Volume 38 — Board of Tax Appeals

Where prior to the filing of petition with the Board a debtor's petition for reorganization under section 77B of the Federal Bankruptcy Act has been filed by the taxpayer with a United States District Court and that court has entered an order approving the debtor's petition, the Board has no jurisdiction to hear the petition and respondent's motion to dismiss the petition for lack of jurisdiction should be granted.

The amount receivable on life insurance policies on the life of a decedent and payable to his wife may not be included in the decedent's gross estate under section 302(g) of the Revenue Act of 1926, where the policies were taken out by and for the benefit of and were owned by a corporation in which the decedent was a stockholder, officer, and director.

1. Petitioner Hammonds, married and domiciled with her husband in the State of Oklahoma, a noncommunity property state, acquired in 1930, for her services, certain oil and gas leases in the State of… Held: since the leases so acquired were her separate property under the law of Oklahoma, the presumption, under the law of Texas, that they were community property is overcome by that showing and, therefore, the income therefrom is her separate income, taxable to her. 2.

- Petitioners filed joint income tax returns for the years 1932, 1933, and 1934, in which they reported less than one-half of the net… Held: that the deficiencies are due to fraud with intent to evade tax, and petitioners are liable for the 50 percent fraud penalties; held, further, since petitioners did not disclose in their returns the income and deductions attributable to each, and at the hearing offered no proof to establish a basis for allocation of the deficiencies…

Distributions made from the income of a testamentary trust to the executors and trustees, who were also named as beneficiaries of the trust both as to the income and principal, as full compensation in lieu of all commissions to them either as trustees or executors, held not compensation for services as executors and trustees, and to the extent that such distributions represented dividends on shares of stock of domestic corporations they are not subject to normal tax.

1. Where a corporation advances money to its sole stockholder and charges him for the amount thereof, and it was at all times the intention of the corporation and its sole stockholder that the… Held: that the loss is a legal deduction from gross income.

Petitioner's decedent was on a cash basis. He was employed as store manager by the F. W. Held: the payment was not an amount accrued up to the date of decedent's death within the meaning of section 42, Act of 1934, and was not includable in his gross income.

Where, pursuant to a contract designated a plan of merger, consolidation and reorganization, one company transferred its assets to a second corporation in consideration of… Held: a statutory reorganization was effected, such debentures were securities under the terms of the statute, and, all cash and debentures having been distributed to the stockholders of the receiving corporation, pursuant to the plan of reorganization, the corporation incurred no tax on the transaction.

1. Decedent, one of three creators of an irrevocable trust indenture whereby it was provided that the property was to revert to the creators in the event the beneficiary predeceased them, died before… Held: following Helvering v. St. Louis Union Trust Co.,296 U.S. 39, decedent had a mere possibility of reverter and that the proportionate share of the trust corpus was not taxable as a transfer intended to take effect in possession or enjoyment at or after death. 2.

The decedent, with her daughter, as joint annuitant, entered into a single premium annuity contract with the Sun Life Assurance Co.… Held: that the contract does not represent a transfer intended to take effect in possession or enjoyment at or after the death of the decedent and its commuted value may not be included in her estate under section 302 of the Revenue Act of 1926; and (2) that the decedent reserved no power, alone or in conjunction with any person, to alter,…

A corporation was organized by farmers under state cooperative laws. Held: that the business of the corporation was not operated on a cooperative basis and that the corporation is not exempt from paying income tax.

An agreement, called an "account", among several recipients of periodic stock dividends, desiring to convert them into cash without disturbing the market, whereby one of their number is empowered for a limited time to sell such shares, held, under all its terms not to amount to a taxable "association."

1. Amounts paid for lasts, dies, and patterns which have an average useful life of not to exceed one year are deductible from gross income as ordinary and necessary expenses of carrying on business. 2. In 1932 the petitioner paid an amount in compromise of a suit brought against it for damages. Held, that the amount paid is a legal deduction from gross income as an ordinary and necessary expense.

1. On January 14, 1932, approximately one year after her husband had left their home in California, petitioner instituted an action for divorce on the ground of desertion. Held: the earnings of the petitioner were her separate income under section 169 of the Civil Code of California, which provides that the earnings of a wife, while she is living separate from her husband are her separate property, and hence the full amount thereof must be included in her gross income. 2.

1. Held following Carrano v. Commissioner, 70 Fed.(2d) 319, and Income Syndicate, Inc.,37 B.T.A. 926, that petitioner is entitled to deduct the amount of certain benefit payments from condemnation awards in computing income. 2. Where proceeds of a condemnation award were in part used to pay assessments for benefits attributable to other and unrelated projects completed some years prior, such payments are not deductible in determining income from the award.

Petitioner is a corporation organized under the China Trade Act, 1922, as amended February 26, 1925. Held: that petitioner is entitled to a credit against the tax imposed in an amount equal to the special tax saving dividend paid, but is not entitled to any credit by reason of the general dividend.

Transfer in trust of stock of family corporation held not made in contemplation of death.

1. The basis of the land is deductible from the amount realized in determining the gain or loss from the sale of burial space in a cemetery. 2. In determining that basis, footage prices, at which comparable space was selling in such cemeteries at the basic date, are material but not conclusive evidence of the fair market value of the remaining space. 3. Such basis is determined here upon that and on other evidence in the record.

A personal holding corporation on a cash basis declared a dividend one day prior to the close of its fiscal year. Held: the corporation did not pay the dividend within its taxable year and is not entitled to a deduction under section 351(b)(2)(c) of the Revenue Act of 1934.

Held, that the declaration of value of petitioner's capital stock as contained in its first capital stock tax return filed on August 22, 1933, pursuant to sections 215(f)… Held: that the declaration of value of petitioner's capital stock as contained in its first capital stock tax return filed on August 22, 1933, pursuant to sections 215(f) and 216(a) of the National Industrial Recovery Act, may not be amended by a second capital stock tax return filed on September 28, 1933.

1. Where section 351(b)(1)(A) of the Revenue Act of 1934 defines the term personal holding company to include gains from the sale of stock or securities and the Commissioner in his regulations… Held: the word sale is used in its ordinary sense and the Commissioner was without authority to extend the meaning to include an exchange. 2. Held, under the facts, petitioner was not a personal holding company in the taxable year.

Petitioner exchanged its capital stock for securities having a fair market value in excess of the par value of its stock, plus indebtedness… Held: petitioner was not formed for the purpose of enabling its shareholders to escape tax, and, since petitioner had no accumulation of gains and profits but an impairment of paid-in capital, it was not availed of for such purpose in the taxable year and is not subject to the tax imposed by section 104 of the Revenue Act of 1932, as…

The taxpayer completed a gift of cash to his wife and soon afterwards offered to sell to her shares of his stock. She accepted the offer, the shares were transferred to her and the gift money was used in part payment. The sales were bona fide and the losses sustained on them are allowable deductions.

1. Petitioners are husband and wife and for the taxable years 1932 and 1933 filed separate income tax returns. Held: the transactions constituted bona fide sales, and petitioners are entitled to the deductions claimed. 2. In 1930 petitioner H. Rodney Sharp guaranteed a stock-trading account for a friend by posting collateral with the broker. The owner of the account had no assets other than his equity in the securities held therein.

Petitioner's father created a trust and conveyed to it policies of insurance on his own life. The petitioner conveyed to the trust dividend producing stock to pay the premiums on the policies. Held: the income of the trust was taxable to the petitioner under section 167(a)(2) of the Revenue Act of 1932.

The Superintendent of Insurance of the State of New York, as liquidator of the Lawyers Mortgage Co., under orders of the Supreme Court of the State of New York dated November 17, 1937, and under the provisions of article XI, Insurance Laws, of New York, is a statutory receiver and the proceedings are in effect receivership proceedings before a New York State court, Jacoby v. Bond & Mortgage Guarantee Co., 72 Fed.(2d) 420, and under section 274(a), Revenue Act, 1936, the…

Income of a trust payable by its terms to the taxpayer until the grantor's children reached twenty-five years of age, unless she requested the trustee to pay the income directly to the children, was,… Held: income not taxable to taxpayer.

