Volume 36 — Board of Tax Appeals

1. A written authorization to sign the Commissioner's name to consents enlarging the period for tax assessment fixed by statute was given by a Commissioner to an employee of the Bureau of Internal… Held: adopted by the successor Commissioner. 2.

The decedent having created two trusts in property during his lifetime - one in 1926 and the other in 1928 - for the sole purpose of relieving himself of the care and management thereof, merely retaining to himself the income therefrom during his lifetime, such trusts were made neither in contemplation of death nor intended to take effect in possession or enjoyment at or after his death.

An individual who owns all the shares of a newly created corporation (F) and is under contract with an existing corporation (M) for his services in exchange for shares of M stock, makes a contract of… Held: under the circumstances, properly taxable upon the value of the M shares when received by W from M.

1. REORGANIZATION. - Associated acquired all of the voting stock and a majority of the total number of shares of all other classes of stock of two Delaware… Held: following Kaspare Cohn Co. Ltd.,35 B.T.A 646, that the long term evidence of indebtedness gave a sufficient continuity of interest, they exchanged their shares pursuant to the plan, there was a reorganization, and the gain realized by the petitioners is recognized only to the extent of the cash received. 2.

Interest on bonds issued by cities of the fourth and fifth class of the Commonwealth of Kentucky for street, paving, and sewer improvements payable exclusively out of collections of local improvement… Held: interest on the obligations of a political subdivision of a state and exempt from tax under section 22(b)(4) of the Revenue Act of 1932.

1. Claimed deduction for stock loss in 1928 disallowed, the evidence showing that the stock became worthless prior to that year and that the transfer of certificates in the taxable year was not a bona fide sale. 2. Respondent's fraud penalty sustained.

Petitioner held to be liable as a transferee.

1. Members of a law partnership, including petitioners, entered into an agreement which provided that in case of the death of any member his estate should receive a sum equal to one-half of the amount actually received by the deceased partner during the two calendar years nest preceding his death, in full payment of his interest in the firm and its assets. Held, the transaction thereunder was a sale, and the income out of which payments were made to the deceased member's estate constituted distributive income to the surviving partners. Such income is taxable to petitioners according to their respective proportionate interests. Hill v. Commissioner, 38 Fed.(2d) 165. 2. Petitioner Emmet T. Carter and decedent Robert Burkham during the taxable year were attorneys for the board of education of the city of St. Louis, Missouri. Held, said individuals were officers or employees of a political subdivision of the State of Missouri, performing essential governmental functions, and salaries received therefor by them are not subject to the Federal income tax. Burnet v. Livezey, 48 Fed.(2d) 159.

A residuary devisee under a will in California after acquiring possession of the real property devised pays taxes thereon covering the period between the death of the testator and the date of the… Held: that on the cash basis, the taxes are deductible by the residuary devisee when paid.

The petitioner gave some shares of stock to his wife in 1910. Held: that the gifts were bona fide, his return for 1930 was not false or fraudulent with intent to evade tax, no part of the deficiency for any year in question was due to fraud with intent to evade tax, and the Commissioner erred in including in the petitioner's income the dividends on the shares which belonged to the petitioner's wife,…

Certain individuals, owning as tenants in common, a large tract of land especially adapted for industrial sites, created successive trusts for the management and disposition of the land. Held: that under the facts and circumstances herein, liquidating trusts were created, and not taxable associations.

Petitioner owned approximately one-third of the stock of A corporation and approximately one-third of the stock of B corporation. A corporation owned the balance of the shares of stock of B corporation. A corporation was desirous of purchasing C corporation which was engaged in a related business. It entered into an agreement with some bankers which provided for the acquisition of all of the stock of B as a preliminary step in the recapitalization of A, and for the sale by A to the bankers of 85,000 shares of newly issued stock. Petitioner exchanged his stock in B company for stock in the recapitalized A company. Held, the exchange was made pursuant to a plan of reorganization and under the provisions of section 112(b)(3) of the Revenue Act of 1928 no gain is to be recognized.

1. The petitioner acquired by gift an interest in real property and his basis for determining gain or loss is the same as the basis to the donor. Held: under sections 113(a)(5) and (b) of the Revenue Act of 1928, that the basis for gain upon the sale of the entire property in 1930 is the fair market value of the real estate on March 1, 1913, (since the value then was greater than at the date of the decedent's death) and not the value of the vested remainder.

1. Where two corporations merge or consolidate to form a new corporation, and thereafter shares of the new corporation acquired as a result of the ownership of shares in the old corporations are sold, the basis for gain or loss on the new shares is the total cost of the old shares divided by the number of new shares. Christian W. Von Gunten,28 B.T.A. 702; affd., 76 Fed.(2d) 670, followed. 2.

The controlling stockholder of two banks which closed in 1923 became liquidator of those banks, and, in accordance with his agreement, placed some of his own… Held: his property was absolutely committed to discharge his liability as a stockholder for the first time in 1929 and, since such use represented additional cost of his stock which was already worthless, he is entitled to deduct losses in 1929 equal to the basis for gain or loss which the property had in his hands.

After a taxpayer had received and recorded an amount of money as an installment payment on the purchase price of land, it and the vendee agreed in writing before the end of the year that the amount… Held: the taxpayer may treat the amount on its income tax return in accordance with the final allocation.

From the peculiar facts present it is held that the gross income of a partnership of which the petitioner was a member should reflect income and deductions of a corporation organized by the partnership in 1897 to hold record title to real estate acquired with consideration furnished by the partnership.

The taxpayer, licensed by the manufacturer to sell and apply a preparation against termites and guaranteeing effectiveness for five years, was required by the license contract to send to the licensor 10 percent of the price of his contracts with customers, to be held in escrow as a guaranty fund until expiration of the guaranty period; this requirement he fulfilled only in part. The full amount of the contract prices should be included in the taxpayer's income.

Petitioner, who was the owner of patents on cigar making machines, contracted with cigar makers to supply them with the patented machines in consideration of (a) lump sum payments and (b) royalties… Held: that in the receipt and disbursement of the lump sums subject to the contracts there was no gain, hence no income, to the petitioner.

Trust income paid directly to the beneficiary's assignee pursuant to assignment which could not be revoked by the beneficiary within the taxable year, held, not taxable to the beneficiary. Held: not taxable to the beneficiary. Blair v. Commissioner,300 U.S. 5, followed.

A trustee of a bankrupt, which distributed the assets of the bankrupt without first providing for the payment of a debt due the United States, is not personally liable under section 280(a)(2) of the Revenue Act of 1926 and section 3467 of the revised statutes where it appears that the trustee was not chargeable with knowledge of the debt.

The petitioner constructed a building and installed equipment in it at his own expense upon leased realty. Held: under section 23(k) of the Revenue Act of 1932, the petitioner is entitled to a deduction for exhaustion based on the term of the 20-year lease. Respondent is in error in his determination basing the allowable deduction on the life of the building and improvements which extends beyond the 20-year term.

