Volume 33 — Tax Court Memorandum

Held, petitioners failed to carry burden of proving that their basis in real estate sold in 1967 included value of rent-free occupancy agreement and other expenditures claimed. Held: petitioners failed to carry burden of proving that their basis in real estate sold in 1967 included value of rent-free occupancy agreement and other expenditures claimed.

Held, petitioner is not entitled to deduct child support payments either as alimony or separate maintenance payments or as trade or business expenses. Held: petitioner is not entitled to deduct child support payments either as alimony or separate maintenance payments or as trade or business expenses.

lteld: Petitioners may not deduct as a business expense premium advancements that petitioner Max paid to the insurance company for which he was an agent on behalf of policyholders who did not pay… Held: Petitioners may not deduct as a business expense amounts expended in operating and maintaining cars in excess of the amounts allowed by respondent.

Value of decedent's interest in a 2,595.51-acre ranch near Kerrville, in Kerr County, Tex., determined.

1. Petitioner, a resident physician in obstetrics and gynecology at the University of Nebraska Medical Center, received payments from the Center in 1969. Held: petitioner may not exclude any portion of the payments from his gross income as a scholarship or a fellowship grant. Sec. 117, I.R.C. 1954. 2. Held, petitioner is not entitled to deduct travel expenses in excess of those allowed by respondent.

1. Individual petitioner guaranteed loans and leases for a subsidiary of a wholly-owned corporation. When the subsidiary went bankrupt petitioner was required to discharge the obligations which he had guaranteed. Held: The guarantees made by petitioner were not proximately related to petitioner's trade or business and are, therefore, deductible only as nonbusiness bad debts under section 166(d). 2. Corporate petitioner, which is wholly-owned by the individual petitioner, made certain advances to its subsidiary. Held: At the times the advances were made, corporate petitioner had no reasonable expectation of repayment. Therefore, the advances were not loans but contributions to capital. Consequently, corporate petitioner is not entitled to a bad debt deduction. 3. Held: Items of income should be included in gross income. They should not be set off against deductions or potential deductions prior to inclusion in gross income. 2

Traveling expenses, including meals and lodging, incurred by petitioner, held not deductible under sec. 162(a) (2) since not incurred "while away from home," petitioner's "tax home" being Detroit, Mich., his place of employment, not Sturgis, Mich., his place of family residence.

P purchased stock of S corporation, by whom he had been employed for 28 years, and of a corporation related to S through indentity of ownership. Held: the stock was not sold to P at a bargain price.

Held, absent an agreement between debtor and creditor as to application thereof, partial payment on a note which included both unpaid principal of a loan and accrued interest thereon must be applied first to payment of the accrued interest, with the excess being applied to principal.

Held, (1) petitioner not entitled to dependency exemption for his grandmother; (2) petitioner does not qualify as a head of household; and (3) amount of charitable contributions determined. Held: petitioner not entitled to dependency exemption for his grandmother; (2) petitioner does not qualify as a head of household; and (3) amount of charitable contributions determined.

The decedent and her sister, both unmarried, lived together for many years. The sister had a history of cancer. Some 4 months prior to decedent's death the sister transferred two parcels of real estate to decedent and 12 days prior to decedent's death the sister transferred certain securities to decedent. The petitioner claimed that the transfers were invalid because the sister was incompetent. The decedent also held funds in joint bank accounts and trustee accounts on her death. HELD: The transfers by the sister effectively vested ownership in the securities and real estate in the decedent. Such transfers are not subject to collateral attack. HELD, further: Amounts held in joint and trustee bank accounts includable in gross estate. 2

Held, expenses incurred in campaigning for office of city councilman are not deductible under sections 162, 212, or 174, I.R.C. 1954.

Value of decedent's undivided one-half interest in 10,416-acre ranch in Val Verde County, Tex., determined.

Petitioner, organized pursuant to the General Not For Profit Corporation Act of Illinois, constructed a man-made lake with funds received by it from its members. Held: Petitioner is not exempt from taxation pursuant to section 501. Held, further: The lot assessments paid to petitioner are contributions to capital and not includable in petitioner's gross income. Held, further: The membership fees and annual lot rentals are includable in petitioner's gross income.

