Volume 37 — Board of Tax Appeals

1. Where decedent and his business associate had entered into a contract providing that in the event of death of either the survivor should… Held: that the insurance proceeds which were actually paid to the decedent's estate under the terms of the policy are includable in the gross estate; held, further, that under a binding contract the estate was obligated to apply such proceeds on the sale price of such stock and that the stock had a value for estate tax purposes of an…

Delivery of funds to a bank, an authorized deputy collector of taxes, for payment of taxes, the amount of which was not then known, assessed, due, or payable, did not constitute payment of taxes and did not entitle the petitioner to a deduction for taxes paid in that year. The Commissioner correctly allowed the deduction for the following year in which the taxes were for the first time determined and paid.

The petitioner, a corporation, whose stockholders consisted of four individuals, owned a theatre property which it leased to operating companies. It maintained no office and its business of collecting rentals, paying expenses and disbursing income was conducted by its treasurer from his own office, or home. In the taxable years it collected substantial rentals, the approximate actual net of which for each year it divided equally among its stockholders, who were also its officers. In its income tax returns for the corresponding years, the petitioner deducted from its gross income as expenses the sums paid stockholders under the head of "Compensation of Officers." Three of the four stockholders rendered no service whatsoever to the corporation and the service rendered by the treasurer was trivial. Held, these amounts were taxable income to petitioner in the related years and the resulting income tax deficiencies are sustained; held, further, that the petitioner's method of reporting its income for the years in issue was a willful understating of income with intent to evade its Federal taxes and constitutes fraud. Imposition of the 50 percent penalties is proper and the statutory limitation upon assessment and collection does not apply.

1. Negotiable, unregistered, mortgage bonds of a domestic corporation, property of the community estate of which decedent was a member at the time of his death, physically situated in the Republic of Cuba, are not includable in his gross estate, he being a nonresident alien, who died July 23, 1932, while sojourning in New York. Herman A. Holsten, Executor,35 B.T.A. 568, followed. 2. Since the decedent was not engaged in business in the United States at the time of his death, bank deposits in domestic institutions are nt ncludable in his gross estate. Sec. 303(e), Revenue Act, 1926. 3. The amount of capital contributed by the decedent to the conjugal community, under the laws of the Republic of Cuba, at the time of his marriage in 1901, was property situated in that country at the time of his death and may not therefore be included in his gross estate.

1. Upon the condemnation by a city of a portion of the property owned by a corporation, it was awarded a sum of money for the land taken and for the improvements thereon. Held: following Christian Ganahl Co. v. Commissioner, 91 Fed.(2d) 343, that the amount paid as a special assessment, plus the basis of the land taken, shall be deducted from the total amount awarded, including the severance damages, and the difference only is taxable income. 2.

1. Petitioner Wester acquired an exclusive agency for the sale of a tract of land. He agreed to plat the land and otherwise improve it for sale as subdivisions. Held: that amounts expended by the petitioner to improve the land for sale are deductible as ordinary and necessary business expenses. 2. The petitioner constructed several poultry houses on unsold land in the tract at his own expense.

1. ESTATE TAX - CLAIM AGAINST THE ESTATE. - The allowable claim against decedent's estate under a stock purchase contract, the purchasers being jointly and severally liable, may not exceed his share of the entire liability measured by the proportion of stock acquired by him under the contract, in this case one-fourth. The fact of allowance of a larger amount by the probate court is not determinative of the amount deductible under the Federal statute. 2.

Amount received by a divorced woman as alimony or in lieu of alimony is not taxable income.

In 1927, at a special directors' meeting of petitioner, it was voted that $500,000 of petitioner's surplus on hand prior to March 1, 1913, should be distributed to petitioner's stockholders, in such… Held: the $500,000 note represents legal indebtedness of the corporation and the $30,000 payments in question were interest payments on its indebtedness and are deductible from the corporation's income under section 23(b) of the Revenue Act of 1932.

Advance Premium Fund, maintained by petitioner, was not within the meaning of reserve funds required by law as defined by the Revenue Act of 1932, section 202(b).

Interest paid by the petitioner on founder's certificates, the payment of which was not obligatory, held, not to be interest paid upon indebtedness and, hence, not deductible from gross income. Held: not to be interest paid upon indebtedness and, hence, not deductible from gross income.

Where decedent during his lifetime took out certain insurance policies on his own life, payable to a trustee without naming the beneficiary, the attempted trust failed for failure to name a beneficiary certain in the declaration of trust.

Where a testamentary executrix of an estate, who was also a legatee under her deceased husband's will, received certain income from community property which was owned… Held: that under the laws of Louisiana only the one-half of the community property owned by the deceased husband was transmitted to the testamentary executrix; held, further, that only the income from the one-half of the community property owned by the wife in her individual capacity is taxable to her.

1. Losses on sales of municipal and Federal Government bonds held allowable as losses on transactions entered into for profit. 2. Petitioner, who owned securities of a value close to $9,000,000 and personally directed the management thereof, including the investment of funds, held engaged in a business and entitled to deduct as business expenses the salaries of employees who aided in handling investments and the cost of safe deposit box rental.

The petitioner, about to be divorced from his wife, entered into a property settlement and irrevocably assigned to his wife a portion of the income to which he was entitled under a trust theretofore established for him by his mother.

1. Certain petitioners claimed title to certain lands below low-water line in front of lands owned by them fronting upon the Atlantic Ocean. Held: the judgment of the court in condemnation proceedings awarding damages to petitioners was an adjudication of title in petitioners' favor which respondent here can not contest. 2.

1. The petitioner was the owner of an oil and gas lease and in order to raise the funds needed to drill a well thereon it sold certificates which entitled… Held: that the funds derived from the sale of certificates did not, on the facts here, constitute income to the petitioner; held, further, that petitioner may not include in its gross income, for the purpose of computing its percentage depletion, any part of the proceeds thus received by the certificate holders. 2.

1. Petitioner lessee sold production certificates which entitled the holders to a percentage interest in the proceeds to be derived from the production of designated oil wells. Held: that proceeds realized by petitioner from its sales of production interests in oil wells do not constitute gross income from the property for the purpose of computing its depletion allowance. 3.

1. A syndicate was formed for the purpose of purchasing property owned or thereafter acquired by a bank and then holding, managing, controlling, leasing, encumbering, and selling the property for… Held: that the syndicate was an association taxable as a corporation. 2. The amounts paid by the bank to the trustee for the syndicate under its guarantee to the certificate holders of a return of 6 percent per annum does not constitute taxable income to the petitioner. 3.

Where property is taken for public purposes under condemnation proceedings and an award is made for the property taken, which award is paid in part by offsetting the amount of benefits accruing to… Held: the amount of the award is not gain to the extent it is canceled by the benefits assessed; and the gain derived from the transaction should be computed by reducing the gross award by the amount of the assessed benefits, and then deducting the cost of the property taken.

An individual desiring to take a loss for tax purposes on S stock which had declined in value, and who also desired to make his wife a gift, gave his wife $49,900 to purchase stock in a new… Held: the sale was genuine and a deductible loss resulted.

