Volume 40 — Board of Tax Appeals

JURISDICTION. - Held, that the Board has jurisdiction to redetermine deficiencies in excess profits liability on Navy contracts under section 3 of the Vinson Act. Held: that the Board has jurisdiction to redetermine deficiencies in excess profits liability on Navy contracts under section 3 of the Vinson Act.

Under the provisions of Public Salary Tax Act of 1939, in certain situations the Commissioner is forever precluded from assessing or collecting a proposed deficiency in income tax due from a State… Held: the effect of the statute is to extinguish the tax liability: held, further, the proposed deficiency being solely attributable to compensation so received, decision of no deficiency will be entered.

During the calendar years 1934 and 1935 petitioner J. E. Huckabay, a practicing lawyer, was engaged by the Louisiana Highway Commission as attorney at a monthly salary of $350. Held: that he received his salary as an independent contractor and that the salary is not exempt from income tax.

During 1933 and 1934 the petitioner was engaged as supervising architect for the board of education of the city of Jersey City, New Jersey. Held: that the petitioner was not an officer or employee of the State of New Jersey or a political subdivision thereof and that he is not relieved from tax on his compensation for such services by the Public Salary Tax Act of 1939, approved April 12, 1939.

Petitioner F. Carter Johnson, Jr., during the year 1934 received notarial fees as a notary public of the State of Louisiana. Held: that by virtue of the provisions of the Public Salary Tax Act of 1939 the deficiency, if any, due from the petitioners should be computed by excluding from taxable income the amount of the notarial fees in question.

Real estate purchased for subdivision and sale in lots, but inactively held for nine years and then transferred to the mortgagee in consideration of $960 and cancellation of the mortgage notes, held,… Held: within section 117(b), Revenue Act of 1934, primarily for sale to customers in the ordinary course of taxpayer's trade or business, and loss consequent upon such transfer held deductible as an ordinary loss.

A state court, recognizing the dower rights of the widow of a deceased trust beneficiary, ordered an amount paid to her annually wholly out of the income of the deceased's share of the trust. The surviving beneficiary and the widow agreed upon this amount in satisfaction of her claims and dower right. This amount is deductible by the fiduciary as income to be currently distributed to a beneficiary.

Petitioner, as donor, created an irrevocable trust for a term of years, to which she transferred her entire interest in certain described properties for the use and benefit of her seven children. Held: petitioner is entitled to one exclusion of $5,000 in determining the amount of her gift subject to the gift tax.

Petitioner transferred to a trustee funds to be paid to a child, then about 18 years of age, upon attainment of the age of 35 years, but not to be paid unless petitioner's husband (or petitioner… Held: that the transfer was not subject to tax under section 501 of the Revenue Act of 1932.

A corporation in which petitioners' decedent held stock made distributions in 1933 and 1934 in complete liquidation. Held: that the amount distributed in 1934 constitutes gain to the extent that it exceeds the stockholder's base after applying in reduction thereof the amount of the distributions made in 1933.

Lands owned by petitioner in two counties in Arkansas were sold to the state for taxes at a regular tax sale in 1932. Held: The loss of petitioner's lands resulted from a proceeding whereby its title was extinguished, and not from the transfer of property from one person to another for a valuable consideration.

A widow by compromise gave up her right to take one-third of her husband's estate contrary to his will, in consideration of an agreement for payment by the executors and trustees under the will of… Held: following .lyeth v. Hoey,305 U.S. 188, that the widow received payment by way of inheritance, and payable at all events, and that petitioners are not entitled to deduction of the amount paid either under section 162(b) or 22(b)(2), Revenue Act of 1934.

1. A wife of a settlor-trustee of a trust during whose life the income is to be accumulated, to whom the trustees may make payments of income or principal, and whose consent is necessary for alteration or revocation by a committee, is not one having a substantial adverse interest within section 166, Revenue Act of 1934. 2.

Income received as member of a municipal board of water commissioners, paid from funds paid in by consumers of water, and income received as master in chancery in New Jersey, paid from costs paid by litigants, held exempt from Federal income taxation. (Public Salary Tax Act of 1939.)

Where the receivers of a corporation, pursuant to a court order in the receivership proceedings, paid to the debenture holders who surrendered their debentures before a fixed time a nominal sum in full payment and settlement of the debentures, there was a retirement of the debentures within the meaning of that word as used by Congress in section 117(f) of the Revenue Act of 1934.

Held, that a bond and mortgage given by a corporation to secure a loan from an individual do not come within the terms bonds, debentures, notes, certificates or other evidences of… Held: that a bond and mortgage given by a corporation to secure a loan from an individual do not come within the terms bonds, debentures, notes, certificates or other evidences of indebtedness issued by any corporation as those terms are used in section 117(f) of the Revenue Act of 1934.

Decedent, in 1909, agreed with his wife that upon his death their daughter should receive one-half of all property of which he died possessed. Held: no property was transferred to the daughter in 1909; upon failure of decedent to bequeath by will one-half of his property to the daughter she had a claim against the estate but the claim was not one for consideration in money's worth, under section 805 of the Revenue Act of 1932, section 804 being applicable, relinquishment of…

1. In 1933 six small banks, almost all of the stock of which was held by a bank holding company, transferred all of their assets to petitioner, a larger bank also controlled by the holding company,… Held: recoveries on debts charged off by petitioner are not income subject to tax, but recoveries on debts charged off by transferor banks are income to petitioner subject to tax. 2.

The taxpayer created a trust in 1929 and directed that its income be paid, exclusively, to such charitable organizations as he and an advisory committee, appointed by him in the trust instrument,… Held: no part of the trust income is taxable to the grantor, for the following reasons: (1) A charitable trust will not fail because its beneficiaries are indefinite.

The O company, a Nebraska corporation, owned all of the capital stock of the B corporation. Held: the N corporation did not own at least 95 percent of the voting stock of the O corporation.

A debt of a decedent due to his widow, who elected to take dower, is deductible in 1933 when ascertained to be worthless and charged off.

Respondent's allocation of gross income, under section 45 of the Revenue Act of 1934, approved in part and disapproved in part.

An English corporation organized to carry on motion picture, theatrical, and related businesses, the beneficial ownership of its stock being in the petitioner, a nonresident alien, contracted with… Held: the amounts paid the corporation as consideration for the services of the petitioner under the loan agreements do not constitute taxable income to the petitioner.

Taxpayer, a foreign corporation having no office in this country and carrying on no business here, sustained losses upon sales of foreign and domestic securities consummated here through independent… Held: such losses were connected with income from sources within the United States within the meaning of section 232 of the Revenue Act of 1934, and may be deducted. Royal Insurance Co., Ltd.,38 B.T.A. 955.