1. Prior to and during the taxable year petitioner and another individual, as sole and equal stockholders, withdrew large sums of money from the corporation, which were entered in the corporate books… Held: that the amounts withdrawn by the petitioner were received as distributions and not as loans. 2.

- Petitioner received interest during the taxable year 1932 on special tax bills issued by the municipalities of Kansas City and St.… Held: since the municipalities had no liability in connection with the payment of either principal or interest, the tax bills were not obligations of a political subdivision of a state, and the interest thereon is not exempt from Federal income tax under section 22(b)(4), Revenue Act of 1932; held, further, since the proposed tax does not…

Petitioner is a trust estate created by the grantor for the purpose of providing for the maintenance, welfare, and comfort of his wife, children, and grandchildren. Grantor conveyed to the trustees certain properties, with full power to hold, manage, and operate the same; to mortgage, sell, invest, and reinvest; and prohibited the beneficiaries from selling, encumbering, or otherwise anticipating or disposing of their respective interests in the corpus or income of the trust, prior to actual receipt. No stock certificates or certificates of beneficial interest were provided by the trust agreement or issued to the beneficiaries, and the usual corporate forms were not observed. Held, petitioner is not an association taxable as a corporation. Guitar Trust Estate,25 B.T.A. 1213; affirmed on this point, 72 Fed.(2d) 544.

1. Petitioner was engaged in the purchase and sale of stocks and securities, all of which transactions were made through a certain corporation or through brokers, and none for the account of… Held: that petitioner was a management investment trust and not a dealer in securities entitled to return its income in 1930 on an inventory basis, either in respect of such securities or in respect of certain debentures purchased with intent to sell to the public but never sold. 2.

1. Petitioner was the owner of certain debenture bonds of a corporation of which he was the principal stockholder. Held: the transactions constituted a redemption by the corporation of the bonds surrendered and not a sale or exchange thereof by the petitioner to the corporation; held, further, following John H. Watson, Jr.,27 B.T.A. 463, that the gain resulting therefrom to petitioner is taxable as ordinary income and not as capital gain. 2.

A taxpayer, as party to a contract between a debtor and creditor which extended the maturity of the debtor's note and reduced the interest rate, agreed to pay the interest on behalf of the debtor. Held: the amount so paid is not deductible by the taxpayer as interest.

1. The petitioner in years prior to 1931 took dollars into Germany when the rate of exchange was 4.198 marks to the dollar, and used the money to purchase German mortgages at less than face value. Some of the mortgages were paid off during the taxable year between July 12 and December 31, and the petitioner's agent received from the mortgagors more marks than the mortgages had cost the petitioner. The marks so received were blocked, so far as the petitioner was concerned, so that they could not be removed from Germany either physically or by way of credit during the remainder of the taxable year. Held, that for Federal income tax purposes the petitioner realized no gain from those transactions during 1931. 2. The agents of the petitioner received similar payments during the first part of 1931, and at the time of receipt the marks were not restricted but were freely negotiable, convertible, and transferable. Held, that the gain on those transactions measured in dollars at the current rate of exchange was income, and, held, further, that such income was not reduced and no loss was sustained due to the fact that some of those marks may have been allowed to remain in German banks until they became blocked on July 13.

Section 303(a)(1) of the Revenue Act of 1926 applied, and held that the respondent erred in limiting the deductions from the gross estate to a sum no greater than the value of the probated estate which is subject to the payment of the deductions, even though in the gross estate, under section 302(g), there are included the proceeds of life insurance policies in excess of $40,000 which are exempt from the payment of claims of creditors under the laws of Florida so that the…

1. Robert C. Winmill,35 B.T.A. 804, followed, and held, (1) that losses sustained by an individual on noncapital assets may not be deducted from his share of partnership gains on noncapital assets,… Held: that losses sustained by an individual on noncapital assets may not be deducted from his share of partnership gains on noncapital assets, and (2) that commissions on the purchase and sale of securities are not deductible as expenses or losses by a trader in securities. 2.

1. Issue (1). Held the petitioner sold securities indirectly to his wife and to his broker and deduction for losses from the sales is allowable upon facts showing (a) purchase of securities by wife… Held: the facts show that ascertainment of a debt as worthless in 1932 was justified and the loss is deductible. 3. Issue (3). Held, loss on an investment was not proved to have been sustained in 1932 and therefore it is not deductible.

Petitioner operates a street railway system in Cleveland, Ohio. Held: that the franchise is not perpetual but definitely limited in duration; that petitioner is entitled to amortize the March 1, 1913, value thereof, adjusted by the depreciation charged off during years prior to the last renewal.

1. During the taxable years 1931 and 1932, petitioner entered into contracts with automobile owners whereby, for a stated consideration payable in installments, it… Held: petitioner is not entitled to deduct from the accrued gross income the amount of additions to such reserve fund for the taxable years. 2. On the facts, held, that petitioner is subject to the 25 percent delinquency penalty for failure to file its return for the year 1931 within the time prescribed by law.

1. The taxpayer, an individual, sold stock to a corporation of which he was the sole stockholder, at the market prices and was paid therefor with money which he had loaned to the corporation. Held: the sales were bona fide and losses resulting therefrom were deductible. 2. The taxpayer advanced money for a scientific expedition, receiving notes as security and a promise of a share in the profits.

1. The jurisdiction of the Board is not limited to the correctness of the theory upon which the deficiency was determined, but includes the correctness of the determination of the deficiency upon any proper theory. Gowran v. Commissioner, 87 Fed.(2d) 125, and cases cited therein. 2.

1. TRANSFERS IN CONTEMPLATION OF DEATH. - A transfer of property to permit the decedent's son to expand a profitable business was not made in contemplation of death. Other transfers held to have been in contemplation of death. 2.

A father and son had been estranged for many years. The father was the majority stockholder of a corporation. The son was a valuable employee of the corporation. Held: the excess of the fair market value of the stock at date of death over the option price was improperly included in the decedent's gross estate. Neither (c) nor (d) of section 302 applies.

The evidence fails to establish that a sale of stock by petitioner to his son, resulting in a loss, was a fraudulent transaction designed to evade tax.

Where a corporation purchases shares of its own capital stock and sells them at a profit, the profit constitutes taxable income of the corporation.

The petitioner paid almost the full current market price of securities transferred to him by a brother's partnership. Held, the petitioner bought the stock and did not receive it by gift. Held: the petitioner bought the stock and did not receive it by gift. Section 113(a)(2) of the Revenue Act of 1928 is not applicable in determining the gain or loss from the transaction. Also, the basis to the petitioner is the cost to him and he realized net gain and is taxable thereon.

After negotiations for the acquisition of the stock or assets of A company, an ice company, petitioners caused B company to be organized to carry on the same business. They entered into an agreement with a bank as escrow agent under which stock of A company was to be deposited, they to have the exclusive right to purchase it for a stipulated amount to be paid in cash and preferred stock of B company.

