Volume 35 — Tax Court Memorandum

Held, no part of a stipend received by petitioner as resident at Medical Center Hospital of Vermont qualified as an amount received as a fellowship, excludable under sec. 117, I.R.C. 1954. Held,further, petitioner is not entitled to deduct the cost of his meals purchased at the hospital while on emergency duty.

Respondent redetermined petitioner's income from his business activity using the bank deposits and cash expenditures method. Held: Respondent's use of this method is justified and his determination, with some modification, is upheld. Held further: Respondent's imposition of the addition to tax under section 6653(b) is proper.

A trust created in 1933 gave decedent a life estate. Nine months before her death, decedent assigned her rights in the trust to her son. Held: decedent was creator of the trust; (2) the trust spendthrift clause did not invalidate her assignment; (3) decedent was not mentally capable of legally assigning her interest; (4) the assignment was made in contemplation of death within the meaning of section 2035, I.R.C. 1954; and (5) the trust is accordingly includable in…

Petitioners were the 100 percent stockholders of a corporation which owned a motel. The corporation borrowed money and petitioners endorsed the note as guarantors. Held: Petitioners are not collaterally estopped by our prior decision from litigating the issue of payment of the corporation's obligation by petitioner to protect his professional reputation, thereby making such payments a business expense of his law practice. Such issue was not raised in the prior case.

1. The concession granted to a Mexican subsidiary of the taxpayer to mine sulphur by the Mexican Government provided for the payment of a royalty measured by the then market value of… Held: The liability for the payment of the royalty accrued when the sulphur was mined, notwithstanding there were no sales of the sulphur. The amount thus accrued could be charged to inventory in the year that the sulphur was mined. Washington Post Company v. United States,405 F.2d 1279 (Ct.

Held, amounts paid by Robert Drummond to Lois Drummond with proceeds of a stock brokerage account he opened in Lois' name and from his own… Held: amounts paid by Robert Drummond to Lois Drummond with proceeds of a stock brokerage account he opened in Lois' name and from his own funds, and amounts paid by Robert with his own funds to trade creditors of Lois, were paid under a support decree and were taxable to Lois in 1964 under sec. 71(a)(3), I.R.C. 1954, and deductible by…

Petitioner, a cash basis taxpayer, entered into a separate cattle feeding program in 1970 and 1971. He executed notes and issued a check to cover the expenses expected to be incurred in the following year. Petitioner claimed these expenses as deductions in the year in which the notes and check were issued. Held: Neither the promissory notes nor the check represents payment, with the latter representing merely a refundable deposit.

In 1960 petitioner invested $40,000 in a partnership with its principal place of business in Colombia, South America and advanced $10,000 to a coworker thereby enabling him to do the same. Held: petitioner has failed to prove the year in which the debt became worthless. Held further, petitioner has failed to prove either the year in which the partnership abandoned its operations or his basis therein during any of the years in issue.

Held, payments received by petitioner as a resident in therapeutic radiology in a hospital operated by the College of Medicine of the University of Florida were compensation for… Held: payments received by petitioner as a resident in therapeutic radiology in a hospital operated by the College of Medicine of the University of Florida were compensation for services rendered and were not scholarships or fellowship grants excludable from income under sec. 117(a)(1), I.R.C. 1954.

Held, petitioner is not entitled to an anti-war tax credit because of his moral and religious beliefs. Held: petitioner is not entitled to an anti-war tax credit because of his moral and religious beliefs.

Held, property which petitioner Mary Zaharoolis received from her brother's estate was compensation for services and is therefore taxable under section 61, I.R.C. 1954. Held: property which petitioner Mary Zaharoolis received from her brother's estate was compensation for services and is therefore taxable under section 61, I.R.C. 1954.

Petitioner Henry J. Ward, a pipe fitter, drove his car to work each day and returned home at night. No public transportation was available between petitioner's home and his job site. He received $5.00 a day travel allowance from his employer because of a provision in his union contract regarding job assignments in excess of twenty miles beyond his union headquarters. During 1973, he received $1,225.00 under this arrangement, included this amount in gross income, but then deducted an equal amount as employee business expenses. Held, petitioner's expenses are nondeductible commuting expenses under section 262, I.R.C. 1954.

