Volume 32 — Board of Tax Appeals

A corporation of which the petitioner was a stockholder dissolved on December 2, 1930, and turned its assets, consisting of cash and stock of 11 corporations, over to its attorney for distribution… Held: that the liquidating dividend paid in stock was not received by the petitioner in 1930 for tax purposes.

1. (a) EXHAUSTION AND OBSOLESCENCE OF PATENTS, ETC. - BASIS. - On February 2, 1924, corporation X, sole stockholder A, individual B, and… Held: that an ownership, interest, or control of less than 80 percent remained in the transferors, and that petitioner's basis for exhaustion and obsolescence is cost to if of the assets acquired. (b) ASSETS ACQUIRED FOR STOCK - COST. - Where assets are acquired for stock the cost of such assets is the fair market value of the stock.

1. At the instance of the petitioner, Frank Kell, his wife and children decided to purchase certain shares of stock in the Wichita Falls Mill & Elevator Co. and executed their promissory notes as… Held: that the evidence does not show a gift by him to his wife and children of his interest in the partnership and that the income from the partnership is taxable as community income of Frank Kell and Lula Kell, his wife. 2.

- Where petitioner was the record owner of all the stock of a corporation, except qualifying shares, and withdrew from the corporation substantially all of its net earnings during the taxable year,… Held: such withdrawals constituted distributions taxable as dividends, within the meaning of section 115, Revenue Act of 1928, notwithstanding no formal dividend was declared and the withdrawals were charged against petitioner's open account on the corporation's books.

1. Fee for amendment of charter is in the nature of an organization expense and may be deducted as a loss upon dissolution. Malta Temple Association,16 B.T.A. 409. 2. Held: that the interest from the date of the schedule to the end of 1929 was accruable income for that year and not for 1930. The remainder of the interest, allocable to 1930, was not interest upon an obligation of the United States and no credit therefor is allowable. 5.

1. In computing the deduction allowable for charitable contributions made during the years 1929 and 1930 the taxpayers' net incomes are inclusive of capital gains. Helvering v. Bliss,293 U.S. 144. 2. Held: that the exchange of securities for shares of stock of Insull Utility Investments, Inc., constituted a nontaxable exchange. 3.

On January 23, 1923, dividends were declared by a hotel corporation, payable February 10, 1923, to stockholders of record on January 26, 1923, and on February 3, 1923, a stockholder in the hotel company entered into a contract to subscribe for shares in an investment company, agreeing "to pay therefor" by "selling, assigning, transferring and setting over" to the investment company his shares in the hotel company, "together with any dividends which may be paid hereafter upon said stock prior to the certificates therefor being transferred upon the books of said company", which transfer on the books occurred February 13, 1923, the books being closed to transfers from January 26 to February 10, 1923. On February 10 the hotel company mailed a check for such dividends to the taxpayer as record holder, the same being received not later than February 12. On February 16 the check was deposited by taxpayer to his order and on February 20, 1923, he drew his check to the investment company for the amount of such dividends, which check was duly delivered to the investment company. Held, the dividends were taxable to the taxpayer, the stockholder of record on January 26, 1923.

1. TAXABLE PERIODS FOR INCOME TAX UNDER REVENUE ACTS OF 1916 AND 1917, AND WAR EXCESS PROFITS TAX UNDER REVENUE ACT OF 1917. - Where a corporation was in existence during the entire calendar year… Held: that its taxable period for income tax purposes is the calendar year 1917, and its taxable periods for was excess profits tax purposes are the three and nine-month periods, respectively. Trustees for Ohio & Big Sandy Coal Co.,15 B.T.A. 273, followed. 2.

M owned stock of the C & R corporation and, to avoid the income tax which would result from a direct sale of such stock, he organized the… Held: That the transfer of the C & R stock by G to Q was not a reorganization within the meaning of section 112(i)(1)(A), Revenue Act of 1928, since it was not a part of the conduct of the business of either corporation so as to bring it within the class of reorganizations contemplated by the statute, Commissioner v. Gregory, 69 Fed.(2d)…

Where a contract provided conditionally for the exchange of investment property for property of like kind to be held for investment, and cash, or alternatively its sale, and the property was in fact so exchanged, held, the transaction was an exchange and the recognized gain therefrom for income tax purposes is limited to the cash received therein, even though the taxpayer was influenced in using this method rather than an outright sale of such property by his desire to postpone or avoid income taxes upon its disposition. Revenue Act of 1928, secs. 112(b)(1) and 112(c)(1).

A private corporation, doing business in the State of Texas, and owning a varied assortment of obligations of subdivisions of the States of Texas and New Mexico, created a trust and transferred the… Held: the interest paid to the holders of the trust certificates is to be included in gross income, and is not free from tax as interest upon the obligations of a state or political subdivision thereof, under section 22(b)(4) of the Revenue Act of 1928.

Where estate of a deceased member of a partnership, which was the general agent of a life insurance company, was entitled under the agency contract to… Held: renewal commissions collected by continuing partnership are charged with right of deceased partner's estate to his share thereof; held, further, net income of partnership which is taxable to petitioners is net profits from commissions on old and new business less amount required to be paid to estate of deceased partner.

1. The amount of an allowance for depreciation for the year 1930 determined. 2. During 1930 the petitioner spent $41,363.92 for patent applications and $36,681.26 for patent interferences. Held: that the amounts are not legal deductions from gross income.

- Where under the laws of the State of California the liability for county and city taxes is determined by the ownership of property on the first Monday in March of each year, taxes accrue on such… Held: the expenditure for the payment of the taxes became a part of the cost of the property and is not deductible as taxes under section 23, Revenue Act of 1928.

1. A taxpayer is not entitled, under section 204(c)(1) of the Revenue Act of 1926, to compute depletion of a sulphur mine on the basis of the discovery value to its predecessor in title. 2.

The petitioner, engaged in the business of buying and selling securities dealt in on the New York Stock Exchange, is entitled to deduct losses sustained during the taxable year under the provisions of section 23(e)(1) of the Revenue Act of 1928 upon the sales of securities purchased and held on margin, notwithstanding, immediately after the execution of orders of sales, purchase orders were executed for the repurchase of the same kinds and numbers of shares so disposed of.

- Deed of trust construed to have passed a vested remainder in the corpus to petitioners on May 8, 1920, under the laws of Massachusetts. Held: the basis for gain or loss is the fair market value of the corpus on May 8, 1920, the date of acquisition thereof, pursuant to section 113(a)(4), Revenue Act of 1928.

1. Petitioner having sold property within the taxable year, receiving cash, a certified or cashier's check and a second mortgage in payment, must include the amounts of such cash and check in the computation of gain or loss therefrom, notwithstanding the check and cash so received were deposited in a banking institution that failed three days after such check was deposited and before she was able to withdraw and make use of the funds so deposited. 2.

1. Petitioners, executors of decedent, paid to an orphanage and a hospital certain sums pledged by the decedent during his lifetime. Held: that such payments are neither deductible as claims, since not incurred for a fair consideration in money or money's worth, under section 303(a)(1); nor as transfers for charitable purposes under subsection (3) in the absence of evidence on the nature of the donees. 2.

Certain withdrawals from a corporation in 1929 by its sole stockholder, without declaration of a dividend by the corporation, held taxable as dividends under the provisions of the Revenue Act of 1928, section 115(a). Christopher v. Burnet, 55 Fed.(2d) 527, affirming 13 B.T.A. 729, followed.

