Volume 4 — Tax Court Reports

Petitioner, a corporation on the calendar year accrual basis, accrued interest on an obligation owing to its president and controlling stockholder, which interest was payable January 1. Held: the deduction of the amount of interest accrued but unpaid is precluded by the provisions of section 24 (c) of the Internal Revenue Code.

The grantor created trusts for the benefit of her children and grandchildren, expressly reserving the right to amend the trust agreements as to all provisions except those relating to the… Held: that the grantor retained sufficient control over the disposition of the income of the trusts to render her taxable thereon under section 22 (a), Internal Revenue Code.

Petitioners, purchasers of corporate stock after March 1, 1913, received in 1940 distributions from increase in value of property accrued before March 1, 1913. Held: that the petitioners are not taxable upon the amounts by which the distributions exceeded their adjusted bases in the stock. Regulations 103, section 19.111-1, held to that extent invalid.

Transfer of securities by petitioner corporation to its wholly owned subsidiary, held, to result in no deductible loss in the absence of evidence negativing domination and control of the subsidiary… Held: to result in no deductible loss in the absence of evidence negativing domination and control of the subsidiary by petitioner, and of any purpose for the transaction on the part of petitioner other than tax avoidance.

1. Jurisdiction -- Deficiency in One Kind of Tax but Overassessment in Another. -- The Tax Court has no jurisdiction over income tax or declared value excess profits tax where overassessments were determined by the Commissioner in those taxes, even though, in the same notice, the Commissioner determined a deficiency in excess profits tax for the same year. 2.

1. Grantor-trustee of irrevocable trusts for benefit of wife and minor children, with all circumstances conceded to be identical with those in Ellis H. Warren, 45 B. T. A. 379; affd., 133 Fed. (2d) 312, held taxable on income therefrom, under the doctrine of Helvering v.Clifford, on authority of Ellis H. Warren, supra, unaffected by provisions of Revenue Act of 1943, section 134, referring to trust income available for maintenance of grantor's dependents. 2.

1. A resident of Pennsylvania, after becoming hopelessly insolvent, designated his wife as first beneficiary in several policies of insurance on his life, in substitution for his executors,… Held: the widow, petitioner herein, is liable in equity as a transferee for the income tax of her deceased husband. 2. Petitioner's husband, during his lifetime, kept no personal books of account.

1. Petitioner bought certain tax lien certificates on lands on which taxes were delinquent and on redemption of the certificates by the… Held: that the portion of the gains comprising interest was not in sufficient percentage of petitioner's gross income to bring petitioner within the definition of a personal holding company as set out in section 501 (a) (1) of the Internal Revenue Code; held, further, that petitioner is not liable for surtax under section 500 of the code.…

1. Debt determined, on the facts, to have become worthless in 1940. 2. Held: the full amount paid by petitioner in satisfaction of the tax liability is deductible by petitioner as taxes paid. An adjustment at the time of the sale, whereby the seller paid to petitioner, vendee, an amount covering a part of the taxes, for the period prior to the sale, constitutes a reduction of the purchase price.

1. Petitioner was chartered as a mutual fire insurance company under the laws of Pennsylvania in 1938. It had no stock or stockholders. Held: petitioner was a mutual insurance company, but it was not writing insurance substantially at cost and is not exempt under section 101 (11) of the Internal Revenue Code. 2.

In 1934 petitioner's husband created two trusts, making the children income beneficiaries for life. Held: that petitioner is taxable on the income of the securities she put in the trusts under section 22 (a) of the Internal Revenue Code.

Petitioner was incorporated under the Indiana General Corporation Act, but carried on business as an agricultural cooperative association. Held: the patronage dividends distributed by petitioner in excess of 8 percent of the par value of its outstanding common stock are to be treated as rebates to which patrons are entitled by petitioner's bylaws and therefore are to that extent to be excluded from gross income subject to tax.

Common stock, received by an estate as a dividend upon common stock and distributed to the life tenant as provided by the testator's will, had the same basis in the hands of the life tenant as it had in the hands of the executors of the estate.

Deductibility of nonbusiness expenses prescribed by Revenue Act of 1942, section 121, held, not to alter principle that expense of traveling between home and office is nondeductible. Held: not to alter principle that expense of traveling between home and office is nondeductible.

A citizen of Brazil, domiciled in France, was married in France in 1911 and continued to be domiciled there until his death in 1939. Held: The stock was community property and only one-half of the value thereof may be included in decedent's gross estate; (2) The value of stock of the Houdry Process Corporation on the date of the death of the decedent was $ 40 per share; and (3) The surviving wife is liable, as a transferee, for the estate tax.

1. Liability under the Fair Labor Standards Act for additional wages to certain of petitioner's employees which was at all times denied and contested until settlement and payment by petitioner in… Held: properly accrued as a deduction in 1940, notwithstanding that some of the adjusted payments covered services rendered in 1938 and 1939. 2.

Under an earlier will by decedent, a resident of Pennsylvania, executed more than 30 days before his death, Lafayette College was named… Held: No part of the amount thus passing to Lafayette College was deductible as a charitable bequest in determining the estate tax liability. (2) There was no disclaimer within the purview of section 812 (d) of the Internal Revenue Code, as retroactively amended by sections 408 of the Revenue Act of 1942 and 511 of the Revenue Act of 1943.

1. Calvin A. Fleming, with his wife and children, moved to Louisiana from Minnesota in 1910. Held: 87 shares by Fleming and 54 shares in varying numbers by their children. In 1937 corporation B was organized to acquire, and did acquire, the lands owned by corporation A, and its stock was issued to the stockholders of A, share for share.

In 1940 petitioner, a resident of Switzerland, transferred securities located in the United States in trust for herself for life, and thereafter for her children, reserving a power of… Held: the power of revocation with the consent of the trustees, together with the agreement of the trustees to give their consent, renders the transfer incomplete for purposes of gift taxation; held, further, petitioner lacked the donative intent necessary to give rise to a taxable gift.