Held, petitioners are not entitled to a deduction in the amount of $10,000 for a newspaper article written by petitioner John G. D'Amato and purportedly donated to the National Archives.

Held, portion of compensation paid by petitioner to its three officers determined excessive, not for services rendered, and, therefore, not deductible under sec. 162(a)(1), I.R.C. 1954; respondent's… Held: portion of compensation paid by petitioner to its three officers determined excessive, not for services rendered, and, therefore, not deductible under sec. 162(a)(1), I.R.C. 1954; respondent's determination sustained.

Held, disallowance of commuting expenses approved. Held: disallowance of commuting expenses approved. Fact that petitioner carried and stored some tools in truck he drove to work and his employer expected, but did not require, him to have his own transportation at jobsite does not convert commuting expenses to deductible business expenses.

Petitioners reported as income winnings on racetrack wagers in the amount of $15,909.60 and claimed offsetting losses in the same amount. Respondent disallowed all but $4,454 of the losses claimed. Amount of deductible losses redetermined.

On July 29, 1966, petitioner received a 30 percent interest in Holiday Realty, Inc., in Exchange for his 30 percent interest in Holiday Harbor, Inc. In 1969, Holiday Realty, Inc., was liquidated. Petitioner's basis in his 30 percent interest in the liquidated corporation was the fair market value of such stock on the date it was received. Held, the fair market value of such 30 percent interest in Holiday Realty, Inc., was $ 1,157.50 on July 29, 1966.

1. Held, petitioner was availed of during each of the years 1967 through 1969 for the purpose of avoiding the income tax with respect to its share-holders; the accumulated… Held: petitioner was availed of during each of the years 1967 through 1969 for the purpose of avoiding the income tax with respect to its share-holders; the accumulated earnings tax imposed by section 531 is therefore applicable to the corporation's accumulated taxable income for each of such years. 2.

1. Payments made to a partnership for services rendered primarily by one partner are includable in the income of the partnership rather than directly in the income of the partner. 2. Adjustments to partnership income redetermined. 3. Unreported taxable income of petitioners determined by application of funds method, plus estimated living expenses, redetermined. 4. Petitioners are liable for additions to tax for negligence under section 6653(a), I.R.C. 1954.

J was convicted under sec. 7201, I.R.C. 1954, of filing false and fraudulent returns with the intent to evade a large part of his Federal… Held: By relying on the doctrine of collateral estoppel, the Commissioner has satisfied his burden of proving that J's returns for such years were fraudulent with intent to evade tax so that the statute of limitations has not run with respect to such years ( sec. 6501(c)(1), I.R.C. 1954), and the Commissioner's motion for partial summary…

During 1971, petitioner made 22 trips to a debtor corporation's place of business to attempt to collect a business debt; petitioner also engaged a collection agency and had lawsuits filed during 1971 in his unsuccessful efforts to collect the debt. At the end of 1971, after consulting his attorney about the progress of the lawsuits, petitioner concluded that the debt was worthless and deducted it on his 1971 income tax return. In February of 1972, however, petitioner's attorney filed an amended complaint in one of the lawsuits against an officer of the debtor, attempting to hold him individually liable for the debt; also, in May of 1972, petitioners' attorney returned a claim form to bankruptcy proceedings of the debtor. The amended complaint was promptly dismissed, the debtor went into bankruptcy, and the debt was never collected. Held, petitioner properly deducted the bad debt in 1971. Sec. 166(a), I.R.C. 1954.

Petitioner and his former wife entered into a settlement agreement, which was incorporated in a divorce decree. Held: petitioner's payments under paragraph 9 of the settlement agreement do not qualify as periodic payments of alimony and are not deductible by petitioner.

