Volume 34 — Board of Tax Appeals

Amounts of deductions allowable to lessee on account of its liability to replace wornout or discarded equipment, determined.

The direction of a bank examiner to charge off a portion of the book value of bonds depreciated in value is not sufficient to show worthlessness to that extent so as to entitle petitioner to a deduction of the amount so charged off under section 23(j), Revenue Act of 1928.

1. Subsequent to the enactment of the Revenue Act of 1926 the decedent executed five certain trust indentures, reserving to himself the power to alter, amend, or revoke, with the concurrence of the… Held: such power remained in the decedent until his death and the value of the property transferred, at the time of his death, is includable in the decedent's gross estate under the provisions of section 302(d) of the Revenue Act of 1926.

Petitioner, while a member of a brokerage firm which was engaged in buying and selling securities, bought for investment after 1921 and sold through the firm as other customers certain stocks which… Held: the net profit realized is taxable as capital net gain and not as ordinary income.

1. Petitioner was the sole shareholder in corporations A, B, C, and D. In 1920 corporation A sustained a net loss, while the other three… Held: that, under the circumstances of the transfers of their assets by corporations B and C to corporation D, such transfers constituted a constructive receipt of such assets by the petitioner and an additional investment thereof by the latter in corporation D, and that petitioner, and not corporation D, is liable as transferee of…

For the years 1927 and 1928 taxpayer filed fiduciary returns on form 1041. Despite a ruling by the Commissioner in 1929 that it was taxable as a corporation, taxpayer on March 15, 1930, again filed a fiduciary return, giving all information requisite for assessing the tax either as a trust or as a corporation. On October 17, 1930, the Commissioner advised that on reconsideration it was held that taxpayer was a strict trust for the years 1927 and 1928, and on November 11, 1930, pursuant to request for a further ruling, advised that if the conditions had not changed the same ruling would be made as to 1929 and 1930. On December 17, 1930, taxpayer filed an amended return on form 1041, giving all the required information. At some later date the Commissioner prepared a "substitute return" on corporate form 1120 on behalf of taxpayer. On March 8, 1934, the Commissioner reversed his ruling of November 11, 1930, and on March 9, 1934, mailed a notice of deficiency purporting to act under section 275(c) of the Revenue Act of 1928. Held, the return on form 1041 was a return under the law and served to start the running of the statute of limitations (section 275(a). Revenue Act of 1928) allowing two years for assessment and collection; held, further, that the statute of limitations bars the assessment and collection of any deficiency in tax.

1. Money obtained to carry on a business under a contract purporting to be an outright sale and purchase of accounts held to be advancements in the nature of loans, notwithstanding the form of the contract and that it violated the law of the state of the contracting parties as to usury. 2.

A distribution by a trustee to a beneficiary of all the trust income is not an annuity and is deductible by the trustee under Revenue Act of 1928, section 162(b) notwithstanding a separate discretion given to the trustees by the will to make additional distributions out of principal to meet the needs of the beneficiary.

1. Petitioner did not report on his income tax return, for 1925, income received by him in that year from the sale of beer. Held: the return was false and fraudulent with intent to evade tax and the tax may be assessed at any time. 2.

INCOME - INTEREST ACCRUED. - A corporation on the accrual basis must include in its gross income for the taxable years interest due from two corporations to which it made loans in prior years where the evidence discloses a reasonable expectancy that such interest would be received or could be collected.

The respondent addressed a deficiency notice to the petitioner at 915 15th Street, N.W., Washington, D.C., instead of to 917 15th Street, N.W., Washington, D.C., the address shown in his return. Held: that the deficiency notice is valid.

1. DEPLETION - BONUS PAYMENT - REVENUE ACT OF 1928. - Where the record establishes the fact that, although the only income of the lessor from the leased oil and gas property in the taxable year was… Held: further, that under such circumstances, the reasonable allowance for depletion, considering the peculiar conditions of the case, which is all that is permitted by the statute, is 27 1/2 percent of the bonus as conceded by the respondent.

The petitioner once owned a building and the land upon which it was situated. It paid $1,525,000 for the property. It sold the property and received $930,000 in cash and a valuable lease on the property for 99 years, renewable forever, with an exclusive option to repurchase. The purchaser declared a trust of the property for the holders of 1,000 shares of equitable ownership in the fee. The so-called land trust certificates were sold to the public.

1. A corporation exchanged substantially all of its assets for 32 percent of the stock of each of two other corporations, an amount in cash, and the assumption of its notes and accounts payable and… Held: that the transaction constituted a reorganization under the provisions of section 203(h)(1) of the Revenue Act of 1924. 2. The amount of bad debt deduction determined.

One who is employed under contract as a skilled worker, who sells his employment contract during its term, but more than two years after it was made, to a third person for cash, is not entitled to treat the gain as capital gain.

1. The construction contract entered into by and between the petitioner and the 45th & Brooklyn Investment Co. under date of November 17, 1928, as subsequently modified, for the construction by the… Held: the cost basis thereof may not be reduced by depreciation in computing gain or loss upon the sale thereof.

1. Where the notices of deficiency, asserting a tax liability against Trustee Property #4 as an association taxable as a corporation, were addressed in care of and were received by the active trustee, and proceedings before the Board were instituted by the active trustee on petitions which were amended, the amended petitions being verified by the passive trustee and no one being misled by the designation of the taxpayer employed by the respondent in the notices of…

In the condemnation for public use of a portion of each of two adjoining lots owned by it, the petitioner was awarded a sum for the land taken, together with improvements thereon, and severance damages to the remaining portion of the lots. Special assessments were levied against the portions of the lots not taken and other lots of the petitioner in the assessment district, which were paid by offsets against the awards.

1. Petitioner owned several lots of shares of common stock of the American Radiator & Standard Sanitary Corporation represented by temporary certificates, which had been acquired by him at various prices and at different times, including a lot of 6,808 shares which he acquired in May 1929 upon the exercise of stock rights. These 6,808 shares were continuously pledged as collateral with a trust company to secure payment of the money advanced to the petitioner to enable him to purchase the stock. The trust company commingled the temporary certificates representing these 6,808 shares with other temporary certificates of petitioner for the same kind of stock, which were turned over to the trust company for exchange, and in December 1929 all the commingled temporary certificates were exchanged for permanent certificates. The trust company retained permanent certificates for 6,808 shares in petitioner's collateral account and delivered the other certificates to petitioner. Subsequently petitioner deposited as collateral in this same account two other lots of the same stock, in the respective amounts of 3,000 and 13,000 shares. In December 1931 petitioner directed the trust company to see "6,808 shares American Radiator common stock, said stock held as collateral under my loan" and the trust company sold and delivered the certificates representing the lot of 6,808 shares continuously held as collateral since May 1929. Held, the upon the exchange of the temporary certificates for permanent certificates the identity of the shares was not lost, nothwithstanding the fact that none of the permanent certificates was issued with respect to any particular temporary certificate. Fuller v. Commissioner, 81 Fed.(2d) 176; Held, further, there was sufficient identification by designation at the time of sale to preserve the identity of the stock sold as shares from this particular lot of 6,808 shares in the petitioner's collateral account, and the respondent erred in applying the first in, first out rule to determine the petitioner's gain on the sale of these 6,808 shares. Miller v. Commissioner, 80 Fed.(2d) 219; Robert E. Ford,33 B.T.A. 1229. 2. A beguest providing "to my beloved husband, James W. Arrott Jr., I leave all that I possess at the time of my death" is general and the value of securities received thereunder, at the date of their distribution to the legatee, is the basis to be used in determining gain or loss upon the later sale of such securities by the legatee.

On the date of her death decedent owned unpaid installment obligations from the sale of real estate and in respect of which gain had not been reported for any prior year. Held: that said gain should be reported and computed under the provisions of section 44(d) of the Revenue Act of 1928 for the taxable period ended with decedent's death; held, further, that the said section is not unconstitutional.