1. Where the evidence establishes that certain stock was owned by petitioner, his wife, and sister in approximately equal amounts and was issued in blocks corresponding to such ownership, though stock belonging to petitioner's sister was issued in petitioner's name solely to facilitate business dealings therein, and petitioner's books showed that all dividends were distributed to the real owners, and it appearing that petitioner acted as agent for himself, his wife, and his…

1. A motion by the Commissioner to consolidate into one proceeding three proceedings separately brought, one by a parent corporation and the other two by members of the affiliated group, is denied because no good reason for such consolidation has been advanced and, in the opinion of the Board, such consolidation would be inadvisable. 2.

- In connection with a reorganization of petitioner's financial structure, two individuals who owned practically all petitioner's capital stock exchanged their old stock for all the preferred stock,… Held: such payments constituted dividends within the meaning of section 115(a) of the Act of 1928, rather than either interest or expenses under section 23 of the same act.

Where petitioner, for the purpose of reducing his income taxes, instructed his broker to sell stocks owned by him and at the same time instructed him to purchase the same number of shares of the same kind of stock for his wife, and deposited the proceeds from the purported sale to the joint account of himself and wife, where the purported purchase was made through the joint account, where payment could not have been made either through the joint account or by the wife except…

The petitioner, a corporation, was organized to take over the assets and business of a former corporation, the charter of which had been forfeited for failure to pay the state corporation license… Held: that petitioner, in computing its taxable net income, may not deduct net losses sustained by the old corporation nor net losses sustained by the business during the interval between the date of forfeiture and the date the petitioner was organized.

The Akin Oil Co. filed its income tax return for 1917 on March 29, 1918. A deficiency notice was mailed to it December 27, 1928. Held: The deficiency against the Akin Oil Co. was not barred. (2) Judgment was properly entered against the Akin Oil Co. (3) Petitioner is liable as a transferee of the Akin Oil Co.

The Pelton Clinic, a medical and surgical clinic, was an association within the meaning of the applicable revenue acts during the years 1924 to 1927, inclusive, and taxable as a corporation.

Under a trust indenture decedent was given power to appoint by will those who should take the trust property at her death, but in default of such appointment her issue should take as remaindermen. Held: the trust property is not includable in the gross estate of decedent.

The petitioner corporation was organized to take over the cartoon business of an individual. Held: that petitioner was neither formed nor availed of in 1926 and 1927 for the purpose of permitting its stockholders to escape surtax and section 220 of the Revenue Act of 1926 does not apply.

1. In 1920 a corporation capitalized earned surplus and issued additional common stock. Held: further, that the petitioner sustained a deductible loss upon the redemption or cancellation of his stock. 2. During the year 1929 the petitioner, a single man, was the sole support of his unmarried sister, age 55, whom he maintained in his household, and who had no trade, occupation, or income.

1. Amounts expended by the petitioner in the fiscal year in question as brokerage fees and attorney fees incident to the execution of a 40-year lease on property owned by the petitioner constitute capital expenditures, deductible over the years of the lease, rather than ordinary and necessary business expenses, deductible in the year in which expended, even though the business of the petitioner was solely that of owning and leasing properties. 2.

Petitioner on a cash basis is entitled to deduct the entire amount of interest paid by him in the tax year on a promissory note on which he and his wife were joint and several makers, even though the note was secured by a mortgage on real estate owned by the wife alone.

G. S. & D. Corporation, engaged in the coal business, agreed to sell its real property and other fixed assets used in the business, its good will, franchises, and right to its name to P. & B.… Held: Neither transfer of assets from G. S. & D. to F. nor from F. to H. are reorganizations within the meaning of the statute, Gregory v. Helvering,293 U.S. 465, but both transactions are non-taxable under the provisions of section 112(b)(5), Revenue Act of 1928.

Transfer by decedent in 1930 of securities to a corporation in which her husband owned all the stock for a note of the corporation, followed by reacquisition of the same securities in 1931 from… Held: under the circumstances here, not a bona fide sale and respondent's disallowance of a claimed loss for 1930 is sustained. of a claimed loss for 1930 is sustained.

In 1925 the decedent created a trust fund to continue for 20 years, the income to be paid to himself and wife in equal shares and the corpus to be distributed to them equally at the end of the period. Held: that the value of a one-half interest in the income of the trust fund to the end of the 20-year period plus the value of the remainder interest in one half of the corpus is includable in the gross estate.

Under the terms of a testamentary distributable trust on the cash receipts and disbursements basis, the trustee set aside in the tax… Held: the trustee was authorized to withhold from beneficiaries of the trust in the tax year a reasonable amount of trust income to meet a tax liability which had accrued against trust property, and since the beneficiary had no present right in the year to receive any portion of the income so withheld, respondent erred in determining that…

1. A corporation authorized to do business as a fire insurance company, which issued fire insurance policies but reinsured its risks, was subject to tax… Held: the trust thus created did not carry on any business in the sense necessary to constitute it an association taxable as a corporation. It was not a parent corporation of an affiliated group including the two companies the stock of which it held. The two companies were not entitled to join in a consolidated return. 3.

1. Nonnegotiable notes due in a future year received in connection with the sale by a partner of his partnership interest had no fair market value and are not to be included in income in the year of receipt. 2. Interest of a partner in a partnership owned for more than two years held to be capital asset and the gain upon the sale thereof taxable at capital gain rates.

1. The petitioner, a consulting engineer, received compensation from two municipalities of West Virginia for valuing property and preparing technical engineering data for use in a gas rate case pending before the Public Service Commission of the state. The work was performed with the assistance of member of petitioner's office staff, and the compensation was based upon the amount of expenses incurred by the petitioner in the performance of the duties. Held, that the compensation received is not immune from income tax. 2. A revenue agent's report introduced in evidence by the petitioner for the limited purpose of showing the basis used by the respondent in determining the deficiency may not be used to establish the facts set forth therein.

A partnership, in addition to its business as a dealer in securities, and with no relation to its customers in that branch of its… Held: respondent's determination that such partnership is not a dealer in securities within article 105, Regulations 74, as to such additional branch of its business, and is, therefore, not entitled to inventory, at market value, the securities purchased in connection with that additional business and carried in a special account, will not…

1. The petitioner was created and operated to receive deposits of the savings of employees of the Railroad and to invest them in securities and in loans made exclusively to employees entitled to the… Held: that the petitioner is a mutual savings bank not having a capital stock represented by shares, within section 231(2), Revenue Acts of 1918, 1921, 1924, 1926, and section 103(2), Revenue Act of 1928. A-C Investment Association v. Helvering, 68 Fed.(2d) 386. 2.

1. Petitioner, organized in 1925 and doing a jobbing business in a large group of unrelated commodities, took inventories for 1927, 1928,… Held: that the statement in the 1928 return, which is contrary to fact, was not the exercise of an election of basis for valuing inventories that is binding as to the taxable year 1929; and that petitioner, having consistently valued inventories, at least since 1927, at cost, may not change that practice for 1929, so as to value at the…

1. Taxpayer, a collection agency, is entitled to receive certain commissions on collections made by it, and on payments made by debtors directly to clients; it has a record only of commissions earned on collections made by it and on reported payments received by clients directly from debtors; it retains collections made by it on behalf of its clients and does not make settlement therefor until and unless clients report payments received by them from debtors; and, in making…

Holders of common participation shares of a trust transferred their shares to a corporation in exchange for shares of its preferred stock, marketable securities of other companies, and cash.

Joint resolution of the Congress extending the two-year period of limitation in section 275 of the Revenue Act of 1928 for one year, where a married individual filed a separate income-tax return * * * and included therein income which under the laws of the State upon receipt became community property, held applicable here even though the community property determination itself was not placed in issue before this Board.

