Volume 38 — Tax Court Reports

Pursuant to a policy of liquidating its property holdings in Lower Manhattan, T corporation in 1950 transferred its fee simple interest in land under certain commercial property to Conn. corporation for $ 4 million. The fair market value of such land on the date of transfer was not in excess of $ 4 million.

On April 30, 1955, petitioners, as lessees, acquired a lease to approximately 872 acres of farmland for a term of 10 years commencing January 1, 1957, at a cash rental of $ 7,000 per year. Held: the gain of $ 30,000 realized by petitioners is taxable to them as ordinary income by operation of section 1239, I.R.C. 1954, rather than as long-term capital gain as reported by petitioners in their income tax return.

1. Amounts received from transfer of membership certificates in a not-for-profit charitable corporation are not long-term capital gains since such certificates are not property which was sold, the substance of the transaction being a distribution to the transferors of the membership certificates of assets of the charitable corporation. 2.

Irrevocable transfer in trust directing corporate trustee to distribute income to settlor for life and as much of principal as trustee may think desirable for the welfare, comfort, and support of settlor, or for his hospitalization or other emergency needs, held not to be a completed gift of the remainder interest in the principal of the trust for gift tax purposes.

The petitioners claimed certain deductions for gifts to religious organizations and declined to substantiate them, contending that the provision of the Internal Revenue Code requiring substantiation… Held: Even if the provision of the statute requiring verification of charitable contributions were invalid because contrary to the Constitution, the petitioners would not be entitled to the deductions without substantiation.

1. Upon the liquidation of Jerseymaid Milk Products Co., Inc. (a captive creamery of the five grocery chain customers which owned 80 percent of its stock at the time of its liquidation), on January… Held: no goodwill was distributed. 2. Respondent's determination of the fair market value of the automotive equipment of Jerseymaid Milk Products Co., Inc., distributed to petitioners on January 12, 1952, sustained.

Petitioner corporation was organized as a "nonprofit" membership corporation under the laws of Utah. During its fiscal year ended February 28, 1958, petitioner operated two "Veterans Thrift Stores" where it sold, at wholesale and retail, used clothing, furniture, and household appliances contributed to it by members of the public. Petitioner turned over that portion of its profits, which exceeded the amounts paid on its obligation for purchase of the two stores, to the Utah Department of the Disabled American Veterans which was exempt from income taxation under sec. 501(c)(4), I.R.C. 1954. Petitioner also gave an inconsequential amount of used clothing and other articles to certain veterans recommended to it by the D.A.V. 1. Held, that petitioner operated a business for profit during its taxable year ended February 28, 1958; that it was a "feeder organization" within the meaning of sec. 502, I.R.C. 1954; and accordingly, that it was not exempt from income taxation as a "social welfare organization," under sec. 501(c)(4). 2. Held, that the used articles of clothing, furniture, and household appliances contributed to petitioner during said taxable year, were contributions to its capital in the form of inventory; and that, under sec. 362(c)(1), I.R.C. 1954, petitioner's basis for computing gain on its sales of said articles was zero. 3. Held, that petitioner's failure to file its income tax return within the time prescribed by law was not due to reasonable cause; and accordingly, that imposition of an addition to tax under sec. 6651(a) for such late filing was proper.

1. Held, petitioners sustained a theft loss on account of withdrawals from a joint bank account under circumstances which constituted embezzlement under applicable California law. 2. Held: petitioners sustained a theft loss on account of withdrawals from a joint bank account under circumstances which constituted embezzlement under applicable California law. 2. Amount of loss determined.

1. Held, payments received by petitioner from her divorced husband were includible in her gross income under section 71(a)(1) of the 1954 Code; 2. Held: payments received by petitioner from her divorced husband were includible in her gross income under section 71(a)(1) of the 1954 Code; 2. Held, further, 6-year statute of limitations applicable to 1954 and 1955 under section 6501(e)(1)(A) of the 1954 Code.

John J. Untermann and Sarah C. Kaltman were purportedly married in Connecticut in October 1953 and have lived together since that time in New Jersey. John and Sarah were not legally married under the laws of New Jersey, since that State recognizes the validity of his previous marriage to Sally Cheney. Held, John and Sarah were not entitled to file a joint return in 1956, 1957, and 1958. Held, further, John is not entitled to a dependency exemption for Sarah for said years.

1. Southwest Properties, Inc., was incorporated in October of 1954, and in November following purchased an office building and parking lots adjacent thereto. Held: that Southwest was not a collapsible corporation within the meaning of section 341(b). 2. Held, that the useful life of the office building at the time it was acquired by Southwest was 30 years, and that the depreciation allowance is to be computed on the basis thereof. 3.

