Volume 35 — Tax Court Reports

In 1937 A. J. Eline acquired a 16-acre tract of land known as the Fehr farm. Long active in many phases of real estate, he formed a partnership with Pearl Hartman in 1944. Held: the odd-shaped lot was not held primarily for sale to customers in the ordinary course of petitioner's business and gain realized from its sale constitutes capital gain.

Petitioner in 1950 purchased real estate subject to a lease. Held: petitioner is not entitled to deductions for depreciation of the lessee-constructed building; nor is petitioner entitled to deductions for amortization of any portion of the purchase price attributable to a favorable lease. 2.

The National Science Foundation made a grant of $ 19,700 to the University of Tennessee to support pure research in the field of nuclear physics. Held: that under the above circumstances, the total amount of the stipend which petitioner received is excludible from his gross income under section 117 of the 1954 Code.

Held, that amounts received in the years in question representing gain from real estate lots sold in those years and prior years constituted ordinary… Held: that amounts received in the years in question representing gain from real estate lots sold in those years and prior years constituted ordinary income as gain from the sale of property held for sale to customers in the ordinary course of trade or business. Sec. 117(a)(1), I.R.C. 1939, and sec. 1221(1), I.R.C. 1954.

Net Operating Loss Deduction for 1953 Based on Net Operating Loss Carryback From 1955 -- Applicable Law. -- Net operating loss for 1955, computed and carried back to 1953 under section 172 of the 1954 Code, must be reduced by adjustments provided in section 122(d) of the 1939 Code in computing the amount of the net operating loss deduction allowable for 1953.

Held, in computing the percentage increase under section 444(b)(3), I.R.C. 1939, the basis, unadjusted, of petitioner's total facilities on the applicable dates should be… Held: in computing the percentage increase under section 444(b)(3), I.R.C. 1939, the basis, unadjusted, of petitioner's total facilities on the applicable dates should be computed without including the amounts of the lessors' bases, unadjusted, of the real property under lease to petitioner on such dates.

1. Held, a note transferable on the books of the debtor corporation is a security (sec. 23(k)(3), I.R.C. 1939), and therefore the deduction for its worthlessness is limited by section 23(k)(2). Cf. Held: a note transferable on the books of the debtor corporation is a security (sec. 23(k)(3), I.R.C. 1939), and therefore the deduction for its worthlessness is limited by section 23(k)(2). Cf. Carl Oestreicher, 20 T.C. 12. 2.

1. The decedent, Lela Barry Vardell, and T. W. Vardell were husband and wife, and all their property, under Texas law, was community property. Held: The Commissioner is sustained. Decedent's interest in the community property is includible in her gross estate under the provisions of section 2036, I.R.C. 1954. 2.

Petitioner received royalties from a phonograph recording of a monologue and song completed in 1952. Held: since the work on the artistic composition covered less than 36 months, section 107(b), I.R.C. 1939, is not applicable.

Held, continuation of salary payments made to widow by corporation in recognition of services of deceased corporate officer were not intended as gifts,… Held: continuation of salary payments made to widow by corporation in recognition of services of deceased corporate officer were not intended as gifts, excludible from gross income under section 102, I.R.C. 1954; such payments, to the extent that they exceeded $ 5,000 ( sec. 101(b), I.R.C. 1954), constituted taxable income.

1. Held, estate of majority stockholder of closely held family corporation deemed to own all of corporation's stock upon application of constructive ownership rules of section 318, I.R.C. 1954. 2. Held: estate of majority stockholder of closely held family corporation deemed to own all of corporation's stock upon application of constructive ownership rules of section 318, I.R.C. 1954. 2.

1. Held, when viewed in the light of all the facts and circumstances, the 120,000 shares of its own stock, which petitioner had acquired in May… Held: when viewed in the light of all the facts and circumstances, the 120,000 shares of its own stock, which petitioner had acquired in May 1950, pursuant to a resolution adopted by its stockholders authorizing the directors to purchase or otherwise acquire outstanding shares of the capital stock of the company and to hold, sell,…

In August 1955, petitioner exchanged desert land she was holding for investment purposes for residential property, a mortgage, and cash. Held: that the residential property received in exchange for the old property was other property held primarily for sale and did not come within the nonrecognition-of-gain provisions of section 1031(a) of the Internal Revenue Code of 1954.

1. The decedent and his wife were residents of the State of California. Held: that the interest so given to the surviving wife was a terminable interest and that the estate is not entitled to a marital deduction with respect to the property in question under section 812(e) of the Internal Revenue Code of 1939. 2.

Amount paid by petitioner pursuant to an indemnity agreement to hold the guarantor of corporate note harmless in return for which petitioner received stock of the corporation whose loan was guaranteed held to constitute loss from worthlessness of securities.

Held: Petitioner's claim for excess profits tax relief under section 722(b)(4), I.R.C. 1939, is denied. Held: Petitioner's claim for excess profits tax relief under section 722(b)(4), I.R.C. 1939, is denied.

For the sole purpose of saving tax by obtaining a dividends-received deduction and a deduction for a dividend paid on a short sale of stock, the petitioner,… Held: that the petitioner has failed to show that the transactions were not mere paper transactions without substance and that a dividends-received deduction and a deduction for a dividend paid on a short sale of stock taken on account of the transactions are within the provisions of the Code relied on by petitioner.

