theretofore conducted by the taxpayer alone would thereafter be conducted as a… Held: that a valid partnership existed between the taxpayer and wife for the calendar year 1920.

The taxpayer constructed a building and leased it to a corporation engaged in the production of articles contributing to the prosecution of the war. Held: that the taxpayer was not entitled to amortization under the provisions of section 234(a)(8) of the Revenue Act of 1918.

The principal stockholder of a corporation who receives no salary from it but is of assistance to it through social activities is not regularly engaged in the active conduct of the affairs of the corporation, within the meaning of the definition of a personal service corporation contained in section 200 of the Revenue Act of 1918.

The depreciated cost of a portion of a building demolished in order to make place for a larger and better addition to factory buildings is an allowable deduction from gross income under the Revenue Act of 1918. Appeal of The First National Bank of Evanston, Wyo.,1 B.T.A. 9, followed.

In 1923 the taxpayers claimed credits under section 222(a)(1) of the Revenue Act of 1921, on account of taxes paid to foreign governments, and further claimed credits under section 1200(a) of the… Held: that the credit provided in section 1200(a) of the Revenue Act of 1924 is to be computed after the deduction of the credit provided for in section 222(a)(1) of the Revenue Act of 1921.

A corporation engaged in the business of road and street construction contracting, keeping its accounts on the basis of completed contracts and treating the total contract price as gross income in the year when the original construction work is finished, may not deduct therefrom a reserve for estimated expense of maintenance during the following years specified in the contract. Following Appeal of Uvalde Co.,1 B.T.A. 932.

The deduction, concurrently, as operating expenses, of expenditures made in the development of patents, processes, etc., does not bar their restoration to surplus upon a clear showing that they were in fact capital expenditures. Appeals of Gilliam Mfg. Co.,1 B.T.A. 967, and Union Metal .mfg. Co.,1 B.T.A. 395, cited and approved.

The burden of proof to show that an assessment has been barred by the statute of limitations is on the taxpayer.

Net taxable income determined from the evidence.

Under the evidence, two corporations held to be affiliated from December 4, 1919.

Evidence held insufficient to establish a March 1, 1913, value of oil wells in excess of the value fixed by the Commissioner.

An inventory taken at cost may not be reduced by a straight percentage basis to determine market.

Upon organization, the taxpayer issued its entire capital stock of $40,000 and $400,000 income bonds and assumed the liabilities of a going business for the assets less $61,976.21 undivided profits… Held: that the taxpayer is not entitled to restore to surplus any part of the $400,000 paid for bond redemption in computing invested capital.

Temporary conditions limiting use of trade-marks and trade names will not support a deduction for obsolescence or loss of useful value.

Distributive shares of members of partnerships determined from the evidence.

Evidence insufficient to enable determination of invested capital or rate of depreciation.

Taxpayer paid the sum of $5,000 for the use of certain machines under a lease contract. Held: that such amount may not be deducted as an ordinary and necessary expense but must be exhausted pro rata over the life of the contract.

During the year 1919 the stock of the taxpayer to the extent of from 72.96 to 89.97 per cent was owned or controlled by the Paxton Brick Co. Thereafter, the president and vice president of both… Held: that the taxpayer was affiliated with the Paxton Brick Co. from Nobember 1, 1919, to the end of the year.

The taxpayer kept its accounts upon a single-entry set of books and computed its net income and made its returns therefrom. Held: on the basis of discrepancies appearing on the face of the report of the revenue agent, that the taxpayer has established an inaccuracy in the determination of the Commissioner, and, there being no other evidence before the Board, so much of the deficiency so determined as depends upon such inaccuracy is disallowed.

Deductions on account of salary paid, held reasonable and allowable.

The taxpayer as administrator made return and paid tax on the transfer of the estate of Nathaniel Whitman in the year 1919 and claims the right to deduct the said tax from its return of income for… Held: that the New York State transfer tax was a proper deduction from income of an estate and that said tax is not deductible by the beneficiaries thereof.

Additional compensation for services rendered in 1917 and 1919 but not received by taxpayer until 1918 and 1920, respectively. held taxable as income in the latter years.

At the close of the year taxpayer had outstanding contracts to purchase merchandise, which was undelivered. Held: that title to such goods had not passed at the close of the year, that such goods could not be included in inventory, and that no deduction could be taken.

1. Where tangible property is paid in for stock prior to January 1, 1914, the basis for computing invested capital under section 207 of the Revenue Act of 1917 is actual cash value of such property as of January 1, 1914, even though the January 1, 1914, value is less than the value of the property at the time of acquisition. 2.

1. The acceptance or rejection of amended returns, submitted to the Commissioner by taxpayers, is a matter of internal administration in the Bureau of Internal Revenue and it is not within the province of this Board to decide questions of policy in that Bureau. Appeal of Cleveland Home Brewing Co.,1 B.T.A. 87, 91. 2.

Ordinary and necessary repairs in the operation of a vessel are not required to be capitalized merely because they were made soon after the acquisition thereof.

Decedent's will provided that his executors and trustees should be paid annually an amount in the will named in lieu of statutory fees. Held: compensation of executors and trustees so provided for is a lawful deduction from the taxable income of the estate which must be reported in accordance with section 219 of the Revenue Act of 1918.

In 1919 the taxpayer assigned two contracts which it had with two ball players to render services over a three-year period ending with 1921, and received the entire amount of the consideration in… Held: that the entire amount of the consideration received by the taxpayer in 1919 constituted taxable income of the taxpayer for that year.

1. Reserves set up to meet a liability in part contingent are not legal deductions from gross income. 2. A corporation which erects a building on land rented month by month from its principal stockholder is not entitled to deduct from gross income of the year in which the building is erected the full cost of the building under the conditions herein stated.

Evidence held insufficient to sustain taxpayer's claim for obsolescense of mining equipment.

Under the evidence, held, that the amount of $40,000 due under a contract with the Port Huron Chamber of Commerce was not taxable income in the fiscal year 1919. Held: that the amount of $40,000 due under a contract with the Port Huron Chamber of Commerce was not taxable income in the fiscal year 1919.

1. Valuation of timber on March 1, 1913, for depletion purposes determined. 2. Under the evidence, held, that no taxable income was realized in the year 1917 from the liquidation of Nickey & Sons Co. Held: that no taxable income was realized in the year 1917 from the liquidation of Nickey & Sons Co.

Invested capital computed under the decisions in Appeal of L. S. Ayers & Co.,1 B.T.A. 1135, and Appeal of Guarantee Construction Co.,2 B.T.A. 1145.

1. In 1919 the taxpayer agreed to pay the income tax that might be assessed against its president personally upon the receipt by him in 1919 of shares of stock of the taxpayer issued as compensation… Held: not deductible in 1919. 2. Taxpayer held entitled to special assessment.

The New York State transfer tax paid by the executor of the estate of a decedent is a legal deduction from gross income in the income-tax return filed for the decedent's estate in the process of settlement for the year in which such tax was paid, under the provisions of section 214(a)(3) of the Revenue Act of 1918.

