Volume 32 — Tax Court Reports

1. Patenotre owned 95 per cent of the shares of Hekor, a Canadian corporation, whose assets consisted of securities held for its account in New York City by Hutton… Held: that Hekor was a foreign personal holding company under section 331(a), I.R.C. 1939, and similar provisions of the 1954 Code, and petitioner is taxable on his proportionate part of the Supplement P net income of Hekor under section 337, 1939 Code, for the taxable years as determined by the Commissioner. 2.

An unused excess profits credit arising in 1941 under section 713 of the Internal Revenue Code of 1939 was not specifically claimed as a… Held: the carryover did not arise from a credit based upon a CABPNI and need not be claimed pursuant to the regulations issued under section 722; held, further, on the facts, the amended claim was based on grounds of which respondent had continuing notice and which were included in the timely claim so that the amendment is effective and…

The petitioner, engaged in the business of dredging, processing, and selling sand and gravel at two locations 4 miles apart on the same river, owned and used a parcel of riparian land at each… Held: that the petitioner had an economic interest in the sand and gravel at the respective locations which entitled it to depletion on the income from the sand and gravel removed and sold. Commissioner v. Southwest Exploration Co., 350 U.S. 308, followed.

Sec. 722(b)(4) -- Commitment -- Radio Station Seeking Better Affiliation. -- The petitioner, owner of radio station KQW, held qualified for relief under the commitment provision of section 722(b)(4) as a result of its actions during the base period in attempting to become the San Francisco Bay area affiliate of CBS, a prominent national network.

1. Deductions -- Losses -- Basis of Railroad Right-of-way Properties Paid for by Shippers. -- The cost of sidings built on petitioner's right-of-way at the expense of shippers, which expense was not reimbursed to the shippers, is not includible in the petitioner's basis for determining loss on retirement of the sidings. Detroit Edison Co. v. Commissioner, 319 U.S. 98, followed. 2.

Petitioner filed timely applications for relief under section 722(b)(2), (3), and (5), for the years 1940, 1941, and 1942, based upon alleged facts external to petitioner. Held: The claims under section 722(b)(4) are outside the scope of the investigation called for by the original claims and supporting material submitted within the statutory period, and are therefore new claims. As such they are untimely and barred.

1. Petitioner's qualifications for section 722 relief having been stipulated, its CABPNI is herewith determined. 2. Use of the abandonment variation of the variable credit rule is not justified by the facts of this case.

Petitioners exchanged stock for the corporation's debenture bonds pursuant to a plan of recapitalization. Held: no gain is recognized as it was a plan of reorganization within the provisions of section 112(b)(3), I.R.C. 1939, which is defined to include a plan of recapitalization in section 112(g)(1)(E), I.R.C. 1939.

Petitioner accumulated earnings and profits beyond the reasonable needs of its business in 1949 and was availed of for the purpose of preventing the imposition of surtax upon its sole stockholder within the meaning of section 102, I.R.C. 1939.

1. Held, that two corporations of which the petitioners were shareholders were collapsible corporations within the meaning of section… Held: that two corporations of which the petitioners were shareholders were collapsible corporations within the meaning of section 117(m) of the Internal Revenue Code of 1939, and that gain derived by the petitioners upon the redemption of some of their stock is to be considered as gain from the sale or exchange of property which is not a…

A corporation bought and subdivided certain Florida real estate. Held: such one-third is a substantial part of the net income to be derived from such property and, accordingly, the corporation is not a collapsible corporation under section 117(m) (2) (A) of the Internal Revenue Code of 1939.

Petitioners, student-employees, attended a session of the Oak Ridge School of Reactor Technology, a division of the Oak Ridge National Laboratory, which is operated by Carbide and Chemicals Company,… Held: petitioners have failed to establish that they have met all the requirements of section 117 entitling them to the benefit of the exclusions provided for in such section.

1. Petitioners' partnership, as assignee of a contract concerning timber, contends for capital gains treatment under section 117(k)(2), I.R.C. 1939. Held: the contract conveyed no title and the requirement for a 6 months' holding period was not met. 2. As to a small tract of timber owned by said partnership, it retained no economic interest after its disposal as is required by section 117(k)(2), I.R.C. 1939. 3.

Held, loans made by petitioner to a corporation of which he was a stockholder that became worthless in 1953, were deductible only as nonbusiness bad debts under section 23(k)(4) and not deductible as… Held: loans made by petitioner to a corporation of which he was a stockholder that became worthless in 1953, were deductible only as nonbusiness bad debts under section 23(k)(4) and not deductible as business bad debts under section 23(k)(1).

Held, a corporation's mortgage obligations to the stockholders, outstanding at the time of petitioner's purchase of all the shares in the corporation from the old stockholders, are not includible in… Held: a corporation's mortgage obligations to the stockholders, outstanding at the time of petitioner's purchase of all the shares in the corporation from the old stockholders, are not includible in petitioner's basis for the purchased stock.

Petitioner, a poultry farmer, made substantial payments in December of each of the taxable years to a grain dealer which thereby became obligated to deliver to petitioner during the succeeding months… Held: such payments are deductible in the years of payment. R. D. Cravens, 30 T.C. 903, distinguished.

A Michigan corporation was dissolved on April 27, 1951. Held: A proceeding within the intent of Michigan law was commenced by the corporation within the 3-year winding-up period upon its filing with the respondent of an offer in compromise. (2) The corporation's winding-up period was extended beyond 3 years.

