Volume 37 — Tax Court Reports

Petitioner corporation was organized in 1947 and engaged in the refrigeration and air-conditioning business. It had net operating losses from 1950 through 1953. Held: that the net operating loss deduction arising from the operation of the refrigeration and air-conditioning business from 1950 through 1953 is not available to petitioner in 1954 to reduce its net profits from its trucking business.

Payment by petitioner corporation to its majority stockholder, the widow of its deceased president, pursuant to corporate resolution adopted after his death, held, on the facts, to be a dividend not… Held: on the facts, to be a dividend not deductible by petitioner.

Petitioner, a corporation, purchased its own convertible notes for $ 117,763.20 which were originally issued at par for $ 40,000 and callable at 106 percent. Held: the excess of the purchase price over the call price was directly attributable to the conversion feature of the notes and is not deductible as a business expense, but the 6-percent premium provided for as a part of the call price is deductible as an expense.

Decedent acquired a tract of land at the same time he acquired timber on it in a partnership transaction. He deeded portions of the land to several members of his family. Held: a portion of the expenditures was incurred in defending title to the land involved and is not deductible and a portion of the expenditures was incurred in defending past income from the property and is deductible under sec. 212.

LaRue was an orthodontist employed by Girt, an orthodontist who maintained a practice in Pittsburgh and a branch practice in Uniontown. Held: the oral agreement between Girt and LaRue amounted to a sale of the Uniontown practice. Held, further, all net income realized from the Uniontown office in 1954 and 1955 is taxable to LaRue. Held, further, the subject matter of the sale was the going Uniontown practice and the goodwill which attached thereto.

Held, that a 1-percent undivided interest in certain land which petitioner owned as a tenant in common, was not at any time held by her primarily for sale to customers in the ordinary course of a… Held: that a 1-percent undivided interest in certain land which petitioner owned as a tenant in common, was not at any time held by her primarily for sale to customers in the ordinary course of a trade or business within the meaning of section 1221 of the 1954 Code.

Three petitioners jointly purchased a noncoupon, nonregistered corporate note late in 1953. On February 28, 1955, three new notes were substituted for the original note. Each new note was payable to an individual petitioner in a face amount equal to one-third of the principal of the old note. The new notes were retired by payments made in 1955 and 1956. Held, the retirement of the notes was not an exchange within section 1232(a)(1), I.R.C. 1954, and petitioners are not entitled to capital gains treatment of the amounts received.

Estate Tax. -- The children of the decedent lived with the decedent and his wife and contributed their earnings, except for spending money, to the decedent and his wife. Held: that there were no resulting trusts in favor of the children with respect to any of the properties and that the full value of such properties is includible in the gross estate of the decedent.

Losses on Sales or Exchanges Between Related Taxpayers -- Sec. 267, I.R.C. 1954. -- Held, no loss is allowable resulting from the redemption of stock by a corporation from a decedent's estate when… Held: no loss is allowable resulting from the redemption of stock by a corporation from a decedent's estate when all the stock of the corporation is owned by the estate and its beneficiaries who are sisters.

Held, that legal and accounting fees paid by petitioners in 1958 in contesting and settling their income tax liability for prior years,… Held: that legal and accounting fees paid by petitioners in 1958 in contesting and settling their income tax liability for prior years, including civil fraud penalties, are expenses attributable to their trade or business within the meaning of section 162(a), I.R.C. 1954, and therefore do not come within the nonbusiness deductions…

Held, National Enforcement Commission determination, pursuant to the Defense Production Act of 1950, disallowing certain expenditures of… Held: National Enforcement Commission determination, pursuant to the Defense Production Act of 1950, disallowing certain expenditures of a partnership and allocating this disallowance among the partners, is binding on the Commissioner of Internal Revenue, both as to its effect on the partnership and as to its allocation among the partners.

Petitioner, a licensed real estate broker, was the successful bidder for certain parcels of real estate sold by Polk County, Iowa, for delinquent taxes in 1951 to 1955, inclusive, for which he… Held: Petitioner was in the business of buying tax liens and disposing of them for profit through redemption or other disposition; 2.

In 1954 petitioner Virginia D. Sheaffer entered into a trust agreement with a bank as trustee wherein petitioner created a separate trust for each of her four children and transferred to the trustee… Held: respondent did not err in so including the above dividends in petitioners' income.

Petitioner, a corporation, issued notes to its shareholders to replace notes already held by them. Held: No debt existed. The corporation is not entitled to an interest deduction.

Amounts received by petitioner from the employer of her deceased husband under the employment contract in effect at his death, held not excludible from her gross income as life insurance.

Holding Period. -- Sec. 421, Sec. 1222(3), I.R.C. 1954. -- On January 10, 1957, petitioner exercised his option to purchase 1,000 shares of Minnesota Mining and Manufacturing Company stock. Held: petitioner's holding period began January 16, 1957, and ended July 16, 1957; therefore, petitioner did not hold his stock for more than 6 months.

