Volume 3 — Tax Court Reports

Petitioners' residences were injured by an unusually violent blast in the course of operations by the county in a quarry about a half-mile… Held: that the losses were deductible as arising from casualty within the language of section 23 (e) (3) of the Internal Revenue Code, to the extent of the difference between fair market value of the properties before and after the blast, reduced by the compensation received from insurance companies and the value of improvements made by…

As part consideration for the transfer of oil leasehold interests, the vendee agreed to procure the discharge of taxpayer-vendor's indebtedness of $ 100,000 to another. Held: the notes were income of taxpayer in 1939 to the extent of their fair market value; and such value was not less than their face.

1. During the taxable years involved petitioners were engaged in the oil business in Texas. Held: the cost of drilling these wells represented a part of the cost of the leases and must be recovered by way of depletion, and the provisions of article 23 (m)-16, Regulations 101, granting petitioners an option to either capitalize intangible drilling costs or deduct them as ordinary and necessary business expenses, are not…

Petitioner owned several farms which were heavily encumbered. It desired to reduce the amount of interest payable. Held: that the loss may not be allowed because of the provisions of section 24, I. R. C.

1. The will of petitioner's decedent, who died in 1935, left his entire estate to a corporation to be formed for the purpose of using… Held: that the entire gross income of the estate during the taxable years, except the amount necessary to pay the specific annuities, is deductible by the petitioner because it was, pursuant to the terms of the will, to be used exclusively for charitable and educational purposes; Held, further, that such gross income was deductible for the…

1. On December 31, 1940, petitioner owed a note for $ 400,000 and other current obligations of $ 108,649. Held: that due to the insolvency of petitioner no taxable gain, except the $ 14,610 paid in cash, was derived by it from the transaction. 2. Under the same conditions, a bookkeeping entry made during the taxable year, transferring credit balances in reserve accounts to petitioner's surplus, did not result in taxable gain.

1. Petitioner was liable as transferee for the income tax deficiencies and the interest thereon of certain liquidated and dissolved corporations. Held: that none of the interest which accrued on the deficiencies from their due date to the date the property of the transferors was received by petitioner is deductible by petitioner as interest under section 23 (b) of the Revenue Act of 1938. Held, further, that the interest which accrued thereafter is so deductible.

1. Upon settlement of their father's estate in 1931, the petitioners, as distributees, each received one-half of the residuary estate. Held: that such parts of the interest on the said estate tax deficiencies as accrued from the dates of distribution and were paid by the petitioners in 1939 are deductible from gross income under section 23 (b) of the Revenue Act of 1938 in computing petitioners' net incomes. 2.

In the course of liquidation of a corporation, all the shares of which were owned equally by three shareholders, a new corporation was organized. Held: the receipt of the new shares by the shareholders was in an exchange pursuant to a plan of reorganization and gain may not be recognized. Sec. 112 (b) (3), Revenue Act of 1938.

1. Petitioners were owners of certain undivided interests in an oil and gas sublease which they sold to Humble Oil & Refining Co. for a cash consideration and a further consideration of a working… Held: the transaction was a sale by petitioners to Humble and petitioners are not entitled to percentage depletion on their share of the profits received in 1940. Helvering v. Elbe Oil Land Development Co., 303 U.S. 372. 2.

Petitioner, a family corporation, in 1939 issued, in exchange for four-fifths of its outstanding capital stock, registered notes in face value equal to the par value of the stock surrendered, having… Held: the security is more in the nature of a capital investment than a loan to the corporation, and payments made as interest are in fact dividends, not deductible from gross income under section 23 (b) of the Internal Revenue Code.

Petitioner's income during the taxable year was ascribed primarily to the activities of V, who owned two-thirds of its stock, and to the activities of R, whose wife owned the other third. For the purposes of section 725 (a), I. R. C., which defines a personal service corporation, an individual is to be considered as owning the stock owned by his spouse. Held that R was a shareholder within the purview of the section.

Held, that certain conditional rights certificates were not evidence of indebtedness under section 117 (f), I. R. C., and that sums received by taxpayers upon surrender of such certificates were… Held: that certain conditional rights certificates were not evidence of indebtedness under section 117 (f), I. R. C., and that sums received by taxpayers upon surrender of such certificates were taxable as ordinary income, not as long term capital gain.

Three, four, and five-year notes held by petitioner and exchanged in a reorganization of the debtor corporation under section 112 (g) (1) of… Held: that petitioner, having received in such transaction, in place of the notes, a new promise by the debtor to pay the same amount with interest, in the form of debentures having a fair market value equal to petitioner's cost of the notes and, in addition certain stock of the debtor corporation of a determinable market value, has…

1. Petitioner's principal business was that of purchasing at a discount warrants issued by the State of Texas payable out of the general… Held: for the taxable years 1937, 1939, and 1940, the difference between the cost to petitioner of the warrants purchased and the amount later collected from the state is includable in gross income under section 22 (a) of the Revenue Act of 1936 and of the Internal Revenue Code as gains, profits, and income derived from dealings in…

Interest received by petitioner's decedent on bonds of the Port of New York Authority held free from tax under Revenue Acts of 1936 and 1938, section 22 (b) (4), excluding from gross income interest on obligations of a State, Territory, or any political subdivision thereof.

Interest received by petitioners' decedent on bonds of Triborough Bridge Authority (New York) held free from tax under Revenue Act of 1938 and Internal Revenue Code, section 22 (b) (4), excluding from gross income interest on obligations of a State, Territory, or any political subdivision thereof.

Petitioner acquired two life insurance contracts, collected upon one upon the death of the insured and transferred the other for a consideration. Held: on the facts, that the policies were not acquired for valuable consideration.

The disposition to its shareholders of treasury shares among new shares in a readjustment of the corporation's capital, which treasury shares had been acquired in a prior year as a step in an employee profit-sharing plan which had not been carried out, held under the circumstances not to be a transaction the real nature of which was similar to a sale of the shares of another corporation, and the corporation did not realize a taxable gain. Regulations 94, art. 22 (a)-16.