Corporate petitioner purchased all the stock of its two principal shareholders under agreements providing for down payments and deferred payments extending over 20 years. The individuals retained right to vote, their membership on the board of directors and their positions as officers, although they received no compensation therefor and did not actively participate in the management of the corporation. Held: The 20-year payout period does not perse prevent the sale from qualifying as a redemption under Sec. 302(b)(3), I.R.C. 1954. The right to vote served merely as additional security for payment of the purchase price by insuring management control in the remaining shareholders. Retention of membership on the board of directors and officer positions were in name only. Considering all of the relationships of the parties as altered by the sales agreements and the activities of the parties subsequent to entering into the agreements, the transaction terminated the shareholders' interests in the corporation under Sec. 302(b)(3) qualifying as a redemption under Sec. 302(a), I.R.C. 1954. The corporation, from time to time, had accounts receivable from two officers-directors-shareholders on which no interest was charged. The Commissioner determined that they constructively received interest income for the use of such accounts. J. Simposon Dean,35 T.C. 1083 (1961), distinguished on facts.

Petitioners guaranteed notes of their corporation. Upon default in payment by the corporation, petitioners paid interest on the outstanding indebtedness and deducted such payments on their income tax return. Held, under the rationale of Putnam v. Commissioner,352 U.S. 82 (1956), petitioners are relegated to the exclusive provisions of section 166 in attempting to deduct the interest payments made on the notes of their corporation. No deduction is allowed under section 163(a). Held,further, no deduction is allowed under section 166 because the debt in favor of petitioners was not shown to be worthless either in whole or in part.

Held: Traveling expenses incurred by petitioner while temporarily employed away from his principal place of employment are deductible under section 162(a)(2), I.R.C. 1954, as amended.

Legal title to apartment house property was held by a corporation of which petitioner was sole stockholder. Corporation sold the property for cash, assumption of mortgage, and a purchase money note. Held: the corporation was a viable entity and cannot be ignored for tax purposes. It was the seller of the real estate.

Petitioner reported as income for 1972 winnings on racetrack wagers in the amount of $30,074.40 and claimed offsetting wagering losses in the amount of $27,053. Held: petitioner's deductible wagering losses found to be $15,000. Held,further, petitioner failed to prove deductible expenses for parking and tolls in excess of the amount allowed by respondent.

The petitioner maintained no books or records during the years in issue. Held: allowable business deductions are determined; held, further, some part of the underpayment of tax for each of the years in issue was due to fraud. Sec. 6653(b), I.R.C. 1954.

A corporation sold its assets as a going concern pursuant to a plan of complete liquidation under sec. 337. Held: The covenant has a basis in economic reality. The portion of the purchase price attributable thereto is therefore amortizable by the purchaser and is taxable to the seller as ordinary income.

Petitioner, on his tax returns for the years in issue, claimed war crimes deductions. Held: Respondent's disallowance of these deductions is sustained.

Petitioner claimed deductions on her returns for the years in issue for contributions to organizations which were opposed to the Vietnam War. Held: Since a substantial part of the activities of these organizations was carrying on propaganda within the meaning of sec. 170 (c) (2) (d), respondent's disallowance of these deductions is sustained.

Petitioner, Eulalia Cobian departed from Cuba and became a resident alien on August 31, 1961. Held: Since Florentino Cobian was a nonresident alien at the time any loss he might have incurred was sustained, he is entitled to no deduction therefor. Sec. 873(a), I.R.C. 1954.

Petitioner was a professional numismatist who was engaged in sales of gold coins. Held: Receipts presented by petitioner in substantiation of his cost of goods sold for each of the years in question were false, prepared by him pursuant to a fraudulent conspiracy, and do not represent actual purchases of coins. Lower amounts allowed by respondent as cost of goods sold are sustained. 2.

1. Petitioners are not entitled to exclude from gross income compulsory employee contributions to the California County Employees Retirement Fund and to the State Teacher's Retirement System which were withheld from their salaries. 2. Deduction for tips paid in connection with personal meals purchased by petitioners denied. 3. Bad debt deduction for amount paid by petitioners to a finance company on daughter's obligation denied.

Petitioner, a commission sales representative, consistently failed to report substantial amounts of income over 3 taxable years. He maintained bank accounts for nonexistent corporations. Held: consistent failure to report substantial amounts of income, combined with attempted concealment of income and continued absence in the face of a fugitive warrant for tax evasion, amounts to clear and convincing evidence of fraud under Code sec. 6653(b).