The New York transfer tax is deductible from the income of an estate in the year in which the tax is paid.

The taxpayer carried on its books a Louisiana factory account, which showed both capital and expense items. Held: that the taxpayer did not file a fraudulent return for the fiscal year ended June 30, 1919, but incurred the negligence penalty of 5 per cent by reason of understating its true net income to the extent of $11,000.

Personal service classification denied.

1. The taxpayer received $30,000 and applied the said sum to his own use in the year 1917. He failed to make any disclosure of the fact of such receipt in connection with his income-tax return. Held: on the evidence, that the taxpayer did not file a return for the year 1918 which was wilfully false and fraudulent.

Allowable deductions in computing net income determined.

The inclusion in invested capital for the year 1918 of certain expenditures for advertising made between 1880 and 1910 and charged to expense, disallowed.

Where the evidence is clear and convincing that the board of directors of a corporation actually met within the year and voted additional compensation to its officers and employees, such additional compensation is properly deductible from gross income for that year under section 234(a)(1) of the Revenue Act of 1918, although no formal minutes of the meeting were preserved.

A court of competent jurisdiction in the State of Ohio adjudged that the taxpayer had held certain shares of stock as trustee for the true owner and must either turn over such shares with the dividends received on the same or pay an amount equal to the par value of such shares plus dividends received. Held, that the amount paid in satisfaction of the court's decree, less interest, is not a loss deductible from gross income.

1. The directors of the taxpayer by informal action set up as a reserve fund, for the perpetual care of cemetery lots, a percentage of the price received for lots sold. Held: that the sum appropriated for the reserve fund may not be subtracted from the sale price in ascertaining the gain realized on the sale. 2.

Basis for deduction on account of wear, tear, and exhaustion of assets determined.

1. Bare estimates of traveling expenses not sufficient as evidence proving the deductibility of such items. 2. Losses claimed by taxpayer on investments in sotck and loans to a corporation not proved.

1. Ordinarily, a taxpayer who keeps no books or records of account can not be on an accrual basis. 2. Held: that the cash receipts and disbursements method of returning income was proper. 3. Salary credited to but not received by the taxpayer in the taxable year, as an officer of a corporation which was controlled by the taxpayer and another person and which was able to pay such salary, held, to have been received constructively. 4.

Held that, in computing invested capital, earned surplus should be reduced by the depreciation sustained.

1. Two-thirds of the net profits paid under a royalty agreement, held to be a proper deduction under the circumstances of this appeal. 2. Held: that said sums may not be included in invested capital. 3. The value of certain patterns, tracings, blue-prints, etc., disallowed as invested capital for lack of proof of value. 4. The income derived from a certain contract to install a cotton compress held to have accrued in the year 1920.

The Commissioner has five years from the date of filing a delinquent return due under the Revenue Act of 1918 within which to assess the tax.

The taxpayer which, by its charter, was authorized to operate steamships for hire upon the Great Lakes and upon the high seas, purchased from the United States two steamships which were delivered to… Held: that the cost of transporting the vessels was a legal deduction from gross income as an ordinary and necessary business expense.

Held, that notes received as part consideration for the sale of stock constituted taxable income in 1919. Held: that notes received as part consideration for the sale of stock constituted taxable income in 1919.

The taxpayer received income from an estate under the provisions of the will of a decedent who died in 1905. Held: that the total amount of the income received was liable to income tax. Irwin v. Gavit,268 U.S. 161. Held, further, that the taxpayer is not entitled to a deduction from gross income for exhaustion by reason of the fact that her interest in the estate of the decedent was only a life interest.

1. Under sections 239 and 320 of the Revenue Act of 1918, a receiver operating the business of a corporation is required to pay the excess profits tax imposed by section 301 of that Act. 2. Held: that the taxpayer is not now entitled to a deduction of $15,000 as rental for each of the years 1919 and 1920, during which time its business was being operated by a receiver. 3.

Certain amounts charged to personal account of president held to be distribution of profits.

1. Taxpayer's factory was destroyed by fire in July, 1919. In addition to specific insurance on its property, it had a policy of use-and-occupancy insurance, under which the insurer was liable "for the actual loss sustained of net profits on the business which is thereby prevented," measured by a fixed amount per day for the number of days of suspension of business. Taxpayer's fiscal year ended September 30, when business was still suspended. Subsequently, on November 13, parties agreed on amount of use-and-occupancy insurance, which was paid on November 26. Held, Commissioner correctly treated such proceeds as accrued income of 1919 to extent of amount known at end of year. United States v. Supplee-Biddle Hardwaer Co.,265 U.S. 189, distinguished. 2. Proceeds of use-and-occupancy insurance held not proceed of an involuntary conversion of property, within section 234(a)(14) Revenue Act of 1921. 3. Where separate properties are separately insured, taxpayer may treat the gain under one policy as subject to section 234(a)(14) and the loss under another as a deduction. 4. Invested capital is properly reduced where an amortization deduction is made under section 234(a)(8).

Valuation of good will, furniture and fixtures, and rate of depreciation determined.

Charitable bequests made within 30 days of the death of the decedent and, for that reason, void by statutory provision of the State of decedent's domicile, are not deductible in determining the net estate subject to the estate tax.

Expense of premiums on an insurance policy taken out by a stockholder on a vessel, practically the sole asset of the corporation, in order to protect his investment, is an ordinary and necessary expense.

The proceeds from the sale of stock of which the taxpayer had made an absolute and bona fide gift does not constitute income to him.

The evidence does not warrant a finding that there was such an abnormality of income or capital of the taxpayer for the calendar year 1918 and for the two-month period ended February 29, 1920, as entitles it to a determination of tax liability under section 328 of the Revenue Act of 1918.

A corporation taxpayer making its returns upon a calendar year basis and engaged in business during a part of the calendar year 1918, and operating at a loss during the calendar year 1919, is entitled to deduct such net loss from the net income of 1918, under the provisions of section 204 of the Revenue Act of 1918.

1. Certain instruments herein construed and held to be oil and gas leases, and not conveyances of oil or gas in place. 2. Amounts paid to the grantor of an oil and gas lease as a bonus held to constitute additional royalties and not a return of capital.

Deductible losses and taxable gain determined.

Letter appealed from held not a deficiency letter.

1. In the case of a tenant holding and using premises under a lease from year to year where the landlord is a member of the tenant partnership, the cost of improvements and additions to buildings on leased premises and of removable machinery and equipment, charged to expense when made or acquired, may be restored to the tenant's asset accounts for the purposes of invested capital, upon proof of the continued existence and use of such properties during the taxable year. 2.

In 1919 taxpayer changed its annual accounting period from a fiscal year ending November 30 to one ending October 31, and filed a return for the 11-month period commencing December 1, 1918, and… Held: that the net loss for the 12-month period ending November 30, 1919, should be applied against the net income for the taxable year ending November 30, 1918, and any excess thereof applied against the net income for the year 1920.

