Volume 33 — Tax Court Reports

1. Model Laundry Co. operated a laundry and linen supply business, the latter partially by a wholly owned subsidiary, Standard Linen. Held: the substance of the transaction was a distribution by Model to Alsco in partial liquidation, and not, as respondent determined, a sale by Model to Alsco of its linen supply assets.

A corporation, from which petitioners in 1953 received a distribution on preferred stock owned by them, had pursuant to resolution of its directors distributed $ 100,000 pro rata to its common… Held: that the distribution by the first corporation on December 28, 1946, was a taxable dividend, within the meaning of section 115 of the Internal Revenue Code of 1939, and exhausted all of its then-existing accumulated earnings or profits.

A partnership operated a dairy farm and inventoried its cows on the farm price method. Held: gain or loss on sale of such cows must be measured from the opening inventory for the taxable year applicable to such cows (sec. 113(a)(1), I.R.C. 1939) and not from a zero basis. Held, further, that that portion of the opening inventory applicable to such cows must be eliminated from the opening inventory.

1. Held, an exchange of the type specified in paragraph (1) of section 112(c), I.R.C. 1939, is a prerequisite to the application of… Held: an exchange of the type specified in paragraph (1) of section 112(c), I.R.C. 1939, is a prerequisite to the application of paragraph (2) thereof; held, further, the distributions in liquidation of petitioner-husband's wholly owned corporation are not taxable as dividends under section 112(c)(2), 1939 Code, but are taxable to the…

Held, petitioner bank has not shown error in respondent's determination limiting its addition to bad debt reserve for 1954 to $ 75,563.04. Held: petitioner bank has not shown error in respondent's determination limiting its addition to bad debt reserve for 1954 to $ 75,563.04.

Petitioner (James M. Lawton, deceased), owner of certain timberland, entered into a contract with the Union Bag and Paper Corporation in… Held: that since petitioner was not required to look to the sale or severance of timber for the annual payments provided for in the contract, he retained no economic interest in the timber in question which would entitle him to treat said transaction as though it were gain or loss upon the sale of timber within the meaning of sections…

Held, petitioner, a high school teacher, is not entitled to a sick pay exclusion under section 105(d) of the Internal Revenue Code of 1954 for wages paid him while he was incapacitated during his… Held: petitioner, a high school teacher, is not entitled to a sick pay exclusion under section 105(d) of the Internal Revenue Code of 1954 for wages paid him while he was incapacitated during his summer vacation.

Held, petitioner was not entitled to claim as a medical deduction amounts expended in the taxable years for dance lessons even though dancing had been recommended by his doctor. Held: petitioner was not entitled to claim as a medical deduction amounts expended in the taxable years for dance lessons even though dancing had been recommended by his doctor.

Held: A portion of the compensation paid by petitioner to each of two executives (father and son) who, together, were in control of a family-owned… Held: A portion of the compensation paid by petitioner to each of two executives (father and son) who, together, were in control of a family-owned corporation, was excessive and unreasonable for their respective services for each of the 2 years in question within the meaning of section 23(a)(1)(A) of the Code of 1939.

In 1951, petitioner purchased eight war-built vessels from the Maritime Administration. Prior to taking title to the vessels, petitioner expended $ 550,846.78 in repairs and defense removals to place the vessels in seaworthy and cargoworthy condition satisfactory to the United States Coast Guard, the American Bureau of Shipping, and other regulatory agencies. Petitioner was given a credit or allowance by the Maritime Administration which reduced by $ 540,344.84 the amount petitioner was required to pay to the Maritime Administration to receive title to the vessels. Held, petitioner may not deduct the cost of repairs incidental to this capital expenditure as ordinary and necessary business expense. The respondent's determination is sustained. Held, further, petitioner did not prove that the useful life of the repairs was less than the useful life of the vessels. Petitioner may not depreciate the expenditures over a period of time less than the remaining useful life of the vessels.

1. On the facts, petitioner held entitled to relief under section 722(b)(5) and CABPNI of $ 850,000 determined. 2. Since petitioner's qualifying factor could produce no additional income until its fiscal year 1943 it is entitled to no relief until such year.

Petitioner granted to Parker a license to make, use, and sell under petitioner's patents in return for the payment of certain earned and minimum royalties. Held: that petitioner did not transfer all substantial rights to his patents, and is not entitled to treat the royalties as capital gains, as provided by section 117(q) of the Internal Revenue Code of 1939.

Richard P. Tesche was engaged in the tree nursery business. His operation consisted of sales of shrubs and of cutting tree limbs, known as scion wood, grafting them to rootstock and selling them exclusively to other nurseries. The trees from which petitioner obtained scion wood had a productive life of up to 10 years and when no longer productive, they were either destroyed or sold. 1.

1. Petitioner, an accrual basis taxpayer, was in the business of selling television sets during the taxable year. Held: petitioner failed to prove that the method of deferral used bore any significant relation to the services to be rendered, and, when the contracts were entered into, petitioner acquired a substantially fixed and unconditional right to receive such amount; thus it was not an abuse of his statutory discretion pursuant to section 41 of…

1. Accumulation of Earnings and Profits to Prevent Imposition of Surtax Upon Shareholder -- Sec. 102, I.R.C. 1939 -- Sec. 531, I.R.C. 1954. -- The petitioner, a corporation which profitably operated numerous bars in a large gambling establishment owned by others, was not availed of through the accumulation of its earnings and profits of 1950 and 1952 for the purpose of preventing the imposition of the surtax on its sole stockholder, and did accumulate its earnings and…

The petitioner, a hyperkinetic person with an unusual inner stress and tension and who had suffered recurrent myocardial infarctions due to atherosclerotic heart disease was advised by his physician… Held: that the petitioner's individual traveling expenses between his home and Florida and his individual housing expenses while in Florida were properly deductible as medical expenses under section 213, I.R.C. 1954.