A husband, having an account with brokers in his name, arranged for an account to be opened in the name of his wife. Thereafter he ordered the brokers to make purchases and sales for the account of his wife. The only stocks purchased for the wife's account were those ordered sold by the husband on the same day and the stocks sold for the account of the wife were purchased on the same day for the account of the husband. He furnished the funds to pay for the securities acquired for the wife's account. The stocks in the name of the wife were kept in the husband's safety deposit box with stocks in his name. She never saw them until after his death. Held, evidence fails to show that husband relinquished dominion and control of stocks, or that the account in the name of his wife was not in reality his account, and the deduction of claimed losses is disallowed.

1. The value of a block of 14,558 shares of stock of one corporation determined, and it is held that there is no rule that the value of a large block of shares must be regarded as lower than the unit market prices of small lots. 2. Expenses of office rent, secretary, and accountant reasonably incurred by an estate still unsettled, held deductible as expenses of administration. 3.

1. Four individuals transferred property to petitioner in exchange for all of its capital stock. Held: each transferor received stock in the petitioner corporation in an amount substantially in proportion to his interest in the property prior to the exchange: the exchange came within the provisions of section 112(b)(5), Revenue Act of 1928. 2. The petitioner sold in 1930 certain notes it had received in the exchange, at a loss.

1. Where timber lands were held for investment purposes and in order to liquidate his investment the owner contracted with logging companies to cut, remove, and sell the timber, held that the owner was not in the business of buying and selling timber and therefore the timber sold constituted capital assets within the meaning of section 117(b) of the Revenue Act of 1934. 2. The income of three trusts created by the petitioner held not taxable to the grantor under sections 166 or 167, Revenue Act of 1934, although one of them contained a possibility of reverter if the beneficiary should die before reaching the age of 30 and Before the death of the grantor.

A taxpayer exchanged a piece of real estate subject to a mortgage. He received in exchange a second mortgage on the real estate transferred and another piece of real estate subject to a mortgage. Held: following Brons Hotels, Inc.,34 B.T.A. 376, that the entire profit is recognized since sections 122(b)( ) and (c)(1) do not apply.

,1. The Commissioner did not err in computing income in accordance with the second paragraph of article 354 of Regulations 74, where, after negotiating contracts for sales of real estate and receiving partial payments not reported as income in prior years, the properties were repossessed in the taxable year. 2. Section 44(d) of the Revenue Act of 1928 is not applicable, since the petitioner never chose to use the installment basis of reporting his income.

Payments received in 1930 and 1931 under an option to purchase which were to be applied upon the purchase price in case the option were exercised but which were to be retained in case the option were not exercised, were income of the year in which the option was surrendered.

Where taxpayer used a hybrid system of keeping its books but it appears that the accrual method predominated, held, the payment in 1934 of Canadian income taxes for 1930 to 1933, inclusive, does not… Held: the payment in 1934 of Canadian income taxes for 1930 to 1933, inclusive, does not entitle taxpayer to a credit against its Federal income taxes for 1934.

Petitioner and X formed a partnership to engage in the business of brokers and dealers in securities. Held: that the income in controversy arose out of the performance of an agreement between petitioner and X, as individuals, and bore no relation to the partnership, its income for 1928, or its dissolution; held, further, that under X's contract obligation to petitioner the deferred payments constituted ordinary income to him in the…

Where deductions are taken taxpayer as reserves for premium coupon account pursuant to Regulations 77, article 335, but in excessive amounts, a transfer in a subsequent year of the unneeded reserve to surplus is taxable in the year of such transfer.

1. Where a petitioner shares in partnership profits, which were derived by it from the sale of noncapital assets, he may not offset such share of profits by losses personally sustained in the sale of similar assets in computing his individual net taxable income. 2. Commissions paid upon the purchase and sale of securities by one who is a trader in that business, are deductible as ordinary and necessary business expenses.

Husband and wife filed a joint income tax return. The husband realized profits in the taxable year from sales of securities held less than two years but sustained no losses from such sales. Held: under section 23(r)(1), Revenue Act of 1932, the wife can not deduct the loss from her gross income, nor can the husband, in a joint return, offset the wife's loss against his profits.

1. In applying the limitation on stock losses provided for in section 23(r)(1), Revenue Act of 1932, in a case where husband and wife file a single joint return, it is held that the losses of one… Held: petitioner's investment in the stock of the corporation was a transaction entered into for profit and petitioner is entitled to deduct his loss in 1933 when the stock of the corporation became worthless.

A wife gave to her husband certain investment securities which both had decided not to keep as investments, for two purposes: (1) To permit the husband to sell the securities and keep the proceeds,… Held: the transaction was one entered into for profit within the meaning of section 23(e)(2) of the Revenue Act of 1932.

Special tax bills and sewer tax warrants, issued by a city to a contractor in payment for improvements and payable only from collections under assessments against benefited properties, held, not… Held: not obligations of a political subdivision of a state the interest on which is exempt from tax by section 22(b)(4)(A), Revenue Act of 1932. Standard Investment Co.,36 B.T.A. 156.

1. Default was made in the payment of principal and interest due on first mortgage bonds of a corporation. The holders of 97 percent of the bonds transferred them to a bondholders' committee. Held: Following Commissioner v. Kitselman, 89 Fed.(2d) 458, that a statutory reorganization was effectuated by the bondholders and under section 112(b)(3) of the Revenue Act of 1934 no gain or loss is to be recognized.

Where a taxpayer realizes gain from purchases and sales of commodity futures and sustains loss from sales of stocks, held, that the gain is taxable and that there may not be… Held: that the gain is taxable and that there may not be allowed as a deduction, to the extent of such gain, the amount of a loss on sales of stocks, since it was not shown that the gain was derived from the retirement of his own obligations within the meaning of section 23(r)(1), Revenue Act of 1932.

One of the essential things which the Commissioner must prove in meeting the burden of proof placed upon him by statute in a transferee proceeding where he is seeking to establish a transferee… Held: the Commissioner has not met his burden of proof in the instant case.

1. The petitioner, a cartoonist and president and owner of all the stock of a corporation, agreed to furnish it certain cartoons each week for a stipulated monthly… Held: that the situation was not so exceptional as to require the disregard of the separate entity of the corporation and the taxing to petitioner of the amount received by the corporation from the syndicate. 2. Petitioner had royalty contracts with third parties respecting the use of cartoons in their business.

1. The petitioner, acting under a bondholders' agreement, bid in the security behind the bonds at a judicial sale under foreclosure proceedings. Held: that the agreement placed no obligation on the petitioner and the amount accrued does not meet the statutory requirement of interest on indebtedness. 2. Respondent's allowance of depreciation sustained for lack of evidence to show error.

On June 1, 1932, the petitioner and his wife entered into a written agreement called Articles of Copartnership, for the alleged purpose of buying, selling, exchanging and dealing in stocks, bonds and… Held: that the alleged partnership was not a partnership within the meaning of section 181 of the Revenue Act of 1932 and that the petitioner is liable to income tax upon the dividends paid upon shares of stock standing in his name.

Petitioner is a trade association organized under the laws of State of Washington as a nonprofit organization. Held: that the petitioner is a business league, exempt from income tax under section 103(7) of the Revenue Acts of 1928 and 1932.