1. Petitioners filed joint returns for 1928 to 1930, inclusive, and separate returns on the community property basis for 1931 and 1932. Throughout the taxable years, the petitioner, T. G. Nicholson, was a partner with his brother-in-law, Clopton, in the operation of a ferry. Though the partnership earned taxable income during each such year, it was not reported in the joint or separate returns, but Clopton did report it as his income and paid tax thereon. The omission of this taxable income from the returns of the petitioner, T. G. Nicholson, after those for 1928, was willful and knowingly illegal. In January 1932, the petitioner, T. G. Nicholson, learned that a proportion of the amount of the income taxes paid by Clopton, on the partnership income of petitioner T. G. Nicholson, had been collected from petitioner by Clopton through the partnership accounts. Held, the tax return of the petitioner, T. G. Nicholson, for 1928 was not false or fraudulent with intent to evade tax and any deficiency against him for that year is barred by the statute of limitations. Revenue Act of 1928, sec. 275(a). The proposed fraud penalty against him for that year is denied. 2. The return of the petitioner, Mrs. T. G. Nicholson, for 1931 was not false or fraudulent with intent to evade tax and any deficiency against her for that year is likewise barred, and the proposed fraud penalty against her for that year is denied. 3. The returns of the petitioner, T. G. Nicholson, for 1929, 1930, and 1931 were all false and fraudulent with intent to evade tax and deficiencies for none of those years are barred by the statute of limitations. Revenue Act of 1928, sec. 276(a). 4. All the contested deficiencies, as adjusted under stipulation, except those against the petitioner, T. G. Nicholson, for 1928, and the petitioner, Mrs. T. G. Nicholson, for 1931, are sustained. 5. Part of each of those deficiencies against the petitioner, T. G. Nicholson, was due to his fraud with intent to evade tax and the proposed fraud penalty in each such case is sustained. Revenue Act of 1928, sec. 293(b). 6. No part of the deficiency against the petitioner, Mrs. T. G. Nicholson, for 1932 was due to her fraud with intent to evade tax, and the proposed fraud penalty against her for that year is denied. 7. Where a taxpayer willfully, and knowing the same to be illegal, omits taxable income from his returns for four consecutive years, such returns are false and fraudulent with intent to evade tax within the meaning of the Revenue Act of 1928, section 276(a), even though his income is reported and taxed as the income of another with knowledge of the taxpayer. 8. None of the sums, aggregating $11,927, paid by a partnership through the petitioner, T. G. Nicholson, during 1931 and 1932, to a state senator for his political influence, is deductible as ordinary or necessary business expenses of the partnership. Easton Tractor & Equipment Co.,35 B.T.A. 189.

1. The propriety of respondent's adjustments in taxable income of both petitioners for 1930 and 1931, is determined. 2. Held: all of the fraud penalties proposed under the Revenue Act of 1928, section 293(b), are disapproved, and all of the negligence penalties proposed under section 293(a) of the same revenue act are approved.

The petitioner, Manasse Karger, and decedent, Marks Karger, his brother, during the taxable years 1929, 1930, and 1931, were engaged in the gambling business. All the income in question was realized by those petitioners. Stella Karger, petitioner, is the Wife of Manasse Karger. They filed separate income tax returns for the taxable years, reporting income on a community property basis. Stella Karger signed and swore to her own returns. No records were kept from which taxable income could be determined. Respondent, therefore, determined deficiencies by treating, as gross income, the annual increase in the respective taxpayer's so-called net worth, to which were added expenditures not reflected in that increase. Marks Karger and Manasse Karger were separately indicted for fraudulent evasion of their income taxes for 1929, 1930, and 1931, to which each pleaded guilty and paid the fine which followed. Marks Karger died before the hearing herein and Manasse Karger was regularly substituted as his legal representative. Held: 1. The income tax returns of Marks Karger, deceased, and Manasse Karger for the years 1929, 1930, and 1931 were false or fraudulent with intent to evade tax, and part of each of the deficiencies here, against Manasse Karger and Manasse Karger as sole heir and proper representative of Marks Karger, deceased, for those years was due to fraud with intent to evade tax. 2. The return of Stella Karger for 1929 was not false or fraudulent with intent to evade tax, and no part of either of the deficiencies determined against her for 1930 or 1931 was due to her fraud. 3. The assessment of deficiencies against Manasse Karger, as sole heir and proper representative of Marks Karger, deceased, and against Manasse Karger, personally, for 1929 is not barred by the statute of limitations. Revenue Act of 1928, secs. 275(a) and 276(b). 4. The assessment of the deficiency against Stella Karger for 1929 is barred by the statute of limitations (Revenue Act of 1928, sec. 275(a)), and the addition of fraud penalties to the deficiencies determined against her for 1930 and 1931 is denied. Revenue Act of 1928, sec. 293(b). 5. The contested determinations of deficiencies against the petitioner, Manasse Karger, for 1929, 1930, and 1931, those against Manasse Karger, sole heir and proper representative of Marks Karger, deceased, for each of the same years, and those against Stella Karger for 1930 and 1931, as adjusted under stipulation, are sustained. 6. Since respondent now claims no fraud penalties against Manasse Karger, as sole heir and proper representative of Marks Karger, deceased, because of the death of the decedent prior to the hearing of these proceedings, such penalties against Manasse Karger, in his individual capacity only, are sustained. 7. Since the normal effect of the pleas of guilty, as admissions against interest, was not weakened by the other evidence, those pleas are clear and convincing affirmative evidence of fraud here. Thomas J. McLaughlin,29 B.T.A. 247, followed. 8. The pleas of guilty to the indictments, together with the imposition of fines and their payment, do not preclude the imposition of fraud penalties here. Helvering v. Mitchell,303 U.S. 391.

Petitioner's testator, in his will, made certain bequests to charitable organizations which constituted proper deductions from the value of the estate in computing the Federal estate tax. Held: the deduction for the bequests to the charitable organizations should not be diminished by the $75,000 thus paid.

Where the petitioner corporation and its affiliated subsidiary, W, transferred a material part of their assets to a newly organized corporation, M, in exchange for all its stock, and immediately… Held: that the gain on S stock received by W is recognizable, since the continuity of interest necessary to make S a party to a reorganization, under section 112, Revenue Act of 1928, was lacking; following Groman v. Commissioner,302 U.S. 82; and Helvering v. Bashford,302 U.S. 454.

1. Where petitioner sold stock at a profit through a marginal brokerage account but failed to withdraw the profits, which were lost in the subsequent year when his account was closed out by the… Held: further, that the statutory requirement of a charge-off does not apply to taxpayers such as petitioner who keep no books, nor on the facts was it requisite that the deduction be claimed on his income tax return. 3.

St. John's Orphan Asylum, a charitable corporation, owns and operates a home for orphan or dependent boys between the ages of 7 and 12. It also owns the St. Held: that petitioner's payments pursuant to the agreement were essentially contributions to a charitable institution and did not entitle her to credit for dependents.

Section 22(a), Revenue Act of 1934, providing for the inclusion in gross income of the salaries of judges of courts of the United States taking office after June 6, 1932, held not to exempt under the rule of expressio unius the 1934 and 1935 salary of petitioner, a judge of the United States Court of Customs and Patent Appeals, which is conceded not to be a constitutional court, even though petitioner took office prior to the specified date.

Petitioner seeks special assessment for reasons named in section 327(d), Revenue Acts 1918 and 1921. Held: the record presents no such abnormal conditions affecting petitioner's capital or income as would entitle petitioner to have its excess profits tax determined as provided in section 328 of the Revenue Acts of 1918 and 1921.