1. Held, certain payments by a corporation in redemption of stock were distributions to petitioners. 2. Held, further, an entry on the books of a corporation transferring a sum from surplus to capital upon the issuance of a stock dividend does not affect the accumulated earnings and profits of the corporation. 3. Held, further, a deficiency in income tax, even though not paid, is properly taken into account in determining earnings and profits in the year for which the deficiency is determined. 4. Held, further, a tax refund arising from a net operating loss carryback should be taken into account in determining the earnings and profits of a corporation as of the end of the taxable year in which the net operating loss occurred. 5. Held, further, since the petitioners' gross income for the years 1951 and 1952 was understated by more than 25 percent on their returns, the 5-year statute of limitations provided by sec. 275(c), I.R.C. 1939, applies to those years.

Petitioner agreed in contracts entered into with the Federal National Mortgage Association (FNMA) to sell mortgages thereto that FNMA… Held: Petitioner received payment for its mortgages in cash and stock and the amount includible in its income from receipt of stock is the fair market value of the stock at the date of its issue. 2. The stock sold by petitioner was a capital asset with a basis to petitioner of its fair market value at the date it was issued to petitioner.

Petitioner, a citizen of the United States not previously domiciled in a community property State, married to a nonresident alien, and employed as a civilian employee of the United States Army in Germany during the taxable years involved, held not entitled to exclude one-half of his earnings from his taxable income on the grounds that he was, or intended to become upon his return to the United States, a domiciliary of the State of Washington, a community property State.

In 1944 the Office of Defense Transportation took possession and control of the petitioner's transportation system which it retained… Held: that the petitioners made a valid election pursuant to section 99 of the Technical Amendments Act of 1958 and the regulations thereunder; that accordingly the amount received in settlement is to be excluded from income of 1952; that in determining the amount received in settlement, which is to be excluded from taxable income of 1952,…

1. Lots in a platted subdivision sold by petitioner in the taxable years 1957 and 1958 and those sold in a prior year on an installment basis on which collections were being made in these taxable years, were held primarily for sale to customers in the ordinary course of petitioner's trade or business and the gains therefrom constitute ordinary income. 2.

Taxpayer received royalties under a license agreement by which he had transferred the exclusive right to sell in the United States certain patented goods made in Japan. Held: Taxpayer did not show that he transferred all of his substantial rights under his patents to the licensee. Thus, royalties received under the license agreement are taxable as ordinary income.

Held, amounts received by petitioners during 1955 and 1956 representing a percentage of the gross receipts from the distribution of a motion picture constitute ordinary income. Held: amounts received by petitioners during 1955 and 1956 representing a percentage of the gross receipts from the distribution of a motion picture constitute ordinary income.

1. Expenses incurred by college professor on European trip undertaken for research and study held not deductible as business expenses. Manoel Cardozo, 17 T.C. 3, followed. 2. Expenses of maintaining a study at petitioner's home and depreciation relating thereto held not deductible.

Petitioners owned a piece of real estate and contracted with builders for the erection of a residence thereon at a fixed price. Held: petitioners entitled to such deductions.

Under a decree of divorce the petitioner was awarded custody and control of her three minor children, and the divorced husband was required to make payments to the petitioner over a period of 25… Held: that the full amounts of payments received by the wife in 1957 and 1958 are taxable income to her under section 71 of the Internal Revenue Code of 1954. Held, further, that section 71 is not unconstitutional.

At his death in 1953, M owned all of the capital stock of S, a corporation in the general auctioneering and appraising business. Held: that S is not entitled to a depreciation deduction on the lease because (a) the lease in fact had no fair market value or bonus value; and (b) S did not acquire the lease from the decedent under section 1014, I.R.C. 1954, so as to give it any depreciable basis.

Held, petitioner, as the common parent corporation, and its several affiliates are not entitled to deduct a consolidated net operating… Held: petitioner, as the common parent corporation, and its several affiliates are not entitled to deduct a consolidated net operating loss carryback where six of the affiliated corporations to which the losses are attributable were not members of the affiliated group and not in existence during the year to which the losses are sought to…

Petitioners entered an escrow to sell farm property B to a corporation. Held: the transaction was not an exchange within the provisions of section 1031(a), I.R.C. 1954.

John G. Stoll owned the Lexington Herald and the Lexington Leader, which published a daily morning and afternoon newspaper, respectively, as well as a… Held: the assumption by the corporation of the $ 600,000 indebtedness is not to be considered as other property or money received by Stoll within the meaning of section 112(c) and (k), I.R.C. 1939, and that such assumption does not prevent the exchange from being within the provisions of section 112(b)(5), I.R.C. 1939.

