Volume 31 — Board of Tax Appeals

1. Petitioner held liable as transferee both at law and in equity for any deficiency in tax due from the Railway Co. where it received, in exchange for its stock and bonds, net assets of the Railway Co. of a value in excess of the amount of the deficiency herein involved and where it, as part of the consideration for the assets, agreed to assume and pay all obligations and liabilities of the Railway Co. Continental Baking Co.,27 B.T.A. 884, followed. 2.

An individual shareholder in C corporation exchanges his shares with another individual for shares in I corporation, which was organized as a holding company to retain control of C. I's only asset was C stock and by resolution any I shareholder could, at his election, turn in his I shares and receive C shares. Held, the gain is recognized under the Revenue Act of 1928.

An individual shareholder in I corporation, which was a holding company to control C corporation and owned only C shares, turned in his I shares to I corporation and received C shares. Held: the exchange was a liquidation distribution and resulted in recognizable gain to the individual.

Where a residuary estate is left to charity, but subject to taxes, other charges, and annuities such as are a charge upon the whole estate and not taxable to the beneficiaries, the fiduciary may not deduct from gross income, as amount paid to or permanently set aside for charitable uses, the amounts paid the annuitants.

Petitioner, owner of 4,967 shares of stock held by a broker to cover margin trading, orally directed a second broker, on December 23, 1929, to sell 2,000 of such shares, pay the money to the first broker, and pick up the stock for delivery; the second broker sold on the exchange 2,000 shares, but, being unable to locate petitioner to obtain signed authority to pay over the money and receive the stock, used 700 shares of its own and borrowed 1,300 shares in order to make delivery. Sometime in January 1930, petitioner signed the authorizations, the money was paid to the first broker and the stock delivered to the second broker. Held that, whether the transaction be treated as a short sale or as an ordinary sale, there was no completed transaction in 1929 and consequently no deductible loss occurred in that year.

Where in the State of Texas a husband attempts to dispose of all the community by will and the wife elects to take under the will, she becomes a beneficiary within the meaning of the Revenue Act of 1928, secs. 161 and 162, and the trustee is entitled to deduct from the income of the trust the income paid to her, as beneficiary, during the taxable year.

1. CLOSING AGREEMENTS - REVENUE ACT OF 1928, SECTION 606. - The execution of such agreements, December 5, 1930, closing the tax liabilities of members of an affiliation, continuing through 1926, 1927, and 1928, for 1927 upon a consolidated basis, neither constitutes the permission, under section 142(b), Revenue Act of 1928, necessary to change the basis of return of the affiliation for 1928, where the return for that year was filed June 15, 1929, nor bars respondent from…

Petitioner executed an instrument wherein he declared himself to be holding securities in trust to receive the income and pay it over to his wife. The so-called trust was to continue for one year; its objects were to reduce petitioner's income tax and provide for the personal expenses of his wife in lieu of an allowance he had theretofore given her.

1. Where the petitioner in the reorganization of a corporation exchanged 4,999 shares of stock in the old corporation, which had a March 1, 1913, value of $4,768,965.64, for 9,998 shares of no par… Held: the stock in the new corporation did not have a readily realizable market value at the time received by petitioner and no taxable gain resulted from the transaction. 2.

In computing the gain or loss to a trustee from the sale or disposition of property, the basis must be diminished by all deductions which have been allowable for depreciation in respect of the property since its acquisition by the trustee, irrespective of whether there was income to be offset by the deductions allowable, and irrespective of the persons (beneficiary or trustee) to whom a particular deduction was allowable.

1. Held, under the facts of this case petitioner filed a separate return and is entitled to have his income tax computed on that basis.… Held: under the facts of this case petitioner filed a separate return and is entitled to have his income tax computed on that basis. 2. Petitioner transferred all his interest in certain oil rights for cash and part of the proceeds from the sale of the oil as and when produced. Held, petitioner has a depletable interest in the oil in place.

When a corporation, keeping its books on the accrual basis, purchases a quantity of its first mortgage bonds at a price less than the issuing price, the excess of the issue price over the purchase price is taxable gain to the corporation for the year of purchase.

1. An account owing to petitioner for goods sold was not in fact worthless and was not ascertained to be worthless in whole or in part in 1929 and petitioner is not entitled to a bad debt deduction therefor. 2. Petitioner's reduction of income by charges to commissions and taxes was erroneous and the respondent properly disallowed the deductions. 3. Amounts paid in settlement of a royalty claim and bonuses to employees allowed as expense deductions. 4.

1. Income received by beneficiary, petitioner's divorced wife, under a trust established by petitioner during pendency of divorce proceedings and intended as a settlement between the parties of property rights arising from marriage, is not to be included in petitioner's income. 2. Payments received from testamentary trust are income in entirety and not in part recovery of capital represented by March 1, 1913, value of right to receive them.

1. The taxpayer agreed with a corporation to remain in the employ of one of its subsidiaries for three years, beginning January 1, for a compensation consisting of a stated cash salary and the right… Held: that the contract was essentially one of employment, providing for payment of compensation, rather than one for the purchase of stock, and the cash and valuable rights and benefits received thereunder constituted income. Albert Russel Erskine,26 B.T.A. 147. 2.

Held, under the facts in the record, there was one trust with five beneficiaries and not five separate trusts, and petitioner should return the entire net income for the five beneficiaries as a unit. Held: under the facts in the record, there was one trust with five beneficiaries and not five separate trusts, and petitioner should return the entire net income for the five beneficiaries as a unit.

The evidence does not establish that petitioner was an officer of the State of New York while serving as a special assistant attorney-general. Held: following Commissioner v. Murphy, 70 Fed.(2d) 790, and George Z. Medalie,30 B.T.A. 1283, that the compensation for such services is not exempt from Federal income tax.

1. Where stock is loaned in exchange for the promises of borrower (1) to pay the lender any dividends paid thereon during the loan, or the equivalent if the stock were sold, and (2) to return upon a… Held: such dividends are legally includable in lender's income for the year in which paid to borrower, although not actually received by lender who is on a cash basis. 2. Held, further, sale of such stock by borrower results in no taxable gain to lender.

1. DEDUCTIONS - DEPRECIATION. - Petitioner held not to be entitled to a reasonable allowance for depreciation upon furniture and fixtures used in the underwriting department of its business. Rockford Life Ins. Co. v. Commissioner,292 U.S. 382, followed. 2.

When a taxpayer sells a portion of his shares in a corporation, the delivery of the earlier acquired certificates is evidence of his intention to sell the earlier acquired shares.

Ordinary and necessary expenses incurred by executors in carrying on operation of ranch of estate, from date of decedent's death to end of calendar year, were claimed as deductions in computing net… Held: whether or not such amounts were properly allowed in computing estate tax, their deduction in computing income tax is determined solely by provisions of the income tax statute, and under the provisions of the income tax statute the items are deductible.

- Petitioner's decedent created a trust by his will, the income payable to his widow for life, with certain remainder interests to charitable… Held: that as of decedent's death, the estates bequeathed to charities, being subject to defeat through exercise of the power, had no determinable value, and, furthermore, there being no certainty, at that time, that the charities would receive anything, the bequests were not of the character contemplated by section 303(a)(3) of the…

Payments made by petitioner under an assignment, whereby it acquired an interest in claims located on what proved to be oil lands, are capital expenditures and not deductible as royalties.

A partnership, a dealer in securities, including securities the income from which is exempt from Federal income tax, purchased such securities directly in the open market from the state or… Held: the profit arising to the respective members of the partnership from such resales is taxable income to them.