Held, employee of two companies, who during period of sickness continues to receive his regular wages in excess of $ 100 per week from each employer, is limited to a sick pay exclusion of $ 100 per… Held: employee of two companies, who during period of sickness continues to receive his regular wages in excess of $ 100 per week from each employer, is limited to a sick pay exclusion of $ 100 per week for each week he is absent from work because of such sickness.

Petitioner was organized by a number of rural electric cooperative associations for the purpose of having it finance purchases of home appliances, electric wiring systems, and the like, by the… Held: petitioner is not an exempt organization under section 501(c)(12) of the Internal Revenue Code of 1954. Held, further, the debentures represented an equity interest in petitioner and payments thereon in 1957 were not deductible as interest.

Renunciation by petitioner of portion of testamentary income in 1956, many years after testator's death in 1931, held subject to gift tax for 1956 as not having occurred prior to acceptance and… Held: further, taxable to petitioner as subject, during such year, to her unfettered command; notwithstanding subsequent approval of renunciation in State court decree in accounting proceeding.

Petitioner, a corporation keeping its books on an accrual basis, incurred and paid expenses in 1955 and 1956 for moving its machinery and equipment from property which had been appropriated by State… Held: the moving expenses were ordinary and necessary business expenses accrued and deductible in the years in which incurred, there existing at that time no fixed right to reimbursement but only an unacted-upon claim which was contingent as to amount.

Under the terms of a divorce decree entered in 1950, petitioner was obligated to make $ 250 monthly payments to his divorced wife for a 5-year period, to pay the monthly rental on a… Held: that the $ 250 payments were periodic payments under sec. 71, I.R.C. 1954. Held, further, that the payments made toward the purchase of the house were installment payments over a period of less than 10 years from the date of the agreement under the terms of which such payments were made.

On July 28, 1954, petitioner entered into an employment agreement with its president, Robert W. Burgess, whereby it employed him for a term of over 5 years at a basic salary of $ 70,000 per annum,… Held: the respondent erred in disallowing the deduction.

The petitioner entered into an oil lease which required her to pay $ 50,000 rental in each of the first 2 years of the lease. Held: the two $ 50,000 payments were a bonus not allocable to any particular year and, therefore, not deductible as ordinary and necessary expenses in the year in which paid.

Decedent sold without reservation or contingency stock in a family-owned corporation to the corporation for $ 150,000. Held: that no part of the purchase price or the stock should be included in the decedent's gross estate.

Held, that the principal petitioner, a contractor who computed profit on a long-term construction contract on the completed contract basis,… Held: that the principal petitioner, a contractor who computed profit on a long-term construction contract on the completed contract basis, must take into account the salvage value of depreciable and amortizable assets used in performing the contract, in computing his deductions for depreciation and amortization; held, further, that…

1. Petitioner formerly leased, but refused to sell, the container-closing machines which it manufactured. Held: petitioner's sales of closing machines in 1953 did not qualify for capital gains treatment under section 117(j), I.R.C. 1939. 2.

Capital Gain v. Ordinary Income. -- Held, the purported sale of an exclusive theatrical agency contract resulted in ordinary income and not capital gain. Held: the purported sale of an exclusive theatrical agency contract resulted in ordinary income and not capital gain.

Legal expenses paid by widow in connection with obtaining property under her right of dower held capital expenditures, nondeductible under section 212, I.R.C. 1954.

In 1954, petitioner conducted a coffee brokerage business in his individual capacity, which business consisted mainly of acting as a local agent for… Held: that the amount of $ 102,340.57 paid to Hard & Rand, Inc., by petitioner as required by his guarantee is not deductible as an expense. Held, further, that said payment by petitioner gave rise to a debt due to him by the corporation, but that petitioner has failed to prove that such debt became wholly worthless in 1955.

Held, payments for a release, attorneys' fees, and other costs arising out of the defense of a suit for breach of promise to marry are personal expenses, deduction of which is barred by section 262… Held: payments for a release, attorneys' fees, and other costs arising out of the defense of a suit for breach of promise to marry are personal expenses, deduction of which is barred by section 262 of the 1954 Code.

Petitioner, a manufacturer of products made of a cellulose fibre and bituminous pitch material, claims relief from excess profits tax… Held: petitioner has not shown that its electric conduit earnings during the base period were depressed during the base period by reason of temporary economic circumstances unusual in its experience, or because an industry of which it is a member was depressed by reason of temporary and unusual economic events within the meaning of section…

Held, under the facts, payments of interest on loans from an insurance company ostensibly used to purchase deferred annuity contracts, which were the sole security for the loans, are not deductible. Held: under the facts, payments of interest on loans from an insurance company ostensibly used to purchase deferred annuity contracts, which were the sole security for the loans, are not deductible.

Advances to unrelated corporation from which petitioner's partnership anticipated assistance in carrying on of partnership's business, and which turned out to be worthless, held deductible as business bad debts.

In 1954 and 1955 petitioners engaged in the purchase and sale of real estate equities and in the purchase and sale of automobiles. Held: the Commissioner's computation of income from automobile transactions on an accrual basis is sustained. Held, further, the Commissioner did not err in failing to compute the income of the Parker Realty Company in his determination of the deficiencies on an accrual basis.