The Commissioner determined a deficiency in petitioner's income tax for the year 1944, which resulted by operation of law from the adjustment of said corporation's excess profits tax for the same… Held: That assessment of the deficiency is not prevented or barred, because of the applicability of section 3807 of the 1939 Code (relating to period of limitation in case of related taxes under chapter 1 and chapter 2 of said Code). 2.

1. Petitioner was employed to supervise 2 mineral leases. Held: petitioner's tax home encompassed the leases, Greggton, and Kilgore, and the travel expenses incurred in this area are not deductible under section 22(n)(2). Held, further, the Shreveport trips constitute travel away from home in connection with petitioner's employment and their cost is deductible under section 22(n)(2).

Held, petitioners received initial payments in excess of 30 per cent of the selling price of their transportation business in the year of its sale, and thus are not entitled to report the… Held: petitioners received initial payments in excess of 30 per cent of the selling price of their transportation business in the year of its sale, and thus are not entitled to report the transaction on the installment basis under section 44(b) of the Internal Revenue Code of 1939.

Where a taxpayer who has available information as to material evidence in support of an allegedly allowable deduction refuses to name the recipients of the alleged payments of cash, and fails to connect such payments with any specific purpose, the respondent's action in disallowing such deduction will be affirmed for failure of proof of error.

Petitioner, as owner in fee simple of unimproved land situated in Maryland, subdivided it into lots with the intention of building houses thereon. Held: that until the time that the reversionary interest retained by the grantor was sold, redeemed or otherwise disposed of, there was no taxable event on the basis of which the capitalized value thereof was includible in gross income. Estate of Ralph W. Simmers, 23 T.C. 869, followed.

Petitioner and her former husband, residents of Texas, separated in 1947. At that time they considered the separation to be permanent, and ceased thereafter to live with each other. Held: respondent properly determined that petitioner was taxable on one-half the total income received during 1951 by her and her former husband.

During the years 1951 and 1952, petitioner, who is a corporate executive, received certain amounts from his employer as reimbursement for amounts expended on behalf of the employer for travel,… Held: that to the extent that the reimbursement was a washout, the amounts received as reimbursement are not to be deemed properly includible in gross income or omitted from gross income within the meaning of section 275(c).

At the time of his death, January 25, 1953, decedent was the owner of 10,394 shares of common stock of Sun Oil Company. Held: the Commissioner is sustained under the provisions of section 811(j), 1939 Code, and the Treasury regulations pertaining to property to be included on the alternate valuation date.

1. In 1947, petitioners paid a lump sum of $ 5,000 for an undivided one-half interest in 2 oil and gas leases known as Ownbey and Colorado, and 3 Federal oil and gas leases to be acquired from the… Held: that losses were deductible in the respective years in which the leases were canceled. Allocation of cost of lease canceled in 1953, and loss deductible in 1953 in relation thereto, determined. 2.

Centrifix Corporation bought an old house in 1946, occupying about half of it in its business and renting the remainder of it to others until it was sold in 1950, at which time it bought a larger… Held: the distribution of stock to Elliott did not qualify as a tax-free distribution under section 355, I.R.C. 1954, since Centrifix was not actively conducting a real estate rental business prior to April of 1950.

Claim for excess profits tax relief under section 722(b)(2), I.R.C. 1939, held, properly denied where evidence fails to show to what extent, if any, petitioner's base period earnings from the… Held: properly denied where evidence fails to show to what extent, if any, petitioner's base period earnings from the operation of a chain of millinery shops were depressed because of a fashion style or fad of hatlessness in women's dress.

1. Petitioners Anna and Margaret are income beneficiaries of a testamentary trust, the principal income of which consisted of oil royalties. Held: the allowable deduction for depletion under section 23(m) of the Internal Revenue Code of 1939, as interpreted by sections 39.23(l)-1 and 39.23(m)-1(c) of Regulations 118, is allowable in full to the trustees and no part thereof is allowable to the income beneficiaries. 2.

Held, that the income derived from the operation of a hotel business by another corporation, in the hotel building owned by petitioner, was not attributable to petitioner. Held: that the income derived from the operation of a hotel business by another corporation, in the hotel building owned by petitioner, was not attributable to petitioner.

Held, that the donative assignment of an in-oil payment to a tax-exempt charitable donee resulted in an anticipatory assignment of rights to future income. Held: that the donative assignment of an in-oil payment to a tax-exempt charitable donee resulted in an anticipatory assignment of rights to future income. Commissioner v. P. G. Lake, Inc., 356 U.S. 260 (1958).

Five individuals who owned all the stock of a corporation entered into agreement whereby it was agreed that upon death of a stockholder, the surviving stockholders would buy decedent's stock at book… Held: the payments made by the corporation to the surviving stockholders for deceased stockholders' stock were not essentially equivalent to dividends under section 115(g), I.R.C. 1939, and sections 301 and 302, I.R.C. 1954.

Petitioner was transferred from his employer's main plant in California to an office of the employer at Edwards Air Force Base in California where his employer performed work under a contract with… Held: The living expense allowance was gross income under section 22(a). (2) Petitioner's post of duty or principal place of business was his employer's office at Edwards Air Force Base.

1. Held, that the payments of $ 8,000 which petitioner received in each of the taxable years 1951 to 1954, inclusive, were annuity… Held: that the payments of $ 8,000 which petitioner received in each of the taxable years 1951 to 1954, inclusive, were annuity payments which she received under a contract which she entered into with R. H. Johnson Company on October 27, 1943, by which she transferred to the company 117 shares of stock in the company which she had received…

During the years 1942 through 1945 the petitioner allocated experimental, development, and production tooling costs to airplanes produced under four cost-plus-fixed-fee contracts with… Held: that the judgment, which respondent concedes was abnormal income under section 456(a) of the Internal Revenue Code of 1939, was attributable to years prior to 1950, and, therefore, the net abnormal income is eliminated from any computation of the excess profits tax under section 456(c).