- Where certain debts were properly ascertained to be partially worthless, in definite amounts, in the taxable year, held, petitioner was not required to formally charge off such amounts… Held: petitioner was not required to formally charge off such amounts within that year, as a condition precedent to the allowance of their deduction in determining taxable income for that year under section 23(j) of the Revenue Act of 1928. Allie M. Turbeville,31 B.T.A. 283, followed.

1. Expenditures incurred in connection with the organization of a corporation and increases of its capital stock, and fees paid to list the additional stock on the New York Stock Exchange, held not to be deductible as losses sustained in the year of merger with another corporation. 2. Legal fees and expenditures incurred by a corporation in connection with its merger with another corporation held not to be deductible as ordinary and necessary business expenses.

1. Trust indenture construed to create one trust with two beneficiaries of the corpus, and not two trusts, each with a single beneficiary. 2. Held: that the profit realized in the sale of the stock is taxable in 1927, receipt by the agent being receipt by the principal.

PROPERTY ACQUIRED BY EXCHANGE - CONTROL BY TRANSFERORS; - A tract of land was transferred by individuals to a corporation of which they were stockholders. All the capital stock of the corporation had been issued in payment for another tract of land and there was no evidence that the individuals intended to make a gift of the land to the corporation or to pay it in as paid-in surplus. Held, the transfer in question was a sale, and the Commissioner erred in holding that the basis for determination of gain or loss on sale of the land by the corporation in the tax years was the same as in the hands of the transferors. Held, further, that payments made by the corporation to one of the individuals were understood by her to be payments of part of the purchase price of the land, were treated as such by her in her income tax return and by the corporation on its books, and were in fact payments to her and are taxable as capital gain and not as dividends.

1. LOSS - TRANSACTION ENTERED INTO FOR PROFIT. - The purchase of stock marks the beginning of a transaction entered into for profit and gain or loss is to be determined with reference to that event. Upon sale of the stock at cost with a guaranty against loss by the purchaser, the amount which is paid under the guaranty within the year of the original purchase is a deductible loss arising out of a transaction entered into for profit. 2. CAPITAL LOSS - WORTHLESS NOTES. - The loss sustained because of inability to collect on notes is not a capital loss, the losses allowable as capital losses being confined to those resulting from sale or exchange of capital assets.

Petitioner, a cooperative purchasing association, held, under the circumstances, to be taxable on profits from sales to nonmembers on which it did not pay or credit patronage dividends. Held: under the circumstances, to be taxable on profits from sales to nonmembers on which it did not pay or credit patronage dividends.

Where a widow elects to take under her husband's will and become beneficiary of a trust created by his will, in lieu of taking her statutory dower rights in his estate, income paid to her from such trust is taxable to her as ordinary income without regard to the value of her marital interests surrendered. Commissioner v. Butterworth,290 U.S. 365.

1. The value of securities at the time contributed to a partnership and not the cost to the contributor is the proper basis for determining gain or loss upon the future sale of such securities by the partnership. Edward B. Archbald,27 B.T.A. 837, followed. 2.

- A corporation in which petitioner owned substantially all the stock declared a dividend on December 9, 1930, payable on January 10, 1931. On December 31, 1930, petitioner was indebted to the corporation in an amount in excess of the dividend on his stock, and on that date the corporation credited his account with the amount of the dividend. Held the amount so credited represented income in 1930.

Section 204(a)(8) of the Revenue Acts of 1924 and 1926, and section 113(a)(8) of the Revenue Act of 1928, requiring cost to transferor to be used as basis for determining gain or loss to transferee corporation upon sale in 1924 to 1929, both inclusive, of property acquired by transferee corporation before the enactment of the Revenue Act of 1924, for which it had issued in 1923 to transferor more than 80 percent of its capital stock in payment therefor, are not…

1. In a consolidated return of affiliated railroad corporations, the cost of intercompany transportation of material used in capital construction must be eliminated from operating expense deduction. Held: under the terms of the fund regulation, deductible as ordinary and necessary expenses. 8.

1. Special assessment required: a. Invested capital can not be determined. b. A mixed aggregate of tangible and intangible properties was paid in for shares, cash, and obligations and an allocation can not be made. c. Abnormal conditions of capital and income are prima facie indicated by large borrowings and valuable intangibles which may not be included in invested capital. 2. Seller's breach in 1920 of a contract made in 1919 to deliver oil, does not affect seller's 1920 income, if seller contests liability and defends suit, judgment going against it in 1923 and compromised in 1924 after appeal. 3. The measure of discount on debentures is the difference between the amount received at the time of their issuance and the amount agreed to be paid at maturity; so where the debentures contained an express provision that at maturity they would be redeemed at 105, the discount is measured upon 105 and not upon 100, the "face amount" of the obligation. 4. Where debentures and shares are issued for a lump sum of cash, the amount to be regarded as received for each class may properly be measured in the ratio which the value of each on the date of issue bears to the whole. Such values and apportionment are determined in fact upon the evidence and the discount on the debentures thereupon found. 5. Unamortized discount on debentures may not be used as a deduction when the debentures are called before maturity in exchange for preferred shares, but must be attributed to the preferred shares. 6. Unamortized discount on debentures called in 1919 for retirement in 1920, a retirement fund being set up in 1919 but not distributed until 1920, may not be used as a deduction in 1919 but may be used as a deduction in 1920. 7. War amortization which is available to a taxpayer of an affiliated group may be applied to that taxpayer alone in determining consolidated income, and a facility owned by one taxpayer in the group and supplying the refinery owned by another may not be the subject of an amortization deduction by the second. 8. War amortization is not applicable to a pipe line used for the transportation of oil, as it is not a production facility. 9. War amortization may not be deducted in respect of a property which was constructed for ordinary peace time use and not as a war production facility, materials for its construction having been, to a slight extent, ordered shortly before the Armistice. 10. War amortization may not be deducted in respect of a property sold in 1921 for more than cost. 11. An unincorporated stock association of Texas may properly be a party to a consolidated return. 12. The cost of property, consisting of shares of an unincorporated association, acquired by an existing corporation, a substantial number of whose shares are already outstanding, in exchange for some of its own shares may be taken as the actual value of its own shares at the time of the exchange, and where such value is different from the value of the property received, the value of the property received does not determine its cost to the corporation. 13. Gain or loss to a corporation receiving in liquidation the properties of an affiliated association of which it owns the shares is the difference between the value of such properties when received and the cost of the association shares. 14. Property is to be regarded as received on the date of actual transfer even though it was said to be transferred "as of" a prior date. 15. A determination by the Commissioner allowing a deduction in express terms for war amortization may properly be regarded as not including a deduction for depreciation. 16. A deduction for depreciation may be allowed in respect of assets which have been the subject of a deduction for war amortization, the depreciation base being limited to the amount of cost remaining after the amortization deduction so as to preclude two deductions upon the same base. 17. Upon the evidence, a tank vessel is determined to be a proper subject of obsolescence justifying a deduction greater than that for ordinary depreciation. 18. In determining the proportion of consolidated tax assessable against one corporation of an affiliated group, where no agreement exists, the income of that corporation from intercompany transactions should not be eliminated from the calculation.

The respondent having determined the value of stock on the basis of value of corporate assets, and that method being advocated by both parties, the value is redetermined in the same way in accordance with the evidence of asset values.

Following Junius Beebe, Trustee,26 B.T.A. 190; affd., 67 Fed.(2d) 662, it is held that a testamentary trust is an "estate" and is entitled to deduct from gross income, under section 23(c) of the Revenue Act of 1928, a collateral inheritance tax paid to the Commonwealth of Pennsylvania.