1. Petitioner, an individual on the cash basis, owned more than 50 percent of the stock in a corporation and under section 24(a)(6), Revenue Act of 1934, was not entitled to loss upon sale of… Held: petitioner is not entitled to deduction of such interest and taxes. 2. Petitioner as stockholder received an amount in complete liquidation of a corporation, which amount exceeded the aggregate cost or other base of all of the stock.

1. The petitioner, as assignee of a lease under which the assigning lessee had contracted a loan secured by a mortgage for the purpose of erecting a building, had consolidated therewith an existing… Held: petitioner is not entitled to amortize the amount of the mortgage by a deduction taken for the taxable year, because it had not assumed the mortgage and was not, during that year, personally obligated to make any payments on account of the mortgage. 2.

The petitioner, a Louisiana corporation with its office in New Orleans, over a period of years has made its income tax returns upon a fiscal year basis ending the last day of February. Held: that the petitioner is entitled to the deduction claimed.

1. Where the wife of a decedent in a community property state (Washington) waives all her interest in the marital community and acquiesces in the creation by her husband of a testamentary trust… Held: that there is no present transfer to the husband by reason of the waiver which will justify the inclusion of the wife's share of the community property in the decedent's gross estate. 2.

By an instrument of donation dated June 30, 1921, the decedent gave to a bank in trust for the account of his crippled daughter, nine years of age, $75,000 par value of negotiable bonds. Held: that the donor had made a completed gift of the fund to the daughter during his lifetime and that no part of the fund constituted a part of the decedent's gross estate.

Petitioner, a Texas corporation, in 1931 sold and assigned to an individual, as trustee, an oil lease in consideration of $250,000, for which promissory notes were given, payable unconditionally at… Held: petitioner is not entitled to percentage depletion upon payments received in the taxable years under its judgment of foreclosure.

1. Held, that two instruments denominated promissory notes were in fact evidences of indebtedness and not shares of preferred stock. 2. Held: that two instruments denominated promissory notes were in fact evidences of indebtedness and not shares of preferred stock. 2.

In 1934 suit was brought against petitioner and its common stockholders by the owner of its preferred stock, alleging that the property and income of petitioner were being diverted and misapplied by… Held: petitioner was restricted from paying dividends by such contract and entitled to credit as provided by section 26(c)(1), Revenue Act of 1936, as to surtax on undistributed profits.

1. On facts, held testator's intention gathered from his entire will was to create four separate trusts rather than one trust, thus entitling trustees to file separate returns. 2. On facts, held testator's intention was not to create an annuity for his daughter payable at all events, and payments of income are deductible by trustees. 3.

1. The income of a trust, established by the taxpayer for the benefit of his divorced wife in lieu of alimony, is taxable to him as grantor because the creation and continuing operation of the trust discharge his legal obligation to support her. Douglas v. Willcuts,296 U.S. 1, and Commissioner v. Hyde, 82 Fed.(2d) 174, followed. 2.

Where property, transferred to a trust by a decedent during his lifetime, was subject at the date of his death to change through the exercise of a power to alter, amend or revoke, and hence includible in gross estate under section 302(d) of the Revenue Act of 1926, held that the value of the property comprising the corpus of the trust on the date of death, including capital gains realized by the trust through the sales of securities originally transferred by the decedent to…

Prior to December 29, 1930, petitioner owned stock in the Managers Corporation. Held: The distribution of class A stock to petitioner and other stockholders of Managers in exchange for their Managers stock was made pursuant to a plan of reorganization, and under the provisions of section 112(b)(3) of the Revenue Act of 1928 no gain or loss is recognized.

1. The difference between payments on subscriptions to building and loan association shares and the amount received upon maturity of the shares, is not taxable in its entirety to the shareholder in the year of maturity, where the shareholder has consistently for all years accrued annually on his books and included in his income the net annual increase in the withdrawal value of the shares resulting from dividends declared and credited annually to his account on the books of…

The grantor executed a trust with discretionary power in the trustee to pay the net income therefrom to the grantor, and apply the excess on certain debts of the grantor. Held: that the trust was irrevocable and that the value of the corpus does not constitute a part of the grantor's gross estate, within the meaning of section 302(c) and (d) of the Revenue Act of 1926, as amended.

The value of the right which a surviving husband has under section 2382 of the Louisiana Civil Code of 1870 to demand a marital portion of the estate of his deceased wife is not a claim against the estate which is deductible from the gross estate under section 303(a) of the Revenue Act of 1926, as amended.

1. Where a taxpayer is compelled by circumstances to take over the administration of trusts of which she is a beneficiary and the management of her individually owned business properties, it is held… Held: the sums so expended are deductible as losses proximately resulting from a transaction entered into for profit, namely, the original investment in the stock of the company. 3.

1. TRUST INCOME - SECTIONS 166 AND 167, REVENUE ACT OF 1934. - Two trusts were created by petitioner, with income payable to his wife and four children. Held: that the trust income is not taxable to the grantor under section 166 of the Revenue Act of 1934. Meredith Wood,37 B.T.A. 1065, affd., 104 Fed.(2d) 1013. 2. Under the second trust 10 percent of the income was to be retained by the trustee and added to corpus.

Held, where husband and wife file joint income tax returns, the wife's individual income and not the aggregate income shown in the return is the base… Held: where husband and wife file joint income tax returns, the wife's individual income and not the aggregate income shown in the return is the base to which the percentage formula provided in section 23(o) of the Revenue Act of 1934 is applied in determining the deduction allowable on account of her charitable contributions.

1. Where neither terms of trust nor state law expressly forbid the use of trust income for payment of life insurance premiums, held, petitioner taxable under section… Held: petitioner taxable under section 167(a)(3), Revenue Act of 1934, on trust income used in taxable year to pay life insurance premiums on policies of insurance on his own life; held, further, such tax liability limited to amount of premiums paid or payable out of trust income upon existent policies.

A trust indenture executed in 1930 provided that settlor could, by an instrument in writing executed and served upon the trustees at least five days prior to expiration of any calendar year, revoke… Held: that section 166, Revenue Act of 1934, is applicable, without violating constitutional rights of petitioner, and respondent did not err in including the income of the trust in computing net income of the settlor for the calendar year 1934.

1. Securities transferred to charitable institutions promising to pay annuities which could have been purchased from insurance companies for less than the value of the property transferred, held, in… Held: in part consideration paid for annuities and in part gifts. 2. So much of the amount transferred to charitable institutions as insurance companies would have charged for annuities promised by the institutions, held, the consideration paid for the annuities. 3.