A corporation exchanged its assets in a statutory reorganization for shares of the transferee corporation and money, and immediately distributed all the money pursuant to a resolution which provided… Held: that the money thus received must be regarded as entirely distributed to shareholders and no part thereof may be regarded as recognizable gain of the corporation.

Petitioner paid special improvement taxes on its real estate prior to 1925. In later years, before 1932, petitioner sold this real estate. Held: since petitioner has not established error in respondent's determination of fact that petitioner had added the amount of these refunded taxes to the cost of its real estate sold in years prior to the year in which the refund was made, in computing taxable gain on those sales for those years, respondent's inclusion of that refund in…

The Hudson & Dugger Co., by resolution of its board of directors, ordered that the accounts of its stockholders be credited with amounts equal to the debit balances due and owing from the stockholders by charges against surplus, but further provided that the stockholders at such time as might be "convenient and appropriate" would make proper settlement of the accounts. Held, that the action taken effected the declaration and payment of a dividend within the meaning of section 115(a) of the Revenue Act of 1928.

DISTRIBUTION IN LIQUIDATION - REVENUE ACT OF 1928, SEC. 115(c). - A disposition of all the assets of the corporate petitioner to the individual petitioner, owner of more than 90 percent of the stock of the corporate petitioner, held to constitute a bona fide sale, and not a distribution in liquidation within the intendment of the above statutory provision.

An owner of securities contracts to sell them at a future date for a fixed price if the vendee elects then to purchase, the securities and a down payment being placed in escrow. Held: the owner's gross income for the year of sale may not include as gain the difference between the cost and the full sale price paid by the vendee but only the proportion of gain attributable to the installment received in the year.

Taxpayer is not estopped to deny liability in 1931 on income realized in 1923 where a representative of the respondent was fully apprised of the facts and both the taxpayer and respondent's representative relied on a ruling of the respondent's office to the effect that the transaction resulted in no income in 1923.

1. The petitioner, in 1890, entered into a contract with the Canadian Pacific Railway under the provisions of which the latter guaranteed the payment of interest at the rate of 4 percent on bonds of the petitioner issued or to be issued under mortgages providing for an interest rate of 5 percent. The holders of the bonds outstanding at the date of the contract accepted the reduction in the interest rate and thereafter, and up to March 1, 1913, the petitioner sold additional bonds as 4 percent bonds with the guaranty stamped thereon. Held, that the evidence does not warrant a finding that the petitioner effected a saving of 1 percent in interest on its bonds by reason of the guaranty provisions, and that such provisions therefore had a fair market value on March 1, 1913, measured by the total saving in interest payments over the life of the bonds, reduced to present worth at March 1, 1913. 2. Where a carrier establishes that there was an intention to abandon and a non-user and also an actual abandonment in fact of certain of its facilities in the taxable year, which had no other value than as salvage, it is entitled to deduct the depreciated cost thereof, less salvage, as a loss sustained in the taxable year, even though the facilities were not actually demolished until a subsequent year. 3. The fact that, under the provisions of the Interstate Commerce Act, the use of some of such facilities could not be abandoned without first obtaining permission of the Interstate Commerce Commission, and that such permission was not granted until a later year, does not warrant denial of the deduction, for income tax purposes, in the year in which they became worthless and were in fact abandoned.

The petitioner, reporting its income on the cash basis, received a demand promissory note as additional evidence of the liability of the maker for overdue semiannual interest on a series of notes… Held: that the petitioner did not derive any interest income from the note during the taxable year.

1. REVENUE ACT OF 1928, SECTION 167. - Where, under the terms of a trust, its income could be accumulated, added to corpus and the income, only, on that aggregate corpus was distributable to the… Held: that original accumulated trust income, added to and becoming part of the corpus, is not taxable to the grantor of the trust under the above statutory provision. Preston R. Bassett,33 B.T.A. 182; Arthur J. Morris,33 B.T.A. 241. 2.

1. LEASE - OPTION - REAL ESTATE - ILLINOIS. - An assignee of an option to purchase real estate in Illinois acquires no title in the optioned real estate unless and until the option is exercised by purchase. Barnett v. Meisterling,327 Ill. 564; 158 N.E. 806. See also, Commissioner v. San Joaquin Fruit & Investment Co.,297 U.S. 496. 2. Fair market value of real estate at March 1, 1913, determined. 3. Deduction of alleged partially worthless debt denied.

1. During the taxable year the J. W. Carter Co., following a consistent practice, redeemed preferred stock previously issued as a dividend. Held: that the redemption of the said stock constituted a taxable dividend within the meaning of section 115(g) of the Revenue Act of 1928. 2. The respondent is sustained in his disallowance of a deduction claimed as a loss on certain bank stock which was not sold nor shown to be worthless during the taxable year.

1. The taxable gain realized from the condemnation of a portion of a parcel of land is the amount awarded for the property taken, less the basis therefor. Christian Ganahl Co.,34 B.T.A. 126, followed. 2.

1. During the taxable year petitioner, the president and principal stockholder of a corporation, made certain withdrawals of money from it which were treated by him and the corporation as… Held: that such withdrawals constituted loans to petitioner and not the payment of dividends. 2. In September 1927 petitioner decided that a certain contract to purchase Florida real estate was worthless and charged off as a loss the amounts previously paid, amounting to $15,762.50.

Decedent's husband, possessing large interests in property, in the years 1887, 1888, and 1902 deeded most of such property to decedent. Held: the transfers were not made in contemplation of death.

1. STATUTE OF LIMITATIONS. - No returns of income having been filed by or on behalf of petitioner for the years 1918 and 1921, during which time his property was in the custody of the Alien Property Custodian, it is held that the assessment and collection of a deficiency determined by the respondent in 1935 is not barred by the statute of limitations. 2.

No part of sums expended in a campaign conducted to retain old customers and obtain new ones may be deducted as an ordinary and necessary business expense in the absence of proof of the portion allocable to capital and the maintenance of current business.

The trustee of a trust, created by an agreement made by the parties in compromise of a will controversy, may not deduct as distributed income, under Revenue Act 1928, sec. 162(b), the amount of a fixed annuity payable in any event, irrespective of the amount of trust income, notwithstanding that in the taxable year the payment is made from trust income and that in any year an inadequacy of trust income is to be made up of contributions by remaindermen.

1. Estate is not entitled to a deduction for capital gain distributed to legatee as corpus. 2. Where notice of deficiency is mailed to executors within two-year period, the questions of collection, of personal liability of the discharged executors, and of transferee liability are all immaterial. 3. Notice of discharge under section 312 is immaterial in determining deficiency against estate.

A mere shortage in the accounts of an employee is not sufficient to establish a deductible loss.

Decedent in 1927 created a trust irrevocable on its face, retaining the right to the income for life. Subsequently question as to the validity of the trust arose and an oral family agreement was arrived at to terminate the trust by court order as violative of the rule against perpetuities, decedent to execute a new trust. Pursuant to the agreement, on February 27, 1932, the court order was entered finding and decreeing the old trust void, declaring that decedent was the absolute owner, free and clear of the trust or any one claiming under it, of all the property involved, and ordering the transfer back to the decedent of all such property. A new trust, bearing date of February 17, 1932, had been executed which, by the terms of the agreement, became effective on the entry of the decree. Decedent, by letter of February 17, 1932, had ordered the old trustee to transfer the property direct to the new trustee and this was done. Under the new trust decedent retained the income for life. Held, that the property covered by the new trust should be included in the taxable estate under the provisions of section 302(c) of the Revenue Act of 1926, as amended.

ACCOUNTING. - Where petitioner used the accrual method of accounting for determining profits and losses on completed voyages within each calendar year, held, that interest incurred during each of the… Held: that interest incurred during each of the years 1923 to 1929 on loans used in its business of operating steamships should have been accrued on its books in each of those years and may not be deducted when paid in 1930.