Decedent and his wife wanted their three daughters and families to have their own homes. Held: that the transfers of the properties to the older daughters and husbands were not made in contemplation of death, but that the transfer of $ 9,000 to the third daughter and husband was made in contemplation of death.

During the years 1951, 1952, and 1953, petitioner, an accrual and calendar year basis taxpayer, provided services and facilities to Homestead, a corporation on a fiscal year basis ended February 29,… Held: that the compensation for services rendered by the petitioner during 1951, 1952, and 1953, respectively, was not accruable in those years as determined by the respondent.

Decedent inherited under the will of her mother, Lina Joachim, a 56 per cent interest in her mother's remainder interest in a trust. Held: Section 36 of the Trading With the Enemy Act requires, for tax purposes, a disregard of the transfer to the Federal Reserve Bank. Thus, the funds were held for the benefit of decedent with [a] person carrying on the banking business and are excluded from decedent's gross estate under section 863(b), I.R.C. 1939.

In January 1952 petitioners entered into a trust agreement with Roy Acuff as trustee transferring an undivided one-third interest in a business conducted by Roy Acuff as a sole proprietorship, and an… Held: the transfers were not bona fide and respondent was correct in taxing the entire income reported by the partnership in 1952, 1953, and 1954 to the petitioners, who filed joint returns.

1. Held, petitioner corporation was dissolved in 1952. 2. Held: petitioner corporation was dissolved in 1952. 2.

Petitioner and others worked in developing a plan for group life insurance for Federal Government employees, the basic ideas of which… Held: amount paid to petitioner by the Metropolitan Life Insurance Company on behalf of itself and its associated companies for which he sold, assigned, and transferred to these companies all right, title, and interest in and to said plan of and ideas for group life insurance for Federal Government employees and released all claims against…

1. Petitioner held 62 per cent of the outstanding stock of P corporation and trustees under a voting trust held 25 per cent. The voting trust was created in 1952 to continue for 20 years. Held: the State legislative enactment worked no suspension of the voting rights of the stock held in trust; petitioner did not own stock of P corporation possessing 80 per cent of the voting power in 1954 so as to entitle petitioner and P to file a consolidated return. 2.

Held, amounts allegedly incurred by petitioner, a Pittsburgh lawyer, in attending a meeting of the International Law Association in Dubrovnik, Yugoslavia, are not deductible ordinary and necessary… Held: amounts allegedly incurred by petitioner, a Pittsburgh lawyer, in attending a meeting of the International Law Association in Dubrovnik, Yugoslavia, are not deductible ordinary and necessary expenses of his law practice within the meaning of section 162(a) (2), I.R.C. 1954.

Petitioner, a certified public accountant, entered into a contract providing for the sale of his accounting practice to two men with whom he then formed a partnership for the practice of accountancy. Held: the amount by which the first installment of the present payment under the contract exceeded petitioner's basis is long-term capital gain from the sale of goodwill and not ordinary income from the assignment of a share in the future earnings of the partnership.

Held, terminable interest rule applies to widowers' allowances generally and specifically in Maine. Held: terminable interest rule applies to widowers' allowances generally and specifically in Maine. Held, further, that a widower's allowance under sections 17 and 19, ch. 156, Revised Statutes of Maine, does not constitute a terminable interest and the amount thereof is deductible as a marital deduction under section 2056(a), I.R.C. 1954.

Upon the ultimate finding that petitioners' predominant purpose in acquiring in 1950 improved real estate located in Millbrook, New York, was to acquire a residence, it is held that a loss sustained upon the subsequent sale of the property in 1955 is not deductible under section 165 (a) and (c), I.R.C. 1954.

Where a subagent owned insurance expirations which, in the insurance field, are valuable property, and the subagent sold the expirations for $ 10,000 by contract to an agent, held, the consideration… Held: the consideration received was a capital gain.

The petitioner in his individual capacity obtained from the manufacturer of certain merchandise a franchise to sell that merchandise in a stated locality and a line of credit. Held: the amount of that judgment and related costs is deductible as a loss under section 165(c), and not as a nonbusiness bad debt under section 166(d), of the Internal Revenue Code of 1954.

1. For the years prior to the calendar year 1953, petitioner, owner and operator of a hospital, had kept its books and filed its returns on an accrual basis. Held: Petitioner is entitled to report its income on the cash basis for 1953, 1954, and 1955. The consent to the change was valid, never revoked, and while petitioner retained, basically, an accrual method in keeping its books and records, cash basis income could be readily ascertained therefrom. 2.

1. Held, the selling price of petitioners' property sold in 1951 was $ 274,012.36 as determined by respondent in his deficiency notice and not $ 300,000 as claimed by petitioners in their return. Held: the selling price of petitioners' property sold in 1951 was $ 274,012.36 as determined by respondent in his deficiency notice and not $ 300,000 as claimed by petitioners in their return.

1. Petitioner, a corporation engaged in the real estate business, in January 1951 obtained a loan of $ 15,559 from Jefferson Loan Company (completely owned by petitioner's stockholders), secured by a… Held: that petitioner is entitled to deduct said payments under section 23(b) of the Code of 1939. 2.

T corporation, successor to sole proprietorship, issued all its stock and debenture notes to the sole proprietor, who arbitrarily allocated certain of the transferred assets as consideration for the… Held: T is not entitled to amortization deductions with respect to discount allegedly attributable to the debenture notes.