Petitioners O.W. and Aliene Brothers received distributions in 1963, 1964 and 1965 from O. W. Brothers' wholly owned corporation O.W. Brothers & Associates which they did not report as dividends on their Federal income tax returns since the distributions were claimed to be loans, assets held in some form of trust for the corporation, or campaign contributions and payments to local tax officials made by O. W. Brothers on behalf of the corporation. Held: Amount of dividend income determined. Petitioner O.W. Brothers & Associates purchased an airplane in 1965 for business purposes and expended certain amounts in that year in connection with the acquisition, maintenance and operation of said plane and the flight instruction of O. W. Brothers. Held: Amount of allowable airplane expenses determined.

Petitioner was a member of the United States Air Force and was permanently stationed at a post of duty where no meal or lodging facilities were provided. Held: The living expenses incurred by petitioner in excess of those reimbursed by the Air Force are not deductible as ordinary and necessary business expenses.

Held, petitioner-husband, an actors' agent, is entitled to deductions claimed in connection with his ownership and operation of a house in Palm… Held: petitioner-husband, an actors' agent, is entitled to deductions claimed in connection with his ownership and operation of a house in Palm Springs used for client entertainment; his wife's testimony corroborating his statement regarding the business purpose of the entertainment and his business relationship with the persons…

Pursuant to an agreement with his corporate employer petitioner was reimbursed for 60 percent of his expenses for depreciation and maintenance of his personal residence by reason of his entertainment of clients of his employer. Petitioner was an officer but not a shareholder, and the agreement was reached in an arm's-length negotiation. Fact of some entertainment stipulated. Petitioner filed an accounting annually with his employer. Held: Since petitioner adequately accounted to his employer he is entitled to deduct his expenses under sec. 162 and sec. 274(d) is inapplicable.

S, and his mother, established separate trusts for S's children. Under the provisions of each trust, S (as maker) had the right to amend or interpret the trust instruments. Held: The parties did not intend to join together in the present conduct of partnership business. Therefore, there is no valid partnership for Federal income tax purposes. Held: S is treated as the owner of the assets of the three trusts to the extent of his contributions.

1. Held: Missouri Valley Distributors, Inc., a valid taxable entity, must include in income certain amounts paid to it or on its behalf by a lessee pursuant to the terms of a ground lease. 2. Held: Missouri Valley Distributors, Inc., a valid taxable entity, must include in income certain amounts paid to it or on its behalf by a lessee pursuant to the terms of a ground lease. 2.

Petitioner served as a fight trainer to Floyd Patterson, receiving as compensation 7 percent of Patterson's fight proceeds. Held: Petitioner was not in constructive receipt of his share of fight proceeds prior to 1963. He did not have dominion and control over such funds until the date of actual receipt.

Petitioner's corporation entered into possession, and assumed the burdens and benefits of ownership, of encumbered real property and an unencumbered leasehold interest, under a 1960 installment land… Held: Petitioner was, for tax purposes, the owner from 1961 to 1966 of the property returned.

The petitioner made payments to two bonding companies and a bank as required by indemnity and guaranty agreements which he signed for two corporations in which he was both an investor and an employee. Held: The debts created by payments required by these agreements were proximately related to the petitioner's trade or business and are, therefore, deductible as business bad debts under the provisions of sec. 166(a).

1. Held: A corporation in which the petitioners held stock did not adopt a plan to offer stock pursuant to section 1244(c) (1), and the petitioners are… Held: A corporation in which the petitioners held stock did not adopt a plan to offer stock pursuant to section 1244(c) (1), and the petitioners are therefore not entitled to the benefits of section 1244. 2. Held: The petitioners have failed to prove that their basis in stock that became worthless was in excess of zero.