Held, that attorney fees expended in defense of a suit involving a portion of the proceeds of an insurance policy are allocable to a… Held: that attorney fees expended in defense of a suit involving a portion of the proceeds of an insurance policy are allocable to a class of income, insurance proceeds, which is wholly exempt from taxes by virtue of section 22 (b) (1), I. R. C., and are specifically made nondeductible in computing net income by section 24 (a) (5), I. R. C.

Petitioner, by certain written contracts entered into with its creditors in 1935, promised that so long as certain of its notes were unpaid it would not declare and/or pay any dividends * * * which… Held: petitioner entitled to credit under section 26 (c) (1), Revenue Act of 1936.

A corporation was liquidated pursuant to the provisions of section 112 (b) (7) of the Revenue Act of 1938, and petitioner, a qualified… Held: the earnings and profits of the corporation, for the purposes of applying section 112 (b) (7) (E) (i) of the Revenue Act of 1938, included the excess of percentage depletion allowances for the years 1933 through 1938 over and above the amounts which would have been allowed for those years if depletion had been computed on the basis…

While a suit for divorce was pending in Wisconsin petitioner and his wife entered into a written stipulation in which they settled their property rights and agreed that… Held: The payments made to the ex-wife were not made pursuant to a continuing liability created by local law, but were in part made pursuant to a continuing liability created by petitioner's contract, and are taxable to petitioner to the extent of his guaranty, Helvering v. Leonard, 310 U.S. 80, followed.

1. Interest paid by an individual taxpayer on a mortgage indebtedness upon which she was a joint obligor with the other shareholder and the mortgagor corporation and was a signer of an agreement after foreclosure providing that she would make up any deficit in the income from the mortgaged property, held deductible by the taxpayer as interest on indebtedness. 2.

1. Where a Texas corporation was duly dissolved and no receiver was appointed to settle up its affairs, and within three years after dissolution the Commissioner had notice of the dissolution but did… Held: that after three years from the date of dissolution the corporation no longer had existence under Texas law and this Court has no jurisdiction to determine the proceeding. Lincoln Tank Co., 19 B. T. A. 310, followed. 2.

The petitioners are transferees of the estate of X, deceased. The due date for the filing of the estate tax return was April 14, 1938. Held: the return in question was a return by the executor of the estate and was timely filed, and the option provided by statute was validly exercised.

Petitioner, a widow, elected to take under the will of her deceased husband. He had created a testamentary trust to which a substantial portion of his property was bequeathed primarily for petitioner's benefit.

The petitioner transferred stock but later instituted action to annul the transaction and for recovery of the stock. Held: that the amount was received upon sale of capital assets. Amount of basis determined. Held, further, that certain expenses growing out of the litigation are deductible, under section 121 of the Revenue Act of 1942.

1. Income from oil produced from leases upon state owned lands is subject to Federal income taxes, Helvering v. Mountain Producers Corporation, 303 U.S. 376 (Mar. 7, 1938), overruling prior decisions to the contrary, and such income received prior to March 7, 1938, is not exempt, notwithstanding such prior decisions. 2.

Petitioner created 10 irrevocable long-term trusts and constituted himself trustee in each, with broad administrative powers. Held: under the facts, the income of the several trusts is taxable to petitioner under Helvering v. Clifford, 309 U.S. 331.

At the date of decedent's death, January 27, 1940, she was entitled to receive certain delay rentals at a future date. Held: petitioners are not entitled to a deduction under section 162 (b) for income currently distributable; held, further, the balance in the joint bank account after the payment of ad valorem taxes, all of which was in dispute, was not received by the estate in 1940 and can not be included in its gross income for that year.

In 1923 petitioner amended its articles of incorporation to permit the increase of its capital stock. Held: petitioner is not entitled under section 23 (b) of the Revenue Acts of 1934 and 1936 to deduct any interest on its preferred stock obligations for the reason that both issues of such stock constitute capital stock and not indebtedness.

Deductions -- Losses Not Deductible -- Sec. 24 (b), I. R. C. -- Each of two brothers, making separate purchases from a corporation in which each is a stockholder, is to be considered as owning the stock of the other and the stock of his father and his other brothers, for the purpose of determining whether he is the owner of more than 50 percent of the seller's outstanding stock.

1. The Civil Code of California, by amendment made in 1931, provides that, unless expressly made irrevocable by the instrument creating it, every voluntary trust (not created prior to the amendment)… Held: that under the law of California the trust was revocable during the taxable years 1936 through 1939 and that the trust income for those years was taxable to the petitioners in the proportion that the amount of corpus contributed by each bore to the total corpus. 2.

For the period from March 1, 1913, to December 31, 1935, the petitioner's earnings and profits were substantially in excess of the cash… Held: that the payment of the stock dividends did not effect a distribution of petitioner's earnings and profits, see section 115 (h) of the Revenue Act of 1936, and that the petitioner at December 31, 1935, and at December 31, 1936, did not have a deficit in accumulated earnings and profits and is not entitled to a credit under section 26…

1. Gift Tax -- Exclusions -- Section 504 (b), Revenue Act of 1932. -- Although there was a gift of a present interest to one donee, the value of that interest can not be determined in view of the power of the trustee in his absolute discretion to terminate that interest by awarding the corpus of the trust to another beneficiary at any time.

Deductions -- Losses Not Deductible -- Section 24 (b), I. R. C. -- The prohibition, in section 24 (b), against deduction of losses on sales of property between members of a family is not limited to losses on sales of stock in a corporation, but affects all such sales without regard to the character of the property sold.

Petitioners were sued by the State of Texas for alleged violations of the antitrust statutes of that state. Held: the compromise payments and the attorney fees and legal expenses were ordinary and necessary expenses paid or incurred in carrying on a trade or business. Commissioner v. Heininger, 320 U.S. 467, followed.

The taxpayer in 1938 filed a petition for divorce, and an interlocutory decree was granted in 1940. Held: the taxpayer remains liable for tax on one-half of the California community income for the years 1939 and 1940. An interlocutory decree of divorce does not terminate the community.

1. The basis for depreciation and gain or loss on property used in the transferor's business was cost. Transferor was not entitled to add to such cost the face value of six unsecured promissory notes which the owner of such property at the time it was sold to the transferor owed to a bank and which the bank agreed to cancel under certain conditions if the seller would convey the property to transferor.