Petitioner is one of the owners of an iron ore mine which was leased in the years in question to the United States Steel Corporation. Held: that the ad valorem real estate tax paid by United States Steel on the mine in question is includible in petitioner's gross income as additional rent or royalty and she is entitled to percentage depletion on the amounts so paid. Burt v. United States, 145 Ct. Cl. 282, 170 F. Supp. 953 (Ct. Cl., 1959), followed.

Held, petitioner was availed of during the taxable years for the purpose of preventing imposition of surtax upon its shareholders by permitting earnings and profits to accumulate instead of being… Held: petitioner was availed of during the taxable years for the purpose of preventing imposition of surtax upon its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed. Sec. 102, I.R.C. 1939.

1. Petitioners entered into agreements with the Department of Highways of the State of Minnesota granting to the State or its nominee the right to… Held: that there was a threat or imminence of condemnation within the meaning of section 1231 as a result of which petitioners executed the agreements in question. 2. Petitioner Kubicek was married during the year 1955. He filed a separate return for that year on which he claimed a standard deduction in the amount of $ 621.25.

Petitioner granted a license to a corporation to manufacture and sell a product owned by it under a trademark for a stipulated royalty. Held: the $ 50,000 was intended to be a payment on account of the purchase price should the option to purchase be exercised and is not includible in petitioner's income until the option is exercised or lapses. Virginia Iron Coal & Coke Co., 37 B.T.A. 195 (1938), affd. 99 F. 2d 919 (C.A. 4, 1938), certiorari denied 307 U.S. 630 (1939).

Joint Petition -- Single Deficiency Determined on Joint Return -- Separate Notices to Taxpayers Living Apart. -- A husband and wife filed a joint return for 1955. They were living apart in 1959 when the Commissioner mailed them at their separate addresses separate notices of his determination of a deficiency in tax based on their joint return for 1955 for which he is holding them jointly and severally liable.

1. Petitioner having failed to show any relation between claimed section 722(b)(1) and (5), I.R.C. 1939, factors and base period earnings, relief is denied. 2. Claimed section 722(b)(2), I.R.C. 1939, relief denied on failure of proof. 3.

Jurisdiction -- Filing Date of Petition -- Postmark -- Sec. 7502. -- Section 7502, I.R.C. 1954, provides that the mailing date is the date of filing of a petition if the cover in which the petition is mailed to the Court bears a United States postmark date within the prescribed period, but it does not cover a situation such as the present where the only postmark on the cover was that of a foreign country.

Petitioner's husband died in 1952, an employee of the City of New York, prior to reaching retirement age. He was a member of the City's employees' retirement system. Held: Under the applicable municipal law of the City of New York, title B of chapter 3, Administrative Code, the petitioner, as beneficiary of the accumulated deductions in a fund of the retirement system, is not liable to her deceased husband's creditors, including the respondent.

In 1952, petitioner purchased certain automobiles from General Motors subject to the specific condition that he donate them to the United Jewish Appeal. Held: that inasmuch as these automobiles were never available for resale by petitioner, his charitable deduction should be limited to the amount he paid for them. Sec. 23(o), I.R.C. 1939.

1. Held, that the aggregate amount of cash advances which the principal petitioner made to or through the president of an insolvent corporation of which he was a stockholder, for use in satisfying… Held: that the aggregate amount of cash advances which the principal petitioner made to or through the president of an insolvent corporation of which he was a stockholder, for use in satisfying claims against such insolvent corporation, was $ 95,300. 2.

1. Petitioners are members of a partnership engaged in the operation of a shopping center. Held: the petitioners' method of computing depreciation allowances on the basis of component grouping of its assets is sustained, with adjustments made in the estimated useful lives of some of the components. 2.

A partnership purchased a bulk lot of war surplus aircraft propeller parts and assemblies consisting of approximately 1,500 items for $ 319,020.01. Held: under the peculiar facts of this case the respondent's action was not arbitrary, and under the facts of this case the petitioners failed to show that respondent's percentage figure was incorrect.

1. Held, exclusions claimed by petitioner, a nonexempt farmers' cooperative, for patronage refunds disallowed since its refundable earnings were not properly allocated pursuant… Held: exclusions claimed by petitioner, a nonexempt farmers' cooperative, for patronage refunds disallowed since its refundable earnings were not properly allocated pursuant to the provisions in the respondent's regulations. Regs. 118, sec. 39.101(12)-2(b)(3); Income Tax Regs., sec. 1.522-1(b)(3). 2.

Petitioner invested $ 15,000 in a scheme to duplicate United States $ 100 bills. Petitioner actively participated in the scheme and rendered assistance in the duplicating process. Held: petitioner is not entitled to a $ 15,000 loss deduction under section 165(c)(2) or (3) of the Code of 1954, since allowance of the deduction would constitute a frustration of sharply defined public policy against counterfeiting obligations of the United States.