Where a married woman receives no support from her husband, who willfully omits support, and the married woman's daughter is the sole support of such person, who is maintained in the daughter's home,… Held: the daughter is entitled to the personal exemption credit of $2,500, as the head of a family, under section 25(b)(1) of the Revenue Act of 1934, even though the husband of the dependent person lives in the same household maintained by the daughter.

1. NONRECOGNITION OF GAIN - CONTROL. - Where a plan is indivisible and forms a single transaction, control is determined as of the completion of the integral plan, not at the completion of any intermediate step. (Sec. 112(b)(5), Revenue Act of 1928.) 2. Id. - REORGANIZATION (SEC. 112(i)(1)) - (a) BUSINESS PURPOSE. - Transfers involving the use of corporations having no business purpose are not statutory reorganizations.

1. The decedent and her husband in 1923 obligated themselves each to contribute $25,000 for the foundation of a chair of mathematics at DePauw… Held: that the amount is not a legal deduction from the gross estate. 2. On May 20, 1929, the decedent obligated herself to pay $1,500 to Evansville College, Evansville, Indiana, to increase the endowment fund of the college. At the date of her death $750 of her subscription remained unpaid. This amount was paid by the executor.

Members of the New York Stock Exchange are required by its constitution to pay $15 to the trustees of the gratuity fund of the exchange upon being admitted to membership, and to make a… Held: even though the exchange was engaged in the business of life insurance and the amount was paid as insurance, it is not includable in gross estate inasmuch as decedent had no legal interest in the policy, which terminated at his death. Chase National Bank v. United States,278 U.S. 327.

- Where the petitioner used his life insurance policies to support his guarantee of the debts of two customers of his partnership and it does not appear whether or not the proceeds would be needed to pay those debts, the premiums on the policies are not deductible. Sec. 24(a)(4), Revenue Act of 1934.

JURISDICTION - Under the law of California the effect of a decree discharging an administrator is to relieve him of liability and to deprive him of power to act further for the estate. Hulburd v. Commissioner,296 U.S. 300. Consequently, a petition filed by a discharged administrator based on a notice of deficiency addressed to the estate and giving notice of a deficiency in income tax of the estate, is not a petition of the taxpayer and is not within our jurisdiction.

JURISDICTION. - The duly appointed executor of an estate distributed the assets of the estate and was discharged as executor. Held: the Board is without jurisdiction in so far as the petition pertains to the former executor and to the heirs at law of decedent's wife; held, further, the Board has jurisdiction in so far as the petition pertains to the heirs of the deceased. They are his executors within the meaning of section 300(a), Revenue Act of 1926.

The petitioner, a New York corporation, received royalties from an English company and a Canadian company from the publication and sale of songs and sheet music, copyrights to which were owned by the… Held: that the petitioner is entitled to credit, against the taxes due the United States, the United Kingdom and Canadian income taxes paid by its distributors.

1. The Keystone Automobile Club Casualty Co. and the Keystone Automobile Club Fire Co. are stock insurance companies, all the shares of… Held: that the companies are not exempt from income tax as mutual companies; held, further, that since the companies did not file income tax returns for the years 1929 to 1933, until July 25, 1935, and the notices of deficiency were mailed within two years thereafter, the deficiencies for those years are not barred by the statute of…

1. Where two brothers and their wives, who had separate estates of their own, each executed contemporaneously certain transfers in trust not in contemplation of death, which transfers were… Held: None of the parts of the corpora of the trusts which represented life estates irrevocably conveyed to their respective wives are includable in the respective gross estates of the decedents.

- During the taxable year and for many years prior thereto petitioner, who is an unmarried person, supported and maintained in one household his second cousin by marriage, who kept house for him and… Held: that petitioner was not the head of a family and is not entitled to the $2,500 personal exemption granted to the head of a family by section 25(b)(1), Revenue Act, 1936, and the regulations applicable thereto.

The settlor of a trust reserved power to alter or absolutely revoke and annul and to declare other uses. Held: the power to alter was retained and the corpus of the trust was within the gross estate. Sec. 401, Revenue Act of 1934.

Where in the taxable year the petitioner received a sum of money from his tax counsel as recompense for an error made by the latter in preparing and filing petitioner's 1932 return, the error having… Held: the compensatory payment is not includable in gross income.

The petitioners are stockholders of the Badger Oil Co., a Texas corporation with a capital stock of $112,500 divided into 112,500 shares of stock of a par value of $1 each. Held: that the dividends received by the petitioners were ordinary dividends and not liquidating dividends.

During the years 1931, 1932, and 1933, taxpayer made expenditures, which it capitalized, for the purpose of developing a gas compressor engine known as Engine No. 1. Held: petitioner is entitled to deduct as a loss sustained in 1933 the amount of the capital expenditures made in connection with Engine No. 1, and to deduct as a loss in 1934 the amount of similar expenditures made in that year in connection with Engine No. 2.

In its returns for years previous to 1934, as in those for 1934, 1935, and 1936, the petitioner claimed depletion deductions on the discovery value or unit basis. Held: that the petitioner's depletion allowance must be computed without reference to percentage depletion and is based on cost or March 1, 1913, fair market value. It is entitled to no advantage based on discovery value under the 1934 Act.

162, REVENUE ACT OF 1928. - Trust instrument indicates intention of grantor to create separate trusts for accumulation of income withheld from infant beneficiaries under main trust. Distributions to those trusts deductible by main trust under section 162(c). Lynchburg Trust & Savings Bank v. Commissioner, 68 Fed.(2d) 356; certiorari denied, 292 U.S. 640, followed.

1. The sum of $552,895.11 received in 1932 by petitioner from Shell Oil Co. under decree of court, retained by petitioner for the benefit of the ultimate winner of the litigation, and later, with accretions, returned to Shell Oil Co. upon final adjudication of the Supreme Court of California, was not income to petitioner in 1932. 2. Interest on, and other accretions to, the fund received by petitioner in 1932 and 1933 were not income to petitioner.

1. Held, petitioner's accounting practice correctly reflected income as to accrual of taxes for the fiscal year in question. 2. Held: petitioner's accounting practice correctly reflected income as to accrual of taxes for the fiscal year in question. 2. Previous to the statute of 1937 no lien for taxes attached to the property of petitioner, a public utility in West Virginia.

The amounts of bequests for family memorials, which were to be chosen unrestrictedly by the testator's executors, are not deductible from gross estate under section 303(a)(3), Revenue Act of 1926, as gifts for religious or charitable purposes although the amounts were in fact paid by the executors to a church.