Held, volunteer fire companies are not political subdivisions of States where they are located and interest on their obligations is not tax-exempt interest income under section 103(a)(1), I.R.C. 1954. Held: volunteer fire companies are not political subdivisions of States where they are located and interest on their obligations is not tax-exempt interest income under section 103(a)(1), I.R.C. 1954.

1. Held, fraud not proved by clear and convincing evidence in the circumstances of this case, where petitioner was suffering from a severe psychosis. 2. Held: fraud not proved by clear and convincing evidence in the circumstances of this case, where petitioner was suffering from a severe psychosis. 2.

Petitioners kept their books and records on the accrual basis, which clearly reflected their income. Held: Petitioners changed their method of accounting in 1954 within the meaning of section 481 of the 1954 Code. 2. Petitioners initiated the change in method of accounting within the meaning of section 481(a)(2) of the 1954 Code, as amended by section 29 of the Technical Amendments Act of 1958. 3.

A partnership composed of four of the petitioners herein occupied premises in a Los Angeles produce market as lessee under a 3-year lease which expired December 31, 1956. Held: the costs of installation constituted capital expenses recoverable on the same basis as the cost of the equipment.

The gain realized by petitioner John W. Lenney on the sale and transfer by Lenney on May 12, 1953, was long-term capital gain from the sale of a partnership interest and not ordinary income from the sale and transfer of partnership assets.

Petitioners became affiliated February 1, 1954, with petitioner in Docket No. 86288 as the parent corporation. The parent filed a consolidated return for the group for its calendar year 1954, including therein the income of the subsidiaries from July 1 to December 31, 1954, and also filed consolidated returns for the years 1955 and 1956, including all the income of the subsidiaries therein.

Proceeds from the sale of a fractional interest in petitioner's rights to receive future commissions on accident and health insurance policies previously written by petitioner, an insurance broker, held to be taxable as ordinary income.

The respondent on June 21, 1961, made a jeopardy assessment against the petitioner under section 6861 of the 1954 Code; on July 28, 1961, the United States District Court pursuant to section 7403(d)… Held: the respondent's motion to dismiss for lack of jurisdiction is granted.

Accrual basis corporation is not entitled to a deduction for contribution to a profit-sharing trust fund for the calendar year 1957 where payment thereto was not made prior to the time prescribed by law for filing its income tax return for that year and no extension of time for filing the return was sought or obtained.

A corporation which had only two stockholders, and in which the petitioner held the minority stock interest, purchased or redeemed all the shares of its majority stockholder at a price of $ 113,000,… Held: that the corporation's payment of said sum of $ 113,000 to its majority stockholder in complete redemption of all his shares, did not cause petitioner to become chargeable with a constructive distribution of a taxable dividend to him of the same amount.

Four real estate holding corporations leased their rental properties to a partnership whose members were all related and were the shareholders of the corporations. Held: the partnership was created for legitimate business reasons and the leases between the corporations and the partnership were not sham devices. Held, further, the Commissioner unreasonably reallocated incomes of the partnership to the corporations and the reallocation is not approved.

Petitioners paid premiums on health and accident insurance policies providing indemnity for accidental loss of life, limb, sight, and time and also… Held: the amounts paid for such accident or health insurance are, subject to the statutory limitation of 3 percent of the adjusted gross income, deductible as expenses paid for medical care under section 213, I.R.C. 1954. Heard v. Commissioner, 269 F. 2d 911 (C.A. 3, 1959), reversing and remanding 30 T.C. 1093, followed.

Petitioner and Edna E. Stephens were married in 1944. In 1947 they purchased a house and lot known as 4210 East Broad Street. Each owned an undivided one-half interest therein. Held: under sections 61(a)(3), 1001(a), 1221, and 1222 (3), I.R.C. 1954, petitioner realized a long-term capital gain of $ 2,000 on the transfer. United States v. Davis, 370 U.S. 65.

1. Amounts treated by petitioner as salary to its president, who performed little or no services, held, in the circumstances, to represent part of the purchase price of assets of the going business… Held: in the circumstances, to represent part of the purchase price of assets of the going business of a predecessor proprietorship which had theretofore been operated by said president; and that said amounts are not deductible as current operating expenses. 2.

1. Adjusted basis of partners' interest in partnership real property determined. 2. Basis of partnership land to partnership determined. 3. Held: the determination by respondent of a new remaining useful life and salvage value did not give petitioners the right to retroactively change their method of computing depreciation where consent of respondent was not obtained or arbitrarily withheld.

