Volume 34 — Tax Court Reports

1. Interest or Capital Gain -- Profit on Sale of Non-interest-Bearing Notes. -- Commissioner did not err in holding that a profit on the sale of non-interest-bearing notes is taxable as interest and was not a part of sales proceeds of the notes for income tax purposes. F. Rodney Paine, 23 T.C. 391, followed. 2.

Held, on the facts, petitioners did not purchase various amounts of United States Treasury notes and Land Bank bonds, did not borrow large sums of money, and did not pay any amount deductible as… Held: on the facts, petitioners did not purchase various amounts of United States Treasury notes and Land Bank bonds, did not borrow large sums of money, and did not pay any amount deductible as interest.

Petitioner is an underwritten title and controlled escrow company engaged in the business of making abstracts of titles. Held: the purchased title reports represented additions to and betterments of petitioner's title plant; their useful life extended beyond the year of purchase; and the expenditure was a nondeductible capital expense.

1. Held, on the record as a whole, petitioner allowed its earnings and profits to accumulate beyond the reasonable needs of its business during 1947 through 1950, and 1952, and was availed of during… Held: on the record as a whole, petitioner allowed its earnings and profits to accumulate beyond the reasonable needs of its business during 1947 through 1950, and 1952, and was availed of during those years to prevent the imposition of surtax upon its shareholders. 2.

Jurisdiction -- Last Known Address -- Sec. 272(a). -- The Tax Court has no jurisdiction where the notice of deficiency was not mailed to the taxpayer's last known address, and the error of the Commissioner in addressing the notice to an incorrect address is not waived by the taxpayer filing a petition more than 90 days after the mailing date of the notice of deficiency.

Petitioner J. H. McKinley had a theft loss of $ 12,500 in 1955. He did not discover such loss in 1955 but discovered it in 1956. Held: petitioners are not entitled to a deduction in 1955 for such theft loss under section 165(a) and (e), I.R.C. 1954.

Petitioner, a graduate physician, was accepted as a fellow in the school of psychiatry operated by the Menninger Foundation, and was appointed by the Veterans' Administration to a residency in… Held: the amount received constituted compensation for services rendered, and is not excludible from income as a fellowship grant under section 117, I.R.C. 1954.

Petitioner during the years 1954, 1955, and 1956 rendered services as a radiologist to two exempt hospitals described in section 501… Held: that there was no binding agreement between him and the hospitals which restricted the petitioner's right to request and receive in cash his current compensation which was used to purchase the annuities, that such current compensation was constructively received by and taxable to him, that the annuity contracts were not purchased by…

Collapsible Corporation -- Liquidation -- Ordinary Income or Capital Gains -- Sec. 117(m). -- A corporation had not realized a substantial part of the net income to be derived from 53 lots, which it had bought and improved, prior to making a distribution in liquidation to its sole stockholder, the petitioner herein, and the corporation was a collapsible one within the meaning of section 117 (m) so that the petitioner's gain from his stock on the liquidation was taxable as…

1. Held: Adler Corporation was availed of during each of the years 1952 and 1954, and American Corporation was availed of during each of the… Held: Adler Corporation was availed of during each of the years 1952 and 1954, and American Corporation was availed of during each of the years 1952, 1953, and 1954, for the purpose of preventing the imposition of the surtax, or income tax, upon their respective shareholders by permitting earnings or profits to accumulate beyond the…

The principal petitioner entered into a conditional sales contract for the acquisition of a going business. Held: that the premiums which petitioner paid on such policy are not deductible by him for income tax purposes.

The principal petitioner was a member of a partnership. Held: that said $ 17,500, to the extent that it represented income, was income to the partnership; and that the same did not represent compensation [to the petitioner] for loss of profits, taxable [to him] as ordinary income, as determined by respondent.

Taxpayer received a pension paid to him by a Conference of The Methodist Church pursuant to the church's rules and regulations set out in its published Discipline and according to a long-established… Held: such payments constitute income and not gifts.

Held, periodic payments made by petitioner to his divorced wife were intended for her support and maintenance within the purview of section 71, I.R.C. 1954,… Held: periodic payments made by petitioner to his divorced wife were intended for her support and maintenance within the purview of section 71, I.R.C. 1954, and were not in consideration for her transfer of certain property to him; therefore, such payments were deductible by petitioner under section 215, I.R.C. 1954.

Petitioner entered into so-called lease with owner of property (who also owned 50 per cent of petitioner's voting stock, the remaining stock being owned by his son and… Held: that the lease was not negotiated at arm's length, and that to the extent that the arrangement resulted in payments in excess of $ 12,000 a year such excess did not in fact constitute rent deductible under section 162(a)(3), I.R.C. 1954. Held, further, that such excess is not deductible as compensation.

On September 19, 1950, petitioner contracted to sell 10,000 shares of a proposed issue of stock on a when issued basis at 58 1/4 per share. Held: the 1951 transfer by petitioner of 40 per cent of his contract to sell constituted a sale or exchange within the meaning of section 117, I.R.C. 1939. Held, further, section 117(l), I.R.C. 1939, is inapplicable to the transaction; petitioner realized a long-term capital loss.