Three corporations, all organized by the same persons, all engaged in related businesses and operated as a single enterprise, and all the stock of which is owned by the organizers and a few of the… Held: affiliated corporations under the provisions of section 240 of the Revenue Act of 1918.

1. When it is shown that liability for additional compensation, based upon a graduated percentage of net profits, accrued during the year, such additional compensation should be allowed as a deduction from gross income for such year, notwithstanding the amount was not entered upon the books or paid until the subsequent year, due to the fact that the amount could not be definitely fixed until approval by the home office in England of the audit of the books. 2. Under the provisions of the Revenue Act of 1918 the profits tax of foreign corporations should be computed under the provisions of section 328.

Upon the evidence submitted, held, that the taxpayer did not realize a profit in the years 1919 and 1920 upon the sale of certain stock… Held: that the taxpayer did not realize a profit in the years 1919 and 1920 upon the sale of certain stock of which he had made an absolute gift prior to the date of the sale, and that his returns for the years 1919 and 1920 were not willfully false and fraudulent with intent to evade the tax by reason of his failure to report as income to…

Value as of March 1, 1913, of share of stock, determined for purpose of ascertaining loss on sales.

1. Interest awarded in a decree against a trustee as damages for the conversion of the trust property, is not interest on indebtedness, within the meaning of section 214(a)(2) of the Revenue Acts of 1918 and 1921. 2. A judgment constitutes a debt, and interest paid thereon is properly deductible in ascertaining net income subject to tax.

A partner who keeps his books on the cash basis is required to report his distributive share of the partnership income computed on the accrual basis, if that is the basis adopted by the partnership for keeping its books and reporting its income, when no question is raised that such methods do not correctly reflect the income of the partnership.

In the absence of proof of expenditures over a period of years in the establishment of a business, together with the nature of the expenditures, all of which were charged to expense, no determination of the value of good will which might be included in invested capital can be made.

The expense incurred by a husband in resisting a claim by his wife attacking the validity of a postnuptial agreement, which purported to limit and fix their respective property rights, is not an ordinary and necessary business expense, even though the husband's sole business or occupation was the management and conservation of his estate.

The determination of the Commissioner disallowing a deduction of the balance of the taxpayer's investment in certain bonds and treating certain items as capital expenditures rather than ordinary and necessary expenses, approved.

Held, that the entire profits arising from the business of Berthold Stern Flour Co. during the eleven-month period in 1918 and during the year 1919 were the income of the taxpayer, and the payment of… Held: that the entire profits arising from the business of Berthold Stern Flour Co. during the eleven-month period in 1918 and during the year 1919 were the income of the taxpayer, and the payment of $25,000 in settlement of a dispute and litigation was a capital expenditure.

The taxpayer and two other corporations, held not to have been affiliated in the years 1919 and 1920.

Two corporations held affiliated.

1. A partner agreed to sell his partnership interest to the other two partners, provided that the sales price should be $210,000 or $225,000, with varying provisions effective upon the exercise of… Held: that the difference of $15,000 is not deductible as interest by the succeeding partnership. 2. The taxpayer's distributive share of partnership income determined.

Additional salary held to be reasonable and a proper deduction for the year 1920.

The March 1, 1913, value of certain stock sold by the decedent July 1, 1919, determined.

Amounts withheld by a city from a paving contractor out of the contract price as a deposit to assure proper repairs during a specified period are income under the accrual system.

The evidence submitted does not warrant a modification of the determination of the Commissioner that certain promissory notes received as part payment upon the sale of property were the equivalent of cash for the purpose of computing gain or loss.

Taxpayer is entitled to have its profits tax computed under the provisions of section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918.

The decedent received from the administrator of the estate of her deceased husband, who died less than five years prior to the date of her own decease, $127,035 in settlement of certain lawsuits. The evidence does not show whether such receipt was a gift, bequest, devise, or inheritance from the estate of the deceased husband.

Taxpayer was not, during 1919 and 1920, a personal service corporation.

1. Regular compensation specifically for prior years, formally authorized, paid in 1919, may not be deducted under section 234(a)(1) of the Revenue Act of 1918 as an ordinary and necessary expense for 1919. 2. Loss on account of abandonment and sale of equipment determined.

The selling prices of corporate stock immediately after incorporation, held, in the circumstances of the appeal, to be a proper basis for measuring the value of property, including good will acquired… Held: in the circumstances of the appeal, to be a proper basis for measuring the value of property, including good will acquired for stock.

Under date of September 30, 1916, the taxpayer entered into a contract with John P. Walworth and Charles W. Walworth by which he obligated himself to work for the corporation of Walworth Brothers,… Held: that the taxpayer received income in the year 1919, to the extent of the fair market value of the shares of stock received by him in 1919.

The March 1, 1913, value of property determined.

1. Deduction for alleged additional salaries to officers disallowed. 2. Taxpayer held to be entitled to computation of 1919 profits tax under section 328 of the Revenue Act of 1918.

1. Under Title IX of the Revenue Act of 1921, the tax imposed on sales by manufacturers of automobiles and accessories is not deductible by individual purchasers of such products. 2. Claimed allowance for exhaustion of automobile used in business, held proven under the facts as found.

1. Loans by an individual to a corporation of which he was the sole stockholder, from funds of a business conducted by him as sole proprietor, for the purpose of enabling the corporation to pay its debts and expenses, are personal loans, and may not be included in invested capital of the sole proprietorship as accounts receivable. 2. Under the Revenue Act of 1918, a part of a debt may not be written off as worthless.

Upon the evidence, held, that the deduction allowed for the amortization of facilities acquired for the production of vessels for the transportation of articles or men contributing to the prosecution… Held: that the deduction allowed for the amortization of facilities acquired for the production of vessels for the transportation of articles or men contributing to the prosecution of the war should be taken in 1918.

1. Evidence held insufficient to establish value of assets acquired in exchange for stock. 2. Where machinery is discarded as the result of changed business conditions, the taxpayer may deduct in such year the difference between the depreciated cost and the salvage value.

An agreement construed to be a contract of sale of land. The vendee had an equitable interest in the land and the contracts of sale arising therefrom, the value of which is to be taken into consideration in determining future gains or losses thereon.

A transfer of stock, under circumstances disclosed by the evidence, three years and three months prior to the donor's death, held, not to have been made in contemplation of death.

1. One of four partners purchased the nineteen-thirtieths interest held by two partners, paying therefor an amount in excess of nineteen-thirtieths of the book value of the… Held: that the amount paid in excess of nineteen-thirtieths of the book value does not accurately measure nineteen-thirtieths of the value of certain rights in a patent owned by the partnership plus a one-half interest in certain rights in a Canadian patent owned by one of the vendor partners. 2.

A partnership which purchases an undivided one-half interest in an invention and writes it off as a loss during the year 1917, but which subsequently sells its interest in the invention, is not entitled, under the circumstances herein stated, to deduct from the gross income reported in its income-tax return for 1917 the amount of the investment in the invention.

Where a taxpayer owns the fee title to land and erects improvements thereon, the cost of such land and improvements may not be abandoned and written off as a loss while the taxpayer retains title thereto.