Under a devise of the residue of an estate to trustees for the benefit of the petitioner, directing the trustees to appropriate the rents for his benefit during his minority and to convey the property to him upon attainment of his majority, and containing provisions for gifts over in the event he should die a minor, the petitioner received a vested estate in the property upon the death of the testatrix.

1. The question whether an organization to which a contribution is made is within the class described in section 23(n), Revenue Act of 1928, is to be decided upon the evidence in each particular case, and decisions involving other donees and other years are not helpful. 2.

- Petitioner subscribed for all the common stock of a newly organized corporation and offered to exchange stock of another corporation, not then organized, as part payment and the balance in cash,… Held: the evidence does not establish either a completed exchange of property for stock on August 2, 1928, or that on that date petitioner was in control of the corporation through the requisite ownership of stock.

1. STATUTE OF LIMITATIONS. - An affiliate of petitioner received a notice of deficiency for 1925 and filed a petition for redetermination. Held: that under section 501(a) of the Revenue Act of 1928 the period during which the statute was suspended by reason of the earlier proceeding may be added to the time when the statute of limitations would otherwise run in the case of the petitioner, and when so added the notice of deficiency to petitioner was timely. 2.

The value of real estate acquired by decedent and his wife as tenants by the entirety prior to 1916 is to be included in gross estate under the Revenue Act of 1926. Third National Bank & Trust Co. v. White, 45 Fed.(2d) 911; affd., 287 U.S. 577.

In the taxable year petitioner ordered the sale of certain securities and at the same time, acting as agent for his wife, ordered the purchase of the same quantities of the same issues for the… Held: the sales were bona fide and the losses sustained may be deducted from the aggregate gross income reported in a joint return filed by petitioner. Frank B. Gummey,26 B.T.A. 894, followed.

No income was realized by petitioner as the result of cancellation of mortgages at a time when he was insolvent and his equity in the properties had no market value.

- Where two individuals were partners engaged in an importing business and each by a written assignment made his wife a subpartner with him in his interest in the main partnership, but the written assignment showed that the wife did not become a member in the main partnership, each member of the main partnership is taxable on his full part of the earnings in the main partnership, whether distributed or not, and this is true regardless of the wife's right to have her husband…

- Decedent in his will created a trust for the benefit of certain beneficiaries who were to receive the income, interest and dividends from the trust corpus semiannually. Held: invested, and reinvested until January 1, 1930, when it was to be turned over to the remaindermen, who were the same persons as those entitled to receive the income.

BASIS OF COST OF STOCK RECEIVED IN NONTAXABLE EXCHANGE SPLITUP. - On September 3, 1929, petitioner was the holder of 54,054 shares of stock, $10 par value, in the Packard Motor Car Co. On that date he received in exchange for these shares 270,270 shares of stock, no par value, in the same company, representing a splitup of 5 for 1. In the taxable year 1930 the petitioner sold 25,000 shares of the 270,270 shares thus received. Held, the basis for computing the gain on the sale is the average cost of each of the 270,270 shares received in exchange, according to the rule laid down in Christian W. Von Gunten,28 B.T.A. 702, and Olive Hume Oliver,30 B.T.A. 1381.

As of January 1, 1926, the A company, a trust taxable as a corporation, caused the B company, a corporation, to be organized and immediately thereafter acquired all of the capital stock of the latter, which it has since continued to own. For 1926 and 1927 the two companies filed separate income tax returns.

1. DEDUCTION - LOSS. - Held, petitioner was not entitled to a loss deduction where he failed to establish that stock did not become worthless prior to 1928, as determined by respondent. 2. Held: petitioner was not entitled to a loss deduction where he failed to establish that stock did not become worthless prior to 1928, as determined by respondent. 2.

Where a corporation purchases property and assumes a preexisting indebtedness on the same, such assumption held not to be other property, as that term is used in section 203(d)(1) of the Revenue Act of 1926.

Petitioners' decedent transferred property in trust in 1923 to pay the income therefrom to him for life and upon his death to distribute part of the corpus to his two children and add the balance to… Held: that the children took vested interests under the trust deed and that upon the death of the grantor there was no transfer subject to estate tax under the Revenue Act of 1926.

In connection with the conduct of a lottery the Government of Newfoundland assessed against and collected from a certain veterans' organization in Canada an income tax on the proceeds of the lottery.

Property acquired and owned by the petitioner prior to July 29, 1927, and prior to his marriage is his separate property and all income subsequently derived therefrom is taxable to him in its entirety.

The petitioner expended certain amounts for labor, teaming, hauling, supplies, fuel, water, etc., in connection with the drilling of an oil well on land owned by another or others, in consideration… Held: that the petitioner was not entitled, under the provisions of article 243 of Regulations 74, to deduct such amounts as operating expenses in determining taxable net income.

Held, that the 50 percent limitation on the depletion allowance in the case of oil and gas wells as prescribed in section 114(b)(3) of the Revenue Act of 1928 is based… Held: that the 50 percent limitation on the depletion allowance in the case of oil and gas wells as prescribed in section 114(b)(3) of the Revenue Act of 1928 is based upon the net income from the property in respect of which the depletion is claimed and not upon the taxpayers' net income from all sources.

Income earned by the petitioner prior to his marriage, though not collected until thereafter, is nevertheless separate property under the community property laws of California and is therefore taxable to him in its entirety.

A taxpayer on the accrual basis subleased coal lands, reserving, in addition to royalties payable to the original lessor, a tonnage royalty of 5 cents per ton for each ton of coal mined, and, pursuant to the contract, received without restriction as to their disposition, use, or enjoyment lump sums as advance payments on such tonnage royalty. No coal was mined and no part of the advance payments was earned in the year in which the payments were received. Held, the advance payments constituted income of the taxpayer for the year in which they were actually received.

Where a taxpayer instructs his broker to sell certain shares of stock purchased at different times and at different prices, and the broker executes the sale, and, as the taxpayer's agent, delivers specific certificates in his hands for stock belonging to the taxpayer, the stock actually sold is the stock represented by the certificates delivered, and the profit should be computed on the shares actually sold rather than on those which the taxpayer intended to sell.

Payments made by a committee for an incompetent to the members thereof and their attorney for services rendered after the death of the incompetent, which were made out of the property in their hands before turning it over to the executor, are not deductible by the executor from gross income of the estate.

An amount voted and paid to a corporate employee by the board of directors for valuable and faithful service rendered by him to the company over a long period of years is not, under the circumstances of this case, a gift, but represents taxable compensation to him.

1. The fair market value of certain shares of stock and of fractional interests in certain parcels of real estate at the date of the decedent's death determined from the evidence. 2. Attorneys' fees which the executors and the beneficiaries of the estate have agreed to pay for legal services rendered the estate but have not actually paid are a proper deduction from the gross estate.

Held, that under the facts of this case, petitioner properly reported its income on the cash basis and the refusal of the Commissioner to consent to the change was unreasonable and arbitrary.

1. NONTAXABLE REORGANIZATION. - Where the stockholders of four Texas corporations agreed to dissolve the corporations and convey substantially their entire assets to another corporation in exchange for shares of stock in the transferee corporation the transaction constituted a nontaxable reorganization. 2.

Gifts made by the decedent to members of his family and others within two years of the date of his death were not made in contemplation of death.

Where, pursuant to corporate action, a corporation, all of the stock of which was owned by a man (the father) and members of his family, sold certain stock on the market, the order for sale being… Held: on the evidence, that the sale by the corporation was bona fide.

The petitioner organized a corporation exclusively for charitable, etc., purposes, to which he made all of the contributions received by it during the taxable year, with one minor exception. Held: the corporation was not operated during the taxable year exclusively for charitable purposes within the meaning of section 23(n)(2), Revenue Act of 1928.