The petitioner as a residuary legatee acquired certain oil and gas leases which, with a small amount of cash, were later transferred to a… Held: that the cost of these leases to the corporation was the fair market value of the stock paid therefor, and, there being no other method of measuring such value, the fair market value of the stock is found to be the equivalent of the fair market value of the leases when received; held, further, that distributions made by the…

The petitioner filed false and fraudulent income tax returns for 1926 and 1927. Held: that such action is not a bar to the imposition of the fraud penalties provided for by section 275(b) of the Revenue Act of 1926. 2. In 1931 the petitioner submitted offers in compromise of tax liabilities and penalties for 1926 and 1927.

1. Where an alleged donor fails to establish a clear and unmistakable intention on his part to absolutely and irrevocably divest himself of title, dominion, and control of the subject matter of alleged gifts in praesenti and fails to establish an irrevocable transfer of the dominion and control of such gifts to alleged donees so that he can exercise no further act of dominion or control over it, there is no valid gift inter vivos. 2.

1. Where it appears that there was no clear and unmistakable intention on the part of an alleged donor to absolutely and irrevocably divest himself of title, dominion, and control of the subject matter of alleged gifts in praesenti, and that there was no irrevocable transfer of the dominion and control of such gifts to alleged donees, so that such donor could exercise no further act of dominion or control over such subject matter, there is no valid gift inter vivos. 2. In such a situation the transfer of corporate stock upon the books of a corporation and the issuance of new certificates in the names of alleged donees is insufficient to constitute a valid gift inter vivos. 3. Upon the evidence, held that respondent erroneously included the profits realized upon the sale of certain stocks in such donees' taxable net incomes, since no gifts of such stock were accomplished.

- During the taxable year, petitioner Adele M. Sommers was the mother of three minor children. Held: petitioners are not entitled to the credit of $400 for each child provided for in section 25(d) of the Revenue Act of 1928, as the evidence fails to show that the children received their chief support from petitioners.

A life insurance company complying with the statutory requirement of reporting rental value of space occupied, as a condition to the allowance of deductions for taxes, expenses, and depreciation, is not deprived of such deductions because of its sale of the property within the year.

1. An indebtedness on corporate bonds charged off in part because of partial worthlessness in 1931 is not subject to the provision of the statute forbidding recognition of gain or loss because the debtor corporation in a later year was reorganized and the bonds were exchanged for stock in the new corporation pursuant to the plan of reorganization then existing. 2.

Prior to July 29, 1927, petitioner and her husband, while residing in the State of California, acquired, either on their joint credit… Held: such shares were not the separate property of petitioner nor community property of petitioner and her husband, under the laws of the State of California, but were owned by them as tenants in common, and petitioner is taxable with only one half of the dividends received thereon, and not with the entire dividends as the Commissioner…

Where state inheritance tax and Federal estate tax exceeded in amount the income received during 1929, in which year such taxes were paid, but such taxes were charged to the corpus of the estate and not to income, and where a substantial part of the income was properly paid as income to the petitioners as beneficiaries of such estate, disclosing an intention to make the distributions out of income rather than out of corpus, held that the determination of the Commissioner…

Petitioners' decedent gave stock to his sons in 1925 and died on November 10, 1928, without reporting the gift for Federal gift tax purposes or paying such tax thereon. Held: such gift tax and interest, paid by petitioners in 1931, are not deductible in the determination of the income tax of the estate for that year.

The wife of each petitioner was the record holder of certain corporate stock and made claim to ownership thereof as a gift from her husband. The evidence is insufficient to establish gifts, and it is held that the stock was the property of petitioners and dividends paid thereon and gains realized upon the sale thereof are taxable to petitioners.

The decedent guaranteed the notes of a corporation of which he was a stockholder and director. Held: the decedent having guaranteed such notes in such manner and under such circumstances as to constitute him, in practical effect, the primary and sole obligor thereof, a debt did not spring into existence by such payment upon the theory of Shiman v. Commissioner, 60 Fed.(2d) 65, and the amount thereof is not deductible as a debt found…

Having decided in Florence O. R. Lang and Walter Kidde, Executors of the Estate of Henry Lang, Deceased, Docket Nos. 71116 and 74215, 32 B.T.A, 522, that the decedent was, in effect, the primary obligor upon certain loans which his estate was required to pay and that, therefore, no indebtedness to it sprang into existence at the time of such payment and consequently there was no deductible bad debt in the computation of net taxable income of the estate, the only unsettled…

1. Allegations of new matter in support of claim for increased deficiency set up in an amended answer to which no reply was filed, held, admitted. Held: admitted. F. O. Statler,27 B.T.A. 342. 2. The Board of Tax Appeals is not confined to a consideration alone of the revenue statutes, and may not adjudicate as a deficiency or transferee liability an amount which by the Constitution or a supervening statute or decision may not legally be imposed or exacted, 3.

Respondent's action in including in income of 1927 and 1928 credit balances, consisting of items accrued on its books of account six years or more prior thereto as liabilities for merchandise coal, freight, wages, freight war tax refunds, and miscellaneous items, approved, where the evidence does not disclose that such items represented in the years involved true accounts payable which petitioner was obligated to pay or claims asserted against the petitioner.

Upon the evidence, held that a patent was owned by one individual instead of two and that since immediately after the exchange of the patent to the petitioner for stock, such individual was not in… Held: further, that the cost of the patent is measured by the fair market value of the stock issued therefor. which, upon the evidence, is determined.

1. In 1929 the petitioner received rights on shares of stock in two corporations, which he had held for more than two years, entitling him to purchase… Held: that the net proceeds are taxable as capital net gain. 2. In 1929 the petitioner received rights on shares of stock of the American Superpower Corporation entitling him to purchase shares of stock in other corporations owned by the American Superpower Corporation. The rights thus received had a large market value.

The petitioner, as a stockholder of the American Superpower Corporation, received from that corporation rights to purchase shares of stock of other corporations owned by it. Held: that the basis for computing gains and losses from the sales of rights and from the sales of shares of stock acquired thereunder is cost to the petitioner.

In August 1930 the petitioners received rights to subscribe for additional shares of the common capital stock of Insull Utility Investments, Inc. Most of the shares of stock in respect of which the… Held: that the proceeds from the sale of rights issued in respect of stock held by the petitioner for a period of more than two years constituted capital net gains.

1. INCOME - CONTINGENT LIABILITY. - In 1931 petitioner became entitled, without restriction, to one half of the net profits of a partnership or joint venture of which he was a member. Held, petitioner is taxable for that year upon the full amount of his distributable share of such partnership or joint venture profits, notwithstanding litigation was then pending upon a claim against one half thereof, which litigation was finally terminated adversely to petitioner in 1933. 2. DEDUCTIONS. - Deduction for alleged loss denied where the record fails to show that such loss was in fact suffered by petitioner.

The petitioner is the trustee of several trust funds. Held: that the amounts paid are not legal deductions from gross income.

1. A taxpayer who asserts that he is not taxable on the profit which he received from the sale of stock, on the theory that he held the stock under a constructive trust, must prove the existence of such a trust. 2. The fact that the taxpayer made a payment in settlement of suits by representatives of the person from whom he purchased the stock to recover the proceeds and for an accounting, and that he had close business and social relations with the vendor and members of his family, is insufficient to establish the existence of a constructive trust, where the evidence discloses that, in the suits, the taxpayer asserted his ownership of the stock and denied that his purchase was improper, the suits were settled on advice of counsel before trial, the settlement embraced matters other than those involved in the suits, and the vendor of the stock fixed the selling price, and there is no proof that such price was not a fair one. 3. The difference between the cost of the stock and the proceeds of the sale is income of the taxpayer in the year of the sale, and, as he received the proceeds under claim and color of title and without restriction and there was no evidence at the time that anyone was disposed to question his title, his income for that year is not affected by the amount paid in a later year in settlement of the suits against him.