P, a shareholder and operations manager of the Buccaneers, made loans to the corporation and guaranteed other loans obtained by it. Such loans became worthless. Held, some of such loans were made to maintain his position as operations manager; others were not.

Respondent disallowed certain deductions for lack of substantiation. Held, petitioner failed to carry burden of proof with respect to casualty loss deduction. Held: petitioner failed to carry burden of proof with respect to casualty loss deduction. Held further, Taxpayer is entitled to an interest expense deduction in the amount of $606.78 in accordance with respondent's concessions.

Acceptance and Investment entered into an agreement to acquire and develop property. Held: There was no provision for sharing profits and losses, Acceptance was entitled (between the parties) to certain property in all events and hence there could be no joint venture; the receipt of the property by Acceptance represents ordinary income for services rendered.

During 1968 petitioners added $9,000 to a prepaid interest account pursuant to an arrangement between petitioner and a bank whereby the bank loaned petitioners 100 percent of the funds used for the… Held: the remaining $7,428.50 is not deductible as interest under section 163, I.R.C. 1954.

Petitioners took a war crimes deduction on their joint income tax return for the calendar year 1973. Held: petitioners' free exercise of religion is not unconstitutionally infringed by the imposition of tax on their income, even though such tax may be used for military purposes. Susan Jo Russell,60 T.C. 942 (1973), and Abraham J. Muste,35 T.C. 913 (1961), followed.

Held, the notice of deficiency was timely sent by certified mail to the petitioners. Held, further, failure to file and negligence penalties approved. Held: the notice of deficiency was timely sent by certified mail to the petitioners. Held, further, failure to file and negligence penalties approved.

Petitioner Merle R. Gillespie claimed itemized and business expense deductions on his 1970 income tax return but upon audit and again at trial refused to produce any… Held: the 5th amendment privilege against self-incrimination is not applicable where there is no showing that the information requested might tend to subject the taxpayer to criminal charges. Held further, petitioner's oral testimony and that of his son and daughter are insufficient to meet his burden of proof.

Held, life insurance policies which petitioners received in connection with the sale of all of the stock of several corporations which they controlled were part of the consideration for the sale of stock. Accordingly, the policies' cash surrender value represented long-term capital gain in the year received.

Petitioner, a cash basis taxpayer, entered into two cattle feeding programs in 1969 and one such program in 1970. Held: such payment represented a refundable deposit and is not deductible in the year made. (2) Held further, in connection with the second 1969 transaction petitioner made no advance payment in 1969 and is entitled to no deduction therefor in 1969.

Petitioner filed income tax return forms which contained no information other than petitioner's name, address, social security number, occupation, and claimed… Held: the forms filed by petitioner were not valid income tax returns. Held,further, neither the requirement that petitioner provide information sufficient for a valid return nor respondent's reconstruction of petitioner's taxable income constitutes a violation of petitioner's Fourth and Fifth Amendment rights.

The individual taxpayers organized a corporation to develop an apartment complex for sale as condominiums. Held: Although respondent might have been justified in taking corrective action on account of the transactions between the developer and its stockholders, there is no basis in law for capitalizing the value of any excess rentals and charging such amount to the developer as income in the year that the obligation under the recreation lease…

Held: Monthly payments received by the petitioner under a settlement agreement incident to her divorce are includable in her gross income under section 71, I.R.C. 1954, because they are in the nature… Held: Monthly payments received by the petitioner under a settlement agreement incident to her divorce are includable in her gross income under section 71, I.R.C. 1954, because they are in the nature of support and may be paid over a period in excess of 10 years.

The taxpayer's predecessor in interest purchased a going concern pursuant to a contract in which the purchase price was allocated among the various assets acquired. Held, the allocations were the bona fide result of arm's length negotiations and the amounts so allocated are the basis of the respective assets. Held further, the portion of the basis of each asset representing the amount paid for going concern value determined. Such portion represents an amount paid for an intangible asset with an indeterminable useful life and is not amortizable. Held further, the useful lives of certain assets determined.

1. Held, cash advances made to petitioner by his wholly owned corporation were dividend distributions and not bona fide loans. 2. Held: cash advances made to petitioner by his wholly owned corporation were dividend distributions and not bona fide loans. 2. Held,further, petitioner's personal automobile expenses paid by his wholly owned corporation were dividend distributions to him. 3.