Sec. 2041, I.R.C. 1954 -- Date of Creation of Power of Appointment. -- At her death in 1956 decedent possessed unexercised powers of appointment provided for in settlement contracts executed in 1938… Held: the powers of appointment were created prior to October 21, 1942, and the insurance proceeds are not includible in decedent's gross estate.

Petitioner in 1938 built a new transmitter for its radio broadcasting station which resulted in improved station coverage in area and population, a stronger station signal, the elimination of… Held: petitioner changed the character of its business within the meaning of section 722(b)(4), I.R.C. 1939, and a constructive average base period net income has been determined under section 722(a), I.R.C. 1939.

1. Sale of Culls From Breeding Herd -- Inventory -- Basis -- Eliminated From Opening Inventory. -- Petitioners used a unit-livestock-price method of inventorying their livestock, including that held for breeding purposes. They must eliminate the inventory basis of breeding culls from opening inventory when culls are sold and long-term capital gain under section 117(j) is computed. 2.

Decedent in his will bequeathed a portion of the residue of his estate to his son who was at the time of the testator's death a member of the Society of Jesus, a religious organization wherein he had… Held: the bequest was to the son, not to the society, and the value thereof was includible in the gross estate of decedent for estate tax purposes. Estate of Margaret E. Callaghan, 33 T.C. 870.

Pleadings -- Stating a Cause of Action -- Sec. 214, I.R.C. 1954. -- The facts alleged in the petition do not support the contention that the Commissioner erred in disallowing a deduction under section 214 of the Internal Revenue Code of 1954 where the allegations are that the petitioner was married to her estranged husband in the taxable year but did not file a joint return with him for that year.

Before 1937, petitioner produced cylinder-grinding machines which it sold to automobile repair shops. Held: The production of fence controllers in 1940 was not the result of a commitment prior to January 1, 1940. (2) Petitioner failed to establish a constructive average base period net income that would provide an excess profits credit larger than that available without the application of section 722.

Expenditures for Work in Process under long-term contracts pursuant to which petitioner had billed its customers for progress payments, held, not includible in assets, except as to excess over… Held: not includible in assets, except as to excess over billings, for computation of excess profits credit under section 445, I.R.C. 1939.

The petitioner, organized after December 31, 1939, was required to compute its excess profits credit based on invested capital. Held: petitioner has not shown that it qualifies for relief under section 722(c)(1).

Upon the stipulated facts, held, certain moneys paid to the administratrix of the Estate of S. Lewis Tim on August 29, 1951, pursuant to… Held: certain moneys paid to the administratrix of the Estate of S. Lewis Tim on August 29, 1951, pursuant to a judgment of the Monmouth County Court of New Jersey, were taxable income under section 22(a), I.R.C. 1939, and as such was taxable to the Estate of S. Lewis Tim for the year 1951 rather than to the other petitioners herein since…

Held: Petitioner Frank H. Gable's notes aggregating $ 36,250 against the Toff Corporation which he received from time to time in 1953 and 1954 as he made advancements to Toff under an agreement… Held: Petitioner Frank H. Gable's notes aggregating $ 36,250 against the Toff Corporation which he received from time to time in 1953 and 1954 as he made advancements to Toff under an agreement designated as Loan Agreement did not represent debts against Toff.

Held: Monthly payments to a retiring partner, specifically allocated in the formal agreement of partnership dissolution as consideration… Held: Monthly payments to a retiring partner, specifically allocated in the formal agreement of partnership dissolution as consideration for his separately stated covenant not to compete, in fact reflected partnership goodwill and were a nonseverable portion of the consideration paid him for his capital interest in the partnership as a…

Held, petitioner's business was not depressed during the base period by reason of conditions generally prevailing in the rug and carpet industry… Held: petitioner's business was not depressed during the base period by reason of conditions generally prevailing in the rug and carpet industry subjecting the industry to a profit cycle differing materially in length and amplitude from the general business cycle within the meaning of section 722(b)(3)(A) of the 1939 Code.

Held, the value of certain life insurance policies and the value of securities required to produce income sufficient to pay the premiums thereon, comprising part of the corpus of… Held: the value of certain life insurance policies and the value of securities required to produce income sufficient to pay the premiums thereon, comprising part of the corpus of a trust created on June 4, 1932, are not includible in the decedent's gross estate under section 811(c)(1), I.R.C. 1939.

1. Deductions for amortization of bond premium held properly disallowed. Cf. Maysteel Products, Inc., 33 T.C. 1021. 2. Deductions for interest, stamp taxes, and legal and accounting fee actually paid held allowable.

1. Deductions for amortization of bond premium held properly disallowed. Cf. Maysteel Products, Inc., 33 T.C. 1021; Fabreeka Products Co., 34 T.C. 290. 2. Deductions for interest actually paid held allowable. Fabreeka Products Co., 34 T.C. 290.