In 1963, petitioner, a lawyer, assumed a guaranty (one-half of a $30,000 cognovit note with a balance due of $27,500), on the debt of a corporate client, relieving the prior guarantor, a 50 percent shareholder of the corporation, of his liability thereunder, in exchange for a $100 per month fee from the corporation in addition to petitioner's regular legal fees. Petitioner owned no interest in the corporation at the time the guaranty was assumed. In assuming the guaranty, petitioner also received an assignment of the prior guarantor's 50 percent stockholdings in the corporation as security for the guaranty; petitioner agreed to transfer the stock to the other 50 percent shareholder without consideration upon the ultimate discharge of the corporate debt under guaranty. In 1965, petitioner loaned the corporation $1,775. The corporation was not then a significant source of legal fees for petitioner, and in fact, after a continuing unsuccessful financial history, the corporation was declared bankrupt in 1965. Petitioner incurred losses on both the guaranty and the loan. Held, the loss incurred on the guaranty was not a loss incurred in the acquisition of a stock, but rather was a bad debt loss. Such loss on the guaranty was a business bad debt loss as the guaranty was proximately related to petitioner's trade or business, and his dominant motivation in becoming liable on the client's debt was to augment his legal income. Held, further, the loss on the loan was a non-business bad debt loss, not proximately related to petitioner's trade or business.

The petitioners advanced funds to their wholly-owned corporation by which they were employed. Held: The dominant motivation of these employee-stockholders in making loans to their corporation was not to protect their status as salaried employees and therefore such loans were not proximately related to their trade or business as employees.

At the time of her death decedent owned 5,854 shares of the stock of a bank, valued at $127,324.50 in the estate tax return filed by petitioner. Held: The fair market value of the block of stock in question was $134,642 on the applicable valuation date.

H traveled to India to work on a television production show and became a bona fide resident of that country in late 1966 or early 1967. W joined H in India in July 1967. Held: H was not a bona fide resident of a foreign country or countries for an uninterrupted period of a year for purposes of applying the exclusion of foreign source income under section 911(a), I.R.C., 1954. Held further, H and W were domiciled in the State of California during the entire taxable year 1967.

Petitioner was a sales representative for a corporation on a commission basis. Held: petitioners are not entitled to deduct business expenses in excess of the amounts allowed by the Commissioner. Petitioner had unexplained deposits in a Mexican bank account. His current income was not sufficient, when compared with current expenses, to account for the deposits.

A stairway and portion of a seawall at the petitioners' beach-front residence were destroyed to the extent of $300 during a servere winter storm Held: The petitioners are entitled to deduct only the amount of loss suffered which is due to actual physical damage and not that portion of the decline in market value of the property which is attributable to buyer resistance because of the fear of possible recurrence of similar storms. Held further: There is no estoppel against the respondent in the instant case.

The decedent transferred money to petitioner three days prior to the date that she was declared legally incompetent.She made three additional transfers of money to petitioner within seven months… Held: The transfers were not valid gifts to petitioner and accordingly the amounts transferred must be included in her gross estate.

Held: Upon consideration of all the facts and circumstances presented, that the rental payments made by the petitioner Gay 90's, Inc., to… Held: Upon consideration of all the facts and circumstances presented, that the rental payments made by the petitioner Gay 90's, Inc., to Arlington, Inc., during the fiscal years ended in 1968 and 1969, were reasonable and constituted ordinary and necessary business expenses deductible under the provisions of section 162, I.R.C. 1954.

(1) The petitioner excluded part of her alimony payments and deducted the full amounts she paid as interest on a home mortgage and as real estate taxes. Held: collateral estoppel applies to prevent her from relitigating these issues. (2) The petitioner deducted attorneys' fees paid incident to defending a partition action. Held, no part of the attorneys' fees is deductible. Sec. 212, I.R.C. 1954.

Held: The petitioner did not maintain as her home the household that constituted the principal place of abode of her son during the years in issue, and she therefore does not qualify as a head of a… Held: The petitioner did not maintain as her home the household that constituted the principal place of abode of her son during the years in issue, and she therefore does not qualify as a head of a household.