1. Held, petitioners incurred a deductible casualty loss in the amount of $ 13,125 occasioned by destruction of rare and unusually fine specimens of ornamental trees, plants, and shrubs on their… Held: petitioners incurred a deductible casualty loss in the amount of $ 13,125 occasioned by destruction of rare and unusually fine specimens of ornamental trees, plants, and shrubs on their residential property in an unseasonable freeze. 2.

In 1950 and 1951, petitioner, while employed as general manager of a bank, credited the account of a depositor with a deposit which had not in fact been made, honored checks on an account lacking… Held: that the payments to the bonding company are not deductible as ordinary and necessary business expenses. But, held, further, that the amounts paid as interest were interest and are deductible as such.

1. Held, that petitioners' son, who was more than 19 years of age, did not qualify as a full-time student at an educational institution, within the meaning of section 151(e) of… Held: that petitioners' son, who was more than 19 years of age, did not qualify as a full-time student at an educational institution, within the meaning of section 151(e) of the 1954 Code, during the period that he was employed as an intern at a hospital, following his graduation from medical school.

Petitioner was incorporated for the purpose of dealing in foods and beverages. It operated a retail grocery and liquor store which for some years had been unprofitable. Held: petitioner entitled to such net operating loss carryover. Libson Shops, Inc. v. Koehler, 353 U.S. 382, and Mill Ridge Coal Co. v. Patterson, 264 F. 2d 713, distinguished.

On March 8, 1957, petitioner, who was pregnant, instituted an action against her husband, John, for separation from bed and board. Held: that there is no basis for the allocation of a portion of the support payments to the child and the entire amount of $ 3,900 is includible in petitioner's income for the taxable year 1957. Frances Hummel, 28 T.C. 1131, and Dora H. Moitoret, 7 T.C. 640, followed.

The Commissioner did not err in taxing the entire gain from the disposition of 126 shares of Coffey House Corporation stock to C. Ted Brady who surrendered those shares under a settlement agreement.

1. Respondent made a jeopardy assessment against transferor on June 6, 1951, and was entitled to 6 years thereafter within which to take action against the transferee. Held: a deficiency notice asserting transferee liability sent to petitioner in September 1956 was timely. 2. The transferor transferred the assets after a jeopardy assessment, jeopardy notice, and demand, after the liens were filed, levies served, and after engaging in conduct aimed at concealing assets.

Petitioners received certain sums as distributions from a trust, which sums arose from the settlement of litigation under the anti-trust laws. Held: the sums constituted ordinary income and not capital gains.

1. Held, petitioner is not entitled to excess profits tax relief under section 722(b)(4), I.R.C. 1939, in excess of that allowed by the… Held: petitioner is not entitled to excess profits tax relief under section 722(b)(4), I.R.C. 1939, in excess of that allowed by the respondent. 2. Held, further, petitioner is precluded by section 143(f), I.R.C. 1939, from claiming an overpayment of taxes actually withheld from the 1944 royalty payments made by it to its foreign parent. 3.

Petitioner entered into a transaction purporting to purchase $ 2 million face amount of United States Treasury notes. Held: The purported purchase was lacking in substance; therefore, 1. Amounts paid as interest were not deductible, following Eli D. Goodstein, 30 T.C. 1178. 2. Expenses incurred therein are not deductible. 3.

Barber-Greene Co., a United States manufacturer of heavy construction and road equipment, organized petitioners as wholly owned subsidiaries to handle export sales, Americas as a Western Hemisphere… Held: 95 per cent or more of each petitioner's income was derived from sources outside the United States; Americas qualifies as a Western Hemisphere trade corporation and both petitioners qualify for the exemption from excess profits tax provided in section 454(f), I.R.C. 1939.

Liability of stockholder-transferee of all of the assets of a wholly owned corporation for interest on deficiencies in tax due from the transferor for the years 1942 and 1943, begins on March 15, 1943, and March 15, 1944 (the due dates for the filing of returns and payment of taxes), where the value of the distributed assets substantially exceeded the amounts of the deficiencies, additions to tax, and potential interest owing by the transferor; such liability for interest is…

Petitioners' testator prior to his death endorsed notes of X corporation payable to a bank. X had borrowed money from testator before this, giving him its notes. Held: petitioners' basis as to collected notes was 35 per cent of their face value. Held, further, petitioners' basis as to all notes cannot be allocated to the collected notes only.

During the taxable years 1955 through 1957, petitioner Samuel J. Coppola was the business manager of a local union of an international union. He had been with the local since 1937. Held: petitioner's beneficial interest in the contributions made by the local to the trust were not nonforfeitable as that term is used in section 402(b), I.R.C. 1954, and therefore such contributions shall not be included in petitioner's gross income for the taxable years in question.

Held: That petitioner's meal expenses on trips that did not involve overnight stays away from home were not deductible as travel expenses within the meaning of section 162(a)(2), I.R.C. 1954. Held: That petitioner's meal expenses on trips that did not involve overnight stays away from home were not deductible as travel expenses within the meaning of section 162(a)(2), I.R.C. 1954. Such meal expenses, when reimbursed to petitioner, were includible in his gross income.