Where a husband sold securities through a broker at the market price to his sife, and she sold other securities through the same broker at the market price to her husband; each spouse having ample funds in his own name to pay for the securities so purchased; each spouse having a separate account with the broker; each spouse maintaining separate books of account and the sales in each case being conducted in the usual manner; there being no agreement for return of purchase…

The petitioner was insolvent but under a composition with creditors received from them a cancellation of their claims, after which the petitioner was solvent with net assets of $39,596.93 over and… Held: that the petitioner realized gain in the amount of the assets thereby freed from claims of creditors.

Petitioner, an internal revenue agent, prepared income tax returns for certain taxpayers. In his own income tax returns for the same years, he reported no income for the services rendered. Held: Petitioner received undisclosed income upon which he was liable for tax. (2) Respondent properly used the bank deposits as a means of determining petitioner's income. (3) The facts established fraud upon the part of petitioner and require the imposition of 50% additional taxes.

Petitioner created two trusts. In each, he reserved the right to remove and substitute himself or others as trustee, and the power to control the trustee as to investment of the corpus. Held: That under section 166 of the Revenue Act of 1934, the income of each trust for that year is taxable to petitioner since, during that year, he was vested with the right, at some future time, to revest, in himself, the corpus of each trust.

Under the law of the State of Oregon, the owner of property on March 1 is personally liable for the taxes thereon. Held: that a grantee who purchases real property in Oregon, after March 1 and before the tax is levied, acquires no right to deduct taxes paid by him based upon ownership in his grantor on March 1.

Cash sale on Exchange in 1931 establishes loss in that year even though borrowed shares were delivered to purchaser and seller did not deliver his shares to his broker until 1932.

Petitioner, who was a stockholder of the Lackawanna Securities Co., which was in liquidation in 1932, surrenderd his stock in that corporation in that year and received in exchange therefor bonds of… Held: that the petitioner sustained a deductible loss on his investment in Lackawanna Securities Co. in 1932.

A corporation carried out a reorganization with B corporation organized to acquire part of A's assets. This was a reorganization under section 112(i)(1)(b). Held: the first distribution is within section 112(g), which is applicable even though the reorganization was part of a plan of liquidation. The two distributions constituted two separate transactions and may not be regarded as one transaction in view of the facts.

A taxpayer keeping no regular books of account must report on a calendar year basis. Sec. 41, Revenue Act 1932. Informal records are not books within the meaning of that term as used in section 41.

1. The Commissioner's determination of a reasonable allowance for depreciation of a variety of rolling equipment acquired new and secondhand is not overcome by evidence of a variety of methods adopted by the taxpayer, acting upon the judgment of its superintendent, there being no evidence that such judgment was supported by actual performance and it appearing that the method adopted was not strictly followed by the taxpayer. 2.

Where a corporation acquired its own bonds at a price less than the issuing price, the amount of the excess of issuing price over purchasing price constituted taxable gain or income.

- Where the parent of an affiliated group of corporations issued its bonds at par and a wholly owned subsidiary of the parent purchased some of the bonds from outsiders at a discount of approximately 30 percent, and afterwards sold them to the parent obligor at a discount of 20 percent, the transaction was not an intercompany transaction in which no gain or loss is recognized, but the petitioner, the parent, realized gain and is taxable on the difference between the par…

Income received in 1934 on corporate shares held by four trusts created by petitioner in 1933, of each of which petitioner's wife and three minor children were respective beneficiaries, held not taxable to petitioner in 1934, none of such income in that year having been used for the support and maintenance of the beneficiaries or in discharge of any other of petitioner's obligations.

During 1929, the president of the petitioner corporation, by means of fictitious corporate purchases, wrongfully took from the corporation and converted to his own… Held: The petitioner's return for 1929 was false and was filed with the intent to evade tax. The assessment of a deficiency is, therefore, not barred. Revenue Act of 1928, secs. 275 and 276. (2) Petitioner is entitled to a deductible loss in the amount embezzled by its president. Revenue Act of 1928, sec. 23(f).

1. REQUEST FOR PROMPT ASSESSMENT. - Petitioner, a corporation, in making its return placed a notation thereon asking prompt assessment, but which failed to give the information specifically called… Held: that neither the notation on the return nor any subsequent letter constituted a sufficient notice under the cited section to set in motion the limitation of one year on assessment and collection provided by that section. 2.

The petitioner is the sole life income beneficiary of a trust which in 1932 and 1933 received $10,443.25 and $2,346.91, respectively, as annual consideration payments for granting a lease beginning… Held: that the payments constituted currently distributable income of the trust taxable to the petitioner for 1932 and 1933.

Dividends on shares irrevocably transferred in trust for the payment of premiums on an insurance policy on the life of the settlor's husband are not taxable to the settlor. Lucy A. Blumenthal,30 B.T.A. 591.

1. DEPLETION. - In computing the net income of petitioner from operation of oil wells, for the purpose of applying the 50 percent… Held: assignors thus reserved economic interests in the properties and amounts so received by them from the proceeds of oil sales constituted their income from the leased properties, not subject to inclusion in gross income of the lessees for purpose of computing taxable income or in gross operating income from the properties in computing…

Where a lessee made substantial improvements in a leased building, with the consent of the lessor and pursuant to the terms of the lease, and such improvements became… Held: the increased value of the property constituted gain to the lessor; (2) it was proper for the Commissioner to estimate the depreciated value of the improvements, as of the termination of the lease, and determine a deficiency in income for the taxable year in the amount of an aliquot part of that value.

1. During the period of development of petitioner's mine, one of its officers embezzled or misappropriated funds belonging to petitioner. Held: the amount so embezzled or misappropriated may not, for tax purposes, be capitalized as development costs, recoverable through deductions for depletion. 2.

In 1930 the petitioner paid premiums of $68,052.50 in the redemption of its subsidiaries' bonds, the payment of which it assumed upon the transfer to it by the subsidiaries of their properties. Held: that the petitioner is entitled to deduct the premiums so paid. Prior opinion in this proceeding (33 B.T.A. 1199) modified, Metropolitan Edison Co.,35 B.T.A. 1110, followed.

1. A verbal request made by a coexecutor on a collector merely for an audit of an income tax return of the estate, the substance of which… Held: that the discharge of the executors did not shorten the period of limitation for assessment against the taxpayer; held, further, that, notwithstanding the discharge of the executors, the deficiency notice mailed to the taxpayer operated to stay the running of the period of limitation for the period during which the Commissioner was…

Petitioner conceived the idea of developing a hydro-power project and associated with him his wife and others, agreeing to share with them in the venture. Held: petitioner's wife had a property interest in the venture and her share of the profits, amounting to $36,000, was not taxable to the petitioner.

In 1927 petitioner established an irrevocable trust for the benefit of his wife for life, with reversion to him or his estate upon her death, and shortly thereafter obtained an absolute divorce from… Held: the income of the trust in 1932 is not taxable to petitioner.

Petitioners were the sole stockholders of a corporation, which, prior to 1913, had acquired a franchise to bottle and distribute Coca-Cola in certain counties of Texas. Held: petitioners may not deduct any value for the franchise as a basis in computing gain from its sale in 1931. Stearns Co. v. United States,291 U.S. 54.