The cost of coal-mining machinery and equipment held not deductible as ordinary and necessary expenses. An alleged bad debt held not deductible.

Taxpayer was not a personal service corporation during the fiscal year ended April 30, 1921.

Value of intangibles determined as of March 1, 1913, as a basis of gain on subsequent sale.

The taxpayers were affiliated for the fiscal year ended January 31, 1921.

The claim of the taxpayer that, in the computation of invested capital, its earned surplus, as shown by its books of account, should not be reduced for depreciation sustained in the amount determined by the Commissioner, denied for lack of evidence.

Determination of the rate of exhaustion of a patent.

On the evidence, held, that the taxpayer is not entitled to a greater deduction in 1918 on account of abandoning or discarding manuscripts than that allowed by the Commissioner. Held: that the taxpayer is not entitled to a greater deduction in 1918 on account of abandoning or discarding manuscripts than that allowed by the Commissioner.

A partner is required to return as income only the share of the partnership profits which he is entitled to receive.

1. Upon the evidence, held, the taxpayer did not file a false or fraudulent return with intent to evade tax. Fraud penalty disallowed. 2. Held: the taxpayer did not file a false or fraudulent return with intent to evade tax. Fraud penalty disallowed. 2. Amount authorized in 1917 as retroactive compensation for 1916 to officer-stockholders disallowed as ordinary and necessary expenses of 1917. Reasonable amounts as salaries for 1917 and 1918 determined. 3.

1. In order to confer on the Board jurisdiction of the subject matter of an appeal, the appeal must lie from the determination of a deficiency in tax, as defined in section 273 of the Revenue Act of 1924. 2.

Appellant's testator acquired a vested interest in the estate of his grandfather and held such interest at the time of his death; the value of that interest was properly included in the gross estate of appellant's testator for the purposes of the Federal estate tax under the Revenue Act of 1921.

Value of buildings determined for purpose of fixing a reasonable allowance for depreciation.

Under the circumstances of this appeal, capital expenditures made by a tenant at will on leased premises are not deductible as ordinary and necessary expenses, but must be prorated over the useful life of the property covered thereby.

The amount of income tax borne by the Director General of Railroads under the Federal Control Act did not constitute income to the taxpayer. Following Appeal of New York, Ontario & Western Ry. Co.,1 B.T.A. 1172.

The amount of income tax borne by the Director General of Railroads under the Federal Control Act did not constitute income to the taxpayer. Following Appeal of New York, Ontario & Western Ry. Co.,1 B.T.A. 1172.

The taxpayer and Combined Industries, Inc., were not affiliated from March 25, 1918, to December 31, 1919, inclusive.

Value of leasehold at January 8, 1917, determined.

Certain amounts received by the taxpayer in the years 1919 and 1920 from the Rotary Shirt Co., held to be the income of the taxpayer and his brother in equal proportions.

1. Stockholders surrendered and authorized the cancellation of certain notes evidencing money advanced by them to a corporation. Held, that, in the circumstances of this appeal, the amount of the notes so surrendered and canceled became paid-in surplus from the date of such surrender and cancellation. 2. In response to proper corporate action stockholders paid in to a corporation certain assessments. Held, that such payments were additions to paid-in surplus. 3. During the period required for the construction of buildings on leased land, such construction being a condition of the lease, a corporation expended various amounts for interest, ground rents, and other expenses designated by it as carrying charges. Held, that such so-called carrying charges may not be included in statutory invested capital for excess-profits tax purposes.

1. Liability incurred within the year for premiums on insurance policies effective during the year is properly deductible as business expenses in the year in which the liability was incurred, where the taxpayer's books of account are kept on the accrual basis. 2. The reasonable allowance for wear and tear and exhaustion of certain assets determined. 3.

1. A corporation had a contract for the acquisition of oil leases, which it assigned to its stockholders upon their agreement to assume all of the obligations under the contract,… Held: the taxpayer realized a gain in 1919 of the difference between his cash investment of $1,200 and the fair market value of the 2,400 shares of stock on the date of transfer and receipt. 2. The taxpayer acquired several parcels of certain stock at different prices and later sold some of it.

During the taxable year 1919 the taxpayer had outstanding debenture stock, preferred stock, and common stock. Held: upon the evidence, that the shares of debenture stock outstanding were not obligations of the taxpayer for money borrowed, and that the taxpayer was not entitled to deduct from gross income for the year 1919 the dividends paid upon the debenture stock, or an amount for amortized discount upon such stock.

Where the taxpayer agreed to sell coal to a railway company at 25 cents per ton less than the market price for a period of 10 years, in consideration of the railway company constructing a branch line… Held: that the taxpayer may not include in its invested capital the amount of $250,000, representing the difference between market and selling prices for the 10-year period.

1. Where stock was sold in 1918 at a price equal to the fair market value of the stock at the date of its acquisition, on exchange for other stock in 1917, held, no loss was sustained in 1918 on such… Held: no loss was sustained in 1918 on such sale. 2. Certain debts held properly deductible as worthless in the year 1918.

Evidence held insufficient to establish value of good will. Additional salaries disallowed.

The value of certain oil leases, for purposes of invested capital and depletion, determined.

1. Land held by the estate of a decedent may, for the purpose of valuing the gross estate, have a substantial value, although the land produced no income and no market for its sale had developed. 2. The average price of sales of stocks during the year of decedent's death held to be the measure of values of such stocks for estate-tax purposes.

1. In the absence of competent evidence of the value of assets transferred to a corporation in exchange for its stock, the Commissioner's determination of value will not be disturbed. 2. Deduction of an alleged worthless debt disallowed.

Commissioner's determination of taxable gain from sale of oil wells and equipment approved.

In the reorganization of a business, a partnership paid in to a corporation on November 1, 1917, all of its tangible assets for all the capital stock of the corporation, and all of its intangible… Held: that section 331 of the Revenue Act of 1918 prevents the corporation from valuing the net assets at a greater amount in computing invested capital than the partnership could have valued them in computing invested capital if they had not been so transferred.

1. Transfer of stock by decedent about fourteen months prior to his death, where promissory notes equal to the par value of the stock were given in payment, the stock certificates being attached to… Held: the unpaid balance of the notes was a gift made in contemplation of death. 3. Deduction claimed as fee paid to a physician for services rendered the decedent disallowed for lack of evidence.

Upon the evidence, held, that the Commissioner's determination of the fair market value of the capital stock of a corporation as of March 1, 1913, should not be disturbed. Held: that the Commissioner's determination of the fair market value of the capital stock of a corporation as of March 1, 1913, should not be disturbed.

The taxpayer's books of account showed payments for additions and improvements as expenses. Held: that, upon all the evidence, the invested capital shown by the taxpayer on its books should not be adjusted either for capital additions or depreciation in prior years. Appeal of Cleveland Home Brewing Co.,1 B.T.A. 87.

A foreign corporation was in existence during 1911, 1912, and 1913, and during each of those years sustained a net loss in the operation of its business. Held: that such corporation is not entitled to have its profits taxes computed under section 205(a)(1) of the Revenue Act of 1917.