In order to obviate anticipated difficulties with regard to the devolution of title to a valuable piece of Chicago real estate leased on a long-term net lease to a department store, petitioner… Held: income from such property not taxable to petitioner. John A. Mulligan, 16 T.C. 1489, followed.

A corporation made monthly payments to a trustee for the principal petitioner's exclusive benefit in consideration for services rendered by him. Held: under the circumstances as outlined above, petitioner's trust arrangement is deemed to have no substantive effect. The trustee was simply petitioner's designated agent to receive the payments in his behalf. The payments were income to petitioner during the years in issue.

The surviving wife received a legal life estate in the decedent's residuary estate, together with the right to invade the principal for her comfort, happiness, and well-being. Held: that the wife's right to invade the principal was not an unlimited power to invade or appoint the entire principal to herself and the estate is not entitled to the marital deduction under section 812(e)(1)(F).

Petitioner manufactured certain equipment used in cementing oil wells. After a few years of steadily increasing sales petitioner in 1947 obtained large orders from Venezuela. Held: That the $ 316,000 is only deductible to the extent of $ 22,500 servicing expense as an ordinary and necessary business expense; that the Commissioner acted properly in his allocation under section 45, 1939 Code; but that no part of the deficiency is due to fraud with intent to evade tax.

1. Held, that two corporations of which the petitioners were shareholders were collapsible corporations within the meaning of section… Held: that two corporations of which the petitioners were shareholders were collapsible corporations within the meaning of section 117(m) of the Internal Revenue Code of 1939, and that gain derived by the petitioners upon the redemption of some of their stock is to be considered as gain from the sale or exchange of property which is not a…

1. Petitioner is a manufacturer of dark sweet and milk chocolate coatings, cocoa, a byproduct, and a variety of chocolate confections. Held: that the pricing of petitioner's inventoriable goods according to separate pools according to the various raw materials, goods in process, and finished goods most clearly reflects income. 2.

Petitioner was employed at Thule, Greenland, during part of the taxable years 1954 and 1955 as a construction engineer on a project being constructed under contract with the Department of the Army. Held: that the meals and lodging in question were furnished petitioner for the convenience of his employer under the provisions of section 119. Value of meals and lodging determined.

In John Danz, 18 T.C. 454 (1952), petitioner was held not entitled to tax exemption under section 101(6) of the Internal Revenue Code of 1939 because of its operation of businesses. Held: the doctrine of res judicata is not applicable and petitioner is not precluded by our prior decision from claiming exemption with respect to years subsequent to those at issue therein.

Decedent and his brother John owned all the common and preferred shares of Trinidad Asphalt Manufacturing Company, with the exception of… Held: Trinidad's cancellation of the decedent stockholder's indebtedness upon the redemption of his preferred stock was essentially equivalent to the distribution of a taxable dividend within the purview of section 115(g)(1), I.R.C. 1939, and taxable under section 162(c) to decedent's widow and to the trustees of the testamentary trust. 2.

Under the facts, petitioner held to have qualified for relief under section 722(b)(4), I.R.C. 1939, because of change in management and its CABPNI determined to be $ 465,000 for the calendar year 1940 and $ 475,000 for the fiscal years ending November 30, 1941, to November 30, 1945, inclusive.

Held, for failure of proof, that petitioners are not entitled to deduct as ordinary and necessary business expenses either campaign expenses incurred in running for election to the… Held: for failure of proof, that petitioners are not entitled to deduct as ordinary and necessary business expenses either campaign expenses incurred in running for election to the governing board of a business-social club or more than two-thirds of membership dues paid to certain clubs.

1. For many years the Philadelphia-Baltimore Stock Exchange, an unincorporated association, has engaged in the operation of a security… Held: that for purposes of Federal income taxation (1) the Exchange and the Gratuity Fund are separate entities, (2) the Gratuity Fund was during the taxable year 1953 a mutual insurance company other than life or marine and taxable under section 207, I.R.C. 1939, and during the taxable years 1954 and 1955 was a mutual insurance company…

1. Petitioner Nettie Wadewitz and her husband Edward H. Wadewitz, as grantors, created a trust known as Trust # 1. Held: that even though it was necessary for Nettie to survive Edward in order to receive distributions from the accumulated trust income, such trust income was held or accumulated for future distribution to Nettie, within the meaning of section 167(a)(1); and hence that it is includible in her gross income. 2.

1. A briquette storage building, construction of which was begun in April 1949 and completed in August 1949, was destroyed by windstorm November 27, 1949. Held: the respondent's determination that the portion of the building completed prior to a date 6 months before the destruction of the building was an asset qualifying under section 117(j) of the Internal Revenue Code of 1939 is sustained. M. A. Paul, 18 T.C. 601 (1952), overruled.