Taxpayer and cotenant were the owners of a parcel of real estate in the State of Michigan which they had mortgaged to secure funds to pay for the land. Held: that the loss sustained by the taxpayer in the above described transactions was an ordinary loss, deductible in full under section 23(e) of the Revenue Act of 1934, and not a capital loss limited by section 117 of the same act.

1. Sales of stock by the petitioner to his wife, effected by delivery of a bill of sale, endorsement of the stock certificates, and transfer of the record ownership to the wife and paid for at market… Held: effective to entitle the petitioner to deductions for losses sustained, even though admittedly made for the purpose of realizing losses for tax purposes. 2. The petitioner sold and transferred certain stocks to a wholly owned corporation.

1. Where petitioner omitted an item of income in 1925 and one in 1926 from his income tax returns for those years, overstated the costs of utility stocks sold in 1926, 1928, and 1929 by the use of a… Held: that for these named years petitioner did not file false or fraudulent returns with intent to evade tax. 2.

DEDUCTION - LOSS; ABANDONMENT OF REAL ESTATE. - Where the interest of the petitioners in improved real estate owned by them subject to a mortgage became worthless in 1934, they are entitled to deduct their loss in that year under section 23(e)(2), Revenue Act of 1934, although title remained in them until foreclosure was completed in the following year, despite their efforts to abandon their interest in the property during 1934.

1. In the absence of proof of the cost of petitioner's intangibles, gain was realized on the sale of petitioner's assets, tangible and intangible, measured by the difference between the adjusted cost and the sale price, less costs of sale. 2.

Petitioner bank, engaged in the general banking business, made loans to an estate secured by property of the estate and in 1931 received the property in trust, under an agreement to look only to… Held: the difference between the fair market value of the property and the aggregate of the bank's loans secured by the property was deductible in 1935 as a bad debt, and the bank's loss is not a capital loss limited by the provisions of section 117(d) of the Revenue Act of 1934.

1. On the date of decedent's death a trust established for her benefit owned corporate bonds upon which interest was due. The interest was subsequently collected and credited to trust income. Held: under the facts, that no such substantial doubt as to the collectibility of the interest existed on the date of the death of the decedent as to justify its exclusion from gross income. 2.

- Section 131(a)(1) of the Revenue Act of 1934 allows a deduction of the full amount paid to Canada in discharge of income tax liability, even though a part was originally paid as premium tax and later deducted in determining the additional amount required to completely discharge the income tax liability.

- Where executors sold real estate in accordance with directions in the will, the gain is taxable income of the estate, even though the real estate was a part of the residuary estate which was devised and bequeathed to children of the testator.

- Profit from sale of United States bonds was taxable to husband where the bonds were his separate property and the gain resulted from a mere increase in market value of the bonds not occasioned by any activity of the community.

Held, that taxpayer who received new stock in a corporation reorganized, through recapitalization, in exchange for stock in the corporation owned by him before its… Held: that taxpayer who received new stock in a corporation reorganized, through recapitalization, in exchange for stock in the corporation owned by him before its recapitalization received such new stock pursuant to a plan of reorganization and the profit realized therefrom is not recognizable for tax purposes.

On December 24, 1936, petitioner and his wife changed their legal domicile from the noncommunity property State of Oklahoma to the community property State of Texas. Held: 357/365 of the salary was petitioner's separate income rather than the community income of petitioner and his wife.

Under the law of Illinois, the place of the transaction herein, a trust may not be terminated by the consent and agreement of the… Held: that Helvering v. Helmholz,296 U.S. 93, is not controlling and that the power reserved to the decedent settlor in the trust instrument was a power within the meaning of section 302(d) of the Revenue Act of 1926, as amended by section 401 of the Revenue Act of 1934, and the action of the Commissioner in including in the gross estate…

Section 218(a) of the National Industrial Recovery Act, which repealed section 117 of the Revenue Act of 1932 as of January 1, 1933, is not unconstitutional, and hence a statutory net loss sustained in 1932 is not deductible in 1933.

The entire income of an irrevocable trust was taxable to the grantors under section 167(a)(2) of the Revenue Act of 1934, where the income was distributable among the members of a family, including the grantors, at the absolute discretion of the father, who could receive nothing himself.

Decedent, several years prior to his death, loaned certain securities to his son for use as additional collateral to that pledged by his son to… Held: petitioner is not entitled to any deduction by reason of the alleged claim, the facts showing that subsequent to decedent's death the son was assigned $15,000, specific bequests of the estate, which he in turn assigned as additional collateral to the bank to secure the indebtedness and this $15,000, plus the son's interest as…

Petitioner in 1933 conveyed to his divorced wife, under a separation agreement, certain real estate subject to a first mortgage on which petitioner was primarily liable. Pursuant to the separation agreement, petitioner paid to his wife, in addition to alimony of $700 a month, $225 a month which was to be used only for the payment of carrying charges on the property and the reduction of the principal of the mortgage note. Held: (1) The petitioner was primarily and personally liable for the mortgage debt and interest thereon and the payments of such interest out of the funds which he furnished his wife for that purpose are deductible as interest paid in his income tax returns. (2) The petitioner was primarily and personally liable for the taxes which accrued against the property while it was owned by him and such taxes, which were paid out of the funds furnished by him for that purpose, are deductible by him in his income tax returns. (3) The taxes which accrued against the property after petitioner conveyed it to his wife were not petitioner's obligation as owner of the property and are not deductible in his income tax returns.

1. Petitioner, having included in gross income the entire proceeds from sale of stock subscription rights, is not estopped from correcting method of reporting the transaction by ascertaining cost of the rights and computing profit or loss on sale thereof in accordance with article 58 of Regulations 77, Revenue Act of 1932. Only so much of proceeds of sale as represents realized profit above cost constitutes taxable income, sec. 111(a), Revenue Act of 1932; Miles v. Safe Deposit & Trust Co. of Baltimore,259 U.S. 247, and if loss is sustained, deduction for loss is allowable. 2. The part of article 58 of Regulations 77 which purports to give an option to include the entire proceeds of sale of subscription rights in gross income is invalid, Continental Bank & Trust Co. of New York v. United States,19 Fed.Supp. 15, and does not represent an estoppel barring taxpayer from applying other valid parts of the regulation so as to properly report gain or loss on sale of subscription rights.

- Tax upon premiums imposed upon insurance companies under the Canadian Special War Revenue Act is not an income tax within the meaning of section 131(a)(1) of the Revenue Act of 1934.