Petitioner was a mutual water company exempt from tax under section 501(c)(12), I.R.C. 1954, and its predecessor sections under the 1939 Code, prior to 1955. Held: The capital gain must be included in income in determining petitioner's qualification as an exempt organization under section 501(c)(12), and petitioner was not exempt from tax in 1955. 2.

Petitioner was the exclusive general insurance agent for Iowa for an insurance corporation from 1929 through 1955. Held: There was no sale or other disposition within the meaning of section 1001(b), I.R.C. 1954, in 1956 of the petitioner's rights to future renewal commissions, and consequently the petitioner did not realize in that year the entire commuted value of the periodic payments.

Petitioner had certain contracts subject to renegotiation under the Renegotiation Act of 1951. Held: petitioner is not entitled to a cost allowance under section 106(b) of the Act measured by the market value of the woodpulp (in mat form) used in the manufacture of the paper and paper products sold under the above-mentioned contracts for the reason that woodpulp (in mat form) is not the first form or state suitable for industrial…

Marjorie M. Wardwell paid a church-operated old peoples' home $ 7,500 as a room endowment. Held: the payment was made in consideration of her being granted residence in the home and the right to live there by paying less monthly charges than residents who were not room endowers, and, therefore, the payment was not a gift or contribution and not deductible under section 170, I.R.C. 1954.

1. The petitioners, owners of an oil lease, assigned all their right, title, and interest in the lease to an oil operator, reserving, however, an overriding royalty and 25 per cent of all oil, gas,… Held: that the 25 per cent interest retained by the petitioners was a net profits interest, and that they are not entitled to depletion deductions based upon 25 per cent of the gross production. 2.

1. Held, petitioners are liable as transferees of a corporation of which they were stockholders and which was dissolved in 1955 and which,… Held: petitioners are liable as transferees of a corporation of which they were stockholders and which was dissolved in 1955 and which, under the resolution of dissolution, distributed all of its assets to petitioners and was left with no assets with which to pay the tax liabilities determined by the Commissioner against the corporation…

1. Held, petitioner was not exempt from tax under section 101(6), I.R.C. 1939, during the year 1949. 2. Held: petitioner was not exempt from tax under section 101(6), I.R.C. 1939, during the year 1949. 2. Held, petitioner is entitled to a deduction for the year 1949, under section 162(a), I.R.C. 1939, relating to charitable deductions of trusts, of an amount at least equal to its net income for that year.

Held, payments received by petitioner under three separate contracts for gravel removed from his property did not constitute the purchase price of gravel in place, and was therefore ordinary income… Held: payments received by petitioner under three separate contracts for gravel removed from his property did not constitute the purchase price of gravel in place, and was therefore ordinary income when received.

Petitioner, an organization exempt from tax under section 101(7), I.R.C. 1939, leased its building to Pyramid. Held: The supplemental agreement was an option within the meaning of section 423, I.R.C. 1939, and the renewal period must be considered in determining whether the lease was for more than 5 years.

Petitioner, a doctor in the general practice of medicine, participated in a postgraduate medical seminar and cruise to various Mediterranean ports. The amount allowable as an ordinary and necessary business expense and as such deductible under section 162 of the Internal Revenue Code of 1954 is determined.

During 1949 the petitioner paid his Wisconsin State income tax for 1948, deficiencies in his State income taxes for 1945 through 1947,… Held: that the State income tax for 1948, the deficiencies in State income taxes, interest on the deficiencies in State and Federal income taxes, and the legal expenses were ordinary and necessary expenses of the trade or business regularly carried on by petitioner, were attributable to the operation of such trade or business, and were…

Prior to December 1939 petitioner seasoned its lumber by piling it in storage yards where it dried by air. During 1939 it installed a dry kiln for seasoning lumber to the extent of its capacity. Held: the installation of the dry kiln constituted a change in the character of petitioner's business under section 722(b)(4) of the Internal Revenue Code of 1939, as amended, and the amount of the CABPNI determined.

1. Nat Holt (and his partnership) entered into two agreements with Paramount Pictures Corporation to produce 11 motion pictures for Paramount. Held: Holt's share of the $ 153,000 paid to Holt and his partnership by Paramount was taxable to Holt as ordinary income and not as capital gain. 2. At about the time the production agreements were terminated Holt bought the two unproduced picture stories from Paramount for $ 500, one of which he later sold for $ 15,000.

1. New Corporation -- Secs. 430(e)(2)(B), 445(g)(2)(C), and 474(c). -- The petitioner was not a new corporation under section 430(e), 1939 Code. 2. Additions to Tax -- Secs. 291(a) and 293(a). -- The Commissioner did not err in determining that additions to tax are due under sections 291(a) and 293(a).

Petitioner bought and sold numerous unimproved tax-sale lots. Held: 1. Held: Petitioner held the lots sold during the years in issue primarily for sale to customers in the ordinary course of its business, and was not entitled to capital gains treatment. 2. Petitioner did not qualify for nonrecognition under section 112(f), I.R.C. 1939, with respect to certain sales to the Union Pacific Railroad.

1. Transfer of interest in literary property acquired by petitioner, an actor, prior to production as motion picture, held, on the facts, to give rise to capital gain notwithstanding the same… Held: on the facts, to give rise to capital gain notwithstanding the same contract with producer provided for petitioner's acting services. 2.