The father and stepmother of petitioner were residents of Israel and were not citizens of the United States. Petitioner provided them with support. Held: sec. 152(b) (3), I.R.C. 1954, is neither arbitrary nor unreasonable, and petitioner is not entitled to claim his father and stepmother as dependents. David B. Barr, 51 T.C. 693 (1969), followed.

Petitioner is an integrated builder of mass housing for sale to the public. After its plans for the development of shopping centers on two pieces of raw real estate, adjoining two of its housing developments, were not consummated, it sold the properties. Petitioner sold a portion of a third piece of real estate to a newly formed corporation, 58 percent of which was owned by petitioner, which in the same agreement contracted with petitioner to provide the necessary construction for use of the property as a mobile home park. Later, under a similar arrangement of sale and construction, petitioner sold the remaining portion of this tract to that same corporation. Held: The two tracts of real estate intended to be developed as shopping centers by petitioner were capital assets and the third tract was property held for sale in the ordinary course of the petitioner's trade or business, giving rise respectively to capital gain and ordinary income on their sales. Held further: All but a portion, identified by the circled number 192, of one of the aforementioned tracts intended to be developed as a shopping center was property held for more than six months.

Corporation A was merged into corporation B a few weeks prior to the close of the taxable year of corporation A. On its books and records and in the filing of the corporation tax return for… Held: That the respondent properly determined the tax liability of corporation A on the basis of such election and in conformity with the return as filed.

Petitioner, a widow, occupied a house with an unmarried daughter, a married daughter, and the husband and children of the married daughter. Held: that petitioner and her unmarried daughter constituted a separate household, petitioner maintained a household, and she is entitled to head of a household treatment.

Petitioner organized a corporation, the minutes of which authorized the issuance of stock pursuant to a permit granted by the California Commissioner of… Held: The minutes of the corporation together with the permit did not constitute a plan within the meaning of section 1244(c) (1) (A), and therefore petitioner must recognize a capital loss on the sale of his stock in the corporation. John H. Rickey, 54 T.C. 680 (1970), on appeal (C.A. 9, Nov. 13, 1970) followed.

Petitioner, Donald Heberer, entered into an oil and gas drilling program under which he agreed to pay $13,500 to Drilling Co. for drilling a well on a location assigned to him under a lease held by… Held: Petitioners have not carried their burden of proving that they are entitled to a deduction for intangible drilling and development costs in 1969.

Petitioner's stock in a subchapter S corporation which became worthless in 1969 did not qualify as section 1244 stock and petitioner's loss is not deductible as an ordinary loss. The stock was not issued to petitioner by the corporation; he purchased it from another stockholder. And the stock was not issued under a qualifying plan adopted by the corporation.

Petitioner-husband, an airplane pilot, traveled to his place of employment by private automobile. Held: Since petitioner did not incur any additional expenses as a result of transporting job-related items, the entire amount in controversy represented non-deductible commuting expense under sec. 262. Fausner v. Commissioner, 413 U.S. 838 (1973).

In consideration for filing and financing patent applications covering a process for galvanizing steel in certain countries, petitioner received an equal interest with the inventor in the patents… Held: Petitioner is entitled to characterize the proceeds received pursuant to the royalty agreement as capital gain received from the sale of patents or undivided interests therein under the provisions of section 1235(a).

Petitioner, a resident physician in surgery at the Medical College of Georgia, received payments from the Medical College and the V.A. Hospital during 1969. Held: petitioner may not exclude any portion of these payments from his gross income as scholarship or fellowship grants. Sec. 117, I.R.C. 1954.

Held, respondent not estopped from redetermining petitioners' claimed depreciation deductions for the taxable years 1968 and 1969. Held, further, respondent's determinations sustained. Held: respondent not estopped from redetermining petitioners' claimed depreciation deductions for the taxable years 1968 and 1969. Held, further, respondent's determinations sustained.

Deduction of dependency exemptions for two children of prior marriage denied. Settlement agreement incorporated into divorce decree provided that former husband of Gloria Kratzer was entitled to deductions for the children as long as he made the support payments provided in the agreement, which he did. All other requirements of section 152(e) (2) (A) met.