Petitioner's decedent created an irrevocable trust with income to himself for life with remainder over to named beneficiaries. Held: under the facts the transfer was not in contemplation of death nor intended to take effect in possession or enjoyment at or after death.

On January 20, 1930, a corporation paid to its stockholders a cash dividend of $89,505 and petitioners in these proceedings received the amounts of such dividend set opposite their names in our… Held: petitioners are not liable as transferees for the corporation's income taxes for the year 1930. Samuel Keller,21 B.T.A. 84; affd., 59 Fed.(2d) 499, followed. Benjamin E. May,35 B.T.A. 84, distinguished.

Pursuant to the terms of a 30-year lease entered into in 1910, the lessee, as additional rent for the premises, erected a new building on the leased property. Held: that repossession of the property did not result in a realization of taxable income to the lessor in 1932 of the value of improvements erected by the lessee.

JURISDICTION. - Petitioner personally did not file an income tax return for the year 1917, but on February 5, 1935, respondent prepared and filed such return for petitioner, pursuant to section 3176… Held: in such case the amount admitted to be due and not the amount shown on the taxpayer's return is the starting point in computing a deficiency.

1. The installment basis of computing gain, when available, is permissive to the taxpayer at his election, and may not be imposed upon him by the Commissioner. 2. Held: a corporate distribution in partial liquidation within section 115(c), Revenue Act of 1932, on which gain is to be computed under section 111. (b) Dividends received by the sellers and applied against the interest obligation, held, dividends and not interest in the sellers' hands.

1. For many years petitioner had carried on a manufacturing business in a building held under lease. Under threat of condemnation by a railway company the petitioner sold its leasehold to it. Held: an involuntary conversion within the meaning of section 112(f) of the Revenue Act of 1928, and gain is not to be recognized on that portion of the amount receive from the railway company which was expended in the construction of the new building. 2.

An organization of individuals holding transferable shares in a common business enterprise managed by one or two of their number who distributed the profits proportionately with interests, held an association.

1. Management of investments held to be a business and salary of secretary allowed as a business expense. 2. The respondent having determined that decedent was not a trader, and the evidence being insufficient to establish otherwise, it is held that gain on the sale of securities was capital agin.

- Petitioner realized a profit from the insurance on its building which was destroyed by fire in 1932. The building was not replaced until 1936. Held: that there was no replacement forthwith within the meaning of section 112(f), Revenue Act of 1932; held, further, that the investment in bonds and setting up of a reserve did not constitute the establishment of a replacement fund, and that the gain realized is subject to tax.

Loss. - The determination of respondent, that the transaction evidenced by the record was a gift of and not a sale of stock, and therefore no deductible loss occurred, is sustained.

Petitioner, whose business was the buying and selling of securities, in 1927 bought a block of shares of a certain company and later, the company having gotten into financial difficulty, made other… Held: petitioner is not entitled to carry forward to 1930 as a net loss the unabsorbed part of his 1929 loss, the loss not having occurred in a trade or business regularly carried on by taxpayer.

1. Petitioner acquired all the assets of its wholly owned subsidiary in consideration of the delivery to it of all the subsidiary's capital stock and the assumption by it of all of the subsidiary's… Held: following Metropolitan Edison Co., 35 B.T.A. 1110, that the premium paid by petitioner is deductible from its gross income but the unamortized discount and expenses are not.

1. Petitioner sold securities through a broker and his wife purchased the same kind of securities. Held: that the securities were his individual property and he is entitled to deduct the full amount of the losses sustained on the sale of them.

On April 23, 1929, petitioner's decedent created an irrevocable trust, which was to continue during the lives of the donor's daughter and grandson. Held: the transfer under the trust instrument was not intended to take effect in possession or enjoyment at or after the donor's death, and the value of the transferred property is not includable in decedent's gross estate under section 302(c), Revenue Act of 1926, prior to amendment. May v. Heiner,281 U.S. 238.

Income from a trust paid to a divorced and remarried wife held taxable to the husband who created the trust, under the terms of the trust agreement, even though, in the absence of such agreement, his obligation to support and maintain his wife would have been terminated, under the law of Pennsylvania, by her divorce and remarriage.

1. Where prior to the joint resolution of Congress adopted March 3, 1931, amending section 302(c) of the Revenue Act of 1926, bonds were transferred as a gift, the donor retaining the income… Held: that such charitable bequests are deductible from decedent's gross estate.

Where the petitioner during the year 1931 and prior years kept its books and filed its Federal income tax returns upon the accrual basis,… Held: it was error for petitioner to change its method of reporting income for taxation, by filing its return upon the basis of reporting an estimated portion of the income from a contract completed in the following year without first obtaining from the Commissioner of Internal Revenue permission to make such change; held, further, that…

Petitioner was a stockholder of a banking corporation organized in 1926 with a paid-in capital stock of $1,000,000 and a paid-in surplus of $500,000. Held: the cancellation or redemption of such stock was not made at such time and in such manner as to be essentially equivalent to the distribution of a taxable dividend within section 115(g) of the Revenue Act of 1932. Henry B. Babson,27 B.T.A. 859; affirmed 70 Fed.(2d) 304; certiorari denied, 293 U.S. 571.

Where the administratrix of an estate pays other debts of the decedent besides an income tax liability of the decedent for 1925, of which she had knowledge, and thereafter distributes the estate to persons entitled to receive the same, she is personally liable for the debt owed the United States under section 3467 of the Revised Statutes.

1. LOSS ON RETIRING BONDS. - Petitioner sold its bonds at a discount. As a result of non-taxable exchanges petitioner acquired bonds of another corporation which it exchanged for its own outstanding bonds, retiring the latter. The bonds so exchanged for its own bonds had a basis in petitioner's hands greater than the amount realized on the sale of its bonds.

Pending settlement of a will contest, the court appointed a curator of decedent's estate as provided by West Virginia law. Held: the fee was not an ordinary and necessary expense incurred in carrying on a trade or business, and therefore was not deductible from the estate's income for that year, since it was paid for services rendered in administering the estate.

Under the facts in this proceeding, the decedent is held to have been a resident of the United States at the date of death.

A deduction for bad debt is allowable to an individual shareholder who, pursuant to prior endorsements and guaranties of the corporation's notes and obligations, pays the corporation's obligations and thus becomes its creditor and the debt is immediately ascertained to be worthless and charged off, the evidence disproving intent to increase capital investment or make a gift.

The petitioner and his wife executed a warranty deed conveying certain properties to a corporate entity, which was organized and incorporated under the laws of the State of Florida for the specific… Held: having failed to overcome the presumption of delivery and acceptance by proof to the contrary, the respondent's denial to this petitioner of certain statutory deductions, incurred in connection with such properties, is approved.

1. Sale of stock in taxable year held to be bona fide and loss thereon deductible in the taxable year. 2. Where an endorser paid a note in installments in the years 1930, 1931, and the taxable year of 1932, an indebtedness of the principal to such endorser arose at the times of the various payments and constituted a bad debt in each instance, deductible only from the gross income of the respective years in which such payments were made.