In computing for Federal estate tax purposes the present value of a charitable bequest, which consists of a remainder interest in the estate's residue, held, costs of administration and executors'… Held: costs of administration and executors' commissions, even though claimed as deductions from the estate's gross income for Federal income tax purposes, are to be deducted in computing the value of the estate residue.

1. Income from the sale of tangible property resulting from research and development, held, not abnormal within the meaning of section 456(a)(2)(B), I.R.C.… Held: not abnormal within the meaning of section 456(a)(2)(B), I.R.C. 1939. 2. Deductible interest on 1942 and 1943 income tax deficiencies which arose out of excess profits tax relief for same years, held, related to interest credited on excess profits tax refund within the meaning of section 456(a)(3), I.R.C. 1939.

1. Determination of deficiency as to 1952 held not barred by petitioners' claim of accord and satisfaction. 2. Addition to tax under section 294(d)(1)(A), I.R.C. 1939, sustained.

Held: The fact that taxpayer transferred its customers' credit purchase notes to financing agencies without recourse does not require a different result from that reached in Commissioner v. Hansen,… Held: The fact that taxpayer transferred its customers' credit purchase notes to financing agencies without recourse does not require a different result from that reached in Commissioner v. Hansen, 360 U.S. 446.

1. Percentage Depletion -- Dolomite Quarry. -- Petitioners owned dolomite quarry from which they produced flagstone and drywall stone from… Held: The first commercially marketable product of that part of petitioners' dolomite deposit suitable for building stone is the building stone produced by petitioners, and the processes used by petitioners to produce building stone were the ordinary treatment processes normally applied by mine owners or operators in order to obtain the…

Petitioner, owner of an electrical fixture supply company, instituted suit under the Federal antitrust laws against certain distributors of electrical equipment and contractors charging loss of… Held: that petitioner has failed to meet the burden of proof of error in respondent's determination that, after attorney's fees of $ 8,000, the entire recovery ($ 24,000), received in 1953 was taxable under section 22(a) of the 1939 Code.

Pursuant to the terms of an agreement incorporated into a decree of divorce, petitioner was obliged to pay his former wife $ 250 per month which was designated as alimony. Held: the agreement fixed the amount of $ 250 per month as payable for the support of the minor children, thus petitioner was not entitled to a deduction for any part thereof as alimony.

In their 1951 income tax return, filed March 15, 1952, petitioners made an error in computing the alternative tax in respect of reported capital gains. Held: the timely determination of the deficiency and filing of petition with this Court suspended the running of the 3-year period of limitations against assessment, and the Commissioner is entitled to have included in the deficiency determined by this Court the foregoing amount of $ 7,591.56.

Petitioner sold its banking business as a going concern and all of its assets, including its receivables, to another bank, which also assumed its liabilities, pursuant to a plan of… Held: The balance of petitioner's reserve for bad debts at the time it sold its receivables against which the reserve had been established is taxable as ordinary income to petitioner in the year of sale. Section 337, I.R.C. 1954, does not prevent taxation of such income to the corporation.

Taxpayer transferred an oil lease on July 1, 1952, for $ 105,000 which amount was his basis in the equipment, and reserved 75 per cent… Held: the $ 150,000 received from sale of the oil payment was ordinary income, not capital gain, following P. G. Lake, Inc., 356 U.S. 260 (1958). Held, further, the respondent was correct in allocating the price of $ 105,000 paid for the lease between the lease and the equipment instead of to equipment only as contended by the petitioners.

Petitioner and her husband executed a community property settlement agreement anticipatory of divorce. Held: The portion of total fees allocated by respondent as deductible (because productive of taxable income) sustained as reasonable. 2. Petitioner has failed to prove more than an expectancy in subject property during coverture and therefore fees were paid in acquisition, not conservation, of title. 3.

Bond Premium Amortization -- Two Simultaneous Call Prices -- Sec. 125. -- The taxpayers have failed to show that the deduction for amortization of bond premiums should be the excess of the cost of the bonds over a special redemption price instead of the excess of cost over the regular redemption price, as allowed by the Commissioner.

Marital Deduction, Sec. 2056, I.R.C. 1954. -- Decedent's surviving spouse was allowed $ 2,500 as property exempt from administration and $ 3,000 as a year's allowance under the laws of Ohio. Held: the $ 5,500 did not pass from decedent to his spouse and does not qualify for the marital deduction.

On September 16, 1953, petitioner filed a declaration of estimated tax for the taxable year 1953 in which she estimated her tax to be $ 6,666.67, which amount was not based on petitioner's 1952… Held: that petitioner has failed to meet the burden of proving error in respondent's determinations here in issue.

Held, petitioner has failed to establish its invested capital was abnormally low within the meaning of section 722(c)(3) of the 1939 Internal Revenue Code. Held: petitioner has failed to establish its invested capital was abnormally low within the meaning of section 722(c)(3) of the 1939 Internal Revenue Code.