1. Where approximately 98 percent of the business of petitioner, organized for the purpose of holding, investing, or reinvesting in stocks and securities, was of that character throughout the taxable periods involved, it is held that such percentage constitutes substantially all of its business within the purview of section 361 (a) (1) of Supplement Q of the Revenue Act of 1938, and the Internal Revenue Code. 2.

On December 19, 1930, the petitioner created two trusts, transferring to the trustee to create trust estate A securities the income from… Held: that the petitioner is liable to gift tax in 1939 upon the value of trust assets with respect to which the right of revocation was terminated by the death of her husband; held, further, that the value of the assets of trust estate B for gift tax purposes was the amount of the proceeds of the policies payable upon the death of the…

The petitioner purchased from automobile dealers conditional sales contracts executed by buyers of automobiles under which title to the car remains in the dealer until the purchase price is fully… Held: that such gross profit is not interest within the definition of personal holding company income.

Decedent assigned insurance policies upon his own life of the face value of $ 50,000 to his wife, the beneficiary named therein, approximately thirty days before his death from cancer, for which he… Held: the transfer of the policies was made in contemplation of death and was not for an adequate and full consideration; and the value of the policies so transferred was properly included in the decedent's estate for estate tax purposes.

Petitioner, a domestic corporation, received dividends during the taxable years from certain of its wholly owned foreign subsidiaries. Held: in computing the foreign tax credit under section 131 (f) of the Revenue Act of 1934, the foreign tax deemed to have been paid by the petitioner should be computed for each separate year on the accumulated profits from which the dividends were paid; held, further, that the limitation upon the credit under the proviso in section 131…

Petitioner was the sole life income beneficiary of a testamentary trust established by the will of his deceased wife. Held: petitioner was under a legal obligation to make the refund and the amount so refunded should not be included in his taxable income. Ralph J. Green, 3 T. C. 74, distinguished on its facts.

Basis of property distributed to petitioner by grantor-trustees, out of discretionary trust, of which petitioner was beneficiary, held, to be grantors' basis, rather than market value upon… Held: to be grantors' basis, rather than market value upon distribution. Internal Revenue Code, sec. 113 (a).

Held, estate of deceased partner was not liable for deficiencies in unjust enrichment tax arising from reimbursements by the millers from whom flour had been purchased by the partnership. Held: estate of deceased partner was not liable for deficiencies in unjust enrichment tax arising from reimbursements by the millers from whom flour had been purchased by the partnership.

Deduction for British income taxes paid by petitioner, a foreign insurance corporation doing business in the United States, held, allowable to the extent of a ratable portion of the tax computed by… Held: allowable to the extent of a ratable portion of the tax computed by comparing petitioner's gross income from taxable sources within the United States with total gross income, and without further limitation.

Capital stock tax returns attempting to exercise election to designate additional declaration years, held, ineffectual to entitle petitioner to new declarations of value, due to delinquency in filing. Held: ineffectual to entitle petitioner to new declarations of value, due to delinquency in filing. Revenue Act of 1939, sec. 301.

In 1930 petitioner purchased stock warrants expiring January 2, 1940. Held: the loss is not deductible in 1940 as a loss on securities becoming worthless, within section 23 (g) (2) of the Internal Revenue Code, for the options had no value at the beginning of that year; held, further, the loss is not deductible under section 117 (g) ( 2) of the Internal Revenue Code, as a loss attributable to the failure to…

1. Petitioner, a bank, precluded by state law from carrying on a real estate business, as an incident of collection of loans made upon mortgages, acquired by foreclosure and sold over the course of… Held: such real estate constituted capital assets within section 117 (a) (1) of the Internal Revenue Code, 1939 edition, and the gain or loss realized on its sale was capital in character. 2.

Commissions paid to testamentary trustees, out of the corpora of the testamentary trusts, based on a percentage of receipts and disbursements of trust assets in accordance with section 285 of the New… Held: deductible from the gross income of the trusts under section 23 (a) (2) of the Internal Revenue Code, added by section 121 of the Revenue Act of 1942.

1. Decedent created a trust of which his daughter was beneficiary, and she was required to join him in any termination of the trust. Held: that decedent was grantor of the second trust, and the value of the corpus was properly included in his gross estate. 2. Decedent in 1923 set up a trust which was subject to modification or revocation by him. On December 23, 1932, he modified it to provide for modification or abrogation by decedent and his daughter.

1. In the taxable year petitioner was 30 years of age and a successful practicing lawyer and unmarried and was living in the same household with his mother, his father, and two brothers, one of whom… Held: that under the facts petitioner was the head of the family under the applicable law and regulations and was entitled to a personal exemption credit of $ 2,500 as head of a family. Annette Loughran, 40 B. T. A. 252, followed. 2.

Petitioner, whose shares were owned by two individuals, derived more than 50 percent of its income in each of the taxable years from leasing certain of its buildings to an operating company, most of… Held: the income derived from such leases was not personal holding company income under section 353 (f) of the Revenue Act of 1936, as amended, and petitioner was not a personal holding company during any of the taxable years.

Petitioners, husband and wife, each created two trusts in favor of their two minor children. Held: the person with the power to amend does not have a substantial adverse interest, and petitioners are taxable on the trust income under section 167, Revenue Act of 1938.

1. Prior to November 9, 1935, the effective date of Treasury Decision 4603, petitioner retired three issues of bonds with the proceeds from the sale of new bonds. Held: the election permissible under T. D. 4603 to prorate such items over the life of the new bonds applies to each separate issue retired prior to November 9, 1935, in a year then open. The failure to make an election on the retirement of the two issues did not bar an election on the third bond issue. 2.

Pursuant to a mandate from the Circuit Court of Appeals, this Court entered a final order determining that petitioner had no income for 1935, but had sustained a net loss. Held: under the restrictive provision of section 501 (a)(1), Revenue Act of 1936, petitioner is not liable for such unjust enrichment tax.