1. Petitioner in January 1933 transferred his home and other real property of less value to a corporation newly formed by him, in consideration of all of its stock, and hypothecated the… Held: on the facts, that the corporation should not be recognized as a taxable entity separate from the petitioner, and that there was no error in denying loss claimed upon liquidation of the corporation in April 1935 and distribution to petitioner of the assets transferred to it by him. 2.

Petitioner's redemption at less than par of bonds issued by it for property of a value less than the face amount of the bonds, petitioner at all times being insolvent, held, not to result in taxable… Held: not to result in taxable gain. Dallas Transfer & Terminal Warehouse Co. v. Commissioner (C. C. A., 5th Cir.), 70 Fed. (2d) 95, followed.

1. Decedent made gifts of securities, furnishings, and art objects to her husband within two years of her death. Held: on the evidence, that the gifts were not made in contemplation of death within the meaning of section 302 (c) of the Revenue Act of 1926 as amended, and that the presumption to the contrary has been overcome. 2. Petitioners filed an estate tax return on February 20, 1940, disclosing an estate tax liability of $ 1,361,517.07.

Decedent prior to 1918 took out certain policies of life insurance upon his own life. Held: that the transfer of the policies in 1932 was made in contemplation of death and the proceeds of the policies are properly includable in decedent's gross estate.

Petitioners, sole holders of the common stock of a corporation, caused preferred to be authorized, exchanged some of their common stock for some preferred, and paid off indebtedness with… Held: on the facts that there was no reorganization with business purpose sufficient to cause nonrecognition of gain or loss. Held, further, that there was no dividend in either cash or stock, and that there was no distribution essentially equivalent to distribution of a taxable dividend.

Green Bay & Western Railroad Co. had outstanding during the taxable years shares of common stock and certain class A and class B debentures. Held: these debentures did not represent indebtedness of the corporation and the payments accrued thereon in the taxable years by the taxpayer were not deductible as interest under section 23 (b), Revenue Act of 1936 and the Internal Revenue Code.

1. In the deficiency notice the Commissioner added $ 2,700 to petitioner's gross income because of the redemption, for $ 6,300, of bonds of a face… Held: one-half of the $ 2,700 was properly excluded from gross income, under section 22 (b) (9) of the Internal Revenue Code, but that the other half, being gain upon bond redemption prior to the effective date of the act, may not be excluded. 2. Petitioner owned a building constructed for the particular requirements of a lessee.

Under the will of his father petitioner was given an option to purchase within a limited time certain shares of stock from the testamentary trustees at approximately one-half of their market value at… Held: that the basis for the determination of the gain upon the sale is the amount which he paid to the testamentary trustees for them.

Prior to August 30, 1937, petitioner owned all but a few shares of stock of a corporation which carried on a business of manufacturing sawmill machinery. Held: that there was no bona fide gift of stock to the wife and that she did not contribute capital to the partnership; (2) that there was not a true partnership between petitioner and his wife for the conduct of a business, but a partnership for tax avoidance which can not be recognized.

Upon disposition of California community property by the administrator of the deceased husband's estate, held, the basis for gain or loss of the widow's one-half share is cost (adjusted), and… Held: the basis for gain or loss of the widow's one-half share is cost (adjusted), and not market value at the time of the husband's death; held, further, cost (adjusted) is the basis for depreciation of the widow's one-half share, in the hands of the deceased husband's administrator.

Petitioner sold, for cash, coupon books entitling the purchaser to certain services, which might be called for and performed after the year of sale. Held: the entire amount received for the coupon books was income in the year when received upon sale. Brown v. Helvering, 291 U.S. 193; South Dade Farms, Inc. v. Commissioner, 138 Fed. (2d) 818.

In 1925 the decedent and his wife, domiciled in California, entered into an agreement providing for the transfer of 2,026 shares of stock, owned by them as community property, to the wife, as her… Held: the transfer to the wife was a gift, and not a sale or exchange for a fair consideration in money or money's worth within the provisions of section 320 of the Revenue Act of 1924.

In 1941 the petitioner paid $ 4,000 in legal fees in connection with a proceeding for the perpetuation of testimony, brought by a brother seeking to establish some interest in the business properties… Held: the proceeding was fundamentally an attack on the petitioner's title, and costs incurred therein are capital expenditures, not deductible expenses within the meaning of section 23 (a) of the Internal Revenue Code, as amended by section 121 of the Revenue Act of 1942.

The petitioner in 1938 realized gain from insurance proceeds above the adjusted basis of property destroyed by fire, forthwith used the entire amount in replacement of the destroyed assets, and in… Held: under section 501 (a) of the Second Revenue Act of 1940, such realized gain, not having been recognized in computing net income, may not be utilized to increase earnings and profits in computation of invested capital.

Where petitioners have rendered personal services over a period exceeding five calendar years and thereafter compensation in full is paid for those services, held, petitioners have met the… Held: petitioners have met the requirements of Internal Revenue Code, section 107, permitting the tax to be computed as though the compensation had been received ratably over the previous years.

In 1938 petitioners and the West Foundation entered into an arrangement with Humble Oil & Refining Co., evidenced by a deed, a supplemental… Held: the transaction effected a sale of the surface of the land and the improvements thereon, and a leasing arrangement with respect to the mineral contents; held, further, the profit from the sale is a capital gain, and that part of the cash consideration attributable to the mineral rights represented bonus or advanced royalties.

Petitioner in 1938, 1939, and 1940, the taxable years, paid premiums on a policy taken out in 1934 and providing for an annuity for one of its employees, to begin in 1945. Held: that the premiums were not ordinary and necessary expenses of petitioner's business.

Charitable remainder after testamentary trust permitting invasion of corpus for widow's comfort and support, the income being approximately equal to the widow's ordinary expenses, held, not… Held: not deductible from gross estate under Merchants National Bank of Boston v. Commissioner, 320 U.S. 256.

1. Petitioner, a corporation engaged in manufacturing lumber, subscribed to 50 percent of the capital stock of a new company which proposed to build a paper mill and to become a customer for… Held: the sum so paid is deductible as an ordinary and necessary business expense under section 23 (a) of the Internal Revenue Code. 2. Petitioner had held 121,000 acres of standing timber for over two years.