1. Held, that the formation of National Tanker Corporation by stockholders of American Overseas Tanker Corporation (AOTC), the transfer to… Held: that the formation of National Tanker Corporation by stockholders of American Overseas Tanker Corporation (AOTC), the transfer to National of AOTC's right to purchase certain tankers, and the ultimate sale of National stock to United Tanker Corporation were merely steps in a transaction designed as a sale of the tankers by AOTC to…

Petitioner purchased an Irish sweepstakes ticket which he gave to his niece and which was registered in the niece's name. Held: the collateral agreement relating to a gambling transaction is void and unenforcible and affects taxability of receipts only when fully and specifically complied with; and held, further, petitioner has failed to prove full and specific compliance with such agreement by payment to wife of all funds to which she might be entitled…

Petitioner's termination of pension plan within first year of operation, held, on the facts, to have been due to a business reason so as not to bar pension trust from qualifying under section 165(a),… Held: on the facts, to have been due to a business reason so as not to bar pension trust from qualifying under section 165(a), I.R.C. 1939, by reason of lack of bona fides.

Estate Tax -- Gift Tax Credit. -- Decedent, who died in 1951, made gifts in 1950 and 1951 in contemplation of death which were includible in the gross estate. Gift taxes were paid on gifts made in 1951, but by reason of exclusions and specific exemption allowable no gift taxes were payable on gifts made in 1950. The estate computed the limitation on the gift tax credit by including 1950 and 1951 gifts in a single computation. The respondent computed the limitation on each 1951 gift separately with no allowance for 1950 gifts. Held, no gift tax credit is allowable for 1950 gifts on which no gift tax was paid. Estate of Milton J. Budlong, 8 T.C. 284, distinguished.

1. Held, petitioner was not in the separate business of promoting, financing, managing, and organizing businesses, or of lending money in 1952 and 1953, and certain losses sustained by… Held: petitioner was not in the separate business of promoting, financing, managing, and organizing businesses, or of lending money in 1952 and 1953, and certain losses sustained by petitioner in those years are not deductible as business bad debts under section 23(k)(1), I.R.C. 1939. 2.

1. Held, petitioners did not hold the properties sold in 1953, 1954, and 1955 for sale to customers in the ordinary course of a trade or business. 2. Held: petitioners did not hold the properties sold in 1953, 1954, and 1955 for sale to customers in the ordinary course of a trade or business. 2. Held, further, that installment payments on sales of real property made in the years prior to 1953 are not taxable as ordinary income. 3.

1. Held, under sections 113(a) and 113(a)(5), 1939 Code, petitioner's basis of property inherited under mother's will is value at date of her death, and petitioner's… Held: under sections 113(a) and 113(a)(5), 1939 Code, petitioner's basis of property inherited under mother's will is value at date of her death, and petitioner's basis of other properties bequeathed by father to him and his mother as joint tenants with right of survivorship is value at date of father's death.

Petitioner, who owned all of the stock of Supply, exchanged all of such stock for shares of stock of Foremost Dairies, Inc., and $ 3,000,000. Held: the provisions of section 112(c)(1) are applicable and petitioner's gain is recognized but only in an amount which does not exceed the cash payment.

Held, the tax imposed upon mutual insurance companies (other than life or marine), computed under section 207(a)(2), I.R.C. 1939, as amended, is constitutional. Held: the tax imposed upon mutual insurance companies (other than life or marine), computed under section 207(a)(2), I.R.C. 1939, as amended, is constitutional. The only possible objection to its validity is that it is a direct tax which must be apportioned according to population.

1. Held, lots sold by petitioners during the years involved were not held by petitioners primarily for sale to customers in the ordinary course of a trade or business and the gain derived therefrom… Held: lots sold by petitioners during the years involved were not held by petitioners primarily for sale to customers in the ordinary course of a trade or business and the gain derived therefrom is taxable as capital gain. 2.

1. Petitioner Earl L. Lester was a member of a partnership engaged in the business of renting and selling air specialty equipment and other equipment. Held: the rentals paid the partnership were ordinary income until the time of purchase under the option and the Commissioner is sustained in so treating them in his determination of the deficiencies. 2.

Held, that Kingsway Developments, Inc., was a collapsible corporation within the definition of section 117(m) of the 1939 Code, and therefore, that gains realized by… Held: that Kingsway Developments, Inc., was a collapsible corporation within the definition of section 117(m) of the 1939 Code, and therefore, that gains realized by petitioners upon a distribution from Kingsway and sale of their Kingsway stock were gains attributable to property which is not a capital asset.

Held, petitioner Aurora Paperboard Company constitutes a new corporation within the meaning of section 445, I.R.C. 1939, and is entitled to compute its separate average base period net income under… Held: petitioner Aurora Paperboard Company constitutes a new corporation within the meaning of section 445, I.R.C. 1939, and is entitled to compute its separate average base period net income under the provisions of that section.

D, intending to benefit T, named T as one of the three executors of D's will, with full knowledge that executors' fees might be taxable as income to T. Upon D's death, one of the executors agreed to… Held: the $ 3,000 represents taxable income to T.

Petitioners were engaged in the business of breeding and raising mink for the purpose of selling their pelts. Held: the gain realized from the pelts of the culled breeders is to be considered as capital gain under the applicable statutes, section 117(j) of the 1939 Code and section 1231 of the 1954 Code.

Grandview Mines leased its property in 1950 to American Zinc, Lead and Smelting Company for one-half of the net profits from the mining and extraction of minerals from its property. Held: petitioner's depletion allowance is properly computed on the basis of its share of the net profits. Held, further, the payment in 1951 of $ 18,957.20 is not an ordinary and necessary business expense in 1951.

1. Held, that a partially constructed hotel did not, as a matter of fact, lose its useful value in the year 1950, and was not abandoned by petitioner as an asset in said year. Held: that a partially constructed hotel did not, as a matter of fact, lose its useful value in the year 1950, and was not abandoned by petitioner as an asset in said year. Deduction of abandonment loss for said year is denied. 2.