Petitioner acquired all of the common stock and assets of several predecessor corporations, issuing therefor bonds and all of its common… Held: that immediately after the transfer to petitioner of the shares of stock and assets of the old corporations an interest or control of less than 80 percent or more remained in the transferors and that the basis to petitioner for computing allowances for depreciation and gain or loss on the sale of assets is the cost of the assets to…

1. DEALER IN SECURITIES. - A partnership, in a separate branch of its business, engaged in purchasing securities in its own name for resale over the counter to its customers, held to be a dealer in securities within article 105, Regulations 74, and entitled to inventory, at market, securities carried in that branch of its business. 2.

Where a corporation issued to its stockholders rights to subscribe to certain of its unissued stock on a basis of one new share for each two old shares held and such stock rights had a fair market… Held: petitioner is not entitled to a deductible loss by reason of the lapse of such rights. St. Louis Union trust Co. et al., Co-trustees,30 B.T.A. 370, followed.

1. Where two different kinds of stock are received in exchange for a third kind of stock, and it appears that there is no satisfactory basis of comparison of the values of the two types of new shares received, no allocation of the old basis need be made. 2. Book value, in this particular case, is an unsatisfactory basis of comparison, and does not afford a satisfactory means of dividing the old basis between the two types of new shares.

1. Evidence that an individual taxpayer had a brokerage account upon which he bought and sold securities in a series of transactions, held,… Held: insufficient to exclude him from the restriction of the wash sale provision, section 118, Revenue Act of 1928. 2. The wash sale statute is not concerned with the identity of shares sold, but provides only for the disallowance of loss deduction if substantially identical property is acquired within 30 days of the sale. 3.

A telegram sent to the Board in behalf of a taxpayer, less than 90 days after notice of deficiency had been mailed to him, as follows: File this as tentative petition I. J. Rosenberg Transferee, is insufficient to give the Board jurisdiction of the controversy.

1. An owner who leases property for a shorter period than its probable physical life, under a lease not requiring the lessee to return property… Held: that the deductions for exhaustion, wear, and tear for the years prior to the beginning of obsolescence should be computed on the basis of the probable physical life of the property, and that the deductions for exhaustion, wear, and tear, including a reasonable allowance for obsolescence, for the years after the beginning of…

1. The petitioner, in order to obtain funds on the security of its equities in improved real property occupied by it for the conduct of its business, conveyed the fee simple title thereto to a… Held: that the deed was in reality a mortgage, and that the transaction did not result in loss of petitioner's right to deductions for exhaustion of the property, which had a useful life less than the term of the lease. 2.

1. A notice of jeopardy assessment already made, not followed by a petition to the Board of Tax Appeals, does not serve to suspend the running… Held: assessment against petitioner was barred. 3. A notice of transferee liability and proceeding before the Board of Tax Appeals by one beyond the line of succession of transferee liability leading up to this petitioner, held, not to suspend the running of the statutory period of limitation on assessment in respect of petitioner.

Expenses incurred in prosecuting tax matters by an administrator appointed, after administration of the estate was completed, solely for the purpose of handling tax matters are not expenses of carrying on a trade or business and not deductible from income which consisted entirely of interest on a refund of estate tax.

The Clovis Gas Trust was not, during the year 1929, an association within the meaning of section 701(a)(2) of the Revenue Act of 1928 and hence is not taxable as a corporation. F. E. McGlone,22 B.T.A. 358; affirmed in Commissioner v. Duckwitz, 68 Fed.(2d) 629; Commissiner v. Brouillard, 70 Fed.(2d) 154; and Burnet v. Burns, 63 Fed.(2d) 313.

All of the essential elements of a valid gift inter vivos of certain corporate shares to the petitioner by her husband having been satisfied prior to December 31, 1920, the respondent incorrectly held that such gift was not consummated until thereafter, hence, he erred in the basis to be used, under section 113 of the Revenue Act of 1928, upon the sale of such stock.

In 1931 the petitioner obtained judgments against the city of Fulton, New York, for the recovery of property taxes paid in excess for prior years, which it had deducted from gross income in income… Held: that the amount was taxable income of the petitioner for 1931.

The final distribution in 1931 of an employees' trust whereby the employee, having theretofore contributed $8,000, received shares worth $4,515 and cash of $266.65, does not, under the Revenue Act of 1928, section 165, result in taxable income to the employee.

1. Dividends in stock of a third corporation were declared in 1928 by two corporations in which the petitioner was a stockholder. Held: the dividends were income in 1928. 2. The market value of subscription rights to purchase bonds of the American Telephone & Telegraph Co., received as a stockholder, does not constitute taxable income. T. I. Hare Powel,27 B.T.A. 55, followed.

Where a public school district, a political subdivision of a state, establishes and operates a system of public school cafeterias, held that such activity is not beyond the Federal taxing power and that compensation received by one for her services as director of the system of cafeterias is not immune from the Federal income tax. Helvering v. Powers,293 U.S. 214, followed.

On April 30, 1930, the petitioner transferred to a trustee by two separate trust agreements her interest in certain shares of stock then held in a voting trust. Held: that the profit on the sale of the shares is taxable to the petitioner in the year 1930.

Contracts for the purchase of competitors' businesses included convenants to refrain from competition for definite periods. Upon the proof of the relative value of those covenants to other properties acquired under the contracts, it is held that an equal portion of the total price paid in each case is exhaustible over the period during which the covenant to refrain from competition was effective.

Where the petitioner paid the sum of $10,500 in satisfaction of all issues between a bank, on the one hand, and his daughter, son-in-law, and himself, on the other, and the issues were shown to include a judgment in foreclosure held by the bank against the son-in-law and another individual, and a libel suit by the son-in-law against the bank, in neither of which the petitioner was involved, and the only issue which was shown to be connected in any way with petitioner's…

1. A claim for in increased deficiency on one ground will not support a later claim for an increase on a wholly different ground. 2. Motion for leave to amend answer so as to claim increased deficiency denied as not timely. The facts upon which respondent now claims an increase were called to the attention of the parties before promulgation of the Board's report and they were given an opportunity for further hearing, but no action was taken by either party.

1. Petitioner, a nonresident alien, executed contracts abroad under which he granted rights to publish some of his literary productions in the United States on a royalty basis, and also the right… Held: the sums received under such contracts are not income from sources within the United States and are not to be included in gross income. 3. Twenty-five percent penalties asserted by respondent sustained in the absence of a showing of reasonable cause for delinquency.

Respondent disallowed a deduction for loss on sale of stock on the ground of worthlessness of the stock prior to the year of sale. Held: the evidence is insufficient to overcome the presumptive correctness of respondent's determination and the disallowance of the claimed deduction is sustained.

- Petitioner's decedent and his wife, in a separation agreement, divided their community property and were divorced and the wife, among other things, received 400 shares of stock of a corporation… Held: petitioner's decedent, the husband, is not entitled to take a loss deduction from his income by reason of the transaction.

Where a corporation was granted permission by the state commissioner of corporations on December 26, 1929, to issue shares of its capital stock as consideration for the cancellation of an… Held: the transaction was not concluded until the year 1930 and income from such exchange did not arise in the year 1929.

A taxpayer having shares in possession directed a broker to sell them. The broker sold in 1929 but taxpayer did not deliver the certificate to the broker. Held: the sale was not a short sale, and the resulting loss was deductible in 1929.

Petitioner deducted from income of decedent's estate in 1929 and 1930 certain amounts paid attorneys in those years for defending the estate in litigation involving the income tax liability of… Held: that the attorneys' fees were not a business expense of the estate and, therefore, were not deductible from the gross income of the estate.

