Volume 31 — Tax Court Reports

Held, respondent correctly computed petitioners' net income by the net worth method with the exception of the item for living expenses, which… Held: respondent correctly computed petitioners' net income by the net worth method with the exception of the item for living expenses, which is found to be $ 2,000 for each year involved, and that a part of the deficiencies for each of the years 1943 through 1949 was due to fraud with intent to evade tax and, held, further, that no…

Capital Gains v. Ordinary Income -- Subdivision of Land -- Sale to Customers in Ordinary Course of Petitioner's Trade or Business. -- The petitioner sold lots over a period of years in a subdivision created from his rough land which was located in a residential zone. The land was graded by the petitioner's grading company, subdivided, and otherwise improved by the petitioner at an expense of many times the cost of the land.

1. Held, premium received by taxpayer (on accrual basis) from lending institution in connection with F. H. A.-insured mortgage loan is taxable in year of receipt and is not amortizable over term of… Held: premium received by taxpayer (on accrual basis) from lending institution in connection with F. H. A.-insured mortgage loan is taxable in year of receipt and is not amortizable over term of the mortgage. Bayshore Gardens, Inc., 30 T. C. 1292 (1958), followed. 2.

In December 1951, petitioner purchased an annuity contract requiring 41 annual payments, each in the amount of $ 2,500. Held: The transactions in question lacked substance. Despite literal satisfaction of the requirements of the statute, there was no real intent and purpose to purchase an annuity, borrow, or pay interest. The real payment made, the net outlay, was the price of a tax deduction sought, and no other purpose was served by the transaction.

In October 1952, petitioner Carl E. Weller purchased an annuity contract, naming his daughter as annuitant but reserving all rights and incidents of ownership in the policy unless she should survive… Held: The payments in question are not deductible as interest. W. Stuart Emmons, 31 T. C. 26 (decided this day), followed.

1. Deficiencies determined by means of net worth and expenditures method, held, approved except for respondent's concessions. 2. Held: approved except for respondent's concessions. 2. Some part of deficiencies for each year, held, on the facts, due to fraud. 3. Additions to tax under sections 294 (d) (1) (A) and 294 (d) (2), held, properly imposed.

Sec. 23 (b) -- Deductibility of Interest: Year of Payment: Suspense Account Deposit. -- In 1952, prior to any formal determinations or assessments of deficiencies in income tax for the years 1945-1950, inclusive, petitioner made a remittance to a collector of estimated tax deficiencies and interest thereon up to the date of the remittance for the purpose of stopping the running of interest upon proposed deficiencies.

1. Receipts from unrecorded sales were included by the Commissioner in gross income. Held, petitioners are entitled to a partially offsetting adjustment measured by the cost of such sales. Held: petitioners are entitled to a partially offsetting adjustment measured by the cost of such sales. Such costs determined herein under the Cohan rule. Cf. David J. Pleason, 22 T. C. 361, 371, affirmed 226 F. 2d 732 (C. A. 7), certiorari denied 350 U.S. 1006. 2.

The expenses of operation of a lodge and guest ranch should be computed without eliminating portions of the cost of food, insurance, fuel, electricity, laundry, and telephone to represent the cost of meals and lodging furnished to an owner-operator of the lodge and ranch who lodged and ate therein not for his own personal convenience but because it was necessary in connection with the operation of the lodge and ranch.

On the facts, held, petitioners in the taxable years in question were engaged in liquidating certain capital assets held for more than 6 months, and the gain realized from their sale was capital gain… Held: petitioners in the taxable years in question were engaged in liquidating certain capital assets held for more than 6 months, and the gain realized from their sale was capital gain and not ordinary income.

Petitioner's personal activities, held, on the facts, not such as to constitute a trade or business in the course of which indebtedness was incurred, so as to be deductible as a business bad debt. Held: on the facts, not such as to constitute a trade or business in the course of which indebtedness was incurred, so as to be deductible as a business bad debt.

Corporate petitioner's payments to its two principal stockholders disallowed as ordinary and necessary business expense deductions under section 23(a) (1) (A), I. R. C. 1939, since assignment of the contract requiring the payments not shown.

Petitioner, a professional engineer and sales representative of machine tool manufacturers in an area including Cincinnati, Ohio, entered into an informal contract with the… Held: the commissions involved do not represent compensation received from an employment within the meaning of section 1301 of the Internal Revenue Code of 1954, and consequently, petitioner is not entitled to compute his income tax thereon in accordance with the method provided by said section.

The petitioner in 1947 received from his employer, E. W. Bliss Company, an option to purchase 25,000 shares of its unissued stock at a stated price. Held: that the gain realized from the cancellation of the stock options constituted compensation taxable to petitioner in 1952.

In anticipation of divorce, petitioner and his then wife entered into an agreement, subsequently incorporated in a divorce decree, whereby, inter alia, petitioner obligated himself to convey to his wife a life estate in his undivided one-half interest in a ranch, with remainder to their children, and to satisfy an existing mortgage encumbrance thereon. Petitioner's then wife agreed to accept benefits flowing to her under the agreement in full satisfaction of her rights to alimony and support and fully released petitioner from any further obligations toward her, with exceptions not here material. The value at that time of an unencumbered one-half interest in the ranch exceeded petitioner's basis therein. Held: 1. Petitioner realized taxable income as a result of the above transaction. Estate of Gordon A. Stouffer, 30 T. C. 1244, followed. 2. (a) Petitioner's taxable gain is limited to that part of the increase in value over his basis allocable to the life estate transferred to his wife, on a pro rata basis. (b) No reduction in the amount of petitioner's taxable gain is warranted by virtue of the mortgage indebtedness. (c) No reduction in the amount of petitioner's taxable gain is warranted by virtue of the former inchoate right to dower of his ex-wife. 3. No part of the income from the ranch subsequent to the conveyance is taxable to petitioner. 4. Petitioner is liable for the additions to tax imposed by sections 294 (d) (1) (A) and 294 (d) (2), I. R. C. 1939.