Approval of Commissioner required to change from quantity basis to dollar-value basis for valuing inventories under Lifo.

During the period October 1951 to October 1952 the petitioner, an international wool dealer, carried large quantities of sterling area and French wools in inventory. Held: under these specific and unusual circumstances petitioner's currency futures are to be considered as in the nature of bona fide hedging transactions, so that the loss sustained in closing them out was an ordinary loss deductible in full against gross income.

1. Individual petitioners, one of whom was chief executive officer of corporate petitioner, held, not taxable on income in the form of appraisal fees, insurance commissions, and abstract and title… Held: not taxable on income in the form of appraisal fees, insurance commissions, and abstract and title policy commissions received by a partnership in which each of petitioners' four minor children had a one-fourth beneficial interest.

The decedent, Hedwig Zietz, was the widow of Hugo Zietz and the mother of Hugo, Jr., and Willy Zeitz. All were citizens of Germany. Held: The bank accounts created by Hugo during his life were his sole property. Hedwig did not own any interest in them during Hugo's life or upon his death; they were wholly owned by Hugo when he died; they constituted part of his gross estate; and they were subject to the provisions of his will. 2.

Held, petitioners' motions for judgments against themselves to be based upon findings of fact they concede, are denied, and, since petitioners offered no evidence, judgments will be rendered based… Held: petitioners' motions for judgments against themselves to be based upon findings of fact they concede, are denied, and, since petitioners offered no evidence, judgments will be rendered based upon petitioners' failure of proof.

The parents of the petitioner, Willy Zietz, were citizens of Germany. Hugo Zietz, the father, died testate in Germany in 1927. German law governs the construction of his will. Held: that all of the legal fees were ordinary and necessary expenses paid for the conservation of petitioner's income-producing property and are deductible under section 23(a)(2), 1939 Code.

Amounts paid to inventor under an agreement transferring exclusive rights to a pending patent application, and future improvements, to the extent of its employment in gate valves, followed by… Held: on the facts, taxable as capital gains under section 117, I.R.C. 1939, as amended. United States v. Carruthers, (C.A. 9) 219 F. 2d 21, followed.

Sec. 129, I.R.C. 1939, and Sec. 269, I.R.C. 1954 -- Deductions for Loss Carryovers Denied. -- Petitioner was organized in 1949 and engaged… Held: Benjamin Snyder's principal purpose for acquiring control of petitioner was to evade or avoid Federal income tax by securing to himself, as sole shareholder, the benefit of petitioner's net operating loss deductions, a benefit or deduction which he would not otherwise have enjoyed and petitioner cannot carry over its previous net…

Exclusion of Income -- Health Insurance -- Retirement Pay -- Sec. 104(a)(3). -- Retirement pay received under the District of Columbia Teachers' Retirement Act by a teacher with 33 years' credit retired for physical disability is held received through health insurance for personal injury or sickness within the meaning of section 104(a)(3), and the portion thereof not attributable to contributions by the employer is excluded from income.

In 1953, petitioner accepted an offer for the purchase of her stock in a certain corporation. Prior to consummation numerous lawsuits were filed by third parties questioning her title to said stock on the ground that it had been transferred to her in fraud of her husband's creditors. The buyer learned of these suits and refused to perform unless it be permitted to withhold the sale proceeds until such suits had been disposed of.

1. Held: On the facts, that the salary paid by petitioner to Henry A. Brandtjen, Jr., in the years 1953, 1954, and 1955 was in excess of a reasonable allowance for salary or… Held: On the facts, that the salary paid by petitioner to Henry A. Brandtjen, Jr., in the years 1953, 1954, and 1955 was in excess of a reasonable allowance for salary or compensation for the personal services actually rendered by him. The amount representing such reasonable amount determined. 2.

1. Petitioner sold all of its assets for an amount in excess of their book value and seeks nonrecognition of the gain from the sale under section 337(a), I.R.C. 1954. Held: petitioner was paid the accrued interest and was taxable thereon because no sale or exchange of property took place within the meaning of that section. 2. Petitioner seeks application of the 18-month statute of limitations under section 6501(d), I.R.C. 1954.

Held, that the proceeds received in 1956 from the sale of a patent to a family-owned corporation are taxable as ordinary income by operation of section 1239, I.R.C. 1954. Held: that the proceeds received in 1956 from the sale of a patent to a family-owned corporation are taxable as ordinary income by operation of section 1239, I.R.C. 1954. Accord: Kershaw v. United States, 180 F. Supp. 415 (1960).

1. Claimed deduction for interest on loans to finance purchase of bonds, held, allowable. L. Lee Stanton, 34 T.C. 1, and Fabreeka Products Co., 34 T.C. 290, followed. 2. Held: allowable. L. Lee Stanton, 34 T.C. 1, and Fabreeka Products Co., 34 T.C. 290, followed. 2. Claimed deductions for amortization of bond premium, held, properly disallowed. Maysteel Products, Inc., 33 T.C. 1021, followed. 3.