Petitioner made a final payment in 1934 of $157,529.90 on indebtedness of $315,057.22 incurred during the period of 1929 to 1931, inclusive, which indebtedness had been reduced to judgment in July… Held: that the amount was properly deductible in computing undistributed net income as an amount used to retire indebtedness incurred prior to January 1, 1934, within the meaning of section 351 of the Revenue Act of 1934.

1. STATUTE OF LIMITATIONS - NECESSITY FOR RETURN WHERE EXEMPT RULING WAS ERRONEOUS. - The statute of limitations did not start to run, since the petitioner never filed returns but relied for many years upon an erroneous ruling of the Commissioner that it was exempt from tax. 2.

A corporation otherwise exempt from income tax under section 101(6) of the Revenue Acts of 1934 and 1936 is not deprived of exemption because of payments of annuities made to a donor's widow and of payments for the education of her nieces and nephews pursuant to the will of the donor.

- Where a sole stockholder of a personal holding company elects to be taxed under section 351(d) of the Revenue Act of 1934, the Commissioner may increase to the correct amount the amount she reports as her entire share of the adjusted net income of the corporation.

Petitioner, the surviving member of a partnership, instituted action in its name to recover a fee earned by it for legal services rendered. Held: the amount received by petitioner represented his share of partnership earnings and must be included in his gross income.

1. Petitioner was a large stockholder and the directing head of a brewery engaged in the business of illegally manufacturing and selling beer… Held: the amounts thus paid over to petitioner, less certain amounts turned back by him to the brewery in each of the taxable years, were income to him, and, in failing to report them as such, petitioner filed false and fraudulent returns with intent to evade tax and the statute of limitations has not barred the deficiencies; held,…

Where decedent, who was a diabetic, suffered an illness for the first time in several years, and made gifts of a substantial amount within a few months thereafter to her two sons, who were not in… Held: that the gifts were made in contemplation of death within the statutory presumption in section 803(c) of the Revenue Act of 1932, upon failure of petitioners to prove by a fair preponderance of evidence that the gifts were not made in contemplation of death.

In the taxable year corporate stock was transferred into petitioners' names upon the corporate records by the husband and father of the respective petitioners, in satisfaction of and pursuant to an… Held: petitioners received income to the extent of the reasonable market value of the stock, above the amount of loans made; held, further, that, petitioners having filed no income tax returns, imposition of the 25 percent penalty is mandatory.

Petitioner lived with his mother in a house owned by her, and for her support expended about $325 per month during the taxable year. The mother was incapable of working and had an income of only $350. Held: petitioner was not the head of a family consisting of himself and mother, nor was she dependent upon him, under section 25(b)(1) and (2) of the Revenue Act of 1934.

1. During the taxable year 1934 petitioner was carrying on the trade or business of purchasing and selling securities and commodities for… Held: the securities and commodities which petitioner thus purchased and sold were not property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business as provided by section 117(b), Revenue Act of 1934, and the limitation of capital loss provisions of section 117(d) of the 1934 Act applies.

A petition filed by a dissolved Georgia corporation is a valid petition, as under Georgia law a corporation does not become wholly extinct upon dissolution.

Telegram stating that petition is forwarded this date is not a petition for redetermination. The mailing of a formal petition is not the filing thereof with the Board, and where mailed within 90 days of the deficiency notice but not actually received by the Board until after expiration of the 90-day period, it is not timely filed and the Board does not have jurisdiction.

1. Petitioner owned certain notes maturing serially. In 1934 it entered into an agreement with its debtor wherein it granted the latter an extension in the time of payment of notes due in that year. Held: the transaction resulted in the receipt of taxable income by petitioner to the extent that the value of the property received exceeded the cost to it of the notes. Fair market value of the property determined. 2.

1. TRUST INCOME - TAXABLE TO GRANTOR - (a) WHERE TRUST IS LACKING IN SUBSTANCE. - Trust held not lacking in substance or reality so as to be disregarded for income tax purposes. 2. Id. - (b) WHERE RESTRICTED TO DISCHARGE OF OBLIGATION OF GRANTOR. - Trust income taxable to grantor where restricted to maintenance and education of minor child, following Douglas v. Willcuts,296 U.S. 1.

- The interest of a husband in conjugal partnership property under the Spanish Civil Code is a one-half interest only, for Federal estate tax purposes.

- Where property is conveyed to a corporation for the benefit of creditors of the transferors to permit the corporation to receive the proceeds of a pending condemnation and distribute all of those proceeds to the creditors, the corporation realizes no taxable gain from the disposition, since it is a mere trustee, agent, or conduit.

Members of association of bakers, organized for the purpose of purchasing raw materials used in the baking industry and selling them to its members, were required by its constitution to make deposits ranging from $300 to $2,000 to be used as working capital. Certificates of deposit issued by the association provided that certificate holders were to share in its profits. At the beginning of its operations, no profit was realized, and the association paid nothing to the certificate holders. During the taxable years, when profits were realized, distributions by the association to the certificate holders amounted to approximately 6 percent per annum on their deposits. Held, amounts distributed were dividends, and did not constitute interest paid on borrowed money.

1. Held, on the facts shown, that expenses of a judicial proceeding for the construction of the provisions of a testamentary trust and… Held: on the facts shown, that expenses of a judicial proceeding for the construction of the provisions of a testamentary trust and of the will establishing it are not ordinary and necessary expenses paid or incurred in carrying on a trade or business and hence are not deductible from income, regardless of whether the trust was carrying on…

1. TRUST INCOME - TAXABLE TO GRANTOR - (a) WHERE RESTRICTED TO DISCHARGE OF OBLIGATION OF GRANTOR. - Income of a trust held taxable to the grantor where its use was restricted to the discharge of the… Held: that the petitioner entered into two transactions for profit and that deductible losses were sustained in the taxable years. 7.

Petitioner was liquidated and dissolved June 29, 1936. Held: the return filed July 21, 1936, should not be considered a proper return under the applicable statute and petitioner's return tendered to the Commissioner April 30, 1937, should be considered its first return of capital stock tax for the year ended June 30, 1936, subject to penalties for delinquent filing.

1. The petitioner, a Canadian corporation, received income from sources within the United Stated during the years 1930 through 1935. Held: that the respondent's action in not allowing deductions under said provisions of the respective acts was correct; held, further, that the filing of returns by the petitioner after it filed its petition and before the hearing before the Board was not such a compliance with the requirements of section 233 of the applicable acts as to…

1. The petitioner reported its income from long term contracts on the completed contract basis. Held: further, that section 702 of the Revenue Act of 1934 is not shown to be unconstitutional.