1. DEDUCTION; INTEREST. - Contract for sale of realty named a purchase price (including interest). Held: that a portion of the monthly payments made by the purchaser represents interest and deduction therefor is allowable. 2. DEPRECIATION; BASIS. - The amount of the specified purchase price of property that is determined to be interest should not be included in the basis of depreciable property in computing deductions for depreciation.

1. BOND DISCOUNT. - Petitioner's bonds were sold to the public at less than face value and at the same time the lessee of petitioner's railroad paid to it the difference between face value and the… Held: that on the sale of bonds petitioner did not sustain a loss not compensated for. Bond discount being essentially a deductible loss, the petitioner is not entitled to deductions for amortization of bond discount. 2.

On June 4, 1929, by separate instruments, one a separation agreement and the other a declaration of trust incorporated in the separation agreement by reference, petitioner provided for the… Held: income of the trust distributed in the taxable year, except that portion thereof paid to his adult child, is taxable to grantor, since such income was used to partially discharge his legal obligation to support and mantain his wife and minor children.

Where a taxpayer was regularly engaged in the business of buying and selling securities on his own account primarily for the profit to be derived from sales at prices in excess of cost, his securities, even though held for more than two years, were not capital assets, since they were held primarily for sale in the course of his business.

By separate agreements four syndicate funds were created, which were used for the purchase, development, and sale of four real estate subdivisions. Held: the syndicates are associations taxable as corporations.

A corporate taxpayer in 1932, in accordance with an obligation, paid its agent compensation of $199,715.85, and on the last day of the year made a new contract whereby the compensation was reduced by… Held: the entire amount of $199,715.85 is deductible in 1931.

Decedent, a resident of the State of Wisconsin, and the donee of two powers of appointment, died May 3, 1933. The powers were created by decedent's father, a resident also of the State of Wisconsin. Held: under the applicable law of the State of Wisconsin, the powers were general, and the property passing thereunder is includable in decedent's gross estate under section 302(f) of the Revenue Act of 1926, as amended by section 803(b) of the Revenue Act of 1932.

One on the cash basis who bought a sheriff's certificate for Minnesota real property in August 1933 and paid the 1933 taxes in 1934, may not deduct the amount as taxes paid in 1934, since such amount is by Minnesota law a lien on May 1, 1933, and is to be regarded as part of the cost of the property.

Petitioner filed a petition for herself and the other alleged heirs and children of the taxpayer to whom the notice of deficiency was addressed. Held: the Board has no jurisdiction to hear and determine this proceeding.

In his income tax returns for 1930 and 1931 petitioner Robert Wilson Carter claimed the deduction from gross income of amounts claimed to represent losses on the sale of shares of stock. Held: that no bona fide sales of shares of stock were made and that the returns were false and fraudulent with intent to evade tax.

By a decree of the District Court, petitioners' decedent and two other individuals, a trust to which they had transferred property, and a successor corporation of which they owned all the shares of… Held: that the petitioners' decedent is liable for income tax in 1929 upon the amount of $62,750.

- Held, on the facts, that certain transfers of corporate securities by decedent to his wife in 1922 and 1923 constituted valid and completed gifts inter vivos, and that such securities, therefore,… Held: on the facts, that certain transfers of corporate securities by decedent to his wife in 1922 and 1923 constituted valid and completed gifts inter vivos, and that such securities, therefore, were not a part of the decedent's gross estate when he died in 1932.

1. Under the Revenue Act of 1932, applicable to this proceeding, capital net losses reduce the amount of income to which the 15 percent limitation on contributions is to be applied.

A corporation issuing burial insurance policies under which, for a stipulated periodical premium, it agrees to furnish a burial to the insured of a certain retail value upon his death, which is required to set aside a reserve for the fulfillment of its contractual obligations, determined by the Insurance Commissioner of the State of Alabama, who regulates its conduct and to whom it is required to file annual reports, is a "life insurance company" within the meaning of the Revenue Acts of 1928 and 1932, as that term is defined in section 201 of said acts.

A gift was made to a trust, the income from which was payable to grantor's two named children, and any after-born children. Held: a gift of a present interest, the first $5,000 of which should not be included in the total amount of the gifts made during the calendar year.

Petitioners were the stockholders of A corporation, which caused B corporation to be organized or July 16, 1931. Held: the organization of B corporation, and the transactions in connection therewith, did not constitute a reorganization within the purview of section 112(i)(1)(B), Revenue Act of 1928. Gregory v. Helvering,293 U.S. 465.

A syndicate which was formed by a group of employees of a corporation for the purpose of investing in securities for profit for the benefit of all the participants, and was so engaged during the… Held: to be an association taxable as a corporation.

Corpus of trust is not subject to estate tax under section 302(c)(1), Revenue Act of 1926, as amended, merely because the trust was required to pay premiums on policies of life insurance on the life of the donor-decedent, which policies of life insurance assigned to the trust.

A husband transferred substantially all of his property to himself and wife as joint tenants with right of survivorship and not as tenants in common. Held: that the surviving cotenant is liable for the deficiency as a transferee of the assets of her husband under section 311 of the Revenue Act of 1928.

In 1920 the petitioner's father took out a life insurance policy on his life, designating a corporation as beneficiary. Held: that the excess of the proceeds received over the amount paid for the policy by the assignor constitutes taxable income of the petitioner.

A corporation was formed and availed of for the purpose of preventing the imposition of the surtax upon its shareholder through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, within the meaning of section 104 of the Revenue Act of 1932.

1. Decedent in 1917 transferred property to a trustee. Income was to be paid to his wife for life, then to grantor for life. Held: no part of the corpus should be included in decedent's gross estate under section 302(d), Revenue Act of 1926. Helvering v. Helmholz,296 U.S. 93; White v. Poor,296 U.S. 98.

1. Held, a certificate of the Banking Commissioner of Texas to the effect that its known financial condition is that assets sufficient to pay… Held: a certificate of the Banking Commissioner of Texas to the effect that its known financial condition is that assets sufficient to pay its depositors in full do not exist when and if this bank is required to pay any Federal taxes is not admissible in evidence to prove the facts therein stated, when objected to by respondent. 2.

GROSS INCOME. - During the taxable year 1932 petitioner owned bonds and other interest-bearing obligations of a foreign subsidiary which was then insolvent. Held: since the obligations of the subsidiary were of doubtful collectibility, petitioner's gross income included only the amount of interest actually collected during the taxable year. Atlantic Coast Line Railroad Co.,31 B.T.A. 730, 751; affd., 81 Fed.(2d) 309; certiorari denied, 298 U.S. 656.

Held, payment for extension of leases is not advance royalty and, hence, not subject to depletion. Held: payment for extension of leases is not advance royalty and, hence, not subject to depletion.

1. VALUATION. - Fair market value determined (1) of real estate, (2) of stock of the Huntington Land & Improvement Co. and (3) of real estate, (4) of stock of the Redondo Improvement Co. 2. Held: that such discounts, premiums, and note issuance and redemption expenses constituted proper administration expenses deductible from the gross estate. 3.