On the evidence, held, that the invested capital of the taxpayer should be reduced by the amounts of promissory notes given to its president. Held: that the invested capital of the taxpayer should be reduced by the amounts of promissory notes given to its president.

A contract to buy stock does not in itself vest a control thereof in the purchaser.

A corporation taxpayer carrying on a business and using during the year shop and delivery equipment of the average book value of $11,713.62, held not a personal service corporation under the provisions of the Revenue Act of 1918.

Value of a leasehold on March 1, 1913, determined.

The composition of and the distributive shares in certain partnerships during the years 1918, 1919, and 1920, determined.

Valuation of good will asserted by the Commissioner overcome by the evidence.

Taxpayer entered into a contract with a customer for the manufacture of certain engines which proved unsuccessful and the manufacture of… Held: that the debt was ascertained to be worthless in 1918, and that the taxpayer may take, as a deduction for a debt ascertained to be worthless and charged off in the taxable year, all that portion of the debt charged off at the close of 1918, but may not take the remaining portion of the debt not charged off as at the close of 1918.

Where bonds were sold on an installment basis, to be delivered upon completion of the subscription payments, the amounts paid by purchasers and retained by taxpayer upon forfeited contracts constitute income to it, and the market value of the bonds at the time the contracts were forfeited is immaterial.

An amount representing appreciation in the value of fixed assets, and an amount representing a reserve for depreciation set up out of earned surplus, may not be included in invested capital of a corporation for the year 1919.

1. An amortization deduction on certain assets acquired by the taxpayer between April 6, 1917, and November 11, 1918, disallowed, since no evidence was presented to show the extent to which they were thereafter employed, or the actual or estimated cost of replacing them under normal postwar conditions. 2. Deduction of certain expenditures allowed as ordinary and necessary business expenses. Other expenditures held to be of a capital nature. 3.

1. Salary received by an officer of a corporation and returned thereto under a salary adjustment prior to the close of the taxable year should not be included in his gross income. 2. Under the circumstances of this appeal, a reasonable annual allowance for the exhaustion of the contract is that proportion of the cost which the income received in each year bears to the total income to be derived from the contract.

Held, that the deduction on account of the exhaustion of a lease held by the taxpayer as determined by the Commissioner was reasonable. Held: that the deduction on account of the exhaustion of a lease held by the taxpayer as determined by the Commissioner was reasonable.

1. On the evidence, held, that a lease of certain property to the taxpayer did not have a cash value which can be included in invested capital. 2. Held: that a lease of certain property to the taxpayer did not have a cash value which can be included in invested capital. 2. The sale price of certain assets determined. 3. The cost of a theatre erected by the taxpayer on leased premises should be amortized over the term of the original lease.

The evidence herein fails to establish that amounts expended constituted ordinary and necessary business expenses.

1. A corporation holding undeveloped real property was dissolved during the pendency of negotiations for the sale of such property and it was transferred to the… Held: that no profit was realized by the corporation, but that the profit, if any, inured to the stockholders and, dissolution and sale being made at approximately the same time, the basis for gain or loss was the cost of the stock to the taxpayers subtracted from the proceeds of the sale received by them. 2.

Attorney's fees and sums paid for services in transferring assets in connection with the merger of several banks held not to be deductible as ordinary and necessary expenses.

Taxes which are a lien against the estate of a person at the date of his decease in 1923 are claims against the estate within the meaning of section 403(a)(1) of the Revenue Act of 1921.

1. To entitle a taxpayer to deduct from gross income, as a bad debt, an item ascertained to be worthless and charged off in a given year, such a debt must have had an existence in fact and law. 2. A deduction may be taken as a loss, under the Revenue Act of 1918, only in the year in which the loss was sustained.

1. Commissioner's method of determining gain on sale of shares of stock approved. 2. Shares of stock sold in 1919 had a fair market value of $100 each at March 1, 1913.

Expenditures made in connection with the development of patents held to be capital expenditures and not deductible from gross income as expenses.

Corporations held affiliated.

A taxpayer making capital additions to leased premises, the life of which is greater than the term of the lease, and which are surrendered upon the termination thereof, is entitled to a proportionate annual allowance of the cost over the life of the lease.

A charitable bequest of a specific sum payable in annual installments is not an annuity. The gross amount thereof is deductible from the gross estate in determining the value of the net estate subject to the estate tax.

Salary of nonresident alien held to be taxable only on such portion as was paid to him for services while he was in the United States.

Taxpayer purchased the business, the store location, and the right to use the name of its competitor during the period of two years. Held: that the amount paid in excess of the inventory of merchandise and equipment can not be written off and claimed as a deduction from gross income over the two years during which the right to use the competitor's name continued.

Additional compensation paid by the taxpayer to its president in each of the fiscal years ended September 30, 1921, and September 30, 1922, held deductible from gross income.

The Board has jurisdiction of an appeal from a determination of the Commissioner, made subsequent to the enactment of the Revenue Act of 1924, denying a claim in abatement of income and profits taxes assessed prior to the date of such enactment.

1. Under the Revenue Act of 1918, a corporation return for income tax is a sworn statement stating specifically the items of its gross income and the deductions and credits allowed by this title, as set forth in section 239 of said Act. 2. The so-called tentative return, Form 1031-T, as made and filed by this taxpayer, did not state any items of gross income or deductions and was not the return required by law. 3.

The last will and testament of a decedent who died between August 22, 1918, and January 1, 1919, directed that the executors named therein pay his debts and retain all of the… Held: in the absence of evidence that the administration of the estate had been completed and that the property was being held under the trust provisions of the will, that the Commissioner's determination of a deficiency against the estate as one in process of administration should be approved.

To be included in statutory invested capital, intangible assets paid in for stock must have actual cash value when so paid in.

Value of real estate for estate-tax purposes determined.

The New York State transfer tax held a legal deduction from the gross income of the estate during the period of administration.

1. A corporate taxpayer organized in 1916 and engaged in coal mining operations is entitled to a deduction for depreciation of buildings and all miscellaneous equipment used in its business, computed on the basis of the cost, less salvage, if any, and spread over the estimated time of continuing mining operations in proportion to the quantity of coal produced during each accounting period. 2.

The Cost of constructing tunnels, under public streets, connecting store buildings, held to be capital expenditures and not ordinary and necessary expenses for the years in which paid.

1. Upon evidence introduced, taxpayers held to be affiliated. 2. Evidence held insufficient to overcome Commissioner's determination with respect to the invested capital of the Columbus Coal & Mining Co. 3. Value of assets acquired by the Barnes Coal & Mining Co. in exchange for its stock, determined.

Upon the evidence, held, that the Excelsior Springs Mineral Water & Bottling Co., a subsidiary of the Ettenson Winnig Dry Goods Co., sustained a net loss for the calendar year… Held: that the Excelsior Springs Mineral Water & Bottling Co., a subsidiary of the Ettenson Winnig Dry Goods Co., sustained a net loss for the calendar year 1918, and the net income of the consolidated group for the fiscal year under consideration should be determined with due regard to such loss.