In March 1931, the petitioner was given an option by a corporation by which he was employed to purchase a stated number of shares of stock in the corporation at a price below the current market. Held: on the facts, that such acquisition of stock by the petitioner did not constitute the receipt of compensation in an amount equal to the difference between the price paid and the fair market value of the stock at the date of purchase, or in any amount.

Petitioner, who was a stockbroker, and two other individuals formed a joint venture in 1933 to trade in a certain stock. Held: petitioner was engaged in the business of trading in this stock and was entitled to deduct losses arising therefrom. Richard Coulter,32 B.T.A. 617, distinguished.

The Stantex Petroleum Co., lessee of an oil and gas lease, sold undivided interests therein accompanied by an agreement to drill a well on the leased property at its own expense. Held: that the petitioners are not associations taxable as corporations.

1. Decedent executed a trust agreement in 1929, reserving income for life and the right to request trustee to draw upon principal for… Held: the trust is irrevocable as to one-half of the trust, which is not includable in decedent's estate under section 302(c), Revenue Act of 1926; held, further, that irrevocable transfers were made prior to March 3, 1931, effective date of amendment to section 302(c), so that the trust is not taxable because of reservation of income for…

1. OIL PAYMENT CONTRACTS. - Held, that the fair market value of contracts for future payments out of oil if, as, and when produced, in… Held: that the fair market value of contracts for future payments out of oil if, as, and when produced, in consideration for drilling certain oil wells and for the sale of oil and gas leases, is not includable in gross income; held, further, that oil payments actually collected on such contracts during the taxable year constituted gross…

One Isaac Stephenson created a trust in 1917, by the terms of which petitioners' decedent was entitled to the income from a part of the trust estate and ultimately to the principal of that part. Held: on authority of J. Earl Morgan, Executor,36 B.T.A. 588, the power of appointment exercised by petitioners' decedent was general, and the value of property passing pursuant to the power was properly included by respondent in the value of decedent's gross estate.

1. The petitioner at time of organization acquired a business lot subject to a 99-year lease, and improved by a building constructed by the lessee in… Held: that petitioner realized no income through the cancellation of the lease. 2. After organization the petitioner, in consideration of capital assets transferred to it, assumed and paid a portion of losses which its incorporators had agreed to share with another corporation, growing out of the latter's guarantee of a lease.

Where the decedent, dying in 1934, had made a transfer in trust in 1923, when he was 63, by which about 50 percent of his estate was set… Held: that contemplation of death may not be inferred from these circumstances as the impelling cause of the transfer, under section 302(c), Revenue Act of 1926, especially since the only motives evident were associated with life and not with death; held, further, that where the Commissioner affirmatively pleads a new issue, the burden of…

Where petitioner on a cash basis was liable as endorser on a note of many years standing held by a bank, and during the tax year the bank took petitioner's own note for an amount sufficient to… Held: petitioner is not entitled to deduct the amount of the original note either as a bad debt or as a loss, no payment of the new note having been made.

1. The acquisition of its stock by a corporation from petitioner constituted a purchase of such stock and not a distribution by the corporation in partial liquidation. Northern Trust Co., Trustee,20 B.T.A. 866; affd. sub nom. Phelps v. Commissioner, 54 Fed.(2d) 289, distinguished. 2.

1. Petitioner, a corporation engaged in the business of buying, renovating and selling cotton waste, was the owner in 1934 of all the stock of a subsidiary cotton mill. Held: that in 1935 petitioner was the owner of all the shares of stock of its subsidiary. 2. The financial condition of the subsidiary in the two years prior to 1935 was bad and the book values of the assets as shown by the balance sheet on December 31, 1934, were less than the corporation's liabilities.

The stock of two corporations was owned by substantially the same stockholders. Held: a corporation is an entity distinct from its stockholders and the fact that the stockholders of both corporations were the same did not render the transaction ineffective or invalid as a bona fide sale; held, further, that $1.50 per share for a block of 2,500 shares of the stock in question was the fair market value of the same on…

A corporation, on December 30, 1924, gave, transferred, and delivered to trustees certain securities as a trust fund, the net income of which… Held: that in computing the taxable value of the gift to the trustees, the value of the remainder interest of said trust, after the life estate of aforesaid individual as of December 30, 1924, is an allowable deduction under section 321(a)(2) of the Revenue Act of 1924, the language of both the trust instrument and the certificate of…

1. Petitioners are the guardians of the estate of a mentally incompetent person who is the life beneficiary of a testamentary trust set up for his benefit by his deceased father. Held: petitioners actually received the dividends in question as guardians of the estate of the mentally incompetent person and his estate is taxable thereon rather than the trustees of the testamentary trust. 2.

In 1927 petitioner and Eskridge organized a corporation for the purpose of selling Dodge automobiles. Held: that the amount paid by petitioner for his stock in the corporation constituted consideration for the transfer of the insurance policy to him, but since the actual value of the consideration was in excess of the proceeds of the policy, the exclusion of the consideration under section 22(b)(2) of the Revenue Act of 1928 leaves no part…

Where certain mineral lands were transferred to petitioner in consideration for all of petitioner's capital stock and the transferors in the acts of transfer reserved the first $400,000 of revenues from the lands, and during the taxable years here involved the revenues did not exceed the $400,000 and were all paid over to one of the transferors on its own account and as the assignee of the other transferor, it is held that the revenues earned during the taxable years…

Under articles of copartnership certain partners agreed to indemnify other partners against any loss sustained by the new partnership from any accounts taken over from an old partnership. Held: further, that petitioner has failed to prove the extent of any loss from a debt in question in 1933 to the partnership of which he was a member.

An agreement was executed by a California husband and his wife, by which all property then owned by the husband was declared to be community property and in which… Held: following Sampson v. Welch, 23 fed.Supp. 271, that the agreement was such a transfer of property as to come within the terms of section 302(c) and (d) of the Revenue Act of 1926 as amended and the property interest thereby bestowed upon the wife must be included in the gross estate of the deceased husband.

Under a contract between Gas Co. and petitioner, the former agreed to drill completed gas wells on petitioner's property for which petitioner was to pay the actual drilling costs of each such well,… Held: The amount of those proceeds was taxable income to petitioner for the year of their receipt by the Gas Co. Reynolds v. McMurray, 60 Fed.(2d) 843; certiorari denied, 287 U.S. 664, followed.

1. Fair market value of preferred and class A stock of the Hoover Co. as of March 11, 1933, determined to be $83 per share for the… Held: that the title to the trust property was vested in the trustee prior to the death of the grantor, that grantor, at the time of his death, had a mere possibility of a reverter, that his death was not the generating source of passing title to, or enlarging an interest in property, and that the value of the corpora of the trusts should…

Power of appointment required by donor to be exercised by will or instrument in the nature thereof, held, validly exercised under the law of… Held: validly exercised under the law of Pennsylvania where donee, relinquishing power of disposition, transferred to trustees the remainder interest which was the subject of the power, and the Orphans' Court distributed donor's estate in accordance therewith; held, further, property subject to the power is includable in donee's gross…

Petitioner created two trusts, the income of which was to be expended by the trustee in paying premiums due on life insurance policies… Held: income of the trusts is not to be included in computing petitioner's gross income, since power to revoke the trusts was in a person having an interest adverse to the grantor, and, therefore, section 166 of the Revenue Act of 1934 is not applicable; and since the income was not held for or distributable to the grantor within the…

1. Order of a probate court of California fixing inheritance tax held not final and conclusive as to extent of property or interest passing to petitioner's decedent under the will of her mother. 2. Several writings constituting the will of the mother of petitioner's decedent construed as giving to decedent a life estate in a portion of the income of her mother's estate. 3.