1. Held, petitioners are entitled to deduct as a medical expense the cost of transportation to Florida in 1953, 1954, and 1955, held, further,… Held: petitioners are entitled to deduct as a medical expense the cost of transportation to Florida in 1953, 1954, and 1955, held, further, petitioners are entitled to deduct as a medical expense the amount paid for hotel accommodations in Florida in 1953 but not their Florida hotel accommodation expenses in 1954 and 1955, and held,…

Trust-petitioner is a trust created under the residuary clause of the will of Lambert Tree, who died in 1910. Held: Prior litigation between this trust and respondent involving the tax year 1925 is not binding upon us here under the doctrine of collateral estoppel because this proceeding (involving different taxable years, 1951-1954) involves a question not previously litigated. 2.

Petitioner held the controlling interest in a corporation that successfully operated a newspaper. Held: petitioner's acquisition of the coal-mining corporation was for the purpose of avoidance of income tax within the provisions of section 269, I.R.C. 1954, and both the operating losses and losses from the sale of the coal-mining company's assets were properly denied.

Held, respondent's motion to dismiss for want of prosecution is granted. Held: respondent's motion to dismiss for want of prosecution is granted.

During the taxable years involved the petitioners were employees of Pan American World Airways engaged in maintaining missile stations on various foreign islands in connection with the United States… Held: that the petitioners were bona fide residents of a foreign country or countries throughout the taxable years in question and that their salaries are exempt from income tax. Sec. 911(a)(1), I.R.C. 1954.

1. Payments made by petitioner Speedway Transports, Inc., to petitioner Edgar S. Idol during 1956 and 1957 constitute dividend distributions. 2. The purported reacquisition of stock by Speedway in exchange for certain assets (an operating franchise and 15 pieces of equipment) during 1957 constituted a sale of assets. 3. Petitioner Edgar S. Idol's receipt of $ 40,000 on May 1, 1957, constituted a dividend distribution to him by Speedway.

During the calendar year 1958 petitioner realized gross income of $ 79,824.53, accrued and paid interest charges in carrying on its business of $… Held: the interest is a deduction allowable under section 162 (relating to trade or business expenses) as that phrase is used in section 542(c)(9), I.R.C. 1954, and being more than 15 percent of the gross income, petitioner comes within the exceptions to the term personal holding company as defined in section 542(a), I.R.C. 1954.

Petitioner, an engineer with McDonnell Aircraft Corporation in St. Louis, Missouri, was transferred by his employer to Holloman Air Force Base, New Mexico, where certain flight tests were to be… Held: that the $ 10 per diem living allowance is includible in petitioner's gross income, and held, further, that no part thereof is deductible under sec. 162(a)(2), I.R.C. 1954, as traveling expenses while away from home in the pursuit of a trade or business.

The petitioner established for its employees a trusteed profit-sharing plan which the Internal Revenue Service determined met the requirements of sec. 401(a), I.R.C. 1954. Held: the petitioner is not entitled to a deduction in 1957 for its contribution to the trust.

Joint return for 1953, filed by petitioner's wife with written authorization from petitioner, omitted petitioner's income received while in a combat zone. Held: Although petitioner could have postponed filing under section 3804, I.R.C. 1939, all of his income was properly includible in the first return filed. Omission of more than 25 percent of gross income from the first return invoked the 5-year statute of limitations for assessments.

Petitioner is a trust formed to enable employees of the Journal Company to acquire and hold, during the period of their employment, a beneficial interest in the common stock of the Journal Company. Held: the petitioner did not realize dividend income in 1956 and 1957 as a result of the above transactions.

A partnership and certain individuals purchased convertible and callable bonds at a premium. Held: the unamortized part of such bond premium at the date of conversion is not an allowable deduction in the year of conversion.

1. Decedent, who died February 2, 1957, was the senior partner in a law partnership. Held: the value of this right was includible in decedent's gross estate for estate tax purposes. 2. An amendment to the partnership agreement reducing the share of a deceased partner's estate in future net income was executed on the date of decedent's death by all partners except decedent.

1. Wife's actions amounted to an acceptance and ratification of a purported joint return previously filed by her husband, but not signed by her. 2. Her attempted revocation nearly 3 years later of such election to file a joint return was not permissible under the law.

During the fiscal year ended September 30, 1952, petitioner (maintaining a completed contract basis of accounting) completed four contracts subject to renegotiation totaling $ 1,998,933.40. Held: petitioner employed a method of allocating overhead on its books and records which properly reflected its costs on the contracts. Held, further, petitioner realized excessive profits from the renegotiable contracts in the amount of $ 20,000.