GIFT TAX. - The petitioner conveyed by gift securities to two irrevocable trusts under each of which a different minor child of the petitioner was… Held: the gifts of the securities in each taxable year to the trusts were gifts to each child in trust and were gifts of a present interest in property rather than of future interests and therefore petitioner is entitled to the $5,000 exclusion from the value of the gifts to each trust under section 504(b), Revenue Act of 1932.

1. The petitioners are beneficiaries of the Archer Trust, which in 1929 sold certain securities at market prices to one of its beneficiaries, sustaining large losses on the sales. Held: that the sales were made in good faith and that the losses sustained thereon are deductible from gross income. 2.

Petitioner created a trust and transferred to it certain property the income of which was to be distributed in the following… Held: under authority of Seymour H. Knox,36 B.T.A. 630, petitioner made only one gift and was entitled to an exclusion of $5,000 from value of property given; held, further, petitioner is entitled to deduct the commuted value of reserved life interest of 40 percent of trust income, but not of 10 percent of income allocated to reserve fund,…

A taxpayer, after being allowed a deduction in a prior year for a loss on the sale of stock, learned in a later year that he could recover his loss from the person who had… Held: the gain from the settlement in its entirety at the time of the settlement was not income to the petitioner. His gain was from the sale to the corporation and was correctly reported by him on the installment basis. Held, further, no part of the deficiency was due to fraud with intent to evade tax.

Petitioner assigned on December 18, 1931, for $10,500 all his interest in fees to become payable in the future to a dissolved law partnership in connection with matters of one client pursuant to an… Held: the entire amount is taxable as ordinary income and not as capital gain under section 101, Revenue Act of 1932. It is further held that the amount was not a capital asset as defined in section 101(c)(8).

1. During the taxable year 1931, petitioner owned a majority of the voting stock of a British corporation, from which it received dividends… Held: such British tax did not constitute an income tax paid by petitioner to any foreign country within the meaning of section 131(a)(1), Revenue Act of 1928, and petitioner is not entitled to credit against its United States tax for the taxable year on account of the British tax deducted from its dividends an amount in excess of that…

An insurance rating bureau organized and operated by casualty insurance companies pursuant to an order of the state insurance commissioner, for the purpose of checking the premiums on all policies written to enforce their conformance to established rates, and for compiling statistical information on insurance risks, the expenses of operation being met by assessments against members based on the amount of net premiums of each member, held exempt from income tax under section…

1. Where the income of an estate in process of administration is payable, and is actually paid, to the beneficiary in the taxable year, she is taxable on the amounts received notwithstanding the fact that the estate paid Federal estate and state succession taxes during the year in excess of its gross income. 2.

Petitioner, the owner of real estate upon which an office building was located, in 1924 leased the land for a term of 100 years. Held: The basis for depreciation upon petitioner's building, notwithstanding the fact that it received in prior years income which it did not report for taxation, is the cost of the building less the depreciation allowed or allowable for prior years.

Petitioner, with coowners, leased realty for a term of 20 years, 7 months, with options in the lessee to renew for second, third, and fourth terms of 21 years for each renewal term, without any… Held: It is a question of fact whether a lessor realizes income from improvements made by a lessee.

1. In 1928, pursuant to contract between stockholders, A corporation was divided by the formation of B corporation, and transfer to B, in… Held: There was no reorganization within the meaning of section 112(i)(1)(B) of the Revenue Act of 1928, since the object of the contract was to convey a proportion of the assets of A, in the form of corporate stock of B, to petitioner, and the transfer was therefore completed only by the vesting of such stock in petitioner; and since…

1. In the absence of clear and convincing evidence of fraud, held, that petitioner did not file false and fraudulent income tax returns for… Held: that petitioner did not file false and fraudulent income tax returns for 1929, 1930, and 1931. 2. Held, assessment and collection of income tax barred as to the year 1929, but not barred as to 1930 and 1931. 3. Respondent's determination as to 1930 and 1931 sustained upon petitioner's failure to show error in such determination.

1. PROCEEDINGS PURSUANT TO MANDATE. - Where a proceeding has been reviewed on the merits by an appellate court, the, Board's decision… Held: the 50 percent limitation on the depletion allowance to which petitioners are entitled under section 114(b)(3), Revenue Act of 1928, should be recomputed by deducting from the gross income from the property only the stipulated operating expenses, excluding development and equipment costs, in determining the net income from the…

Petitioner is a corporation which in 1931 took over the assets and liabilities of a partnership, including real estate purchased by the partnership in 1920 for the sum of $80,000, subject to a… Held: petitioner thereby received taxable income of $7,250 in the year 1933.

After certain 20-payment life insurance policies had been fully paid up the insured designated beneficiaries without power of revocation. Held: the cash surrender value of the policies is not deductible from the income of the insured as a loss under section 23(e), Revenue Act of 1932.

Redemptions of preferred stock held to be essentially equivalent to the distribution of taxable dividends within the provisions of section 115(g) of the Revenue Act of 1928.

Where a taxpayer mortgagee in 1934 accepted bonds of the Home Owners' Loan Corporation of less face value than her interest in certain mortgages which she had held for more than five, but less than ten, years, the transaction constituted an exchange of capital assets and her deductible loss is limited by the provisions of section 117 of the Revenue Act of 1934.

Upon failure of proof, the respondent's determination is approved, where he disallowed deductions as interest paid * * * on indebtedness, the amounts of payments made as interest on bonds which the respondent determined to have been issued without consideration.

The petitioner exchanged shares of stock for rights, unlimited as to time, to purchase shares in a new corporation, pursuant to a plan of… Held: such rights were securities within the meaning of section 112(b)(3) of the Revenue Act of 1932; therefore, having been received in a nontaxable reorganization, the exchange was not such an identificable event as would give rise to worthlessness, entitling the petitioner to a deduction therefor in the year of such exchange.

Petitioner, a naval architect, invested $100,000 in stock in a boat company in order to secure employment as a designer of a boat to compete for the position of defender in the international yacht races between the United States and Great Britain in 1930. The investment was made in order to advertise and enhance his reputation as a naval architect. The boat designed by him having been unsuccessful, he made a bona fide sale of the stock for $10, and deducted the difference from gross income. Held, that the loss upon the sale of corporate stock did not constitute a loss incurred in trade or business, or in a transaction entered into for profit.

Certain individuals received payments totaling $40,000, as beneficiaries named in an annuity contract, upon the death of the annuitant. Held: the contract under which the payments were received was not a policy of life insurance and the payments received were not received as insurance so as to be exempt from estate tax within the provisions of section 302(g), Revenue Act of 1926.

1. In computing the basis for gain or loss and for depreciation in 1933 and 1934, cost must be reduced by depreciation deducted for prior years which is to be regarded as allowed, even though greater losses sustained in such prior years made such depreciation deductions unavailing to reduce taxes. 2.

The petitioner, in order to realize a loss for income tax purposes, decided to dispose of certain shares of stock and to acquire them for his children. A dealer in the unlisted shares, for which there was practically no market, agreed to go through the form of buying from the petitioner and immediately selling the shares to the children, for which he was to receive 1/8 point per share. The petitioner furnished the children the money necessary for the transaction.

The taxpayer in earlier years received annual rent, part of which it reported as income and part of which it incorrectly omitted from income but showed in the balance sheet on its return as advance… Held: that the omitted amounts may not be included in income of a later year.