1. The Commissioner did not err in using, as the basis of stock sold, the cost of the earliest purchased stock. Stock previously removed from the account but not sold did not take away the cost of the earliest stock purchased where it left in the account sufficient stock from which the sales could be made. 2. Income items credited to a taxpayer's margin account with a broker are constructively received and taxable for the year in which credited. 3. A taxpayer whose securities may be used as collateral for the margin account of another has not sustained a deductible loss where at the end of the year none of his securities have been sold and the other's account is still open and continuing, even though the account shows a deficit at the end of the taxable year. The same is true even though the taxpayer's securities are being held as collateral for the other's account under a fraudulent authorization. 4. A taxpayer has sustained a deductible loss where securities which he intended to be placed as collateral for a certain account in the name of his son are fraudulently placed in another account and sold for the benefit of the son, a party to the fraud.

During 1930 petitioners paid to the Government of the Philippine Islands, certain "privilege" taxes based upon the value of goods exported to a partnership composed of petitioners in the United States. Held, such "privilege" taxes were not income or profits taxes, and petitioners are not entitled, under section 131, Revenue Act of 1928, to apply the amounts thereof as credits against their respective income taxes due the United States.

A taxpayer on the cash basis who, having furnished the collateral upon another's promissory note and endorsed the other's second note, gives his own notes to the payee secured by his own collateral when the original obligor becomes bankrupt, is not entitled to a deduction for any amount of his own notes or collateral in excess of actual payments made by him in the taxable year.

DEDUCTIONS - STOCK LOSSES - PARTNERSHIP AND INDIVIDUAL RETURNS - SECTION 23(r)(1), REVENUE ACT OF 1932. - A partner entitled as such to a share of the profits of the partnership upon its sale of noncapital assets, can not, in computing his individual taxable income, reduce that share of profits by the amount of his loss upon sale of other similar assets, owned by himself individually.

The function of the Board is to consider issues properly raised, to decide them from the evidence, and to express its decision in terms of a deficiency or overpayment in respect of the particular petitioner before it. The Board has no jurisdiction to consider any alleged defense of the Commissioner to the actual recovery of money by the petitioner in a case where it appears clearly that the petitioner paid an amount as tax but had no liability for tax.

- Nieces of a testatrix were given substantial rights under a will. Held: the income of the trust estate was taxable to the fiduciary and the distributions made by it were not deductible under section 162(b) of the Revenue Act of 1932 as income of a trust estate currently distributed. Burnet v. Whitehouse,283 U.S. 148; Helvering v. Pardee,200 U.S. 365.

A private corporation, chartered under an act authorizing incorporation for pecuniary profit, received a share of the water rents collected from users of water furnished by a jointly owned waterworks.

1. In determining the proper ratio for apportioning unallocable expenses and taxes incurred by a British insurance company at its head office in England in connection with income from… Held: under our Revenue Act of 1928, such payments are deductible from its gross income. 3. The petitioner owned practically all the stock of two domestic corporations in this country and in 1930 sold here some of the stock of one to the other for considerably less than the stock cost it.

1. The statutory right of a stockholder to redeem within a year property of a corporation, being all of its property, sold at a sheriff's sale to satisfy a judgment against the corporation for damages is not sufficient, ipso facto, to justify postponement, for the year, of the deduction of such stockholder's investment in stock and bonds of the corporation, as a loss and as a bad debt respectively. 2.

1. ESTATE TAX - LIFE INSURANCE - REVENUE ACT OF 1926, SECTION 302(g). - The life of the decedent was insured on his application. Held: The payment of the premiums by the corporation was compensation for decedent's services. Frank D. Yuengling,27 B.T.A. 782; affd., 69 Fed.(2d) 971; George Matthew Adams,18 B.T.A. 381; Chauncey L. Landon,16 B.T.A. 907, followed.

GIFT TAX. - Transfers in trust for the purpose of accumulating income until a future date, the corpus then to become the property of the beneficiaries, held to be transfers of present interests, as distinguished from future interests, and are subject to the exclusion of $5,000 of the value of the gifts under section 504(b), Revenue Act of 1932.

The petitioners were the owners of all but two of the outstanding shares of stock of a corporation, which they contracted to sell to certain bankers. Before all of the conditions of the contract had been fulfilled the petitioners transferred some of their shares of stock to trustees, the trust instruments providing that the grantors should have the power to direct the trustee in writing to purchase and sell securities. The sale was made and the consideration for the shares theretofore transferred to the trustees was received by the trustee (there being at that time only one). Held, that the sales were made by the trustee as principal and not as agent; held, further, that as to two of the trusts the grantors neither alone nor in conjunction with others not beneficiaries had any control over the income of the trusts and that the grantors are not liable to tax upon the income thereof; held, further, that as to 26 other trusts the grantors controlled the right to receive the income and principal through reserved powers of alteration and revocation of the trusts and are therefore taxable upon the income of the trusts under section 167 of the Revenue Act of 1928.

- In 1927 petitioner under a contract of sale, conveyed its interest in certain leases, permits, drilling agreements, and all of the oil and gas… Held: that the cash payments received by petitioner in the years 1928 and 1929 constituted proceeds from the sale of a capital asset and were not gross income from the property within the meaning of that phrase as used in section 114(b)(3) of the 1928 Act and therefore are not subject to a percentage allowance for depletion.

1. Where decedent at the time of his death had 17 life insurance policies in force and effect on his life, in 14 of which the widow was named as beneficiary and in 3 of which their 3 children were… Held: that the value thereof in excess of the $40,000 exemption is includable in decedent's gross estate, notwithstanding that the premiums, except a very small portion thereof, on such policies had been paid out of community funds. 2.

The petitioners received $145,000 in 1925 from a corporation in consideration of their agreement with the corporation to litigate and settle its tax liabilities for a certain period by paying all… Held: that the Commissioner did not err in taxing the income from the transaction in 1929.

1. Where taxpayer signed a waiver after the expiration of the statutory period of limitations and claims that the signed such waiver under a mistake due to lack of knowledge that such period had expired, held such waiver is valid in the absence of clear and satisfactory proof of such mistake and in the absence of evidence showing that his counsel, upon whose advice he signed such waiver, was ignorant of the facts or his rights, knowledge of counsel being imputable to his…

Where indebtedness in a disclosed amount owing to petitioner from a stockholder, who was a former employee, was paid in full and liquidated in conformity with a mutual agreement of settlement by which indebtedness in an undisclosed amount of the petitioner to such stockholder was also paid in full and liquidated, and other considerations passed from him to petitioner and from petitioner to him, the petitioner is not entitled to a deduction as a bad debt of any of the…

- Petitioner acquired certain real estate and assumed a mortgage indebtedness. Held: that the transaction was not a tax-free exchange; that the mortgage indebtedness assumed must be treated as money received within the purview of section 112(c)(1) of the Revenue Act of 1928 and the corresponding section of the Revenue Act of 1926; and that the entire gain, being less than the mortgage indebtedness assumed, must be…

1. Decedent, until his death on December 16, 1933, was a member of a New York partnership. Held: only the distributive share of the profits of the partnership for its fiscal year ended July 31, 1933, is includable in decedent's taxable income for the period January 1 to December 16, 1933. Abe De Roy et al., Executors,19 B.T.A. 452; R. W. Archbald, Jr., et al., Executors,4 B.T.A. 483, followed. 2.

A trust created for the purpose of effecting the sale of lots in a subdivision was an association taxable as a corporation.

- Where a corporation and a partnership transferred to a new corporation organized to take over and carry on the businesses then operated by the two, 80 percent of the corporate assets and 96 percent… Held: that the transaction did not constitute, as to the corporation, a reorganization within the definition of subsection (i)(1)(A) of section 112 of the Revenue Act of 1928 but was, as to both transferors, a nontaxable exchange under subsection (b)(5).

1. A contribution to Symes Foundation held not deductible as a gift to a religious charitable, or educational institution. 2. Expenses of operation and depreciation on a house formerly occupied as petitioner's residence held not deductible where the house was not rented or devoted to any other business use after abandonment as a residence. 3. Salary paid to petitioner's secretary held deductible as a business expense.