1. Held, that two corporations of which the petitioner was principal shareholder were collapsible corporations within the meaning of… Held: that two corporations of which the petitioner was principal shareholder were collapsible corporations within the meaning of section 117(m) of the Internal Revenue Code of 1939, and that gain derived by the petitioner upon the redemption of some of his stock is to be considered as gain from the sale or exchange of property which is…

In July 1951, G. L. Comer, a director and vice president of the petitioner, had possession of eight notes which the petitioner had issued… Held: that when Comer gave the notes to the Foundation they did not represent any genuine and then existing indebtedness owing by petitioner; that in the hands of the Foundation they did not represent such an indebtedness; that the note issued by petitioner to the Foundation was a gratuitous promise and did not represent indebtedness of…

In 1951 the petitioner, president of a corporation, pleaded guilty to an indictment charging him with violation of section 145(b), title 26 U.S.C., in willfully attempting to defeat and evade a large… Held: that the amounts so paid by the corporation in each year constituted a taxable dividend to the petitioner.

1. Petitioners were owed $ 21,092.34 by J. S. Noill on account of business transactions and a personal loan. Held: petitioners recovered items previously deducted with tax benefits, and to that extent the recoveries are taxable in the year of their receipt. 2. Petitioners maintained a bad debt reserve account, the credit balance of which was kept equal to all accounts and notes 91 days or more past due.

In 1952 and 1953, petitioner was an employee of the Government of American Samoa and in each of those years received, in addition to regular compensation, cost-of-living allowances which were… Held: that in order for such cost-of-living allowances to be excludible from a taxpayer's gross income they must have been paid in accordance with regulations approved by the President.

1. Held, under section 811(j), 1939 Code, the value at which shares of stock must be included in gross estate is their fair market value at… Held: under section 811(j), 1939 Code, the value at which shares of stock must be included in gross estate is their fair market value at the optional valuation date, rather than a lesser value based upon the amount per share for which decedent's widow was allowed to purchase the shares by a Probate Court in Ohio upon her election to…

1. During 1951 petitioners, who reported their income on the cash receipts and disbursements basis, executed to an oil company a mineral lease on lands situated… Held: that on the execution of the lease and the separate written instruments the petitioners realized ordinary income taxable in 1951 to the extent of the then fair market value of the agreement of the lessee to pay the bonus. Held, further, that such fair market value was equal to the full amount of the bonus. 2.

1. Duty of Taxpayers, in General -- Records of Income. -- Every taxpayer is required to fully report all gross income, and must keep records of total amounts of all… Held: petitioners failed in meeting their burden of proof, in part, because they negligently failed to keep records of the amounts of their tips. 2. Burden of Proof. -- The Commissioner's determinations are presumed to be correct, and taxpayers have the burden of proving that his determinations are incorrect.

Petitioner is a Federal savings and loan association. The first year for which it was subject to the income tax on corporations was 1952. Held: that the dividends to both classes of shareholders for the last 6 months of 1951 were deductible in 1952; and that (2) such dividends for the last 6 months of 1952 were deductible in 1952. Citizens Federal Savings & Loan Assn. of Covington, 30 T.C. 285, followed and distinguished.

1. Corporation, on an accrual basis, held not entitled to deduct as an ordinary and necessary business expense a liability it voluntarily assumed in 1950 to reimburse three beneficiaries of a spend-thrift trust, which held all of its stock, for a downpayment of $ 25,000 made by them in 1948, pursuant to the terms of an agreement with S, the fourth beneficiary, wherein S agreed to sell, and they agreed to buy, for $ 45,000 his one-sixth minority interest in the stock of the…

1. Held, Hudson Towers, Inc., was a collapsible corporation within the meaning of section 117(m) of the Internal Revenue Code of 1939 so that gain derived by petitioners on the sale of… Held: Hudson Towers, Inc., was a collapsible corporation within the meaning of section 117(m) of the Internal Revenue Code of 1939 so that gain derived by petitioners on the sale of their stock is to be considered as gain from the sale or exchange of property which is not a capital asset. 2.

Held, amount realized in settlement of a claim for damages to a cotton crop caused by the use of an insecticide was taxable as ordinary income and the fact the settlement instrument was in form an… Held: amount realized in settlement of a claim for damages to a cotton crop caused by the use of an insecticide was taxable as ordinary income and the fact the settlement instrument was in form an assignment of the claim was immaterial.

1. Petitioner's members paid their annual membership fees in advance. Held: the Commissioner properly required petitioner to report as income all the fees received during the taxable year. 2. Held, the Commissioner correctly required petitioner to report as income the annual excess of proceeds from the sale of savings plan coupons over redemptions thereof.

Petitioner, engaged in the business of drilling oil wells, claimed deductions for drilling expenses it had paid or incurred on some wells that were not completed by the end of its… Held: under petitioner's method of accounting, expenses of drilling wells could be deducted only in the period when the wells were completed. Respondent's disallowance of expenses claimed by petitioner in the fiscal years 1953 and 1954 on wells which were unfinished in those periods is sustained.

Petitioner Joseph B. Simon was one of two stockholders who equally owned all the common stock of Exco Corporation which, in turn, owned the stock of Penn-Liberty Insurance Company. Held: that petitioner made a sale of the property to Exco, on which sale he realized a capital gain of $ 34,206.55.

In 1953 and 1954, petitioner, a resident of New Jersey, claimed personal exemptions for a woman, also a resident of New Jersey, with whom he had entered into a marriage ceremony in Maryland,… Held: under the facts and the applicable State law, the woman and her children were not the spouse and stepchildren of the petitioner within the meaning of either Code.