The petitioner and Metal Traders, both corporations engaged in the business of buying and selling various types of ores, agreed orally in November… Held: that the $ 26,000 payment received in the fiscal year 1950 was the petitioner's share of the profit earned by the joint venture under the second contract and is taxable as ordinary income. Held, further, that the $ 40,000 received by petitioner in the fiscal year 1952 under the new arrangement was likewise ordinary income.

Petitioner, Brad Love Sneed, is one of the income beneficiaries of a testamentary trust created by the will of her deceased husband. Held: that no part of the depletion allowable on the oil royalties and bonus income received by the estate during the taxable years is allocable to petitioner under section 23(m) of the Internal Revenue Code of 1939 and similar provisions in the 1954 Code.

On June 24, 1932, petitioners, personal holding companies during the taxable years in issue, exchanged the gold notes which they held of the American Press for interim certificates representing 1,417… Held: bases for the foregoing shares of 4 per cent second preferred stock determined. 2. Held, further, Christmas gifts given by petitioners Arc and Lydiade are not deductible as business expenses. Sec. 23(a)(1), I.R.C. 1939. 3.

Twelve sand, rock, and gravel quarries were geographically separated by distances up to 225 miles. Insofar as possible, all were operated as part of a single business. Held: for purposes of determining the allowable percentage depletion deduction, each quarry is considered to be a separate property. Sec. 114(b)(4)(A), I.R.C. 1939.

Petitioner leased certain property for 1 year commencing on October 15, 1945, with an option to renew or extend his lease from year to year for up to 9 additional years. Held: petitioner intended to exercise its option to purchase the leased property by January 1, 1953, and must depreciate said improvements accordingly. Held, further, the remaining useful lives of said improvements determined.

Amount received for oil lease assignment effective only pending payment of loan, secured by leases and obtained by assignee to supply funds to pay assignors for assignment, held, ordinary income… Held: ordinary income subject to depletion, and not capital gain. Commissioner v. P. G. Lake, Inc., 356 U.S. 260, followed.

Petitioner without written or oral agreement over a period of years made advances of funds to an inventor. The inventor expended a portion of such funds for experimental and developmental purposes with respect to his invention. On April 20, 1956, petitioner and the inventor executed an agreement with retroactive effect respecting such advances and the inventor's rights in his invention. Held: Advances made prior to the agreement and subsequent thereto were mere loans by petitioner. The agreement constituted a sale and purchase of a one-half interest by and to petitioner in the invention in consideration of advanced funds to its date and not expenditures for experimental purposes. Funds advanced during the years in issue subsequent to the effect of the agreement were loaned funds, expenditures from which for experimental purposes were made by the inventor and not by the petitioner. No partnership or joint venture was effectuated by the agreement.

1. Held, where principal petitioner sold his interest in a partnership prior to the end of the partnership's regular taxable year following which the partnership… Held: where principal petitioner sold his interest in a partnership prior to the end of the partnership's regular taxable year following which the partnership was dissolved, he is taxable upon his distributive share of the net income of the partnership for its taxable period ending at the date of dissolution. 2.

1. In 1954, petitioners, for family convenience, purchased residential property in a new subdivision in Spokane called Chester Hills. Held: the loss is not an allowable deduction under section 165(a) and (c)( 2), I.R.C. 1954, and Income Tax Regs., section 1.165-1(e)-9, relating to the sale of residential property. 2.

In Shull v. Commissioner, 271 F. 2d 447, the Court of Appeals for the Fourth Circuit vacated the judgment rendered in Frank T. Shull, 30… Held: under Virginia statutes, the corporate existence continued after dissolution for liquidation purposes; that a valid plan of liquidation under section 112(b)(7) could be adopted by the stockholders after dissolution; and the voluntary dissolution was not the adoption of a plan of liquidation under section 112(b)(7) so as to start the…

Where a flood inundated petitioner's land, and petitioner, in addition to the deduction of the cost of repairing physical damage to the land, which was allowed by the Commissioner, seeks a deduction… Held: the elements of the alleged loss set forth by petitioner form no basis for a loss deduction. Held, further, petitioner is not entitled to deduct an amount representing a mere fluctuation in the value of the farmlands.

1. For many years, among other activities, petitioner has been engaged in the development and selling of dental impression materials. Held: petitioner has failed to prove that any portion of its income for the years 1943 to 1946, of the class described in section 721(a)(2)(C) of the Internal Revenue Code of 1939, as amended, was net abnormal income resulting from research and development that could be attributed to prior years, and fails to qualify for the relief…

Petitioners suffered a loss due to vandalism. Held, under the facts, the loss, to the extent not compensated by insurance or otherwise, is deductible under section 23(e)(3), I.R.C. 1939. Held: under the facts, the loss, to the extent not compensated by insurance or otherwise, is deductible under section 23(e)(3), I.R.C. 1939.