Petitioner's husband, the owner of certain corporate notes aggregating $142,000, gave to petitioner $72,000 thereof in 1928, which she sold for $1 and obtained a deduction accordingly in her income tax for that year. In 1929, the taxable year, the husband, to obtain a like result, gave to petitioner the remaining $70,000 of the notes, which she likewise sold for $1. Held, the claim by petitioner for a deductible loss for 1929 on this account is cognizable only under the worthless debt provisions of the statute, and, as the notes were ascertained to be worthless in 1928, the respondent correctly disallowed the claim.

A husband and wife held several pieces of real estate at the time of the husband's death, either as joint tenants or as tenants by the entirety, in some of which the wife had acquired a joint legal interest from her husband and in some of which she had acquired a legal interest jointly with him at the same time that he had acquired his interest.

The petitioner, operating under a perpetual charter, made a lump sum payment for an exclusive license to use The Morris Plan, a copyrighted system for conducting a loan and investment business, in a certain territory, and other rights and benefits, including personal services rendered and to be rendered to it and expenses incurred in its organization.

Pursuant to an agreement between the petitioner and his wife dated October 29, 1918, the wife was to bring an action for divorce before the Tribunal of the Seine against the petitioner, based on… Held: that the petitioner is not liable to income tax upon the income of the trust fund which was paid over to his divorced wife.

The petitioner in 1930 decided to sell a certain number of shares of corporate stock which she had acquired in 1920. The sale was made through a brokerage firm by her attorney. Held: that the agin or loss upon the sale must be computed upon the basis of the cost of the shares represented by the certificates delivered to the purchaser.

1. Where in June 1927 petitioner's president purchased stock for a margin account in his own name, and in December petitioner sold an equal amount of stock, which sale was treated as a short… Held: petitioner is bound by what it did and not by what it claims to have intended to do, and the testimony in the record is not sufficient to overcome the prima facie correctness of the Commissioner's determination. 2. Where the petitioner transferred 100,000 shares of stock to Wm.

A corporation agreed to pay its president a salary measured by a percentage of its net sales for the taxable year, with the understanding that the amount would not be paid as long as the corporation… Held: while the time of payment was uncertain, the obligation to pay the salary (there having been net sales) was absolute and was not a contingent liability; hence, the amount was deductible as an ordinary and necessary business expense accrued in the taxable year.

Petitioners filed returns covering the period May 1 to July 30, 1927. They were on a fiscal year basis, beginning May 1 and ending April 30. Held: returns so filed were illegal, and the respondent's assessments were not authorized by the Revenue Act of 1926.

- Real estate was sold in 1930 under threat of condemnation, and a part of the proceeds was used to replace the improvements on other… Held: that the value of the land used for replacement purposes may not be treated as a replacement expenditure. Held, further, that all of the proceeds of the involuntary conversion which were not expended in replacement - the amount actually expended being in excess of the basis - are to be recognized as gain under the Revenue Act of 1928.

1. Use of community labor and funds in negotiating oil and gas leases on separate property of petitioner located in Texas does not impress bonuses and royalties when received with… Held: the seven-eighths interest so reacquired did not become community property even though acquired after marriage, as the right to acquire title to this interest upon breach of the conditions in lease had its inception prior to her marriage, and title When acquired related back to that time. 5.

1. Mergers and consolidations are statutory, and a taxpayer claiming that a merger or consolidation occurred under a Federal statute authorizing the consolidation of a state bank with a national bank, must show affirmatively that the action taken was that prescribed by the statute and resulted in a consolidation. 2.

1. MINERAL CLASSIFIED LANDS - TEXAS. - Where the State of Texas sold school lands to a purchaser for farming and grazing purposes and reserved to itself minerals thereunder, and by legislative enactment authorized the landowner as agent of the state to sell or lease the mineral rights, any bonuses received belonged one half to the state and one half to the landowner.

The decedent, after creating irrevocable trusts for the benefit of his children, assigned and delivered to the trustees certain policies of insurance on his life… Held: notwithstanding that he had, in the trust instruments, reserved the power to remove the trustees, the decedent had no power, after execution of the waiver, to change the beneficiaries of the policies, and hence had no interest in the policies which was taxable under section 302(a), (g), Revenue Act of 1926.

1. Held, on the facts, that common stock of the Mountain Cross Granite Co. did not become worthless in 1930. 2. Held: on the facts, that common stock of the Mountain Cross Granite Co. did not become worthless in 1930. 2. In 1930 the Mountain Cross Granite Co. was unable to continue operations without additional funds and a new corporation was organized to take over its property and business.

1. Accrued income from and interests in the corpus of numerous trusts, and an annuity payable to the decedent, a nonresident alien, held to be property having a situs within the United States for… Held: that the decedent, at the time of her death, had an interest in the payments to be made to her personal representatives after her death, and the commuted value of such interest was properly included in her gross estate. 3.

1. INCOME - Held, petitioner and his wife owned jointly, one-half interest each, certain investments and that petitioner is taxable only upon one half of the profits, dividends, and interest received from such investments. 2. DEDUCTION - Loss. - Held, taxpayer entitled to loss deduction on worthless stock only in year worthlessness actually occurred. Proof merely of ascertainment of the worthlessness in taxable year, held insufficient.

1. A recapitalization from 4,000 common shares to 500 common and 750 preferred is a statutory reorganization under Revenue Act of 1928, sec. 112(i)(1)(C). 2. A distribution made by a corporation in 1929 of an amount not in excess of surplus accumulated after February 28, 1913, is taxable to the shareholders as an ordinary dividend, sec. 115(a), notwithstanding it occurs at the same time as an exchange of shares as part of recapitalization.

1. Estoppel does not support a belated assessment merely because the taxpayer has omitted income from his earlier returns and the statute of limitations has barred the correct assessment. 2. Held: the taxpayer is not estopped to plead the bar of the statute.

The cost of major alterations of a business building necessitated by the raising of a contiguous street is not a deductible expense.

Payments made by petitioner to an employee of a company for which it was laying pipe lines under contract, for the purpose of securing relief from arbitrary and impeding demands of the company's inspectors and the prompt delivery of materials, held not an ordinary and necessary business expense.

A waiver was executed by one of the trustees in dissolution of a California corporation, who was also secretary and treasurer of the trustees in dissolution. Held: the waiver was valid to extend the time for assessment for the period agreed upon.

In determining the taxable income of the petitioner and its subsidiary companies for 1928, intercompany transactions may not be disregarded for the purpose of reallocating a consolidated net loss for 1926 and making such net loss available for deduction by the several affiliated companies in 1928.

In computing net losses of separate corporations filing a consolidated return under the provisions of the Revenue Act of 1926, intercompany transactions should not be eliminated either for the year in which the net losses were sustained or for the succeeding year or years for which the different members were entitled to carry forward net losses.

The amount of the liquidating losses deductible by the petitioner upon the liquidation and dissolution of two of its subsidiary companies in 1925 is the excess of such liquidating losses over the amount, if any, of operating losses of the two subsidiaries which were availed of by members of the affiliated group in reduction of their net incomes for prior years for which consolidated returns were filed.

1. The decedent created a trust the income from which was payable to himself for life unless his wife and son, who were two of the beneficiaries, predeceased him, in which event the corpus was to be… Held: following Elizabeth B. Wallace, Executrix,27 B.T.A. 902; affd., 71 Fed.(2d) 1002, that the remainder interests in the trust were vested and are not a part of the decedent's gross estate within the meaning of section 302(c) of the Revenue Act of 1926. 2.