In order for a loss incurred by a taxpayer to be exempt from application of section 122 (d) (5), I. R. C. 1939, limiting net loss carryback of loss not attributable to operation of trade or business regularly carried on by the taxpayer to the amount of gross income not derived from such trade or business, such loss must be incurred in the normal day-to-day operation of the taxpayer's regular trade or business. Held, the Commissioner is sustained in his determination that the taxpayer in the instant case did not have a net operating loss in 1953 within the meaning of section 122, 1939 Code, which he could carry back and use as a deduction from 1952 income.

1. Cost of Goods Sold. -- Held, that the stockholders of petitioner paid on behalf of petitioner cost of whisky in excess of O. P. A. ceiling prices, which payment is includible in petitioner's cost… Held: that the stockholders of petitioner paid on behalf of petitioner cost of whisky in excess of O. P. A. ceiling prices, which payment is includible in petitioner's cost of goods sold. 2.

Depletion. -- On September 15, 1939, petitioner entered into a 20-year lease with Natomas Company wherein Natomas leased to petitioner certain real property called the Fair Oaks property and granted… Held: the respondent erred in disallowing the said deductions.

Held, petitioner was not organized and operated exclusively for charitable purposes and, therefore, it is not exempt from income taxes for the years 1945-1953, inclusive. Sec. 101 (6), I. R. C. 1939. Held: petitioner was not organized and operated exclusively for charitable purposes and, therefore, it is not exempt from income taxes for the years 1945-1953, inclusive. Sec. 101 (6), I. R. C. 1939.

1. At the time of his death in 1951 the father of some of the petitioners was an employee of two corporations which had set up employee pension trusts which qualified for exemption from tax under… Held: that such distributions constituted income to the petitioners for 1951 taxable under section 165 (b) of the Code as gain from the sale or exchange of a capital asset held for more than 6 months. 2.

Three brothers, one of whom was facing death from cancer, owned almost equal stock control of a corporation. Held: on the facts, the stock was burdened with terms of the agreement and was properly returned at a value of $ 200,000.

1. Petitioner Robert Leslie Bowlin, for each of the years 1942 through 1947, failed to report substantial portions of his income in the returns filed by him, and his books and records are wholly… Held: that his returns were false and fraudulent with intent to evade tax, and the statute of limitations has not run for the years in question.

Upon the facts, most of which were stipulated, it is held that the respondent erred in determining that petitioners on a cash basis constructively received in the year 1954 certain royalties from two… Held: further, petitioners are entitled to the benefit of section 107 (b) of the Internal Revenue Code of 1939 in determining their tax liabilities for the year 1953.

Held, respondent properly reconstructed petitioners' taxable net income by the use of the net worth method, and deficiencies for the years 1945 through 1951 were due to fraud with intent to evade tax. Held: respondent properly reconstructed petitioners' taxable net income by the use of the net worth method, and deficiencies for the years 1945 through 1951 were due to fraud with intent to evade tax.

Petitioner ascertained the amount of its renegotiable subcontract sales by inquiry of its customers. Held: The Board failed to meet its burden of proving excessive profits in an amount greater than that originally determined. 2. The petitioner's evidence does not justify expenses for salaries in excess of the amount found reasonable by the Board. 3. Amount of excessive profits determined.

Taxpayers were in the business of developing subdivisions of real estate and selling lots therein to builders. Held: net proceeds of lots in these subdivisions sold by taxpayers in taxable year constituted ordinary income and not long-term capital gains. Held, further, proportionate cost of sewage disposal system properly includible in cost basis of lots sold.

The petitioner, income beneficiary of a testamentary trust created by her deceased husband in his will, paid $ 38,807.97 to the United States for a deficiency assessment in estate tax against the… Held: that the $ 2,500 is deductible by petitioner as a nonbusiness expense under section 23 (a) (2), I. R. C. 1939.

Divorced husband requested petitioner, his former wife, to remarry him. She insisted that he first give her security of $ 40,000. Held: the transfer was property acquired * * * by gift under section 113 (a) (2), I. R. C. 1939, and petitioner's basis was the same as the basis in the hands of the husband.

1. Correction of error under sections 1311-1315, I. R. C. 1954, held unauthorized where a prior decision of this Court excluded an item of income of 1 year and thus produced a double exclusion under… Held: in the circumstances of this case, to furnish the basis for corresponding increase in closing inventories for 1945. Secs. 1311-1315, I. R. C. 1954.

Petitioner in Docket No. 67399, on November 1, 1950, and October 7, 1952, entered into two contracts for the purchase of assets of two… Held: that of the respective amounts of $ 23,397 and $ 4,750 purported to have been paid for two covenants not to compete, upon application of the principles of Cohan v. Commissioner, 39 F. 2d 540 (C. A. 2, 1930), the respective amounts of $ 11,817.20 and $ 1,698.16 are to be attributed to intangible assets in the nature of goodwill or…

Petitioner did not accumulate its earnings or profits beyond the reasonable needs of its business during the years 1951 and 1952 and petitioner was not availed of for the purpose of avoiding the surtax upon its shareholders within the meaning of section 102 of the Internal Revenue Code of 1939.