1. Held, on the facts, that payments by a corporation to its former president's widow were not gifts. Estate of Mervin G. Pierpont, 35 T.C. 65 (1960), followed. 2. Held: on the facts, that payments by a corporation to its former president's widow were not gifts. Estate of Mervin G. Pierpont, 35 T.C. 65 (1960), followed. 2.

1. On January 1, 1946, the petitioners Herbert A. Chary and Dominick F. Pachella formed a law partnership in the city of Hackensack, New Jersey. Held: the advances to the corporation by the law partnership were nonbusiness debts which did not become worthless prior to 1955. 2. In addition to the amounts advanced to the corporation by the law partnership, funds were borrowed by the corporation from various clients, relatives, and friends of the petitioners.

Held, petitioner corporation is entitled to deduction for claimed net operating loss carryovers for the taxable years 1956, 1957, and 1958. Held: petitioner corporation is entitled to deduction for claimed net operating loss carryovers for the taxable years 1956, 1957, and 1958. Sections 382 and 269, I.R.C. 1954, do not apply. Held, further, amounts deducted for amortization of the cost of a 1955 management survey were correctly disallowed.

Geraldine and Oscar, husband and wife in a community property State, each reported one-half of Geraldine's share of income of a partnership, in which Geraldine, her father, and her brother were… Held: Mitigation provisions of sections 1311- 1315, I.R.C. 1954, are applicable to permit adjustment in Geraldine's income for 1945 and recovery of tax erroneously refunded to her. Notice of deficiency timely. Geraldine was a related taxpayer at time required by section 1311(b)(3).

Petitioners are several gas wells drilled on leaseholds obtained by J. O. Boyle, who made assignments of fractional interests in the wells in return for funds supplied to him by the assignees. Held: petitioners are associations taxable as corporations. Held, further, the incomes of petitioners include the entire receipts derived from sales of gas from the wells.

Petitioner corporation was organized on January 1, 1956, by receiving in a tax-free exchange the assets and liabilities of a partnership. Held: Inventories are necessary in petitioner's business and its sales and purchases are properly reportable for income tax on an accrual basis. 2. The inventory and accounts receivable taken over by petitioner from the partnership had a zero basis. 3.

Held, where at the time of decedent's death there was no enforcible claim against her estate, such claim being contingent upon litigation involving another estate, it is proper to consider events occurring after decedent's death in order to determine the amount which the estate may properly deduct.

Petitioner was in Japan from October of 1955 until July of 1957 as a Fulbright lecturer at Kobe University. Held: Amounts paid to petitioner in 1956 and 1957 as a Fulbright lecturer were paid by the United States or an agency thereof within the meaning of section 911(a)(2) of the 1954 Code and thus were not excludible from gross income. 2. Petitioner's tax residence remained in the United States during 1956 and 1957.

1. Held: That real estate lots sold in the year in question constituted property held primarily for sale to customers in the ordinary course of trade or business, and that the gain therefrom is taxable as ordinary income. Section 1237 of the Internal Revenue Code of 1954 is not applicable since other lots in the tract of land had previously been held by the individuals or their partnership primarily for sale to customers in the ordinary course of trade or business; two of such other lots continued to be so held in the year in question; and substantial improvements were made upon the tract of land and petitioners have not shown that such improvements did not substantially enhance the value of the lots sold. 2. Held, further, that the burden was upon the petitioners to prove the amount of depreciation of hotel alterations which is properly allowable as a deduction and that they have failed to meet such burden.

David K. Carlisle had a bronchial asthmatic condition. He paid an attorney's fee and expended funds for telephone and telegraph charges in his attempt to secure acceptance by the Army of his resignation therefrom. He was separated from the Army in 1958 without the disability severance pay he claimed. Held: Petitioners are not entitled to a deduction in 1958 for the attorney's fee and the telephone and telegraph expenditures. The attorney's fee was not paid or incurred in 1958. The telephone and telegraph costs were neither medical expenses nor ordinary and necessary business expenses. Held, further, David K. Carlisle's failure to receive disability severance pay upon his separation from the Army in 1958 did not give rise to a worthless bad debt deductible by petitioners in that year.

1. The stockholders of a bank formed a partnership to engage in the insurance business, rather than use their bank for that purpose, because State law forbade banks to engage in other than banking activities. The partnership did engage in the insurance business. Held, the bank corporation and the insurance partnership are separate entities for Federal income tax purposes. Held, further, respondent may not, under section 482 of the Internal Revenue Code of 1954, disregard the separate existence of the insurance partnership by allocating to the bank all of the partnership's "net" income. 2. Held, on the facts, respondent's allocation of deductible expenses between the partnership and the corporation is sustained except for minor adjustments.

Petitioners are husband and wife residing in California, a community property State. Held: petitioners are limited to only one $ 1,000 capital loss deduction for each of the years involved.