The petitioner, a Mississippi River boat pilot, received his piloting assignments from the pilots' association to which he belonged and was… Held: that the portion of car expense and depreciation attributable to travel from his residence to points of assignment and return constitute nondeductible commuting expenses, but that the portion attributable to traveling between assignments is deductible. Secs. 23(a)(1)(A) and 23(l), 1939 Code, and secs. 162(a) and 167(a), 1954 Code.

1. Held, that since petitioner elected to take the standard deduction in his individual (joint) return, he is not entitled, in addition, to the benefit of a… Held: that since petitioner elected to take the standard deduction in his individual (joint) return, he is not entitled, in addition, to the benefit of a deduction for real estate taxes which he, in practical effect, paid individually, out of his own funds, on investment property titled in the name of a partnership. 2.

In the fall of 1948 petitioner, who served as general counsel to the Democratic National Committee, succeeded in obtaining action on an income tax ruling for William S. Lasdon. Held: on the facts, respondent has not established that petitioner filed a false or fraudulent return with intent to evade tax. Accordingly, assessment of the deficiency and additions to tax is barred by limitations.

Held, that the transportation costs incurred in shipping granite and stone aggregates, upon which no further ordinary treatment process… Held: that the transportation costs incurred in shipping granite and stone aggregates, upon which no further ordinary treatment process was to be applied, from the point of extraction to the f.o.b. point of shipment and/or f.o.b. jobsite, are not properly includible in the gross income from the property as defined in section 114(b) (4)(B)…

It is held, a part of the deficiency for each of the years involved was due to fraud with intent to evade the tax. Held: a part of the deficiency for each of the years involved was due to fraud with intent to evade the tax.

1. Showing that petitioners, on an accrual method of accounting, omitted certain checks and miscellaneous cash items from income, without evidence of correct total amounts accruable in each year,… Held: on the facts, not evidence of omissions of income so as to constitute clear and convincing evidence of fraud. 2. Respondent's determination of deficiencies and other additions to tax, held, approved for failure of proof.

Petitioners' original return for the year 1955 did not report on the installment basis the sale of a skating rink or disclose said sale in any manner, and the return did not include any payments… Held: the petitioners may not elect, under section 453 of the Internal Revenue Code of 1954, to report the sale on the installment basis in an amended return for 1955 filed by them in 1957.

Decedent, William P. Baker, died in 1951. Petitioner was appointed executrix of the will of her deceased husband. Held: the undistributed corpus of the 1941 trust on the date of decedent's death is property includible in the decedent's gross estate under section 811(d), I.R.C. 1939; the statute of limitations for proceeding against petitioner as transferee has not run; Commissioner Harrington was not bound in this matter by the determination of his…

Petitioner's father, William P. Baker, died in 1951. In 1941 the decedent created a trust, the principal beneficiary of which was petitioner. Held: petitioner is not liable under section 900, I.R.C. 1939, as a transferee for the unpaid additional tax determined by Commissioner Harrington.

Held, petitioner is liable under section 900(a)(1) of the Internal Revenue Code of 1939 as a transferee at law for the unpaid estate tax of the estate of William P. Baker, deceased. Held: petitioner is liable under section 900(a)(1) of the Internal Revenue Code of 1939 as a transferee at law for the unpaid estate tax of the estate of William P. Baker, deceased.

Held, on the basis of the facts and surrounding circumstances, that camp living quarters and meals furnished to petitioners by their employer… Held: on the basis of the facts and surrounding circumstances, that camp living quarters and meals furnished to petitioners by their employer at the construction site of a tunnel project in Alaska, were furnished to them for the convenience of the employer within the meaning of Regulations 118, section 39.22(a)-3; and that under said…

Held, payments made by petitioner to various Christian Science churches and societies during 1953 and 1954 do not constitute ordinary and… Held: payments made by petitioner to various Christian Science churches and societies during 1953 and 1954 do not constitute ordinary and necessary business expenses under section 23(a)(1)(A), I.R.C. 1939, and section 162(a), I.R.C. 1954, but represent charitable contributions within the meaning of section 23(q), I.R.C. 1939, and section…

1. All of the stock of petitioner corporation, a construction enterprise, was held by officers and employees of the corporation. Held: the Commissioner is sustained. The $ 12,888.27 did not represent executives' salaries incurred by petitioner in 1951 and was not a deductible payment. 2.

Claims for excess profits tax relief under section 722(b)(2) of the Internal Revenue Code of 1939 denied upon failure of proof that the business of the petitioner was depressed in the base period because of temporary economic circumstances unusual in the case of the petitioner.

1. Petitioner cannot qualify for section 722(b)(4) relief because causal connection between qualifying factors and an increased level of earnings not shown. 2. Inadequacy of invested capital under section 722(c)(3) cannot be considered, since first asserted on brief. 3. Relief under section 722(b)(2) and (3)(A) denied for failure of proof that petitioner was a member of the claimed industry.

Petitioner, a Maine sardine packer, held, not entitled to excess profits tax relief under section 722, I.R.C. 1939, on account of depressed base period net income resulting from competition of… Held: not entitled to excess profits tax relief under section 722, I.R.C. 1939, on account of depressed base period net income resulting from competition of foreign imports.

The Shiffman Foundation, a charitable organization which was incorporated in 1948 with original capital of $ 1,000, in 1951 purchased industrial real property for $ 1,150,000. Held: the Shiffman Foundation, during the taxable years in issue, was organized and operated exclusively for charitable purposes within the meaning of sections 101(6), I.R.C. 1939, and 501(c)(3), I.R.C. 1954. 2.