A Michigan cemetery corporation which in the taxable years was not required by statute to set up a trust for perpetual care and maintenance and which did not in fact set up or make contributions to such a trust, held not entitled to have amounts placed in reserve excluded from gross income or deducted.

1. In computing depletion of 27 1/2 percent of gross income from the property during the taxable year in the case of oil and gas leases the words gross income from the property are held to mean,… Held: the income of corporation A from such source is not exempt, but is subject to income tax, such tax not being an imposition or burden upon the lease as an instrumentality of the state. 3.

In 1923 a partnership of which petitioners were members became involved in financial difficulties and executed notes in favor of its creditors. These notes bore interest. Held: the partnership was in receipt of income in 1930 to the extent of $16,134.02. B. F. Avery & Sons, Inc.,26 B.T.A. 1393, followed.

1. REVENUE ACT OF 1932 - SEC. 22(b)(3) - BEQUEST OF ANNUITY. - Where a last will and testament created an annuity for the widow of the testator and neither by express restriction nor its equivalent… Held: such annuity was payable from corpus or income. Steelman v. Wheaton,72 N.J.Eq. 626; 66 Atl. 195; affd., 73 N.J.Eq. 743; 70 Atl. 1102. 2. Id. - Such annuity was, therefore, a bequest, not taxable as income to petitioners' decedent.

Petitioner prior to March 1, 1913, acquired a royalty interest in a sulphur mine. Held: depletion sustained for the taxable years should be computed by dividing the value remaining for depletion as of the beginning of the taxable year by the number of units of mineral to which this value is applicable and by multiplying the unit value for depletion so determined by the units sold within the taxable year.

Pursuant to an agreement with its stockholders, a special dividend was duly declared by a national bank out of its undivided profits and paid to three trustees, acting in behalf and as agents of the… Held: their pro rata shares of such dividend are taxable to petitioners, since it was paid out of undivided profits and constructively received by them.

1. EXCHANGE. - Petitioners' decedent, knowing that stock owned by him would be retired early in 1924, and being desirous of avoiding taxation in that year on large profit which would… Held: petitioners' decedent did not consummate an exchange of his stock for either the three blocks of bonds or the diversified group of securities on December 31, 1923; held, further, exchange was consummated on January 15, 1924, when decedent received the diversified group of securities. 2.

Held that payments made by stockholders of a corporation to its former employees in appreciation of past services to the corporation, out of the proceeds of the sale by such stockholders of their stock, constituted taxable income to the employees and not gifts.

1. A transferee of a part of the assets of an estate which is not insolvent and which has on hand ample assets to satisfy a claim for estate tax is not liable for the tax as a transferee. 2. The mere fact that a person having in charge the assets of the estate verifies the petition does not make such person the petitioner before the Board.

Prior to 1913 the petitioner agreed to sell a large quantity of timber at specified prices and during each taxable period it received under the agreement of sale mininum amounts which were in excess… Held: that the gain realized or loss sustained in the taxable periods from the receipt of the payments should be computed on the basis of the fair market value of the timber on March 1, 1913.

1. Joint Resolution No. 88, 71st Congress, extending for one year the period of limitations in the case of taxpayers filing separate returns including community property, held constitutional. 2.

1. An alleged gift by petitioner to his wife held not proven. 2. A redemption of preferred shares by a corporation with cash held to be the distribution of a taxable dividend, Revenue Act of 1926, sec. 201(g). 3. The inclusion in taxpayer's income of an amount formerly held by him in trust held not proven to have been erroneous, there being no proof that the distribution thereof was made to anyone else. 4. Fraud penalties held not sustained by the evidence.

1. In the situation here obtaining, where stock was acquired en bloc and subsequently sold in lots or parcels, gain or loss will be computed… Held: upon the sale of new shares the cost of the securities received in exchange should be apportioned between the new shares and the stock subscription warrants on the basis of their fair market values; the cost of the new shares acquired through the exercise of stock rights is the sum of that portion of the cost of the old shares…

1. FRAUD. - Wilful omission of income, or deliberate and intentional failure to report substantial amounts actually received, constitutes evidence tending to establish fraud. Held: under the evidence, that petitioner filed a false and fraudulent return of income for the taxable year, with intent to evade tax. 2. EVIDENCE. - The burden of proving fraud rests upon respondent. The evidence should be clear and convincing.

1. Petitioner transferred, by an assignment, 430 units of beneficial interest in a trust, the corpus of which consisted solely of installment obligations. Held: that the transfer of units of beneficial interest was not the equivalent of the disposition of installment obligations within the meaning of section 44(d) of the Revenue Act of 1928. 2.

Where a legal resident of the State of Pennsylvania died in the year 1912, leaving a will which contained an unconditional direction or order that after the death of his wife and son his real estate should be sold and the proceeds distributed to his brothers and sisters "or their legal representatives", the gain realized from the sale of the realty was income taxable to the testator's estate.

Where shares of stock purchased at different times and different prices are held by brokers on deposit in a security account and are carried in the name of the brokers or some other name than that of the owner and where the owner directs the broker to sell certain of these shares bought on a particular date at a particular price, such designation to the broker of the particular shares to be sold is controlling though the certificates delivered do not correspond except in…

Taxpayers, stockholders in the old company, individually agreed to sell their stock to a third party and placed the stock in escrow. The purchaser placed $100,000 in escrow to apply on payment. Held: the original contract for the sale of shares of stock by taxpayers was carried out in accordance with its terms, notwithstanding the elaborate procedure employed by the assignee of the purchaser, looking to the refinancing and further utilization of the property.

As applied to sales through a brokerage account of shares of stock purchased at different times and at different prices the first in, first out rule is not applicable: (a) Where the seller ordered the broker to sell certain specified shares which had been issued to him and put up as collateral for a loan and in completion of the sale the seller delivered to the broker certificates for the identical shares. The certificates delivered to the broker identified the shares sold.

1. NET LOSSES. - Petitioner acquired all the stock of eight corporations and they became affiliated in October 1929. Thereafter a consolidated return was filed. In computing the consolidated net income of the affiliated group for the taxable year, net losses of one subsidiary for two preceding years were deducted. Held, that the amount of the net losses of the subsidiary which may be deducted in computing consolidated net income is limited to the cost or aggregate basis of the stock of the subsidiary to the parent. Held, further, that article 41(c) of Regulations 75, providing for this limitation, is a valid exercise of the authorization conferred upon the Commissioner by section 141(b) of the Revenue Act of 1928. 2. COST - ADVANCES BY PARENT CORPORATION. - Advances for advertising made to subsidiary by parent corporation before and after affiliation, held, not to be part of the cost or aggregate basis of stock purchased by parent. 3. Respondent's determination of cost of subsidiary corporation's stock to petitioner approved.

Petitioner transferred to another corporation approximately two-thirds of its assets for cash, notes, and stock of the transferee corporation. Held: that the transaction did not constitute a reorganization within the meaning of section 112 of the Revenue Act of 1928, since the transferee did not acquire substantially all of the assets of petitioner; nor was there a strict merger, since the transferor continued its corporate existence and retained substantial assets.

1. GROSS ESTATE - TRUST. - Decedent transferred a portion of his property to a trustee, the income to be paid to his divorced wife. Held: that the transfer to the trustee was not intended to take effect in possession or enjoyment at or after his death and the property transferred is not includable in his gross estate under section 302(c) of the Revenue Act of 1926.

Where a note is given by a husband to his wife to induce her to dismiss her pending suit for divorce and return with her children and resume marital relations with him, interest paid thereon to the wife is properly deducted from the husband's gross income as interest paid on indebtedness.

Installment obligations held by a trustee of an active express trust in Michiganheld not transmitted by the death of a beneficiary, and section 44(d), Revenue Act of 1928, does not operate to charge decedent's estate with taxable gain for the period prior to death.