1. The petitioner sold stock to its employees, some of whom elected to pay cash and in such cases certificates therefor were delivered; others were permitted to subscribe, making small cash payments… Held: that said distributions, under the facts and circumstances of this case, were in fact dividends and did not constitute deductible additional compensation for tax purposes. 2.

Where, in a prior proceeding before the Board, between the same parties, the deduction of asserted interest paid on bonds was disallowed after a hearing on the merits, based upon absence of proper… Held: that disallowance is res judicata in a later proceeding, under identical provisions of the applicable revenue acts, between the same parties grounded upon a disallowance of the dedeuction of interest for later years upon the same bonds.

1. DEPRECIATION on furniture and fixtures and automobiles used in the underwriting department of a life insurance company is not deductible, and where such articles are used… Held: the taxpayer life insurance company is not entitled to take, as a deduction from gross income for 1930, taxes paid in 1930 on the buildings, which accrued in 1929 while the company was the owner of the building and occupied space in it. Helvering v. Independent Life Insurance Co.,292 U.S. 371. 3.

A banking corporation, for the purpose of meeting the requirements of a local statute in regard to intercorporate holding of stocks, increased its capital stock and sold the additional shares to its stockholders at $150,000 above par; it thereupon declared and paid a dividend of $200,000 to a committee of the stockholders who used the amount to purchase stock of another corporation. The several steps were in accordance with a prearranged plan.

Petitioners' decedent and the other stockholders of a corporation in 1921 irrevocably transferred cash, properties, and their stock to trustees under agreement empowering trustees to sell the stock… Held: that the trust was not terminated in 1926, and loss, if any, sustained by petitioners cannot be definitely ascertained until the complete liquidation of the trust.

Where petitioner, reporting income on the installment sales basis, has an agreement to pay to its general manager one half the net profits from sales of its real estate development, and in the… Held: petitioner may reasonably determine and accrue the amount of compensation payable to its general manager which was properly attributable to the income reported during the period, and that such amount is deductible from income for the taxable year.

Petitioner owned preferred and common stock of a corporation. Held: that the two classes of stock must be treated separately and that the recognizable gain on the common stock is limited to the amount of cash received therefor.

1. Where a corporation in liquidation distributes part of its assets pro rata in cancellation of a fixed percentage of its total outstanding stock, a stockholder claiming error in taxing the gain to him under the first in, first out rule, art. 58, Regulations 74, has the burden of producing evidence showing the identity of the shares canceled. 2.

Held, the present agreement constituted an assignment of one half the beneficial interest of petitioner in certain patents and future improvements thereon and the consideration received therefor, in… Held: the present agreement constituted an assignment of one half the beneficial interest of petitioner in certain patents and future improvements thereon and the consideration received therefor, in excess, only, of the basis of the assets assigned, constituted taxable gain.

Husband and wife filed separate income tax returns for 1929, that of the husband showing a net loss from his trade or business for that year. The husband sustained a net loss for the year 1930 also. Held: that the net loss of the husband for 1929 may not be deducted in computing the taxable income of the husband and wife for 1930.

The compensation of this petitioner as an expert real estate appraiser for the city of New York is not exempt from taxation.

- Where land is sold on the installment plan under contracts which provided in substance that, if the buyer breached the contract, it… Held: some affirmative action is necessary on the part of the seller to cancel the contract and declare the forfeiture; (b) the seller may by conduct, or expressly, extend time after he has the option to cancel and forfeit; (c) until such time as the seller elects to forfeit the contract, the payments and improvements subject to forfeiture…

1. Amount of unpaid pledge denied as deduction from decedent's gross estate as claim against the estate, because not incurred upon consideration for money or money's worth, where pledge appeared to be in nature of gift without reference to pledges by others. 2.

In refinancing operations the petitioner delivered its first mortgage bonds of the face value of $1,000,000, together with its common stock of the par value of $250,000, to a brokerage concern and… Held: that the commission paid the brokerage concern and the discount at which the first mortgage bonds were sold is amortizable over the life of those bonds and the discount on the issuance of the second mortgage bonds is amortizable over the life of those bonds.

During 1926 petitioner entered into a contract with certain individuals, one of whom was its principal stockholder, that if they would advance money to finance the purchase of certain property it… Held: that the amount of profits distributed to the individuals is not a legal deduction from gross income.

Where a corporation unable to advance funds to carry on litigation in defense of its title to a lease, constituting its sole asset, agrees with a stockholder that if he will advance the funds necessary for such purpose it will turn over to him 60 percent of any of the net proceeds derived either from said litigation by settlement or for the sale of said lease, the amount paid by the corporation to the stockholder representing 60 percent of the amount realized from the…

Reasonable allowances for depreciation and obsolescence of refrigerator cars determined.

Where a testator bequeathed and devised the residue of his estate in New York to his executor in trust for his wife for life, for his daughters for life upon her death or upon his death, should his… Held: the daughters took vested interests in remainder upon the death of the testator; held, further, the basis for computing gain or loss upon a sale of the property after the death of widow is the fair market value of the property at the death of the testator.

Decedent's original will contained no charitable bequests. Held: the local law, making the compromise agreement a part of the will as from the date of the testators death, is not controlling in the application of the Federal statute under which the Federal estate tax liability must be determined.

1. Sales of securities, made under restrictive conditions to limited class of purchasers, and where there is no public offering of the securities, do not establish the fair market value thereof. 2.

The petitioner was bequeathed the cash sum of $500,000 in the will of his father, which was credited to him on the books of the estate on May 15, 1930, the date of the decedent's death. Held: the actual cost of such securities and not the fair market values thereof at the date of purchase should be used in the computation of gain or loss upon the subsequent sale thereof by the petitioner.

The name of the petitioner, an Illinois corporation, until 1927 was Addressograph Company. In 1927 a corporation of the same name was organized under the laws of Delaware. Held: that the petitioner is estopped to deny the validity of the waivers.

1. Under the provisions of the Revenue Acts of 1926 and 1928, domestic life insurance companies and domestic insurance companies other than life or mutual, the stock of which is held in such a way as to meet the statutory requirements as to stock ownership, may file a consolidated return for the years 1927 to 1930, inclusive. 2.

This Board has no jurisdiction of a proceeding brought by a life tenant in her individual capacity, for the redetermination of a deficiency based on a notice sent to her as trustee for remaindermen.

Where decedent, having a general power of appointment under a will probated in Illinois, disposed of his estate by a residuary clause without any mention of the power or any specific bequest of the… Held: there was no exercise of the power and the trust estate may not be included in the gross estate of the decedent.

Where property is purchased subject to a mortgage (not assumed by the purchaser) and the mortgage subsequently satisfied by the purchaser for less than its face amount, upon the sale of the property the basis for determining loss or gain will be the amount paid to satisfy the mortgage plus the amount of the balance of the consideration paid for the property.

Executors of a deceased partner brought action in court against the surviving partner for an accounting. Held: the amount paid is not deductible either as a business expense or a loss in trade or business not compensated for.

Where the income tax due from the beneficiary of a trust is paid by the trustee out of income and only the remainder of the income is paid over to the beneficiary, the beneficiary is required to include in gross income the amount of income tax thus paid for her by the trust.

Petitioner purchased Russian Government bonds during 1916-1918 which were repudiated by the Soviet Government, but were continuously quoted on the market at a low price and were sold through a broker… Held: petitioner suffered a deductible loss on the sale of the bonds.

The sale, on December 30, 1930, of shares by a broker, acting on instructions of an individual, for less than cost, the delivery of the certificates being inadvertently withheld by the individual from the broket until after his return, on January 5, 1931, from a holiday, held to justify deduction of loss in 1930.