1. The petitioners' partnership, in 1951, entered into contracts for the sale of 26 mortgaged duplexes. Held: petitioners are bound by their election to report the sales on the installment basis and may not now change to a deferred payment recovery-of-cost basis.

One of the decedents, who were husband and wife, brought suit in 1947 to quiet title and to obtain an accounting for profits against oil companies and individuals who were operating a… Held: The administrator is properly before this Court. 2. The decedents were entitled to percentage depletion deductions with regard to the gross profits from the operation of the mineral interest. 3. Said gross profits included costs of development and operation paid by trespassers. 4.

Agreement to liquidate partnership with continuing partner collecting and dividing proceeds of completed work on incompleted contracts, held, to give rise to ordinary income rather than capital gain… Held: to give rise to ordinary income rather than capital gain as to retiring partner's share of such amounts collected and distributed to him in tax year.

T was member of a partnership that constructed an apartment house for a corporation under an F. H. A. commitment. Held: T's partnership interest in the stock was a capital asset and his loss upon disposition was subject to statutory limitations upon capital losses. Sec. 117 (a) (1) and (d) (2), I. R. C. 1939.

Held: (1) Petitioner was not in the business of financing corporations and a claimed loss resulting from a transaction whereby he… Held: Petitioner was not in the business of financing corporations and a claimed loss resulting from a transaction whereby he exchanged 765 shares of stock in Snyder & Black having a fair market value of $ 50 per share for 765 shares of stock in Salers having no fair market value is not deductible as a loss incurred in trade or business…

Petitioner, during the years 1947 to 1952, inclusive, was engaged as a private investigator and advisor to a wealthy widow. Held: that petitioner understated taxable income on her returns for each of the years 1947 to 1952, inclusive. Amounts of the understatements determined. Held, further, that a part of the deficiency for each of the years 1947 to 1952, inclusive, was due to fraud with intent to evade taxes.

Held, that there was a change in the character of the petitioner's business through the construction of a new 5-story building, which added 73,334 square feet… Held: that there was a change in the character of the petitioner's business through the construction of a new 5-story building, which added 73,334 square feet of selling space to the petitioner's existing selling space, as a result of a course of action to which the petitioner was committed prior to January 1, 1940.

On the record held that petitioner is not entitled to relief under section 722 of the Internal Revenue Code since it has failed to establish or show a constructive average base period net income which would result in a greater excess profits credit than that allowed by the respondent on the basis of invested capital.

Held, that the portion of the property transferred by the decedent, in trust, necessary to give decedent an annual income of $ 10,000, which income was retained… Held: that the portion of the property transferred by the decedent, in trust, necessary to give decedent an annual income of $ 10,000, which income was retained by the decedent under the terms of the trust, is includible in decedent's gross estate under section 811 (c) (1) (B) of the Internal Revenue Code of 1939.

Held, that interest paid on an income tax deficiency arising in a prior year, said deficiency being imposed in relation to business income, was properly deductible… Held: that interest paid on an income tax deficiency arising in a prior year, said deficiency being imposed in relation to business income, was properly deductible as an ordinary and necessary business expense for the purpose of computing net operating loss carryover pursuant to section 122 of the Code of 1939.

Held, petitioner accumulated earnings and profits beyond the reasonable needs of its business in 1952 and petitioner was availed of for the purpose of preventing the imposition of surtax upon its… Held: petitioner accumulated earnings and profits beyond the reasonable needs of its business in 1952 and petitioner was availed of for the purpose of preventing the imposition of surtax upon its shareholder within the meaning of section 102 of the Internal Revenue Code of 1939.

1. Held, lots sold by petitioners during the years here at issue were held by them primarily for sale to customers in the ordinary course of business and the gains derived therefrom are taxable as… Held: lots sold by petitioners during the years here at issue were held by them primarily for sale to customers in the ordinary course of business and the gains derived therefrom are taxable as ordinary income. 2.

Sec. 129, I. R. C. 1939 -- Loss Carryover. -- Petitioner, a corporation, sustained net operating losses in 1949, 1950, and 1951 in its business of selling home appliances. Held: section 129 is not applicable and petitioner is entitled to the loss carryover.

Income was received by petitioner during the years in issue pursuant to two service contracts with another corporation. Held: that the second of the two contracts involved designated the president of petitioner personally to perform services, and therefore the income received thereunder during the taxable year ended January 31, 1954, was personal holding company income under section 502 (e), I. R. C. 1939.

Petitioners made gifts in trust during each of the taxable years, which provided equal life interests in the trust income for their… Held: that, since the gift of an income interest for life to each named beneficiary was, in effect, coupled with the gift to such beneficiary of a power to prevent any diminution or destruction of the life interest given to him, the values of such life interests should be computed by use of the prescribed actuarial table, without regard to…

1. Where petitioner, president of a corporation, realized long-term capital gain from sale of the corporation's stock in 1950 and was… Held: payment of the judgment in 1954 does not entitle petitioner to reopen the taxable year 1950 so as to claim a capital loss carryover from 1950 to 1951. 2. Petitioner sporadically devoted a small percentage of his time to seeking out, investigating, and negotiating for personal profitable deals in oil and other natural resources.

Dependency -- Sec. 152 (a) (9), I. R. C. 1954. -- Taxpayer and her minor son resided in home owned by another. Held: the taxpayer could not properly claim the homeowner as a dependent as defined in section 152 (a) (9).