Held, the evidence does not establish that petitioner corporations were in an unsound financial condition and entitled to exclude from gross income the gain realized on the retirement of their… Held: the evidence does not establish that petitioner corporations were in an unsound financial condition and entitled to exclude from gross income the gain realized on the retirement of their own bonds. Sec. 215, Revenue Act of 1939, amending section 22 (b), Internal Revenue Code.

A husband and wife joined in the creation of a trust for the benefit of their children, the husband contributing non-income-producing insurance policies upon his life and the wife contributing… Held: The income is not taxable to the husband under section 22 (a), I. R. C., or under Helvering v. Clifford, 309 U.S. 331. Richardson v. Commissioner, 121 Fed. (2d) 1, and Jergens v. Commissioner, 136 Fed. (2d) 497, distinguished.

The lessee of an oil lease mortgaged an interest in the lease to secure payment of his personal indebtedness to a bank, and assigned to the bank the oil to be produced thereunder for the purpose of… Held: petitioner is not taxable on the income thereafter paid to the bank and applied on the indebtedness.

1. Petitioner in 1930 entered into a participating agreement with a newly organized mutual life insurance company chartered in the State of Montana, by which petitioner agreed to advance certain… Held: that such sums in their entirety were gross income to petitioner, on the cash basis, in 1940. 2. Petitioner's entire gross income in 1940 consisted of these sums paid to it by the insurance company under the participating agreement between the two companies.

Petitioner during 1936, 1937, and 1938 borrowed several thousand dollars daily from two banks, upon demand, collateral notes secured by assigned accounts receivable. Held: petitioner has failed to prove that any indebtedness existing at the close of business on December 31, 1937, or any renewal thereof, existed and was paid off or retired in 1939. No dividends paid credit may therefore be allowed.

Petitioner, a publishing company, entered into a written contract, agreeing to pay a competitor over a period of years, including the… Held: that such liability was not borrowed capital, within the meaning of section 719 of the Internal Revenue Code, as amended by section 201 of the Second Revenue Act of 1940, because not evidenced by a bond, note, bill of exchange, debenture, certificate of indebtedness, mortgage, or deed of trust, and, therefore, may not be considered…

1. Decedent and a business associate, who were both officers and stockholders of X corporation, entered into a reciprocal agreement under which the survivor was to have the option… Held: that the shares of X stock which decedent owned at the time of his death should be included in his gross estate at their fair market value at the time of decedent's death and that such fair market value is not limited to the option price. Claire Giannini Hoffman, 2 T. C. 1160, followed. 2.

Husband and Wife Partnership. -- Petitioner entered into a partnership agreement with his wife in 1940, purporting to make her an equal partner in a furniture business which he had operated for a… Held: that all of the profits of the business are taxable to petitioner as his individual earnings.

The petitioner is a journeyman plumber by trade. His home is in Pittsburgh, Pa. Held: that these amounts are deductible from gross income as expenses of carrying on his trade or business. Coburn v. Commissioner (C. C. A., 2d Cir.), 138 Fed. (2d) 763, followed.

Petitioners are beneficiaries of certain trusts the income of which is payable to them upon request. Held: the dividends from the shares paid to the trustees and, in turn, paid by them to the bank pursuant to instructions of the beneficiaries constitute taxable income of the beneficiaries.

1. One of the petitioners received commissions from the American Oil Co. pursuant to certain contractor's agreements. Held: that the commissions paid petitioner constituted income to him; held, further, that the commissions turned over to the corporation represented deductible business expenses. 2.

In 1918 and 1928 the decedent created two trusts, the income of one to be paid to a brother for life, with remainder over to decedent's grandchildren, and of the other to his sister for life, with… Held: that the remainder values of the corpora of the trust estates are not includible in the gross estate of the decedent.

Petitioners, members of a patent law partnership, performed services continuously over a period in excess of five calendar years. Held: petitioners are not entitled to the benefits of section 107, I. R. C., added by section 220 of the Revenue Act of 1939, since the proportion of the compensation received by petitioners on the completion of their services and required to be returned for Federal income tax purposes in the taxable year was less than 95 percent of the…

Decedent in 1935 executed a trust indenture by which he irrevocably conveyed to himself as trustee certain corporate stocks to be held in trust for his three sons. Held: that the value of the trust's corpus at decedent's death to the extent of the decedent's community property interest therein is not includible in his estate under the provisions of section 811 (d), Internal Revenue Code.

Petitioner created a trust in 1935, to which he transferred six policies of insurance on his life, and certain securities. Held: the balance of the trust income is not taxable to petitioner under section 22 (a), 166, or 167, Revenue Act of 1938 and the Internal Revenue Code.

Under the will of her husband petitioner acquired improved real property consisting of an apartment house and the land upon which it was located, which at the date of his death was subject to a… Held: The amount of the mortgage is not part of the amount realized by the petitioner from the sale and the only amount realized by her was $ 2,500. (2) The basis of the property in the hands of the petitioner is zero.

In determining excess profits tax for 1940, abnormal portion of bad debt deduction in a base period year (sec. 711 (b) (1) (J) (ii), I. R. C.), which year also shows an increase in gross income, may not be disallowed when evidence fails to show that the abnormality in amount was not a consequence of an increase in the gross income of the taxpayer in its base period (sec. 711 (b) (1) (K) (ii)).

1. In determining a gift tax for 1940, the Commissioner held that prior gifts in 1935 were gifts of future interests and that therefore no $… Held: that, since the gifts of 1935 were gifts in trust, the income of which was only expendable in the discretion of the trustee for the maintenance and education of the minor beneficiary, and the beneficiary had no right to corpus or income until he arrived at the age of thirty, they were gifts of future interests and no $ 5,000…

Amounts paid by a scholar for research assistance in his work on three publications, from none of which he expects to derive profit, the purpose of his work and expense being to increase his prestige… Held: not deductible as ordinary and necessary expenses of carrying on a trade or business.

Income from trust created by petitioner for his wife and applied by her without his direction or control to payment of insurance premiums on his life, held, not taxable to him. Held: not taxable to him. Henry A. B. Dunning, 36 B. T. A. 1222, distinguished.