Section 3807, 1939 Code: Respondent allowed excess profits tax relief under section 722 for 1942 which resulted in decrease of excess profits net income and excess profits tax, and… Held: Since under World War II excess profits tax the income tax and the excess profits tax are related taxes by reason of the two-basket approach in computing them, section 3807 was intended to allow respondent to recover the increase in one tax resulting from the decrease in the related tax.

1. Held, that where the petitioners failed to include in taxable income on their returns, substantial kickbacks which the husband had received from contractors who performed work for his… Held: that where the petitioners failed to include in taxable income on their returns, substantial kickbacks which the husband had received from contractors who performed work for his employer, at least part of the deficiencies in income tax was due to fraud with intent to evade tax. 2.

1. Laundri-Matic Corporation assigned to Chamberlin, in exchange for 26 shares of Laundri-Matic stock, the right to receive 26 per cent of all royalties payable to Laundri-Matic by Hydraulic Brake… Held: the royalties received under this assignment in 1947, 1948, and 1949 are taxable as ordinary income rather than capital gain. 2.

Beginning in September of 1954, the taxable year herein, petitioner, the holder of a Ph. Held: under section 1.117-3(c) and section 1.117-4(c), Income Tax Regs., that the compensation received by petitioner, the source of which was the funds supplied to Vanderbilt University by the Rockefeller Foundation, was not excludible from gross income as amounts received as a fellowship grant within the meaning of section 117 of the…

Petitioner C owned real estate in New York City consisting of a lot improved by a building 80 feet deep with regard to which C had a cost basis of $ 135,000. Held: the $ 80,000 received by C constituted capital gains and, since basis to C of the right to a condemnation award sold by C was impractical to ascertain, the $ 80,000 should be applied in reduction of C's cost basis to the entire property.

Additional payments on account of Massachusetts corporation excise tax, held, on the facts, not deductible as accrued liabilities in years prior to payment or other acknowledgment of liability. Held: on the facts, not deductible as accrued liabilities in years prior to payment or other acknowledgment of liability.

Held, that North and Stanton, Inc., and Hancock Court Apartments, Inc., were collapsible corporations within the definition of section 117(m) of the 1939… Held: that North and Stanton, Inc., and Hancock Court Apartments, Inc., were collapsible corporations within the definition of section 117(m) of the 1939 Code, and, therefore, that gains realized by petitioners upon sale of their stock in these corporations were gains attributable to property which is not a capital asset.

Held, income received by petitioner in 1954 and 1955 was personal holding company income within the meaning of section 543(a)(5), I.R.C. 1954. Held: income received by petitioner in 1954 and 1955 was personal holding company income within the meaning of section 543(a)(5), I.R.C. 1954.

Alimony -- Deduction -- Child Support -- Secs. 23(u) and 22(k). -- Periodic payments made by a divorced husband to his wife not only for her support and maintenance but specifically to include support and maintenance of their three minor children, held not deductible by the husband to the extent that the agreement and decree indicated that they were for the support and maintenance of the minor children.

Sec. 117(a)(1)(A), I.R.C. 1939. -- Petitioner had been engaged in the building and construction business for many years. Held: the transaction was not a capital asset transaction and the profit derived therefrom was taxable as ordinary income and not as capital gain.

Held, no part of the corpus of the trust created by the decedent's wife in 1926 is includible in the decedent's gross estate under section 811(c)(1)(B), I.R.C. 1939, because the transfer in trust was… Held: no part of the corpus of the trust created by the decedent's wife in 1926 is includible in the decedent's gross estate under section 811(c)(1)(B), I.R.C. 1939, because the transfer in trust was made prior to March 4, 1931.

Petitioner, in the taxable year 1954, purchased three vacant lots from a corporation, in which he held a one-third stock interest, at prices representing cost or less to said corporation. Held: that the bargain purchases of the lots in question constituted distributions of dividends to petitioner in the taxable year 1954, to the extent of the excess of the fair market value over the prices paid, under section 301, Code of 1954, and are taxable to petitioner as such.

Petitioner in 1951 entered into an executory contract for the sale of his farm. Held: the $ 12,000 retained by the petitioner was liquidated damages under the contract, due to the vendee's default, and is, therefore, taxable to the petitioner in 1952 as ordinary income.

Petitioner engaged in a loan brokerage business under an agreement with a finance company that advanced the money for loans to petitioner's customers but retained 2 per cent of the face amount… Held: credits to the reserve account should not be excluded from accruable income of petitioner in the years when made under the authority of Commissioner v. Hansen, 360 U.S. 446.

Expenses incurred annually by taxpayer traveling from Los Angeles to New York and return in order to consult a physician in whom he had confidence held deductible as medical expenses where the primary purpose of such trips was to obtain the professional services of the physician and where he would not have otherwise made such trips.

Assuming that the issue is properly before the Court, petitioners' contention that at least 30 per cent of the gain recognized upon sales of their stock in collapsible corporations was attributable… Held: accordingly, that the gains recognized by petitioners were properly to be considered as gains attributable to property which is not a capital asset.

Capital Gain or Ordinary Income -- Pension Trust -- Distribution on Termination -- Separation From Service -- Sec. 165(b). -- A pension trust of a corporation released to the decedent an annuity policy and later in his same taxable year the decedent received the cash proceeds thereof.