At an informal meeting of the shareholders of Chippewa Springs Corporation on October 10, 1957, documents were executed with respect to a proposed sale of the corporate assets. Held: that the sale of the corporate assets did not occur until October 21, 1957, when all the events on which the sale was contingent had occurred.

1. Prior to 1954 the petitioner's agreements with its employees provided that if an employee had rendered a specified number of days of service in one year he would be… Held: that the petitioner, which employs the accrual method of accounting, is not entitled to accrue and deduct vacation pay for the taxable years 1954 and 1955 based upon the qualifying services rendered in those years, but is entitled to deduct only the vacation allowances actually paid in those years. 2.

Held, petitioner was availed of during the taxable year for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings and profits to… Held: petitioner was availed of during the taxable year for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed. Secs. 531- 537, I.R.C. 1954. Cf. Whitney Chain & Mfg. Co., 3 T.C. 1109, affirmed

Cost of improvements made to leased premises by a lessee with an option to purchase held depreciable over the life of the improvements, rather than over the term of the lease (7 years) where it was the lessee's intention to exercise the option and indications were that he would do so.

1. Petitioner sold her farm in 1953 at a profit and it is stipulated that the payments received by her in that year under the contract… Held: that petitioner's income tax returns for 1953 and 1954 filed on March 26, 1957, were not timely returns and petitioner had forfeited her right to report the profits received from the sale of her farm in 1953 on the installment basis. All the profits from the sale should be included in petitioner's income for 1953 and none in 1954. 2.

1. Held, that petitioner Marie Zips is not entitled to exclude from her 1955 gross income, as property acquired by gift within the… Held: that petitioner Marie Zips is not entitled to exclude from her 1955 gross income, as property acquired by gift within the meaning of section 102(a) of the 1954 Code, substantial amounts of cash and securities which she received in said year from an individual who was then legally incompetent to make a valid gift; and held, further,…

A parent corporation which in earlier years used the net operating losses of its subsidiary as a basis for claiming a bad debt and worthless stock deduction is not permitted to carry over under sec. 381, I.R.C. 1954, the net operating losses of the subsidiary, which had been dissolved in the interim, since such action would enable the parent corporation to receive directly or indirectly the equivalent of a double deduction.

1. Held, under these facts the petitioner was not availed of during the taxable years 1954 through 1957 for the purpose of avoiding the income tax with respect to its stockholders by permitting… Held: under these facts the petitioner was not availed of during the taxable years 1954 through 1957 for the purpose of avoiding the income tax with respect to its stockholders by permitting earnings and profits to accumulate instead of being divided or distributed. 2.

1. Held, where principal petitioner, as retiring partner, as of March 31, 1955, sold his interest in a partnership, which kept its books… Held: where principal petitioner, as retiring partner, as of March 31, 1955, sold his interest in a partnership, which kept its books and filed its returns of income on an accrual basis and fiscal year ending September 30, for an amount which included his proportionate share of the partnership's net profits for the period October 1, 1954,…

Petitioners (husband and wife) owned all but 1 share of the outstanding 99 shares of the stock of a corporation. Held: the adjusted basis of petitioners' stock in the corporation cannot be increased by the value of any goodwill owned by the corporation at the time it sold its assets pursuant to the plan.

Estate Tax -- Marital Deduction -- Power of Appointment Surrendered in Will Contest -- Separate Foreign Will -- Regs. Held: the trust under the American will did not qualify as a marital deduction in view of the surrender of the power of appointment in a will contest. Regs. sec. 20.2056(e)-2(d)(1).

Loss deduction claimed on the sale of real estate which petitioner acquired under the will of her deceased husband representing the difference between the sales price and the value at which the property was reported in the deceased husband's estate for estate tax purposes disallowed where the claimed loss was due to restrictive covenants placed on the property in the deed of conveyance.

C. J. Thorson and his son, George O. Thorson, organized a partnership in 1949 under the name of The Thorson Company to do business as a manufacturer's representative, selling products for airborne… Held: that of the renegotiable net income of $ 36,423.32 realized by the partnership during 1954, $ 15,000 represented excessive profits.