1. A State court decree for separate maintenance, that is merely an order for the husband to fulfill his duty to support his wife, held not to effectuate a legal… Held: that these payments are not deductible by the petitioner under section 71 (b) of the 1954 Code. 3. The petitioner has shown that he has supplied more than one-half of his daughter's support for the years 1952 and 1953. Held, that he should be allowed a $ 600 exemption for his daughter only for 1952 and 1953.

Evidence is reviewed and it is held respondent failed to establish petitioners filed false and fraudulent income tax returns for any of the years involved, with intent to evade taxes, and, consequently, respondent's determinations of deficiencies are barred by the statute of limitations.

1. On April 28, 1950, Daniel Wade Kelly and his wife made valid gifts inter vivos to their three children of certain community property. 2. The failure to file any Federal gift tax returns for 1950 reporting these gifts makes mandatory the additions to tax provided in section 3612 (d) (1) of the 1939 Code. William Fleming, 3 T. C. 974, followed. 3.

Petitioner's real property, which was situated in a downtown industrial section of Pittsburgh, Pennsylvania, and which at the time of acquisition as well as during the petitioner's ownership was… Held: that there was not sufficient similarity or relation in service or use of the corporation's property to the petitioner's converted property to entitle petitioner to the nonrecognition of gain provisions of section 112 (f), I. R. C. 1939.

Petitioner, the owner of all of the stock of a corporation, conducted a real estate brokerage business in its name. Held: the entire commission is taxable income of petitioner for 1951, and section 107 (a) of the Internal Revenue Code of 1939 is not applicable.

Petitioners were remaindermen of a trust whose corpus consisted of corporate stock. Held: the amounts paid for the life income interests in the trust were properly amortizable ratably over the terms of the life interests. Bell v. Harrison, (C. A. 7) 212 F. 2d 253, followed.

1. A community fee interest in oil- and gas-producing properties is taxable on the income from that fee interest where the entire interest… Held: the one-half interest was a present interest in the properties and the income from that one-half interest, which was applied to the prior community indebtedness on the properties, is taxable to the holder of that interest. 2. One-third of the one-half interest in the oil-producing properties was assigned in fee to another person.

1. The deficiencies in tax determined by the Commissioner against each of the petitioners for the years 1944, 1945, 1946, and 1947, and the additions to tax under… Held: additions to tax by the Commissioner under section 291 (a), 1939 Code, for the year 1946 are sustained. 3. Petitioners were partners during the taxable years in a wholesale hosiery business and had substantial amounts of net income which they did not report on their returns for 1944, 1945, and 1947.

A charitable organization received a contingent remainder interest in the corpus of a trust established by decedent's will. Held: under all the circumstances of the case, and under either actuarial computation, the possibility that the charity will not take is not so remote as to be negligible and the estate is not entitled to a charitable deduction for the value of the remainder interest.

Held, no part of the purchase price received by petitioners as a result of the involuntary conversion of their property under threat of condemnation was consideration for anticipated loss of business. Held: no part of the purchase price received by petitioners as a result of the involuntary conversion of their property under threat of condemnation was consideration for anticipated loss of business.

Held, that payments of alimony by petitioner B. R. DeWitt, which were received by his divorced wife, after the decree, but were related to periods prior to the decree,… Held: that payments of alimony by petitioner B. R. DeWitt, which were received by his divorced wife, after the decree, but were related to periods prior to the decree, were deductible under section 23 (u) as periodic payments, includible in the divorced wife's gross income under section 22 (k), I .R. C. 1939.

1. Petitioner, an accrual method taxpayer, entered into an agreement whereby it leased a nut-shelling plant to Carter, who was president and one of the shareholders of petitioner. Held: petitioner did not understate its rental income for the taxable year ended June 30, 1943. 2. During the taxable year ended June 30, 1943, petitioner contracted to have its boiler rebuilt. The expense involved was claimed as a business expense on its return.

Petitioner was president and sole stockholder of three corporations engaged in the production and distribution of flowers. Held: that the debt was not proximately related to any trade or business conducted by the petitioner as an individual, and section 166 of the Internal Revenue Code of 1954 continues to require a proximate relationship between the debt and a trade or business of the taxpayer if the debt is to qualify for deduction as a business bad debt.

Losses sustained on certain advances by a stockholder to his corporation held not deductible as a business bad debt under section 23 (k) (1), I. R. C. 1939.

For many years prior to 1953, petitioners were partners in a law firm which had derived steady and substantial fees from making abstracts and rendering opinions as to titles to real estate for… Held: that the payments to the association constituted ordinary and necessary business expenses deductible under section 162 (a) of the Internal Revenue Code of 1954. Charles J. Dinardo, 22 T. C. 430 (1954), followed.

1. Settlement agreement executed 3 days prior to divorce but not referred to in divorce decree, held, to survive divorce. 2. Held: to survive divorce. 2. Where settlement agreement read as a whole earmarked a part of the weekly payments made by husband to wife as being for support of the minor children, held, husband not entitled to deduct and wife not taxable on part of payments so earmarked for support of children even though divorce decree did not…

1. Option -- Failure to Exercise -- Short-term Capital Loss. -- Petitioner's failure to exercise an option to purchase stock for which option he paid $ 50,000, held to result in short-term capital loss under section 117 (g). 2. Casualty Loss -- Storm. -- Amount of loss by storm damage to seaside residence determined. 3.

Petitioner held options or contracts to purchase four parcels of real property. Held: On the facts, petitioner has failed to prove that any part of the amount he received was for the sale or assignment of options. No part of the gain realized by him qualifies as long-term capital gain entitled to the benefits of section 117 (b) of the Internal Revenue Code of 1939.