1. Pursuant to a contract entered into with National Steel Corporation on or about December 22, 1930, petitioner transferred all its assets to a subsidiary of National in consideration of stock,… Held: National was not a party to a reorganization and the entire gain to petitioner is recognizable. Following Groman v. Commissioner,302 U.S. 82; Helvering v. Bashford,302 U.S. 454; and A. W. Mellon,36 B.T.A. 977. 2.

The sole income of a nonprofit corporation consisted of assessments collected from member corporations and voluntary payments, gifts, or contributions received from nonmember corporations for… Held: that the amounts received did not constitute taxable income.

1. Where petitioner sold and assigned an oil and gas lease in consideration for a contract for future payments our of oil if, as, and when produced, held, that respondent erred in including the value… Held: that respondent erred in including the value of such oil payment contract in petitioner's income as a profit realized in the taxable year. 2.

Where the petitioners held certain shares of stock in a safe-deposit box, intended to sell these specific shares, and instructed their broker that they wished to… Held: that, regardless of what certificates were sold and delivered by the broker to the market purchaser, the petitioners did not make a short sale on the market but a sale of their specific shares. Ruml v. Commissioner, 83 Fed.(2d) 257, followed, and Frances Bartow Farr, Executrix,33 B.T.A. 557, distinguished.

From 1923 to 1931 petitioner manufactured and sold a product composed of mixtures of vegetable oils, salt, and skimmed milk, which the Bureau of Internal Revenue held was subject to tax as… Held: the amounts so refunded constituted income taxable to petitioner for the year 1932.

The petitioner corporation's affiliated subsidiary, R, transferred part of its assets, consisting of common stock in two public utility… Held: that the foregoing transfers were interdependent steps in an integral plan which, for income tax purposes, must be treated as a single transaction, and do not constitute a reorganization within the meaning of section 112, Revenue Act of 1928, since upon the consummation of the transaction the element of statutory control and the…

A partnership agreement, between partners engaged in the insurance business, provided among other things that upon the death of a partner… Held: that, under the agreement, the monthly payments made by the surviving partners to the legal representatives of the deceased partner's estate represented the purchase price of the deceased partner's interest in the firm, and such monthly payments, although measured by the partnership's earnings, did not constitute taxable income to…

Petitioner, owner of a one-half interest in a long term lease with 81 years yet to run, under which a sublessee had paid up rentals to a date approximately two and three-fourths years in the future,… Held: that the petitioner received income to the extent of the cash received in 1934 as consideration for cancellation of the sublease, and that cancellation thereof did not cause loss deductible by petitioner in that year.

Petitioner's maternal grandfather created a testamentary trust giving the net income thereof to his widow and children without limitation… Held: that petitioner's mother had a vested interest in here father's estate, the value of which was properly includable in her gross estate under section 302(a) of the Revenue Act of 1926; Held, further, that the deficiency was correctly and timely asserted against petitioner as the sole transferee of the assets of her mother's estate.

In 1899 W. P. Halliday died testate, leaving a considerable estate to his six children in equal shares. Held: the trust is an association, taxable as a corporation. Morrissey v. Commissioner,296 U.S. 344.

The petitioner was the owner of all of the capital stock of the Jayhawk Oil Co. On January 25, 1934, that corporation declared a dividend of $15,267.21, equaling the amount of its surplus, payable to… Held: that there was a liquidation of the Jayhawk Oil Co. and that the petitioner is liable to income tax upon the profit realized from the liquidation.

Litigation arising as the result of foreclosure of a mortgage on petitioner's land held, on the facts, not sufficient to bring into question the finality of the foreclosure sale so that the… Held: on the facts, not sufficient to bring into question the finality of the foreclosure sale so that the compromise of that litigation in the tax year rather than the sale in a previous year could fix the time of loss.

A nonresident alien who had no income from interest, dividends, rents or royalties, or sales of real estate and performed no personal services within the United States, is not liable for tax on his share of the income of a partnership of which he was a member.

In 1932 the petitioner contributed $200 to a fund, to which there were other contributors, to provide a musical education for a poor young girl who had a promising voice. Held: that the amount is not a legal deduction from gross income under section 23(n) of the Revenue Act of 1932.

Petitioner's stockholders were the owners of a majority of the stock of a corporation which owned and operated 11 retail grocery stores in Shreveport, Louisiana. Held: petitioner is entitled to the deduction, as a bad debt ascertained to be worthless and charged off in the taxable year, of that part of the indebtedness to it which remained after the application of the cash payment which it received in the transaction.

Corporations which had absorbed large earnings in their business of making small loans were not formed or availed of for the purpose described in section 104(a) of the Revenue Acts of 1928 and 1932.

1. Amounts deposited by agent in the taxpayer's bank account, held, from the weight of conflicting evidence, to be taxable as payments for paintings sold by the taxpayer and not to be contributions… Held: from the weight of conflicting evidence, to be taxable as payments for paintings sold by the taxpayer and not to be contributions to a scientific expedition which he led into Asia. 2.

A trust fund was established by petitioner under a declaration of trust in which he named himself sole trustee and his wife and two minor children beneficiaries. Held: that the petitioner is not liable to income tax in respect of the income of the trust received by the wife.

Petitioner gave money to his wife by his check, which she deposited to her separated account. She then loaned him money on his note, amply secured by collateral. Held: payments of interest and principal of note in later years were not gifts.

In 1924 and in 1925 the decedent and her husband, residents of the State of Texas, by two separate trust instruments, conveyed certain funds out of their community property, irrevocably, for the… Held: that no part of the trust property is includable in her gross estate.

Decedent loaned securities to a cousin for use as additional collateral to that pledged to secure the latter's indebtedness to a firm of… Held: the full value of decedent's securities so loaned should be included in her gross estate; held, further, the value of decedent's securities used in satisfying the indebtedness to the brokers, less the fair market value of the cousin's collateral remaining at the time the brokers' indebtedness was satisfied, is a proper deduction…

1. Bonds were issued by political subdivisions of a state under general acts of the legislature. Held: that said bonds are not obligations of a political subdivision of a state or territory within the purview of section 22(b)(4) of the Revenue Act of 1934. 2.

Bonds were issued by political subdivisions of a state under general acts of the legislature. Held: that said bonds are not obligations of a political subdivision of a state or territory within the purview of section 22(b)(4) of the Revenue Act of 1934.

The petitioner, a domestic corporation, was engaged generally in representing foreign interest respecting their property and business affairs in the United States. Held: on the facts that such expenses constituted ordinary and necessary business expenses within the meaning of the statute and therefore are allowable deductions in determining taxable net income.

Where a husband domiciled in Texas made a gift to an insurance trust of all of his right, title, and interest in and to life insurance policies, in which up to the date of the gift he had the right to change the beneficiary and to receive the cash surrender value of the policies, he is liable to gift tax upon the entire value of the policies and not upon one-half of such value.

Where a husband domiciled in Texas made a gift to an insurance trust of all of his right, title, and interest in and to life insurance policies, in which up to the date of gift he had the right to change the beneficiary and to receive the surrender value of the policies, he is liable to gift tax upon the entire value of the policies and not upon one-half of such value.

1. The cost of furniture and fixtures, purchased with intangibles in a composite transaction, was not identified. Held no deduction for exhaustion or loss on abandonment of part of the furniture and fixtures has been established. 2. Payments made for the writing and printing of a manual of instructions used in the small loan business held not to constitute deductible business expenses but capital expenditure.

Where trustees of a testamentary trust are directed to pay annuities out of the trust estate, and pay such annuities, the amounts paid are not a legal deduction from the gross income of the trust even though the income of the trust estate is greatly in excess of the amounts necessary for the payment of the annuities. Burnet v. Whitehouse,283 U.S. 148; Helvering v. Pardee,290 U.S. 365.

1. An amount received in excess of cost by a bondholder in discharge of his bonds before maturity by order of a court condemning the property which secured the bonds, held not taxable as a capital gain because no sale or exchange occurred. 2.