- A notice of deficiency mailed by registered mail to an address other than petitioner's and not received by petitioner, but returned by postal authorities to the Commissioner, who remailed it by… Held: not a statutory notice of deficiency. Proceeding based on such notice dismissed for want of jurisdiction. Henry Wilson,16 B.T.A. 1280, followed.

The petitioner created a trust, reserving the power to revest in herself the corpus of the trust with the consent of her husband, who was named as a cotrustee. Held: that the trust instrument created in the husband a substantial adverse interest to that of the grantor and the income was not taxable to petitioner under section 166 of the Revenue Act of 1932.

A power of appointment, the exercise of which, at any time, is, in fact, subject to the discretionary approval of individual trustees appointed by the donor of the power, is not a general power of appointment, and property passing thereunder is not within the Revenue Act of 1926, section 302(f).

Where the settlor created an irrevocable trust and reserved to herself the income therefrom for life and the power to change the beneficiaries, held, that the present value of the remainder interest… Held: that the present value of the remainder interest is not a gift within the purview of section 501(a) and (b) of the Revenue Act of 1932.

From 400 shares received in a recapitalization for 80 shares bought in several lots at different times and at different costs, taxpayer sold 250 which he intended to identify with the latest… Held: the shares sold were identified with those last bought and the first in, first out rule is not applicable.

Two national banks were consolidated or merged under the amended charter of one of them and certain of their excess assets which were not taken over by the new bank were transferred to trustees for… Held: that the trust so created was liquidating trust and not an association taxable as a corporation; held, further, that the income of the trust was distributable annually and was therefore deductible by the trust and taxable to the beneficiaries.

Taxpayer entered an order through a broker's office in Washington for the purchase of certain New York bank stock, on December 30, 1930. The broker was a dealer in such stock. Held: taxpayer did not obtain title to the stock on December 30, 1930, did not hold same for two years, and therefore, may not deduct a loss resulting from the sale thereof as a capital loss.

In 1927 the petitioners, as stockholders in A Co., exchanged their stock for cash and bonds in B Co., the latter company, a corporation… Held: that the gain realized upon the redemption of the bonds constitutes ordinary income and is not capital gain realized upon the sale or exchange of capital assets; held, further, that, as the 1927 transaction was a statutory reorganization, the provisions of section 203(b)(2) and (d)(1), Revenue Act of 1926 apply, and petitioners are…

1. Held, the managing and operating of petitioner's property by trustees appointed under the provisions of the Public Control Act of… Held: the managing and operating of petitioner's property by trustees appointed under the provisions of the Public Control Act of Massachusetts (1918) did not create the relationship of lessor and lessee so as to make applicable the provisions of article 70 of Regulations 74, providing for the return of income to lessor from leased…

1. SECTION 104(b). - In determining whether accumulations are beyond the reasonable needs of a business, section 104(b), Revenue Act of 1932, sets up a practical rather than a theoretical test, and it is erroneous to compute a surplus based on cost of assets which are useful to the business only to the extent of their lower market value. 2. EVIDENCE, INTERESTED WITNESS. - Testimony of a witness that the corporation which took over the business and assets of a partnership of which he was a member was formed in order to limit liability of the partners and to remove danger of liquidation of the partnership in the event of death of a partner, and that tax benefits were not considered, may not be disregarded in view of the impressiveness of the witness and the fact that his testimony was reasonable and not inconsistent with but was corroborated by other evidence. 3. SECTION 104(a). - The petitioner-corporation had been engaged in the tobacco business for many years. It required a large amount of liquid capital to purchase and process tobacco and to finance its customers. It carried among its assets a substantial amount of securities, and due to a decline in business its holdingso of securities increased. During the taxable year, and for several years prior thereto, it had sustained losses in its business operations but had income in the form of dividends and interest on its securities. The surplus at the close of the taxable year, based on cost of securities, was over $2,000,000, but, on the basis of market value of securities, the surplus was negligible. The corporation paid no dividends and the officers of the corporation honestly believed that all of the capital and surplus would be required for the proper conduct of its tobacco business as soon as the business recovered from the effects of the depression which began in 1929. The capital available in the taxable year was no greater than at the time of organization ten years before, when the business experienced its most prosperous years. Held, that the petitioner was not availed of in the taxable year for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its gains and profits to accumulate instead of being divided or distributed.

The petitioner issued its preferred stock to the vendors of assets acquired at the time of organization. Held: preferred stock shares issued in these circumstances constituted evidences of debt, and the so-called dividends paid or accrued under these terms amounted to interest on indebtedness within section 23(b), Revenue Act of 1934. Commissioner v. Proctor Shop, Inc., 82 Fed.(2d) 792, affirming 30 B.T.A. 721.

1. Decedent during his lifetime purchased, for lump sum payments, two certain annuity contracts. Held: the commuted value of the annuities payable to decedent's wife should not be included as a part of decedent's gross estate. Guaranty Trust Co. of New York, Executor,16 B.T.A. 314, distinguished. 2. Decedent during his lifetime purchased an investment annuity contract for a single lump sum payment.

Petitioners owned for more than two years property which they had purchased subject to a first mortgage which petitioners did not assume when they purchased the property in 1927. Held: that such losses are ordinary losses and deductible in their entirety under section 23(e)(2), Revenue Act of 1934, and are not capital losses limited by section 117(d), Revenue Act of 1934. Commonwealth, Inc.,36 B.T.A. 850, followed.

1. Held, that transactions in the taxable year purporting to be an acquisition and a sale of stock shown to have little or no value, were not bona fide, and did not result in a… Held: that transactions in the taxable year purporting to be an acquisition and a sale of stock shown to have little or no value, were not bona fide, and did not result in a deductible loss of $44,000. 2. Held, that petitioner's return for 1931 was false and fradulent with intent to evade tax.

1. During the taxable year the president of a corporation, who owned all of its capital stock, occupied a dwelling owned by the corporation and constructed… Held: under the circumstances, the deduction is now allowable. 2. An individual engaged in the creation of cartoons, whose income therefrom during the preceding year was $1,500 or $2,000 a week, caused a corporation to be organized in 1924, to which he transferred the greater part of his property for its capital stock.

- Decedent was a member of a partnership which owned certain installment obligations that were worth face value when received and at date… Held: decedent's death resulted in a disposition, otherwise than by sale or exchange, of the installment obligations within the purview of section 44(d), Revenue Act of 1932, and created taxable income to the partnership equal to the face value of the installment obligations, of which decedent's distributive share was taxable to him and…

Petitioner purchased certain residential property on October 16, 1928, and occupied the same as his plersonal residence from November 20 to December 28 of that year. Held: petitioner is not entitled, under section 23(e)(1), (2), Revenue Act of 1932, to deduct from gross income the loss sustained on the sale of the property in 1933.

Prior to 1934 the petitioner purchased certificates of public convenience and necessity permitting transportation of freight by truck over certain highways in the State of Washington, which… Held: that the change in legislation did not result in a deductible loss.

Petitioner was organized as a public service corporation to construct a waterworks system for use of the town of Geneva, Indiana, and its citizens. Held: that for such years the petitioner had no income tax liability.