Held, additional amounts of unreported income and allowable deductions determined; held, further, fraud has been established by the Commissioner for the years 1967 through 1970, but not for the years… Held: additional amounts of unreported income and allowable deductions determined; held, further, fraud has been established by the Commissioner for the years 1967 through 1970, but not for the years 1965 and 1966.

Held: 1. The expenses incurred in 1968 by petitioner, a contracts manager and reviewer, in attending law school are not deductible under section 162(a), I.R.C. 1954, or the amplifying regulations,… Held: The expenses incurred in 1968 by petitioner, a contracts manager and reviewer, in attending law school are not deductible under section 162(a), I.R.C. 1954, or the amplifying regulations, section 1.162-5(a) and (b), Income Tax Regs. 2.

Petitioners' household goods were sold by a moving company for nonpayment of transportation and storage charges. Held: petitioners are not entitled to a casualty loss deduction in 1971 for household furniture auctioned to satisfy moving indebtedness. Held,further, expenses designated as business related are not deductible under section 162 due to their personal nature or unsubstantiation.

Petitioner contributed his working papers and other memorabilia to the University of Southern California in 1968 and 1969. Held, the fair market value of donated materials determined. Held: the fair market value of donated materials determined.

Petitioner Harry E. Eisenrod made payments during the years in question toward the satisfaction of a judgment rendered against him in 1952. Held: petitioner has failed to establish that he was in the trade or business of promoting corporations. Held,further, even if petitioner was in such trade or business, he has failed to demonstrate that these conveyances were directly connected with that trade or business.

Held, In determining the fair market value of decedent's stock in three closely-held corporations for estate tax purposes respondent erred in relying solely on the stock prices of corporations deemed by him to be comparable. Held further, The corporations relied on by respondent were not engaged in the same or similar line of business as the subject corporations within the meaning of sec. 2031(b). Held further, The fair market value of decedent's shares of stock determined.

(1) Held, the Commissioner has the burden of proof with respect to 1963, and he has failed to prove--(a) that P was the owner of certain… Held: the Commissioner has the burden of proof with respect to 1963, and he has failed to prove--(a) that P was the owner of certain rental income which he received during such year for Northeast, a corporation owned by him; (b) that P realized a taxable gain when he transferred to Northeast the legal title to certain property; (c) that…

Petitioner's claim of a 50-percent tax credit to prevent expenditure thereof for purposes of war constitutes intentional disregard of rules and regulations so as to render petitioner liable for the addition to tax imposed by sec. 6653(a), 1954 Code.

Petitioner entered into an oil and gas drilling program under which he agreed to pay $13,500 to Drilling Co. for drilling a well on a location assigned to him under a lease held by Transmission Co., an affiliate of the drilling company.At the time of entering into two such contracts in 1968 and two in 1969, petitioner made a cash downpayment of $2,700 and purportedly borrowed $10,800 from Leasing Co., a parent of Transmission Co., to pay Drilling Co. the balance due on the drilling contract. There is no evidence that wells were drilled or reworked on the specific locations assigned to petitioner. Drilling Co., Leasing Co., and Transmission Co. all became bankrupt in 1970. In 1970, following an audit of petitioner's books and records and his 1968 federal income tax return, petitioner received a letter from respondent stating his return for 1968 would be accepted as filed. In 1971, his 1968 return was reexamined and a notice of deficiency issued. Held, (1) petitioner is not entitled to deductions for intangible drilling and development costs in 1968 and 1969. Petitioner has not materially distinguished his case from the previous two reported decisions. See Lloyd L. Cottingham,63 T.C. 695 (1975);Donald L. Heberer,T.C. Memo. 1974-139; and (2) reexamination of petitioner's 1968 return did not constitute an inspection of taxpayer's books of account within the meaning of sec. 7605(b) so as to require written notice of such reopening.

(1) In 1967 and 1968, the years in issue, petitioner owned certain lots, acquired in 1959, some of which were sold in the years in issue. Held: although this Court previously held that this same petitioner could add the amount of certain special assessments to his basis used in connection with the sale of certain other lots, the doctrine of collateral estoppel does not apply to the position maintained by the Commissioner in this case.