Under the facts of this appeal, held, that the distribution to its stockholders, by the Osage Natural Gas Co., of 2,000 shares of the capital… Held: that the distribution to its stockholders, by the Osage Natural Gas Co., of 2,000 shares of the capital stock of the Owen-Osage of West Virginia, owned by it, as a step in or preliminary to the merger of the two corporations, resulted in taxable income to the stockholders of the Osage Natural Gas Co. to the extent that the…

1. By the terms of an agreement between the taxpayer and a corporation, the corporation agreed to compensate the taxpayer for entering into a contract with another corporation and becoming its… Held: that the taxpayer was not a stockholder during the escrow period and the dividends on the escrow stock constituted compensation for services and not dividends as to him. 2.

1. Under the terms of the contracts herein, the stock of the American Cigar Co. was income to the taxpayers in the respective years in which the certificates therefor were delivered to the extent of its fair market value at the times of such deliveries. 2.

1. Where a taxpayer keeps its books of account on the accrual basis and elects to make its returns for the year 1917 on that basis, the interest deduction is the amount of interest accrued within the year, and not the amount paid. 2. Interest is an expense which accrues ratably over an elapsed period of time. 3. The evidence fails to establish that the taxpayer is entitled to special relief under the provisions of section 210 of the Revenue Act of 1917.

1. Commissions paid to brokers for the sale of the capital stock of a corporation are not deductible as ordinary and necessary expenses of carrying on a trade or business. 2. Fees paid to lawyers for negotiating the sale of the capital stock of a corporation and for securing an amendment to its charter to authorize an increase in its capitalization are not deductible as ordinary and necessary expenses of carrying on a trade or business. 3.

Section 205(c) of the Revenue Act of 1921 construed.

The value of certain shares of stock as of the date of the decedents' deaths determined.

1. Bonus, agreed to as to terms but not as to amounts at beginning of year, paid to manager at close of the year, in excess of drawing account, allowed as a deduction from taxpayer's gross income for the calendar year 1919. 2. Amount taken as a deduction from taxpayer's gross income for the year 1919 as a bad debt allowed. 3. Books of account kept by taxpayer during the year 1919 failed to reflect true income.

1. Under section 277(b), Revenue Act of 1924, the period within which an assessment of the deficiency determined by the Commissioner may be made is extended when an appeal is taken to the Board. 2.

Held, under the evidence, that invested capital can not be determined and that the tax should be computed under section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918. Held: under the evidence, that invested capital can not be determined and that the tax should be computed under section 210 of the Revenue Act of 1917 and section 328 of the Revenue Act of 1918.

Where a corporation in 1920 declares and pays stock dividends, the par value of which exceed the earnings or profits of such corporation accumulated since February 28, 1913, and… Held: that under the provisions of section 201(b) of the Revenue Act of 1918 the cash dividend is deemed to have been made from earnings or profits accumulated subsequent to February 28, 1913, and is to be included as a part of the gross income of the stockholder receiving such cash dividend.

Upon the evidence, held, that the taxpayer made a bona fide gift to his wife of certain stock and that he derived no taxable gain from the subsequent sale of said stock by his wife. Held: that the taxpayer made a bona fide gift to his wife of certain stock and that he derived no taxable gain from the subsequent sale of said stock by his wife.

Upon the evidence, held, that the taxpayer made a bona fide gift to his wife of certain stock and that he derived no taxable gain from the subsequent sale of said stock by his wife. Held: that the taxpayer made a bona fide gift to his wife of certain stock and that he derived no taxable gain from the subsequent sale of said stock by his wife.

On the facts stated, held, that the taxpayer in 1919 made a gift of certain property to his wife and did not derive a taxable gain from the subsequent sale of that property. Held: that the taxpayer in 1919 made a gift of certain property to his wife and did not derive a taxable gain from the subsequent sale of that property.

1. The Board has no jurisdiction to consider whether any overpayment of tax has been made in any year not considered in the deficiency letter for the purpose of determining a credit to be applied against the deficiency determined by the deficiency letter. 2. Adjustment of invested capital denied upon the evidence.

1. The par value of shares of stock issued for assets is not conclusive of the actual cash value or of the fair market price or value of such assets for the purpose of determining invested capital or… Held: that the actual cash value at the date of acquisition of such drawings, blue prints, tracings, etc., destroyed, is an allowable deduction from gross income. 3.

Under the evidence, held, taxpayer sustained a deductible loss on the sale of property. Held: taxpayer sustained a deductible loss on the sale of property.

Use and occupancy is a property right inhering in the ownership of physical property and as such is the subject of insurance. When such physical property is destroyed by fire, that portion of the proceeds of use and occupancy insurance which is immediately used in replacing such property in a condition fit for use and occupancy may be deducted from the gain derived by such insurance, under the provisions of section 234(a)(14) of the Revenue Act of 1921.

1. Certain transfers of real and personal property held not to have been made in contemplation of death. 2. The Commissioner's determination that a transfer of certain bonds was intended to take effect in possession or enjoyment at or after death approved. 3. The provisions of section 402(d) of the Revenue Act of 1918 are not retroactive.

Evidence respecting the value of a leasehold of coal lands paid in for stock of a corporation in 1905 examined and held to be sufficient to support a value equal to the par value of the stock issued therefor, both for the purposes of invested capital and deduction for exhaustion.

The fair market value of certain shares of stock determined.

1. Cost of certain bonds determined for purposes of computing gain or loss on the sale thereof. 2. Held: that the transaction in which he received cash for the bonds amounted to a sale thereof and not an exchange of bonds for preferred stock and cash.

1. In the reorganization of a business, a partnership paid in to a corporation on March 1, 1918, all of its tangible and intangible assets for all of the capital stock of the… Held: that section 331 of the Revenue Act of 1918 prevents the corporation from valuing the assets so acquired at a greater amount, in computing invested capital, than that at which the partnership could have valued them, in computing invested capital, if they had not been so transferred. 2.

1. Deduction for exhaustion of leasehold denied for want of proof of value on March 1, 1913. 2. Where taxpayer is on a cash receipts and disbursements basis, it may not deduct interest until actually paid.

Certain payments made to the decedent held to be gifts.

1. The taxpayer reissued shares of treasury stock to employees, charged the book value of such shares to personal stock accounts of the recipients, credited against such accounts amounts measured by… Held: that the treasury stock so reissued was outstanding, that the dividend credits may not be deducted from income as additional compensation paid to employees, and that interest charged on debit balances was income to the taxpayer. 2.

A taxpayer is not entitled to an amortization deduction in 1919 on buildings entirely erected in 1918 which were not used for war purposes after the end of that year.

Salary of justice of the Court of Appeals of the Mixed Courts of Egypt, held to be subject to income tax.

Value of land in question at March 1, 1913, determined from the evidence adduced at the hearing to be $125,000.