1. Shortly before his death an individual transferred a substantial portion of his property to a trustee with instructions to distribute the corpus ratably, during the 25 years immediately following… Held: Petitioner has failed to show that the named beneficiary under the trust was, in fact, the trustee of a trust and required to use the funds exclusively for charitable or educational purposes.

A corporation purchased annual premium annuity contracts for petitioners, who were stockholders of the corporation and its principal… Held: the trusts were not within the purview of section 165 of the Internal Revenue Code in effect prior to the amendments made by the Revenue Act of 1942; (2) the premiums paid by the corporation on the annuity contracts were for petitioners' benefit and represented additional compensation to them and they are taxable thereof, under the…

Property held in trust created by decedent in 1919 with power to distribute corpus to life beneficiaries lodged in three trustees, of whom decedent was one by virtue of reappointment by remaining… Held: excluded from gross estate under White v. Poor, 296 U.S. 98, and not includible under the nonretroactive provisions of Revenue Act of 1936, section 805.

1. The net worth of a business allocated between separate property of the petitioner and community property for the purpose of fixing the value of a gift to his wife by an agreement transmuting his separate property into community property. 2. A presumption of California law favoring community property does not relieve the taxpayer of the burden of overcoming the presumption of correctness of the Commissioner's determination. 3.

1. Partnership earnings allocated between separate and community income. 2. A presumption of California law casting the burden of proof upon one claiming a greater return on separate capital than the legal rate of interest is overcome by the determination of the respondent and the petitioner continues to have the burden of proof.

1. Petitioner received notarial fees in respect of which no tax was collectible by virtue of the Public Salary Tax Act of 1939. Held: that neither the expenses nor the state income tax to the extent allocable to the earnings of these notarial fees are deductible from petitioner's gross income. Sec. 24 (a) (5), Revenue Act of 1936. 2.

On December 23, 1936, petitioner created a trust for the benefit of his children and authorized the trustee to invest principal and accumulated income in insurance policies on the settlor's life. Held: the income of the trust so used was taxable to petitioner under section 167 (a) (3), Internal Revenue Code.

1. Pursuant to agreements previously entered into with a corporate trust company, as trustee, the donor transferred, by gifts, certain property to the trustee in 1938. Held: that the trustee is liable as transferee and as fiduciary of a transferee for the unpaid gift tax of the donor for such year. 2.

1. The Coast Carton Co. was issued a charter for a period expiring in 1929, and the charter was not extended or renewed. Held: that the Coast Carton Co. was in 1939 an association taxable as a corporation. 2. The association deducted amounts in its return for 1939 for compensation paid to officers with knowledge that the individuals performed no services for it for the payments.

On May 1, 1936, Ralph G. Lindstrom formed a law partnership with Arthur W. Eckman. Held: petitioners are not entitled to the benefits of section 107, as neither the services of Lindstrom individually, nor the services of the partnership of which he was a member, covered a period of five years or more.

1. Petitioner received a 15 percent commission from fiscal agents on sales made by him of stock in a corporation in which he was interested. Held: the payments made in the taxable years are deductible losses. Frank G. Hogan, 35 B.T.A. 26, distinguished. 2.

1. Petitioner, an attorney, was employed on a contingent fee basis in litigation, and performed legal services over a period beginning May 16, 1934, and ending May 22, 1939, on which latter date he… Held: fee taxable to petitioner pursuant to section 107, Internal Revenue Code, John Bell Keeble, Jr., 2 T. C. 1249. 2.

Interest paid in 1940 and 1941 by a husband to a divorced wife on promissory notes in default given in 1931 pursuant to an agreement for support which was confirmed in the Nevada divorce decree and… Held: deductible as interest paid on indebtedness.

A testamentary trust created by the will of petitioner's father, and of which he and an uncle were the beneficiaries, terminated by the death of the uncle in May 1939. Held: that capital gain on an asset in the trust realized subsequent to the uncle's death and prior to the adjudication was not income accumulated in trust for unascertained persons under the provisions of section 161 of the Internal Revenue Code, but was income taxable to petitioner as owner of the corpus.

Payment in 1940 of judgment, recovered by respondent on bond given by petitioner in 1923, in abatement proceedings, to secure payment of additional tax liability for 1917, after expiration of the limitation period, is a payment of Federal income tax and is not an allowable deduction.

Petitioners, a marital community in the State of Washington, owned all of the stock of a corporation, Carter, MacDonald & Co., engaged principally in the insurance brokerage business. Held: on the facts, that no good will was transferred to the petitioners upon the liquidation and no income was realized by them, by virtue of the transfer and sale.

Petitioners conducted a business of manufacturing and selling furniture as a corporation. They owned all of the stock. Held: that petitioners did not relinquish dominion and control over part of the assets of the business which they purported to transfer to their wives under gifts of stock in the corporation, the wives did not make any real contribution to the capital of the partnership, and the income thereof is taxable to petitioners, respectively.

Under the facts a marital partnership between husband and wife is not recognized for income tax purposes.

1. Petitioner created a separate trust for each of his five children, two of whom were minors, assigning to the trustee as the corpus of each trust (a) a one-fifth interest in a royalty contract with… Held: that the income of the trusts is taxable to petitioner under section 22 (a), Internal Revenue Code. Helvering v. Clifford, 309 U.S. 331. 2.

1. The value of admitted gifts by the taxpayer of interests in a business and its assets, determined as the basis for gift tax. 2. Held: that a legal, valid partnership was created and the net income of the partnership is taxable to the respective partners in proportion to their shares of the net income of the partnership and not all to petitioner under the doctrine of Helvering v. Clifford, 309 U.S. 331. 4.

A husband transferred to his wife an interest in a partnership business which was being operated by him and his father. Held: that the wife was a bona fide partner for income tax purposes in the new partnership; held, further, that the shares of the wife in the profits of the new partnership did not constitute taxable income of the husband.

Husband and wife who operated a business as equal partners and who both contributed capital and performed services, held, entitled to report the profits equally in their individual income tax returns… Held: entitled to report the profits equally in their individual income tax returns from February 14, 1939.

The Excess Profits Tax Act of 1940, as amended, provides for enumerated adjustments to the excess profits net income of the taxpayer for the base period years.