Deduction From Income -- Gross Income of Estate for Charity Under Will -- Sec. 642(c), 1954 Code. -- Amounts drawn by partner during life but reported for income tax purposes by estate for period after death, which were not subject to the will, were not permanently set aside pursuant to the will for charitable purpose and were not deductible under section 642(c) of the 1954 Code.

Petitioner is the widow of a well-known band leader, who died in 1944. Held: The consideration thus received was ordinary income, in part as compensation for a right-of-privacy release, in part for personal services, and in part for the release of any other claims that petitioner might possibly make in regard to a motion picture about her deceased husband.

Held, payment made for a right-of-privacy release in connection with the production of a motion picture, in advance of any privacy invasion and in circumstances where no invasion of privacy was shown… Held: payment made for a right-of-privacy release in connection with the production of a motion picture, in advance of any privacy invasion and in circumstances where no invasion of privacy was shown to have followed, constitutes taxable income.

1. Held, that there was not a valid family partnership consisting of the petitioner and his two minor children; the petitioner was the sole owner of the business and is entitled to deduct the losses… Held: that there was not a valid family partnership consisting of the petitioner and his two minor children; the petitioner was the sole owner of the business and is entitled to deduct the losses sustained in the business and is taxable upon the gains.

After suffering a stroke in June 1953, decedent did not return to his job as managing officer of the Louisville Home Federal Savings and Loan Association, but was elected executive vice president and… Held: petitioners have not established that any part of the payments made to decedent in 1955 is excludible from gross income under section 105(d), I.R.C. 1954.

1. On the facts, respondent's disallowance of a portion of claimed traveling expenses sustained and reasonable amount of entertainment expenses determined. 2. Premiums paid on life insurance policy and country club initiation fees and dues were personal in nature and nondeductible. 3. Period of underpayment under section 6654(c), I.R.C. 1954, for purpose of computing section 6654 liability for underpayment of estimated tax determined.

Held, that the petitioner's gain from the sale of certain of its real and personal properties during its fiscal year 1956 was includible in its income for that year and not for its fiscal year 1957. Held: that the petitioner's gain from the sale of certain of its real and personal properties during its fiscal year 1956 was includible in its income for that year and not for its fiscal year 1957.

Held-out-of-service benefits paid under contract by a nonprofit corporate fund to which taxpayer-member had paid dues were income to the extent they exceeded contributions to the fund.

Held, that under the arrangements involved herein the petitioner was not liable for tax on the dividends received by her during the taxable years 1954, 1955, and 1956 from corporate stock standing in… Held: that under the arrangements involved herein the petitioner was not liable for tax on the dividends received by her during the taxable years 1954, 1955, and 1956 from corporate stock standing in the name of her daughter during those years.

1. Net Operating Loss Deduction -- Applicability 1939 or 1954 Code -- 1953 Loss -- Same Business. -- A net operating loss deduction by a real estate corporation based upon a 1953 net operating loss of a wood manufacturing company depends upon provisions of the 1939 Code, and cited provisions of the 1954 Code are inapplicable where the two corporations were merged on December 31, 1953. 2. No deduction allowed for 1953 or for later years under the 1939 Code.

Petitioner's husband, Charles Pollnow, was an employee for a good many years of a business enterprise which had a pension plan for its employees, all the… Held: at the time of his death Charles did not have a nonforfeitable right to receive the $ 13,296 in question and petitioner is entitled to receive an exclusion of $ 5,000 under the provisions of section 22(b)(1)(B), I.R.C. 1939, as amended. H. Lloyd Hess, 31 T.C. 165, revd. 271 F. 2d 104 (C.A. 3), distinguished.

Petitioner Richard M. Boe was one of four partners who purchased a contract medical service organization, part of which consisted of 8,984 medical… Held: petitioner bought a single intangible capital asset consisting of the aggregate of the 8,984 medical service contracts, and this asset had no limited or determinable useful life and could not be amortized under sec. 23(l), I.R.C. 1939, or sec. 167(a), I.R.C. 1954. Thrifticheck Service Corporation, 33 T.C. 1038, followed.

On March 5, 1955, a grandparent of two minor children (under 3 years of age) established a trust for the benefit of each child. Held: The gifts to the minor children were gifts of future interests which do not qualify for exclusions under section 2503(b) of the Internal Revenue Code of 1954 unless they meet the requirements of section 2503(c). 2.

Held, transfers to certain trusts for minor grandchildren do not qualify in any part for the $ 3,000 statutory exclusion under section 2503(b), I.R.C. 1954, without the benefit of section 2503(c). Held: transfers to certain trusts for minor grandchildren do not qualify in any part for the $ 3,000 statutory exclusion under section 2503(b), I.R.C. 1954, without the benefit of section 2503(c).

Secs. 642(g) and 2053, I.R.C. 1954 -- Deductions. -- Held, funeral expenses which are deductible under section 2053 in determining the value of the taxable estate are not deductible in computing the… Held: funeral expenses which are deductible under section 2053 in determining the value of the taxable estate are not deductible in computing the estate's taxable income even though a proper waiver is filed under section 642(g).