Petitioner defrayed a substantial portion of her mother's living expenses so that the mother would live in petitioner's home and care for petitioner's son. Held: 1. Held: Petitioner is entitled to a deduction for her son, Gregory, since she may count such moneys as a part of the cost of Gregory's support. Thomas Lovett, 18 T.C. 477, acq. 1952-2 C.B. 2, followed. 2.

Held, that payments made by the petitioner, a distributor of beer, to a predecessor distributor pursuant to a contract, executed at the time of acquisition of the petitioner's distributorship, providing for the payment of 3 cents per case of beer sold until a specified sum had been paid, did not constitute deductible ordinary and necessary business expenses but expenditures in the nature of capital outlays. Held, further, that since there is no showing that the benefits to be derived for the payments were for a definite or limited period, such payments may not be amortized and deducted under section 23(l) of the Internal Revenue Code of 1939 and section 167(a)(1) of the Internal Revenue Code of 1954.

Petitioners transferred their stock in a corporate enterprise, along with two promissory notes totaling $ 125,000, to I, a tax-exempt organization, in consideration for a non-interest-bearing note in… Held: the transfer of petitioners' stock to I in return for the promissory note constituted the sale of a capital asset. Held, further, no part of the amounts received by petitioners is allocable to interest.

Held, in determining the amount of unused excess profits credit, based upon CABPNI, from the year 1941 available as a carryover to the year… Held: in determining the amount of unused excess profits credit, based upon CABPNI, from the year 1941 available as a carryover to the year 1943, petitioner is entitled to use of CABPNI for the year 1942 in computing the amount of its adjusted excess profits net income for 1942 against which the unused credit from 1941 must first be…

In 1956 petitioner, a physician, paid $ 25,000 for stock subscription to a life insurance corporation which was being formed by Paterson, Zak, and others. Held: petitioner is entitled to a deduction for a theft loss in the year 1956 within the meaning of section 165(e), I.R.C. 1954.

1. Petitioner was engaged in the mining of deposits of oystershell off the Texas gulf coast. Petitioner sold part of the mineral mined to chemical companies which purchased the same for its high calcium carbonate content. The commonly understood commercial name of the mineral was oystershell and not calcium carbonates. Held, that the rates of depletion applicable to all of petitioner's operations are the 5 percent rates provided for oystershells in section 114(b)(4)(A)(i) of the Internal Revenue Code of 1939 and in section 613(b)(5) of the Internal Revenue Code of 1954. 2. Held, petitioner is not entitled to deduct as ordinary and necessary business expenses amounts paid to one of the two sons of the original founder of petitioner during certain of the taxable years where the individual rendered no actual services to petitioner. Held, further, there was no covenant not to compete entered into by such individual with petitioner.

Petitioner, an interstate carrier, had a legally effective tariff schedule on file with the Interstate Commerce Commission during 1943 and 1944. Held: the payment by petitioner did not amount to a renegotiation of Government contracts within the meaning of section 3806 of the 1939 Code and petitioner is allowed to deduct for 1953 the entire amount paid (in 1953) to the Government as money originally received under a claim of right but subsequently repaid.

1. Petitioner, formerly a citizen of France, came to the United States in 1950 and established a residence in New York City. Held: that petitioner was a resident alien of the United States during the taxable period, and the wages she received during said years for services performed in FrenchMorocco constituted taxable income. 2.

The petitioner operated a brewery in California. The State filed a complaint in condemnation in 1952 to take a portion of the brewery property. If this portion of the property were taken, the petitioner's brewhouse building and equipment would become useless. The State would be required to compensate the petitioner for any damage to the tract of land on which the brewery was situated which would result from the taking. This compensation would cover damage to fixtures. The petitioner claimed an obsolescence deduction in each of the taxable years for the brewhouse building and equipment and also claimed an obsolescence deduction for the remaining basis of certain new bottlehouse equipment which, the petitioner asserted, became useless due to external factors in 1954. The petitioner deducted certain repair expenses which were disallowed by the Commissioner as capital in nature because they were asserted to be part of a general betterment program. The petitioner claimed a larger depreciation deduction than was taken in its original returns on certain machinery and equipment and on a steel warehouse. Held: 1. The petitioner is not entitled to an obsolescence deduction on its brewhouse and brewhouse equipment because it would be reimbursed by the State for any loss in value to it resulting from the condemnation. It is not entitled to an obsolescence deduction on the new bottlehouse equipment because its unusual loss of value occurred wholly within 1 taxable year. 2. The petitioner is entitled to deduct its repair expenses because it was not engaged in a general betterment program during the years in question. 3. The petitioner is not entitled to the additional depreciation claimed on machinery and equipment and the steel warehouse, because it did not present sufficient evidence for a determination of the proper useful lives of these items.

Held, that fully earned increments on 15-year investment certificates issued by a corporation in registered form -- representing the… Held: that fully earned increments on 15-year investment certificates issued by a corporation in registered form -- representing the difference between the issuance prices of the certificates, and the amounts of the maturity values thereof which petitioners realized at the close of the certificates' 15-year periods -- constitute ordinary…

Petitioner Leona Sales was a partner in Stuart Enterprises, which by its articles of partnership was formed for the purpose of holding and renting real estate… Held: The loan was not proximately related to the partnership's real estate ventures nor was the partnership engaged in the business of lending money. Consequently, the loss resulting from the worthlessness of the debt is deductible only as a nonbusiness debt under section 166(d) of the Internal Revenue Code of 1954.