Petitioner, an Indiana corporation, seeks relief from excess profits taxes under section 722 (b) (1), (b) (4), and (b) ( 5) of the Internal Revenue Code of 1939, as amended. Held: petitioner failed to establish facts which would support a constructive average base period net income yielding an excess profits credit greater than that available without the application of section 722.

Sec. 722 (b) (4), 1939 Code -- Change in Character of Business. -- Respondent allowed partial relief by reason of base period changes. Held: petitioner also qualifies for relief by reason of a change in capacity for production or operation consummated after December 31, 1939, by acquisition of leased facilities, as a result of a course of action to which petitioner was theretofore committed.

Held: 1. Petitioner failed to acquire substantially all the properties of a partnership and therefore did not constitute an acquiring corporation within the… Held: Petitioner failed to acquire substantially all the properties of a partnership and therefore did not constitute an acquiring corporation within the meaning of section 740 (a) (1) (D) entitled to utilize that business's base period income experience in computing its own excess profits credit based on income. 2.

1. Petitioner established four identical trusts for the benefit of minor grandchildren. The trustee of each trust was a parent of the beneficiaries. Held: the gifts to each trust were of future interests even though a parent of beneficiaries was the trustee; therefore, exclusions are not allowable under section 1003(b)(3), 1939 Code. 2.

Petitioner is an Iowa corporation which operated as a farmers' cooperative association. Held: That the amounts allocated for members only, out of the compensation received from the C. C. C., do not qualify as true patronage dividends; and that the same are not excludible from petitioner's gross income. 2.

1. In his income tax returns for each of the years 1942, 1943, 1945, 1946, and 1947, and with intent to evade tax, petitioner failed to report substantial portions of the income received by him in… Held: that the return for each such year was false and fraudulent with intent to evade tax and there is no limitation against the assessment and collection of deficiencies in tax for those years.

Petitioner was employed as a salesman by Anaconda, a real estate broker. Through Anaconda, he purchased real estate listed with another broker for sale at $ 60,000. Held: that the petitioner did not realize income in the nature of commissions on his purchase of the said real estate.

Estate Tax -- Gross Estate -- Sec. 811(a), I.R.C. 1939. -- Held, replacement value of insurance policies on life of another where decedent had valuable rights in such policies properly included in… Held: replacement value of insurance policies on life of another where decedent had valuable rights in such policies properly included in gross estate.

Held, on the facts 70 of the 151 head of cattle sold by petitioners during the years in issue were, at the time of their sale, held for breeding purposes within the meaning of… Held: on the facts 70 of the 151 head of cattle sold by petitioners during the years in issue were, at the time of their sale, held for breeding purposes within the meaning of section 117(j)(1) of the 1939 Code, thus entitling petitioners to treat the gains realized thereon as long-term capital gains.

Held, payments made by a husband after divorce to his former wife were not periodic payments within section 22(k), I.R.C. 1939,… Held: payments made by a husband after divorce to his former wife were not periodic payments within section 22(k), I.R.C. 1939, deductible under section 23(u) because, by the terms of the separation agreement incident to the decree of divorce, the principal sum to be paid in installments was not to be paid within a period ending more than…

During 1953 petitioners sold certain cattle which had been held by them for more than 12 but less than 25 months as part of their breeding herd, but which had been culled from that herd because of… Held: at the time of their sale those cattle were held for breeding purposes within the meaning of section 117(j)(1) of the 1939 Code, thus entitling petitioners to treat the gains realized thereon as long-term capital gains.

1. By written agreement, petitioner was employed for the calendar year 1938 by Wilmington Construction Company as its general building superintendent, for which he was to receive a fixed salary plus… Held: that the Wilmington stock and the net amount in cash were received by petitioner in settlement of his claim for 50 per cent of the profits of Wilmington and Edge Moor, and represented compensation for the services he had previously rendered those corporations.

During all of the periods here material, petitioner was engaged in the business of mining and selling bituminous coal. Held: that petitioner has failed to establish that its business was depressed in the base period because of temporary economic circumstances unusual in the case of petitioner within the meaning of section 722(b)(2) of the Code of 1939.

Petitioner, a corporation which operated a radio AM and FM broadcasting station, incurred attorney fees, engineering fees, and related expenses during the year 1953… Held: such expenditures are not deductible as ordinary and necessary business expenses. Held, further, since no television license was received during the year before this Court, petitioner's alternative contention that it is entitled to amortize such expenses over the 3-year life of the license is premature. 2.

A widow's allowance in a lump sum, paid by petitioner estate pursuant to an order of a Michigan Probate Court, held not to constitute a terminable interest within meaning of section 812(e)(1) (B),… Held: further, section 812 (e)(1)(B) is applicable to a widow's allowance.

1. Petitioner, a leather tanner in Indiana, made claims for relief from excess profits taxes under section 722(b)(1) and (b)(2) of the Internal Revenue… Held: petitioner has not established an amount representing normal earnings large enough to produce a credit greater than the credits computed on the invested capital method; it has not proved that its excess profits taxes are unjust and discriminatory and is not entitled to relief under section 722(b)(1), I.R.C. 1939. 2.

Petitioner, a Maine corporation, transacted all its business in Cuba. Held: of the amounts paid by petitioner it is entitled to deduct as accrued interest under section 23(b), I.R.C. 1939, $ 105,000 in the taxable year ended June 30, 1949, and $ 120,000 in each of the 2 following years.