Held, that a partnership which engaged in treating buildings for extermination of termites and other pests, is not entitled to exclude from… Held: that a partnership which engaged in treating buildings for extermination of termites and other pests, is not entitled to exclude from its partnership income for the taxable year, portions of its gross receipts of said year, as prepaid income attributable to future reinspections and possible future re-treatments of the buildings,…

Petitioner signed his wife's name to a purported joint income tax return. Held: 1. Held: Sec. 6064, I.R.C. 1954, only presumes the validity of signatures and has no application where a signature is shown on the face of the document to have been signed by another. 2.

On December 7, 1954, American, the owner of shares of stock in General, entered into an arrangement to sell the stock at a stated price subject to the happening of stated conditions. Held: that the petitioner is not entitled to a dividends-received credit for 1955 on account of the dividends received by American on December 31, 1954, on its stock in General.

The petitioner, Theodore F. Appleby, and his father, prior to 1922, operated an insurance and real estate brokerage business at a certain location. Held: that under the facts, the distribution of the stock did not qualify as a tax-free distribution under section 355 of the Internal Revenue Code of 1954.

Deduction -- Travel Expense -- Home. -- The petitioners are not entitled to a deduction for travel expenses in Dayton, Ohio, from whence came all of the income-producing business.

In anticipation of a determination of a deficiency in Federal estate tax, the petitioner remitted $ 25,000 to the district director on or about May 1, 1958. Held: that an agreed overpayment of $ 24,929.28 in estate tax was made on February 5, 1960.

Petitioners acquired a 2-State master franchise for Dairy Queen freezers in April 1947. Held: Petitioners effected the sale of territorial rights in one instance, but the remainder of the transactions constituted sublicenses, payments for which produced ordinary income. 2.

Petitioners, each an owner of an undivided one-fourth interest in a patent, assigned it to a partnership in which each petitioner held a one-fourth interest. Held: the assignment was not a transfer of all substantial rights to the patent for the purposes of section 1235, I.R.C. 1954. Held, further, the amounts realized constitute ordinary income under the provisions of section 707(b)(2), I.R.C. 1954.

1. Held, that petitioner's business was not depressed during its base period due to temporary economic circumstances unusual in its case, within the meaning of section 722(b)(2) of the… Held: that petitioner's business was not depressed during its base period due to temporary economic circumstances unusual in its case, within the meaning of section 722(b)(2) of the 1939 Code; and accordingly petitioner does not qualify for excess profits tax relief under said section. 2.

Held: 1. Petitioner, General Instrument & Appliance Corporation, has established that it is entitled to excess profits tax relief under… Held: Petitioner, General Instrument & Appliance Corporation, has established that it is entitled to excess profits tax relief under section 722(b)(4), I.R.C. 1939, because its average base period net income was an inadequate standard of normal earnings since, prior to January 1, 1940, it was committed to a course of action resulting in a…

Renegotiation -- Jurisdiction -- Method of Accounting. -- Petitioner returned income on the basis of completed contracts. Held: The Tax Court is without jurisdiction to review the Board's denial of exemption under section 106(a)(6), Renegotiation Act of 1951, as relating to national defense. 2. Petitioner's claim for exemption under section 106(a)(3) denied. 3. Petitioner's method of accounting for income did not properly reflect its costs of the contract. 4.

Petitioner, whose regular method of accounting, on which it reported its income for Federal income tax purposes, was an accrual and completed contract basis, completed all work required under its… Held: for the purposes of renegotiation, petitioner's subcontract was finally completed and accepted in 1951 and the income therefrom is applicable to the year 1951.

1. Held, that petitioner realized a net profit of $ 25,761.08 as the building contractor for the construction of the Manning Gardens apartments. 2. Held: that petitioner realized a net profit of $ 25,761.08 as the building contractor for the construction of the Manning Gardens apartments. 2.

A deficiency resulting from an adjustment pursuant to an election under section 4(a) of the Dealer Reserve Income Adjustment Act of 1960 is barred for a year in which the assessment of any deficiency is barred except for the provisions of sec. 6501(h), I.R.C. 1954, allowing an extended period for assessment of deficiencies attributable to the application of a net operating loss carryback.

Deductions -- Nonbusiness Expenses -- Depreciation. -- A large yacht, Sea Cloud, owned and used by petitioner until 1951 was listed for sale with shipbrokers and decommissioned in 1951. Held: the yacht was not property held for the production of income within sections 23(a)(2) and 23(l)(2), 1939 Code, and sections 212(2) and 167(a)(2), 1954 Code, and petitioner is not entitled to deductions for nonbusiness expenses and depreciation allowances in the years 1952-1955.

Petitioner purchased two parcels of improved real estate adjacent to its bank with the intention of demolishing or removing two buildings thereon and using the land as a means of access to its… Held: The deductions were properly disallowed.

1. Petitioner and her former husband were divorced pursuant to a decree of absolute divorce which specified, in addition to provisions for fixed alimony and support payments, that the husband was to… Held: that the insurance premiums paid by the former husband are not includible in her taxable income under section 22(k) of the 1939 Code.