Held, petitioners are not entitled to the exclusions provided by section 2503(b) of the Internal Revenue Code of 1954 with respect to gifts made by them to certain trusts during the year 1955. Held: petitioners are not entitled to the exclusions provided by section 2503(b) of the Internal Revenue Code of 1954 with respect to gifts made by them to certain trusts during the year 1955.

Petitioner's ownership and operation of the Boston Yanks and the New York Bulldogs, professional football teams, under different franchises and in different… Held: to constitute separate business within the meaning of section 130, I.R.C. 1939, and losses of the Yanks cannot be tacked on to losses of the Bulldogs and its successor to permit disallowance of losses in excess of $ 50,000 attributable to a trade or business carried on for 5 consecutive years under section 130.

Held, respondent correctly included in petitioner cemetery corporation's gross income portions of the proceeds from the sale of burial spaces turned over by petitioner to the trustee of a development… Held: respondent correctly included in petitioner cemetery corporation's gross income portions of the proceeds from the sale of burial spaces turned over by petitioner to the trustee of a development trust fund.

Held: (1) That petitioner is not entitled to a loss deduction for embezzled royalties since no part of these royalties was ever included by her in any Federal… Held: That petitioner is not entitled to a loss deduction for embezzled royalties since no part of these royalties was ever included by her in any Federal income tax return; and (2) that the amount of the embezzled royalties recovered by litigation constitutes taxable income to petitioner in the year of recovery.

Petitioner maintained a domicile and residence in Mohawk, New York, and was affiliated with a local union in Binghamton, New York. Held: petitioner's principal place of employment during the years 1952 and 1953 was the area around Passaic, New Jersey, for an indefinite period of time and expenses for meals and lodging there incurred during those years are not deductible as away from home traveling expenses under sections 23(a)(1)(A) and 22(n), I.R.C. 1939.

1. Where petitioners kept no books and records and relied solely upon the statements and notices supplied to them by various banks, held, the books and records of the banks are not the petitioners'… Held: the books and records of the banks are not the petitioners' books and records and respondent correctly held petitioners are on a cash basis of accounting. Greengard v. Commissioner, 29 F. 2d 502 (C.A. 7), affirming 8 B.T.A. 734, followed. 2.

Petitioner held a note against a wholly owned subsidiary corporation for the principal sum of $ 200,000. The principal of the note was payable on demand. Held: respondent's determination is sustained.

In 1953 Carl F. Fayen, the sole trustee and life-income beneficiary of the Carl F. Fayen Trust, paid $ 4,664.37 into the principal of said trust in compromise of surcharge proceedings filed by the… Held: that petitioner is not engaged in carrying on a trade or business as trustee. His claim for deduction under section 23(a)(1)(A), I.R.C. 1939, is accordingly denied.

1. The petitioner's husband, a resident of Maine, died testate on December 4, 1951. Held: that the petitioner acquired the stocks in the joint margin account by gift from the decedent. 2. During the summer of 1951 the decedent had heart trouble, was concerned about his health, and worried considerably about his business.

Inflated accounts receivable due to petitioner from three related corporations to which petitioner was at the same time indebted in amounts exceeding the receivables, held, not includible in… Held: not includible in petitioner's total assets as of December 31, 1949, for purpose of computing its substituted average base period net income under section 444, I.R.C. 1939, in determining its excess profits credit.

Petitioner James E. Kesicki, a building contractor, was in the business of purchasing vacant properties, erecting buildings thereon, and selling them to customers pursuant to respective agreements… Held: that at the time petitioner sold the property he was holding it for sale to customers in the ordinary course of his business, and the gain realized was ordinary income.

Income -- Bad Debt Reserve -- Restoring Unneeded Balance to Income. -- A reserve for bad debts created by an addition in 1952 under section 23(k)(1) which offset taxable income of a domestic building and loan association was properly restored to income in the later year in which the need for maintaining the reserve ceased.

Petitioner, a licensed personal finance company, derived more than 80 per cent of its gross income from interest. Held: Petitioner is a personal holding company subject to personal holding company surtax. Petitioner admittedly fails to meet the requirements for exemption under section 501(b)(6)(A) of the Code of 1939 applicable to personal finance companies.

Held, on the facts petitioner sustained a theft loss during the taxable year 1954. Held: on the facts petitioner sustained a theft loss during the taxable year 1954.

1. Petitioner, incorporated as a building and loan association under the laws of the State of South Carolina, was advised of exemption… Held: Petitioner failed to meet its burden of proving that substantially all of its business during the period involved was confined to making loans to its members, and is not exempt from tax as a building and loan association under section 101(4), supra. b. Petitioner failed to show reasonable cause for its failure to file corporation and…

Monthly stipend payments made by the Department of Mental Health of the State of Tennessee to petitioner while enrolled in the psychiatric nursing program at the University of Tennessee are excluded from gross income as a scholarship under section 117, I.R.C. 1954.

Petitioner Mildred Cleary's father died testate in May 1945, designating Mildred, her sister, and their husbands as executors and trustees of his estate. Held: that the respondent did not err in determining that the distributions in 1953, 1954, and 1955 made payable to Mildred as trustee for her children were her income.