Petitioner, a United States district judge, held taxable under the Public Salary Tax Act of 1939, which does not clearly violate Article III, section 1, of the Constitution in so far as it subjects to income taxes the salary of a Federal district judge who was appointed and qualified as such on April 3, 1921, when the 1918 Act subjecting such salary to that tax was in effect. O'Malley v. Woodrough, 307 U.S. 277.

1. Petitioner's president and directing head, who had served in that capacity for a good many years, in 1937 retired as president and… Held: the sums which were paid this former president in the taxable years 1938, 1939, and 1940, under agreement between him and petitioner's board of directors, as pension for past services and as compensation for services actually rendered petitioner in the taxable years were reasonable and the amounts so paid are allowable as deductions…

A corporation with no earnings or profits accumulated after February 28, 1913, made distributions out of current earnings or profits in July and October of its… Held: the distributions do not constitute taxable dividends to a shareholder whose fiscal year ended October 31, 1936. Such distributions are not dividends within the meaning of section 115 (a) of the Revenue Act of 1934, which is controlling in respect of the fiscal year of the shareholder ended October 31, 1936.

Selling commissions paid in connection with the disposition of securities by one not engaged in carrying on a trade or business, are not ordinary and necessary expenses within the meaning of section 23 (a) (2) of the Internal Revenue Code. They are selling costs treated as an offset against the selling price in determining gain or loss incident to the transaction.

1. Petitioners were devised undivided life interests in coal lands in West Virginia, under the law of which they became vested with legal title. Held: that loss sustained upon sale and execution of deed by the petitioners of their life interests was that of the petitioners, and not of the testator's estate, and was a capital loss. 2. Petitioner paid an attorney a lump sum for legal advice in connection with a condemnation proceeding and for procuring a loan.

1. During the taxable years the taxpayer, a minor, paid, pursuant to orders of court, attorneys' fees and court costs of numerous lawsuits… Held: the fees and costs are deductible under section 23 (a) of the Internal Revenue Code, as amended, either as ordinary and necessary business expenses, or as ordinary and necessary expenses of a nontrade or nonbusiness nature, except for minor amounts allocable to tax-free interest under section 24 (a) (5), Internal Revenue Code, as…

1. Where a taxpayer on the cash basis purchased stock in a prior year and gave its note to the seller for the purchase price, and both purchaser and seller agreed that at any time prior to the… Held: the taxpayer realized no taxable gain on the transaction except the liquidating dividend which it received in years prior to the redelivery of the stock and did not pay over with the stock but reported for taxation. 2.

1. Petitioner, which kept its books and filed its returns on the accrual basis of accounting, received cash or accrued amounts within the taxable years under contracts obligating petitioner to… Held: the entire amount constitutes income in the year when received or accrued, notwithstanding the fact that a part of the income was earned in the following year. 2.

1. Value of remainder interest in inter vivos trust after discretionary life estates to two minor unmarried grandchildren, which by the terms of the trust was… Held: further, no reduction for the value of the hypothetical exercise of the powers is permissible. 2. Notes executed to decedent by two of his children, which were partly secured by collateral but subject to defenses of statute of limitation, and coverture, held, to have no value in excess of that of the collateral.

The acquisition in 1940 by a corporation of its shares for purpose of retirement is within section 115 (i) and (c), Internal Revenue Code, treating the gain to the shareholder as short term capital gain no matter how long shares were held by him and regardless of plan for expansion or nonliquidation of corporate business, since partial liquidation under the statute refers literally to a distribution in cancellation or redemption of a part of the corporate shares.

A corporate net operating loss of the calendar year ended December 31, 1941, for determining the carry-over as a net operating loss deduction for the calendar year 1942, is to be determined under section 122 (d) (4) of the Internal Revenue Code, as amended by section 150 (e) of the Revenue Act of 1942.

1. Where by reading together the simultaneously executed declaration of gift and articles of partnership it appears that the gift by petitioner to his wife of one-half his gambling machine business… Held: the gift failed at the outset because it was expressly or by implication made upon a condition or limited to a purpose which failed, and hence the entire net income of the business was that of petitioner. 2.

1. The amount of commissions due petitioner under a contract was in dispute in 1941 and was not finally fixed until 1942. Held: that no part of the commissions was received constructively in 1941. 2. Petitioner exchanged livestock for a note of the purchaser in 1941. The note was payable in 1942. Petitioner agreed to make some adjustments if certain events occurred. The note had full value in 1941.

1. Stock dividends on Standard Oil securities, held by a testamentary trust, were retained by the trustees in the trust corpus notwithstanding the fact that some (or all) of them constituted… Held: no part of this property is includible in gross estate. 3. In 1916 decedent transferred securities having a substantial value to an irrevocable trust created by her for the benefit of her children and grandchildren.

1. On February 3, 1927, decedent executed an inter vivos trust of personal property for the benefit of his five brothers and his wife, reserving the privilege of changing the relative interests of… Held: The corpus of the inter vivos trust is not includible in decedent's gross estate under section 811 (d) (2) of the Internal Revenue Code, as the single exercise by decedent of the right to change the relative interests of the different beneficiaries exhausted it.

The proceeds of policies of insurance on decedent's life which he had transferred irrevocably in trust several years prior to his death for the benefit primarily of his three children, reserving no… Held: not includible in his gross estate under either section 811 (c) or 811 (g) (2), Internal Revenue Code.

The petitioners sustained a loss upon the sale of a farm to their daughter and son-in-law. Held: that the vendees acquired the property in equal shares as tenants in common and that the prohibition contained in section 24 (b) of the Internal Revenue Code against the deduction of losses sustained upon the sale of property between members of a family is applicable to one-half the loss sustained which resulted from the sale of…

1. Sale in 1940 of petitioners' property for cash consideration in addition to amount for which it could be redeemed pursuant to state court decree in 1939 holding 1931 transaction, then regarded for Federal tax purposes as a sale, to be a mortgage and not a sale, held to result in capital gain to the extent of excess of cash and redemption price over adjusted basis. 2.