Petitioner, an employee of the Tennessee Coal & Iron Division of the United States Steel Corporation, received in 1957 additional wages for… Held: petitioner's additional pay was received for services rendered for his employer in prior years which would have been paid before the taxable year except for the intervention of an event similar in nature to a dispute as to the liability of the employer to pay the remuneration which is determined after the commencement of court…

Petitioners availed themselves of a corporation to construct an apartment building and to sell all of their stock in the apartment… Held: although the corporation was availed of within the meaning of section 117(m), I.R.C. 1939, such availing was not coupled with the requisite view, intent, or purpose to bring into effect the provisions of section 117(m) so that the corporation is held not to be collapsible and petitioners' gains to be treated as gains from the sale of…

The petitioner for each of the years 1948 through 1952 failed to file income tax returns and pay income taxes, but at each time for filing advised the respondent of his decision to refuse to… Held: that the Internal Revenue Code of 1939, in imposing the tax upon the petitioner and requiring him to file returns and pay the tax is not contrary to the first amendment to the Constitution, which provides that Congress shall make no law prohibiting the free exercise of religion.

Petitioners' contention that at least 30 percent of the gain recognized on the redemption of their stock in collapsible corporations was attributable other than to the property manufactured,… Held: gain on redemption of petitioners' stock was properly considered as gain from the sale or exchange of property which is not a capital asset.

1. Held, the sum of $ 121,841.11 which petitioner Nelson Weaver Mortgage Company, Inc., received from another mortgage corporation, in a… Held: the sum of $ 121,841.11 which petitioner Nelson Weaver Mortgage Company, Inc., received from another mortgage corporation, in a transaction whereby it transferred to the latter corporation its interests under a contract to act as an agent for a life insurance company in servicing mortgage loans held by said company, represented…

Held, even after applying the constructive ownership rules of section 318, I.R.C. 1954, with respect to the stock owned by the estate… Held: even after applying the constructive ownership rules of section 318, I.R.C. 1954, with respect to the stock owned by the estate of majority stockholder of closely held corporation, there still remained a substantial minority interest outstanding, and redemption of portion of the estate's stock to pay State and Federal death taxes was…

During the taxable year 1953 petitioner paid to an officer of a corporation in which petitioner was a stockholder and creditor an amount of $ 8,890.50, which payment was intended as additional compensation to the officer for his services as president of the corporation. Held, petitioner is not entitled to any deduction from gross income by reason of such payment, either as a trade or business expense under section 23(a)(1) or as a nontrade or nonbusiness expense under section 23(a)(2), I.R.C. 1939, as amended.

Petitioner and his deceased wife were copartners in a ranching and cattle business. Held: Joint tenancy property passed to petitioner upon the death of his wife by right of survivorship, and all of the income therefrom is taxable to him. 2. Administration of this decedent's estate during the years here in issue was reasonable since substantial outstanding contested claims were pending. 3.

A trust owned residential property. The settlor's son, a beneficiary of the trust, was entitled to occupy the property, rent and tax free, for life. Held: the property was not held by the trust for the production of income, and expenditures by the trust in the years 1952, 1953, and 1954 were not proper deductions from trust income, under section 23(a)(2), I.R.C. 1939, and section 212(2), I.R.C. 1954.

1. Petitioner produced and processed natural gas in which it had an economic interest in its gasoline extraction plants. Held: for the purpose of determining gross income from the property for percentage depletion, the petitioner did not sell gas in the immediate vicinity of the well so that, under the respondent's regulations, the gross income from the property is the equivalent of the representative market or field price.

Held: That the money which petitioner received in 1955 from the City of St. Louis, Missouri, in settlement for the condemnation of a parcel of real property which… Held: That the money which petitioner received in 1955 from the City of St. Louis, Missouri, in settlement for the condemnation of a parcel of real property which it was holding as an investment for rental purposes was not invested in other property similar or related in service or use to the converted property.

Amounts received by petitioners from two road construction contractors for soil extracted and removed from their property is taxable as ordinary income and not as long-term capital gain. The contracts under review did not effect a sale of the soil in place; such soil was in fact sold from time to time pursuant to the contracts as it was extracted from petitioners' land.

1. X and Y, so-called nonprofit corporations not exempt from tax, sold water or furnished water services only to their shareholders. Held: to the extent that the water costs were in excess of the charges to the shareholders for such water or water services, the expenses were not deductible as ordinary and necessary business expenses under section 23(a)(1)(A) of the 1939 Code and section 162 of the 1954 Code. 2.

1. In 1955 petitioners each obtained loans on insurance policies which each held on the other's life. Soon thereafter, petitioners each assigned the insurance policies involved to their children. Held: petitioners may not deduct interest paid or accrued on insurance loans after the date of assignment of the beneficial ownership of the insurance policies to their children. Cf. Agnes I. Fox, 43 B.T.A. 895. 2.

Petitioner, John F. Koons, purchased an undeveloped invention during the taxable year 1955 for $ 5,000 and paid $ 45,000 to a research laboratory for its services in perfecting the invention… Held: that the amount of $ 45,000 was expended in preparing to enter a new business, and was not paid or incurred for research or experimental expenditures in connection with a trade or business of petitioner, and hence, is not currently deductible under section 174 of the Code of 1954.

Shaw Construction Company, a corporation, all of whose capital stock was owned by Harold L. Shaw and his wife, Martha J. Shaw, was… Held: The multiple corporations in which the Shaws held controlling stock were shams and not entitled to recognition for tax purposes. Respondent's action in allocating and taxing all of their income and expenditures to Shaw Construction Company under sec. 22(a), I.R.C. 1939, approved. Aldon Homes, Inc., 33 T.C. 582 (1959), followed. 2.