1. Corporate petitioner's income tax returns held to have been false and fraudulent with intent to evade tax. 2. Held: that petitioner corporation did not sustain embezzlement losses during the fiscal years involved within the meaning of section 23(f) of the Internal Revenue Code of 1939 in the amount of the corporate funds received by the five brothers. 3.

1. In 1941 petitioners owned stock in CC Corporation which owned oil and gas properties. Held: payments from the overriding royalty interests received by petitioners during the years in issue, 1954, 1955, and 1956, are taxable as ordinary income subject to depletion and not as long-term capital gain. Warren v. United States, 171 F. Supp. 846, certiorari denied 361 U.S. 916, followed. 2.

Petitioners are citizens of the United States and residents of Mexico. During 1951 petitioner Gordon Duke received income from sources both within the United States and within Mexico. Held: petitioners are not entitled, under section 131, I.R.C. 1939, to credit the United States taxes with the full amount of the taxes paid to Mexico, since the limitation provided for in section 131(b)(1) limits the credit to a lesser amount.

1. During the tax years in which the issue is presently in controversy, petitioners, which used inventories priced at cost or market whichever is lower, valued their steel in accordance with the… Held: the Commissioner properly disapproved the use of the major mill prices in pricing petitioners' inventories; petitioners' market was the one in which they actually purchased their steel and not the theoretical market of the major mills that was not open to them. 2.

Petitioner, a corporate collection agency, transferred all of its assets in dissolution, including certain delinquent accounts receivable called White files. Held: Petitioner had not earned any income from the White files transferred. Respondent's determination that petitioner realized taxable income in the amount of $ 300,000 upon the dissolution of petitioner on May 31, 1955, is not sustained.

Held, by payments on a guaranty of a corporate obligation which had a proximate relationship to a business which petitioner and other associates were regularly carrying on,… Held: by payments on a guaranty of a corporate obligation which had a proximate relationship to a business which petitioner and other associates were regularly carrying on, petitioner incurred business bad debt losses in 1955 in the amount of $ 130,000 deductible under sec. 166(a), I.R.C. 1954.

Cost of Sale or Ordinary and Necessary Nonbusiness Expense -- Secs. 212, 1201, 1202, 1222, 1954 Code. -- Seller's share of cost of an annual estimate of oil reserves to determine selling price of stock was cost of sale of stock and not ordinary and necessary nonbusiness expense of seller.

In 1938 seven owners of Gokey Properties, each of whom possessed a one-eighth interest therein, decided to buy out the owner of the remaining one-eighth interest and to incorporate their real estate… Held: the bonds did not constitute a genuine indebtedness and payments made thereon during the years 1952, 1953, and 1954 are not deductible as interest under sections 23(b), I.R.C. 1939, and 163(a), I.R.C. 1954.

Recovery date of prewar German bonds presumed lost on outbreak of war under section 127, I.R.C. 1939, held, on the facts, to be no later than the time of deposit of the bonds for validation pursuant… Held: on the facts, to be no later than the time of deposit of the bonds for validation pursuant to the agreement with the new German Government for resumption of payments, so that holding period after recovery exceeded 6 months.

Assignment of Income -- Dividend -- Gift of Shares After Declaration but Just Before Record and Payment Date. -- Two fathers, controlling stockholders of a personal holding corporation which declared… Held: the Commissioner did not err in taxing the dividends on those shares to the fathers. Helvering v. Horst, 311 U.S. 112.

Section 129 of the Internal Revenue Code of 1939 and Section 269 of the Internal Revenue Code of 1954. -- Deductions for loss carryovers denied. Held: The petitioner has failed to show that the principal purpose of Rouse's acquisition of its stock was not the avoidance of Federal income tax by securing to himself, as sole shareholder, the benefit of petitioner's net operating loss deductions, a benefit or deduction which he would not otherwise have enjoyed.

Held: (1) Additions to a reserve for bad debts in 1951, 1952, and 1953 were in excess of the reasonable needs of petitioner's business; (2)… Held: Additions to a reserve for bad debts in 1951, 1952, and 1953 were in excess of the reasonable needs of petitioner's business; (2) expenditures for new motors for a delivery vehicle and for overhead cranes, as well as for electrical rewiring, were capital in nature; (3) failure to file timely return in 1953 not due to reasonable…

Decedent's father in 1929 created a trust providing for payment of income for life to decedent in discretion of trustee, and after… Held: the fair market value of the trust corpus at date of decedent's death is includible in his gross estate under section 2041, I.R.C. 1954, decedent having exercised his general power of appointment before the relinquishment thereof by a disposition of such nature that if it were a transfer of property owned by decedent such property…

Amounts received by petitioner wife from divorced husband after motion for alimony arrearages due under prior decree, and pursuant to his agreement to pay fixed amount related to arrearages, and her… Held: on the facts, to constitute periodic payments of alimony to wife in discharge of legal obligation imposed on husband under decree of divorce taxable to her under section 71, I.R.C. 1954.