The petitioner purchased certain shares of capital stock in 1928 which he posted with his banker as collateral for a loan. Held: the petitioner not having parted with absolute ownership of such shares prior to the delivery thereof in 1929, and there being no closed and completed transaction or other identifiable event evidencing a loss in 1928, the respondent's determination that a loss did not occur in that year is approved.

Where creditors of an insolvent corporation assigned their claims to a creditors' committee, which organized a new corporation to which the insolvent corporation transferred certain assets, and the… Held: no gain or loss is to be recognized on the transaction, under section 112(b)(5) of the Revenue Act of 1928.

1. TAXABLE TRANSACTION - ESCROW. - Where the petitioner in 1926 sold his stock in a corporation for $50,000 cash and $50,000 in notes payable over a period of 100 weeks, and the certificates of stock were placed in escrow until all the notes were paid, the transaction was completed and is taxable in 1926. Seletha O. Thompson,9 B.T.A. 1342, and John W. Sherwood,8 B.T.A. 103, followed. 2.

1. From January 1 to March 18, 1929, inclusive, the petitioner, as sole proprietor, conducted a stock brokerage business under the name of Vaughan & Co. On March 19, 1929, the petitioner entered into… Held: that the petitioner is entitled to deduct from his gross income of 1929 the total loss of the business from March 19 to December 31, 1929. 2.

Under contracts for sale of oil, drawn and executed in this country, a foreign corporation, having certain officers and maintaining offices… Held: the sales were made when and where property to the oil passed from seller to buyer; that occurred, under f.o.b. and c.i.f. contracts, at the foreign port. Consequently, the sales were made without the United States, and income arising therefrom is not taxable under the provisions of section 255(b), Revenue Acts of 1918 and 1921.

Sums received by author, the owner of copyrights, under contracts granting privilege, exclusive within specified territory, of publishing and selling his books, held, not compensation for personal… Held: not compensation for personal services rendered.

1. The petitioner entered into a contract with a revenue agent of the State of Kentucky, for a definite period, to investigate back taxes and prosecute suits on behalf of the state for their… Held: the petitioner was an independent contractor and not an employee of the state, and the compensation for such services was subject to the Federal income tax. 2.

Where property is transferred in trust for the benefit of a minor child of the grantor until such child attains the age of 21 years, or until her death if she dies a minor, and the income during the life of the trust is payable to the grantor's wife, to be expended by her for the support, maintenance, and education of the minor, the income of the trust is not taxable as part of the income of the grantor under the Revenue Act of 1928.

Where in the State of Texas an independent executrix of an estate who was also sole legatee received dividends from stock standing in her name as executrix of the estate and administration upon the… Held: the dividends so received were taxable to her as executrix and not personally as owner or beneficiary of the estate.

1. A waiver, purporting to extend the period of tax assessment and collection against a dissolved Louisiana corporation and bearing the signature of its former president, a shareholder, held ineffective to extend such period because of the signer's lack of authority to speak for the former corporation. 2. Doubts as to a waiver's effectiveness must be resolved against the Commissioner.

1. An award of damage to a landowner engaged in selling trapping land upon which wild animal life has been ruined by inundation due to an artificial crevasse cut by the state under the police power is not exempt from tax as a gift or constitutionally immune because received from a state. 2. Salary deductions disallowed in part by the Commissioner held not established by the evidence to be reasonable.

1. An alternative issue raised before trial, which is not decided by the Board but expressly reserved because the primary issue upon which the alternative depends is decided favorably to the pleader, is within the Board's power to decide after the decision on the primary issue has been reversed by the Circuit Court of Appeals and the case remanded for further proceedings consistent with the court's opinion. 2.

Trusts were created by the petitioner for the benefit of his wife and three minor children, which were made revocable, with the approval of the grantor, by a majority of a committee of three persons… Held: that the income of the trusts is taxable to the grantor.

The petitioner is a member of a stock brokerage firm engaged in the business of buying and selling securities. Independently of such business he bought and sold securities on his own account. Held: that such securities were not held primarily for sale in the course of his trade or business, within the meaning of section 101 of the Revenue Act of 1928, and that the gain from the sale constituted capital net gain.

Petitioner's wife on December 16, 1931, sold, at a loss of $7,828, a certain number of shares of stock which she had purchased in 1927, and on the same day the petitioner purchased a like number of… Held: that the claimed loss of $7,828 upon the sale of the stock by the wife is a legal deduction from the gross income reported on the joint return.

Where a corporation issued to petitioner certificates of ownership purporting to evidence a sale of the corporation's title and interest, to a specified extent, in municipal bonds, the interest on… Held: that petitioner became the beneficial owner of such bonds, and the interest it received, through the trustee, was in payment of interest on those bonds and therefore exempt from Federal income tax.

Petitioner was employed by the state public service commissions of New Hampshire and Pennsylvania and by various municipalities in New York, Illinois, and Kentucky as an expert on public utilities to… Held: under the facts of this case, petitioner is not entitled to exemption from Federal income tax on account of the compensation received by him for services rendered to the several states and cities. Metcalf & Eddy v. Mitchell,269 U.S. 514, followed.

Where, in 1928 and 1929, petitioners sold and assigned oil and gas leases for a cash consideration and an amount to be paid in oil if, as,… Held: The amount received as cash consideration is not subject to depletion under section 114(b)(3) of the Revenue Act of 1928. (2) The vendor retained an interest in the oil in place to the extent of the amount to be paid from oil and the income from the sale of the oil produced is subject to depletion, under section 114(b)(3), supra.

The petitioner borrowed funds from a bank with which to purchase certain corporate stock and gave his personal note therefor, at the same… Held: the legal presumption in California being that the petitioner acted for and in behalf of the community and said presumption not having been overcome by extrinsic evidence that the loan was made upon the faith and credit of his separate property, that presumption is absolute and conclusive and, therefore, the profit derived from the…

1. Petitioner created a trust for the support, maintenance, and education of the adopted children of herself and her husband, who was one of the trustees of the trust. Held: the husband is not a beneficiary of the trust because he is a trustee or because incidentally the trust income relieves him of his duty personally to support the children. 2.

The firm of which petitioners were members is a specialist in a group of stocks traded in on the New York Stock Exchange. Held that the firm's transactions in such stocks were not such as to make it a dealer within the meaning of article 105, Regulations 74, and it is not entitled to inventory them in determining income.

1. Decedent made loans or advances for several years prior to 1927 to a corporation in which he owned a controlling interest, and in that year was… Held: the unabsorbed loss is not a net loss that may be carried forward to the succeeding year as it was not sustained in a trade or business regularly carried on by decedent. 2. The partnership of George D. Parker Co. was composed of five persons, decedent having a one-fourth interest only, as determined in 30 B.T.A. 1231.

Held, that petitioner made a valid and bona fide gift to his wife in 1919 of certain corporate stock sold in 1920, and that the evidence is insufficient to establish that the transfer was a mere… Held: that petitioner made a valid and bona fide gift to his wife in 1919 of certain corporate stock sold in 1920, and that the evidence is insufficient to establish that the transfer was a mere subterfuge whereby petitioner sought to evade tax.

1. Under section 103(11) of the Revenue Act of 1928, the exemption from taxation of farmers' or other mutual * * * casualty * * * insurance companies, is not limited to farmers or similar organizations operating in a particular locality, but applies to all mutual casualty insurance companies whose income is used or held for the purpose of paying losses or expenses. 2. Whether a certain security is preferred stock or a debt depends upon the facts in each case. 3.