1. The decedent died on January 21, 1934, domiciled in the State of Washington, and left one-fifth of her estate to her surviving spouse and four-fifths to her two sons by a prior marriage, at the… Held: on all the evidence, that the estate, except for certain specified parcels, was property of the marital community, a finding which is supported by the presumption raised by state law in such cases. 2.

- Petitioner agreed to support a minor grandchild on condition that the grandchild be named after him. Held: that the grandchild and his parents and brother constituted a family and that the petitioner was not the head of that family.

Petitioner was a corporation engaged in the development and operation of oil leases. In 1934 it purchased several such leases with money which it borrowed from a bank. Held: the payments were made under circumstances covered by section 26(c)(2), Revenue Act of 1936, and petitioner is entitled to the credit provided therein in computing the surtax, if any, on its undistributed profits as provided by section 14, Revenue Act of 1936.

Petitioner J. M. Bennett, without consideration, delivered by endorsement certain notes to a trust created by him for the benefit of his… Held: as the trust was not a holder for value and there was no consideration for the endorsement, the worthless notes did not give rise to a bad debt deduction by petitioner; held, further, petitioners are not entitled to a deduction for interest paid on one of the notes; and held, further, the difference between the face amount of the…

1. Pursuant to a plan of recapitalization, petitioners' preferred stock in the Berkeley Woolen Co. was exchanged for cash and debentures. Held: the total gain realized by each petitioner under section 111 of the Revenue Act of 1934 and recognized under section 112 is to be taken into account in computing net income, since the receipt of cash and debentures constituted a distribution in partial liquidation under section 115. 2.

A trust for the petitioner's wife, later divorced, and his children was set up by another woman who was the defendant in settlement of litigation against her brought by the petitioner's wife, the… Held: the income of the trust is not taxable to the petitioner.

The grantor of a trust whose husband, as trustee, may, in his discretion, accumulate the trust income and use it for the support of his minor son, held, not taxable on the income of the trust, since… Held: not taxable on the income of the trust, since her husband has a substantial adverse interest in the disposition of the trust income.

In 1935 and 1936 petitioner transferred certain additional funds to an irrevocable trust, created in 1930, under the provisions of which… Held: that petitioner gave only a life interest in the property to his mother but retained a vested interest in the remainder constituting a reversion and is subject to gift tax, under section 501 of the Revenue Act of 1932, as amended, only upon such portions of each transfer as constitute the then determinable value of the interest in…

1. During the years 1934 and 1935 the estate of Henry Friend received rentals upon property owned by the estate which was leased for long terms of years to the S. S. Kresge Co. and F. W. Woolworth… Held: that the petitioners are not entitled to such deductions. 2. The estate of Henry Friend claims the right to deduct from gross income for the years 1934 and 1935 allowances for depreciation in excess of those allowed by the respondent in the determination of the deficiencies.

In computing gift tax, gifts made to a corporation entirely devoted to making charitable donations, whose principal organizer and financial backer was also the principal controller of its benefactions, help being given by the corporation in small amounts to some of his relatives only because they were ill or destitute and not because they were related to him, held deductible.

Petitioner and a realty corporation, owning and holding real estate which petitioner rented and used in its business, had substantially the same stockholders and officers, though there were some differences and the two corporations were operated as separate entities. , petitioner had loaned the realty company money in prior years and in 1934 took its demand promissory note secured by a second mortgage in settlement of its indebtedness.

1. In order to be availed of, res judicata must be pleaded. 2. Where res judicata has not been pleaded in respect of a prior judgment holding that a series of transactions did not constitute a reorganization within a certain section of the Revenue Act of 1926, the Board may determine anew whether there may not have been a reorganization under some other section of the statute. 3.

Payment received by the petitioner in 1935, pursuant to court $2,625.45 for the fiscal year ended October 31, 1935. Held: taxable income of petitioner in the year 1935.

1. The amount of legal fees, earned by petitioner's decedent, who maintained his accounts on a cash basis, which were due but not paid at the time of his death in 1935, are includable in gross income… Held: that section 42 of the Revenue Act of 1934, requiring such inclusion, is not violative of the Fifth Amendment to the Constitution. 2.

The income of a trust for one year whereby the settlor names himself trustee of securities to pay the income to his wife, held taxable to the settlor.

The petitioners' decedent was appointed coexecutrix of the will of her deceased brother and in closing the estate paid the residuary estate to herself pursuant to the provisions of the will. Held: that the attorney fees are not legal deductions from gross income.

Pursuant to a plan of statutory reorganization, and essential thereto, petitioner, on May 31, 1934, exchanged its newly issued preferred stock, carrying cumulative dividends from January 1, 1934, in… Held: petitioner is entitled to deduct the accrued interest as such, under section 23(b) of the Revenue Act of 1934.

1. GAIN OR Loss. - A fiduciary directed by will to pay a legatee $5,000,000 when she attains the age of 40, with authority to substitute securities of equal value at the date of payment, realizes taxable gain if it uses securities, the value of which at the time of payment is in excess of their basis to the estate. 2.

The petitioner in December 1933 sold at a loss bonds which it had received in February 1932 under a binding agreement entered into in October 1931. Held: that the loss was sustained from the sale of assets held more than two years, and that the deduction of the loss is not subject to the limitation of section 23(r) of the Revenue Act of 1932.

Upon the facts herein, held, that petitioner is an association taxable as a corporation; held, further, that sections 105 and 106 of the… Held: that petitioner is an association taxable as a corporation; held, further, that sections 105 and 106 of the Revenue Act of 1935, as amended by Revenue Act of 1936, are not unconstitutional; and held, further, that a capital stock tax return filed January 12, 1939, for the year 1936 was ineffective to secure the credit granted by…

A sum of money paid to lessors, on the cash basis, upon execution of a lease, which is applicable to rent for the last months of the term of the lease, in the event the lessees comply with all covenants, constituted income, taxable to the lessors in the year in which received, where no provision appears in the lease for the return of any part of the payment to the lessee upon the happening of any contingency in the future.

1. INCOME - SOURCES WITHIN UNITED STATES - FOREIGN BILLS OF EXCHANGE. - Transactions of a foreign banking partnership, whereby it caused drafts drawn to its order by clients abroad to be accepted by banks in the United States solely on its own credit and with the understanding that it would cover them two days before maturity, discounted the accepted drafts in the United States, and, after acceptance of drafts, made advances to clients and collected the amount of the drafts…

- The petitioner issued preferred stock upon which its guarantee to pay dividends in the amount of 8 percent was secured by a mortgage on… Held: that the decision of the highest court in the state as to property rights within the state is competent authority for the Board to follow, the rights of the preferred stockholders as determined by the Ohio court indicate that the petitioner's preferred stock was in reality stock and not an indebtedness within the meaning of section…

Petitioner, after his marriage, acquired interest in certain stocks, which, it is agreed, constitutes community property. Held: the initial interest in the stocks was acquired after July 29, 1927; (b) petitioner's wife acquired a present one-half interest in the stocks under section 161a; (c) only one-half of dividends paid on the stocks in 1934 and 1935 is taxable to petitioner.