1. Petitioner and her deceased husband had moved to New Mexico, a community property State, in 1916 from Colorado, a common law State, and… Held: for the purpose of determining depreciation and long-term gain, the law of New Mexico, as announced in the latest opinion of its highest court, is applicable; petitioner held her interests in properties acquired by her and her husband as tenant in common with her husband, not as community property, and did not acquire stepped-up…

1. Under date of December 21, 1953, the petitioner, as settlor, and two individuals, as trustees, executed a trust indenture creating… Held: that the powers and control which the petitioner retained with respect to Burroughs Farms under the indenture of December 21, 1953, aside from the petitioner's power to terminate the Burroughs Foundation Auxiliary Trust and reacquire Burroughs Farms, preclude the petitioner's conveyance of the Farms to the trustees from constituting…

1. Held, under the facts, the transaction in issue was a sale by petitioners of their partnership interests, and no net operating loss carryback to 1945 is allowable. 2. Held: under the facts, the transaction in issue was a sale by petitioners of their partnership interests, and no net operating loss carryback to 1945 is allowable. 2.

The Washington and Chicago Psychoanalytic Institutes are schools for the training of psychiatrists in the theory and practice of… Held: the educational expenses of two psychiatrists incurred by them in connection with their attendance at the institutes, were to obtain new or substantial advancement in position and to satisfy the minimum requirements for each to establish himself as a practitioner in the special technique of psychoanalysis, within section 1.162-5,…

Estate Tax -- Valuation of Partnership Interest. -- A partnership agreement which restricted the right of decedent to transfer or assign his partnership interest, and which also granted the surviving partners an option to purchase decedent's interest in the partnership after his death for the book value thereof, limits the value of decedent's partnership interest for estate tax purposes to the option price even though it was less than the fair market value of the partnership…

1. Held, petitioner had a life estate in certain Massachusetts properties and is entitled to deductions for real estate taxes paid by her in respect of those properties notwithstanding that legal… Held: petitioner had a life estate in certain Massachusetts properties and is entitled to deductions for real estate taxes paid by her in respect of those properties notwithstanding that legal title was in a bank and the taxes were formally assessed in the name of the bank. 2.

1. Held, gains realized by petitioner upon the sale of pelts taken from foxes held for breeding purposes are to be considered as gains from the sale or exchange of property used in the trade or… Held: gains realized by petitioner upon the sale of pelts taken from foxes held for breeding purposes are to be considered as gains from the sale or exchange of property used in the trade or business within the meaning of section 117(j), I.R.C. 1939. 2.

Longstreet, Abbott, Smith, and Hilby composed the membership of LACO, a partnership engaged in trading of commodity futures and spot commodities and in rendering advice on the commodity markets. Held: the Funds were associations taxable as corporations, not partnerships as petitioners contended. 2. Held, further, the Funds realized capital gains and losses on their commodity trades, not ordinary income and loss as respondent determined. 3.

Petitioner is a mutual fire insurance company, specializing in insuring large industrial risks of around $ 2 million. Held: petitioner was taxable under the provisions of section 207, I.R.C. 1939, and section 821, I.R.C. 1954, applicable to mutual fire insurance companies generally and not under section 204, I.R.C. 1939, and section 831, I.R.C. 1954, applicable to fire insurance companies issuing perpetual policies or such similar termless policies where…

Petitioner acquired beneficial ownership of all the outstanding shares of a corporation on November 30, 1953. Held: that forwarding the insurance proceeds and canceling the debt were integral elements of the consideration for which the sellers parted with their shares, and that petitioner received dividends taxable under the Code of 1939 when he caused the corporation to use its surplus in satisfying petitioner's obligation to the sellers.

In 1949 the petitioner was awarded a bonus, payable in installments over a 5-year period, by his employer, General Motors Corporation. Held: that the installment payment received in 1954 constituted gross income derived from the petitioner's trade or business and is, therefore, not to be offset by deductions not attributable to his trade or business in computing a net operating loss for 1954, to be carried back to 1952, under section 172(d)(4) of the Internal Revenue Code…

Interest Deductions. -- Transactions whereby each principal petitioner purported to purchase with borrowed funds time deposit certificates in the principal amount of $ 687,500, but received no money… Held: shams; there were not in substance borrowings totaling $ 687,500; and interest paid on the purported loans at the rate of 10 per cent per annum is not deductible.

Petitioner's transferor, Pinaud, Inc., transferred its business to Ed. Pinaud under a contract in 1947, providing for the payment of annual royalty to Pinaud, Inc. This contract also provided the… Held: the payments made by Ed. Pinaud in years prior to the taxable years, in discharge of Pinaud, Inc.'s merchandising obligations were prepayments of royalty, the same as the cash payment and hence Pinaud, Inc., realized no royalty income in the years in question.

Sec. 104(a), I.R.C. 1954. -- Pension payments received by fireman retired after 25 years' service when disability alleged to have been the basis of retirement was not shown to have been incurred in line of duty held not excludible from gross income.

The petitioner was both the income and remainder beneficiary, as well as one of the trustees, of a trust created in Missouri. Held: that under Missouri law and upon the particular facts presented, such trustees' fees were properly paid out of income of the trust, and served to reduce the distributable income of the trust which was taxable to the petitioner in the year of termination of the trust.

1. Petitioner's husband, who died in 1931, entered into an agreement with the person with whom he had been associated in the practice of law, providing that on the death of either partner the… Held: the amount received under the settlement agreement representing the balance due under the agreement to pay monthly payments out of profits is taxable as ordinary income to petitioner in the year 1952.