1. The acquisition by one corporation of all of the assets of another does not constitute a statutory reorganization, unless the acquisition is a true merger or consolidation or partakes of the nature of a merger or consolidation. 2.

The Comptroller of the Currency certified that the petitioner and another national bank had been consolidated in 1924 under the charter and title… Held: that the petitioner, which thereafter continued the business, was an entity separate from such other national bank and that a net loss of such other bank for the year 1924 may not be considered in computing the net income of the petitioner for the year 1926 under the provisions of section 206(b) of the Revenue Act of 1926.

Where books of taxpayer engaged in the making of interestbearing real estate mortgage loans are kept on an accrual basis, commissions or discounts deducted from the principal are income in the year the loans are made.

Petitioner in 1927 was a stockholder of the Kimberly-Clark Co., which was the owner of nearly all the stock of the Kotex Co., with which it was otherwise closely associated. To separate the two corporations and to reorganize the Kotex Co. a deposit committee was formed to receive part or all of the Kotex Co. stock and procure the organization of a new corporation which would exchange its stock for the Kotex Co. stock.

A life insurance company, after the Board had held to be unconstitutional the provision of the revenue acts relating to the inclusion in… Held: that the company should not be denied the right to such deductions merely because, in its return, it failed to include the rental value in gross income, but that it is entitled to a net deduction computed by including the rental value in gross income and allowing the full amount of the deductions for taxes expenses, and depreciation.

During the taxable year petitioner and his wife were members of a partnership, and respondent erred in taxing to the petitioner his wife's distributable share of the partnership earnings.

RES JUDICATA. - The instant proceedings involve income taxes for the year 1919. Held: the question presented for determination was conclusively established in the prior proceeding and is no longer open to determination between respondent and this petitioner. Tait v. Western Maryland Railway Co.,289 U.S. 620.

Petitioner acquired all the assets of a corporation by liquidation after having purchased the stock with cash, bonds, and its own preferred and common stocks. Held: the petitioner's basis for determining gain or loss on the sale of said assets is cost.

Where the grantor of a trust had no power to revest in himself title to any part of the corpus of the trust at any time prior to January 3, 1931, on which date the trust terminated, it is held that the income of the trust for 1930 is not taxable to the grantor. Lewis v. White, 56 Fed.(2d) 390, and Langley v. Commissioner, 61 Fed.(2d) 796, followed.

Decedent died in 1931 owning real estate upon which taxes for 1930 had accrued prior to his death, although they were payable later in 1931 without penalty for delinquency. Held: the amount accrued but unpaid at the time of death constituted a claim against the corpus of the estate and upon payment by the administrators no deduction is allowable from income of the estate.

1. In 1925 one of the petitioners leased to the other its railroad properties and equipment for 999 years. Held: the lessee is not entitled to deductions for depreciation on the leased properties in the taxable years 1928-1930, for the reason that it had no capital invested therein and sustained no present loss on account of depreciation, the cost of maintenance representing rental paid and currently deducted as expense.

Where there was no liquidation in fact nor evidence of an intention to liquidate a corporation whose charter was canceled by reason of failure to pay its annual state franchise tax, but which was later reinstated by payment thereof, and where it appears to have continued to operate in the same corporate form and manner as it had theretofore, the respondent erred in taxing the net worth of the business to these petitioners on the theory that dissolution and liquidation took…

1. EXEMPTION FROM TAX - COOPERATIVE ASSOCIATIONS. - Petitioner, a California corporation engaged in furnishing scavenger service, whose income consists of collections made from individuals and business houses for such service, together with proceeds of sales of junk collected in its operation, held not entitled to exemption from income tax as a cooperative association under sections 231(12) of the Revenue Act of 1926 and 103(12) of the Revenue Act of 1928. 2.

1. Corporations having net losses in 1927 and 1928 and income in 1929 and 1930, may apply the 1927 net loss to 1929 income before resorting to the 1928 net loss for that purpose; where the 1927 net loss is sufficient to entirely offset the 1929 income, the full amount of the 1928 loss may be carried over to 1930. 2. Dividends received by a corporation from its affiliates may not be deducted from gross income for the purpose of computing net loss.

ESTATE TAX. - Decedent created a trust to continue during the lives of himself and his wife. Held: the value of the corpus is to be included in gross estate under section 302(d) of the Revenue Act of 1926.

Decedent and his sons agreed, in writing, to incorporate their partnership and agreed that decedent should hold 666 shares of common and the sons 333 shares of second preferred until decedent's… Held: that decedent's interest in the 666 shares of common under the contract amounted to the value of the 333 shares of second preferred stock, plus two thirds of the corporation's undivided profits and surplus account.

In 1930 the petitioner, a foreign corporation, received from the United States Government the sum of $88,889.75 as interest on refunds of Federal taxes overpaid for prior years. Held: the respondent did not err in including this amount in the petitioner's taxable income for 1930. Helvering v. Stockholms Enskilda Bank,293 U.S. 84, followed.

Income received by beneficiary, petitioner's divorced wife, under a trust established by petitioner during pendency of divorce proceedings and intended as a settlement between the parties of property rights arising from marriage, is not to be included in petitioner's income.

1. Where each of the present petitioners created trusts for the benefit of designated members of his family in certain corporate stocks standing in his name but held in escrow under option agreement, held that thereafter the dividend payments on such stocks and the proceeds from the sale of a block of such stock in the case of one petitioner, although made to and received in each case by these petitioners, represented income to the beneficiaries of the several trusts. 2.

Dividends declared and paid upon preferred stock may not be deducted as interest in the computation of taxable net income.

1. The basis for determination of gain or loss upon stocks acquired as part of residuary estate is fair market value of such stocks when distributed to legatee (sec. 113(a)(5), Revenue Act of 1928). 2.

Where lessee agreed that upon termination of its lease it would return the property in the condition in which it received it and in settlement of this obligation paid a fixed sum in cash, such restoration not having been completely made and the testimony failing to show what sum would be requisite for that purpose, the Commissioner's determination that the unexpended portion of such sum was income is approved.

The term 'taxable year, as used in section 206(b) of the Revenue Act of 1926 and section 117(b) and (e) of the Revenue Act of 1928, over which net losses may be carried forward, means a year of 12 months notwithstanding the fact that because of a change in the affiliated status of the corporation a separate return may have been required and filed for a part of a year. Helvering v. Morgans, Inc.,293 U.S. 121.

1. The sale of securities in 1930 for an amount less than the basis for gain or loss did not result in a deductible loss to the extent that petitioner was indemnified against loss under a contract, where one of the makers was financially responsible and petitioner brought suit in 1930 on the contract and subsequently obtained judgment. 2.

1. From the date of his appointment on July 8, 1924, petitioner performed the duties of counsel for the New Jersey Interstate Bridge & Tunnel Commission and for its successor, the New Jersey Holland Tunnel Commission, by which name the commission was known after July 1, 1929. On May 8, 1930, this commission merged with the Port of New York Authority and petitioner continued to serve as counsel for the last named body until July 1, 1930.

1. Basis for computing taxable gain on shares acquired by general lagacy held to be the fair market value of the shares at the time of distribution to the taxpayer (sec. 113(a)(5), Revenue Act of… Held: insufficient without more to establish capricious delay.

- Where petitioner endorsed in blank a certificate of beneficial interest in an oil lease and delivered same to the trustee with instructions to transfer title to a one-half interest therein to his… Held: petitioner made a valid gift to the donees of his beneficial interest in the lease and not of the proceeds from the subsequent sale of the lease.