The petitioner is the president and during the taxable year was actively engaged in the management of a large manufacturing corporation. Held: that the securities sold were not held by the taxpayer primarily for sale in the course of his trade or business within the meaning of section 101 of the Revenue Act of 1932.

Personal property taxes were assessed by a county auditor upon property owned by petitioner's decedent, and thereafter the state taxing authorities issued a certificate of immunity which by state… Held: that the assessment is not a claim against the estate under section 303(a)(1) of the Revenue Act of 1926 and no deduction is allowable therefor in determining the value of decedent's net estate.

The settlor of a trust, until the time of his death, could change the beneficiaries or alter their proportionate interests in the trust by the exercise of a power therein reserved. Held, the principal of the trust is includable in his gross estate.

In computation of gain from the sale of stock passing by general bequest the time of the distribution under section 113(a)(5), Revenue Act of 1928, held to be the time of actual transfer to distributee rather than the date of a court authorization of partial distribution, because under the Ohio probate law the court order itself effected no segregation or distribution of assets.

In 1885 decedent transferred certain property by irrevocable deed of trust, reserving to herself the income for life, with remainder over to such person or persons as she might designate or appoint… Held: the value of the trust corpus is includable in decedent's gross estate under section 302 of the Revenue Act of 1926, as amended.

1. Petitioner transferred substantially all of its assets, consisting of stock of its subsidiaries, to Pacific Gas & Electric Co., and canceled the… Held: that a statutory reorganization occurred, following Helvering v. Minnesota Tea Co.,296 U.S. 378. 2. Petitioner accrued $286,152.83 interest on the canceled indebtedness of its subsidiaries after the effective date of cancellation. Held, that interest so erroneously accrued did not constitute income to petitioner.

1. Corporation A entered into an agreement with corporation B and the holders of substantially all of its stock to acquire the business and a portion of the assets of B and for the immediate… Held: that the gain or loss realized or sustained by petitioners' decedent must be computed upon the disposition of his stock as a unit rather than the disposition of the stock in two blocks separately. 2.

Since a gift tax is an excise on the transfer of property and not a tax on the property itself, a gift of First Liberty Loan bonds is taxable, notwithstanding a provision in the authorizing statute and on the face of the bond that the principal and interest of the bond shall be exempt, both as to principal and interest, from all taxation, except estate or inheritance taxes, imposed by authority of the United States, or its possessions, or by any State or local taxing…

1. The taxpayer's exercise of an unqualified right to surrender shares in a security-holding organization and receive an aliquot portion of its assets, a composite fund, resulted in a deductible… Held: deductible although an equal number of the same shares was simultaneously purchased by a business associate of the taxpayer and by him transferred to the taxpayer's wife, who paid for them with her own funds and exercised control over them thereafter.

Amounts received by an official state court reporter from parties to litigation for transcripts of stenographic minutes are not constitutionally exempt from Federal income tax.

1. The petitioner was earning salaries and other income for services performed in New York, while his home and principal place of business was in Boston. Held: he is entitled to deduct the amount which he expended in traveling, for food and lodging, and for other necessary purposes while away from home. 2. The petitioner, an individual, was also the sole trustee of a trust over which he had broad powers.

The decedent transferred to an educational institution certain shares of stock in various corporations on condition that the institution, during his life and thereafter during the life of his wife… Held: that the amounts so received by the decedent constituted income and were not to be excluded from income under the provisions of section 22(b)(2) of the Revenue Act of 1928.

Petitioner acquired certain stocks from the estate of her husband who died intestate. Held: Petitioner's basis for gain or loss is the fair market value of the stocks sold at the time of their distribution to her, as provided in section 113(a)(5) of the Revenue Act of 1932. (2) Section 113(a)(5) of the Revenue Act of 1932 is not unconstitutional.

- The petitioner paid income taxes to the State of Wisconsin for the years 1926 to 1931, inclusive. He claimed and was allowed deductions therefor on his Federal income tax returns for those years. Held: that the amount refunded and interest constitute income to the petitioner for 1932.

Prior to petitioner's fiscal year ended January 31, 1930, the trustee of a corporation in which petitioner was the sole stockholder instituted two damage suits against the United States under an act… Held: that the proceeds did not represent accruable income in any prior year and that they were properly treated by the respondent as income in the year of receipt.

- Where the decedent, a resident of California, took out insurance upon his own life after July 29, 1927, and paid the premiums thereon from community income, the entire proceeds of the policies are part of the insured's gross estate for estate tax purposes. Newman v. Commissioner, 76 Fed.(2d) 449, affirming 29 B.T.A. 53; Estate of Julius C. Lang,34 B.T.A. 337, followed.

1. RES ADJUDICATA. - The question of whether the petitioner was taxable as a trust or as a corporation for the years 1925, 1926, 1927, and 1928 was… Held: the judgment in the former proceedings supports the plea of res adjudicata here. Tait v. Western Maryland Railway Co.,289 U.S. 620, followed. 2. Since the question involved here is res adjudicata, it is immaterial whether or not our decision of that question would be the same now as it was in the earlier proceeding.

1. Where the decedent, a stockholder of a corporation, donated a large sum of money to two officers of the corporation as a trust fund to be used to loan to or assist employees, former employees, or their families, or dependents, as in their judgment may be of assistance, the contribution is deductible under section 23(n) of the Revenue Act of 1928 as a contribution for a charitable purpose. 2.

The Buffalo City Hospital is an instrumentality of the State of New York engaged in an essential governmental function. Compensation of its superintendent is exempt from Federal taxation.

1. REORGANIZATION. - Upon the exchange of assets by a corporation for stock of another, the determination of whether the assets exchanged constituted substantially all of the properties of the… Held: that the assets transferred were substantially all of the properties of the transferor and the exchange was nontaxable under the reorganization provisions. 2.

1. The trustee of a trust was empowered to buy and sell real and personal property and operate farms in the interest of the trust and did so. The trust instrument recited it had a paid-in capital and was a joint stock association without individual liability of its members, to whom the trustee was to issue certificates for shares. Its letterheads indicated it was a joint stock association and it so reported on its income tax returns, which were made on corporation forms. Held, the trust was an association taxable as a corporation. 2. There was a distribution of the assets among the shareholders of the trust in complete liquidation thereof. Held, gain resulting therefrom is taxable as income to the shareholders.

Decedent, in life, was a stockholder and officer in two corporations and carried on a cattle business individually and in a partnership. Held: that the losses are not attributable to any trade or business regularly carried on by the executors and the estate, and, the individual not being the same taxpayer the petitioner may not use the losses in computing a net loss of the estate.

Where in a family settlement an inter vivos trust was created to operate business buildings and the essential elements of a corporate organization were present, the trust is taxable as an association.

Where petitioner, engaged in the contracting business, kept his books upon the accrual basis, and in the year 1931, in conformity with his custom, set up on his books the cash received from the… Held: the respondent's determination should be approved irrespective of whether the contracts were long term contracts within the meaning of article 334 of Regulations 74.

Petitioner corporation was organized in 1927 by its four stockholders holders to take over a contract for the purchase of 1,120 shares of stock of another corporation, the purchase price being… Held: the petitioner was not formed in 1927, or availed of in 1930, for the purpose of preventing the imposition of surtaxes upon its shareholders through the medium of permitting its gains and profits to accumulate instead of being divided or distributed.

The income of two trusts of which the decedent was a beneficiary, which had been collected by the trustees between January 1 and March 9, 1933, had not been paid over to decedent at the time of his… Held: that the amount in the hands of the trustees was not taxable to decedent as income to be distributed currently.

- Petitioner entered into a contract, prior to September 8, 1916, with the city of Houston, Texas, the object and purpose of which was to regulate, operate, and maintain a public utility. Held: that for the taxable years 1927 to 1930, both inclusive, petitioner is liable for the full amount of the tax levied on the entire undivided fund, under the provisions of section 213(b)(7), Revenue Act of 1926, and section 116(d), Revenue Act of 1928.