The compensation received by a California inheritance tax appraiser, part of which is paid in a fixed annual amount out of state funds by the state controller and part of which is paid out of the particular estates appraised, is included in taxable income to the extent derived from the appraised estates.

1. INCOME. - Two of the petitioners, owners of certain inventions and patents, conveyed these, in the taxable year, to a newly organized corporation in exchange for 2,500… Held: the $50,000 portion of the total consideration, to which petitioners were entitled, was received for them by their agent and constituted a constructive receipt of income taxable to them in that year irrespective of the fact that their agent did not remit the sum to them until the following year. 3.

1. Where certain credits as compensation were given its officers by a corporation reporting on the accrual basis and such credits were allowed by respondent as a deduction, and respondent in his… Held: respondent failed to maintain his burden of proof. 2.

Decedent, prior to his death, entered into certain agreements with his wife and a trustee for the payment of stated sums for the benefit of his… Held: that claim of divorced wife is not an allowable deduction since consideration therefor was relinquishment of marital rights, which is prohibited from being consideration for a claim based on an agreement by section 804, Revenue Act of 1932; held, further, that claim of a child under agreement is an allowable deduction, being…

Petitioner's business associate, Levy, personally financed certain investments in shares of bank stock, which, after the investments were made, he agreed to share equally with petitioner and hold petitioner's share for him. They set forth their relationship respecting these transactions in an agreement in writing on April 30, 1930, which, among other things, bound petitioner, pro tanto, to reimburse Levy for any loss he might sustain in carrying petitioner's share in the investment. Levy, thereafter, with the approval of petitioner, sold the stock at a loss. To cover petitioner's agreed part of the loss he executed and delivered to Levy Several promissory notes, no part of which was paid during the taxable year. Held, the petitioner, being on a cash receipts and disbursement basis, sustained no loss deductible from taxable income in the taxable year on account of the aforesaid transactions.

DEPLETION. - Where the petitioners were the owners of an oil royalty and sold one-half thereof for cash, they are not entitled to deduction for depletion upon the part so sold.

Upon the record, held, the Commissioner has not sustained his burden of proof to show that petitioner filed a false or fraudulent return… Held: the Commissioner has not sustained his burden of proof to show that petitioner filed a false or fraudulent return for 1928 with intent to evade tax; held, further, since, the deficiency notice for that year was not mailed to petitioner within two years after the return was filed, the deficiency, if any, is barred by the statute of…

1. In Pennsylvania, securities purchased by a testamentary trustee and distributed by a proper court order to petitioner, remainderman, after the death of the life… Held: Petitioner acquired these securities by will and therefore the basis to petitioner was their fair market value when distributed to her. Revenue Act of 1928, sec. 113(a)(5). (b) The date of distribution, within the purview of that section, was the effective date of the court order directing the distribution.

1. RESIDENCE. - The Commissioner determined that petitioner was a resident alien during 1933. On the evidence that petitioner bought property in the United States in 1930, that he was in the United States some part of the time in subsequent years and lived in the United States continuously from January 1 to May 24, 1933, and on the latter date definitely determined to take up permanent residence in Canada, held, that he was a resident of the United States in the period January 1 to may 24, 1933, and not during the remainder of the year. 2. TRUST INCOME PAID TO DIVORCED WIFE. - In 1930 petitioner's wife, in consideration of petitioner's creation of a trust for her benefit, released her claims against petitioner for the proceeds of stock that had stood in her name and had been sold by petitioner and also released her dower rights in real estate. The trust created by petitioner provided for payment of income to petitioner's wife for her use for life and payment to her of specified sums for support of minor children. Petitioner and his wife were subsequently divorced. Held that trust income paid to the divorced wife during the period of petitioner's residence in the United States in 1933 is taxable to him, following Helvering v. Brooks, 82 Fed.(2d) 173, and Helvering v. Schweitzer,296 U.S. 551.

A corporation lending money on real estate, whose profits are divided among the holders of its 250 outstanding shares to none of whom it makes loans, is not an exempt building and loan association within Revenue Act of 1932, section 103, merely because as an incident to each application for a loan to others it requires a form of bond to be signed which recites a subscription for shares, their assignment to the association, and their immediate redemption, the applicant having…

1. Where the Board, after a hearing and decision on the merits, entered its decision in this proceeding on August 6, 1934, and no petition for review of such decision was filed, the Board is without authority to grant a motion for reopening and reconsideration filed October 14, 1937, even though it be assumed that an error in law was committed in the Board's decision. 2.

A distribution made by a corporation in 1931 was in partial liquidation, and was not made "at such time and in such manner" as to be essentially equivalent to a taxable dividend within the meaning of section 115(g), Revenue Act of 1928.

OIL AND GAS WELLS - "TURNKEY" OR "FOOTAGE" DRILLING CONTRACTS. - Petitioners entered into a contract for the drilling of a well on land covered by an oil and gas lease, which provided that the well should be drilled to a depth of 2,950 feet for a total consideration of $11,000, payable $4,000 in cash and $7,000 in oil if, as, and when produced, saved and marketed. The contractor did not agree to furnish all labor, material, and equipment and turn over a completed well for a stipulated price. Petitioners furnished fuel and water, some labor and trucking, and made other expenditures in the nature of intangible expenses, amounting to $3,344.05. Held, such contract was not a "turnkey" contract, and petitioners are entitled to deduct intangible drilling and development expense from gross income in determining net taxable income; held, further, such expense is not deductible in computing the limitation on the percentage depletion allowance provided in section 114(b)(3), Revenue Act of 1932.

The petitioner, a personal holding company, filed the prescribed return for surtax on such corporation, after March 15, but within an extension of time allowed. The shareholders of the petitioner corporation filed their returns March 15 without reporting in gross income their pro rata shares of petitioner's adjusted net income.

1. DISSOLVED CORPORATIONS - TAXATION OF PROFIT FROM SALE OF ASSETS. - Where corporations are dissolved but their existence is continued for a period of three years after dissolution for the purpose… Held: the profit derived therefrom is taxable to the corporations. 2. LIMITATIONS - TRANSFEREES. - On the facts, held that assessment and collection of the liabilities of the petitioners as transferees are not barred by limitations.

1. Where accrued and unpaid interest was purchased, together with other properties, by petitioner and collections on such interest during the taxable year and prior years did not equal the purchase… Held: the accrued interest collected during the taxable year constituted a return of capital and was not taxable income. Great Southern Life Insurance Co.,33 B.T.A. 512, followed. 2. Held, personal property taxes paid by petitioner during the taxable year are not deductible.

1. Petitioner held stock in a corporation, all the assets of which were sold in a foreclosure proceeding instituted by the bondholders in 1932, and the corporation's charter was… Held: under the facts, the stock became worthless in 1932 and the petitioner was entitled to take the resulting loss in that year. 2. In December 1932, after the stock had become worthless, petitioner sought to establish a loss for tax purposes by a sale of 100 shares of the stock which he owned.

To a taxpayer employee who, solely for the convenience of his employer and as a necessary incident of the proper performance of his duty, receives food and lodging from the employer, the value thereof is not taxable income.