Held, the corporate petitioner received the property in question through a transaction which does not qualify as an insolvency reorganization under section 112(b)(10), I.R.C. 1939, and so may not… Held: the corporate petitioner received the property in question through a transaction which does not qualify as an insolvency reorganization under section 112(b)(10), I.R.C. 1939, and so may not determine its basis in the property under section 113(a)(22), I.R.C. 1939.

1. Petitioner John Amodio, a nonresident alien residing in Switzerland, purchased income-producing real property in the United States and managed it… Held: Petitioner was engaged in business in the United States, following Jan Casimir Lewenhaupt, 20 T.C. 151 (1953). b. Petitioner did not have a permanent establishment in the United States within the meaning of the United States-Swiss tax convention and is taxable on dividend and interest income at rates fixed thereunder. 2.

Bad debts arising from petitioner's loans to two related corporations of which he was an employee (as to one) and an officer (as to the other), held, nonbusiness bad debts. Held: nonbusiness bad debts.

During 1954 petitioner was the owner of a Liberty dry cargo vessel under United States registry. Held: the $ 57,000 received by petitioner constituted ordinary income rather than capital gain.

On the facts, held, 3,928 shares of Selected American Shares were includible in decedent's gross estate. Held: 3,928 shares of Selected American Shares were includible in decedent's gross estate. Held, further, decedent's estate is entitled to include $ 13,000 in the estate tax marital deduction as a cash payment made to decedent's widow under a settlement agreement which settled her will contest.

Held, board and lodging furnished by taxpayer to another adult in return for services, either present or future, constitutes remuneration and not support within the meaning of section 152 (a)(9),… Held: board and lodging furnished by taxpayer to another adult in return for services, either present or future, constitutes remuneration and not support within the meaning of section 152 (a)(9), I.R.C. 1954.

Funds advanced and repaid in full in British pounds, held, on the facts, to give rise to no deductible loss notwithstanding that the rate of exchange of the pound was lower on the date of repayment. Held: on the facts, to give rise to no deductible loss notwithstanding that the rate of exchange of the pound was lower on the date of repayment.

Decree of divorce dated July 20, 1954, required petitioner to pay to his former wife as permanent alimony the sum of $ 36,000.00,… Held: that under the provisions of section 71(c), I.R.C. 1954, the $ 36,000 constituted the principal sum of an obligation of the petitioner, that payments made pursuant to the decree are installment payments in partial discharge of that obligation, that by the terms of the decree the principal sum is to be paid over a period of less than…

Petitioner, a national banking corporation, which had formerly used the specific chargeoff method of deducting bad debts, adopted the reserve method based on a 20-year moving average in 1947,… Held: petitioner was entitled to the use of Method 2 for 1954 and 1955 under Rev. Rul. 54-597 (1954-2 C.B. 90), which granted a prospective election of either Method 1 or Method 2 providing such method is consistently followed.

Distribution by a corporation to its sole stockholder of the shares of a newly organized, wholly owned subsidiary to which part of the corporation's property had been transferred, held, on the facts,… Held: on the facts, not pursuant to a reorganization nor to come within the nonrecognition provisions of section 112(b)(11), I.R.C. 1939.

Excess Profits Tax, Sec. 722. -- Held, that petitioner is not entitled to relief under section 722 (a), (b)(1), (b)(4), and (b)(5) for the taxable fiscal years… Held: that petitioner is not entitled to relief under section 722 (a), (b)(1), (b)(4), and (b)(5) for the taxable fiscal years ended June 30, 1941 to 1946, inclusive, or to the benefit of any carryover from the fiscal year ended June 30, 1940, based on a constructive average base period net income for those years.

1. Express terms of trust instrument and applicable State law gave decedent powers amounting to a reversionary interest as described in section 811(c)(2), I.R.C. 1939. 2. Since only an ascertainable portion of corpus was subject to such powers, only that portion was includible in decedent's gross estate. 3.

1. By trust agreement executed in 1919, decedent transferred securities in trust to herself and a bank, as trustees, reserving to herself the income therefrom for life and the right to appoint by… Held: the release of the testamentary power of appointment in 1942 is exempt from gift tax under section 1000(e), I.R.C. 1939. 2.

Decedent, in 1930, created a trust to which he conveyed securities and life insurance policies, retaining certain powers and reserving, for… Held: Decedent having prior to his death effectively released all powers over the trust except the appointment of a successor trustee, the trust corpus is not includible in his gross estate under section 811(d)(2), I.R.C. 1939. 2. The transfer to the trust occurred in 1930, within the meaning of section 811(c)(1)(B), I.R.C. 1939. 3.