Held, taxpayer not entitled to deduct, under section 125 I.R.C. 1939, through amortization, the premium paid on bonds measured by the excess of the cost of bonds over a special… Held: taxpayer not entitled to deduct, under section 125 I.R.C. 1939, through amortization, the premium paid on bonds measured by the excess of the cost of bonds over a special redemption price instead of excess of cost over general redemption price. Estate of A. Gourielli, 33 T.C. 357, followed.

Excess Profits Credit -- Borrowed Capital -- Sec. 439(b)(1). -- Certificates issued in denominations of $ 500 and $ 1,000 for a fixed term (usually 3 years) by an industrial loan company of California, held borrowed capital under section 439(b)(1).

Three individuals, hereinafter-called the management group, desired to subdivide and develop a tract of land. Held: the alphabet corporations, lacking substantial business purpose for organization and not having engaged independently in any substantive business activities, are not business entities worthy of recognition for tax purposes, and their net incomes are attributable to Aldon which, directly or through its controlling stockholders, took…

Petitioner, a non-tax-exempt farmers' cooperative association, is in the business of ginning cotton for its members and patrons. Held: that with respect to the jointly owned cotton, the landlord acted not only for himself but as agent for his tenants, and that the dividends and rebates qualified for exclusion from petitioner's gross income as true patronage dividends even though not paid directly to the tenants.

Where petitioner sold a farm which had been an old family homestead but which was not her place of residence and reinvested the gain derived therefrom in the construction of a house, which then… Held: the gain from the sale of the farm does not qualify for nonrecognition under section 1034 of the Internal Revenue Code of 1954.

In 1950, petitioner purchased a one-half interest in a story, which was to be transferred at cost to an independent motion picture producing corporation, petitioner to act as producer. Held: Petitioner was by trade or business a motion picture producer. The 1951 sale was of property held by petitioner primarily for sale to customers in the ordinary course of that trade or business and the gain realized constitutes ordinary income.

Capital Gains -- Holding Period. -- In 1948, petitioner sold stock in his family corporation to a friend for $ 5,000 with the understanding that he could buy it back at any time for $ 10,000. Held: The entire amount received by petitioner in exchange for this stock on liquidation of the corporation is taxable as short-term capital gain.

1. The petitioner made a gift in 1953 by the transfer of $ 66,000 in cash to a trust. The initial commission of a trustee was $ 750. Held: the amount of the gift for gift tax purposes was the value of the property which passed from petitioner at the time of the transfer, $ 66,000, undiminished by the trustee's initial commission for receiving the trust property. 2.

Held, petitioner's alleged liability to R.C.A. under a patent-licensing agreement was neither uncontested nor sufficiently fixed as of the end of the taxable year (Sept. 30, 1954) to justify accrual thereof.

Held, owners of certain mining claims retained an economic interest therein when they transferred such claims for fixed payments totaling $… Held: owners of certain mining claims retained an economic interest therein when they transferred such claims for fixed payments totaling $ 150,000 plus royalties not exceeding $ 1,850,000 payable out of net profits from production; accordingly, royalty payments received by them in 1952 representing their interest in net profits from…

Petitioner, on March 6, 1953, acquired a going business which consisted of publishing and selling an annual city directory. Held: petitioner acquired the business by gift and his basis in the uncompleted copies at the time of the gift was $ 3,000, which sum is to be deducted from the proceeds received from the sale of the directories ($ 28,361.52) in the year 1953, in computing his gross income for that year.

Jurisdiction -- 90 or 150 Days for Filing -- Person Outside the United States -- Sec. 272(a)(1), 1939 Code, and Sec. 6213(a), 1954 Code. -- If the person to whom the notice of deficiency is addressed is outside the United States, even temporarily, at the time the notice is mailed, the 150-day period applies. Rebecca S. Hamilton, 13 T.C. 747, modified. Mindell v. Commissioner, 200 F. 2d 38, followed.

Condyck Corporation incurred mortgage discounts and expenses in connection with its purchase of realty, which it proceeded to amortize over the period of the purchase price mortgages. Held: petitioner, one of the new corporations, could not deduct a pro rata share of the unamortized mortgage discount and expenses incurred by Condyck.

1. The purchase of the stock of a highway advertising company, followed by the distribution of its assets to the acquiring corporation (petitioner) which continued to operate the old business in new… Held: in substance, the purchase of assets so that petitioner is entitled to the cost of acquisition as its basis. 2. Proper allocation of cost to service contracts received in liquidation determined. 3.

Petitioner, indebted to various creditors in the total amount of $ 160,000 and being pressed for payment, assigned his income and remainder interests in the Rose M. Taylor Trust to a trustee as… Held: that the premiums were not paid to conserve income-producing property but to provide collateral satisfactory to petitioner's creditors and may not be deducted.

Sec. 481, I.R.C. 1954 as Amended by Technical Amendments Act of 1958 -- Adjustments Required by Change in Method of Accounting. -- Beginning with taxable year 1954 petitioner voluntarily, and without seeking the Commissioner's approval, changed its method of accounting from cash to accrual. Incident to the change petitioner in its 1954 return made certain adjustments relative to inventories and accounts receivable pertaining to pre-1954 years. Increased income resulted to petitioner solely by reason of the adjustments necessary to prevent amounts from being duplicated or omitted. The Commissioner determined a deficiency for reasons unconnected with the change in accounting methods. In its petition petitioner claimed the right to eliminate the adjustments relating to pre-1954 years. Held, petitioner cannot unmake the adjustments.