Held, that oil and gas royalties received in the taxable year by petitioner, a married woman residing in Texas, from lands situated in Oklahoma, in the mineral rights of which she owned a… Held: that oil and gas royalties received in the taxable year by petitioner, a married woman residing in Texas, from lands situated in Oklahoma, in the mineral rights of which she owned a beneficial interest as a member of the Osage Tribe of Indians, constituted her separate income.

1. Treasury regulations (art. 51 of Regulations 74) can not create income where none in fact exists, when measured by the statutory definition of gross income, following Taplin v. Held: that upon the purchase of the stock the difference between cost and market value represented additional compensation.

1. Under the terms of its articles of incorporation and the laws of Colorado the term of existence of the petitioner was 20 years. Held: that petitioner may not deduct ratably over the life of the corporation, commissions paid on the sale of its preferred stock. 2. Held, that petitioner is not entitled to use a discovery value in computing the deduction for depletion of its coal properties.

In 1918 the decedent took out a life insurance policy, naming a corporation, E. W. Edwards & Son, of which he was president, the beneficiary. Held: that the proceeds of the policy paid to the beneficiary are includable in the gross estate of the decedent.

The first in, first out rule is properly applicable to the sale by a taxpayer of shares, despite his intention to sell those last acquired, where by reason of his recent acquisition of a stock dividend and his retention of the certificate of the most recently purchased shares, the shares sold can not be identified.

1. Since deductions may not be allowed to a life insurance company for depreciation, taxes, and expenses incurred in connection with a building owned by it, unless there is also included in gross… Held: at the beginning and end of the year, any amount to cover its liability thereon. 5.

1. An insurance company took over business of its predecessor under contract providing any earnings upon certain nonparticipating policies written by predecessor should be distributed annually, for a period of 22 years, pro rata to predecessor's former stockholders, of which petitioners' decedent was one. Held, contract granted to petitioner's decedent a right to receive income, and payments received thereunder were distributions of income, not capital. Distributions received by petitioners as his heirs must be included in their incomes when in excess of the fair market value as of date of his death of decedent's right to receive income. 2. Basis for depreciation of real estate transmitted at death is fair market value of property at time of decedent's death. In absence of evidence proving it erroneous, valuation placed on property for purpose of tax on decedent's estate is taken as value at time of his death.

Where the owner of stock, desiring to make a gift to his children, decided to sell the stock and give them the proceeds, but in order to avoid increasing his tax liability, placed the stock in… Held: the gift to his children was not of stock, but of the proceeds from the sale of the stock, and the donor is taxable on the net profit derived from its sale.

1. Held that payments made by the petitioners to their sisters pursuant to an annuity contract made subsequent to their father's death did not constitute distributions, through the petitioners, of… Held: further, that the payments were capital expenditures and are not deductible from gross income of the petitioners in the years paid. Held, further, that no portion of each payment constituted interest which is deductible under section 214(a)(2), Acts of 1924 and 1926. 2.

1. A manufacturer of automobiles shipped cars to certain distributors on open occounts, charged the merchandise on its books to the accounts of the distributors, and eliminated the value of the goods from its own closing inventory at the end of its accounting period. The books of the manufacturer were kept on an accrual basis. The Commissioner treated the transactions as sales and included the profits in income for the year in which the merchandise was shipped.

The cancellation and redemption of the stock of a corporation for cash on a pro rata basis, because the future operations of the company did not appear to the directors to require the cash as working capital, was not at such time and in such manner as to make the distribution and cancellation or redemption in whole or in part essentially equivalent to the distribution of a taxable dividend within the meaning of section 115(g) of the Revenue Act of 1928.

A taxpayer on the cash receipts and disbursement basis deposited with a brokerage firm the estimated amount of his 1929 real property taxes with instructions to pay his taxes as soon as the bills can… Held: that taxpayer is not entitled to a deduction on his 1930 return for taxes so paid in 1931.

Under section 2 of Rule 32 of the United States Circuit Court of Appeals for the Seventh Circuit, a statement of evidence is not properly includable in the record to be transmitted to the clerk of that court, when no error is assigned in the admission or rejection of evidence or on the ground that a finding of the Board is unsupported by any evidence.

The taxpayer, an heir of a decedent, received cash from residuary legatees of the decedent under an agreement whereby the heirs agreed not to further contest the will and to allow it to stand. The amount was income, was not acquired by gift, devise, bequest, or inheritance, and was constitutionally taxed as income.

The petitioner, for valuable considerations, assigned all of its right, title, and interest in a certain claim then pending before the Mixed Claims Commission, reserving the right to receive a… Held: that, of the amount subsequently recovered by the assignee from his property rights in the claim, only the amount paid by the assignee to the assignor constitutes taxable income of the petitioner.

1. Decedent and her son were sole executors and sole legatees of the estate of decedent's husband. Held: upon the death of decedent no part of the substituted note is deductible from her estate. 2. Another note secured by real estate of the husband was likewise liquidated by the personal note of the executors secured by two parcels of real estate, one owned by the son and the other owned by decedent.

Petitioner's decedent owned stock in a corporation which exchanged its assets for all the preferred stock in another corporation and a certain amount of common stock in a third corporation, these two… Held: The transaction was an exchange of stock for stock on which no gain or loss is realized under the Revenue Act of 1928.

During the fiscal year ended June 30, 1931, the petitioner received a refund of customs duties which it had paid and deducted from gross income in income tax returns for prior years. Held: that the amount recovered constituted a part of the petitioner's gross income for the fiscal year ended June 30, 1931.

The partnership of which the petitioners and other individuals were members was engaged as counsel by the Board of Housing of the State of New York. Held: that the partnership was an independent contractor, and that no part of the compensation it received for services rendered the Board of Housing is exempt from income tax.

1. INCOME - JOINT TENANCY IN TRUST CORPUS. - Where separate properties of husband and wife were conveyed in trust for purposes of furnishing security in certain business deals of husband, who was named as beneficiary under each trust, and later all such properties were reconveyed under one trust designating husband and wife as beneficiaries under a joint tenancy with right of survivorship, it is held that each was entitled to one half of the income of the trust, and,…

By an agreement dated November 1, 1927, the Reid Ice Cream Corporation sold its assets to the Borden Co. for 89,000 shares of Borden's… Held: that said shares of stock were received not in exchange for their shares in the Reid Co., but as consideration for their undertakings in their several agreements with Borden, and that the fair market value thereof should be included in their gross income. Held, further, that said gains were ordinary income and not capital net gains.

1. The depletion which the applicable statutes allow (Murphy Oil Co. v. Burnet,287 U.S. 299) to an individual for the year 1923 is to be computed under the provisions of section 214(a)(10) of the 1921 Revenue Act and the applicable regulations as interpreted by T.D. 3938, all specifically approved in the cited case. 2.

An affiliated group of corporations filed consolidated income tax returns for the fiscal years ended November 30, 1928 and 1929. Held: that the 12-month period ended November 30, 1927, constitutes only one taxable year. Helvering v. Morgans, Inc.,293 U.S. 121.

Where a proceeding is reviewed by the Circuit Court of Appeals on the merits, the Board's decision is reversed, and the case remanded with directions to redetermine petitioner's tax liability upon a specific basis set out both in the court's opinion and in the mandate, the Board is without authority thereafter to permit petitioner to amend its pleadings so as to raise new issues, or to give any other or further relief.

1. In 1921 petitioners Tuthill and Thrall agreed to pay their mother an annuity of $16,000 per year in consideration of the transfer to them of stock… Held: that the difference between the amount paid to the annuitant prior to her death and the fair market value of the stock at the time of transfer constitutes a gift, and that the basis for computing gain realized in the subsequent sale of the stock by the donees is the same as it would be in the hands of the donor. 2.