1. Where a partnership in which petitioners were interested drilled oil and gas wells for others and took its compensation in future oil payments the fair market value of the oil payment contracts is not taxable as income. 2. Under such contracts the partnership obtained an economic interest in the oil in place and was entitled to the statutory percentage depletion on such payments.

The owner of realty, subject to a mortgage, deeded the property to the mortgagee without consideration and thereby sustained a loss. Held: that the loss so sustained is an ordinary loss deductible in full and is not a capital loss subject to the limitation under section 117 of the Revenue Act of 1934.

- Petitioner and his wife are residents of the State of Texas, and have been since their marriage in 1910. Held: the profit so derived was, under Texas law, community funds of petitioner and his wife, whether the stock sold was all petitioner's separate property, or part separate and part community, and only one-half of such profit is taxable to petitioner.

The petitioner, together with members of his family and a close business associate, organized an unincorporated association to unite and coordinate their charitable activities. Held: association was not organized nor operated during the taxable year exclusively for charitable purposes within the meaning of section 23(n)(2) of the Revenue Act of 1932.

Petitioner, the owner of 2,914 shares of stock of a corporation having 3,000 shares outstanding, regularly drew from the corporation sums of money amounting altogether, in 1929, to $66,679.22. Held: that this constituted a redemption essentially equivalent to the distribution of a taxable dividend under section 115(g) of the Revenue Act of 1932.

A corporation declared a preferred stock dividend of $3,500,000 in order to reduce the value of its common stock from $1,300 to $300 a share in order to facilitate the acquisition of such common stock by its younger executives and employees pursuant to a fixed policy of the corporation. Subsequently, in order to furnish a profitable form of investment for the funds of two employee associations, the corporation, on their behalf, purchased approximately 9 percent of its preferred stock thus issued in varying amounts from its stockholders, including petitioner. Held, not such an issuance of a stock dividend and cancellation or redemption as to be equivalent to a dividend taxable under section 115(g), Act of 1932.

1. Over a period of years decedent, who had been in the milk and dairy business for 36 years, invested a large sum of money in improved… Held: the $400 is not an ordinary and necessary expense, because the particular transaction is held to have been an investment and not a trade or business carried on during the taxable year; held further, the decedent is entitled to a deduction of $4,257.85 for attorney fees, since the fees were paid in connection with and as a result of…

1. A contribution by a transportation company to the United States of part of the cost of a breakwater, made because imposed by the United States as a condition to the construction and because it would result in economic benefit to the corporation for years to come, held not deductible as an ordinary and necessary expense of carrying on a trade or business. 2.

Executors shortly after the decedent's death decided to adopt, as the annual accounting period for the estate, a fiscal year ending on the last day of the eleventh month following that in which the… Held: that the calendar year for which the Commissioner determined the deficiency was not a taxable year of this taxpayer and the Commissioner erred in determining a deficiency for that period.

In the early part of 1928 a Delaware corporation and a California corporation were engaged in the same or related businesses. The stockholders of the California corporation desired to merge the businesses of the two corporations into a single corporation to be organized under the laws of Nevada. With this end in view the Delaware corporation declared a dividend on May 17, 1928, of substantially all of its earned surplus payable to its stockholders of record on June 1, 1928. On the same date it transferred substantially all of its remaining assets to a Nevada corporation in exchabnge for all of the shares of stock of the Nevada corporation which were received on the same date. For the purpose of minimizing income taxes certain stockholders of the Delaware corporation then caused a corporation to be organized under the laws of the Republic of Panama, the petitioner herein, with its principal office and place of business in Montreal, Canada, and on May 26, 1928, exchanged their shares of stock in the Delaware corporation for all the shares of stock of the Panama corporation. The latter corporation, on or about June 1, 1928, as the principal stockholder of the Delaware corporation, received $611,825.76 which was its pro rata share of the dividend payable on that date. The Delaware corporation was dissolved on June 4, 1928, and on June 6, 1928, the petitioner received substantially all of the shares of stock of the Nevada corporation upon the surrender of its shares of stock in the Delaware corporation, and, in addition, a small liquidating dividend in cash amounting to $5,547.50. On or about June 27, 1928, it sold in Canada for cash to parties in the United States its shares of stock in the Nevada corporation and has since continued as an investment corporation with its principal office and place of business in Montreal, Canada. Held, that the dividends received on June 1 and June 6, 1928, were taxable dividends deductible from gross income of the petitioner; held, further, that the petitioner realized no taxable gain upon the distribution to it of shares of stock of the Nevada corporation upon the dissolution of the Delaware corporation, since there was a reorganization of the Delaware corporation under section 112(i)(1) of the Revenue Act of 1928, and the distribution of the shares of stock of the Nevada corporation falls under section 112(b)(3) of the taxing act; held, further, that the petitioner realized no taxable gain from the sale in Canada of shares of stock of the Nevada corporation to parties in the United States.

The petitioner, a resident of Miami, Florida, created a trust whose corpus consisted of stocks and bonds, reserving the income of said trust estate to herself for life, with remainder to her children. Held: that the petitioner, as life beneficiary of the trust, is taxable on the distributable income as so computed.

1. Where funds derived from fire insurance on a rice mill, destroyed by fire, were received in March 1934 and were reinvested in another and similar rice mill in May 1935, and during the intervening period there was a continuing purpose accompanied by diligent efforts made in good faith to so reinvest such funds, no gain or loss will be recognized under section 112(f), Revenue Act of 1934, although the permission of the Commissioner was not obtained to establish a…

A corporation whose stock was owned by members of a single family made sales of some of its securities to its stockholders at the then market price, which was much below cost to the corporation. Held: the sales were bona fide and there were no exceptional circumstances warranting the discregard of the separate entities of the corporation and its stockholders and the corporation was justified in claiming a deductible loss with respect to said sales.

The Vulcan Insurance Co. owned all of the capital stock of the 134 William Street Co. Pursuant to a plan of reorganization, the Vulcan… Held: following H. B. Leary, Sr.,34 B.T.A. 1206, that the exchange of stock for stock was made in pursuance of a plan of reorganization within the meaning of section 112(i)(1)(B) and 112(b)(3) of the Revenue Act of 1928, and did not result in the receipt of recognizable gain; held, further, that the amount of cash received is taxable to…

Petitioner acquired a tract of land which was improved for the purpose of selling cemetery lots. Held: the amount so retained was includible in petitioner's income.

The grantor of a trust who retains the power to appoint another with the right to terminate the trust and receive the fund, has a power to revest the fund in himself and is taxable upon the income of the trust.

A trust with power to invest and reinvest the principal, collect the income, pay taxes and expenses, and distribute the income for the maintenance of the beneficiary during his minority and the… Held: an attorney's fee paid by a trust as an incident to litigation involving the trust's claim to accumulated income and corpus of another trust, is not deductible as an ordinary and necessary expense of carrying on a trade or business.

The amount which a decedent owed to another at the time of his death is not deductible by his estate from its income when paid.