Petitioner, a manufacturer of automobiles, claims relief from excess profits tax under section 722(b)(2) and (b)(4), I.R.C. 1939. Held: That petitioner did not file a timely claim for refund of overpayment of excess profits tax for the years in issue based upon the realization of abnormal income under section 721(a)(2)(C) and (a)(3) within the period of limitations prescribed in section 322 (b)(1). May Broadcasting Co., 33 T.C. 1007, on appeal (C.A. 8), followed. 2.

Petitioner was indebted to a bank prior to 1938. Held: The mitigation provisions of sections 1311- 1315, I.R.C. 1954, are not applicable to this proceeding. Assessment and collection of a deficiency against petitioner for the year 1946 is barred by the statute of limitations.

Petitioner's substitution of her note for $ 205,000 for notes of her husband of equal amount held by a bank in 1938, held, on the facts not to constitute a taxable gift from petitioner to her husband… Held: on the facts not to constitute a taxable gift from petitioner to her husband in 1938.

Petitioner, on an accrual basis, sold automobiles and received conditional sales contracts covering the balance of purchase price due. Held: petitioner may not deduct an addition to a Reserve for Losses on Contracts Discounted established to cover anticipated payments it will have to make in later years under its guaranty contract.

Where petitioners changed the method of reporting income from the cash basis to an accrual basis without the prior consent of the respondent, held, petitioners failed to sustain the burden of showing… Held: petitioners failed to sustain the burden of showing that the cash basis did not clearly and accurately reflect income.

Held, that expenses incurred for singing and dramatic lessons supplied petitioner's minor daughter in 1957 constitute part of her support. Held: that expenses incurred for singing and dramatic lessons supplied petitioner's minor daughter in 1957 constitute part of her support. Held, further, that petitioner is not entitled to a dependency exemption for his daughter in 1957 because he did not prove that he paid more than half of her support.

Two wholly owned corporations were each availed of with a view to distributions of the excess proceeds of FHA-insured mortgages prior to corporate realization of a substantial part of the net income to be derived from the properties so mortgaged, and the fact that said distributions to sole common stockholder were unaccompanied by surrenders of any stock does not operate to take them out of the operation of section 117(m), I.R.C. 1939.

Income -- Endowment Care Fund Payments. -- Where taxpayer was not required by contract or by law to set up a trust and in fact did not set up or contribute to a trust, or in any manner segregate endowment care fund payments into separate asset funds or accounts for perpetual care purposes, but commingled such funds with its other assets and used them in general operation of its business, held such funds are not excludible from taxable income.

In 1955, petitioner paid an amount assessed against him by respondent as a 100 per cent penalty under section 2707(a), I.R.C. 1939. Held: such payment is not deductible, either as a loss under section 165(c), I.R.C. 1954, or as a bad debt under section 166, I.R.C. 1954.

Petitioner, in the taxable years 1954, 1955, and 1956, received payments on an award from the Mixed Claims Commission, United States and Germany. Held: the amounts received by petitioner constituted income in respect of a decedent to her under section 691(a), I.R.C. 1954.

Under decedent's will, all the rest, residue, and remainder of decedent's property was transferred in trust and became the corpus of two… Held: decedent's wife was not granted an unlimited power to appropriate the property of the First Trust as if she were the virtual owner thereof, and, therefore, the estate is not entitled to the marital deduction claimed by reason of that trust under section 812(e)(1)(F), I.R.C. 1939, as amended by section 93 of the Technical Amendments…

1. Petitioner and his brother owned an apartment building in Berlin, Germany, in which they had inherited their interests in 1916 and 1926. Held: the basis of the property for computing depreciation is not the fair market value of the building upon recovery within the provisions of sections 1336, I.R.C. 1954, and 127, I.R.C. 1939, but is the adjusted fair market value of the building upon inheritance, which basis is determined. 2.

Held, gifts of stock to infant donees under guardianship, were gifts of present interests in property. Held: gifts of stock to infant donees under guardianship, were gifts of present interests in property.

Jurisdiction -- Error in Notice of Deficiency -- Waived by Petitioner. -- The Commissioner mailed a notice of deficiency to the petitioner on April 26, 1960, in which he erroneously stated that the determination of the petitioner's income tax liability for the years 1952, 1953, and 1954 disclosed deficiencies in tax aggregating $ 43,394.54 as shown in the attached statement. The attached statement correctly identified the deficiencies with the years 1956, 1957, and 1958.

Transportation expenses incurred in connection with trip to Bermuda by taxpayer for purpose of convalescence after two serious operations, upon physician's advice, held deductible as medical expenses. The trip was not undertaken for pleasure, but was made solely for medical reasons. However, amounts expended for meals and hotel in connection with such trip held not deductible. Robert M. Bilder, 33 T.C. 155, disapproved.

Certain expenses for maintaining and operating a yacht held not deductible.

Held, the amount received by petitioners from Kaufhof A.G., a German corporation, during 1955 represents compensation paid by way of pension and constitutes taxable income under section 61(a), I.R.C.… Held: the amount received by petitioners from Kaufhof A.G., a German corporation, during 1955 represents compensation paid by way of pension and constitutes taxable income under section 61(a), I.R.C. 1954.