Petitioner advanced money to a corporation under an agreement relating to the reorganization and refinancing of the corporation. Held: the transaction gave rise to an indebtedness constituting a basis for a deduction from gross income as a worthless debt; held, further, the debt became partially worthless in 1940.

Petitioner was the manager of two Canadian syndicates owning oil wells or interests therein in Texas. Held: petitioner was a withholding agent within the meaning of section 143 (b) of the various controlling revenue acts, and he should have deducted and withheld from the amounts remitted to Canada the tax specified in section 143 (b); held, further, penalties for failure to file returns as withholding agent were properly imposed.

Petitioner, one of several resident trustees of two trusts established by a nonresident alien for the benefit of his divorced wife and minor children, held, not liable to withholding tax and… Held: not liable to withholding tax and penalties for the years 1933 to 1939, inclusive; held, further, not liable as a fiduciary under section 3467, Revised Statutes, as amended, for any liability of the nonresident alien for tax upon any portion of the income of the trusts.

Petitioner created an irrevocable trust for a fifteen-year period, designating his four daughters as beneficiaries. He named himself as trustee and was to have "unlimited powers of investment, contract, compromise, sale, lease and otherwise" with respect to the trust property. He could distribute the income or withhold it as he saw fit and income not distributed became principal. He could invade principal for the education and maintenance of the named beneficiaries or to meet expenses of illness, emergency, or other extreme misfortune. Except in case of his wife if she should succeed him as trustee, the above unlimited powers over corpus reserved to himself were denied to successor trustees. Held, the entire income of the trust for the taxable year 1941 is taxable to grantor under section 22 (a) of the Internal Revenue Code.

Petitioner as grantor executed a trust agreement, with himself and wife as trustees, with broad powers of administrative control as trustees, and with broad reserved control in the grantor over sales… Held: that the income of the trust is to be included in the income of the petitioner-grantor, under section 22 (a) of the Revenue Act of 1938 and Helvering v. Clifford, 309 U.S. 331.

The only assets of value owned by two corporations, consisting of unsold subdivision lots, were taken over by the State of Michigan for… Held: that the evidence fails to overcome the presumptive correctness of the respondent's determination that the stock of the corporations became worthless prior to January 1, 1941; held, further, that the provisions of the so-called Scavenger Sale Act (Michigan Public Act 155) giving former owners the right to redeem real estate taken…

1. Under a will which sets up a trust in which the trustee is required to pay the beneficiary $ 12,000 a year from income if sufficient, or if not sufficient, then $ 500 a month in any event,… Held: the $ 500 a month was an annuity which is not deductible by the trustee, and the additional amount of $ 6,000 to make up the $ 12,000 a year is a distribution of income and is deductible. 2.

Advances made to a corporation on open account in equal amounts by its two stockholders and not "evidenced by a note, bond, bill of exchange, debenture, certificate of indebtedness, mortgage, or deed of trust," are not "equity invested capital" or "borrowed invested capital" within the meaning of those terms as used in sections 718 and 719 of the Internal Revenue Code, added by section 201 of the Second Revenue Act of 1940.

Credit for Foreign Taxes -- Section 131, Internal Revenue Code. -- British income tax on patent royalties is assessed under general rule 19 (2) of the British Income Tax Act of 1918, if the royalties do not exceed the amount of the licensee's profits or gains brought into charge to tax, and under rule 19 (2) the tax on patent royalties is the tax of the British licensee of the patents, not that of the American licensor.

1. In 1937 decedent, then 73 and in very good health, was the owner of all the stock and the sole manager of a corporation. Held: the transfers to the trusts were not made in contemplation of death, but were nevertheless includible in decedent's gross estate under section 811 (c), Internal Revenue Code, as transfers intended to take effect in possession or enjoyment at or after decedent's death. 2.

In 1937 Chilhowee Mills, Inc., granted an option to purchase covering all its property. Later in that year the corporation dissolved and the stockholders formed a partnership to carry on the corporate business. Partnership books were opened in which each partner's interest was shown to be his proportionate interest as a stockholder in the capital surplus and undivided profits of the corporation. The title to the corporate property remained in the corporation, but the property was used by the partnership. In March 1938 the option was extended by a contract executed by the corporation as a corporation in dissolution, through one of its former officers, with the consent of the stockholders. In October 1938 the property was conveyed pursuant to the option, the deed being signed by the corporation "in the process of dissolution and * * * all the officers and directors * * * now Trustees in dissolution." Under state law the officers and directors were trustees in dissolution. The proceeds of the sale were in the form of checks payable to the corporation. The checks were endorsed in the name of the corporation by its trustees in dissolution and were deposited in the bank account of the partnership. In this proceeding the respondent treats the gain resulting from the sale as income of the corporation. The corporation filed no income tax return for the year in which the sale was made. The partnership filed returns for the years after the dissolution of the corporation. (See Chilhowee Mills, 47 B. T. A. 682.) In making adjustments after our decision in that case in the tax liability of several individual partners (and stockholders of the corporation), respondent denied claims for refunds on the ground that in 1937 the assets of the corporation were, in that year, distributed to the stockholders in complete liquidation. Held: (1) The liability of the various petitioners is not barred by the statute of limitations. (2) The present controversy is not res judicata by reason of our decision in Chilhowee Mills, supra. (3) Respondent is not estopped from the collection of the taxes in question. (4) The sale of the corporate property in 1938 should be treated as if made by the corporation in determining gain or loss.

In its income tax return for the year 1930 petitioner deducted from gross income amounts paid for documentary stamp taxes. Its return then showed a large net income. Held: that under section 116, Revenue Act of 1942, relating to the recovery of bad debts, prior taxes, and delinquency amounts, petitioner is entitled to the recovery exclusion contemplated by that statute.

The petitioners were grantor-trustees of 3 irrevocable trusts for the sole benefit of their 3 children. The income of each trust was to be used for a college education of the beneficiary. Held: that the petitioners are not taxable upon the income of the trusts.