Petitioner, organized and operated at cost to enable members of the California State Grange to contribute to each other's fire losses by means of premiums and assessments, held not qualified for exemption under section 501(c)(8) of the 1954 Code as paying life, sick, accident or other benefits.

The petitioners, residents of Memphis, Tennessee, had a 10-year-old son who suffered from asthma and who had a deep psychological problem… Held: that the amount paid to the school for tuition, room and board constituted nondeductible personal, living or family expenses under section 262 of the Internal Revenue Code of 1954 and not expenses paid for medical care within the meaning of section 213; however, the amount paid through the school to a private medical doctor and a…

Held, that petitioner is not entitled to deduct for income tax purposes, as an ordinary and necessary expense under either section 162 or section 212 of the 1954 Code, the amounts… Held: that petitioner is not entitled to deduct for income tax purposes, as an ordinary and necessary expense under either section 162 or section 212 of the 1954 Code, the amounts which he paid as additions to tax under section 6651(a) for the delinquent filing of a Federal excise tax return.

A township adopted an ordinance on September 25, 1958, retroactively designating as a statutory subsistence allowance a portion of amounts previously paid to its police officers. Held: that the salary received by the petitioner, a police officer, prior to the enactment of the township ordinance, retained its character as salary and that no part thereof may be considered as excludible as a statutory subsistence allowance under section 120 of the Internal Revenue Code of 1954.

Gain, predominantly composed of previously earned investment income, realized on transfer for consideration to third person of insurance policies on petitioner's life, held ordinary income notwithstanding transaction may have incorporated sale of a capital asset. Harry Roff, 36 T.C. 818 (1961), followed; Percy W. Phillips, 30 T.C. 866 (1958), distinguished.

1. Expenditures made by petitioner for certain advertising and other overhead expense held not allocable to the petitioner's renegotiable business in 1952. 2. Cost of work performed with respect to the design, development, and construction of a prototype airplane not in pursuance of any contract with the United States Government held not allocable to petitioner's renegotiable business. 3.

1. Expenses and depreciation on yacht and other boats owned by corporation, in exclusive possession of its sole stockholder, held not deductible by corporation in excess of amounts allowed by the Commissioner. 2. Certain travel and other expenses paid by corporation held personal and not deductible by corporation. 3. Expenditure for certain stereoviewers held capital outlay rather than business expense. 4.

1. Petitioners Charlotte G. Buckley and Daniel C. Buckley executed a separation agreement in 1932. There was no legal separation. Held: that no part of the payments received in 1953 and 1954 constituted payments under a written agreement incident to a divorce or legal separation and no part of such payments was includible as alimony in Charlotte's income or deductible by Daniel or the estate.

Petitioners, operating through their partnership, extracted coal under a contract with the lessee of the land. Held: petitioners did not possess an economic interest in the coal in place and respondent was not collaterally estopped from disallowing the claimed depletion deduction by reason of Walter Bernard McCall, 27 T.C. 133 (1956), since Parsons v. Smith, 359 U.S. 215, was a development in the applicable legal rules that changed the legal…

T, sole stockholder of X, sold his stock for a price to be computed by valuing underlying assets. Held: the payment to T was not part of the purchase price entitled to preferential capital gains treatment.

Held, widow's right of withdrawal of the proceeds of life insurance policies existed immediately upon insured husband's death and her… Held: widow's right of withdrawal of the proceeds of life insurance policies existed immediately upon insured husband's death and her withdrawal rights were exercisable in all events so as to qualify the proceeds for marital deduction under section 812(e)(1)(G), I.R.C. 1939, even though limited to a monthly interest due date 30 days after…

The petitioner, a qualified industrial psychologist, was employed as such by an insurance company in Newark, New Jersey, and resided in… Held: that the education was undertaken primarily for the purpose of maintaining or improving the petitioner's skill (as an industrial psychologist) required by him in his employment, and that the costs of tuition, textbooks, and supplies, and transportation are deductible as ordinary and necessary business expenses under section 162(a) of…

1. Petitioner, as managing officer, president, and chairman of the board of directors of the City Savings Association, employed Melvin Building… Held: that some part, if not all, of the overpayment made by City Savings to Melvin was thereafter paid over by Melvin to petitioner and was income to him. Held, further, that petitioner has failed to prove that the income so received was in a lesser amount than determined by respondent in his determination of deficiency.

Petitioners, operating as a partnership, strip mined coal under a lease agreement and mining contract with the owner of the mineral rights. Held: petitioners did not acquire an economic interest in the coal in place and they were not entitled to take depletion deduction under section 611, I.R.C. 1954.

Petitioners purchased at a discount from the issuers certain debentures. The debentures provided for a 6-year maturity. Held: petitioners realized ordinary income to the extent of the excess of the amounts realized on redemption over the amounts paid for the debentures.