Decedent, during her lifetime, transferred property to an irrevocable trust established for the benefit of her son and his children. Held: following Lloyd v. Commissioner, 141 Fed. (2d) 758, that no amount is includible in decedent's gross estate as a transfer intended to take effect in possession or enjoyment at or after death under section 302 (c) of the Revenue Act of 1926, inasmuch as her death was not the intended event which enlarged the estate of the grantee.

Estate Tax -- Transfer to Take Effect in Possession or Enjoyment at or After Death -- Section 811(c), I. R. C. -- A transfer in trust made by the decedent in 1919 under which he reserved a… Held: not a transfer to take effect in possession or enjoyment at or after death within the meaning of section 811(c), I. R. C., following Frances Biddle Trust, 3 T. C. 832.

Procedure -- Renegotiation -- Rule 64. -- Petitions based upon a unilateral order should conform as nearly as possible to Rule 64, which was intended to be somewhat elastic as applied to such petitions.

Petitioner, under a system of accounting it followed, without question, consistently for many years, included in income reported for the taxable year collections in such year of bad debts charged in… Held: that, in such circumstances, these collections constituted gross income to petitioner and its treatment of them as such was proper and may not be disturbed.

1. Petitioner was a shareholder of three joint stock land banks which were organized pursuant to the Federal Farm Loan Act and were authorized to lend money on farm properties, to issue farm mortgage bonds, and to own farm properties, Government securities, and other assets incidental to their business.

1. A Texas decedent died testate in 1900. Held: the basis of petitioner Pierce Estates, Inc., for certain cattle which were sold or died during the taxable years was the same as it was in the hands of the transferors; held, further, the basis in the hands of the transferors was zero, because under the will it is held that although the decedent provided for an administration of his…

In consideration of love and affection and the assumption by his wife of equal and joint liability on his obligations petitioner, by an… Held: that the petitioner made a complete, irrevocable, and bona fide gift to his wife of a one-half interest in his business; held, further, that the wife became an equal owner, as a partner, in the business; held, further, that no portion of the amount of the wife's shares of profits in the business in the taxable years is taxable to…

The petitioner, by irrevocable trust, transferred property to three trustees, including himself, his mother to receive the income for her life and any corpus which a majority of the trustees, or the… Held: that in computation of gift tax, the value of the contingent estates may not be deducted from the agreed full value of trust corpus; held, further, that the petitioner relinquished such economic control of the trust res as to require gift tax upon full value thereof.

Petitioner was the donee of an undivided one-fourth interest in certain farm chattels which had been raised and produced on the donor's farm. Held: that for income tax purposes the chattels in the hands of the donor had no cost and, in determining gain or loss on the disposition of such chattels, their basis to the donor was zero; held, further, that under section 113 (a) (2) of the Internal Revenue Code the basis to the donees was zero.

Excess Profits Tax -- Relief Under Section 722 -- Jurisdiction. -- The Tax Court, in a proceeding based entirely upon a notice of deficiency under section 729 (a), has no jurisdiction to consider petitioner's claim for relief under section 722, since that jurisdiction can only be invoked, after the Commissioner has considered the claim and mailed a notice of disallowance, by a petition filed based upon that notice.

Petitioner, a Philippine Islands corporation engaged in refining sugar, purchased in the United States the cotton bags in which its… Held: that the reimbursement is not exempt from the unjust enrichment tax by reason of the exportation of the bags; that petitioner is liable for unjust enrichment tax based upon the full amount of the reimbursement, it having failed to prove the tax burden was not shifted to others; and that petitioner is subject to penalty for failure to…

1. Petitioner received the Ross Essay Prize of $ 3,000 in 1939. The prize represented income from a trust created under the terms of a will and administered by the American Bar Association. Held: that petitioner is liable for income tax on the $ 3,000 so received. 2. Held, that petitioner may not deduct the amount of North Carolina sales tax passed on to and paid by him in 1939.

Petitioner, a corporation on an accrual basis, accrued salaries to the credit of its two principal officers, who were also indirectly its… Held: that section 24 (c) of the Internal Revenue Code may not be interposed to disallow to petitioner the deduction of the accrued expenses for salaries, since the salaries were includible in the gross income of the officers in the taxable years under the doctrine of constructive receipt and the condition to disallowance set forth by…

Decedent took out three life insurance policies, naming his mother as beneficiary, and paid premiums thereon. Held: the amounts received by the mother pursuant to the terms of the policies were not received by her as insurance, under section 811 (g) of the Internal Revenue Code, and must be included in full in the decedent's gross estate.

The individual taxpayer in these proceedings was made the income beneficiary for life of a trust which her husband created in 1934. Held: following Belle Goldstine Frankel, 3 T. C. 231, the trust did not create a fixed annuity payable to the beneficiary in all events and the beneficiary is taxable on the net income of the trust; held, further, that the trust is entitled to a credit under section 162 (b) of the income of the trust which was distributable to the…

1. A New York stock corporation, the successor of an unincorporated association organized as a memorial and operating a radio as a free public forum for the dissemination of liberal and progressive social views, but organized as a business corporation with wide business purposes and actually operating a commercial business in a competitive field, the income of which was used in part to pay interest on loans, which loans were payable out of surplus, and the profits of which…

1. Taxpayer created two trusts, one for each of his two daughters and the husband of each, and transferred to each trust 13,000 shares of Montgomery Ward & Co. stock and 8,000 shares of United States… Held: four gifts of 6,500 shares of Montgomery Ward stock and 4,000 shares of Gypsum stock were made. Helvering v. Hutchings, 312 U.S. 393; United States v. Pelzer, 312 U.S. 399. 2. The values of such blocks of stock determined.

A husband and wife conveyed certain community property to the husband as trustee in trust for a named beneficiary. Held: The conveyances of the property in trust were not completed gifts as to the husband's one-half community interest therein and the distributions of trust income to the named beneficiary were to the extent of one-half thereof gifts by the grantor husband to be taken into account in determining his gift tax liability.

After the termination of a trust set up by the petitioner for his minor children, he retained the accumulated income during their minority as guardian for them as owners, as provided by the trust… Held: the income from such accumulations is not includible in petitioner's income.