An amount received from the Philippine Government as a statutory retirement gratuity by a former employee whose position was abolished is taxable as compensation for services and not exempt as a gift.

1. The sale by petitioner of stock of the Pittsburgh Coal Co. to the Union Trust Co. of Pittsburgh was a complete and valid sale, giving rise to a legal deduction. 2. Held: the petitioner had the burden of proving no contract or option was entered into within thirty days of the sale. The deduction is disallowed for failure of such proof. 3.

1. Where a taxpayer estate has paid in settlement of the estate and inheritance taxes due the State of Pennsylvania an amount which is in excess of the credit allowed under the provisions of section 301(b), Revenue Act of 1926, as amended, the credit to which the estate is entitled may not be reduced by an amount which the Commissioner contends the taxpayer estate is entitled to receive as a refund from the state but which in fact the taxpayer has never received and there is…

An insolvent corporation which purchases and retired some of its outstanding bonds at less than the amount realized from the sale of the bonds and which is still insolvent after such transaction derives no taxable gain from such purchase and retirement.

The petitioners, stockholders of the American Founders Corporation and United Founders Corporation, received warrants in 1929 from those corporations entitling them to purchase shares of stock of the… Held: that the petitioners derived no taxable income from the receipt of the stock purchase warrants.

- During the taxable years petitioners were members of two partnerships, which were engaged in breeding polo ponies and race horses. On the facts, held that neither of such partnerships was carrying on a trade or business, and the losses sustained were not incurred in transactions entered into for profit, within the purview of section 23, Revenue Act of 1932.

- In 1906 petitioner leased its gas and electric plants under a 99-year lease contract, which required the lessee (1) to maintain, preserve and keep the demised premises in good order and repair, (2)… Held: petitioner is not entitled to deductions for depreciation in the taxable years 1923-1925. Atlantic Coast Line Railroad Co.,31 B.T.A. 730; affd., 81 Fed.(2d) 309; certiorari denied, 298 U.S. 656.

1. The grantor created a trust under which she retained no power to revoke or to have any of the income used for her benefit, ubt only the power to alter the distributive shares of principal and… Held: the income of the trust is not taxable to the grantor under either section 166 or 167, Revenue Act of 1934. 2. Part of the income of a trust was paid to a person other than the grantor pursuant to the mandatory terms of the trust.

Decedent took out six policies of insurance upon his life, aggregating $200,000. Held: respondent properly included in gross estate the proceeds less the amounts received by the wife in trust and the statutory exemption of $40,000, because (a) the payment of premiums was decedent's obligation paid for him by the corporation; (b) the premiums were not paid by the beneficiary since under the contract she received that…

Under the laws of the State of Wisconsin both real and personal property taxes are assessed as of May 1 in each year. Held: that the petitioner is entitled to deduct from the gross incomes of the fiscal years ended June 30, 1933, and June 30, 1934, the real property and personal property taxes which it claimed as deductions in its returns.

1. A mutual fire insurance company does not lose its identity as such and become a stock fire insurance company where pursuant to statutory authorization it issues policies of insurance only in consideration of cash premiums ascertained and payable in advance, even though the policies are nonassessable and carry no contingent liability for additional premiums. 2.

Transfers of stock by the decedent to her children in 1927 and in 1929, six and four years, respectively, prior to her death in 1933, were not made in contemplation of death and the value thereof should not be included in decedent's gross estate under section 302(c), Revenue Act of 1926.

FRAUD. - On the facts, held that for the taxable years 1927, 1928, and 1929 petitioner Albert A. Levin filed false or fraudulent returns with intent to evade tax, and is liable for the penalty provided in sections 275(b) and 293(b), Revenue Acts of 1926 and 1928, respectively.

1. An affiliated group held to include a corporation all the shares of which are directly owned by another, notwithstanding that the shares were acquired when the subsidiary was in financial difficulty, its liabilities exceeded the value of its assets, and a plan of liquidation was in contemplation, and that it had losses after such acquisition which offset gains of the parent and served to reduce consolidated taxable income. 2.

Where a taxpayer exchanged property costing $176,382.05 for other property under a contract which limits his possible recovery on a later sale of said property to $150,000, he suffered a loss of $26,382.05, which is deductible in the year of the exchange.

Throughout the year 1918 the petitioner's business was being liquidated by a license under the direction of the Alien Property Custodian. Held: that the assessment and collection of the deficiency are not barred by the statute of limitations.

The petitioner performed services in connection with the promotion of a corporation in 1917 while he and his wife were domiciled in the State of New York, in consideration for which he became a… Held: the income received in 1930 by the petitioner as such permanent director was from his separate property acquired prior to July 29, 1927. Therefore, it was his separate income and taxable to him in its entirety.

The petitioner sold a parcel of real property, retaining title, and returned the profit on the installment basis. Held: following Boca Ratone Co. v. Commissioner, 86 Fed.(2d) 9, that repossession did not result in taxable income to be computed in accordance with article 353, Regulations 77, but that the transaction between buyer and petitioner in 1932 constituted a satisfaction of the buyer's installment obligation at other than face value within…

The decedent during his lifetime conveyed residential property to his sister. Held: that the claim so made against the decedent's estate was not a claim incurred for full and adequate consideration in money or money's worth within the meaning of section 303(a)(1) of the Revenue Act of 1926.

GIFT TAX. - A transfer of title from an individual to himself and his wife as tenants by the entirety is not a taxable gift under section 501 of the Revenue Act of 1932.

1. Where a person of ordinary prudence under similar circumstances would have ascertained the worthlessness of debts prior to the taxable year, held, that petitioner will be considered as having… Held: that petitioner will be considered as having ascertained their worthlessness at that time. 2.

1. Where a taxpayer creates trusts under which he appoints himself as a cotrustee and gives to himself the sole power to invest and reinvest surplus income of the trust and to vote stock conveyed to… Held: that income of the trust is not taxable to grantor under section 167(a)(1) or (2), Revenue Act of 1932, or under respondent's theory that grantor had not divested himself of control over securities he transferred to the trust.

A state bank which was closed in 1933 was not permitted to reopen at the conclusion of the bank holiday. Held: Depositors in closed bank were justified in determining in 1933 that they would recover only 40 percent of their deposits, and the deduction from gross income of the remaining 60 percent should have been allowed. (2) Stock of closed bank became worthless in 1933.

1. The petitioner (and its affiliated corporations) spent $4,495,765.46 for maintenance of its ways and structures during the period March 1 to December 31, 1920. Held: that the amount of $166,747.75 was paid out for improvements and betterments and is not a legal deduction from gross income. 2. One or more of the affiliates reporting in the consolidated return filed for 1920 were not under Federal control and had a net loss for the calendar year.

1. TRANSFERS IN CONTEMPLATION OF DEATH. - A transfer of property in trust for the benefit of the decedent's children for the purpose of making the children independent financially so that he could see them enjoy the money while he was alive, so that he might observe and advise them in the handling of their money and investments, to relieve them from financial difficulties, and to relieve himself from the annoyance of frequent solicitations of funds, was not made in…