Where certain stock was held by a corporation with which one of the petitioners, a member of a marital community, had a margin trading account and of which he was stockholder and director, and where it became necessary for the corporation to obtain funds, and it was agreed that the stock was to be contributed to the corporation for its own use and the corporation thereafter used the stock as collateral in its own account and later sold the stock and used the proceeds for its…

1. Deduction by trustee for depreciation under a trust instrument providing for distribution of entire annual rents and profits from property after deducting all expenses incident to management and maintenance, taxes, assessments, or other charges imposed upon the property and expense of administering the trust, not allowable under section 23(k), Revenue Act of 1928, and art. 201, Regulations 74. 2.

1. In the recapitalization of a corporation in 1923 the petitioner received 125,000 shares of class A stock and 250,000 shares of new no par common stock in exchange for 100,000 shares of old no par… Held: that the basis for computing gain or loss on the sale is the cost of the 100,000 shares of old no par common stock properly apportioned to the shares sold. 2. The petitioner had in his employ E. F. von Wettberg.

The petitioner, a New Jersey corporation, paid taxes to the Municipality and Province of Havana, Cuba, upon its net profits derived from the operation of gas works and electric light plants in Cuba. Held: that the amounts paid are valid credits against taxed due the United States, under section 238(a) of the Revenue Acts of 1918, 1921, 1924, and 1926.

1. Petitioner owned 99.8 percent of the capital stock of a going corporation which owned large resources. Held: there were no exceptional circumstances which would warrant the disregard of the separate entities of petitioner and the corporation, the sale was bona fide, and petitioner sustained the amount of losses claimed. 2. Petitioner received certain dividends as a nominee for others.

1. Decedent guaranteed the bank loans of another up to $75,000, which guarantee his executors were obliged to make good. Held, that the obligation thus created was for a full and adequate consideration in money or money's worth within the meaning of section 303, Revenue Act of 1926, and the claim against the estate is deductible, following United States v. Mitchell, 74 Fed.(2d) 571. 2. Pledges of decedent to charitable, religious, and educational institutions, in consideration of the gifts of others, constitute adequate and full consideration and are allowable deductions under section 303, Revenue Act of 1926.

A trust which was organized by several individuals to buy and sell shares of stock of Sears, Roebuck & Co. for profit and was so operated during the taxable year, the profits being distributed to the beneficial owners, is an association taxable as a corporation. Morrissey v. Commissioner,296 U.S. 344; Swanson v. Commissioner,296 U.S. 362; Helvering v. Combs,296 U.S. 365; and Helvering v. Coleman-Gilbert Associates,296 U.S. 369.

1. In determining the net estate of a decedent under section 303 of the Revenue Act of 1926, claims, mortgages, and indebtedness incurred or contracted bona fide and for an adequate and full consideration in money or money's worth may be deducted from the value of the gross estate even though such debts exceed the amount of assets available to pay them. Respondent erred in limiting the deductions to that portion of the gross estate which is subject to debts and charges.

1. ESTATE TAX. - A certain transfer in trust was not made "in contemplation of death" within the meaning of section 302(c) of the Revenue Act of 1926, as amended by section 803 of the Revenue Act of 1932. 2. Id. - Where the conveyance was absolute as to the grantor, but the trust permitted its revocation by the beneficiary, upon which event the corpus reverted to the grantor, if living, such interest, if any, retained by the grantor, was, at most, "a mere possibility of a reverter", and was not a transfer "to take effect in possession or enjoyment at or after [decedent's] death", within that statutory provision. Helvering v. St. Louis Union Trust Co.,296 U.S. 39, followed. 3. Id. - Nor, in such circumstances, does the power, possibly possessed by the grantor, at his death, to influence his wife to revoke such trust, support its inclusion in the estate of the grantor decedent for estate tax purposes, within section 302(d) of the above enactment. White v. Poor,296 U.S. 98; Valentine Bliss,26 B.T.A. 731, followed.

The transfers to the two petitioners by their father of similar blocks of certain corporate stock, at a price per share equal to its cost… Held: that the presumption arising under California law that the stock so acquired in each instance constituted community property of the respective petitioner and his wife, is not rebutted by the facts established, and that the dividend received on such stock by each petitioner in the taxable year was properly reported for tax by such…

In 1917 the steamship Zeelandia, owned by the petitioner, enroute from South America to various ports of The Netherlands, entered New York Harbor to discharge passengers and mail, was refused… Held: that no portion of such judgment or interest paid in 1932 constitutes taxable income to the petitioner.

The cost of shares, purchased in 1928, which became worthless in 1930, may not be deducted as a loss in 1933, when a final appellate court decision held that a person other than the seller was not liable for fraud in making certain statements upon which the purchasers claimed to have relied when buying the shares.

The petitioner is not an association within the meaning of section 1111 of the Revenue Act of 1932, but is a partnership within the meaning of paragraph (a)(3) of said section.

DEDUCTIONS - BUSINESS EXPENSES - REVENUE ACT OF 1932, SECTION 23(a). - Expenditures by a member of Congress for his personal living expenses at a hotel while in Washington, D.C., attending sessions of Congress, and amounts he expended for railroad fare in making trips from Washington to his district to confer with constituents, were not deductible in computing his net income.

Corporation A, with total stock of 7,540 shares of common stock caused corporation B to be organized, and on December 18, 1925, transferred to… Held: the transaction between A and B constituted a reorganization within the meaning of section 203(h)(1)(B) of the Revenue Act of 1926, and after such transaction A had only the assets later transferred to C; held, further, the transfer from A to C on December 31 was the acquisition by C of all the property of A and constituted a…

1. Where respondent determined deficiencies against petitioner as an association, and it is later adjudicated that petitioner's tax… Held: certain amounts credited to the invested capital accounts of beneficiaries on the books of the trust were not properly credited within the meaning of the applicable statutes and were not allowable as additional deductions in computing the net income of the trust; held, further, a crediting to invested capital account made after the…

Where a proceeding before the Board, contesting a tax deficiency, is instituted by a petition of one other than the taxpayer against whom the deficiency was determined, which petition does not allege… Held: the Board is without jurisdiction to hear and determine such proceeding.

DEDUCTIONS - INTEREST ON INDEBTEDNESS - REVENUE ACT OF 1928, SEC. 23. - Petitioners, on a cash basis, administrators of an estate until the distribution of its assets to them as sole beneficiaries… Held: The estate tax deficiency became the debt of the petitioners, on this record, when and not before, they received the assets of the estate.

1. The petitioner, on October 30, 1931, had owned for more than two years a certain number of shares of a particular stock. Held: that the loss sustained on the last sale, as computed under section 113(a)(11), Revenue Act of 1928, was an ordinary loss and not a capital loss. 2.

The stock of a bank was increased in number of shares and reduced in par value, and the bank sold such new shares on behalf of some of the stockholders.

Decedent, in 1921, created a trust, reserving the power to amend in conjunction with the trustees. She died in 1933. Held: the said transfers come within the provisions of section 302(d) of the Revenue Act of 1926 and should be included in decedent's gross estate. Witherbee v. Commissioner, 70 Fed.(2d) 696, followed.

LOSS - MORTGAGE FORECLOSURE. - A mortgagor of real estate in California, upon foreclosure sale in 1931 thereunder, sustains a deductible loss, if and when the mortgaged property is unredeemed at the expiration of the 12-month period during which such property can be redeemed. California Code of Civil Procedure.

In the computation of gain from the sale of stock, the time of distribution under section 113(a)(5) of the Revenue Act of 1928, held, following Robert A. Taft, Trustee,34 B.T.A. 603, to be the time… Held: following Robert A. Taft, Trustee,34 B.T.A. 603, to be the time of actual transfer to the distributee rather than the date of the court order authorizing the distribution.

The Board has jurisdiction and, when a petition is filed, it is its duty to review the administrative action of the Commissioner in determining a deficiency and penalties. It is not relieved of this duty by the fact that, in a criminal proceeding, the taxpayer was sentenced to pay and did pay the amount determined as the tax by the court.