1. Property, held in a trust of which the petitioner was a life beneficiary, was condemned and taken by the city of New York prior to the taxable year. Held: that if the amount was interest, it represented interest on obligations of a resident within the meaning of section 119(a)(1) of the Revenue Act of 1928 and was taxable to the petitioner, a nonresident alien, as income from sources within the United States.

1. ESTOPPEL. - Where respondent does not affirmatively establish his reliance on taxpayer's representation or misrepresentation of fair market value of devised real estate, in determining that value as the basis for estate tax, equitable estoppel is not established and taxpayer may prove that value in a proceeding here, involving deficiencies in and overpayments of income taxes arising upon a conveyance of such real estate by the devisee. 2.

Respondent's holding, that a certain dividend paid to petitioner in 1926 by a corporation of which he was a stockholder is a taxable dividend, approved, the petitioner having failed to show the amount of depletion to which the corporation was entitled from March 1, 1913, through 1926 which petitioner claims would have offset any earnings available for taxable dividends as shown by the books of the corporation.

No office of village attorney having been created by statute or village ordinance and no showing having been made as to the degree of direction and control exercised by the village board, held,… Held: petitioner is neither officer nor employee of such village and compensation received therefrom by petitioner is not exempt from Federal taxation.

Where, under state law and court decisions, an officer of a municipality is not legally entitled to receive compensation in excess of a definitely fixed sum and where no showing is made as to the… Held: compensation in excess of the fixed monthly compensation is not exempt from Federal taxation as compensation of an officer or employee of a political subdivision.

A corporation transferred its assets either directly to a new corporation or to its own stockholders, who in turn transferred the assets to the new corporation, the stockholders of the old corporation receiving directly from the new corporation stock issued by the new corporation.

1. DEPLETION - CASINGHEAD GAS. - Where petitioner, who was the owner of casinghead gas contracts and engaged in the manufacture or extraction of gasoline from such gas, paid royalties equal to the… Held: there is no basis under section 114(b)(3), Revenue Act of 1928, for the computation of percentage depletion deductions, nor deductions based upon cost, since there is no proof petitioner paid anything for the contracts in excess of royalties.

Prior to 1929 petitioner sold nine lots on the installment plan, title to which was to be retained until the full purchase price was paid,… Held: the installment obligations of the purchasers were not satisfied at other than their face value, within the meaning of section 44(d) of the Revenue Act of 1928, when the above described agreements were executed and the purchasers released from further obligation; and the respondent did not err in adding to the petitioner's taxable…

Where resolution of directors restricted corporation, because of involved financial condition, from paying in full officers' salaries, and condition of company was such that cash for full payment of… Held: only amount of salaries paid to officers should be included in their individual incomes, and unpaid balances of salaries originally voted were not constructively received.

The petitioner is a New York banking corporation and pursuant to the laws of that state it conducts a large trust business. Held: that in respect of the composite fund the petitioner was, in 1930, an association taxable as a corporation.

1. The income from an irrevocable trust created by a father for the benefit of his minor child, which income, by the terms of the trust, is to be expended as it accrues for the maintenance,… Held: the transaction amounted to the distribution of a taxable dividend to the extent of the earnings and profits on the date of the transfer which had accumulated after February 28, 1913.

The petitioner, a member of the bar of the State of New Jersey, was appointed as general counsel to a joint legislative commission created pursuant to joint resolution, Laws of 1928, of that state,… Held: he was not an employee of the State of New Jersey within the meaning of that word as judicially defined, therefore, his compensation therefrom is not exempt from tax.

An attorney, acting as counsel for a committee appointed by a state legislature to investigate and report as to certain conditions prevailing in the state and subdivisions thereof as a basis for legislative action, is not an employee of the state, where the terms of his employment are not disclosed - the beginning and duration of his services, the compensation to be paid him - or it is not shown that the services were not those usually performed by an attorney as an…

1. The amount allowable as a deduction on account of charitable contributions under section 23(n) of the Revenue Act of 1928 is to be computed upon the entire net income without excluding capital net… Held: that the amount of $190,948.24 is not taxable income to the petitioner for the year 1930.

The limitation upon the credit for income, war profits, and excess profits taxes provided for in subdivision (a) of section 238 of the Revenue Acts of 1924 and 1926 is applicable to the amount determined under subdividion (e) of that section.

1. EXEMPTION - CHARITABLE ORGANIZATION. - Where a corporation is not both organized and operated exclusively for educational or other purposes named in the Revenue Act of 1924, section 231 (6), held it is not exempt from income tax thereunder. James Sprunt Benevolent Trust,20 B.T.A. 19, followed. 2.

In 1921 the officers of a company made contracts with the company by which they agreed to remain in the service of the company for five years and the company agreed, by way of additional… Held: further, that in the next year, upon the transfer of title to the stock the taxpayers became vested with the remainders and taxable on the value thereof as income.

During the years 1930 and 1931 the petitioner held the position of Counsellor to the Town Board of the town Hempstead, New York, at an annual salary of $6,000. Held: that his salary was not subject to income tax.

The petitioner, as a beneficiary of the income of certain trusts, in 1924 instituted a suit to, among other things, surcharge the accounts of the trustees with an amount alleged to have been lost by… Held: that amounts paid in the respective taxable years for legal services rendered in connection with the suit are not deductible in such years as losses sustained in a transaction entered into for profit.

The first in, first out rule held applicable to sales of stock by petitioner where the certificates were not in his possession and his only attempt at identification was to have his bookkeeper note on his records that the sales were from particular lots.

Petitioner, a domestic corporation, whose stock was owned by two foreign corporations, sold property at cost to a foreign corporation whose stock was owned by the two foreign corporations that owned… Held: that it was proper for respondent to apply the provisions of section 45 of the Revenue Act of 1928 and allocate the profit to petitioner.

1. Members of a partnership engaged in the business of producing motion pictures, all of its pictures having been made under contract… Held: the earnings were not accumulated beyond the reasonable needs of the corporation's business; the corporation was neither formed nor, during the years here before us, availed of for the purpose of preventing the imposition of surtaxes upon its stockholders, within the meaning of section 220, Revenue Acts of 1924 and 1926, and section…

Where part of the corpus of a testamentary trust is sold and the trustee and the income beneficiary for life treat the profit on the sale as distributable to such beneficiary; such profit is so… Held: such profit is distributable to and therefore taxable to the income beneficiary for life under the Revenue Act of 1928, section (b). Freuler v. Helvering,291 U.S. 35, followed.

The property in question having been held for investment, no loss is to be recognized on its exchange for another property, together with cash paid by petitioner and a purchase money mortgage assumed by it.

The petitioners specialized in odd lots of a group of stocks traded in on the New York Curb Exchange and also executed, in a limited way, orders received from other brokers for round lots of the same stocks. Held, that the petitioners are not dealers in securities within the meaning of article 105 of Regulations 74.

1. In Commissioner v. Blair, 60 Fed.(2d) 340, the United States Circuit Court of Appeals for the Seventh Circuit reversed the decision of this Board in Edward T. Blair,18 B.T.A. 69, a proceeding… Held: and pursuant to its holding the court of original jurisdiction of the state decreed, that the trust is not a spendthrift trust and that all the assignments made by the petitioner are valid.

1. Commuted value of amount receivable by beneficiaries under life insurance policies which the insured had until death the right to surrender and on which he had the right to borrow, held, in the… Held: in the insured's gross estate. 2. The term owner used in life insurance policies which reserved to the insured no right to change beneficiary and denied beneficiary any right of assignment, held, to mean the insured. 3.