Held, deductions denied for lack of proper substantiation. Held, further, respondent did not err in applying the section 6651(a) addition to tax.

Decednet transferred a farm to her daughter five months prior to decedent's death. Held: the value of the farm is not includable in decedent's gross estate as a gift in contemplation of death under sec. 2035, I.R.C. 1954.

Held: Petitioners are not entitled to deduct losses on their joint income tax returns arising from the operation of petitioner William James Hooper's wholly-owned business, the Nu-Idea Corporation,… Held: Petitioners are not entitled to deduct losses on their joint income tax returns arising from the operation of petitioner William James Hooper's wholly-owned business, the Nu-Idea Corporation, since a proper subchapter S election was not in effect during the years in issue.

Petitioner, a resident physician in ophthalmology excluded $3,600 from his income in calendar year 1968 under section 117, I.R.C. Held: that the excluded amount was compensation and, therefore,… Held: that the excluded amount was compensation and, therefore, includable in income.

Petitioners received an apartment building located in a deteriorating area of Brooklyn as a distribution in liquidation of a corporation. Held, fair market value of the apartment building determined. Held: fair market value of the apartment building determined.

The petitioners made loans, pledged stock as security for loans, and paid money for stock to be issued pursuant to various requests for funds mady by their son-in-law. Held: the funds and pledge were not obtained under circumstances constituting thefts under sec. 165(c), I.R.C. 1954; held further, one loan and part of the payment made to secure the return of the pledged stock resulted in worthless nonbusiness debts in 1968 under sec. 166(d), I.R.C. 1954.

Payments were made by a medical partnership to a withdrawing partner in liquidation of his partnership interest. Held: that the modifying agreement specified that certain payments were with respect to goodwill and, therefore, the payments come within section 736(b) (1).

X made a $20,000 advance to W corporation for which he received a promissory note. Held: the $20,000 advance by X represented a contribution to capital. X and Y agreed to indemnify a surety company on a performance and labor bond for W corporation. X and Y also cosigned a loan from C bank to W corporation. After W corporation became insolvent, X expended funds pursuant to the bond and the loan agreements.

In 1967 petitioner, a national banking association, acquired a retail credit card business as a going concern including its goodwill. A separate clause in the agreement of sale provided as a condition to closing that the seller would convey covenants not to compete executed by it and by such of its directors as the petitioner should request. The agreement of sale did not allocate any portion of the purchase price to a particular asset.

Petitioner, an American citizen employed by a Connecticut corporation in Saigon, Republic of Vietnam, received a per diem allowance for meals and lodging while working in Vietnam during 1969. Held, the per diem is includable in petitioner's gross income. Held further, petitioner's tax home was Saigon and he therefore is entitled to a travel expense deduction only for certain expenses incurred while traveling away from Saigon.

Petitioner and his wife filed separate income tax returns for 1968. Petitioner itemized his deductions, claiming a deduction for a theft loss. Held: petitioner did not sustain a deductible theft loss in 1968 under sec. 165, I.R.C. 1954. Held, further, petitioner's itemized deductions for 1968 did not exceed the standard deduction allowed by sec. 141, I.R.C. 1954. Held, further, petitioner cannot claim an exemption for his wife under sec. 151, I.R.C. 1954.

By a former marriage, the petitioner had two children who were in the custody of their mother. Held: the petitioner is not entitled to a dependency deduction under sec. 152(e) (2) (B), I.R.C. 1954, for the two children.

Held, petitioners failed to prove that their loss on abandonment of a real estate project occurred in 1967. Held: petitioners failed to prove that their loss on abandonment of a real estate project occurred in 1967.

The petitioner entered law school in the fall of 1965, the year he graduated from college. Held: the law school expenses incurred by petitioner to attend law school in 1968 are not deductible as ordinary and necessary business expenses under sec. 162(a), I.R.C. 1954.