Under the will of Otto Ernst Isenberg, deceased, his remainder estate was left in trust, one-third for the benefit of his widow for life and… Held: that under decedent's will ten separate trusts were created, one for his widow and one for each of his nine living children; held, further, that the petitioner herein as successor trustee of the estate of Otto Ernst Isenberg, deceased, is not liable for the deficiencies for the years 1918 to 1929, inclusive, as determined by the…

The Board has no jurisdiction of a proceeding founded upon a notice and demand of the collector not sent by registered mail.

1. Petitioner's grandfather in his will created a testamentary trust, of which petitioner was one of the beneficiaries. Held: the trust was not a mere agency to act for petitioner and one other beneficiary, the remaindermen under the will, but was a trust, taxable as a separate entity under the provisions of sections 161-164, inclusive, Revenue Act of 1932, and losses incurred by the trust in the sale of assets are deductible by the trust in computing its…

A notice of deficiency was sent to a corporation, and a petition for redetermination was filed by an individual as trustee for the corporation. Held: that the petition herein is not the petition of the taxpayer to whom the notice of deficiency was sent and must be dismissed for lack of jurisdiction.

The taxpayer was a widow during each of the taxable years and on account of her advanced age required assistance and companionship. Held: petitioner's son was not dependent upon her for support and she was not the head of a family within the meaning of section 25(b)(1), Revenue Act of 1934. W. E. Massey,14 B.T.A. 407; affd., 51 Fed.(2d) 76, followed.

1. Corporation A, desiring to liquidate, transferred approximately 95 percent of its assets to B for cash and the debentures of X, which owned all of… Held: not a reorganization under section 112(i)(1)(A) of the Revenue Act of 1932, there being no plan of reorganization and no such continuing interest in B as required by the statute. 2. Corporation A transferred the remaining 5 percent of its assets to C, a corporation created to liquidate the assets, for all of C's stock.

1. Petitioner was the owner of a parcel of real estate, subject to a first mortgage. Held: petitioner is not entitled to take a loss on the ground that it abandoned the real estate in the taxable year. Greenleaf Textile Corporation,26 B.T.A. 737; affd., 65 Fed.(2d) 1017. 2. The Commissioner determined that petitioner was a personal holding company subject to a surtax under the provisions of section 351, Revenue Act of 1934.

Petitioner, being the residuary legatee under his mother's will, the beneficiary under a real estate trust created by her, and one of the principal beneficiaries under a trust created by her to hold… Held: the entire amount of the distribution made to petitioner's guardian was properly included in petitioner's gross income for the taxable year. Helvering v. Butterworth,290 U.S. 365.

Claimed loss deduction disallowed (1) where the stock did not become worthless in the taxable year and (2) where it was not established that it became certain in the taxable year that the stock which had been loaned by petitioner and used by the borrower as collateral would never be returned to the taxpayer.

Where a plan involved an exchange by one corporation of assets in the form of accounts receivable for all the stock in another… Held: although the tax consequences of the plan in which the exchange occurred were considered, such exchange was in pursuance of a plan of reorganization within the meaning of the Revenue Act of 1928, section 112(i)(1)(B) and section 112(g), and that the distribution of that stock by the transferor to its shareholders, pro rated to their…

1. During the taxable year 1932 petitioner entered into contracts with three individuals whereby they furnished certain sums of money… Held: the rights of the respective parties each constituted an economic interest in the oil production, and petitioner's gross income for the taxable year includes only the portion of the proceeds from oil sales for which it was not required to account to the other parties; held, further, the deduction for percentage depletion allowable to…

Losses resulting from the expiration of unexercised puts or options to sell stock are subject to the limitation of section 23(r) of the Revenue Act of 1932, because of the express provision of section 23(s)(B).

In determining the gain or loss from the disposition of burial space in a cemetery, the amount realized may be reduced by the basis which the land has. Where the lots sold in the taxable year were a part of a larger area owned by the taxpayer on March 1, 1913, their basis is a part of the fair market value on the basic date of the entire area.

1. Where petitioner filed two income tax return forms for the taxable year 1925, neither of which contained the items of gross income and… Held: neither the forms filed by petitioner nor the report of the revenue agent constitute the return required by section 277(a)(1), Revenue Act of 1926, to start the running of the statute of limitations, and therefore under section 278(a) a deficiency determination in the year 1935 was not barred; held, further, that no return was ever…

A trust which provides that the income shall go to A until she reaches forty and the trust is then to terminate and the fund go to A, and if A dies before reaching forty, the grantor and another may terminate the trust and the fund is then to go either to the grantor or to one designated by the grantor and another, held not to vest in the grantor a power to revest the fund in himself within Revenue Act of 1934, section 166.

Petitioner in the taxable year had capital losses in excess of capital gains, both taken into account under the percentages provided in section 117(a), Revenue Act of 1934, of more than $2,000. Held: that the limitation provided under 117(d), Revenue Act of 1934, is $2,000 plus the gains from sales or exchanges of capital assets which are taken into account under the provisions of section 117(a). Article 117-2 of Treasury Regulations 86 sustained.

1. Petitioner's guardian paid from his funds an amount for attorney's fees to protect petitioner's interest in his father's estate. Held: this expense is a personal and not a business expense and is not deductible. Van Wart v. Commissioner,295 U.S. 112. 2. A trust received income from dividends in the year 1932 to be paid to petitioner October 30, 1932, if petitioner was living. Petitioner received the income thus held for him from January 1 to October 20.

1. Petitioner, through a partnership of which he was a member, agreed to purchase from the stockholders of a corporation such shares of stock as should be… Held: that the amount expended by petitioner constituted the cost of the 92,187 shares and the Commissioner erred in including the fair market value of the 12,500 shares in petitioner's gross income. 2. A corporation was organized and 100 shares of its common stock were issued to the original incorporators for $1,000.

Taxpayer changed from the direct charge-off method to the reserve method in accounting for losses from bad debts and used the latter method in its income tax return for 1932 without first seeking and… Held: under the circumstances, the Commissioner did not consent to such change and the taxpayer was not authorized to use the reserve method as to bad debts in the following taxable year.

The amount of a note given by an executor to the widow of a decedent representing an allowance for support during the administration of the estate, does not constitute an amount actually expended within the meaning of section 303(a)(1) of the Revenue Act of 1926 and is not therefore a legal deduction from the gross estate.

Prior to and during the taxable year 1934, petitioner's principal business was the breeding and racing of thoroughbred horses. Held: attorneys' fees and expenses paid in the taxable year in connection with his defense, which resulted in dismissal for want of prosecution, are deductible from gross income as ordinary and necessary business expenses.

The South Florida Conservancy District on the facts presented was an instrumentality of the State of Florida, engaged in the exercise of functions essentially… Held: that an amount received from the district as salary by an officer thereof was exempt from the Federal income tax. Brush v. Commissioner,300 U.S. 352; Collector v. Day,11 Wall. 113; Commissioner v. Harlan, 80 Fed.(2d) 660; Helvering v. Mountain Producers Corporation,303 U.S. 376, compared and distinguished.

1. Held, that the values of certain insurance policies on his life in which the decedent reserved the right to change the beneficiaries are includable in decedent's gross estate and, further, that… Held: that the values of certain insurance policies on his life in which the decedent reserved the right to change the beneficiaries are includable in decedent's gross estate and, further, that the values of certain policies should not be determined on a commutation basis. 2.