Gross Income -- Compensation for Services -- Annuities. -- The cost of annuity contracts purchased for an employee and received by him in satisfaction of his employer's promise to pay compensation for services is taxable income to the employee in the year of receipt, following Richard R. Deupree, 1 T. C. 113, and Renton K. Brodie, 1 T. C. 275.

Held, that one-half of the loss sustained upon the sale, in the course of administration, of securities acquired since 1927 and owned as community property in… Held: that one-half of the loss sustained upon the sale, in the course of administration, of securities acquired since 1927 and owned as community property in California is not deductible in the return of the surviving spouse. Commissioner v. Larson, 131 Fed. (2d) 85; Estate of James F. Waters, 3 T. C. 407, followed.

Debenture bonds unsecured, subordinate to the claims of all creditors, and containing a provision for interest payments by the corporation at its option, held to be in the nature of an investment and payments thereon not deductible as interest.

1. Petitioner executed two mineral deeds to separate parties conveying undivided interests in the mineral content of certain lands under which title passed and became vested in the grantees in… Held: the mineral deeds were not securities within the meaning of section 502 (b), Internal Revenue Code, and the gain realized therefrom did not constitute personal holding company income. 2.

The petitioner filed a timely income and declared value excess profits tax return, signed and sworn to by its treasurer only. Held: that the first filing did not constitute a return as required by section 52 (a) of the Internal Revenue Code, therefore did not constitute a return for the first taxable year, within the above regulation, and that the election could not be exercised in the later untimely return; held, further, that, in the absence of a showing of…

1. Respondent's method of accounting for profit on reels sold by petitioner, approved. 2. Held: after making provision for all sinking fund payments, the amounts distributable as dividends during the taxable years were in excess of the petitioner's adjusted net income for said years and no credit is allowable under section 26 (c) (1), Revenue Act of 1936; held, further, petitioner is entitled to no credit under section 26 (c)…

1. Petitioner, a railroad on the retirement method of accounting for depreciation, in the taxable year (1934) retired and wrote off specific assets which had been acquired prior to 1913. Held: under section 113, calling for proper adjustment to basis for depreciation, petitioner is not required to adjust its ledger cost to eliminate depreciation prior to 1913. 2.

1. Petitioner in Docket No. 1617 is an unincorporated association of employees of a corporation. Held: petitioner is not exempt from taxation as a charitable institution under either paragraph (6) or (8) of section 231 of the Revenue Act of 1926, Philadelphia & Reading Relief Association, 4 B. T. A. 713, followed; held, further, the payments received from the corporation which it deducted as ordinary and necessary business expenses in…

1. Petitioner corporation entered into a contract whereby it guaranteed 30 percent of a principal debt of its wholly owned subsidiary and agreed to pay interest thereon at the rate of 3 percent per… Held: that the annual payments are not deductible as interest within the meaning of section 23 (b) of the Internal Revenue Code, as they were not interest payments on the indebtedness of the taxpayer, but of another. 2.

The trust indenture executed by Horace G. Wetherill provided that following his death the net income from the trust corpus should be paid to his wife during her lifetime and upon her death to the… Held: that the gift to the regents was capable of calculation with reasonable accuracy and deductible in computing estate taxes.

Petitioner, married and residing with his wife in California since prior to July 29, 1927, had on that date an established business which he continued to operate thereafter through the taxable years… Held: that that part of the business income which equals a reasonable return on a long term, well secured investment is the separate property of petitioner and that the remainder of such income is the community property of petitioner and his wife.

Petitioner and her husband, undivorced, lived apart in the State of Texas. He maintained his widowed mother in his home and was allowed a personal exemption as head of a family because of her. Held: that the father and mother were incapable of self-support and received their chief support from the petitioner, and that she is entitled to personal exemption as head of a family and as supporting dependents.

An amount reasonably related to services performed and irrevocably paid in 1941 by a corporation to a retirement trust for selected employees held deductible as a business expense under section 23 (a), Internal Revenue Code, irrespective of its possible aspect as a contribution under section 23 (p) to a pension trust such as described in section 165.

1. In 1925 and during a period from September 29, 1932, to April 21, 1937, petitioner, a personal holding company, purchased gold notes of a transit company with interest coupons attached. Held: that certain parts of those payments constituted a return of capital (by which petitioner's cost basis of the notes and coupons was reduced for the purpose of ascertaining its gain on the sale) and that certain other parts of such payments constituted interest. 2.

Where a bank, owner of a claim against decedent as guarantor of notes, consented to distribution of the estate without payment of its claim, reserving, however, a claim against a co-guarantor, and… Held: such claim is not deductible from the gross estate of decedent, although formally allowed by a court having jurisdiction of the settlement of the estate.

Where petitioner performed only services in bringing about sales of debentures of a German concern, and all of the services in bringing about the purchase and the sale were performed in Germany,… Held: that the compensation received for the services shall not be included in income for the year 1940, under section 116 (a) of the Internal Revenue Code, which was in effect in 1940 and was not amended until thereafter.

Petitioner, although in existence since 1939, became a life insurance company on March 23, 1940, within the definition of section 201 (a) of the Internal Revenue Code. Held: that it was entitled, under section 203 (a) (2) of the Internal Revenue Code, to a deduction based upon the mean of its reserves on March 23 and December 31, 1940.

Cancellation of common stock and exchange of bonds, preferred stock, and demand note for securities of new corporation in 77B proceeding, held to result in tax-free exchange and consequent carry-over of old basis of the bonds and preferred stock but not of the common stock and demand note.

Petitioner's employer in 1937 was required to defer payment of part of the salaries of certain officers, including petitioner, as a condition to… Held: that $ 8,400 received by petitioner in 1941 constitutes back pay and the tax in 1941 is limited as prescribed in section 107 (d) (1), I. R. C. See section 119 of the Revenue Act of 1943, amending section 107 by inserting a new subsection (d) Back Pay; held, further, that an additional sum received in 1941 was not back pay.

Where an individual owner of preferred shares of a corporation, L, all the common shares of which are owned by another corporation, C, being advised that his shares will soon be redeemed by L and… Held: the gain of the individual is taxable to him as a long term capital gain from sale and not as an ordinary gain, as it would have been if he had held the shares until the redemption by L.