In December 1955, petitioners, partners in a successful Miami law firm, were approached by L about a tax-saving plan involving the purported purchase of United States Treasury notes with borrowed… Held: that, in substance, petitioners did not purchase Treasury notes, borrow funds, or pay interest which is deductible under section 163 of the 1954 Code. Eli D. Goodstein, 30 T.C. 1178, affirmed 267 F. 2d 127 (C.A. 1), followed.

1. Petitioner acquired debentures in 1950 to assure itself of a supply of raw materials which were used to make its product and which were scarce at the time. Held: the loss on the sale of the debentures in 1955 was a capital loss. 2. Petitioner failed to prove that respondent erred in disallowing as a deduction for 1955 a part of the Vermont corporation franchise tax accrued on its books for 1955 but not paid until 1958.

In 1947 petitioner's wholly owned corporation purchased the properties of a coalbreaker which properties included a silt bank. Held: the gain realized by petitioner on the sale of the silt bank in 1956 is long-term capital gain.

Held, that the amounts taken by Adame in the illegal transactions described in our Findings of Fact and for which he was subsequently… Held: that the amounts taken by Adame in the illegal transactions described in our Findings of Fact and for which he was subsequently indicted and convicted for theft by false pretext were income to him in the years when such amounts were taken and should have been reported as taxable income and that the decision of the Supreme Court in…

Petitioner, a corporation on an accrual basis of accounting, executed and delivered its promissory notes, payable 5 years after date, to an employees' profit-sharing pension trust. Held: the contribution of such notes does not constitute a deductible payment within the meaning of sec. 404, I.R.C. 1954.

Certain expenditures made by petitioner in 1956 in perfecting the grant in 1953 of a construction permit for a television station, which grant had been made without a hearing and as such was subject… Held: to be capital expenditures and not deductible in 1956 as ordinary and necessary expenses under section 162(a), I.R.C. 1954.

Petitioners' young daughter was afflicted with cystic fibrosis and, upon the advice of a physician, they installed a central air-conditioning unit in their home at a cost of $ 1,300 so she could have… Held: under the facts the $ 1,300 was a medical care expenditure under section 213, I.R.C. 1954, and, to the extent the unit did not increase the value of the home, it was deductible as medical expense.

Payments made in subsequent years under a contract of sale of corporate stock calling for a total specified maximum payment but not to exceed a stipulated percentage of the corporation's income for the following 5 years, held to be proceeds of the sale and thus taxable to the sellers notwithstanding that the unfulfilled portion of the sales contract had in the meantime been made the subject of a gift.

The petitioner purchased certain Michigan land contracts at substantial discounts of the principal balances due and payable on the face thereof at the time of… Held: that each monthly payment received by the petitioner on the contracts includes, after deduction of interest, realized discount income in proportion to the difference between the petitioner's cost and the principal balance due upon the face of such contracts at the date of the petitioner's purchase thereof.

McGraw, contemplating the purchase of the controlling shares in petitioner, negotiated with Roberts for the possible future employment of Roberts by petitioner. Held: the portion of the expenses attributable to the claims against McGraw was an ordinary and necessary business expense to petitioner within the meaning of sec. 162(a) of the 1954 Code.

1. In 1949 a cotton gin owned by a partnership was destroyed by fire and the partnership received insurance proceeds for the loss. Held: that such proceeds were expended by the partnership in the acquisition of a new gin; that under sections 112(f) and 113(a)(9) of the Internal Revenue Code of 1939, the basis of the new gin, to the extent replaced by the insurance proceeds, was the same as that of the property destroyed; that the new gin and other property of the…

1. Petitioner Arthur J. Kobacker entered into a contract with the Reiner family to purchase all the outstanding capital stock of Reiner's, Inc., a department store, for an aggregate price of $… Held: the payment in 1955 of $ 90,000 on Reiner's debt to Jerome does not constitute constructive income either to Arthur and his wife, or to the other stockholders in Reiner's, Inc. 2.

Irrevocable transfer in trust in 1943, to pay specified amounts periodically from income to named beneficiaries, and upon termination to… Held: transfer was an incomplete gift of principal for gift tax purposes in 1943 so that distributions of principal to beneficiaries in subsequent years were taxable gifts; but held, further, that transfer was a completed gift of the income of the trust for gift tax purposes in 1943 so that distributions of income to beneficiaries in…

Petitioner, a California nonstock membership corporation, operates a group of department stores in the San Francisco Bay area for the exclusive use of its members and their guests. Membership is not open to the public but is restricted to active and retired government employees and widows of such government employees for a fee of $ 2 and to veterans for a fee of $ 3.

Percival J. Haines, a general contractor, under plans and specifications approved by U.S. Rubber, constructed a warehouse facility of which U.S. Rubber was to become and became the… Held: that Haines' principal purpose in organizing and acquiring control of Concord as a separate corporation was to avoid income taxes through a second surtax exemption, and that the respondent's disallowance of the exemption was proper under section 269 of the Internal Revenue Code of 1954.