ESTOPPEL. - A petitioner erroneously described himself as a dealer in securities and used a closing inventory of securities on his return… Held: that the 1930 statement dealer in securities was no more than the opinion of the taxpayer on a mixed question of law and fact and was not the kind of a misstatement which would estop him to have his tax for 1931 correctly computed on the basis of the cost of the securities sold during that year; held, further, that since the effect…

Stock pledged as collateral to secure petitioner's loan at a bank was sold for cash, subject to the lien of the bank, at a private sale for less than cost. Held: under the facts and circumstances the sale was a completed transaction in the taxable year and petitioner is entitled to the loss deduction.

1. Where under the laws of Michigan there was no provision for the extension of the life of a limited partnership association organized in… Held: a limited partnership association organized in 1908 for the purpose of taking over all the assets and liabilities of the old association is a new and distinct association (admittedly treated here as a corporation) rather than a mere continuation of the old, although there was no change in stockholders or the business then being…

The petitioner in 1931 paid interest on taxes collected as a succession duty by order of the Supreme Court of British Columbia under a statute of 1924 subsequently declared invalid. Held: petitioner is entitled to a deduction of the interest so paid under section 23(b) of the Revenue Act of 1928.

Money paid upon the order of a surrogate by the guardian of the property of three infants to the guardian of their persons for their maintenance, etc., is not within the income of such guardian in her individual capacity.

The taxpayer in 1931, being in financial difficulties and desiring to avoid annual principal payments of $50,000 on notes given by it in 1930 upon the purchase of certain shares of stock, exchanged $400,000 of such notes for 4,000 shares of its own second preferred stock, with the understanding that if dividends thereon were not paid in any quarter a fixed amount should be paid as interest, and, in addition, such amount as its directors deemed necessary for the support and maintenance of the payee of such notes or his wife, the payee being guaranteed by taxpayer against any loss resulting from such exchange. As a guarantee for the payment and redemption of the stock, principal, and dividends, certain insurance policies were assigned to and deposited with a trustee. Dividends on taxpayer's first preferred stock were in partial default and no dividends were paid in 1933 and 1934 on its second preferred stock, but payments were made on the 4,000 shares as agreed. Held, the payee remained a creditor of taxpayer in 1933 and 1934 and hence the payments made constituted interest deductible from gross income.

The petitioner, who owned real estate in Kansas City, Missouri, made a gift of it in 1934 to a trustee for the benefit of her children. Her husband joined in the deed of conveyance. Held: that the petitioner is liable to gift tax upon the entire value of the property conveyed.

ABANDONMENT OF PROPERTY - LOSS OF USEFUL VALUE. - In 1933 petitioner discontinued the manufacture of drilled staybolts, primarily for the reason that, under the existing conditions, such department of its business was being operated as a loss. Petitioner did not scrap the bolt machines, but stored them in its drilling plant, where they were available at any time for resumption of operations. Held, petitioner is not entitled to a deduction from gross income for the taxable year on account of loss of useful value of its bolt machines.

Petitioner filed its capital stock tax returns on July 29, 1933, disclosing an original declared value for its entire capital stock of $395,157. Held: the declaration of value contained in petitioner's first return could not be amended by the later return, and respondent's determinations are approved.

Trust income payable to beneficiary's assignee pursuant to assignment which could not be revoked or amended until a year and a day after notice, held, not taxable to the beneficiary assignor. Held: not taxable to the beneficiary assignor. Ellen S. Booth,36 B.T.A. 141, followed.

In 1933 petitioner and his wife executed a written instrument purporting to form a partnership for the conduct of an accounting business theretofore operated by petitioner. The wife made no contribution of capital to the enterprise, and rendered no services in that connection. No accounting was made to the wife for any distributive share of the net earnings. The business was subsequently carried on by petitioner under the same name and in substantially the same manner as before. Held, a bona fide partnership was not created by such instrument, and petitioner is subject to tax on all the net income derived from the business during the taxable years.

1. A limited dividend housing corporation, organized under the New York Housing Law, which chose to have all of its common stock owned by tenants and had preferred stock outstanding in the hands of nontenants, does not escape income tax either as an instrumentality of the State of New York engaged in an essential governmental function or as a civic league or organization not organized for profit but operated exclusively for the promotion of social welfare.

- In 1933 an insurance company, represented by petitioner as local and general agent, went into receivership. Held: such expenditures constitute allowable deductions as ordinary and necessary business expense.

Petitioner Harold S. Denniston owned a note secured by a mortgage on real estate. Held: that the debt in the amount of $8,602.16 charged off in 1934 is a legal deduction from gross income.

The Board has no jurisdiction of a proceeding to contest the Commissioner's notice, issued under section 146, Revenue Act of 1936, that the petitioner intended to hinder and prevent the collection of tax and that the amount covering a period of less than the taxable year had been assessed and was immediately due and payable.

Petitioner, having acquired a fully equipped and operating coal property in exchange for stock and an agreement to pay 10 cents a gross… Held: petitioner's payment, being an operating expense based on production, is deductible as royalty, or as an ordinary and necessary business expense within the meaning of section 23(a), Revenue Act of 1928; held, further, the contractual liability of petitioner was not a scheme devised to distribute corporate earnings under the guise of…

A mere holding or investment corporation held, upon the evidence, subject to the 50 percent tax of section 104, Revenue Act of 1932, notwithstanding the diminution in market value of its assets. Held: upon the evidence, subject to the 50 percent tax of section 104, Revenue Act of 1932, notwithstanding the diminution in market value of its assets.

1. Early in the taxable year 1933 some of the directors succeeded in displacing petitioner as president and chairman of the executive… Held: that petitioner as an executive officer of a corporation was engaged in carrying on a trade or business as that term is used in section 23(a), Revenue Act, 1932; held, further, that such expenditures, not having been incurred and paid until after petitioner severed his connection as executive officer of the corporation, were not so…

Petitioner created a trust, of which he and a corporation were the trustees. Held: the income from the trust property was taxable to the grantor under section 167(a)(1), Revenue Act of 1934.

Petitioner was a member of an employees' trust of the character described and dealt with in section 165 of the Revenue Act of 1928. Held: that the shares of stock sold were not capital assets within the meaning of section 101(c)(8) of the Revenue Act of 1928 and that the petitioner did not sustain a capital loss upon the sale thereof.

Two tax exempt corporations were named as residuary legatees of decedent's estate, which consisted primarily of installment obligations. Held: a tax exempt corporation is a person within the meaning of section 44(d) and respondent's failure to approve the bond was an arbitrary abuse of discretion.

Decedent and wife purchased business property for which they paid cash, assumed a note secured by a mortgage upon the property, and executed and delivered a note secured by trust deed on the same… Held: the conveyance of the property by decedent and his wife in consideration for the cancellation of their debt was a sale within the meaning of that word as used in section 101(c)(2) of the Revenue Act of 1932 and the loss sustained was a capital loss.

1. During 1930 certain real estate taxes were assessed against petitioner's Biltmore, North Carolina, real estate, a considerable part of which was used in connection with a dairy business operated… Held: the taxes should be accounted for on the accrual basis rather than on the cash basis. 2.