The petitioner was organized under the general corporation laws of California. Held: petitioner is not a true cooperative and is subject to tax upon its income; (2) petitioner is not entitled to a deduction for amounts actually distributed during the year.

Petitioner corporation was reorganized under chapter X of the National Bankruptcy Act in 1940, the plan of reorganization being approved by the court on the last business day of November. Held: section 270 of National Bankruptcy Act does not authorize an increase in basis or inventory.

In 1927 petitioner was controlling stockholder and general manager of a newspaper publishing company which organized a separate… Held: that petitioner's control of the publishing company is not sufficient to impute ownership to him of its radio corporation stock and that the stock, having been purchased with community funds subsequent to his marriage, is community property; held, further , that the stock in the radio corporation acquired by petitioner prior to his…

Petitioner entered into a contract with certain underwriters to sell to them a new issue of bonds. Pursuant thereto payment was made by check and the bonds delivered to the underwriters. Held: the old bonds were retired from the proceeds of the sale of new bonds, not by the exchange of new bonds for old, and the remaining unamortized expenses of the old bonds are properly deductible in the taxable year.

1. Held, section 718 (b) (3), Internal Revenue Code, being clear and unambiguous, does not justify resort to Congressional reports for interpretation. 2. Held: section 718 (b) (3), Internal Revenue Code, being clear and unambiguous, does not justify resort to Congressional reports for interpretation. 2.

Held, the decedent did not, in a transfer of certain shares of stock to six irrevocable trusts for the benefit of his wife, daughter, and… Held: the decedent did not, in a transfer of certain shares of stock to six irrevocable trusts for the benefit of his wife, daughter, and four grandchildren about three years prior to his death, retain for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his…

-- Where the Commissioner, after giving the taxpayer ample opportunity to amend, disallowed an application for relief for the reason that it gave him practically no information of the possible factual support for the claim, a statement of supporting facts thereafter offered by the taxpayer is not a part of the claim, and consideration of it is beyond the scope of review by the Tax Court.

Petitioner is a corporation organized under the laws of Scotland and has its manufacturing plants and head office in Scotland. Held: that the decision in the prior proceeding is not res judicata in the instant proceeding; held, further, on the evidence, that petitioner had no office or place of business within the United States during the tax years 1939 and 1940 and that for such years it is taxable as a nonresident foreign corporation.

Debt determined to be worthless under circumstances where collection could not be successfully enforced against solvent debtors.

1. In 1940 the petitioner acquired title to certain parcels of real estate through foreclosure proceedings but without making any bid therefor. Held: that the petitioner, making its return on the cash basis, did not derive taxable income from the foreclosure proceedings beyond the amount conceded. 2.

1. Distributions in Liquidation -- Complete Liquidation. -- Whether liquidating distributions in 1939 and 1940 were of a series of distributions under a plan of complete liquidation inaugurated in December 1938, or were merely parts of an older plan, is a question of fact.

Petitioner during the taxable year 1941 was a member of a partnership which became a member of a syndicate. Held: in determining the partnership's distributive share of the income of the syndicate and petitioner's distributive share of the income of the partnership, the proceeds from the discount of B coupons is not tax-free interest to be excluded from gross income under section 22 (b) (4), I. R. C., but must be considered along with the…

Where decedent created a trust naming herself as one of three trustees, reserving a life estate in the income and providing that in case of any deficiency in such income, the trustees should apply to… Held: the value of the trust corpus is includible in the decedent's gross estate under section 811 (c), I. R. C., as a transfer intended to take effect in possession or enjoyment at or after death. Blunt v. Kelly, 131 Fed. (2d) 632, followed.

Petitioner was a cotrustee of a trust from about 1933 to 1944, and as such he received commissions for collecting the income of the trust and also compensation for looking after the corpus. Held: the total compensation for personal services, as that term is used in the code, must include both the commissions for collecting income and also the compensation for looking after the corpus.

1. Where the record indicates that the intention of a corporation in purchasing shares of its stock owned by petitioner was to cancel and retire it, the amount received by him constitutes a… Held: Under the provisions of subparagraph (A) of section 113 (a) (19), I. R. C., the basis of the old stock should have been allocated between it and the stock dividend shares received in 1924.

Petitioners, husband and wife, simultaneously created trusts of approximately equal value for each other for life with remainder over; each life beneficiary was given a general testamentary power of… Held: the income of each trust is taxable to the petitioner-life beneficiary under section 22 (a) of the Revenue Act of 1938 and the Internal Revenue Code.

Pursuant to proper corporate authority, the X corporation made payment of dividends to its stockholders, including petitioners. Held: petitioners thereby received taxable dividends.

1. Petitioners, husband and wife, owned jointly in equal shares and operated as one partnership two businesses, one a clothing and furniture business known as… Held: that each grantor-petitioner retained such dominion and control over the corpus and income of the trusts they created, by the trusts and partnership agreements, as to render them respectively taxable on the income therefrom under section 22 (a), I. R. C., as construed in Helvering v. Clifford, 309 U.S. 331. 2.

Distribution to petitioners of debenture bonds along with new common stock upon the surrender and redemption of old common stock of corporation of which petitioners were virtually sole stockholders,… Held: not a reorganization resulting in a tax-free exchange under section 112, since lacking a true business purpose, but essentially equivalent to a taxable dividend under section 115 (g), I. R. C.Gregory v. Helvering, 296 U.S. 465, followed.

1. Petitioner received certain stock, the consideration in part being his agreement to pay $ 500 per month to his father for life, thereafter to his mother for life. Held: the cost basis of the stock was in part the actual amount spent in such payments, and not the cost of an annuity which would have produced the same payments; held, further, that the remainder of the cost basis was represented by face value of an obligation, on open account, assumed by petitioner. 2.

Jurisdiction -- 90-Day Filing Period -- Renegotiation. -- A proceeding based upon a determination of excessive profits made by a Secretary must be filed within 90 days after the date of that determination in order to give the Tax Court jurisdiction. The date of mailing is immaterial in such cases.