Held, there is no statute of limitations on the assessment and collection of an addition to tax under the provisions of section 293(b),… Held: there is no statute of limitations on the assessment and collection of an addition to tax under the provisions of section 293(b), I.R.C. 1939, for the taxable years ended July 31, 1944 and 1945, respectively, where the original omitted tax and additions thereto were based on fraud and were assessed in 1953 and paid in 1954, and where…

In applying section 1303, I.R.C. 1954, in respect of an award of back pay, pertinent legal expenses are deductible in full in the year the award was received, and may not be prorated over earlier years; section 1303 must be applied to the full amount of the award, undiminished by such legal expenses. Weldon D. Smith, 17 T.C. 135, reversed on another issue 203 F. 2d 310 (C.A. 2), followed.

On May 29, 1959, the stockholders of City Bank adopted (1) a plan of complete liquidation and (2) a resolution approving the sale of City Bank's assets. Held: The sale of such obligations took place prior to the adoption of City Bank's plan of liquidation and consequently the loss on such sale is recognized.

Petitioner owned 100 percent of the stock of X and Y corporations. Held: the amount received by petitioner is to be treated as a distribution in redemption of the stock of X corporation under section 304, I.R.C. 1954. Held, further, the redemption by X corporation of petitioner's stock in Y corporation was a redemption essentially equivalent to a dividend under section 302, I.R.C. 1954.

In 1941 the petitioner leased the newspaper businesses of two corporations for a period of 99 years. Held: that the prior decision is not conclusive, under the doctrine of collateral estoppel, with respect to the issue presented in the instant case since such issue is not identical with the issue decided in such prior case.

Petitioner, J. T. Slocomb, prior to its merger in 1954 with two profitable corporations, was engaged primarily in the manufacture of center drills and micrometers. For 10 consecutive years from 1944 through 1953, Slocomb had net losses from its operations. On November 19, 1953, an auction of its property was held. All of Slocomb's real estate and, with certain exceptions referred to below, all of its machinery, machine tools, raw materials, inventory, and office equipment were sold to outside interests. National Printing Company purchased for $ 7,300 the stock of Slocomb which still owned, among other things, its name, equipment for fabricating micrometers, and customers' lists; and also received an assignment of all claims of a creditor against Slocomb in the amount of $ 166,766.62. Said indebtedness was then converted into a 5-year 6-percent debenture bond in the sum of $ 160,700. Several days later Slocomb's stock and debenture bond were sold to the stockholders of Green Machine Company, Inc., and Turbo Industries, Inc., for $ 30,000. Slocomb then entered into a merger effective March 1, 1954, in which petitioner was the surviving corporation. Green was engaged principally in manufacturing precision parts for the aircraft industry, and Turbo in developing techniques, which included highly specialized instrumentation for said industry. After the merger, the micrometer business of the surviving corporation during the taxable years involved represented about 5 percent of petitioner's total sales for that period. Immediately prior to the merger, Green and Turbo had a surplus of $ 44,110.40 and $ 22,336.71, respectively, and Slocomb a deficit of $ 201,270.62. In its return for the taxable years 1954 and 1955, petitioner carried forward its premerger net operating losses for prior years and deducted them from income earned by it during the taxable years from the composite business to the extent which, if permissible, would have resulted in no tax liability for said period and a substantial loss balance available for subsequent years. In petitioner's returns for 1954 and 1955, deductions were also claimed for interest on the aforesaid bonds in the amounts of $ 270 and $ 5,361, respectively. Held: That petitioner has not established by a preponderance of the evidence that the principal purpose of the stockholders of Green and Turbo for acquiring control of petitioner was not to evade or avoid Federal income tax by securing to themselves the benefit of petitioner's net operating loss deductions and the benefit of petitioner's claimed deductions for interest payments on said debenture bonds, said deductions being benefits which said stockholders otherwise would not have enjoyed. Accordingly, petitioner is not entitled to carry over said net operating losses against profits for the taxable years 1954 and 1955, and, further, is not entitled to allowance of claimed deductions for interest on said debentures for said years. Sec. 269, I.R.C. 1954.

Held, that expenses for tuition, supervisory consultation, and travel expenses in relation to training and qualification to become a psychoanalyst incurred in… Held: that expenses for tuition, supervisory consultation, and travel expenses in relation to training and qualification to become a psychoanalyst incurred in 1956 and 1957 by Helen R. Gilmore, a practicing psychiatrist, are not deductible as business expenses within the meaning of section 162 of the Code of 1954.

Petitioner corporation, during the years 1952 and 1953, experienced substantial changes in its stockownership and in the character of its business -- as the result of a chapter X bankruptcy… Held: that petitioner is not entitled to carry over and deduct from the income of its postreorganization business, under section 172 of the 1954 Code and section 122 of the 1939 Code, net operating losses which it had sustained in its prereorganization business.