The basis for the computation of the 15 percent limitation on the deduction for charitable and other contributions is gross income less all permissible deductions except contributions, regardless of whether the tax is computed under the capital net gain or capital net loss provisions of the Revenue Act of 1928.

1. In February 1921 the taxpayer, an insurance company other than life or mutual, was decreed to be insolvent and liquidation ordered… Held: principal of awards received from the Mixed Claims Commission is salvage within the meaning of that term as used in section 204(b)(6); held, further, any excess of the awards over losses is not underwriting income within meaning of statute and not taxable. 2. Failure to file returns on time held not to be due to reasonable cause.

From April to June 1929 petitioner purchased through his broker, on margin, 1,600 shares of common stock of the P Corporation, certificates for which were delivered to him on July 8 and July 20. Held: that the stock sold should be charged against the earliest purchases of the stock in the account and not the stock first placed in the account.

Net income of a private corporation, operating water works under contract with a city, is not exempt from tax under section 116(d) of the Revenue Act of 1928 by reason of municipal ownership of part of corporation's stock and bonds, even though the city has a right under the contract to acquire ownership of the water works by purchasing the outstanding capital stock at par.

A petition was filed captioned in the names of husband and wife but only the husband's name appeared in the body of the petition and it was… Held: the evidence establishes that the original joint petition was filed with the full authority of husband and wife and was intended to be a joint petition of both and the amended petition now filed by the wife dates back to the filing of the original petition, and respondent's motion to dismiss for lack of jurisdiction is denied.

1. Trusts under which a trustee took title to real estate during the subdivision thereof, primarily for the purpose of affording security to a small group who advanced funds to enable a real estate concern to subdivide the property, held not associations under section 701(a)(2), Revenue Act of 1928. 2. Commissions on sales held properly deducted as expenses in the year paid.

An amount which had its source in a dividend distribution on stock held in escrow and, together with the stock, was paid as a fee to a law firm upon the successful termination of litigation, held,… Held: received by the firm as compensation for services and not as a dividend.

Under a stock purchase plan certain of petitioner's key employees purchased through petitioner stock of petitioner bought on the open market. Held: amounts thus absorbed by petitioner are not deductible either as ordinary and necessary business expenses or as losses.

1. The taxpayer had a contract with the stockholders of a corporation whereby the taxpayer had a right to purchase all of the stock of the corporation, subject to the right of the… Held: that for tax purposes there were two separate transactions - a purchase of stock and a liquidation of the corporation - and the separate transactions may not be treated as constituting but steps in a single transaction whereby the taxpayer purchased the assets of the corporation.

Held, petitioner's books were kept on accrual basis in view of fact that on basis of accounts maintained income was accounted for when earned, whether received or not, and expenses were accounted for… Held: petitioner's books were kept on accrual basis in view of fact that on basis of accounts maintained income was accounted for when earned, whether received or not, and expenses were accounted for when incurred, whether paid or not.

1. Numerous accounts receivable purchased for a lump sum may not be regarded as a single asset, the gain or loss remaining in suspense until the entire cost is recovered. 2. Held: properly computed by using the ratio of total cost to total face value in determining gain or loss on recoveries. 3. A loss on shares of stock shown to have become worthless in 1930, held, not deductible in 1931.

Under the laws of Ohio, as amended in 1931, there was no liability in that year for personal property taxes on inventories of manufacturers and property invested in or converted into bonds or other securities not taxed, and the petitioner is not entitled to accrue such taxes in 1931 for income tax deduction purposes.

EARNED INCOME. - Income received in compromise of a claim for liquidated damages or penalty upon the cancellation of a contract is not earned income within the meaning of section 31(a)(1) of the Revenue Act of 1928.

A testator devised certain real and personal property to his wife, during her life, and directed that upon the death of my said wife * * *… Held: that children of the testator, who survived him and the life tenant, took a contingent rather than a vested interest in the property at the death of the testator, and, under the provisions of section 113(a)(5), Revenue Act of 1928, their basis for computing gain or loss upon the sale of the property by the executors is the fair…

1. The determination in D. F. Strickland,16 B.T.A. 419, that Strickland was an employee of a political subdivision of the State of Texas, and that the compensation received by him from the Hidalgo County Water Improvement District No. Two was exempt from taxation is not res judicata of this proceeding. 2. Fees, as receiver, under appointment by Seventy-ninth Judicial District Court of Hidalgo County, Texas, are not exempt from taxation.

The transferors of the petitioner executed waivers extending the period of limitation for assessment to December 31, 1931, and if a notice of deficiency was sent to them prior thereto, for an additional period equal to the time the Commissioner is prohibited from making an assessment and for sixty days thereafter. The petitioner, as transferee, filed petitioners with the Board based upon deficiency notices mailed to the transferors in November 1931.

1. Amounts received by petitioner from a corporation of which he was president for entertainment purposes held not taxable income to petitioner to the extent of the expenditures made in entertaining in behalf of the corporation. 2. Although petitioner was negligent in failing to maintain proper records and in failing to see that his income tax return was accurate, the evidence does not establish fraud with intent to evade tax. 3.

DIVIDENDS. - Where both common and preferred shares are outstanding when a dividend is declared upon voting common stock and paid in nonvoting cumulative preferred shares at par value, such dividend is not a tax-free stock dividend. Tillotson Manufacturing Co. v. Commissioner, 76 Fed.(2d) 189, affirming 27 B.T.A. 913; James H. Torrens,31 B.T.A. 787, followed.

The petitioner was the sole stockholder of the G corporation, which owned all of the preferred and two thirds of the common stock of the Z corporation. Held: that the amount of the indebtedness of the petitioner which was canceled constituted income of the petitioner at the time of cancellation, and, under the circumstances of this particular case, the cancellation had the effect of the payment of an ordinary dividend by G to the petitioner.

1. DEDUCTION - INTEREST OR DIVIDEND. - Payments made voluntarily by an insurance company during tax years to holders of deferred dividend policies in addition to the deferred dividends held not to… Held: such excess is not deductible as guaranteed interest by the company but is a part of the reserve and constitutes a policy obligation. 3.

1. Where a corporation was organized in 1892 but forfeited its charter prior to the expiration thereof in 1912, and it continued thereafter without liquidation to operate as a public utility in its… Held: it was in 1927 an association taxable as a corporation under section 2(a)(2) of the Revenue Act of 1926 and article 1502 of Regulations 69. 2.

1. The 3 percent guaranteed interest paid by petitioner to beneficiaries upon proceeds of matured ordinary life policies left with the petitioner constitutes deductible interest under the Revenue Act of 1928. The additional 1.85 percent paid by the petitioner to such beneficiaries does not constitute deductible interest. Penn Mutual Life Insurance Co.,32 B.T.A. 839, followed. 2.

Held that the net loss sustained by petitioner in 1928 was incurred in a business regularly carried on.

Over a period of years the decedent paid $373,714.59 for stock and bonds of, and in advances and loans to a corporation. Held: that the stock was worthless prior to 1928; held, further, that decedent's loss is the difference between the total cost of the bonds and advances, and the selling price.

Petitioner received taxable income from the voluntary dissolution of the B corporation, which he returned as received in 1930. Held: the income was received in 1930.

Where a corporation, the petitioner herein, was organized pursuant to an agreement entered into by the residuary legatees, the widow, and the executors of the will of the testator, for the purpose of… Held: the annual payments made to the widow under this agreement are capital expenditures and are not deductible by the petitioner.

The sale by the petitioner of certain shares of stock in December 1930 at less than cost, followed by the purchase of a like number of the same shares soon after the expiration of 30 days from the sale, was a bona fide sale resulting in a deductible loss.