The taxpayer corporation set up a reserve for bad debts at the close of its fiscal year ended September 30, 1922, in the amount of $5,000. Held: that the taxpayer was entitled to the deduction of only a reasonable addition to a reserve for bad debts and not to the deduction of debts ascertained to be worthless plus an addition to the reserve.

1. One of taxpayer's department sales managers, whose compensation was based in part upon a percentage of the net profits of his department, left the service of the taxpayer in August, 1916, with his… Held: the amount accrued in 1917 was an allowable deduction for that year. 2.

Two corporations held to be affiliated.

Deductions claimed by the taxpayer on account of salaries disallowed.

1. The March 1, 1913, value of taxpayer's estate determined on the basis of capitalizing the difference between the rent reserved in the lease and the rent which a lessee making a like lease on March 1, 1913, would have been required to pay over a period of 76 years and a deduction for an aliquot part of such value allowed for each taxable period subsequent to January 1, 1918. 2.

The profits tax of foreign corporations should be computed under the provisions of section 328 of the Revenue Act of 1918.

1. Where a considerable portion of the capital stock of the corporation was issued in exchange for the common stock of another corporation, the value of which at the time of exchange is not shown, and where a large portion of the preferred stock of an affiliated corporation was issued in exchange for book accounts, the amount of which is not proven, together with a cancellation of contracts having no proven value, the Commissioner properly found that he was unable to determine the invested capital of the consolidated group. 2. The fact that the Commissioner's adjustment of excess-profits taxes under the provisions of section 328 of the Revenue Act of 1918 did not produce any large measure of relief, is not to be taken as evidence that the Commissioner used improper comparatives, but, on the other hand, as showing that the taxpayer's competitors in the same or similar lines of business were producing gains and profits and were subject to excess-profits taxes in amounts comparable to the apparent liability of the complaining taxpayer.

A reasonable deduction of the compensation of the taxpayer's president for the year 1921, held, upon the record of this appeal, to be the amount of $12,000.

Salary and bonus authorized by directors held to be proper deduction as ordinary and necessary expenses.

1. The taxpayer had on hand at December 31, 1918, raw materials which declined in price during the year 1919. There is no evidence that such materials were sold at a loss during the year 1919. Held, that the decline in price of the raw materials in 1919 is not deductible from the inventory at December 31, 1918. 2. The taxpayer was incorporated in June, 1913, and acquired in exchange for its capital stock the assets of a going business including tangibles and intangibles. Held, upon the evidence, that the intangibles had no cash value at the time they were paid in for shares of stock.

The taxpayer in 1920 expended $25,000 for certain patent rights which it alleged became worthless in 1921. Held: the said patent rights were in fact worthless in 1921 and the cost thereof is deductible as a loss for that year.

1. The denial by the Commissioner of a claimed loss of good will through the sale by a successor corporation of certain of its tangible assets approved. 2. Profit upon the sale of capital assets determined upon the evidence. 3. The Commissioner's determination of the invested capital of the taxpayer, which was a successor through a reorganization of two corporations, under the provisions of section 331 of the Revenue Act of 1918, approved.

Certain instruments denominated preferred stock issued by the taxpayer corporation, under their terms and conditions, held to be preferred stock and not evidence of indebtedness.

The value of certain real estate at the date of the death of the decedent determined.

Gain realized by a stockholder upon the liquidation of the corporation, determined.

The determination of the Commissioner disallowing, as a deduction for compensation for services rendered, additional amounts credited to officers of a corporation in December of the taxable year, the officers owning all of the stock and such additional credits being in substantial accord with their stockholdings, approved in the absence of proof that such additional credits, together with the other compensation paid during the taxable year, constituted reasonable…

Under section 204 of the Revenue Act of 1918, where the income for 1918 was sufficient to offset a net loss sustained in 1919, such loss may not be deducted from gross income for the year 1920.

Where the one-half interest of the wife in community property descended to her children, who conveyed it to the husband of the decedent for the purpose of facilitating the administration of the estate, held, that property identified as forming part of the wife's estate, and the proceeds of so much as had been realized upon, was no part of the estate of the husband, who died within a year after the death of the wife.

The taxpayer corporation was organized June 8, 1920, and elected to close its books upon the basis of a fiscal year ending April 30, 1921. Held: under the provisions of section 204 of the Revenue Act of 1921, that the corporation is entitled, in its return for the fiscal year ending April 30, 1922, to deduct so much of the net loss as the number of days within 1921 bears to the number of days from the date of incorporation to the end of the fiscal year.

A corporation may not include in its invested capital amounts due its stockholders by reason of its purchase of assets therefrom.

1. Where taxpayer claimed certain amounts to be due it from its debtors, the correctness of which claims was disputed by the debtors, and the debtors asserted other claims against taxpayer which were disputed by taxpayer, and taxpayer's claims were bona fide claims for goods sold or money advanced, held that a deductible loss of the difference between the amounts claimed and the amounts realized was sustained in the year in which compromises were effected. 2.

- The consolidated income and profits-tax return for the year 1918, made on behalf of taxpayer and its associated company and containing the facts respecting gross income and allowable deductions required by section 239 of the Revenue Act of 1918, it appearing that said return was neither false nor fraudulent, was the return of each of said corporations required by the then existing law, and the statute of limitations, section 277(a)(2) of the Revenue Act of 1924, began to…

Subscribers to capital stock, after making partial payment on their subscriptions, defaulted in meeting the remaining payments due. Held: the payments declared forfeited are not income to the corporation.

1. March 1, 1913, value of capital stock determined. 2. In determining profit or loss arising from the declaration and payment of liquidating dividends, a stockholder is entitled to set off, against the amount received in liquidation of a corporation, the protion thereof which he has subsequently been required to refund by way of payment of taxes of the corporation.

1. Taxpayer, a fire insurance company, was under contract obligation to refund to its policyholders 50 per cent of its net income for the year. Held: that such liability is an expense incurred during the taxable year and a proper deduction from income. 2. Held, further, that an amount paid in settlement of fire losses occurring and reported in the taxable year, but adjusted after the close of the taxable year, is deductible from income of the taxable year.

Where two corporations are consolidated under the laws relating to statutory consolidation in New York and the consolidated corporation issues its stock to the stockholders of the two old corporations, it thereby acquires the assets of such corporations, and the invested capital of the new corporation is determined by the actual cash value of the assets, tangible and intangible, at the time of the consolidation.

A retained royalty right in an oil lease is property. When it, or a part of it, or an interest therein, is sold in 1921, the taxable gain or deductible loss resulting therefrom is based on the cost or the March 1, 1913, value thereof, in accordance with section 202 of the Revenue Act of 1921, and not upon the discovery value.

The taxpayer was the successor of a corporation with total paid-in capital in cash of $60,000. Held: that the invested capital of the taxpayer was limited to the value of property paid in for stock and could not be measured by the invested capital of the predecessor company.

The taxpayer was notified of an assessment under section 274(d) of the Revenue Act of 1924, filed a claim for abatement and the Commissioner notified the taxpayer, your claim for abatement * * * will… Held: that the Board has no jurisdiction of an appeal filed from the last letter received from the Commissioner more than 60 days after the letter notifying the taxpayer of the rejection of its claim.