- The petitioner entered into contracts with its two wholly owned subsidiaries whereby it undertook to provide the subsidiaries with the… Held: the share of the petitioner's expenses for the taxable year allocated and charged to the two subsidiaries constitutes part of the petitioner's gross income for that year within the meaning of section 22 of the Revenue Act of 1934 and the petitioner's total gross income for the taxable year is sufficiently in excess of its so-called…

1. ESTATE TAX - DEDUCTION FOR CLAIM AGAINST ESTATE - Where the executors allowed and paid a certain claim against decedent's estate with the approval of all the beneficiaries of the estate and such action was approved by a decree of the Orphans Court, held that such decree is not controlling in the Board's determination of the deductibility of the amount of the claim from the gross estate under the applicable revenue acts. 2.

X corporation erected an apartment building in 1927 and issued its bonds in the amount of $500,000, secured by a mortgage on this property. Held: these acts constituted a reorganization and the basis for depreciation of the property in the hands of the committee and the new corporation is the same as the basis in the hands of X, following Commissioner v. Kitselman, 89 Fed.(2d) 458, and Commissioner v. Newberry Lumber & Chemical Co., 94 Fed.(2d) 447; held, further, that the…

Where petitioner is the distributee of the income of two separate trusts, held that her taxable income from each of those two sources must be determined separately on the basis of the distributable net taxable income of each trust, respectively, and not by consolidating the taxable income and the deductions of the two trusts.

Petitioner's stock was owned by M. B. Killian and R. W. Briggs in the proportion of 45 and 55 percent, respectively. Held: that the agreement between Killian and Heldenfels Brothers was an individual undertaking in which petitioner had no interest and the profits therefrom are not taxable under section 45 as income of this petitioner.

Petitioner was the president of a large manufacturing corporation, but was also regularly engaged over a period of years, both prior… Held: certain shares of stock which were not purchased by petitioner for investment purposes, but were held in his speculative account for more than two years and sold in the taxable year at a loss, did not constitute a capital asset within the definition of section 101(c)(8) of the Revenue Act of 1932, and the loss sustained is subject to…

1. A power reserved by the grantor of a trust to veto any change that the trustees might make in the beneficial interests of the trust, pursuant to powers conferred upon them in the trust instrument, is not the equivalent of a power in the grantor himself to alter or amend the trust and the relinquishment of the power by the grantor does not constitute a gift of the trust property. 2.

A legacy in the sum of $300,000 was paid and satisfied by the transfer of a block of securities and some cash. Held: the transfer constituted a sale or other disposition of property; held, further, the basis for gain or loss on subsequent sale of part of the securities was the cost to petitioner, i.e., the fair market value of the securities at the date of the transfer.

The grantor of an irrevocable trust directed that the income from the corpus be paid to him during his life and then to his wife during her life; that after their death the estate be apportioned and… Held: that the corpus of such a trust is not includible in the grantor's gross estate.

Where capital gains are accumulated under a trust providing for revocation by grantor with the consent of his wife, the income beneficiary, and for termination and distribution to grantor upon his… Held: such accumulations are held for future distribution to the grantor within section 167, Revenue Act of 1934, and taxable as part of his income. Mary Ryerson Frost,38 B.T.A. 1402, followed.

The life of decedent, who died a resident of New Orleans, Louisiana, was insured by six insurance policies in the amount of $100,990. Held: that the total value of the insurance policies at the date of death in excess of the specific exemption of $40,000 is includable in the gross estate.

On October 28, 1923, Kate Hay Brown died intestate, leaving as her only heirs at law her husband, Stuart Brown, and three children, one of whom is the decedent in this proceeding. Held: that the value of only a two-ninths interest in the trust estate is includable in the gross estate.

The indebtedness of a shareholder in an amount withdrawn from his corporation which was not repaid and was shown on the books as an asset at the time of liquidation, held improperly included in the shareholder's income as a forgiveness of indebtedness.

The decedent, Mary W. Cushman, made her will in 1920, devising and bequeathing her estate to her sons and others. Held: that no part of the value of the corpus of the trust at the date of her death is includable in her goross estate.

Petitioner's father left certain personal property to his wife for life, then to petitioner if she should outlive his wife. Petitioner received the property after her mother's death. Held: under the law of New York controlling here, petitioner received a vested interest at her father's death and the basis of property so received is the value at testator's death, not the time of distribution to petitioner.

1. The disallowance of a deduction of part of an addition made by a taxpayer to a reserve for bad debts in respect of loans made to an affiliate, held not arbitrary or capricious when, during the taxable year the taxpayer continued to make advances and the affiliate had large and growing sales. 2. The stock of an affiliate which had large and growing sales and to which the taxpayer continued to make advances, held not to have become worthless during the taxable year.

1. The portions of a year prior and subsequent to affiliation constitute one taxable year and a net loss sustained by an affiliate prior to affiliation, adjusted by the consolidated income for that portion of the year in which a consolidated return is made, is deductible from consolidated net income of the succeeding year, under article 41(c) of Regulations 75. 2.

Petitioner created a trust for a term of years, which provided that the income thereof should be paid and applied to the support and maintenance of her son, who in the taxable year was past thirty… Held: that for the taxable year no part of the trust income was taxable to petitioner.

Petitioner is the successor corporation of the Newport Co., now dissolved, having acquired its business and assumed its liabilities. Held: that the allowance of the claim for refund for 1926, the application of this allowance to the outstanding assessment for 1919, and payment of the balance by petitioner, constituted a final and complete payment and satisfaction of that assessment which can not be revived by a later reversal of the book entries reflecting this…

The transfer by a taxpayer of securities and cash to his wife, his son, and his daughter, separately, in consideration for their promises to pay him certain amounts annually for life, held not to have resulted in a taxable gain.

Decedent in his will created a trust, the income of which was to be paid to his widow for life. Held: under the stipulated facts, the $22,500 paid to the attorney is not deductible by the trustee as an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business.

Trade acceptances, received by petitioner in payment of goods sold and disposed of at less than their face value, constitute property held primarily for sale to customers in the ordinary course of trade or business. (Sec. 117(b), Revenue Act of 1934.)