Stock in two corporations was exchanged in a nontaxable transaction for stock in a third corporation and a portion of such stock of the… Held: the cost of the stock in the two corporations should be allocated equally to all the shares of the third corporation for which exchanged for the purpose of computing gain from the sale of part of such shares of the latter corporation, in accordance with the rule laid down in Christian W. Von Gunten,28 B.T.A. 702; affd., 76 Fed.(2d)…

1. The respondent's determination as to the fair market value of lands acquired by the petitioner from her mother's estate sustained upon evidence of record. 2. Respondent's prayer for affirmative relief by correction of error made in his original audit, granted. 3. Deduction from gross income for legal expenses paid in the taxable year allowed in part.

1. The trustees of the residuary estate of the decedent, pursuant to power granted in his will, organized a corporation to promote the property interests of the estate. Held: that the distribution was not essentially equivalent to the distribution of a taxable dividend. 2. Loss alleged to have been sustained in the transaction disallowed in the absence of proof of the cost of the stock.

- During the taxable years petitioner sold printing machinery, taking a small cash payment and a series of installment notes for the… Held: as to the notes discounted at banks, while the original sale of the machinery was on the installment plan, petitioner by converting the notes into cash realized all the profit from such transaction in the year of sale and is not entitled to return its income on the installment basis, notwithstanding it remained contingently liable as…

Withdrawals in 1930 by petitioners from corporation of which they were officers or employees held to have been loans and not taxable income to petitioners in that year. Lorenzo C. Dilks,15 B.T.A. 1294, followed.

The date of the decree of the Missouri Probate Court ordering distribution of certain stock to the petitioner is the time of the distribution to the taxpayer within the meaning of section 113(a)(5) of the Revenue Act of 1928, even though the stock was not actually transferred to the name of the petitioner on the books of the corporation until a later date after inheritance taxes thereon claimed by the State of Texas were paid.

The base for the computation of the 15 percent limitation on the deduction for charitable and other contributions is gross income less all permissible deductions except contributions, regardless of whether the tax is computed under the capital net gain or capital net loss provisions of the Revenue Act of 1928.

The petitioner is a Pennsylvania corporation, chartered January 20, 1930. Held: that the net losses of the Delaware corporation are not legal deductions from the income of the petitioner for 1930.

Where the sole stockholder of a corporation withdrew its funds for his own use without formal declaration of a dividend and the withdrawals were charged to the stockholder on the books, but no interest was charged, paid, or contemplated, and the evidence indicates that he had no intention of repaying the amounts withdrawn, the Commissioner's action in treating the withdrawals as taxable dividends will be approved.

Interest on an undistributed pecuniary legacy, paid out of income of the estate to a legatee widow pursuant to section 21, Pennsylvania Fiduciaries' Act of 1917, held, income taxable to the recipient… Held: income taxable to the recipient and not a tax free bequest or allowance for maintenance and support.

DISTRIBUTION BY CORPORATION - SURPLUS - DEPLETION RESERVE. - Where a corporation properly set aside out of earnings amounts representing depletion based upon discovery value, and in subsequent years had losses in excess of its surplus balance, it is held that such excess effected a reduction of the depletion reserve and that earnings subsequently realized may not be applied to restore that reserve but represent surplus available for dividend distribution.

The petitioner was bequeathed a life estate in her deceased husband's residuary estate and was entitled to the rents, issues, income and profits thereof accruing during her life. Held: that the entire amount of such gains representing the difference between the selling price of the securities and their value at the time of the testator's death is taxable to the petitioner.

1. Where reply was filed at the hearing without objection of respondent upon permission granted under Rule 19, mere failure to file such reply within 45 days pursuant to Rule 15 of the Board's rules… Held: such sale was not an actual sale entitling husband and wife to each deduct a loss claimed to have resulted therefrom. 4.

In 1928 the petitioner recomputed the compensation of certain of its officers for the years 1912 to 1927, inclusive, in accordance with the terms of one of its bylaws adopted in 1912 and not… Held: that the amount so paid is not deductible under the provisions of section 23(a) of the Revenue Act of 1928 in determining net income for the year 1928.

A salary paid by a wife, who is manager of a hotel in Massachusetts owned by her and her sisters, to her husband employed by her as her assistant, held deductible by the wife as an ordinary and necessary business expense.

Under section 303(a)(1), Revenue Act of 1926, authorizing the deduction from the gross estate of such amounts for claims against the estate, to the extent that such claims were incurred or contracted bona fide for an adequate and full consideration in money or money's worth, as are allowed by the laws of the jurisdiction under which the estate is being administered, the deduction allowable for debts of a decedent includes all debts which are by the laws of the jurisdiction…

1. The petitioner acquired from various corporations and a partnership certain exhaustible assets in exchange for shares of its common and preferred stock and immediately after the exchange the transferors were in control of the petitioner.

1. During the year 1929 the petitioner paid counsel fees in defending itself in a suit brought against it by the United States upon the ground that it was violating the Sherman Anti-Trust Act… Held: that the attorney fees paid in connection with the litigation are a legal deduction from gross income. 2. In 1929 the petitioner paid $70,200 for the purchase of stock of a new corporation, against which it issued allotment certificates to certain of its managers and executives.

1. Taxpayer corporation engaged in the outdoor advertising business and transmitted to plant owners all orders for outdoor advertising received from its stockholder members, all of which were… Held: taxpayer is not a farmers', fruit growers', or like association exempt from taxation under section 103(12) of the Revenue Act of 1928. 2.

In December 1927 petitioner declared a parol trust in all profits which might thereafter be derived by him from trading in securities during the year 1928, to be held by him in trust for the members… Held: the profits so derived by the petitioner during 1928 are taxable to him as part of his gross income for that year.

1. Upon the evidence, held that an amount of $19,170.73 constituted unreturned investment in a joint venture and hence was not deductible as a bad debt in the year 1927; that petitioner is entitled to deduct $11,834.23 of such amount as a loss sustained in the year 1927; and that petitioner is not entitled to deduct the remaining $7,336.50 as a bad debt or loss in the year 1928. 2.

The petitioner was attorney for the Central Poor District and the School District for the Borough of Duryea, Luzerne County, Pennsylvania, during the taxable years, receiving for his services an… Held: that the petitioner was an employee of the districts and, as such, his compensation is not subject to income tax.

The petitioner, as the assignee of a lease for the production of oil and gas and other minerals from land to which it and the State of Wyoming were both claiming title, executed an agreement with the… Held: that income received by the petitioner under the contract on account of oil and gas produced from the land by the lessee under a lease from the State of Wyoming is subject to tax.

1. The ownership in the production under a certain oil and gas lease was divided into units evidenced by certificates. Held: that the operation under the lease, prior to the purchase of the units, was an association taxable as a corporation; and, further, that the petitioner, by purchase of the unit certificates and the distribution to itself of all of the properties under the lease, became a transferee within the meaning of section 280 of the Revenue Act…

1. When the Commissioner, with the approval of the Secretary of the Treasury, sets aside a closing agreement, the Government must prove facts to support such setting aside. 2. One, whether the taxpayer or the Commissioner, who seeks to set aside a closing agreement under the exception of section 606(b), Revenue Act of 1928, must prove the fact upon which the exception is conditioned. 3.

A trust instrument which reserves to the grantor power to change it in any manner and to change the beneficiaries, and without limitation to name other beneficiaries, is not made irrevocable by an… Held: income from the trust is taxable to the grantor.

In September 1930, the petitioners sold rights to subscribe for additional shares of the common stock of Insull Utility Investments, Inc., which rights had been received on shares of stock… Held: in most cases, amounted to more than two full years. Held, that the proceeds from the sale of the subscription rights in September 1930 constituted capital gains and that the petitioners are entitled to be taxed thereon at the capital gain rate of 12 1/2 percent of the net proceeds.