Petitioners held a one-third interest in a partnership. This partnership was formed to purchase a tract of unimproved real estate. Held: The partnership was formed for investment purposes and this purpose has remained constant throughout the partnership's existence, giving rise to capital gain on the sale of a portion of the partnership property.

Petitioner Guild's employment with petitioner Logan, a Delaware corporation, was terminated by Logan. Guild brought a lawsuit against Logan for the alleged breach of his employment agreement which included a restricted stock option plan. Pursuant to the settlement of the lawsuit Logan permitted Guild to purchase a certain amount of stock at less than fair market value. Held, petitioner Guild failed to exercise a restricted stock option pursuant to sec. 424, I.R.C. 1954. Thus, the transfer of stock resulted in taxable income to Guild and a trade or business deduction to Logan. Held, further, the bargain element of the stock purchase is taxable to Guild as ordinary income. Held, further, legal expenses incurred by Guild with respect to the lawsuit are deductible.

Held, respondent's determination of a deficiency within 3 years of the filing of a return is not barred by the granting of a refund claimed on the return more than 2 years prior to the determination. Held: respondent's determination of a deficiency within 3 years of the filing of a return is not barred by the granting of a refund claimed on the return more than 2 years prior to the determination. Sec. 6532(b), I.R.C. 1954, not applicable.

For the years 1949 and 1952 through 1956, petitioner-husband consistently underreported taxable income, repeatedly treated compensatory payments as capital transactions, omitted specific items of… Held: the underpayments in Federal income taxes for those years were, at least in part, due to fraud on the part of the petitioner-husband.

H deducted legal fees paid in defending a trust, in which he had an income interest, against claims by his wife. Held, such fees are not deductible under sec. 212(2), I.R.C. 1954. Held: such fees are not deductible under sec. 212(2), I.R.C. 1954.

In 1968 petitioners sold the assets of their business as a going concern including its goodwill. Held: Petitioners have shown by a preponderance of the evidence that the contracting parties did not intend to allocate any part of the consideration to the covenant. In addition the covenant had minimal economic value. Therefore the portion of the purchase price in dispute is not assignable to the covenant.

Petitioner's predecessor purchased all the outstanding stock of another corporation for an adjusted cost of $8,767,184.17 and immediately liquidated it under sec. 332, I.R.C. 1954. Held: the aggregate fair market value of the assets received in liquidation for purposes of applying sec. 334(b) (2) does not exceed the adjusted cost of the stock which petitioner acquired for such purpose.

Where petitioner received a tract of land at the site of a planned shopping center complex in consideration of a promise to construct and operate a retail facility on that tract, it is Held, that the… Held: that the transfer of the tract of land constituted a contribution to the petitioner's capital.

Petitioner John Vishnevsky received certain properties from a corporation in which he held a stockholder interest. Held: fair market value of the properties determined.$12 Sherwin C. Peltin, for the petitioners. Kenneth W. McWade, for the respondent.

Held, the value of the assets in a trust established in 1955 in decedent's name and with decedent as the named grantor, under the terms of… Held: the value of the assets in a trust established in 1955 in decedent's name and with decedent as the named grantor, under the terms of which decedent reserved unto herself the income for life, is taxable in decedent's estate despite petitioners' claim that the assets transferred to the trust really belonged to decedent's husband and…

(1) In 1967 and 1968, petitioner incurred and paid certain expenses in the investigation, organization and operation of Venetian… Held: that petitioner is entitled to deductions under sec. 162 for certain employee business expenses and is entitled to capitalize part of the aforesaid expenditures as an increase to his cost basis in Venetian International, Inc. Held further, since the respondent stipulated the amounts claimed on petitioner's return, except for certain…

During 1965 petitioner was a regular patron at Yonkers Raceway. The respondent determined that petitioner failed to report his winnings from gambling at the raceway. Held, petitioner has satisfied his burden of proving that he did not receive gambling income as determined by respondent.

Petitioner entered into agreements with a citrus nursery whereby the nursery agreed to plant and grow a certain number of citrus trees for petitioner. Held: petitioner must capitalize the costs of acquiring and planting seed and of grafting the buds to the root stock. Petitioner may deduct the remaining amounts paid pursuant to the contract.