Evidence held insufficient to establish value of good will acquired in the purchase of a competing business.

Under the facts proven, held that the shares of stock of a corporation held by the taxpayer are inadmissible and can not be included in invested capital for the taxable year.

JURISDICTION. - Under section 279 of the Revenue Act of 1924, the Board is without jurisdiction to hear and determine an appeal from a jeopardy assessment prior to the rejection of a claim for abatement. Following Appeal of Oakdale Coal Co.,1 B.T.A. 773.

Upon the evidence, held, that the taxpayer was not affiliated with Davidson, Hicks & Greene Co. Held: that the taxpayer was not affiliated with Davidson, Hicks & Greene Co.

Good will claimed as basis for obsolescence disallowed.

Revenue Act of 1918, section 234, subdivision (a)(3)(c), construed; the provision excluding from taxes deductible from gross income those assessed against local benefits of a kind tending to increase the value of the property assessed means special or local assessments as a class.

Value of note received in part payment for shares of stock sold determined.

The amount of the reduction in excess-profits tax liability for 1918, resulting from the computation of the tax under section 1918, resulting from the computation of the tax under section 328 of the Revenue Act of 1918, is not a credit against the tax redetermined for 1918 after the deduction from the net income of a net loss sustained for the year 1919.

An individual keeping his books upon a calendar-year basis and being a member of a partnership keeping its books upon a fiscal-year basis is required, under the provisions of section 218(a) of the Revenue Act of 1918, to report as taxable income his proportion of the net profits of the partnership for its entire accounting period ending within his calendar year, notwithstanding a portion of such profits was received by him during the first six months of the partnership's…

Upon the facts, held, that certain payments were not ordinary and necessary expenses, but were distributions of profits. Held: that certain payments were not ordinary and necessary expenses, but were distributions of profits.

1. Value of leasehold determined. 2. An oral assignment of a leasehold interest in real estate is voidable, and not void, and where the parties have recognized the assignment as valid, it can not be attacked by a third party.

In 1911 the taxpayer and Mary C. Horigan entered into an oral partnership agreement for the operation of a hospital. Shortly thereafter the parties were married. Held: that a partnership existed between the taxpayer and his wife during the years 1919 and 1920.

Difference between cost of Liberty bonds to a partnership and the par value of capital stock of a corporation received in exchange for the bonds in 1920 held to be a loss deductible by the partners in 1920.

1. On June 30, 1913, taxpayer entered into a contract with the American District Telegraph Co. whereby the latter took over the business of installing and maintaining an automatic fire alarm and… Held: that this was not a sale by the taxpayer of its business, and the alleged value of the contract may not be include as paid-in or earned surplus in computing invested capital of the taxpayer for 1917 and 1918. 2.

The value of real estate at the date of death of decedent determined.

1. The taxpayer, prior to March 1, 1913, acquired timberlands at a cost of approximately $3.50 per thousand feet of timber. Held: that the fair market value of said standing timber on March 1, 1913, was not more than $5.35 per thousand. 2. The taxpayer issued $360,000 preferred stock for timber and timberlands in 1907, and $480,000 common stock for cash or its equivalent at or about the same time.

The evidence herein held insufficient to establish the rates and basis for depreciation claimed by the taxpayer.

The evidence held insufficient to establish value of certain patents for invested capital and depreciation purposes.

1. Evidence held insufficient to disturb the determination of the Commissioner that certain promissory notes, secured by real property, received by the taxpayer in 1918 as part payment for the sale of certain land, were worth their full face value in 1918, and should, therefore, be included in the computation of the gain realized from the sale. 2. Depreciation disallowed for lack of evidence.

1. A taxpayer on March 1, 1913, was the owner of the fee in coal land, subject to a lease which provided for the payment of a royalty of 3.25 cents per ton. Held: that the royalty rate paid should be used in the computation of the basis for depletion rather than the rate provided in the lease and not paid. 2.

1. Compensation of officers disallowed. 2. The Commissioner's method of determining the excessprofits tax and the 4 per cent tax under sections 4 and 200 of the Revenue Act of 1917 of a corporate taxpayer having a fiscal year beginning in 1916 and ending in 1917, approved. Appeal of F. J. Thompson, Inc.,1 B.T.A. 535.

Cancellation of indebtedness by agreement of creditors, under circumstances set forth, held not to constitute income.

1. Certain expense and capital items segregated and determined. 2. Taxpayer not allowed amortization of war facilities where it appears the facilities still have a useful though diminished value and there is insufficient evidence to enable the Board to determine to what extent their useful value was impaired, or the actual or estimated cost of replacing them under normal postwar conditions. 3.

Traveling expenses, incurred by the taxpayer in the business of the employing corporation, to be paid out of a fixed salary, are a proper deduction from the income of the taxpayer where there is sufficient evidence to establish such expenditure.

1. Profit on the casual sale of personal property in 1921 can not be returned on an installment basis if the initial payment exceeds one-fourth of the purchase price. 2. A loss sustained in 1920 by a partnership is deductible by the individual partners in proportion to their interest therein and serves to reduce each partner's capital investment in the partnership. 3. Held, when an interest in a partnership is sold for cash and notes and the notes have no readily realizable market value, the cash should be used to reduce the basis, and no taxable income arises until the capital is first recovered.

1. Certain credit balances in the accounts of the stockholders of the taxpayer, held not to be a part of surplus during the taxable year 1919 for invested capital purposes. Appeal of Kelly-Buckley Co.,1 B.T.A. 1154; Appeal of Wm. H. Davidow Sons Co.,1 B.T.A. 1215. 2. Capital expenditures made by a tenant at will are not deductible as ordinary and necessary expenses.

Held, on the evidence, that the two corporations were affiliated. Held: on the evidence, that the two corporations were affiliated.

1. In 1922 petitioner on the accrual basis entered upon its books as a closing entry of 1921 and paid an amount in settlement of a lawsuit against it for breach of contract begun in 1921. Held, the amount was not deductible for 1921. 2. An estimate entered in 1922 as of 1921 of attorneys' fees for services performed in 1921, which were not billed or paid until 1922, held not deductible for 1921.

Gifts to a city of an organ and a fund for its maintenance are not deductible as charitable contributions under the Revenue Act of 1918.

On the facts stated, held, that the taxpayer did not sustain a deductible loss in the taxable year in question. Held: that the taxpayer did not sustain a deductible loss in the taxable year in question.

Salaries paid held to be reasonable for services rendered.

A nonfraternal, mutual assessment, life and health insurance association, incorporated under the laws of New York and doing business within the limits of greater New York, having no capital stock and not organized for profit, is not exempt from taxation by section 231 of the Revenue Act of 1918.

1. That part of the estate of a former decedent of which the present decedent was given the power of appointment by will should not be included in the present decedent's estate, the power of… Held: under the evidence, that the property of the decedent can be identified as having been received by bequest, devise or inheritance from a person who died within five years prior to the death of the decedent, or as having been received in exchange for property so received.