1. Although petitioner qualified for relief under section 722(b) (2), I.R.C. 1939, by reason of abnormally low volume of business obtained during base period from the Baltimore & Ohio Railroad Company, which had been its most important customer over a long period, it has not shown a constructive average base period net income sufficiently high to yield credits in excess of those allowable under section 714.

Under decedent's will, his residuary estate was to be held in trust to provide annuities for two adult children. Held: under all of the facts and circumstances, the possibility that charity will not take the entire bequest is not so remote as to be either negligible or highly improbable and, therefore, the estate is not entitled to a deduction for a charitable bequest under section 812(d), 1939 Code, for the present value of the remainder interest.

Estate Tax -- Marital Deduction -- Life Estate in Surviving Wife With Power to Invade Corpus -- Sec. 812(e)(1)(F), I.R.C. 1939. -- Surviving wife's right to the income of a testamentary trust for her maintenance, support, and comfort was not an unlimited power to invade or appoint the entire corpus to herself, and the estate is held not entitled to the marital deduction under section 812(e)(1)(F).

The stockholders of a close corporation, indebted to them for compensation of $ 166,000, decided to liquidate. Held: the net effect of these various transactions was a complete liquidation of the corporation as well as a satisfaction of its indebtedness to its stockholders in 1952.

Petitioner requires supplies of newsprint paper in its business and to obtain paper it enters into long-term contracts, in the ordinary operations of its business, for newsprint paper. Held: the transactions with the outside purchasers of paper constituted an integral part of petitioner's business and, therefore, the gain realized is not entitled to capital gains treatment; the gain is ordinary income.

Petitioner, a Catholic priest, was pastor of a parish located in a residential community. Held: petitioner and Tonti joined together in the creation of a joint venture to undertake the purchase, development, and sale of the property.

Petitioner sold a one-half undivided interest in certain unitized oil and gas leases and a $ 50,000 production payment, payable out of the income from petitioner's retained one-half interest in the… Held: the revenues received by the trustee and paid to Lehman and Maracaibo as payment of interest on, and repayment of, the loans and advances were taxable income of the petitioner in the year received by the trustee.

Held, petitioner realized unreported income for 1947 in the amount of the cash surrender value of a retirement income life insurance policy transferred to him on January 8, 1947, by the trustees of… Held: petitioner realized unreported income for 1947 in the amount of the cash surrender value of a retirement income life insurance policy transferred to him on January 8, 1947, by the trustees of the Conlan Electric Corporation Pension Trust.

1. Petitioner's yearly payments, which it designated as interest, on its bills payable account, held, on the facts of this case, to constitute dividends and not deductible interest. 2. Held: on the facts of this case, to constitute dividends and not deductible interest. 2. Held, further, petitioner did not realize $ 840 interest income from amount temporarily withdrawn by one of its stockholders.

1. Petitioner, the owner and operator of a radio station at Waco, Texas, in 1954, applied to the Federal Communications Commission for a permit to construct and operate a… Held: the payment was not an ordinary and necessary business expense and the Commissioner is sustained in his disallowance of the deduction. 2. Petitioner incurred expenditures for attorney fees, traveling expenses, etc., of $ 12,366.33 in pressing its application for a construction permit and license.

Held, upon this record, sales of rental vehicles which had been leased for about one-fourth of their useful life were sales of property held primarily for… Held: upon this record, sales of rental vehicles which had been leased for about one-fourth of their useful life were sales of property held primarily for sale to customers in the ordinary course of petitioner's trade or business, and gains from such sales are taxable as ordinary income. Sec. 117(j)(1)(B), I.R.C. 1939.

1. In the year 1952 pursuant to negotiations among all three parties concerned, petitioner transferred a portion of a leasehold burdened with a sublease to its lessor who thereupon… Held: the amount received from its own sublessee for the transfer was ordinary income to the petitioner. Hort v. Commissioner, 313 U.S. 28 (1941), followed. 2. In the year 1954, petitioner transferred the remaining portion of the leasehold which had about 10 months left to run to a third party.

Petitioner is the life beneficiary of a testamentary trust. Held: petitioner is entitled under section 212(1), I.R.C. 1954, to a deduction for that portion of the legal expenses paid by her during 1954 which were expended for the purpose of producing income which, if and when received, would be includible in her taxable income.

Decedent created a trust under which all the income therefrom was payable to his widow during her life. Held: provisions of section 812(e)(1)(F) of the Internal Revenue Code of 1939, as amended by section 93 of the Technical Amendments Act of 1958, not applicable to facts of this case and respondent did not err in such disallowance.

In 1953 the principal petitioner purchased $ 650,000-face-value United States Treasury bonds from Livingstone & Co. for $ 564,687.50. Held: assuming the transactions in substance were what they purported to be in form, petitioner is not entitled to deduct the $ 117,677.11 prepaid interest, for the transactions had no purpose other than to create a tax deduction. In this posture the interest expense is not within the intendment of the taxing statute.

In 1953 the principal petitioner purchased $ 650,000-face-value United States Treasury bonds from Livingstone & Co. for $ 564,687.50. Held: on facts virtually identical to George G. Lynch, 31 T.C. 990 (1959), the interest is not deductible.

In 1953 petitioner embarked upon a series of transactions which in form were as follows. Held: assuming the transactions in substance were what they purported to be in form, petitioner is not entitled to deduct the $ 31,309.41 prepaid interest, for the transactions had no purpose other than to create a tax deduction. In this posture the interest expense is not within the intendment of the taxing statute.