Liquidating Corporation -- Nonrecognition of Gain to Stockholders -- Election of Stockholder under Sec. 112(b)(7), I.R.C. 1939. -- The petitioner was one of two equal owners of… Held: Under the provisions of the statute its benefits are not available to any shareholder unless timely elections are filed by the holders of at least 80 per cent of the stock. Since this condition is not met, the petitioner is not entitled to have her gain on distribution taxed under this section.

1. Petitioner, through its officers, orally agreed with Perpetual Building and Loan Association (an organization which they believed to be exempt from income tax under section 101(4) of the Code of… Held: that the transaction involving payments for so-called interest, in excess of that allowed by respondent, was lacking in economic reality or substance and was not interest deductible within the intendment of section 23(b) of the 1939 Code. 2.

Excess Profits Credit -- Borrowed Capital -- Sec. 439(b)(1). -- Certificates issued by a California industrial loan company to raise its working capital held evidence of investments by the registered owners and borrowed capital under section 439(b)(1).

Any change by petitioner in its products or services during the base period, held, on the facts, not substantial within the meaning of section 443, I.R.C. 1939, so as to qualify for excess profits… Held: on the facts, not substantial within the meaning of section 443, I.R.C. 1939, so as to qualify for excess profits tax relief.

Parents transferred property in trust for the benefit of their minor children, directing trustees to pay income and principal as might be necessary for education, comfort,… Held: that all the income is that of the trust under section 641 of the Internal Revenue Code of 1954; the beneficiaries are not to be treated as owners of any portion of the trust pursuant to sections 671 and 678; and the trust is not entitled to deduct any of the income pursuant to sections 651 or 661.

In 1944 and 1947, petitioner became the exclusive licensee under certain patents by agreements, terminable without default only by petitioner upon written notice, and providing for royalty payments… Held: by the execution of the modification agreements, petitioner acquired fixed costs for the patents, susceptible of depreciation.

1. Petitioners received commissions in the taxable year with respect to accident and health group insurance policies; held, the commission income does not qualify under section 107(a) of the Internal Revenue Code of 1939 so that petitioners are not entitled to allocate the income ratably to several taxable years. 2. Respondent's disallowance of additional printing expenses sustained. 3. The failure of petitioners Smith to make or file a declaration of estimated tax for 1952, held, not due to reasonable cause and respondent's determination of an addition to tax under section 294(d)(1)(A) sustained; held, further, respondent's imposition of an addition to tax under section 294(d)(2) for substantial underestimation of tax with respect to same year not sustained. Commissioner v. Acker, 361 U.S. 87 (1959).

For more than 5 years prior to November 15, 1954, the Christopher Company was engaged in the active conduct of a construction business. Held: the distribution to petitioner of the Coady Company stock qualified for tax-free treatment under the provisions of section 355 of the 1954 Code, and that portion of the Commissioner's regulations which denies such treatment to the division of a single business is invalid.

1. Held, petitioner has failed to show that Virginia Metal Products Corporation and its affiliated corporations are entitled to a deduction on the… Held: petitioner has failed to show that Virginia Metal Products Corporation and its affiliated corporations are entitled to a deduction on the consolidated return for the period January 1 to December 15, 1952, of a loss claimed on the return resulting from the sale of the assets and business of one of the affiliates. 2.

Held, in computing for Federal estate tax purposes the marital deduction provided for in section 812(e), I.R.C. 1939, the value of property… Held: in computing for Federal estate tax purposes the marital deduction provided for in section 812(e), I.R.C. 1939, the value of property passing to the surviving spouse, which was a residuary legacy, is to be reduced by the amount of administrative expenses chargeable under State law to such residuum even though such expenses were…

Petitioner, owner of 120 shares of stock in the Hudson Knitting Mills Corporation since 1948, purchased 204 additional shares in the corporation on May 31, 1955, and on the next day transferred 200… Held: petitioner failed to establish the value of the consideration he received, which included the managerial agreement, for his transfer of the 200 shares, and consequently he has failed in his burden to establish the amount of any loss in the exchange.

Held, in the circumstances of this case, additions to a reserve made by petitioner for the years 1952-1956 in compliance with regulations of the Federal Home Loan Bank Board were not deductible. Held: in the circumstances of this case, additions to a reserve made by petitioner for the years 1952-1956 in compliance with regulations of the Federal Home Loan Bank Board were not deductible. Sec. 23(k)(1), I.R.C. 1939; secs. 166(c), 593, I.R.C. 1954.

Statute of Limitations -- Secs. 1311-1315, 1954 Code -- Sec. 122, 1939 Code. -- The petitioner sustained a net operating loss for 1946… Held: the net operating loss carryback was properly applied under section 122 to eliminate the 1944 net income and since no error occurred in that application sections 1311-1315 do not apply to permit the Commissioner to determine any deficiency for that year regardless of how the net operating loss deduction for any year subsequent to…

1. Frank Souza, captain of a fishing vessel, took his vessel to Peru and fished in the waters within 200 miles of the Peruvian coastline. Held: that Frank was not present in a foreign country 510 days during the period in question within the provisions of section 911(a)(2), I.R.C. 1954, and therefore his earnings in 1953 and 1954 are not excludible from gross income under the provisions of such section. 2.