An individual taxpayer, with home and headquarters in Iowa, who for fifty-two weeks of the year travels in the pursuit of his business, is entitled (sec. 23(a)(1)(A), Internal Revenue Code) to deduct the entire amount spent for meals, lodging, and laundry while so traveling; and such deduction is not forbidden as personal living expenses (sec. 24 (a)(1)).

1. Where the sole stockholder of a corporation contracts as an individual to sell property which he expects to receive as a distribution in liquidation of a corporation already in process of… Held: on the facts, the sale is by the stockholder as an individual and not as an agent of the corporation, and the gain thereon is not taxable to the corporation. 2.

By a testamentary trust, holding shares of stock, the income was, by one provision, to be distributed quarterly to the beneficiary for life, and the trustee was, by another provision, given power to… Held: the trustee had no power to classify the dividend as principal, and the amount is income distributable to the beneficiary and properly included within her gross income under Internal Revenue Code, section 161 (a) (3).

1. Income -- Forgiveness of Debt. -- The payment of a portion of an indebtedness, the extension of a portion thereof, and the cancellation of the balance, held, to constitute a gratuitous forgiveness… Held: to constitute a gratuitous forgiveness of the canceled portion, which did not result in the receipt of taxable income by the debtor. Helvering v. American Dental Co., 318 U.S. 322. 2.

1. In 1935 petitioner included in the price of its products the amount of processing taxes for which it was liable under the Agricultural Adjustment Act but which were not paid by it because of its… Held: petitioner is not entitled to deduct from its 1935 gross income amounts thus paid in 1937. Security Flour Mills Co. v. Commissioner, 321 U.S. 281. 2. In 1940 petitioner and respondent entered into an agreement under section 506.

Taxpayer purchased property in 1929, which it abandoned in the fiscal year ended October 31, 1940. Held: taxpayer sustained a deductible loss in the fiscal year ended October 31, 1940.

The decedent received specific shares of stock from the estate of her deceased husband, which stock was subject to a lien to secure certain indebtedness of the husband. The executors of his estate took a deduction on the estate tax return for such indebtedness. The indebtedness was paid and the lien canceled prior to the death of the decedent.

Loss sustained when, by reason of unpaid stock assessment for which petitioner had no personal liability, his stock was sold pursuant to state statute and bought in by issuing corporation, held subject to capital loss limitations of Revenue Act of 1936, section 117.

1. Dividends declared in December 1936 to stockholders of record as of dates during that month, but payable in 1937, are income to stockholder petitioner in the latter year, even though it is on an accrual basis. Tar Products Corporation v. Commissioner, 130 Fed. (2d) 866, followed. 2.

By his will the decedent gave his residuary estate to two trustees (who are also his executors), with directions that the income should be paid over to named beneficiaries, Said payments to continue semiannually from the time of my death. The testamentary trust was set up on January 17, 1942.

Expenditures incurred by magazine publisher for the dual purpose of maintaining and building up its circulation allocated between capital and expense according to the number of subscriptions required to replace those lost during the year and the number by which the circulation structure was increased.

Petitioner created a trust, giving the income therefrom to her son for life. Held: petitioner is entitled to a $ 5,000 exclusion in determining her gift tax liability, as the gift of income was a present and not a future interest.

During the years 1936 to 1940, inclusive, the petitioner paid claims for injuries to its employees and also medical and hospital expenses, all of which it deducted from gross income in its annual… Held: that such action was proper, since the payments fall within the provisions of section 711 (b) (1) (H), Internal Revenue Code.

A corporation which had reported its income on a calendar year basis was dissolved by merger on September 30, 1940. Held: that the corporation's taxable year was a period of less than 12 months and that the Commissioner did not err in placing its excess profits tax net income for such taxable year on an annual basis, under the provisions of section 711 (a) (3) of the Internal Revenue Code.

The petitioner filed an excess profits tax return for the calendar year 1940. Held: that the respondent did not err in treating the excess profits tax return filed as one covering only the period January 1 to June 30, 1940, but that he did err in reducing the excess profits credit by the application of section 713 (a) (1) (C).

Under the provisions of section 115 (c) of the Internal Revenue Code, liquidating distributions received by stockholders are distributions in complete liquidation, and gain resulting therefrom is taxable as long term capital gain, if they were made pursuant to a bona fide plan of liquidation under which the liquidation was to be completed within three years from the close of the taxable year. Actual completion of the liquidation within the 3-year period is not required.

Petitioner was a stockholder of X corporation. In 1938 the stockholders of X adopted in good faith a plan for X's complete liquidation, to be completed not later than December 31, 1941. Held: liquidation of X is a complete liquidation within the meaning of section 115 (c), Revenue Act of 1938, and petitioner's profit is a long term capital gain.

After the taxpayer had acquired a share in an interest in the future proceeds of a judgment to be obtained by another in a suit against the United States, and after the judgment had become final but before its payment, the taxpayer assigned percentages of his interest to his wife and each of his two minor sons. Held, the assignment is an anticipatory assignment of future income and the gain when received by the assignees is taxable to the taxpayer.

A corporation the stated purpose of which is to insure titles, but the income of which is less than half derived from title insurance, the operating income being more than half derived from the issuance of certificates of title according to the record, held not an insurance company within section 204, Internal Revenue Code.

The executors of decedent's estate paid to themselves, as the duly appointed testamentary trustees of a trust established by decedent, the income received by the estate during its administration. Held that the amount was properly paid to a legatee within the purview of section 162 (c), I. R. C., and should have been allowed as a deduction in computing the net income of the estate for the year in which it was received and paid over.

Petitioner failed to distribute approximately $ 70,000 of its current earnings, claiming that the amount was needed to finance a proposed expansion of its facilities, and at the same time had loans… Held: on the facts, the petitioner was availed of in the taxable year for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its earnings or profits to accumulate, instead of being divided or distributed.

1. The judgment of a Federal District Court in an action between petitioner and a collector of internal revenue for recovery of income tax paid by petitioner for 1937 involved the same question as is… Held: that the judgment of the Federal District Court does not preclude this Court from further considering that question as to 1938 and 1939. 2.