Petitioners entered into a lease of certain property for 99 years at an annual rental of $ 15,000. Held: the entire $ 15,000 paid by petitioners in each of the years in issue was rent, and no part thereof constituted the cost of acquiring a leasehold interest in the property.

Deductions -- Business Expenses -- Expenses of Education. -- Secs. 161 and 162, I.R.C. 1954, and sec. 1.162-5, Income Tax Regs. Held: the expenses paid in taking the course were properly deductible.

Petitioners, in the summer of 1952, took a European travel tour, lasting approximately 2 months, at a cost of $ 1,245 each. Held: the expenditures incurred by the petitioners in 1952 for the European tour and the university course in New York City are nondeductible as personal expenditures.

Held, the lump-sum distribution received by petitioner in 1955 as a beneficiary of the employees' retirement plan of Waterman Steamship Company and… Held: the lump-sum distribution received by petitioner in 1955 as a beneficiary of the employees' retirement plan of Waterman Steamship Company and subsidiaries was paid to him on account of his separation from the service of his employer and is taxable as gain from the sale or exchange of an asset held for more than 6 months.

Nonresident Alien -- Joint Return -- Sec. 51(b)(2) -- Regs. 111, Sec. 29.211-2 -- Stay Limited by Immigration Laws. -- A mature unemployed nonresident alien, who came to the United States in 1949 to marry a young heiress, who never bothered to apply for a permanent visa until May 1951, who was never in the United States during the last 3 months of 1949, all of 1950, and the first 7 months of 1951 except for 3 brief visits, and who never had any but temporary living quarters…

Petitioner transferred 8,700 shares of the common stock of Sterling Drug Company, Inc., in exchange for 1,609 3/4 shares of its own stock owned by two minority stockholders. Held: the transaction constituted a partial liquidation within the meaning of section 115 (c) and (i) of the 1939 Code, and no taxable gain was realized by petitioner.

1. Held, that a Rockefeller Public Service Award received by petitioner is not excludible from gross income under section 74(b) of the Code of 1954. 2. Held: that a Rockefeller Public Service Award received by petitioner is not excludible from gross income under section 74(b) of the Code of 1954. 2.

Snow Crop, a processor and packager of frozen foods, distributed them for sale partly through franchised distributors on a nationwide… Held: that Superior's purpose to secure the surtax credit and the excess profits tax credit provided in sections 15(b) and 431, respectively, I.R.C. 1939, and the surtax exemption or the accumulated earnings credit provided in sections 11(c) and 535(c)(2) or (3), respectively, I.R.C. 1954, was not a major purpose for Superior's creation of…

Insured's election before maturity under insurance company's annuity policy to leave principal sum on deposit and receive monthly installments of principal augmented by interest and dividends, held,… Held: not to result in constructive receipt of difference between premiums previously paid and cash surrender value, insurance company not being required to pay principal in taxable year.

Petitioner, in 1924, leased the Hotel Fontenelle to Interstate for a period of 30 years at an annual rental of $ 80,000. The agreed rental was paid until 1931. Beginning in 1932, the hotel became unprofitable to the lessee because of the general business depression and because of increased competition from a new hotel erected in Omaha.

1. Petitioner's past president had served petitioner for many years and during a period of severe difficulties, when the petitioner attempted to acquire bus franchises, without a salary increase. Held: payments by the petitioner to its past president's widow equal in amount to 31 months of the past president's increased salary were ordinary and necessary business expenses. 2.

Petitioner claimed relief under section 722 (b)(1), (2), (3), (4), and (5), I.R.C. 1939 but has failed completely in its proof.

Petitioner's loans to corporation, and unrecouped guaranty payment, later transferred for nominal amount, being wholly uncollectible and proximately related to petitioner's individual business, held,… Held: to constitute business bad debts deductible as such rather than merely as capital losses.

Held, that petitioners are not entitled to deduct membership assessments paid to the Atlanta Retail Liquor Association for the taxable… Held: that petitioners are not entitled to deduct membership assessments paid to the Atlanta Retail Liquor Association for the taxable year 1950, since they have failed to meet the burden of proving that no substantial part of the activities of said association was carrying on propaganda, or otherwise attempting, to influence legislation.

Held, so-called commissions with respect to life insurance written by an insurance broker on his own life represent merely a reduction in the cost of such insurance to him and do not constitute the… Held: so-called commissions with respect to life insurance written by an insurance broker on his own life represent merely a reduction in the cost of such insurance to him and do not constitute the realization of taxable income by him within the meaning of the revenue laws.

Dependents -- Sec. 152(a)(9), I.R.C. 1954. -- Taxpayers took an unrelated infant into their home on February 11, 1955, preparatory to adoption. Held: The infant did not have her principal place of abode and was not a member of the household for the taxable year of the taxpayer. Dependency exemption denied for 1955. Robert Woodrow Trowbridge, 30 T.C. 879, followed.

Husband and wife respectively executed trust agreements on December 26 and 27, 1935. Held: Trust created by husband is includible in wife's gross estate and trust created by wife is includible in husband's gross estate. Allan S. Lehman et al., Executors, 39 B.T.A. 17, affd. 109 F. 2d 99, certiorari denied 310 U.S. 637; sec. 811(c)(1)(B), I.R.C. 1939.

Held, improvements to subdivided real estate held for sale, which included construction of roads and the installation of curbs, gutters, waterlines, and storm sewers, do not constitute depreciable property within the meaning of section 167 of the 1954 Code.