By his will the petitioner's husband bequeathed in trust all of his residuary estate. Held: that since the present value of the petitioner's right to life income from the entire community property going into the trusts exceeded the value of her share of such property going into the trusts, she made no taxable gift.

1. Held: Amounts remitted by petitioner to district director with offer in compromise of assessed prior years' liability for tax,… Held: Amounts remitted by petitioner to district director with offer in compromise of assessed prior years' liability for tax, additions to tax, and interest, in which petitioner agreed that if offer rejected, the amounts deposited could be applied on the liability, and which remittances the district director deposited in special deposit…

Timely Filing -- Certified Mail -- Sender's Receipt -- Postmarked -- Sec. 7502(c)(2) -- Regs. Sec. 301.7502-1(c)(2), as Amended. -- The date of filing of a petition is not affected by the fact that it was sent by certified mail to the Tax Court where the sender's receipt is not postmarked.

Petitioner graduated from law school and was admitted to the bar in 1954. He engaged in the private practice of law for a short time and then accepted a State government salaried position. Held: the amounts paid by petitioner for tuition, books and supplies, and meals and lodging are not deductible as business expenses since these amounts were expended for education undertaken primarily for the purpose of obtaining a new position.

Transferee Liability. -- The father of the petitioners, at a time when he was insolvent and liable for Federal income taxes, with… Held: that there was a valid assignment of stock to the petitioner Robert, since his knowledge of the issuance of the certificates and his acquiescence therein constituted acceptance, and that the reconveyance to his father, which was not consummated until after the issuance of the notice of transferee liability, did not have the effect of…

1. Held, gain realized from a distribution made possible by writing up assets of a corporation engaged in the construction of an apartment building taxable as ordinary income under… Held: gain realized from a distribution made possible by writing up assets of a corporation engaged in the construction of an apartment building taxable as ordinary income under section 117(m) of the 1939 Internal Revenue Code and not subject to limitations of section 117(m)(3)(B) and (C). 2.

Petitioner and his wife lived apart. In action for legal separation brought against petitioner by the wife, petitioner filed answer alleging justification. Held: the judgment did not constitute a decree of separate maintenance and petitioner does not qualify as head of household.

Held, that petitioner is liable as a transferee of assets of her husband, W. C. Sharp, within the meaning of section 311(a)(1) of the 1939 Code, to the extent of certain moneys of his which she… Held: that petitioner is liable as a transferee of assets of her husband, W. C. Sharp, within the meaning of section 311(a)(1) of the 1939 Code, to the extent of certain moneys of his which she received in 1952 and 1953, in amounts herein determined.

1. Petitioner, a resident of Atlanta, Georgia, was employed as manager of Zimmerman Manufacturing Company and also owned a 50 percent partnership interest in Bolton Liquor Store, located about… Held: petitioner is not entitled to deduct the above expenditures as ordinary and necessary business expenses under sec. 162(a), I.R.C. 1954. 2. Petitioner failed to prove that he spent amounts for business use of his automobile in excess of amounts he was reimbursed by his employer.

James H. Walker, decedent's father, died testate in 1919 possessed of a large estate in Canada and the United States. Shortly before his sudden death, a draft of a new will was completed by his attorney under his direction, which Walker was unable to execute. Promptly after his death, his attorney informed his widow, two daughters, and three sons about, but did not reveal the provisions of, an existing will and an unexecuted draft will. Before and without knowing what the provisions of both documents were, the widow and children signed a valid agreement agreeing to do all that was necessary to carry out Walker's wishes and directions in the unexecuted draft relating to themselves. The family agreement was given effect and carried out. The daughters' shares of the residue of Walker's estate were transferred to trusts under which each daughter received income for life and had a limited, testamentary power of appointment over the remainder. The decedent received trust income but did not exercise the power. Held, the decedent did not transfer property to trusts within the meaning of section 811(c) and (d), 1939 Code, and she did not own any interest in the trust property which passed at or by reason of her death.

Judgment of United States District Court entered pursuant to remand by circuit court decision rendered July 18, 1958, in favor of petitioner requiring the exclusion from petitioner's 1949 income of amount previously reported on his income tax return, on theory that such amount was properly includible in petitioner's 1948 income, held to constitute circumstances falling within the provisions of sections 1311- 1314, I.R.C. 1954, reopening the statute of limitations for the…

Petitioner, a retired judge, received payments under the New York State Employees' Retirement System, having elected an option giving him a monthly… Held: In determining the applicability of section 72(d), I.R.C. 1954, the consideration for the contract contributed by the employee is not to be adjusted by the value of a refund feature, if one exists, and therefore said section is inapplicable hereto. 2. Addition to tax under section 294(d)(2), I.R.C. 1939, recomputed.

1. Commissioner's determination of basis for depreciation of portion of personal residence converted to rental property sustained where petitioner failed to establish fair market value of building at date of partial conversion or that amount spent in conversion was not for work on the portion retained as a personal residence as well as portion converted to rental property. 2.

1. Held, Kimble Glass meets the requirements of section 435(e) (1)(B), 1939 Code, and is entitled to compute its average base period net income under section 435(e)(2). 2. Held: Kimble Glass meets the requirements of section 435(e) (1)(B), 1939 Code, and is entitled to compute its average base period net income under section 435(e)(2). 2.