Petitioners and a firm of contractors entered into a contract for the subdivision and development of certain real estate owned by petitioners. Held: when petitioners conveyed 40 lots to the contractors to compensate them for work done, petitioners realized a taxable gain. Held, further, on the facts, petitioners were in the trade or business of selling real estate and the gain so realized was ordinary income.

Petitioners are not entitled to a deduction in 1956 for an advance payment in that year of an amount due on or before March 1, 1957, as a delay rental with respect to an oil and gas lease for the period March 1, 1957, to March 1, 1958.

Petitioner's decedent received the residue of his deceased wife's estate, and also received payments from a controlled corporation. Held: Respondent is not estopped to assert transferee liability against petitioner herein because of his determination, sustained in the prior cases, that the payments to decedent and his wife were corporate distributions. 2.

The petitioners, husband and wife, are noncompetent full-blooded American Indians, who were born on and live on an Indian reservation. Held: that said amount did not constitute taxable income under the Federal income tax laws. Held, further, that since petitioner and his wife had no other income, they were not subject to an addition to tax under section 6651(a) of the 1954 Code, for failure to file a timely income tax return.

The decedent in 1935 created three trusts, transferring securities to a named trustee, the trust indenture providing that the income… Held: that such right reserved by the grantor was reserved in a fiduciary capacity; that it did not constitute a right to designate the persons who should possess or enjoy the property or the income therefrom, within the meaning of section 2036(a)(2) of the Internal Revenue Code of 1954; that the enjoyment of the trust property was not, by…

The decedent established certain irrevocable trusts in stock of the Morgan Engineering Company. Held: the income of the trusts used to repay the loan was not income to the decedent in 1957 and 1958.

Held, depreciation upon an automobile used to transport petitioners' dependent son to a doctor is not allowable as a medical expense deduction under section 213, I.R.C. 1954. Held: depreciation upon an automobile used to transport petitioners' dependent son to a doctor is not allowable as a medical expense deduction under section 213, I.R.C. 1954.

Held, that the exercise of stock options by the petitioners in 1956 to purchase stock of U.S. Polymeric Chemicals, Inc., gave rise to compensatory,… Held: that the exercise of stock options by the petitioners in 1956 to purchase stock of U.S. Polymeric Chemicals, Inc., gave rise to compensatory, taxable income to petitioners to the extent of the difference between the fair market value of the stock and the option price of said stock at the time the options were exercised.

Held, that the payments made to petitioner in 1955 and 1956 by S. B. Penick & Company were not made to her as gifts and were not excludible from her gross income under section 102,… Held: that the payments made to petitioner in 1955 and 1956 by S. B. Penick & Company were not made to her as gifts and were not excludible from her gross income under section 102, I.R.C. 1954. The payments resulted in the receipt of taxable income by petitioner under section 61(a), I.R.C. 1954.

1. Held, that petitioner is liable as a transferee of property of Crystal Coca-Cola Bottling Co. (dissolved), for unpaid deficiencies in… Held: that petitioner is liable as a transferee of property of Crystal Coca-Cola Bottling Co. (dissolved), for unpaid deficiencies in the latter's income and excess profits taxes for the taxable periods involved, together with interest thereon; and that petitioner's liability as such transferee may be enforced by the Commissioner in the…

Liquidation of Subsidiary -- Recognition of Gain -- Sec. 392 and Sec. 337, I.R.C. 1954. -- In 1954, J. C. Penney Building and Realty Corporation, a wholly owned subsidiary of J. C. Penney Company,… Held: The gain on the sale is recognized. Petitioner's contention that the recognition of gain depended on whether or not the sale was made prior to or following the adoption of the plan of liquidation rejected.

The petitioners who were stockholders in a closely held corporation received salaries in 1953 and 1954 which they themselves had authorized as directors. Held: there was no legal compulsion, either under Wisconsin law or because of purported representations made by respondent's agents, to make the repayments, and consequently such repayments to the corporation were voluntary in nature and not deductible by the petitioners in 1956.

Held, that the partnership agreement herein does not provide for a payment with respect to goodwill within the meaning of section 736(b)(2)(B), I.R.C. 1954. Held: that the partnership agreement herein does not provide for a payment with respect to goodwill within the meaning of section 736(b)(2)(B), I.R.C. 1954.

Held, certain amounts paid in 1954 to an insurance company in the form of interest on purported annuity contract loans are not deductible. Knetsch v. United States, 364 U.S. 361, followed. Held: certain amounts paid in 1954 to an insurance company in the form of interest on purported annuity contract loans are not deductible. Knetsch v. United States, 364 U.S. 361, followed.

Held, purported interest payments made in connection with so-called annuity transactions, similar to those involved in Knetsch v. Held: purported interest payments made in connection with so-called annuity transactions, similar to those involved in Knetsch v. United States, 364 U.S. 361, and Amor F. Pierce, 37 T.C. 1039 (decided this day), are not deductible, notwithstanding the interposition of an intermediate bank loan found herein to be lacking in substance.