A partnership of which the petitioners were members kept its books and filed its income tax returns on the cash receipts and… Held: that the respondent properly adjusted reported income of the partnership for the year 1952 by increasing income by amounts collected in that year on accounts receivable as of the beginning of the year representing sales made in the prior year, and by reducing the cost of goods sold by that portion of the cost of inventory on hand at…

Petitioner and another corporation equally owned the stock of a corporation engaged in the publication of a newspaper. Due to the inability of the two interests to agree on policy, the other owner sought and received under a State "deadlock statute" an order to dissolve the corporation. In these circumstances, petitioner and the other owner entered into a competitive bidding agreement, whereby the parties bid upon the stock of each other. Petitioner sold its stock to the other owner, being unable or unwilling to outbid it. Held, that the sale of the stock was not an involuntary conversion within the meaning of section 112(f) of the Internal Revenue Code of 1939.

Held, that the improved and unimproved lots sold in 1953 and 1954 were, in the years in which such sales were made, held primarily for… Held: that the improved and unimproved lots sold in 1953 and 1954 were, in the years in which such sales were made, held primarily for sale to customers in the ordinary course of business within the meaning of sections 117(a)(1)(A) and 117(j) of the Code of 1939 (1953) and sections 1221(1) and 1231(b)(1)(B) of the Code of 1954 (1954), and…

1. Petitioner, a general partnership, was organized to engage in the performance of war contracts. Held: the petitioner and the corporation were under common control within the meaning of section 403(c)(6) of the 1943 Renegotiation Act. 2.

1. Decedent by will left his residuary estate in trust, giving his surviving spouse the right to all the income therefrom for life, and… Held: under Ohio law the interest of the surviving spouse was a terminable one. Held, further, the surviving spouse did not possess a power of appointment over the interest granted her exercisable in all events within the meaning of section 812(e)(1)(F) of the 1939 Code, and thus the interest does not qualify for the marital deduction. 2.

1. A partnership, pursuant to the partnership agreement, paid salaries to petitioner Stout and some of the other partners, the amount paid as salaries being a charge to the capital account of each… Held: the amount received by petitioner Stout is taxable to him except to the extent it represented a return of his capital investment. Held, further, that he is entitled to a deduction to the extent his capital contribution was applied in payment of salaries to other partners.

1. Best, an inventor of locks, in exchange for stock assigned patents and any improvements thereon devised by 1930 to Best, Inc., which in 1928 licensed Best… Held: Royalties paid by Best Lock under the 1949 licenses are consideration for the transfer of patents and it is entitled to deductions for depreciation in these amounts, following Associated Patentees, Inc., 4 T.C. 979 (1945). (2) Royalties paid to Best and Foundation are taxable to each as long-term capital gains.

1. Held, a tract of land sold by petitioners in January 1953 was not held primarily for sale to customers in the ordinary course of… Held: a tract of land sold by petitioners in January 1953 was not held primarily for sale to customers in the ordinary course of business, and the resulting gain was capital in nature. 2. Held, additions to tax determined by respondent pursuant to section 294(d)(2) of the Internal Revenue Code of 1939 are approved, subject to recomputation.

1. Held, that interest paid by the principal petitioner on the unpaid balance of the price for acquiring a share in a laundry… Held: that interest paid by the principal petitioner on the unpaid balance of the price for acquiring a share in a laundry partnership business, did not constitute an expense attributable to a trade or business carried on by him, within the meaning of section 22(n)(1), I.R.C. 1939; and, accordingly, that the amount of such interest is not…

To establish the total amount expended on the support of his three children during the year in issue, petitioner relied upon statements contained in a revenue agent's report. Held: in the absence of agreement, revenue agents' reports are not proof of facts stated therein, and there being no other evidence, petitioner has failed to establish the total amount expended for support, and, correlatively, has not proven that he contributed an amount in excess of one-half thereof.

1. Respondent disallowed exemptions claimed by petitioner on account of three children for the reason that he failed to substantiate [his] claim to these dependency credits. Held: facts of record warrant conclusion that the children received more than one-half of their support from petitioner during the taxable year and that petitioner is entitled to such dependency credits. 2.

Taxpayer received cash and negotiable notes payable over a term of years having a fair market value as advance royalties or bonuses on execution in 1953 as lessor of an oil and gas lease for a… Held: the fair market value of the notes constituted taxable income in 1953. Held, further, the transaction did not qualify as a sale or other disposition of personalty or real estate entitling taxpayer to report on the installment basis provided in section 44(b), I.R.C. 1939.

Petitioners, an attorney and his wife, took a trip around the world and wrote a daily narrative of their experiences and impressions, which they compiled in book form and unsuccessfully tried to… Held: the expenses of the trip and producing the manuscript for publication are not deductible as ordinary and necessary expenses of carrying on a trade or business under section 162(a), I.R.C. 1954.

1. During the years in issue, petitioners operated a junk business and dealt in used cars. Held: respondent's determination was not arbitrary and excessive, and is sustained due to failure on the part of petitioners to prove error therein. Held, further, no part of the deficiencies was due to fraud with intent to evade tax. 2.

Petitioner asserts that he was in the business of promoting, organizing, and financing businesses and of lending money. Held: There being no proof that petitioner promoted, organized, or financed said debtor, it follows that no proximate relation between the bad debt and the alleged business has been shown and claimed business deduction is disallowed. 2.

Held, upon this record, sales of automobiles which had been acquired new and rented to different lessees for varying periods of time by… Held: upon this record, sales of automobiles which had been acquired new and rented to different lessees for varying periods of time by an automobile dealer who also engaged in the sale of new and used cars, were sales of property held primarily for sale to customers in the ordinary course of petitioner's trade or business and profits from…