1. The petitioner, under his agreement of employment, was granted in 1927 an option to purchase 20,000 shares of stock of corporation A, his… Held: Corporation C was a mere contrivance, conduit, or transfer agent for petitioner and not a separate and distinct entity, from the standpoint of tax significance, within the purview of and as contemplated by the applicable provisions of the revenue act, since, although such corporation was legally organized, it was immediately…

Deduction for loss on sales of securitites disallowed where like quantities of the same securities were immediately purchased at the petitioner's orders in the name of his wife and the evidence fails to show that the petitioner was not the real purchaser.

Petitioner, an attorney, pursuant to a New York statute, was appointed counsel to the county clerk of Kings County, New York. Held: the salary received by him was not subject to income tax.

TRUST INCOME - TO WHOM TAXABLE - REVENUE ACT OF 1928. - Where the person to whom income of a trust is distributable, is ascertained, but the distributability of that income, withheld during the tax year by the trustee on the ground that part or all of the amount withheld was corpus and not income, was contested, conclusively adjudicated in a later year as distributable income of the trust and then paid to the beneficiary, such income is not taxable to the trust under section 161(a)(1), but is taxable to the beneficiary thereof for the year when distributable, whether or not it was then distributed, under sections 161(a)(2) and 162(b).

Compensation received by petitioner for services rendered to the Department of Banking of Pennsylvania, held, not exempt from Federal income tax.

Compensation received by petitioner as counsel in the Liquidation Bureau of the Insurance Department of the State of New York, which was paid from the assets of insurance companies, held, not exempt from Federal income tax.

1. On the facts, held, that petitioners sustained losses in 1932 representing their investments in the capital stock of corporation A by reason of such stock becoming worthless in that year. 2. In 1930 corporation A acquired all the assets of corporation B in exchange for shares of A's capital stock, which stock was thereupon distributed pro rata among the stockholders of B, pursuant to a plan of reorganization. Held, said transaction constituted a reorganization within the meaning of section 112(i)(1)(A), Revenue Act of 1928, whether or not corporation B was thereafter dissolved, and the basis for computing the losses suffered by petitioners in 1932, under section 112(b)(3) or (g) of the Revenue Act of 1928 and section 113 of the Revenue Act of 1932, is cost to petitioners of their stock in corporation B.

1. Affiliation of the petitioners with another corporation denied in the absence of proof that the shares of stock issued in favor of and held by the president of the corporations were owned by the parent company. 2. Upon the evidence, held, that the Supply Co. is not entitled to have all of the operating expenses of another corporation allocated to it under the provisions of section 45 of the Revenue Act of 1928.

Where in a recapitalization petitioner exchanged old common stock for new preferred and new common stock and in addition, as a further consideration for the old common stock, received the cancellation of his indebtedness to the corporation, held, that such cancellation was the equivalent of cash in the amount of the indebtedness; held, further, that the transaction by which the stock was exchanged and the indebtedness canceled was a single nonseparable one and the gain resulting therefrom is taxable under section 112(c)(1) of the Revenue Act of 1928.

Petitioner and other stockholders of A Co. caused B Co. to be organized. Held: there was no reorganization within the meaning of section 112(b)(3) and (b)(5) of the Revenue Act of 1928. Petitioner realized taxable gain to the extent that the fair market value of the C Co. stock received by it exceeded the basis for gain or loss on its A Co. stock. Gregory v. Helvering,293 U.S. 465, followed.

Income of the petitioner includes the income of a trust established pursuant to a court decree for the support, maintenance, and education of his minor daughter, but does not include the income of another trust similarly established for his divorced wife, who has since remarried.

A loss on the sale at market of shares purchased and sold less than thirty days after the sale at a nondeductible loss of similar shares held more than two years is deductible as an ordinary loss incurred in a transaction entered into for profit.

Held, petitioner is not entitled, under the provisions of section 23(r), Revenue Act of 1932, to deduct a loss sustained by him individually in 1932 from sales of… Held: petitioner is not entitled, under the provisions of section 23(r), Revenue Act of 1932, to deduct a loss sustained by him individually in 1932 from sales of securities, not capital assets, from his distributive share of profits derived from similar sales by a partnership of which petitioner was a member.

Decedent by will gave the residue of his estate to trustees, with directions to pay to his widow $12,000 per year for life out of the net income of the trust estate, but if insufficient then to pay… Held: the amount so paid to the widow in the taxable year, although paid out of income, is not deductible by the trustees under section 162(b), Revenue Act of 1932. Helvering v. Pardee,290 U.S. 365.

A block of stock which was to be divided among a group of oil producers, based proportionately upon their deliveries during a period ending December 1, 1926, in fulfilling a certain contract, was not income received until they filed their agreement of division in 1927.

CONSOLIDATED RETURNS - COMPUTATION OF PROFIT DERIVED UPON LIQUIDATION OF SUBSIDIARY. - Petitioner and its wholly owned subsidiary filed consolidated returns for the years 1917 to 1931, inclusive, and for the year 1932 petitioner filed a separate return. The subsidiary sustained operating losses in the prior years, which were used in consolidated returns to reduce petitioner's taxable income. The subsidiary was liquidated in 1932. Held, in computing the taxable profit derived by petitioner from such liquidation, the cost basis of the subsidiary's stock should be reduced by the aggregate amount of the subsidiary's operating losses deducted in the consolidated returns, such losses not to be diminished by any net profits of the subsidiary for any year reported in the consolidated returns. Held, further, such adjustment should be made whether or not an additional saving in tax might have been effected by the filing of separate instead of consolidated returns.

1. The discovery value of a mine in excess of cost represents unrealized appreciation in the value of property and should not be included in the computation of the earnings and profits of a corporation available for distribution as taxable dividends. 2. Gross receipts of a mine, in excess of cost, set aside by a corporation in a depletion reserve based on discovery value, repsent realized appreciation in the value of property and are profits of the corporation.

1. In 1924 petitioner deducted as a bad debt his claim against a corporation organized and financed by petitioner and his brothers. Including such deduction, the deductions allowable to petitioner for 1924 exceeded his gross income. Held, petitioner was not regularly engaged in the business of promoting, managing, and financing corporations, and the excess of his deductions over income for 1924 is not allowable as a net loss deductible from income for 1925, under the provisions of section 206 of the Revenue Act of 1926. 2. On the facts, held that petitioner received no taxable income in 1926 from the acquisition of paper equities in certain Florida real estate, where it is shown that such equities had no fair market value in excess of encumbrances at the time of acquisition.

In 1931 petitioner expended a certain sum of money in payment of attorney fees incurred in resisting a claim of the Government for additional income tax alleged to be due on the sale by petitioner in… Held: the amount is not deductible as ordinary and necessary expenses incurred in any trade or business carried on by the taxpayer.

1. A bequest made to the National Woman's Party is not deductible under the provisions of section 303(a)(3) of the Revenue Act of 1926, that corporation not being organized and operated exclusively for educational purposes. 2. The payment by the petitioners of a sum covering the necessary expenses incidental to conducting a prize essay contest established by Alva E. Belmont, who promised to pay them, is not deductible under the provisions of section 303(a)(1). Boston Safe Deposit & Trust Co. et al., Executors,30 B.T.A. 679, followed.

POWERS OF APPOINTMENT. - Decedent died testate in 1931, a resident of Pennsylvania. By will she exercised certain powers of appointment given to her under the wills of her parents. These powers were general in terms, except only that the instruments creating them prohibited their exercise in favor of decedent's brother, Walter, or his descendants, if any. The property passing under the powers was included by respondent in decedent's gross estate under section 302(f), Revenue Act of 1926. Held, the powers were general and not special powers of appointment, if Walter Smith died without issue prior to exercise of the powers by decedent. Held, further, in the absence of proof of the facts, which petitioners failed to submit, respondent's determination is approved.