Federal income and excess profits taxes paid in the following year held not deductible by corporations on the cash basis in computing their adjusted net income under section 351, Revenue Act of 1934.

Petitioner was the life beneficiary of a testamentary trust created by her husband which, in the taxable year in question, received… Held: The payment in 1932 was, to the extent of $25,000, a restoration of capital and not income to the beneficiary. (2) The decree of the Surrogate's Court determining the status of the 1932 payment to the extent of $25,000 as a return of capital is conclusive. Following Freuler v. Helvering,291 U.S. 35; Blair v. Commissioner,300 U.S. 5.

Petitioner, a foreign corporation, held taxable on the profit from security sales in the United States; held, further, not entitled to deductions for discount on the issuance of its own bonds in the… Held: further, not entitled to deductions for discount on the issuance of its own bonds in the absence of proof of the value of property received in exchange.

1. In 1929 petitioner and his then wife agreed upon a division of their property acquired during marriage, and transferred to a corporation, with certain exceptions, all of such property in… Held: moneys received from the annuity by the former wife, in 1934, were not the income of petitioner. 2.

1. Where the taxpayer, in June 1933, surrendered to the corporation of which he was a stockholder certain of its stock in consideration of the cancellation of his debt to the corporation, and… Held: that the transaction was not a wash sale within the meaning of section 118, Revenue Act of 1932. 2. Held, that petitioner established the March 1, 1913, value claimed for certain stock received by gift, and no gain resulted on its sale.

Where petitioner corporation was wholly owned by another corporation, all of whose stock was owned by members of the same family, held, on the evidence that petitioner… Held: on the evidence that petitioner was formed and availed of for the purpose of preventing the imposition of the surtax upon the members of the family, who are its shareholders within the meaning of section 104, Revenue Act of 1928, and is therefore subject to the 50 percent tax imposed by that section.

A foreign corporation receiving income from sources within the United States, which filed its income tax returns in the manner prescribed under Title I of the Revenue Acts of 1928 and 1932, is not precluded under the provisions of section 233 of the same acts from the benefit of the deduction to which it is entitled under section 23(p)(1) of the same acts, although it filed its returns after the time specified in section 235 thereof.

LIFE INSURANCE COMPANY - RESERVE FUND DEDUCTIONS. - Petitioner, taxable as a life insurance company, maintained at the beginning and end of the taxable years 1933 and 1934, (1) reserve for incurred disability benefits; (2) reserve for nondeduction of deferred fractional premiums; (3) reserve for unearned premiums on accident and health policies; (4) reserve on noncancelable accident and health policies; and (5) reserve for unpaid and unresisted claims. Held, on the facts such funds constituted "reserve funds required by law," and are a proper basis for computing the deduction allowed by section 203(a)(2) of the Revenue Acts of 1932 and 1934.

1. During the taxable year a taxpayer made numerous withdrawals from and payments to a corporation of which he was president and 90 percent shareholder, later giving notes for the balance due, which… Held: the withdrawals were not distributions of corporate profits, but loans. 2.

Held, that petitioners sustained a deductible loss on the dissolution of a limited partnership in which they were special partners. Held: that petitioners sustained a deductible loss on the dissolution of a limited partnership in which they were special partners.

Where petitioner terminated a trust of which she was a qualified life beneficiary, thereby accelerating the remainder, in consideration of the remainderman's agreement to hold the property obtained or its reinvested proceeds and to pay her periodically an amount equal to two-thirds of the income therefrom, held that the agreement created a trust relationship between the parties and the payments were taxable as income from a trust rather than as an annuity.

- A state liquor board regulated the manufacture, distribution, sale, and use of alcoholic beverages and also conducted a merchandising business through the operation of state stores. Held: the former was an essential traditional governmental function and the latter was not; held, further, that salary of board member was taxable only to extent it could be properly allocated to performance of merchandising duties.

1. An agreement for assignment of an interest in oil and gas leases, executed in 1929, provided for initial payment on January 1, 1930, and monthly payments thereafter to September 1, 1932, with… Held: the sale was not shown to have been completed in 1929, and the obligation to pay for the assignment was one payable on the installment basis, as reported by assignor. 2.

During the period August 1, 1927, to December 31, 1928, petitioner had outstanding 100,000 shares of class B voting common stock, which was unlimited and nonpreferred as to… Held: during the period August 1, 1927, to December 31, 1928, petitioner's class B shares were owned by the trust and that, therefore, petitioner and the Associated Gas & Electric Co. were not affliated during that period under section 240(d), Revenue Act of 1926, and section 142(c), Revenue Act of 1928.

DEDUCTION FOR PARTIAL WORTHLESSNESS OF BONDS DISALLOWED. - Evidence that in the taxable year a railroad was placed in receivership, that its revenues were declining, and that its bonds were quoted at a low figure is insufficient to establish partial worthlessness of bonds of the railroad in the face of the Commissioner's determination otherwise and evidence that the railroad was receiving substantial revenues, that it had a substantial surplus, that the bonds were secured by mortgages on the entire property of the railroad which was valued far in excess of bond liability, and that the bonds were further secured by a pledge of a substantial amount of collateral.

Dividends declared by petitioner, an insurance company, other than life or mutual, on participating life insurance policies, and paid or credited for the benefit of policyholders under the various… Held: further, that they are not deductible as ordinary and necessary expenses, in view of the specific provisions mentioned.

1. Municipal bonds of the same obligor and of the same value, differing only in dates of maturity, the difference in maturity being from four to ten months and maturity being approximately sixteen years in the future, held substantially identical securities under section 118, Revenue Act of 1932. 2.

The minutes of a stockholders' meeting of each of three corporations showed presentation of a proposition to transfer all assets to a new corporation as a consolidation and merger, and that the stock… Held: that the whole transaction was pursuant to a plan of reorganization under section 112(i)(1)(A) of the Revenue Act of 1932 and that there was no distribution in liquidation under section 115(c) of the same act.

Gain derived by executors from the sale of securities and distributed to pecuniary legatees as part of their legacies held not deductible by the executors under Revenue Act of 1934, section 162(b) or (c).

1. Securities were transferred to a corporation for shares of its preferred stock and the recipients of the stock expected, but had no agreement, to receive at some future time a fixed amount of cash… Held: the transaction was a nontaxable exchange within section 112(b)(5) and not a sale of the securities with payment deferred. 2.

A taxpayer was the owner of certain shares of stock and sold them on the New York and Philadelphia stock exchanges in the taxable year in order to register losses which he could take as deductions on… Held: taxpayer's income tax return was false and fraudulent with intent to evade tax and the statute of limitations has not run to bar assessment and collection of the deficiency.

A bank, operating under a reopening agreement with its depositors whereby its entire income and the proceeds of certain segregated assets equal in book value to its unpaid deposit liabilities were to… Held: to have no taxable income for a year in which its income and that from the segregated assets did not equal capital losses incurred in the segregated assets.

1. Petitioner transferred $100,000 to a trust, the income to be paid to his son for life, portions of the corpus to be paid to the son when he attained certain ages and the remainder to be paid to… Held: that the transfer was not of a future interest in property and petitioner, in computing his gift tax, properly excluded $5,000 from the amount transferred under section 504(b), Revenue Act of 1932. Commissioner v. Wells, 88 Fed.(2d) 339. 2.

A gift in trust absolute on its face made by an infant is not subject to tax after the infant attains majority since section 501(c) of the Revenue Act of 1932 applies to power to revest retained in the trust instrument and not to the right given by law to infants to avoid their gifts.

A husband and wife, who elect to make a single joint income tax return pursuant to section 51 of the Revenue Act of 1932, are separate taxpayers and not jointly and severally liable for the tax computed on the aggregate income, where an equitable basis for apportionment is established. In such case the tax should be apportioned on the basis of the net income attributable to each. Cole v. Commissioner, 81 Fed.(2d) 485, followed: Charles A. Rogers,38 B.T.A. 16, distinguished.