Decedent created three trusts, each of which named one of his adult children a life beneficiary and himself the trustee. Held: under the New York law, which governs the trusts, the powers granted the trustee do not constitute implied powers to revoke the trust or revest the corpus in the grantor and the trust income is not taxable to the grantor under section 166, Revenue Acts of 1936 and 1938; held, further, the control which the trustee could legally…

Income from a long term irrevocable trust of which petitioner was grantor and trustee, and over which the trustee had broad powers of management, held, not taxable to petitioner. Held: not taxable to petitioner. Sec. 134, Revenue Act of 1943.

In reporting the value of decedent's estate for estate tax purposes, petitioner included the net value of the property in an inter vivos revocable trust created by decedent. Held: The deductibility of claims against the trust estate does not require the presence of an adequate and full consideration in money or money's worth, as provided by section 812 (b) (3), I. R. C., since the requirements of that section apply only to claims against the estate.

A taxpayer used the reserve method of accounting for bad debts and consistently included in gross income and did not credit to the reserve… Held: under section 711 (a) (1) (E), Internal Revenue Code, recoveries in 1941 and 1942 of debts charged off and deducted in years prior to 1940 are excluded from excess profits tax net income for the year of recovery and the section is not inapplicable to taxpayers regularly using the reserve method of accounting for bad debts.

Petitioner is a corporation engaged among other things in the wholesale lumber business, with its principal sales made to building… Held: that the 25 percent of profits paid by petitioner to its president under the terms of this contract in 1939, 1940, and 1941, were not ordinary as that term has been construed by the Supreme Court in Deputy v. du Pont, 308 U.S. 488, and are not deductible as ordinary and necessary business expenses under section 23 (a), Internal…

Each petitioner created an irrevocable trust for the benefit of his spouse and children, naming himself as one of the trustees. During the lifetime of the grantor broad powers of management are vested in him as a trustee. No part of the corpus may be vested in the grantor and none of the income may be distributed to him or held for future distribution to him.

A decedent who died within five years of his prior decedent and received a bequest from the estate of such prior decedent, deposited the bequest in his bank account containing personal funds. Held: under the facts, that petitioners have sufficiently identified the securities and the balance in the account at decedent's death as derived from the bequest and are entitled to a deduction therefor under section 812 (c) of the Internal Revenue Code.

The petitioner, being equally liable with his wife for the payment of the personal income tax owed to the State of California upon an income tax return filed by her in that state for 1939, paid such… Held: that the amount is a legal deduction from the petitioner's gross income for 1940.

1. Petitioner acquired an oil and gas lease by assignment and contracted with the assignor, among other things, that After Grantee has met the underlying and overriding… Held: the amounts so paid to the grantor are capital expenditures and represent a part of the cost of the lease to petitioner and are not to be excluded from petitioner's income except through deductions for depletion or as a part of the cost basis in case of a sale or other disposition of the property.

Under plan of recapitalization, old preferred stock of petitioner, on which were dividends in arrears, was exchanged for new preference stock, common stock, and dividend scrip of petitioner, plus cash. Held, under the facts, that "dividend scrip" is not a taxable dividend, and that petitioner is entitled to a dividends paid credit only to the extent of the cash paid.

1. In 1940 the petitioner created a trust for the sole benefit of his wife, naming himself as trustee. Held: that he is not taxable upon the income of the trust for 1940 and 1941. 2.

Petitioner operated as a mutual insurance company under Texas statutes which permitted it to write all types of insurance policies except life insurance. A substantial part of its business was "health and accident insurance." It claimed exemption from payment of income taxes under section 101 (11) of the Revenue Acts of 1936 and 1938 and of the Internal Revenue Code. Held, that "casualty insurance" does not include "health and accident insurance" within the meaning of section 101 (11), supra, and that petitioner is not an "exempt" corporation. The construction given the section by applicable regulations is reasonable.

Held, partnership capital losses may be offset against individual capital gains under 1936 Revenue Act. E. G. Wadel, 44 B. T. A. 1042, distinguished. Held: partnership capital losses may be offset against individual capital gains under 1936 Revenue Act. E. G. Wadel, 44 B. T. A. 1042, distinguished.

1. In 1933, 1935, and 1941 petitioner made gifts in trust for the benefit of her granddaughter. Held: that the gifts in 1933 and 1935 were gifts or future interests; held, further, that the value of each of the gifts was the book value of the property transferred to the trusts at the time of such transfers. 2.

1. Petitioner, as a policyholder, received during the taxable years 1938 and 1939 certain refunds of premiums on policies of workmen's compensation insurance. Held: the refunds represented ordinary income and not dividends as that term is used in section 26 (b) of the Revenue Act of 1938 and of the Internal Revenue Code. 2.

A trust instrument provided that petitioner should be life beneficiary of net income and that, if he should request (as he did) the… Held: petitioner is taxable upon all trust income, except that from the certain realty, and not entitled to deduct as trust principal received amounts equaling the excess expense of maintaining the property requested sold; held, further, that a surrogate's decree charging the excess expense to trust income is collusive and not controlling;…

Petitioner gave to his son certain corporate stock in a closely held family corporation which was the subject of a restrictive agreement voluntarily entered into by the stockholders. Held: the value of the stock for gift tax purposes is not limited to the price fixed in such restrictive agreement.

Income from certain irrevocable trusts which petitioner created in 1931 for the benefit of his eight children, who were then minors, and… Held: further, that, assuming that certain provisions of the trusts conferring upon petitioner's wife the power to use so much of the income of the trusts for the support, education, and maintenance of the minor children as she saw proper would cause the net income of the trusts to be taxable to petitioner under Helvering v. Stuart, 317…

Under a New York statute establishing the rate of compensation for testamentary trustees based on the amount of principal received and paid out, and, where such duties existed, on the amount… Held: all such amounts were received by him as compensation for his services as trustee, and, since he did not receive at least 95 percent thereof in 1940, he is not entitled to the benefit of section 107 of the Internal Revenue Code in computing his income tax liability for that year.

In 1935 the X corporation, engaged in the business of making and guaranteeing mortgage loans and insuring titles, was unable to meet its obligations as… Held: these transactions constituted a reorganization under section 112 (g) (1) (B), Revenue Act of 1934, as amended, the gain or loss resulting therefrom is nontaxable under section 112 (b) (4) or section 112 (b) (3) of that act, and petitioner's basis as to the property so acquired is the same as that of its predecessor.