Petitioners made a gift to charity of a $ 10,000 equity in a stand of timber. Held: petitioners did not realize income upon the sale as there was a gift of property and not an anticipatory assignment of income.

1. Value of gifts of the right to receive income from a 34-percent interest in a partnership in trust for a period of 10 years and 90 days, the entire principal of the trusts to revert to the settlors on termination of the trusts, determined under section 25,2512-5(c), Gift Tax Regs. 2.

1. Petitioners received $ 60,916.15 (in cash and personal property) in 1956 in connection with a testimonial dinner given in honor of petitioner husband as vice president… Held: $ 12,000 of the amount received is excludible from gross income as a gift. The remainder did not constitute a gift and is not excludible from gross income. Sec. 102(a), I.R.C. 1954. 2. Held, further, petitioners failed to substantiate certain claimed contributions disallowed by the Commissioner. 3.

Expense vs. Capital Expenditure -- Payment by Life Tenant To Settle Litigation Attacking His Title to Life Estate -- Sec. 212(2), I.R.C. 1954. -- A payment by one granted right to trust income for life in settlement of litigation in which his right or title was attacked is not an ordinary and necessary expense and not deductible under section 212(2), I.R.C. 1954.

1. Awards -- Mixed Claims -- Basis vs. Interest. -- The petitioner received payments during the tax years on an award by the Mixed Claims Commission, United States and Germany. Held: the award of interest on the principal award was not a part of the basis and all amounts received in the tax years were interest income. Edna S. Ullman, 34 T.C. 1107, followed. 2.

Decedent died March 10, 1956, a resident of Georgia. He left a somewhat ambiguous will which the Superior Court construed as giving his widow (in essence) a life estate with power to consume with respect to certain property. The Superior Court also decreed that another bequest was void for indefiniteness, thereby creating a partial intestacy. The widow was entitled to one-fifth of the property passing under the intestacy laws of Georgia. One year after the decree, which had then become final, all interested parties "dismissed" the action and entered into a compromise settlement. The Court of Ordinary, pursuant to the widow's petition, granted $ 23,500 to the widow for a "Year's Support" allowance as provided by Georgia statutes. Held: 1. The question of the proper construction of decedent's will being fairly presented to the Superior Court, its decree is binding upon us, and the subsequent "dismissal" does not change this result. 2. The interest thus created in the widow was not equal to a power "to do with as she pleases" and was therefore not a power of appointment exercisable "in all events" within the meaning of section 2056(b)(5), I.R.C. 1954. Accordingly, the widow's interest was "terminable" and did not qualify for the marital deduction. 3. Since the widow's right to the support award was indefeasibly vested when the award became final, such award is not a terminable interest and hence qualifies for the marital deduction even though under the Georgia statute the widow could not receive the award if she died or remarried prior to the time it was granted. 4. Expenses incurred in procuring said award were incurred for the primary benefit of the widow and not incident to the administration of the estate. Thus said expenses are disallowed. 5. The portion of the decree creating the partial intestacy and thus vesting in the widow a one-fifth interest in certain property was a binding determination of rights in property and conclusively fixed the widow's interest therein. Said interest qualified for the marital deduction.

The fair market value of an automobile received by the petitioner from his employer as an award in a sales contest determined.

In 1954, S corporation was formed for the purpose of developing and constructing a shopping center. Held: S is a collapsible corporation as defined in section 341(b), I.R.C. 1954, and is thereby not entitled to nonrecognition of its gain on the sale of the shopping center under the provisions of section 337 (a) and (c), I.R.C. 1954; (2) the gain S realized on the sale of the shopping center is taxable as long-term capital gain.

It has not been shown that the parties who instituted, participated in the preparation and execution of, and filed the petition herein were authorized to do so. Held, that this Court does not have jurisdiction of the proceeding.

Held, that expenditures made by the decedent, Philip A. Carroll, for repairing and refurbishing a chapel located on an ancestral estate owned by him, which for more than 240 years has been used exclusively by the Roman Catholic Church as a parish church for the surrounding community, are deductible as charitable contributions under section 23(o)(2) of the 1939 Code and section 170(c) of the 1954 Code.

Held, where taxpayer transferred assets after the period of limitation for assessment of taxes, transferee, petitioner, was not liable as transferee under section 311, I.R.C.… Held: where taxpayer transferred assets after the period of limitation for assessment of taxes, transferee, petitioner, was not liable as transferee under section 311, I.R.C. 1939, upon its assumption contract, made at the time of the transfer, wherein it assumes all of the liabilities of [transferor].