The International Match Corporation was adjudicated a bankrupt in April 1932. Held: that the preference stock became worthless in 1932 and that the petitioners are entitled to a deduction, in their return for that year, for a loss on certain shares of such stock.

The petitioner was the part owner of property, subject to a mortgage, and was unable to meet his share of the interest and curtail of the mortgage debt. Held: that the loss so sustained was an ordinary loss deductible in full and is not a capital loss subject to the limitation of section 117 of the Revenue Act of 1934.

Petitioner and two other individuals in 1927 purchased jointly certain improved real estate situated in the District of Columbia which, during the taxable year 1934, was sold at public auction… Held: that the foreclosure sale terminated the joint venture of the original investors, resulting in deductible losses of their entire investments in the property; held, further, that such losses were not capital losses within the meaning of section 117(d) of the Revenue Act of 1934.

Petitioner sold certain real estate, receiving as consideration cash and promissory notes secured by a mortgage. Held: following Betty Rogers,37 B.T.A. 897, the loss sustained was a capital loss.

The petitioner in 1926, while domiciled in the State of Texas, acquired improved real estate in Oakland, California. Held: that the $11,468.28 net rent received by the petitioner in 1934 constituted community income and that the petitioner is taxable upon only one-half of the entire amount.

The value for estate tax purposes on November 19, 1927, of 1,000 shares of Christiana Securities Co. common stock and 250 shares of Delaware Realty & Investment Co. stock determined.

In 1934 the petitioner sold for $150,000 certain assets which it had acquired from another corporation in 1931 in exchange for all of its no par value preferred stock of a fair market value of $78,200 and the assumption of an indebtedness of the transferor in the amount of $100,789.81. Petitioner's common stock consisted of 1,000 shares of no par value which it sold for cash in 1931 at 10 cents a share, the transferor corporation subscribing and paying for 400 shares. The cost to the predecessor corporation of the assets sold by the petitioner in 1934 was $86,988.23. That corporation realized a profit upon the sale of $65,734.33. Held, that the petitioner's base for the computation of taxable gain upon the sale of the assets in 1934 was $178,343.72, less depreciation of $25,621.16, or $152,722.56.

The income of a trust created by an individual in Massachusetts, the settlor's mother being a trustee upon whose direction the corpus could be transferred to the settlor, held, under Revenue Act of… Held: under Revenue Act of 1932, sections 166 and 167, taxable to the settlor because under the terms of the trust the mother was a person not having a substantial adverse interest.

Petitioner, a physician, was a part-time employee of the Workmen's Compensation Bureau, a division of the Department of Labor, State of New Jersey, inaugurated by Act of 1911, and amended by Act of 1918, and engaged in the administration of a statute providing compensation for employees injured in industrial pursuits. His salary was paid semimonthly by check upon the state treasury. Held, that his income from such salary was not exempt from taxation by the United States Government under the Revenue Act of 1934.

Petitioner is a British corporation engaged, through a branch office, in the fire and marine insurance business in the United States. Held: This loss was connected with income from sources within the United States and, therefore, was deductible, in full, from its income from such sources in determining taxable income here, under section 232 of the Revenue Act of 1928.

1. Where over a period of years a trust, the sole stockholder of a corporation, loaned money to the corporation and the corporation, reporting on an accrual basis, accrued and deducted interest on… Held: That the cancellation and relinquishment of the interest indebtedness did not result in income to the stockholder trust.

1. Held, that under section 113(a)(5) of the Revenue Act of 1928 the basis for determining gain or loss from the sale of securities acquired by a… Held: that under section 113(a)(5) of the Revenue Act of 1928 the basis for determining gain or loss from the sale of securities acquired by a remainderman after the death of the life beneficiary of a testamentary trust is the fair market value of the property when distributed to the taxpayer at the termination of the trust. 2.

1. A trust created primarily for the benefit of petitioner, as the controlling shareholder of a corporate employer, by whom petitioner was employed with others, is not within section 165 of the Revenue Act of 1934. 2.

1. The proceeds of life insurance policies which provided for payment to the beneficiaries after decedent's death of annuities for a period of 20 years certain and as long thereafter as the beneficiaries should live, the decedent at the time of his death having no right to change the beneficiaries, to receive the cash surrender value of the policies, or to borrow money on the policies without the consent of the beneficiaries, held not includable in decedent's gross estate for estate tax purposes. 2. The values of certain life insurance policies includable in decedent's gross estate determined in accordance with article 13(10) of Regulations 70.

1. Held, the bequest of income to taxpayer for life was not subject to a trust, in favor of a son, of part thereof. Held: the bequest of income to taxpayer for life was not subject to a trust, in favor of a son, of part thereof. Payments made to the son were not payments under the will and were gifts from taxpayer. 2.

Where preferred stock was received as a dividend on common stock, which was the only class of stock theretofore authorized and outstanding, held, that the basis of the dividend stock on subsequent disposition is zero rather than some allocated portion of the basis of the common stock on which it was declared.

Decedent on May 4, 1927, her sixty-sixth birthday, created a trust with herself and her two children as trustees. Held: the transfer to the trust is not includable in gross estate under section 302(c) of the Revenue Act of 1926.

1. Certain stock in one company, and interests in another, both admittedly worthless, became so during the calendar year, 1934, and their cost to the taxpayer is deductible as a loss sustained in that year. 2.

Petitioner, a personal holding company with a capital deficit, having distributed in the tax year not only the excess of its adjusted net income over the deficit, but also an additional amount, held,… Held: not entitled to a dividends paid credit for such additional amount under section 351, Revenue Act of 1934, since the term dividends does not apply to distributions out of earnings or profits necessary to make good an existing deficit.

Where the petitioners, as tenants in common of undivided interests in an oil and gas lease, arranged for the development and management of their property through separate, individual agreements with… Held: that the petitioners did not constitute associations taxable as corporations.

No merger of leasehold estate with the fee results where there is an intervening estate in the leasehold in a third person, and petitioner is entitled to amortize the cost of the leasehold, notwithstanding it is the owner of the fee and owns the lease subject to the outstanding rights of such third person.

Petitioners William A. Hines and Ernest W. Marlow, copartners, were retained as counsel by the executors of an estate, without entering into an agreement on the amount of their compensation. Held: that the partnership, reporting income on the cash basis, did not constructively receive the fee within the taxable year and that the promise to pay of the residuary legatee did not constitute taxable income to the partnership during that period.

Petitioner filed capital stock tax return containing a declaration of value of corporate stock as the net worth of the corporation. Held: that under section 215(d) and (f), National Industrial Recovery Act of 1933, no amendment of return is permitted; held, further, that ignorance or mistake as to nature and extent of petitioner's rights under the statute does not relieve the taxpayer on the theory of mistaken election; held, further, that section 215(d) and (f) of the…

1. Where the evidence shows that one of the dominant and controlling motives which influenced decedent to execute a relinquishment of a reserved general power of appointment over property which she… Held: that such relinquishment was in contemplation of death and the value of the property at the time of decedent's death is includable in her gross estate under section 302(d), Revenue Act of 1926. 2.

Common and preferred stock of the Middle West Utilities Co. was worthless at the end of 1932.

The petitioner in 1933 was appointed referee in certain specific cases by the Supreme Court of the State of New York or by the City Court… Held: that the petitioner in the capacities in which he served as an aid to the courts was not, in the sense of the Federal income tax law here involved, an officer or employee of the state or any political subdivision thereof; held, further, that the compensation received by the petitioner, as above stated, is includable in petitioner's…

1. Distributions made during the taxable years were distributions in liquidation rather than dividends for income tax purposes, where prior to the taxable years the corporation had sold substantially all of its assets; thereafter it did not engage in its former business operations during the years in question; and its stockholders had agreed that it should be liquidated. 2.