During the taxable years 1928 and 1930 the petitioner paid fees in connection with the prosecution of suits to recover income taxes paid for the year 1919. Held: on the facts disclosed by the record, that the fees so paid are not deductible as expenses paid or incurred in carrying on a trade or business.

1. The payment under protest with a claim for refund of a transferor's deficiency by an alleged transferee does not support a judgment of no liability in favor of other transferees in their proceedings before the Board. 2.

1. The compensation of petitioner as director of Playland park under contract with the Westchester County Park Commission of the State of New York held not exempt from Federal income tax, because petitioner was an independent contractor and operation of an amusement park is not a governmental function. 2. In the case of a joint return of husband and wife, the wife is not liable for any part of a deficiency if she had no income. Cole v. Commissioner, 81 Fed.(2d) 485.

A trust engaged in disposing of a tract of land in liquidation of an estate, by subdividing the tract and selling the lots because the tract could not be satisfactorily sold as a whole, is taxable as a trust and not an association.

Pursuant to a plan of reorganization a newly organized Nevada corporation exchanged all of its stock with the sole stockholder of a California corporation for all of… Held: that no gain was recognizable to the Nevada corporation on its receipt of assets from the California corporation, since, taken as a whole, the transaction was in substance an exchange of the property of the California corporation for the stock of the Nevada corporation, both parties to a reorganization.

Petitioner, a wholly owned subsidiary, kept its books on the basis of a fiscal year ended June 30, and filed its separate income tax… Held: the filing of a separate return by petitioner for its fiscal year 1930 did not preclude the filing of a consolidated return by the affiliated corporations for the calendar year 1930, under section 141 of the Revenue Act of 1928, and regulations promulgated thereunder; held, further, respondent properly determined a deficiency in tax…

1. Upon failure of petitioner to show that services actually performed for it were worth more than the amount of $1,901.88 allowed by the respondent, this amount is determined to be a reasonable allowance for services performed by a corporation owning all the petitioner's capital stock. 2.

The petitioner was created under an agreement by the bondholders under two defaulted mortgages for the purpose of acquiring and selling the assets covered by the mortgages, distributing the proceeds… Held: that the petitioner was a liquidating trust and not an association taxable as a corporation.

1. Income from securities transferred by an individual to separate safe-deposit accounts after the execution of instruments purporting to create trusts for his wife and son, held, taxable to him,… Held: taxable to him, since the ambiguous wording of the instruments and his handling of account funds indicate that the alleged trusts are without substance. 2.

Community property was transferred by petitioners through the agency of a trust company to a corporation. Held: that the transfer to the corporation was solely in exchange for the stock thereof; that immediately after the exchange the transferors were in control of the corporation, the stock received by each of the transferors being substantially in proportion to his interest in the community property prior to the exchange; that therefore…

The petitioner's father bequeathed certain real estate to trustees to pay portions of the income to two sisters for life and to pay the balance of the income to his son. Held: that the amount so received by the petitioner was not an inheritance from her father's estate and constituted taxable income to her.

1. Petitioner's contention that it was a member of a partnership in the taxable year 1924 and therefore entitled to deduct in its return a portion of the loss thereof is denied for lack of evidence. 2. Undepleted cost, less salvage, of individual oil wells upon tracts containing other producing wells disallowed as a deduction upon abandonment because of cessation of production.

Fraud with intent to evade tax for each of four years established by clear and convincing evidence of deliberate omissions of income which the petitioner knew he had received and which he knew he was required to report.

1. The taxpayer selling lots on the deferred payment plan has the right to have included in the cost of such lots the estimated future expenditures for contractual improvements such as streets and water mains. 2. The written promises covering the deferred payments, held without fair market value, upon evidence that with diligent effort no buyer could be found willing to purchase at any price, in view of the circumstances.

Petitioner purchased in 1918, 1919, and 1931 at a unit cost certificates of bank stock, having thereon an endorsement entitling the registered holder thereof to share equally and… Held: that the character of endorsement placed on the bank stock did not render impracticable the apportionment of the cost of the component elements making up a unit of bank stock and the endorsement thereon of beneficial interest in the Security Co. A practicable allocation of cost determined.

The petitioner, a citizen of the United States, resident in Quebec, Canada, filed an income tax return for 1932 showing no taxable income. Held: that the petitioner is not to be denied the benefit of section 131 by reason of his failure to claim the credit in his original return which showed no tax due.

1. STOCK DIVIDEND - EFFECT ON EARNINGS OR PROFITS. - A stock dividend that is not taxable to the shareholder does not diminish earnings or… Held: not shown to be essentially equivalent to the distribution of a taxable dividend. 3. Id. - Redemption of preferred stock at par, which was a partial liquidation, held, properly chargeable in part to capital account, the part so chargeable being represented by the ratio of the paid-in capital to the total capital structure. 4.

Where evidence establishes that an agreement to carry out the statutory reorganization ultimately consummated was reached, an exchange made pursuant to and in accordance with the agreement is a part of a plan of statutory reorganization although the agreement had not then been formally expressed in corporate resolution.

1. Petitioner retired some of its outstanding bonds by exchanging therefor shares of its capital stock. Held: the amount of the unamortized bond discount and expenses attributable to the bonds retired in that manner was not deductible from gross income during the years of retirement. 2.

A widow who acquired securities from her husband's estate and paid a trust company a commission for collecting the income and a bookkeeper for keeping her accounts is not entitled to deduct the amounts so paid, since she is not engaged in carrying on a trade or business, and there is no other statutory provision for the deduction.

A Maryland corporation held practically all of the common stock of a New York corporation which owned and operated a chain of baking plants. Held: there was a reorganization within the definitions contained in (A) and (B) of section 112(i)(1) of the Revenue Act of 1928.

Taxpayer, Greenwood, president of the Great Southern Life Insurance Co., owned stock therein, a limited amount of which he decided to and did… Held: Taxpayer, Greenwood, was not a person who regularly sells or otherwise disposes of personal property on the installment plan. Revenue Act of 1932, sec. 44(a). Such sales were casual and controlled by section 44(b) of that act. 50 East 75th Street Corporation v. Commissioner, 78 Fed.(2d) 158, affirming 29 B.T.A. 277, followed.

1. BASIS. - In 1926 corporation A acquired all the assets of corporation B in exchange for shares of A's common stock and the assumption by A of B's… Held: the basis for computing gain or loss to petitioners was the cost to them of B's stock so exchanged. 2. Held, that where grantor of a trust reserved the power to reacquire the trust corpus upon payment of a small amount, the income realized therefrom on disposition is taxable to him. Charles T. Fisher,28 B.T.A. 1164.

The compensation of officers and employees of the Port of New York Authority held immune from Federal income tax.

On January 30, 1928, petitioners decedent conveyed to a trustee by an irrevocable trust, a sum of money to be invested and reinvested and the income therefrom after the payment of all necessary expenses of the trust to be paid two-thirds to the grantor during the term of her natural life and one-third to the grantor's daughter, the trust to be terminated at the date of the death of the grantor and the principal of the trust to be paid over to the daughter if she be then living, free from any trust. The grantor of the trust died August 3, 1933, and the daughter survived her. Held, that the amendment to section 302(c), Revenue Act of 1926, made by section 803(a), Revenue Act of 1932, is not applicable, because the trust was executed prior to the effective date of the Revenue Act of 1932 and was irrevocable; held, further, that no part of the trust corpus is includable in decedent's gross estate under section 302(c), Revenue Act of 1926, as being intended to take effect in possession or enjoyment at or after decedent's death.

The petitioner subscribed and paid the sum of $4,000 to a trust fund created to provide an annual income for life to the destitute widow of a friend. Held: the difference between the amount of the petitioner's subscription and the amount he received upon the liquidation of the trust does not constitute a loss which is deductible from the petitioner's gross income.

The communication of a telegraphic petition by telephone to the Chairman of the Board at his home in Washington, D.C., after business hours of the last day when a petition may by statute be filed, and the delivery of the telegram at the office of the Board the following day, do not constitute a proper filing within the statutory period.