Petitioner expended sums of money for surveys and engineering work in preparation for construction of a hydroelectric power plant. Held: that petitioner abandoned the project in 1936, and sustained a loss in that year of its initial investment.

A trust, taxable as a corporation, being insolvent, was reorganized at the behest of its bondholders under section 77 B of the Bankruptcy… Held: following Alcazar Hotel, Inc., 1 T. C. 872, and other extant decisions of the Tax Court and of the Board of Tax Appeals, that there had not been, in the reorganization proceeding a cancellation or reduction of the debtor's indebtedness within the purview of the applicable acts, and therefore the basis of the property owned by the…

Respondent determined a deficiency in petitioner's income tax for 1937 by reducing the basis for depreciation of a concrete mixing plant by excluding from such basis the… Held: the decision in the prior proceeding is res judicata of the same question presented in the instant proceeding, even though it may be erroneous in the light of the later Supreme Court decision. Blair v. Commissioner, 300 U.S. 5, distinguished; Tait v. Western Maryland Ry. Co., 289 U.S. 620, followed.

Amounts received by the petitioner upon transfer of shares of preferred stock to the issuing corporation held to constitute a distribution in partial liquidation and to be taxable as a short term capital gain with respect to part of the shares and a distribution in complete liquidation and taxable as a long term capital gain with respect to the remainder of the shares.

1. Corporate operating losses were incurred from sale of property, based upon March 1, 1913, values which were greater than cost by an… Held: following Loren D. Sale, 35 B. T. A. 938, that such operating losses should not be charged to later earnings in the computation of amount available for distribution as taxable dividends; held, further, that where operating losses are not incurred in sale of assets which had appreciated in value on March 1, 1913, but from sale of…

Petitioner, beneficiary for her life of income of certain testamentary trusts, executed an irrevocable assignment of a specified amount of such income to each of her 5 children for 1941 and each… Held: the method used by respondent in computing the value of the gifts as prescribed by section 86.19 of Regulations 108 has not been proven by petitioner to be incorrect, and, the gifts having been completed in 1941, petitioner is entitled to 5 exclusions of $ 4,000, and no more.

Four individuals transferred to petitioner certain patents which they jointly owned in equal proportions under a contract obligating petitioner to pay them 80 percent of its income from licenses… Held: This payment was a capital expenditure in acquisition of the patents.

The decedent created two irrevocable trusts and named himself as one of the three trustees of each trust. Held: that the value of the remainder interests following the life estate is includible in decedent's gross estate under section 811 (d) (2) of the Internal Revenue Code.

Held, that a certain trust did not violate the rule against perpetuities -- there being an immediate vesting in the beneficiaries as at the date of the death of the trustor of interest both in income… Held: that a certain trust did not violate the rule against perpetuities -- there being an immediate vesting in the beneficiaries as at the date of the death of the trustor of interest both in income and corpus.

Decedent, at the time of his death a resident of Louisiana, was a member of a partnership. Held: the partnership income distributable to decedent's estate for the period of June 22 to December 31, 1939, is taxable in full to petitioners, without subtracting therefrom the partnership losses attributable to decedent's interest therein for the period January 1 to June 21, 1939.

Decedent bequeathed her residuary estate for the purchase of iron lungs, to be given to hospitals that need them. Held: further, the residuary legatee took by inheritance and not by purchase, and the amount of the residuary estate bequeathed to charity is deductible under section 812 (d), Internal Revenue Code, less the amounts which were paid to the next of kin under the compromise settlement. In re Sage's Estate v. Commissioner, 122 Fed.

The petitioners are engaged in the business of running and determining the elevations of oil and gas wells for subscribing oil… Held: on the facts, that the respondent did not err in his inclusion in the income of Laughlin of the income of the three partnerships which had been reported by Sarah Laughlin as her income; nor in the inclusion in the income of Simmons of that part of the income of Laughlin-Simmons & Co. of Texas which had been reported by Isabel Simmons…

Petitioner, an importer, financed its purchases as follows. It first established a line of credit with certain banks. Held: the open letters of credit did not represent borrowed capital of the petitioner within the meaning of section 719 of the Internal Revenue Code; held, further, the bank acceptances did represent borrowed capital of the petitioner within the meaning of that section.

Petitioner, engaged in the operation and management of two farm properties, executed two documents assigning his interest therein to his 18-year old daughter and 15-year old son. Held: the net income from the operation of the two farms was properly included in the gross income of petitioner.

In 1934 petitioner conveyed property in trust to his brother for the benefit of his minor children. Held: the income of the trust or trusts is includible in petitioner's community income under section 22 (a) and under the principle of Helvering v. Clifford, 309 U.S. 331.

Preferred income notes issued originally without registration, were duly registered in August 1940 and retired in 1941. Held: that to qualify under section 117 (f), Revenue Act of 1938, the securities retired must have been in registered form for at least the minimum period of 18 months provided by section 117 (b).

1. Under certain contracts with dealers in merchandise petitioner received conditional sales contracts and supporting installment notes executed by purchasers of merchandise from the dealers. Held: that the amount of its charges received by petitioner constituted interest; held, further, that petitioner was a personal holding company and the respondent did not err in taxing it as such. 2. Petitioner failed to file timely personal holding company tax returns.

The decedent bequeathed $ 50,000 to trustees, directing that the fund be used for civic purposes in the city of Houston. Held: that the amount of the bequest is a legal deduction from the gross estate under section 812 (d) of the Internal Revenue Code.

Decedent during his lifetime transferred property to five irrevocable trusts established for the benefit of his children and their issue. Held: following Frances Biddle Trust, 3 T. C. 832, that no amount is includible in decedent's estate as a transfer intended to take effect in possession or enjoyment at or after death under section 811 (c), Internal Revenue Code, inasmuch as decedent's death was not the intended event which enlarged the estate of the grantees or any of…

1. Petitioner issued securities, called debenture certificates, in which it acknowledged itself indebted to the holder for the repayment of the principal at a definite due date, with interest at 6… Held: the debenture certificates are evidences of indebtedness and interest payments thereon are deductible from gross income. 2. Pursuant to a plan of reorganization, individuals transferred certain assets to petitioner, the new corporation.