In 1929 the petitioner, as the result of a reorganization, acquired certain real estate against which taxes had accrued in 1928. These taxes were paid by the petitioner in 1929. Held: that the payment so made is a part of the cost of the property to the petitioner and is not deductible under section 23 of the Revenue Act of 1928 in determining petitioner's net income for 1929.

1. Petitioners, father and son, owned all of the 180 shares, par value $50, of the stock of a manufacturing corporation, except one share held by another member of the family; the corporation, prior… Held: the distribution made under the circumstances was essentially equivalent to the distribution of taxable dividends under section 115(g), Revenue Act of 1928. 2. Respondent's determination of fair market value of certain stocks approved.

1. The action of the Commissioner in imposing a penalty for fraud must be reversed where he not only fails properly to plead but also fails to prove that any part of the deficiency was due to fraud with intent to evade tax. 2.

1. Taxpayer and his wife exchanged letters purporting to consummate a sale of 18,300 shares of bank stock. Held: that the transaction was not a bona fide sale and the alleged loss did not constitute an allowable deduction from income. 2. Held, further, that the alleged sale was fraudulent with intent to evade taxes. 3.

Where a taxpayer received commissions as executrix in 1925 but did not include them in her reported income for that year on the erroneous theory that they were not income until allowed by the court,… Held: that the failure to assess a deficiency for 1925 was due to a mutual mistake of law; and held, further, that petitioner is not estopped from claiming that the commissions were income in year received, and not in 1930, the year the commissions were allowed by the court.

Since the death of the petitioner's sole stockholder on June 19, 1929, all of the petitioner's outstanding capital stock has been held in… Held: the corporation was not availed of during 1931 for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, and the petitioner is not subject to tax under section 104 of the Revenue Act of 1928 upon its…

The petitioner completed certain paving contracts with Richland County, South Carolina, in the taxable year 1932 and the work was accepted and settled for by the county in that year. Held: that the petitioner, making its return upon the completed contract basis, received no taxable income from the contracts in the year 1932.

1. Stock acquired through the exercise of stock rights does not constitute a capital asset, either wholly or in part, unless held for a period of more than two years commencing from the date of… Held: to be a reasonable method of determining the basis for each share of the new stock under the prevailing facts.

Under the terms of a testamentary trust the trustees were directed to pay from the income thereof to testator's wife, for life, annually, $50,000, and after… Held: that the widow was the legatee of an annuity, a charge against the whole trust estate, both corpus and income; that the payments in question were made by the trustee in discharge of that legacy, and, therefore, were not deductible from the gross income of the trust estate in computing its taxable income.

1. Certain second mortgage notes received by the petitioner as part of the consideration for the sale of an apartment house are held, upon the… Held: upon the entire evidence, including opinion testimony, to have had a fair market value, at the time of their receipt, equal to 60 percent of their face value. 2. A taxpayer who receives notes as part of the consideration for the sale of property is not required to report their face value, but only their fair market value. 3.

1. The D corporation, after selling its property for cash and notes, decided to retire all but a nominal amount of its stock. Held: that the stockholders of D did not purchase the notes, but acquired them as stockholders of D indirectly from D, and the petitioner, as one of such stockholders, was properly taxed with a gain from a partial liquidation. 2.

1. Petitioners acquired by purchase in 1912 at a cost of $3,000 an apparent fee simple title to 120 acres of land, which then had no mineral value. Held: the amount paid to settle the litigation constituted additional cost of petitioners' title, allocable to the mineral rights in the land.

1. Where a corporation enters into a contract whereby it sells part of its assets, and the purchaser assumes certain liabilities, for which the seller agrees to reimburse the purchaser within one year, and the purchaser agrees to take over the remainder of the assets for liquidation and application of the proceeds to the repayment of the liabilities assumed and agrees to surrender any balance of assets to the seller after it has been fully reimbursed, and the seller agrees…

1. An individual during the period of his ownership of certain oil and gas leases had wells drilled thereon by contractors who were paid on a footage… Held: further, that the amounts paid by the prior owner to the contractors for drilling may not be considered as a part of the cost of the property in determining gain or loss from the sale. 2. During the taxable year the petitioner sold oil and gas leases and received cash payments totaling 50 percent of the selling price.

1. Section 219(h), Revenue Acts of 1924 and 1926, and section 167, Revenue Act of 1928, providing for the inclusion in the computation of the net income of the grantor of a trust of any part of the income of the trust which is or may be applied to the payment of premiums upon policies of insurance on the life of the grantor, make no distinction either between endowment policies and other kinds of policies, or between that part of a particular premium which equals the cost of…

Held that the interest of petitioners in corporate stock had not been acquired more than two years prior to the date of sale on February 1, 1928, and was not a capital asset.

1. A statute of Texas granting to alines the same rights in personal property as accorded to citizens of the United States by the nation of which the alien is a subject, is an enlarging provision and the alien is not required to prove the law of the foreign nation unless he claims greater rights than the law of Texas grants to citizens. 2. Petitioner's distributive share of partnership income held divisible on a community property basis. 3.

1. Payments made under terms of a sales contract by the purchaser of corporation stocks and bonds to the seller to reimburse the latter for Federal income taxes incurred on his profits in the transaction are taxable income to the seller in the year received, and not the year of the sale. 2. On the evidence, the basis used by the respondent in determining the gain from the sale of certain stock is approved.

Petitioner opened brokerage accounts with a firm of which he was a member in the names of his three minor children. The initial deposits were made by petitioner from his own funds and he made subsequent contributions to the accounts. The accounts were managed by petitioner as margin accounts and he directed the purchase and sales of securities. They were opened and operated for the declared purpose of establishing separate funds for the children.

During the taxable year 1931 the petitioner and his wife, residents of Michigan, received income from property owned in fee simple as tenants by the entireties. Held: that the petitioner is liable to tax upon only one half of the income received from such property.

Where the grantor creates a trust in personalty, providing in the indenture thereof that upon his death the trust shall terminate and in such event the corpus shall be transferred to such persons or corporations as designated in his last will and testament and in default of such appointment to his next of kin under the laws of the State of New York, per stirpes, not per capita, such trust is irrevocable without the written consent, under section 23 of the New York Personal…

1. Section 203(b)(4) of the Revenue Act of 1924 is not applicable to a transfer of property to a corporation by two groups of persons solely in exchange for its entire capital stock, where it appears that the members of one group contributed property of greater value than that contributed by the members of the other group and the stock was issued to all members of both groups in equal proportions. 2.

In 1931 petitioner received an award for condemnation of his farm. Held: under the circumstances, that the amount of the gain from the award to be recognized should be limited under the provisions of section 112(f) of the Revenue Act of 1928.

1. Where in 1918 the petitioner sold shares of stock in an oil company and the purchaser agreed to acquire all of the company's assets and dissolve it, and to develop and operate the oil properties and pay petitioner one third of the net profits resulting therefrom, and in March 1926 petitioner orally agreed to assign his right to receive these profits to his wife and on August 4, 1926, notified the operating company of such assignment and directed the company in writing to…

1. An individual owning certain clay and coal properties in 1925 made an offer to a newly formed corporation to exchange those properties for all of… Held: that the transfer by the individual of the assets, both current and fixed, and their acquisition by the corporation constituted one transaction and, further, that section 203(d)(1) of the Revenue Act of 1926 is applicable in computing the gain to the individual. 2. The fair market value of the stock received determined.

1. Losses by embezzlement to the extent not compensated for by recoveries are deductible, not as bad debts determined to be worthless and charged off during the taxable year, but as losses sustained.… Held: that respondent's method of computing the amount of the loss deduction is correct.