1. Amounts deposited by decedent in two bank accounts, one in the name of Michael A. Doyle, Sr. or Michael A. Doyle, Jr. and the other in the name of Michael A. Doyle, Sr. Trustee for Michael A. Doyle, Jr., held to be includible in gross estate of decedent for estate tax purposes. 2. The value of certain United States Savings Bonds purchased by the decedent in his lifetime held to be includible in his gross estate for estate tax purposes.

Jurisdiction -- Bankruptcy -- Treasury Regulations -- Sec. 274(a), I.R.C. 1939. -- Petitions filed before, not after, the adjudication of bankruptcy or the appointment of a receiver give the Tax Court jurisdiction. Regulations 118, section 39.274-1(b), were not intended to and cannot limit jurisdiction of the Tax Court to proceedings initiated by petitions filed with the Tax Court before bankruptcy petitions were filed.

Held, the bequest of stock in trust to the wife as trustee with the wife to receive the income for life with power to encroach upon the corpus "for her own benefit, at any time she sees fit," did not qualify as a marital deduction.

1. In computing the amount of net operating loss for the year 1947 absorbed by carryback to the year 1945 under section 122(b) (1) and (2), I.R.C. 1939, the net income for the year 1945 against which… Held: not to be applicable.

Petitioner, owner of certain timberlands, entered into a contract with the Mengel Company in the taxable year 1952, which provided, inter alia, that he was to produce… Held: that since petitioner did not surrender his cutting rights to the timber in question, he did not make a disposal thereof which would entitle him to treat said transaction as though it were a gain or loss upon the sale of timber within the meaning of section 117(k)(2) of the Code of 1939, as amended.

Deduction -- Expenses -- Conservation Expenditures for Irrigation -- Simultaneous Farming -- Sec. 175, I.R.C. 1954. -- Conservation expenditures are deductible under section 175 where 80 acres, not recently actively farmed, were being farmed by lessees at the same time that work was being done on the 80 acres to water it by irrigation.

The Boston Shoe Company was organized as a family partnership in 1943 with petitioners, husband and wife, and trusts for their two children as partners. A judgment rendered August 23, 1954, by the United States District Court, Central Division, of the Southern District of California, held the Commissioner was correct in disregarding the trusts as partners in the Boston Shoe Company for the years 1945 to 1948, inclusive.

The Studio, a partnership operating Arthur Murray Dance Studio, entered into contracts with students whereby it agreed to furnish dancing lessons and the student agreed to pay therefor. Held: for the Commissioner. The entire contract price accrued at the time the contract was entered into since the Studio had a right to receive a fixed and determinable amount.

1. Held: That a property settlement agreement between petitioner's father and mother in 1930, whereby the beneficial interest in certain stock was transferred in trust for the benefit of petitioner… Held: That a property settlement agreement between petitioner's father and mother in 1930, whereby the beneficial interest in certain stock was transferred in trust for the benefit of petitioner and his brothers, was a taxable exchange.

The petitioner's tranferor, Phoenix, purchased from the stockholders of Nedick's, Inc., 90 per cent of the outstanding stock of Nedick's, Inc., the purchase price to be paid in installments over a… Held: that the distribution was essentially equivalent to the distribution of a taxable dividend to Phoenix. Sec. 115(g), I.R.C. 1939.

In May 1953, petitioners purchased a house in Winter Park, Florida, after having it examined for termites. Held: that the damage was shown to have occurred with the degree of suddenness required to support a casualty loss deduction within the purview of section 165(c)(3) of the Code of 1954. Held, further, that the entire loss in question occurred during the taxable year 1955. Amount of loss deduction determined.

A joint venture in which petitioners were members acquired 727 acres of mountain property with intention of subdividing the front side of the mountain which contained a considerable area of gently… Held: profit derived from sales of such parcels was capital gain; such parcels were not held primarily for sale to customers in the ordinary course of business.

Partnership between radiologist and wife, who contributed services and capital, recognized as a bona fide partnership entitled to report its income on a fiscal year basis.

Held, pension received by petitioner from Milwaukee public schoolteachers' annuity and retirement fund constitutes taxable income to petitioner. Held: pension received by petitioner from Milwaukee public schoolteachers' annuity and retirement fund constitutes taxable income to petitioner.

Petitioner, held, on the facts, not to have borne the burden of proving error in respondent's determination that petitioner was availed of to prevent the imposition of surtax upon its shareholders by permitting earnings or profits to accumulate instead of being divided or distributed.

Held, petitioners not entitled to deduct as a demolition loss the adjusted basis of a building owned by them that was partially demolished under terms of a new lease to make way for a building… Held: petitioners not entitled to deduct as a demolition loss the adjusted basis of a building owned by them that was partially demolished under terms of a new lease to make way for a building constructed to meet new tenant's needs.

1. Held, that under those provisions of section 117(j) of the 1939 Code and section 1231 of the 1954 Code which pertain to gains or losses… Held: that under those provisions of section 117(j) of the 1939 Code and section 1231 of the 1954 Code which pertain to gains or losses from the sale or exchange of certain property used in business, it is essential that the business in which the property was used, shall have been owned by the same taxpayer who owned said property and…

Petitioner entered into an option agreement whereby it granted to a mining corporation sole option to purchase certain mining claims for the total purchase price of $ 500,000. Held: the transaction constituted the sale of a capital asset.

Petitioner was employed at the Santa Monica plant of Douglas Aircraft Company. He was assigned to perform services for Douglas at the Edwards Air Force Base in December 1952. Held: Petitioner has failed to establish that expenses in the above amount satisfy all of the conditions contained in section 23(a)(1)(A), 1939 Code. (2) Petitioner's headquarters and principal post of duty shifted in December 1952 from Santa Monica to Edwards Base.