In 1941 a corporation of which petitioners were stockholders, purchased 40 percent of its outstanding shares at a price of $ 160 per share and thereupon canceled and retired the shares so purchased. Held: the distribution to the stockholders was in partial liquidation and was not made at such time and in such manner as to be essentially equivalent to a taxable dividend within the meaning of section 115 (g) of the Internal Revenue Code.

Decedent, not in contemplation of death, deposited $ 100,000 with an insurance company for the benefit of those of her grandchildren then living or thereafter born who should attain age 21. Held: the transfer was not one intended to take effect in possession or enjoyment at or after decedent's death under section 811 (c), I. R. C. Following Frances Biddle Trust, 3 T. C. 832, (appeal pending C. C. A., 3d Cir.) and Estate of Harris Fahnestock, 4 T. C. 1096.

Separate trusts were created by two sisters in 1935 and their brother in 1936 for the benefit of the two minor sons of the brother. The grantors were the trustees of their respective trusts. Held: that the trusts were not without substance and that the income thereof is not taxable to the grantors under section 22 (a), I. R. C.

Income of property transferred by petitioners' mother to two trusts, of one of which each of petitioners was designated as primary beneficiary and of which the two petitioners were trustees with… Held: taxable to petitioners under section 22(a), notwithstanding that the income was actually paid to the children in the tax years. Edward J. Mallinckrodt, Jr., 2 T. C. 1128; affd. (C. C. A., 8th Cir.), 146 Fed. (2d) 1, followed.

As an executive of Chrysler Corporation, the petitioner was permitted to acquire certificates of beneficial interest in two trust funds created by the corporation for the purpose of enabling its… Held: that the entire amount less sums included therein representing income which had been taxed to the trusts, constituted taxable income of the petitioner for 1939 as compensation for services rendered.

Amounts accrued by a corporation as interest on debentures issued to its shareholders with shares at the time of incorporation, held, under the circumstances, not deductible as interest. Held: under the circumstances, not deductible as interest.

Jurisdiction -- Renegotiation -- Naming Wrong Party Respondent. -- Naming the wrong party respondent is not fatal to the jurisdiction of the Court in renegotiation cases, but may be corrected by amendment where the petition is otherwise adequate to invoke the jurisdiction of the Court.

Income from a restaurant business, real estate, and an oil and gas lease, in which petitioner's wife had an equitable interest equal to that of petitioner, held, taxable to petitioner and his wife in… Held: taxable to petitioner and his wife in equal shares.

1. Decedent established a trust, reserving the income to himself for the life of his wife. Held: the value of the trust property is includible in decedent's gross estate. Fidelity-Philadelphia Trust Co. ( Stinson Estate) v. Rothensies, 324 U.S. 108. 2.

Petitioner was the principal owner of the common stock of X corporation, which had no other class of stock and no bonds. Held: recapitalization was for a legitimate business purpose and the debentures received by petitioner in the exchange did not constitute a taxable dividend.

Petitioner was president and sole stockholder of X corporation. The dividends on X's preferred stock had not been paid for several years before 1939. Held: income of trust for year 1941 was properly taxable to petitioner under section 22 (a) of the Internal Revenue Code.

A natural-born citizen of the United States, after an extended residence in Canada, petitioned for naturalization as a citizen of that country. Held: the decedent was a citizen of the United States at the time of his death. Therefore the estate tax must be computed as provided by the convention between the United States and Canada recently made effective, retroactively, to a period prior to decedent's death.

Where there was, in fact, no contribution of capital or services to a partnership by the wives of two partners, the partnership will not be recognized for income tax purposes as including the wives and the income from such partnership is taxable to the husbands.

The stockholders of petitioner, which was engaged in the manufacture and sale of concentrates to bottlers for processing and sale of soft drinks to the public, in order to effectively overcome… Held: under the facts, the Commissioner erred in including the net profits of the partnership in petitioner's gross income under section 45, Internal Revenue Code.

1. In November 1939 petitioner acquired through the partial liquidation of a Massachusetts voluntary association, taxable as a… Held: the right to receive rental under the lease was acquired as an incident to the real property and the difference between the total rentals payable under the unexpired term of the lease and the estimated fair rental value for a like term was not acquired as a separate exhaustible asset (as claimed by petitioner), amortizable over the…

1. Income from long term irrevocable trusts of which the trustee is the alter ego of the grantor, and over which the trustee had broad powers of management and a limited discretion as to distribution… Held: not taxable to grantor under section 22 (a) and the principles of Helvering v. Clifford, 309 U.S. 331; David Small, 3 T. C. 1142. 2.

Liquidation under a plan requiring the immediate liquidation of a corporation's assets, where it appears that such assets are readily marketable and that the plan can readily be carried out, and it is in fact carried out well within the period allowed by the statute, is a complete liquidation within the meaning of section 115 (c) of the Internal Revenue Code (1940).

1. On October 25, 1937, H. C. Frick Coke Co. conveyed to petitioner and his wife coal underlying two tracts of land covering approximately 50 acres. Held: under the laws of the State of Pennsylvania, the coal and coke, and the proceeds from their sale, were owned by petitioner and his wife as tenants by the entirety and each properly reported one-half of the net proceeds on their separate returns. 2.

In 1938, petitioners, husband and wife, transferred community property to the husband as trustee for their three minor daughters. Held: no part of the income of the six trusts is taxable to the grantors under sections 22 (a), 166, or 167 of the Revenue Act of 1938 and of the Internal Revenue Code. Frederick Ayer, 45 B. T. A. 146, and Davil Small, 3 T. C. 1142, followed. Louis Stockstrom, 3 T. C. 255, affirmed by the Eighth Circuit Court of Appeals, distinguished.