SECTION 104, REVENUE ACT OF 1932. - On the facts, held that petitioner corporation, which was actively engaged in the business of managing and operating a group of banks in Pennsylvania, was not formed, nor during the taxable year 1932 availed of, for the Purpose, of preventing the imposition of the surtax upon its shareholders through the medium of accumulating its gains and profits.

- Interest on a collateral note under seal given by a man in Pennsylvania to his wife is, under the laws of that state, interest on an enforceable indebtedness and is deductible for income tax purposes.

1. TRUST REVOCABLE AFTER TAXABLE YEAR. - Section 166 of the Revenue Act of 1934 applies where the grantor retained the right to revoke the trust after the close of the year 1934. 2. TRUST INCOME - TAXABLE TO GRANTOR. - Income of trusts taxable to grantor who had extensive control over and benefit from trusts, following Benjamin F. Wollman,31 B.T.A. 37, William C. Rands,34 B.T.A. 1107, and Warren H. Corning,36 B.T.A. 301. 3.

1. Held, that the interest on bonds issued under the California Improvement Act of 1911, as amended, and under the California Improvement… Held: that the interest on bonds issued under the California Improvement Act of 1911, as amended, and under the California Improvement Act of 1915, as amended, is not includable in petitioner's gross income for tax purposes, since the bonds are obligations of the city under section 22(b)(4) of the Revenue Act of 1934, although payable…

In 1935 property belonging to petitioners was sold by the sheriff in foreclosure proceedings and was purchased by the holder of the mortgage for an amount equal to the unpaid principal, accrued interest, and costs. The petitioners filed their income tax return on the cash receipts and disbursements basis.

During the years 1933, 1934, and 1935 the petitioner, a citizen of the United States and a resident of Eagle Pass, Texas, was president of the Piedras Negras Broadcasting Co., which owned and… Held: that the petitioner is not liable to tax for any of the years in question as a withholding agent of the Mexican corporation.

- An estate which takes a new basis for gain or loss on property of the decedent holds the property only from the date of the decedent's death, and the period of ownership by the decedent is not added on for the purpose of section 101(c)(8) of the Revenue Act of 1928.

In 1933 a judgment was obtained against the petitioner and other defendants of more than $7,000,000 upon the ground of his liability as a director of the Guaranty Building & Loan Association of Los… Held: that the petitioner in 1934 sustained a loss deductible from gross income of at least $12,621.06 - the amount of the net income determined by the respondent for 1934.

In its 1933 and 1934 income tax returns petitioner claimed depletion deductions in respect of its coal properties on the basis of cost. Held: as to 1933, that the petitioner was not required under section 114(b)(4) of the Revenue Act of 1932 to make an election as to the method of computing its depletion allowance and the claim of a depletion deduction in its return based on cost does not bar the allowance of a depletion deduction computed on the percentage basis, and, as…

In its 1933 return, in which it reported a net loss, petitioner made no claim for a depletion deduction, but attached thereto a statement to the effect that it… Held: under section 114(b)(4) of the Revenue Act of 1934, that a new election is required and that a failure on the part of the taxpayer to make an affirmative election is, by the terms of the statute, an election to compute depletion on any property covered by the return without reference to percentage depletion.

Where the petitioners held certain shares of stock in a safe deposit box, intended to sell these specific shares, and instructed their broker that they wished to sell them but could not conveniently… Held: that, regardless of what certificates were sold and delivered by the broker to the market purchaser, the petitioners did not make a short sale on the market but a sale of their specific shares.

Corporation A and its sole stockholder agreed with corporation B to sell all of its assets to corporation C, a new corporation organized by B, in exchange for common stock of B. A distributed B's stock to petitioner, its stockholder. Held that the gain realized by petitioner is taxable, B not being a party to the reorganization.

Petitioner and its wholly owned subsidiary held not affiliated under section 141(d) of the Revenue Act of 1934 where petitioner was not a common carrier by railroad and its assets did not consist principally of stock in corporations whose principal business was that of common carrier by railroad.

In 1929 a certain corporation executed an option to petitioner's husband, under which he had the right to purchase at any time within… Held: the option was the separate property of petitioner's husband and that petitioner realized no income in respect thereof; held, further, that in the exchange of her separate property for a one-half interest in the option petitioner realized a loss in the amount of the excess of the allowable cost basis of the property exchanged over…

Where several coowners of undivided interests in a Texas oil and gas lease remained the individual coowners of such interests in real property, but arranged for the development and management of their property through two of such coowners, who in exercising their expressly delegated powers acted in the name of one of them, T. A. Johnston, Trustee, held that they did not constitute an association taxable as a corporation.

Where the decedent in 1928, then aged 58 and in good health, made a transfer of substantially all his property to himself, his wife, and… Held: that no part of the trust corpus is includable in decedent's gross estate by reason of his reservation of income for life, Hassett v. Welch,303 U.S. 303; (2) that, since the motive for the transfer was to provide for his family immediately, it was not made in contemplation of death; (3) that trust provisions which might suspend the…

Decedent, at time of death, had two life insurance policies, one in the sum of $50,000, payable to an exempt educational institution, and the other in the sum of $51,122.20, payable to his daughter. Held: that statutory exemption of $40,000 should be applied to the latter policy and not prorated between the two, following McKelvy v. Commissioner, 82 Fed.(2d) 395, reversing John E. McKelvy et al., Executors, 31 B.T.A. 1206.

1. DEPRECIATION. - Deductions for exhaustion of a leasehold property computed by spreading the cost over the unexpired term of the lease rather than over the shorter life of a building occupying the leased premises. 2.

1. The income from a sale of personalty upon ten equal annual installments of the principal price and the purchaser's additional payment of an obligation of the vendor, such payment alone being made in the year of sale and being less than 40 percent of the selling price, may properly be taxed on the installment basis of the Revenue Act of 1932, section 44. 2.

The fixed compensation of Town Counsel of Lexington, Massachusetts, is immune from Federal income tax.

The decedent created a trust the income of which was payable to his wife, with the provision that she should use it for their family and joint living expenses and for her own maintenance and support,… Held: that the amount distributable to the wife upon the death of the husband was not properly included in his gross estate under section 302(c) of the Revenue Act of 1926, as amended by section 803(a) of the Revenue Act of 1932.

1. DEDUCTIONS - CASH BASIS. - On December 22, 1933, petitioner remitted the sum of $2,066.52 to the Federal Deposit Insurance Corporation for payment into the temporary deposit insurance fund, which… Held: petitioner on cash basis is not entitled to deduct such amount from 1934 income.

1. Upon the evidence it is found as a fact that petitioner during the taxable year permitted its gains or profits to accumulate beyond… Held: this fact, under section 104(b) of the Revenue Act of 1928, is prima facie evidence of a purpose to escape the surtax upon petitioner's shareholders; held, further, the evidence offered by petitioner is insufficient to overcome the presumption specified under section 104(b) and the existing presumption of correctness attaching to the…

SECTION 104, REVENUE ACT OF 1928. - The sole stockholder of a corporation, not subject to tax under section 104, Revenue Act of 1928, was not entitled to include (at the time of filing his return) any portion of his distributive share of the undistributed net income of the corporation for the taxable year 1930, and where the stockholder erroneously so included in his gross income an amount less than his entire distributive share of such undistributed net income, respondent…

The petitioners were beneficiaries of trusts under the terms of which the trustees had discretionary power to distribute or accumulate income of the trusts. Held: that the income not paid or credited to the petitioners as beneficiaries, but accumulated, whether within a single trust or as corpus of subsidiary trusts, does not constitute income taxable to the petitioners.

1. Petitioner was a member of a syndicate formed for the purpose of financing a corporation engaged in building and operating a cooperative apartment. Held: such payment of interest is deductible from petitioner's gross income. 2. Petitioner held common stock in a corporation engaged in operating an investment trust. In 1931 the corporation held assets worth $42,000, and had liabilities of $16,760.86 and preferred stock outstanding in the sum of $609,825.