This case, originally decided in 61 T.C. 125 (1973), is before the Court on remand from the U.S. Court of Appeals for the Fifth Circuit, 514 F. 2d 908 (1975). Held: interest income realized from a chattel mortgage held upon the sale of a coin-operated laundry and income realized from a certain mineral lease are attributable to petitioner's spouse.

Held, the useful life and basis of certain properties determined; held, further, the amount of an abandonment loss deduction determined; held,… Held: the useful life and basis of certain properties determined; held, further, the amount of an abandonment loss deduction determined; held, further, the petitioners have failed to meet the substantiation requirements of sec. 274(d), I.R.C. 1954, with respect to various travel, meals, and entertainment expenses and have failed to…

Petitioner executed a special consent (Form 872-A) extending the period of limitation on assessment but altered it by providing that the consent would terminate upon notice by… Held: respondent failed to prove circumstances of acceptance by the appellate conferee and the consent agreement between the parties will not be reformed to change the terms appearing on its face. Assessment of additional tax is, therefore, barred by expiration of period of limitation on assessment.

Petitioner acquired real estate for reasons related to the operation of a railroad. Held: real estate sales by petitioner in 1965 and 1967 were sales of capital assets.

Held, under the facts, P has not established that certain expenses were deductible as ordinary and necessary expenses of a business carried on by him within the meaning of sec. 162(a), I.R.C. 1954. Held: under the facts, P has not established that certain expenses were deductible as ordinary and necessary expenses of a business carried on by him within the meaning of sec. 162(a), I.R.C. 1954.

Held, although petitioner's stock sustained a severe shrinkage in value for the year in issue, petitioner failed to sustain his burden of proving the elements necessary to establish worthlessness. Held: although petitioner's stock sustained a severe shrinkage in value for the year in issue, petitioner failed to sustain his burden of proving the elements necessary to establish worthlessness.

Petitioners, partners in Coast, entered into an agreement pursuant to which they incorporated Coast and exchanged the stock of the newly formed corporation, Nuttall, for stock of Campbell plus cash. Held: in computing petitioners' amount realized the Campbell stock is to be valued as of September 25, 1969. Held further, the cash in the amount equivalent to the dividends declared on the Campbell stock represents a portion of the sales price rather than a dividend.

Held, no part of the amount received by petitioner as an intern or resident is excludable as a scholarship or fellowship under sec. 117.

Held, the amount of gambling income received by petitioners determined. Held further, petitioners are liable for the addition to tax prescribed by sec 6653(b).

From 1964 to 1973 petitioner was totally unsuccessful in promotion of his invention--a process for extracting raw meat from the shell of the body section of a spiny lobster. Held: petitioner was not in the trade or business of inventing, exploitation/sale of his patents, and/or extracting raw meat from spiny lobsters.

Petitioner was employed as a supervisor at Hill Air Force Base, Ogden, Utah, by Autonetics Division of Rockwell International Corp., whose home base was Anaheim, Calif. Held: Petitioner may not exclude the per diem from gross income. 2. Petitioner may not deduct the per diem as away-from-home travel expense. See J. B. Stewart,T.C. Memo. 1971-307, affd.

Petitioner continued to serve as president of Fotocrafters after the sale of all its operating assets to Gateway, which adopted… Held: petitioner was separated from the service of his employer within the meaning of sec. 402(a)(2), I.R.C. 1954, as in effect during 1971, because the sale of Fotocrafters' operating assets caused a substantial and radical change in his employment relationship, and the distribution was paid on account of petitioner's separation from the…

1. Petitioners expended sums of money in order to provide support for various relatives. Held: petitioners have failed to show that their son, Foe, Jr., who was over 19 years of age had gross income of less than $750. The dependency exemption claimed with respect to Foe, Jr. is therefore denied. Sec. 151(e).

Petitioner refused to offer evidence to substantiate deductions, exemptions, and filing status claimed on his return and disallowed by respondent on the ground that to be required to do so would… Held: since petitioner failed to carry his burden proving error in respondent's determination, the determined deficiencies are sustained.