In 1933 the petitioner took out two single premium insurance policies on his life, naming his daughter as beneficiary. Held: that the value of cash policy on December 30, 1935, for gift tax purposes was the cash surrender value on that date.

OBSOLESCENCE. - Two newspapers combined on January 1, 1932, and thereafter used the plant of one to the exclusion of the other. A decision was reached in 1933 that the idle plant would never be used. Held: no deduction for obsolescence is allowable for 1933; held, further, that no amount is deductible as a loss sustained in 1933.

The owner of property, a portion which was appropriated by a city under condemnation, was awarded and paid $5,447.75. The cost of the property taken by condemnation was $2,925.29. Held: that the fact that the payment of the assessment was postponed is immaterial and, the condemnation and assessment being one transaction (Christian Ganahl Co. v. Commissioner, 91 Fed.(2d) 343), no taxable gain was realized.

Petitioner's mother, who was without means of support and made her home with and was supported by petitioner, was adjudged insane and committed to the state hospital by a court of competent… Held: under the facts here petitioner was entitled to the $2,500 exemption as head of a family.

Petitioner corporation in 1929 sold lots under contracts which obligated it to make street improvements. From 1929 to 1937 petitioner was not called upon to make any improvements. Held: respondent correctly disallowed additional costs of future improvements. Petitioner failed to support claim that basis for lots should be more than original cost. Rule in Cambria Development Co.,34 B.T.A. 1155, not applicable under facts here.

Petitioner's father-in-law in his will created a testamentary trust, and directed the trustee in article seventh thereof to pay out (of) the revenues of the trust estate and out of the… Held: the annuity was not payable in all events. Under the language of the will the trustee was only authorized within its discretion to invade the principal, and under section 162(b), Revenue Act of 1932, the amount paid to petitioner should be included in computing her net income.

Where a taxpayer, voluntarily separated from his wife, maintains two homes, living in one alone, and supporting and maintaining in the other his dependent wife and daughter over whom he exercises family control, he is the head of a family and is entitled to exemption as such.

1. A trust, of which petitioners were beneficiaries, conveyed certain property to a corporation in consideration of the receipt of all of the stock of the corporation and the assumption by the… Held: following Brons Hotels, Inc.,34 B.T.A. 376, that the assumption of the indebtedness will be regarded as other property or money as provided in section 112(c)(1) of the Revenue Act of 1932, and that the transaction accordingly resulted in taxable gain. 2.

The unamortized value of leases in existence on March 1, 1913, which were later extended, should be prorated over the terms of the leases as extended.

A refund of Federal income taxes paid for years 1924 to 1928 was made to petitioner in 1932, the schedule of overassessments being approved by the Commissioner in August 1932, and interest thereon at 4 percent was paid pursuant to the Act of June 30, 1932. On March 3, 1933, the Act of June 30, 1932, was repealed as of the date of its approval, and in April 1933 additional interest calculated at 2 percent was paid on the refund, which brought. the total interest to 6 percent as provided for by the Revenue Act of 1928. Held, no part of the additional interest was income in 1932 to petitioner which was on accrual basis.

1. Where decedent in 1929 transferred certain securities to a trustee to pay the income to himself for life and after his death to his wife and daughter… Held: the transfer was not made in contemplation of death; held, further, the fact that decedent reserved the income to himself for life did not result in the transfer taking effect in possession or enjoyment at or after death, and the Joint Resolution of March 3, 1931, applies only to transfers made after its passage.

1. Petitioner, succeeding to assets of predecessor corporation in a nontaxable reorganization under section 112, Revenue Act of 1928, held, on the facts to be entitled to offset against its income a loss on the sale of transferred property computed by using predecessor's basis, where the evidence sufficiently demonstrates ownership of the property by predecessor and transfer to petitioner prior to consummation of the sale, which had been previously contracted for by predecessor's principal stockholders. 2. Property (shares of stock) found not to have been worthless in or prior to year of sale. 3. Loss on sale held attributable to petitioner's regular business and therefore allowable in the computation of a net loss carry-over.

Where petitioner acquired all of the property of the Rex Manufacturing Co. by a bankruptcy sale, even though the acquisition was pursuant to a reorganization within the meaning of section 112(i)(1) of the Act of 1928, it appearing that only 47.65 percent of the stockholders of the Rex Manufacturing Co. were stockholders of petitioner, held, that the basis of such property for depreciation in the hands of petitioner was not the same as it was in the hands of the Rex Manufacturing Co., since section 113(a)(7) of the Act of 1932 did not apply.

Where petitioner, incorporated under the general laws of Oregon, is shown to have been organized to market farm products for producers on a cooperative basis, processing and manufacturing as well as selling such products under contracts with grower-members owning substantially all of its stock, and its so-called "commercial departments" were operated as an incident of this primary purpose and in order to increase efficiency by facilitating the marketing of its products and reducing the cost of necessary operations, held, petitioner is a farmers' association organized and operated on a cooperative basis for the purpose of marketing the products of members, and comes within the provisions of section 103(12), Revenue Act of 1932, granting exemption from tax to such organizations; Held, further, the fact that no provision is made for profit sharing by nonmembers does not affect petitioner's exempt status where all of its marketing contracts were made with members.

Valspar stock had no fair market value when received by petitioners on or about February 14 and July 12, 1930. History of earnings outweighed by dark prospects and losses.

During the taxable year petitioner made gifts of three insurance policies to her children. The policies were single premium life insurance policies, with definite cash surrender values provided. Held: that the surrender values of the policies at the time of the gifts represented their values for gift tax purposes. Ernest A. Cronin,37 B.T.A. 914, followed.

1. Advances made to a corporation by its sole stockholder over a period of years may not be deducted by the latter as a loss of the additional cost of his stock… Held: where he abandoned his contention as to the other year and consented to entry of a decision of no deficiency for that year. 6. Where a taxpayer makes transfers of his property leaving him with no assets, the transferees are each liable to the extent of the value of the property which they received. 7.

A parent corporation, in the hands of a receiver, and its subsidiary filed capital stock tax returns for the period ended June 30, 1933. The parent declared no value on its capital stock, and the subsidiary declared a value on its capital stock of $5,000. The parent corporation's claim for exemption from capital stock tax was approved by the Commissioner. Pursuant to the provisions of a Treasury Decision dated September 16, 1933, which provided that a group of corporations which had the privilege of making a consolidated income tax return, and had exercised that privilege, should make a consolidated excess profits tax return, a consolidated income and excess profits tax return for 1933 was filed. The parent corporation reported a net income and the subsidiary, a loss. The Commissioner determined a deficiency in excess profits tax based upon the consolidated net income, against which he allowed a credit of 12 1/2 percent of the capital stock value declared by the subsidiary. The effect was to impose an excess profits tax upon the income of the parent corporation, which was in the hands of a receiver. Held: (1) Under the provisions of section 216(a) of the National Industrial Recovery Act, imposing an excess profits tax upon the net income of every corporation for each income-tax taxable year ending after the close of the first year in respect of which it is liable for the capital stock tax imposed by section 215, no excess profits tax can be imposed upon the net income of the parent corporation. (2) The Commissioner can not, by ruling or regulation requiring a consolidated excess profits tax return, impose an excess profits tax upon the net income of a corporation which has never been liable for the capital stock tax.