1. Petitioner, a personal holding company during the taxable years 1951 and 1952, operated a farm engaged in producing eggs and poultry. Held: expenses and depreciation in excess of rental received were deductible under section 505(b) of the 1939 Code because petitioner received the highest rent obtainable for the portion (farm residence) of the property rented, and no rent was obtainable for the remainder of the property; the property was held in the course of a business…

Expenses relating to ownership and operation of a yacht held not deductible from gross income as ordinary and necessary business expenses. Sec. 23(a), I.R.C. 1939.

Although prior to 1950 the petitioner, under a policy obtained from Aetna Life Insurance Company, provided group life insurance for its active… Held: that the petitioner was not entitled to deduct as an expense for 1951 an amount of $ 311,750 representing the total insurance coverage after retirement of employees who retired during 1951 and were living at the end of that year, and further held, that petitioner was not entitled to deduct as an expense for 1951 an amount of $…

In the State of Mississippi there are laws that make it a criminal offense to sell, keep in possession, give away, or transport intoxicating… Held: that the deduction for the cost of intoxicating liquors is not allowable as a business expense, as the allowance of such deduction would constitute a frustration and violation of the sharply defined policy of the State of Mississippi, and (2) that petitioner is not entitled to a deduction for the cost of the meals he consumed on…

Jurisdiction -- 90-Day Period -- Motion to Continue Time for Filing. -- A motion clearly and solely for the purpose of asking the Court to continue the 90-day period for filing a petition, which motion was received by the Court within that period, was not a petition. The Court has no jurisdiction because no petition was filed within the 90-day period.

A bequest to a member of an incorporated religious organization who has taken a solemn vow of poverty, held, on the facts, not a deductible bequest or transfer to or for the use of a religious… Held: on the facts, not a deductible bequest or transfer to or for the use of a religious corporation within the meaning of section 812(d), I.R.C. 1939.

1. Petitioner, an organized but inactive corporation, was activated as a wholly owned subsidiary of F corporation early in 1952. Held: petitioner has proved by a clear preponderance of the evidence that securing the surtax exemption and minimum excess profits credit was not a major purpose of its activation and the transfer of equipment; therefore, petitioner is not to be denied these exemptions and credits as provided by applicable law. 2.

Personal Holding Company Income -- Sec. 502(f), I.R.C. 1939. -- Nine doctors and one dentist formed corporation to construct building for use… Held: Rent paid by the doctor-stockholder-partners for their individual office space was not personal holding company income to the corporation under section 502(f), I.R.C. 1939, because excluded therefrom under section 223 of the Revenue Act of 1950 as compensation received for the use by the lessee, in the operation of a bona fide…

Held: Petitioner's claim for excess profits tax relief under section 722(b)(2) and section 722(b)(4) is denied. Held: Petitioner's claim for excess profits tax relief under section 722(b)(2) and section 722(b)(4) is denied. The business of the petitioner's component corporation was not depressed in the base period because of temporary economic circumstances due to a purported monopoly enjoyed by another corporation.

Percentage Depletion -- Mining Leases -- Transportation of Ore. -- Petitioner, owner of mining claims for uranium on land owned by the United States, contracted with miners for extraction of ore to… Held: The petitioner is entitled to the deduction for percentage depletion based upon the entire price paid for the ore, following Parsons v. Smith, 359 U.S. 215 (1959).

A divorce decree allocated community property between the spouses and in addition required the husband to make monthly payments to his… Held: on this record, the monthly payments in fact represented alimony taxable to the wife, section 22(k), I.R.C. 1939; the description of these payments in the divorce decree as being part of the consideration for the division of the [community] properties does not require a different result, where the record as a whole, including other…

Held, that the phrase sale or exchange as used in section 392(b), I.R.C. 1954, does not include involuntary conversions, and recognition of gains from involuntary conversions is not affected by that… Held: that the phrase sale or exchange as used in section 392(b), I.R.C. 1954, does not include involuntary conversions, and recognition of gains from involuntary conversions is not affected by that section.

Held, that where petitioner in a case involving dependency exemptions for minor children fails to establish the total cost of their support from all sources, he has failed in his proof even though he… Held: that where petitioner in a case involving dependency exemptions for minor children fails to establish the total cost of their support from all sources, he has failed in his proof even though he has shown the full amount expended by him for their support.

Petitioner was employed by an electrical contractor with its principal office in Austin, Texas. Petitioner worked on several projects away from Austin within the first year of his employment. Held: Rockdale was petitioner's principal post of employment for an indefinite period during 1955; he is not entitled to deduct the cost of meals purchased in Rockdale.

Petitioner, a paper manufacturer, was dependent for its mill operation upon hydroelectric and hydromechanical power derived from the river upon which its mill was located. Held: petitioner has failed to establish its eligibility for excess profits tax relief under section 442 of the Internal Revenue Code of 1939, relating to base period abnormalities.

1. Individual petitioner transferred property subject to a mortgage to a controlled corporation. Held: that portion of the gain equal to excess of the mortgage over his adjusted basis on the transferred property does not qualify for nonrecognition under section 112(b)(5), I.R.C. 1939. 2. Remainder of the gain qualifies for nonrecognition under section 112(b)(5) and (k). 3.

1. Corporation organized to finance crop operations of members and other fruit producers in area, held, not exempt under section 101(13), I.R.C. 1939. 2. Held: not exempt under section 101(13), I.R.C. 1939. 2. Deposits of 5 cents per box of fruit sold by borrower-stockholders to indemnify lending corporation against credit and operating losses, held, not taxable income to corporation in year of receipt.