Petitioner and Cammer were partners in a cafe. Petitioner notified Cammer that unless Cammer purchased his interest he would bring an action for an accounting and dissolution of the partnership. Held: the proceeds of the loan were not used in the trade or business of the borrower within the meaning of section 166(f) and petitioner is not entitled to a bad debt deduction under that section.

Petitioners, during the years in issue, owned property known as Circle S Breeding Farm. There were two residences on the farm. Held: That the breeding, training, and boarding of horses, the giving of riding lessons, and the sale of horses constituted a trade or business carried on by petitioners for profit, and that the losses attributable thereto in the years in question are deductible.

Since 1920 the petitioner, a corporation engaged in the construction business, has filed its returns and kept its books on a completed-contract method of accounting with respect to all of its… Held: under the circumstances of this case the completed-contract method of accounting clearly reflected the petitioner's income from cost-plus contracts.

Petitioner I. J. McCullough and his brother owned 80 and 20 percent, respectively, of the stock of Tool Company. Held: that the payments received by petitioner from Tool Company during the years 1951, 1952, and 1953 constituted ordinary income, and not long-term capital gain.

A revenue agent investigating a partnership return of income for 1952 told the partnership's certified public accountant and one of the partners that the proper method of keeping the records and… Held: The change in accounting method was initiated by petitioners. 2. The statement filed by the partners constituted a valid election to have the pre-1954 adjustments spread over the 10-year period commencing in 1958. 3.

Purchase of call and simultaneous short sale of identical stock closed out together within same month held to result only in net short-term capital loss not entitling petitioner to deduct as business expense amount paid as reimbursement for dividend previously declared, and paid while petitioner was short.

1. Value of certain inherited property determined as of date of decedent's death in order to establish basis for computing subsequent loss. 2. Held: Property received in a taxable exchange in 1941 takes on a basis equal to its fair market value as of the time of the exchange. Cf. Philadelphia Park Amusement Co. v. United States, 126 F. Supp. 184 (Ct. Cl.). Value of such property determined.

A widow settled her statutory claim against her husband's estate by releasing it in return for a promise of monthly payments from the income of an irrevocable inter vivos spendthrift trust set up by… Held: The monthly payments are an inheritance of income from property and not excludible from income under sec. 22(b)(3), I.R.C. 1939, or sec. 102(b), I.R.C. 1954. 2.

Upon the termination of a testamentary trust established by the father of Eleanor Erdman, the trustee filed suit in chancery court to determine the proper recipient… Held: the payment of the attorney's fees is properly an expenditure of the trust and not an expenditure of Eleanor. Held, further, since these fees were chargeable to corpus rather than to income, they do not reduce the trust income distributed to and properly reported by Eleanor under sec. 162(b), I.R.C. 1939.

Petitioners are the owners and operators of a racing stable, the primary purpose of which is the racing of horses at public tracks for profit. Held: that the horse in question was property owned and used by petitioners in their business within the meaning of section 1231(b)(1) of the Internal Revenue Code of 1954, and under section 1231(a), the loss sustained on his sale is to be considered as a capital loss.

Petitioner Oliver L. Bardes, in 1953 and 1956, respectively, purchased two pieces of land in Cincinnati and leased a portion of each piece to Bardes Corporation and Ilsco Corporation, respectively. Held: all the transactions here involved were bona fide business transactions made at arm's length and Oliver realized no dividend income during the years 1953 through 1956 by reason of the improvements erected on his land by the two above-named corporations.

Held, that petitioner's payment of $ 15,800 to his former wife pursuant to the provisions of a written lease between them, constituted rental… Held: that petitioner's payment of $ 15,800 to his former wife pursuant to the provisions of a written lease between them, constituted rental for his use and occupancy of certain farming lands which he had conveyed to said former wife in a property settlement incident to their divorce; and that said amount is deductible by him as a…

Held, that the cost of education undertaken by the petitioner, an assistant professor of economics at a university, for the purpose of… Held: that the cost of education undertaken by the petitioner, an assistant professor of economics at a university, for the purpose of obtaining a doctoral degree is deductible as an ordinary and necessary business expense under section 162(a) of the Internal Revenue Code of 1954 and the regulations promulgated thereunder, such education…

1. Husband and wife, living together, filed joint returns. Held: failure to mail duplicate originals of the notice of deficiency to each spouse did not invalidate the notice of deficiency under section 6212(b)(2) and Court has jurisdiction. 2.

A corporation which employed the husband of the decedent (taxpayer) owed him in excess of $ 100,000 of earned but unpaid commissions on May 23, 1927. Held: under the provisions of section 126 and its counterpart, section 691(a), I.R.C. 1954, the payments in 1953 through 1957 constituted taxable income to taxpayer.

Petitioners received in 1956 and 1957 earned income from sources outside the United States attributable to an 18-month period ending in 1956. Held: the amount of such income excludible from gross income in 1956 is a fraction of $ 20,000 based upon the number of days of the 18-month period contained in the taxable year, and no amount is excludible in 1957. Sec. 911(a)(2), I.R.C. 1954.