Petitioner had a claim against a bank for unpaid deposits. The bank had been closed in 1931 and was reopened in April 1933, under a plan approved by the state commissioner of banking. Held: petitioner could not ascertain the debt to be worthless at the close of 1933 and respondent is sustained in disallowing the deduction.

The petitioner, a newly organized mutual life insurance company, issued certain certificates for the purpose of creating a special fund for the further… Held: that the amounts paid by the petitioner to the certificate holders during the taxable year representing the guaranteed 6 percent interest are deductible from gross income as interest payments, and that the payments of 2 1/2 percent of renewal premiums were not interest payments and are not deductible from gross income.

1. The income of a trust which in the trustee's discretion might be used for the support of the grantor's children but was not so used, is not taxable to the grantor. E. E. Black,36 B.T.A. 346. 2. A mother, under no duty to support her children, is not taxable on the income of a trust created by her which might be but was not used for their support. Commissioner v. Yeiser, 75 Fed.(2d) 956. 3.

Petitioner was and is the owner of preferred stock in a railroad company which, on December 30, 1933, was hopelessly insolvent and filed a petition in bankruptcy under section 77 of the Bankruptcy… Held: the appointment of trustees in bankruptcy by the court upon the petition of the railroad company constituted an identifiable event and petitioner can deduct a loss by reason of the worthlessness of such stock in 1933.

Petitioner acted under a power of attorney to manage the finances of an invalid relative of his wife, from 1925 to 1932. Held: upon the facts the claimed loss is not deductible because it was not incurred in a business or in a transaction entered into for profit. The loss was a personal loss.

Where petitioner created a trust, naming his wife as beneficiary of the income therefrom, but did not reserve any power to revoke the trust and the income could not under the terms of the trust… Held: that the income of the trust was not taxable to petitioner under sections 166 or 167 of the Revenue Act of 1934.

1. Cost of depreciable assets acquired for stock determined. 2. Commissioner fails to show that rate of depreciation is less than 5 percent. 3. Deductions for retirement losses allowed.

Corporation H gave corporation B an option to acquire substantially all of its assets for bonds of B and small amount of cash. B accepted but named two subsidiaries U and M to receive the H assets. Held: entire gain to H is recognized, following Groman v. Commissioner,302 U.S. 82; Helvering v. Bashford,302 U.S. 454; A. W. Mellon,36 B.T.A. 977. Schuh Trading Co. v. Commissioner, 95 Fed.(2d) 404, not followed.

The executor of an estate, which owned all the outstanding shares of a corporation engaged in a hazardous business, delayed distribution of the shares because of the objection of the legatee trustee to accepting them as a trust investment. After the corporation had accumulated substantial earned surplus. it capitalized this surplus and issued a 200 percent stock dividend, most of which was, under Pennsylvania law, distributable by the trustee to income beneficiaries.

In July 1931, a fire occurred in the principal place of business of petitioner's husband, resulting in loss and damage to property. Petitioner's husband was insured against loss from fire. Held: that the loss was not sustained until 1933 and is an allowable deduction in that year. Allied Furriers Corporation,24 B.T.A. 457, followed. Cahn v. Commissioner, 92 Fed.(2d) 674, distinguished.

A divorced wife had the custody of minor children who lived with her in the taxable year and over whom she alone exercised family control. Held: that the wife (the petitioner) is not entitled to credits for dependents, but is entitled to a personal exemption as head of a family under section 25(c) and (d) of the Revenue Act of 1932.

Petitioner, as a trader and not as a dealer, speculated in stocks, bonds, grains, futures in grain, silver bullion, United States Treasury bonds, and eggs, from which he derived profits and sustained… Held: section 23(r) of the Revenue Act of 1932 is not unconstitutional as applied to petitioner's business.

Sections 47(c) and (d) and 101(b) of the Revenue Act of 1932 apply where there is a capital net loss in excess of ordinary net income for a short period resulting from a change in accounting periods, and require that both the partial tax on ordinary net income and capital net loss for the short period be placed upon the same basis for the purpose of computing the tax under 101(b).

1. A taxpayer, who purchased a house for renting, listed it for rent with a broker and showed it to prospective tenants but failed to rent it, was engaged in a business, and is entitled to deductions for care and maintenance expenses and depreciation on the property. 2. A premium paid for insurance on business property covering a term exceeding one year is to be treated as the cost of an exhaustible asset and is not deductible as a business expense.

Under a plan of reorganization agreed upon in 1928 corporation A was to transfer its assets to a newly organized corporation B in exchange for 200,000 shares of its stock to be issued to the… Held: the 10,000 shares were distributed in pursuance of a plan of reorganization and hence no gain or loss is to be recognized.

In each of the taxable years petitioner was employed by the Georgia Tech Athletic Association as assistant coach. Held: petitioner was not engaged in the performance of essential governmental functions and to tax his compensation would not impose any burden on the State of Georgia. His compensation received from the Georgia Tech Athletic Association is not immune from the Federal income tax.

1. Corporation A was organized to acquire, as of January 1, 1915, certain assets and business of a partnership, in exchange for 270 shares of its stock. Held: the basis for the common stock must be determined under section 113(a)(6) of the Revenue Act of 1928 and section 202(b) of the Revenue Act of 1918.

An amount received by a successor foreign corporation from the city of New York as a refund of taxes overpaid by a domestic predecessor is not included in the foreign corporation's gross income under section 119, Revenue Act of 1932.

1. CHINA TRADE ACT CORPORATION. - Held, that the certificate of the Secretary of Commerce to the Commissioner of Internal Revenue, in… Held: that the certificate of the Secretary of Commerce to the Commissioner of Internal Revenue, in accordance with section 261(b) of the Revenue Act of 1932, certifying certain facts as to the petitioner's special dividend, did not preclude the Commissioner from determining whether the special dividend had been distributed within the time…

1. A corporation recovering a judgment against the city of New York for damages, being indebted to another (B) for advances, causes, pursuant to an earlier agreement, the amount of the judgment to be cleared through a third person, thereby discharging its indebtedness to B. Held that the earlier agreement did not operate as an assignment of the damage award to B, and the amount thereof is taxable income of the corporation. 2.

The stockholders of A Corporation and C Bank were identical and, under a deposit agreement, held their stock in units composed of one… Held: that the 25 percent of the stock of A Corporation issued to the M Bank stockholders was issued not only for the stock of the new corporation actually received by A Corporation, but also as a part of the consideration for the assets of M Bank which were transferred to C Bank, and, on the evidence, that the cost to petitioner of the…

1. On November 13 and December 26, 1929, petitioner and John J. Raskob, an intimate associate, sold corporate stocks in large and approximately the same amounts to each other, prices being… Held: that the transactions in November and December 1929 did not result in losses deductible under the statute. 2.

1. Sales of stock, under same circumstances considered in Pierre S. du Pont, Docket No. 69674, this day decided, the evidence and findings in which upon this issue are the same as herein, by virtue… Held: not to have resulted in deductible losses. 2. Petitioner invested in a syndicate dealing in certain corporate stocks, which was terminated in less than sixty days within the same year, the taxable year here involved.