Decedent created a trust to which he conveyed property in 1930 retaining a secondary right to income and reserving a power to amend the trust. Held: the transfer within the meaning of section 811 (c)(1)(B) of the Code of 1939, occurred in 1930, not in 1944, and is, therefore, not includible in decedent's gross estate since it occurred prior to March 4, 1931.

The petitioner, a newspaper publisher and editor, made certain payments in circulating a petition to refer an Act of the State legislature exempting livestock and poultry feeds from sales tax, to a vote by the people of Arkansas. Held, such payments are not deductible either as business expenses under section 162, I.R.C. 1954, or as nonbusiness expenses under section 212(1) or ( 2), I.R.C. 1954.

Held: Petitioner did not file a timely claim for refund of overpayment of excess profits tax for 1942 based upon an increase in its equity invested capital under the period of limitations prescribed… Held: Petitioner did not file a timely claim for refund of overpayment of excess profits tax for 1942 based upon an increase in its equity invested capital under the period of limitations prescribed in section 322(b)(1), I.R.C. 1939. H. Fendrich, Inc., 25 T.C. 262, followed.

Petitioner purchased bonds at a premium with the earliest call date upon 30 days' notice. Held: the purchase of bonds at a premium and their contribution must be viewed as a single gift transaction which does not give rise to a bond premium deduction under sections 125 and 23(v). Held, further, that the fair market value of petitioner's equity in said bonds donated to charity is deductible as a gift.

Petitioner manufactured electrical fittings from metal castings. Held: that the loss upon the sale of the stock is deductible from ordinary income, rather than as a capital loss, in the fiscal year ended May 31, 1954. Tulane Hardwood Lumber Co., 24 T.C. 1146.

1. The A. & A. Corporation had a general agency contract with an insurance company. Held: these rights did have an ascertainable fair market value at the time of distribution. 2. The fair market value of said rights at the time of distribution determined. 3. One of the stockholders died on November 16, 1953, and his portion of said rights passed to his widow who was the other stockholder.

The petitioner purchased the assets of a going business, including its customer structure represented by 200 contracts with customers, and continued to… Held: that the petitioner did not buy individual contracts but rather a single asset consisting of the aggregate of the contracts, that this asset did not have a limited useful life, and that the petitioner is not entitled to amortize and deduct the cost thereof under section 23(1) of the Internal Revenue Code of 1939.

Petitioner is a life beneficiary of a testamentary trust which includes in the corpus certain land which decedent had leased on a long-term lease. Held: petitioner is not entitled to a deduction for depreciation of the building; held, further, petitioner is not entitled to amortize the purported premium portion of the lease; and, held, further, section 275(b), I.R.C. 1939, is not applicable under the facts of this case to the year 1953.

Petitioner Ray Smith was employed from May 1952 to June 1954 as an electrician by five different contractors who, during such time, had contracts for electrical work… Held: Rockdale was petitioner's post of duty during 1953 and he is not entitled to deduct amounts expended for meals and lodging while working at Rockdale. Held, further, petitioner is not entitled to deduct the automobile expenses which he incurred while traveling to Austin to spend the weekends with his wife.

Held: Decedent, in making transfers of property in trust with income to be paid to his wife for her maintenance and support, retained the right to have the income used to fulfill his legal… Held: Decedent, in making transfers of property in trust with income to be paid to his wife for her maintenance and support, retained the right to have the income used to fulfill his legal obligation of support, and the trust corpus is to be included in the valuation of his gross estate.

Failure to Pay Sufficient Estimated Tax -- Sec. 6654(a) and (d)(1). -- Section 6654(a) is mandatory and the addition to tax is imposed unless one of the exceptions applies. Extenuating circumstances are irrelevant.

Petitioner, Arthur Pomponio, was a stockholder in two corporations which had secured loan commitments from the FHA to build multiple-unit apartments. Held: such excess is taxable to petitioners as ordinary income under section 117(m), I.R.C. 1939, rather than as long-term capital gain under section 115(d), I.R.C. 1939.

Held, petitioner is entitled to no relief under section 722(b)(4) because it has failed to establish a CABPNI that would provide a larger excess profits credit than that already allowed under section… Held: petitioner is entitled to no relief under section 722(b)(4) because it has failed to establish a CABPNI that would provide a larger excess profits credit than that already allowed under section 714.

Held, on the facts, petitioner was a bona fide resident of a foreign country or countries during the period in question, within the meaning of section 116(a)(1) of the Internal Revenue Code of 1939.

Petitioner caused funds of his wholly owned corporation to be transferred to him in 1952 when it was insolvent. Held: corporate funds diverted by petitioner to his own use in 1952, and not returned to corporation or its creditors in that year, constituted taxable income. Rutkin v. United States, 343 U.S. 130; Davis v. United States, 226 F. 2d 331, 334 (C.A. 6), certiorari denied 350 U.S. 965; Hartman v. United States, 245 F. 2d 349, 352-353 (C.A. 8).

The Union Club of Tokyo was a nonappropriated fund activity established and operated under Army regulations and as such was an agency of the United States during the year 1953, and the salary paid to petitioner as civilian manager thereof was not excludible from his gross income under section 116(a), I.R.C. 1939.