T, minority stockholder of B Corp., contracted to purchase all the remaining outstanding stock of B Corp. The purchase, in 1950, was financed by a loan which was formally made by B Corp. to T's… Held: the discharge of the note in consideration for the shares surrendered was essentially equivalent to a dividend ( sec. 302(b), I.R.C. 1954), and is taxable to T in 1954 to the extent of available corporate earnings and profits. Cf. Wall v. United States, 164 F. 2d 462 (C.A. 4).

Petitioner's claim for relief under section 722, I.R.C. 1939, denied.

1. During the taxable year petitioner, the operator of a cotton warehouse, illegally removed and sold as his own 812 bales of cotton which had been… Held: that respondent did not err in failing to exclude the sales proceeds from gross income in his determination of deficiency herein. 2. Held, that petitioner has not shown that his losses from the purchase and sale of cotton futures contracts were ordinary losses, rather than capital losses, as respondent has determined.

Held: 1. An unincorporated mutual marine insurance association which keeps its books and files its Federal income tax returns on an accrual… Held: An unincorporated mutual marine insurance association which keeps its books and files its Federal income tax returns on an accrual basis is entitled to deduct dividends declared in the year so declared to the extent of the indebtedness thus created to its policyholders even though a part of the dividend is contributed by such…

Petitioners advanced $ 45,194.68 to a charitable organization in 1955 to build a chapel and received a promissory note from the organization in the amount… Held: petitioners did not make a gift of the entire amount advanced in 1955. Held, further, petitioners are entitled to deduct as a charitable contribution, to the extent allowed under section 170, I.R.C. 1954, the amount of the indebtedness canceled in each of the years 1955-1958 by endorsements on the back of the note.

1. Held, funds constituting overpayments made in 1957 under a rental agreement made in 1956 are not includible in gross income within the… Held: funds constituting overpayments made in 1957 under a rental agreement made in 1956 are not includible in gross income within the meaning of section 61(a) of the Internal Revenue Code of 1954, where in the year of overpayment the recipient discovers the overpayments, renounces his claim of right to the overpayments, and provides for…

Petitioner made a conveyance of a tract of land situated in the city of Tyler, Texas, which she had owned for more than 6 months to the Young Men's… Held: that in computing the capital gain resulting to petitioner from the sale of one-half interest in the tract the entire amount of $ 48,812.01 should be applied against the $ 50,000 which she received from the sale and not one-half thereof as the Commissioner has determined. Sec. 1.1001-1(e)(1), Income Tax Regs. applied.

Income Deductions -- Life Beneficiary -- Distributable Net Income -- Allocation of General Trust Expense Deductions -- Secs. 652(b) and 643(a)(3) -- Income Tax Regs., Sec. 1.652(b)-3(b). -- The… Held: that the petitioners are not entitled to any greater benefit than that thus allowed.

During the fiscal years ended August 31, 1954, 1955, and 1956, petitioner authorized officers' salaries in excess of the amounts allowed to be paid to the officers each year under credit agreements… Held: the unpaid and accrued salaries as of the end of each year represented an enforcible indebtedness of petitioner and petitioner at these times was reasonably justified in believing that it would discharge such liability in due course.

1. Held, that a power of appointment granted to the decedent under the will of her deceased husband, under which she was authorized to appoint to her estate (but not to herself) the whole or any part of the principal of a trust created under said will, is a "general power of appointment" within the meaning of section 2041(a)(2) and (b)(1) of the 1954 Code. 2. Held, further, that the decedent held said power of appointment at the time of her death, although she was at that time mentally deranged but had never been adjudicated to be incompetent. 3. Held, further, that the value of the trust property over which the decedent had said power of appointment is includible in her gross estate under said section 2041(a)(2). 4. Held, further, that a constitutional issue, not pleaded and raised for the first time on reply brief, will not be considered.

Held, "contract charges" made by a nonregulated small loan company to help cover the high cost of investigating credit, the increased risk involved, etc., in such business, constitute interest and personal holding company income.

During the period 1942 through 1949 the petitioner acquired certain patents. Held: that no part of the payment was for services rendered or to be rendered, that the payment represented the proceeds from the sale of long-term capital assets, and that the gain on the sale was taxable as long-term capital gain.

The taxpayer entered a contest the rules of which precluded him from being the recipient of a prize and which required him to designate, at the time of entry in the contest, a recipient under the age… Held: the prize is not includible in the gross income of the taxpayer.

1. National Mutual was organized as a mutual insurance company and during the taxable years in issue was doing business as such in the State in which it was organized. Held: that during the taxable years in issue the company was a mutual insurance company and was taxable as such. 2.