1. Petitioner created three trusts in each of which the trustee had the right to terminate the trust and revest the corpus in the grantor. Held: the trusts are revocable and income thereof is taxable to petitioner, since trustee is not a person having a substantial adverse interest. 2.

One who regularly engages in the business of serving for pay as a trustee and as an executor and incurs and pays a liability growing out of the conduct of such business is entitled to a deduction for the amount so paid. Stuart v. Commissioner, 84 Fed.(2d) 368, distinguished.

An attorneys' fee accrued and paid in 1935 by a partnership for services involved in litigation of a tax deficiency determined against a predecessor trust, which deficiency if sustained would result in a lien against the partnership assets, held deductible by the partnership.

Where on August 16, 1932, petitioner A. D. Saenger owned all the capital stock of two Louisiana corporations, which in turn owned all the capital stock of a third Louisiana corporation, and on August… Held: that petitioner A. D. Saenger is liable as a transferee of assets of the Saenger Corporation to the extent of the $54,047.57 received.

1. Where petitioner, in exchange for oil well equipment, acquired certain oil payment contracts for stipulated amounts to be paid out… Held: that petitioner is entitled to apply the payments actually received during the taxable year on each contract, respectively, in recoupment of the cost of such contract, respectively, and, further, is obligated to return as income only the excess of such payments over cost of each contract, respectively. Burnet v. Logan,283 U.S. 404. 2.

TRUST INCOME. - A trust, the income of which was distributable in the discretion of the trustee, received income during the calendar year subsequent to the last distribution to the beneficiary of the… Held: such income, not having been distributed, is not taxable to the beneficiary. Sec. 162(c), Revenue Act of 1932.

The petitioner, who had served as city attorney of Highland Park for seventeen years, declined reappointment but agreed to act in an advisory capacity, or as "Counsel to the City Attorney", if his assistant should be appointed. During the taxable year he served as "Counsel to the City Attorney", giving advice upon request. He received a fixed amount as retainer, which was paid in semimonthly installments. Held, that petitioner was neither an officer nor employee of Highland Park and his compensation is not exempt from Federal income tax.

During 1932 the petitioner, through his broker, made many short sales of shares of stock at a time when he had in long accounts with the same broker equivalent amounts of the shares sold short. Held: that the profits were gains from sales of stock which were not capital assets; held, further, that in computing the gains or losses from the short contracts short dividends are to be added to the cost basis in arriving at the gains or losses on the sales.

EXCESS PROFITS TAX - REVENUE ACT OF 1934, SECTION 702. - Affiliated corporations have no right to file a consolidated return for excess profits tax purposes for the fiscal year ended October 31, 1934, nor can such tax be computed on that basis.

J. A. Mitchell and his former wife, Jewell L. Mitchell, residents of the State of Texas, created a trust in 1928, the income of which was… Held: that, since under the laws of the State of Texas a husband is under no legal duty to pay alimony to his divorced wife and the divorced wife here had a vested title to a portion of the trust assets, the trust income payable to her for her own use is not taxable to the petitioner; held, further, that the portion of the trust income…

Decedent died intestate in 1926. There was no administration of his estate. Held: that the transfers by decedent to petitioner were not made in contemplation of death.

1. A corporation prohibited by state law from declaring dividends because of an existing deficit held not entitled to deduction in computation of the undistributed profits surtax under the Revenue Act of 1936. 2. Undistributed profits surtax held constitutional.

1. Where taxpayer, having purchased stock in a bank which later closed, voluntarily paid $5,000, because of his ownership thereof, though no assessment thereon was ever made, and then, during the tax… Held: taxpayer sustained no deductible loss. 2.

For a number of years the petitioner maintained two separate trading accounts with his broker, one designated as the regular account and the other as the special account. Held: that the gain realized resulted from short sales within the meaning of section 23(s) of the Revenue Act of 1932 and the entire amount of the gain so realized is taxable as ordinary income.

A syndicate for the sale of a block of stock at a certain price, held, not an association taxable as a corporation. Held: not an association taxable as a corporation.

1. The shareholders of a bank were entitled to share, through a trust, in dividends and cash distributions of an investment corporation which the bank had organized to engage in activities forbidden… Held: bank shareholders not entitled to the deduction of a loss. Stanley Hagerman,34 B.T.A. 1158, distinguished. 2.

JURISDICTION. - The Commissioner determined a deficiency in income tax for 1934 and an overassessment of excess profits tax greater than the amount of the deficiency in income tax, thus making a net… Held: that a petition for redetermination is within our jurisdiction in so far as it pertains to the deficiency in income tax, but not as to the overassessment of excess profits tax.

The decedent and his wife executed an instrument by the terms of which each transferred certain property in trust, the amount transferred by the decedent being about 90 percent of the whole. Provision was made for payment of the income of the property to the grantors during their joint lives. Upon the death of either the trustee was to continue to hold the property for the benefit of and pay the income to the survivor. Upon the death of the survivor the corpus was to go to certain specified persons. The trust was subject to termination by either grantor during their joint lives, and by the survivor of them. Held, that the interest of the decedent in the trust property, there being no proof that it was less than about 90 percent, as determined by the respondent, is includable in his gross estate, under the provisions of section 302(d)(1) of the Revenue Act of 1926, as amended by the Revenue Act of 1934.

1. The grantor of a trust who reserved a power, first in conjunction with her husband and after his death alone, to require the trustee to distribute to herself the trust principal, including a… Held: taxable on the income accumulated. Sec. 167, Revenue Act of 1934. 2.

In 1929 the petitioner was advised by his employer corporation that it had authorized a stock participation plan for a selected list of its… Held: the acquisition of the stock by the petitioner did not constitute the receipt of compensation; held, further, that for the purpose of determining the percentage of gain recognized under section 117 of the Revenue Act of 1934 upon the sale of the 1,000 shares, petitioner held Kelvinator stock from the dates on which the earning…

1. Proof of the fact that the collection of accounts was delayed beyond the close of the taxable year by an embargo in the country to which the goods were shipped does not, standing alone, establish worthlessness. 2. Deductions for entertainment expenditures allowed.

Held, where in 1919 and 1930, several years prior to her death and while she was in good health, decedent conveyed property by irrevocable… Held: where in 1919 and 1930, several years prior to her death and while she was in good health, decedent conveyed property by irrevocable trusts to a trustee in order (a) to protect a family trust in the latter's hands, (b) to relieve herself from management of the properties conveyed, and (c) to assure to herself the income from the…

1. Where petitioner, a life insurance company, issued policies of combined life, health, and accident insurance, and some of the policies contained premium… Held: that a reserve for incurred but not yet accrued disability benefits embracing both premium waiver and monthly income benefits held by petitioner at the beginning and end of the taxable year comes within the term reserve funds required by law as that term is used in section 203(a)(2) of the Revenue Act of 1932. 2.

An insolvent corporation which purchases stock of a building and loan association at less than its face value and applies such stock at its face value in part payment of its debt to the association and which is still insolvent after the transaction, realizes no taxable gain from such purchase and payment.

The decedent executed a declaration of trust of his entire interest in a law partnership for the benefit of himself, his wife and two sons. Held: that the declaration of trust operated merely as an assignment of future income which makes the assignor liable for tax on the income assigned. Lucas v. Earl,281 U.S. 111; Burnet v. Leininger,285 U.S. 136.

Stock farm for breeding, training, racing, and selling trotting horses, held, a business for profit, not a hobby Held: a business for profit, not a hobby

- The question of whether radio broadcasting by a foreign corporation in a foreign country designed for listeners in the United States constituted engaging in business in the United States need not be decided in this proceeding because, if it did, the statute requires no withholding of tax due from it, while if it did not, the foreign corporation had no income from sources within the United States and no tax would be due.