(1) During the years 1964 through 1967, the petitioner failed to report payments received in return for promises she made to secure State contracts for another and the proceeds from the sale of items… Held: such failure to report was due to fraud on the part of the petitioner. (2) The Commissioner reconstructed the petitioner's taxable income for the years 1964 through 1967 on the bank deposits method.

On their 1967 and 1968 federal tax returns petitioners deducted several items as business related expenses. Held: Portions of the travel mileage have been adequately substantiated and will be allowed in full. An allocation on the basis of Cohan v. Commissioner, 39 F.2d 540 (2nd Cir. 1930) will be made with respect to the remaining mileage. (2) Petitioners claim bad debt losses arising from Scott's insurance business in 1967.

Held: The value of certain stock of a closely-held corporation is determined. Held: The value of certain stock of a closely-held corporation is determined.

Held, deficiencies determined in petitioner's income taxes for the years 1959 through 1965 by application of cash expenditures method with additions for specific items. Held: deficiencies determined in petitioner's income taxes for the years 1959 through 1965 by application of cash expenditures method with additions for specific items.

1. Petitioner purchased apartment properties from its controlling stockholder. The Commissioner contended that the sale was a sham transaction, but this contention was rejected by the Ninth Circuit. Held: The decision by the Ninth Circuit does not preclude the Commissioner from arguing now that the basis of petitioner in the apartment properties is less than the purchase price because that price included unstated interest.

Based on all the facts presented, compensation paid by petitioner to its president and major shareholder was unreasonable and excessive. Held: Reasonable compensation determined. Held: Reasonable compensation determined.

Petitioner, a nonresident alien individual and beneficiary of a United States trust, claimed she was engaged in a trade or business… Held: the trust, of which petitioner is a beneficiary, is only engaged in collecting and distributing investment income, which is not a trade or business. Higgins v. Commissioner, 312 U.S. 212 (1941). Petitioner may not, therefore, claim personal exemptions, and is subject to taxation at the flat 30 percent rate provided in sec. 871(a) (1).

Petitioner received a payment from Holdings, a corporation that owned 85 percent of Airways - petitioner's former employer. Held: This payment is compensation and should be included as income on petitioner's tax return.

Petitioner loaned money to a corporation and an individual and secured a note for two individuals. In each case petitioner claimed his purpose was to gain additional work for the corporation that he controlled. In 1970 petitioner claimed these loans became worthless and deducted his losses on his personal tax return. Held: Petitioner's loans are characterized as nonbusiness bad debts. United States v. Generes, 405 U.S. 93 (1972). Held further: Petitioner does not qualify under section 166(f) since the borrowers used the money for investment purposes which was not their trade or business. Whipple v. Commissioner, 373 U.S. 193 (1963). Held further: None of these loans became worthless in 1970. Petitioner also deducted a "compensation for services" expense on his personal tax return. Held: Petitioner has not shown that this expense arose in connection with his trade or business or that it was for services actually rendered.

P systematically misappropriated funds from her employer's business cash box and concealed such misappropriations by altering her employer's books. The income from the embezzlement was not reported for Federal income tax purposes. Held, the underpayments of Federal income taxes on the embezzled funds were due to fraud on the part of P.

Held: Petitioners had a reasonable prospect of recovery with regard to an alleged casualty loss to their house in 1962. Held: Petitioners had a reasonable prospect of recovery with regard to an alleged casualty loss to their house in 1962. They are not entitled to a casualty loss deduction in 1962 since they have failed to establish that they abandoned their claim during that year.

When this case was called for trial petitioner failed to appear. Respondent's motion to dismiss for failure to prosecute is granted. Respondent proved fraud by clear and convincing evidence. Decision will be entered for respondent in the amount of the deficiencies in tax and additions to tax under sec. 6653(b) determined by respondent in the notice of deficiency for each of the years 1963-6, and 1968. Respondent did not prove an underpayment of tax for 1967 so there can be no addition to tax for that year.