1. Held, that by the execution of a trust agreement the petitioner, as grantor, irrevocably conveyed in praesenti his legal title to certain stock to the… Held: that by the execution of a trust agreement the petitioner, as grantor, irrevocably conveyed in praesenti his legal title to certain stock to the trust thereby created and irrevocably conveyed in praesenti the beneficial interest to his wife for life, with remainder interests to his children and their issue. 2.

A loan made by the Reconstruction Finance Corporation ostensibly to petitioner's subsidiary, but actually for petitioner's benefit in connection with which petitioner's preferred stock was delivered to the lender, held to justify deduction of payments to the Reconstruction Finance Corporation either as interest paid on petitioner's obligation or as dividends on stock held by an instrumentality of the United States. Revenue Act of 1934, secs. 23(b) and 121.

In determining the gift tax, a transfer in trust to pay the income to one for life, then part of the income to another if he survives the life beneficiary, and thereafter the corpus to another, supports only one exclusion of $5,000 because the beneficial interest following that of the life beneficiary is a future interest under section 504(b), Revenue Act of 1932.

1. Where the evidence shows that petitioner's principal business during the taxable year 1934 was that of writing title insurance and that more than one-half of its gross income was from that source,… Held: petitioner was an insurance company subject to the tax imposed by section 204, Revenue Act of 1934, as the term insurance company is used in section 701(c)(2), and is therefore exempt from the excess profits tax imposed by section 702(a) of the same Act. 2.

The intention of the settlor, determined from the trust instrument itself, is controlling as to whether one or more trusts were created. Held, under the facts here but one trust was created. Held: under the facts here but one trust was created.

Cost of hiring nursemaids to care for the infant child of a couple, both of whom are employed, held not deductible as an ordinary and necessary business expense of the wife.

1. A bequest to a charitable corporation to be selected by testator's sister and nephew under a provision of the will that if such selection were not made within one year after probate the charitable bequest should lapse and the amount become part of the residuary estate bequeathed to private individuals, held not deductible as a bequest to a charitable or educational corporation, sec. 303(a), Revenue Act of 1926. 2.

In 1928 the petitioner created a trust and transferred to the trustees certain securities pledged with a bank as security on promissory notes of the petitioner to the bank in the amount of $400,000. Held: that the trust was not a revocable trust and that the petitioner is not taxable upon the income thereof for 1934.

During the fiscal year ended February 29, 1936, the petitioner, not being in a position to protect its equity in certain property mortgaged to the New York Life Insurance Co., by resolution of its… Held: that the loss was sustained in the fiscal year ended February 29, 1936; held, further, that the deduction of the loss is not limited by section 117(d) of the Revenue Act of 1936

A corporation was adjudged an involuntary bankrupt. Held: that there was no reorganization of the old company; held,further, that the new company through its agents or trustees was the purchaser at bankruptcy sale and the basis to it of the assets acquired was the price paid at such sale, but that even if the agreeing stockholders and not the corporation were the purchasers at bankruptcy…

In computing 1934 undistributed adjusted net income for purpose of surtax on personal holding companies, section 351, Revenue Act of 1934, dividends declared in 1934, payable and paid in 1935, may not be subtracted as dividends paid during the taxable year, subsection (b)(2)(c).

Petitioner, as executrix of her husband's estate, deducted from the gross estate an amount received by her as his widow pursuant to section 10509-54 of the General Code of Ohio. Held: that such amount is includible in the gross estate and is not deductible under section 303(a)(1)(C) of the Revenue Act of 1926 as amended.

1. ESTATE TAX - GROSS ESTATE - POWERS OF APPOINTMENT. - In determining whether the exercise of a power of appointment by will in Pennsylvania violates the rule against perpetuities, the actual facts as opposed to the possibilities govern, and where the donee of a power exercises it by placing the property in trust for the life of her children and twenty-one years thereafter, and it appears that at her death she had but one child, who was alive at the time of the death of the…

Under the terms of decedent's will, profits resulting from the sale of assets became part of the corpus of a trust. Held: that the probability of invasion of corpus to pay the annuities was, under the circumstances, so remote that such gains are deductible from the petitioners' gross income under section 162(a) of the Revenue Act of 1934.

1. Payments of specific annuities under a testamentary trust the corpus of which will ultimately pass to a charitable corporation, are not amounts to be used exclusively for * * * charitable * * *… Held: that the probability of their being required to pay any part of the annuities was, under the circumstances, so remote that such gains are deductible from the petitioners' gross income under section 162(a).

The foreclosure sale of real property held under the facts to fix the time of ascertainment by a mortgage bondholder of a bad debt where the debt is ascertained to be otherwise uncollectible, even though, under the applicable law of Illinois, the mortgagor's right to redeem did not expire until the following year. J. C. Hawkins,34 B.T.A. 918, distinguished.

1. Held, that the taxpayers were beneficiaries of a trust created as a part of a stock bonus or profit-sharing plan for the exclusive… Held: that the taxpayers were beneficiaries of a trust created as a part of a stock bonus or profit-sharing plan for the exclusive benefit of themselves as employees of a corporation, under section 165 of the Revenue Act of 1934, and are therefore taxable on the difference between the value of the stock when distributed to them and the…

1. Where corporation A agreed with B to transfer all the assets of A's subsidiary M to B, with the privilege on the part of B to organize a subsidiary to hold the transferred property, held, since B… Held: since B availed itself of the privilege it was not a party to the reorganization and its securities, delivered to M or A were other property and resulted in recognizable gain under section 112, Revenue Act of 1928. Groman v. Commissioner,302 U.S. 82. 2.

1. Petitioner was a corporation formed for the purpose of taking over and operating the assets of the X brewing company, on terms settled prior to petitioner's incorporation in an agreement made… Held: petitioner realized no taxable income from this transaction. 2. Basis and rate of depreciation of certain physical assets of petitioner determined. 3. Held, under the facts, that petitioner's reserve for bad debts for the taxable year was not unreasonable.

1. Pursuant to court decree and for the purpose of restoring an impairment of corpus which resulted from overdistribution in prior years to life… Held: that the amounts so retained were taxable to the petitioner in the respective years. 2. Held, that the estate, which kept its books on the accrual basis, was not required to include as income unpaid rent for 1934 where it was uncollectible in that year and there was little or no likelihood of its collection in the future. 3.

1. Where, in computing the taxpayer's net income for 1926, depletion deductions of 27 1/2 percent were properly allowed on bonuses paid the taxpayer for granting certain oil and gas leases, and in 1936 these same leases were terminated without any oil or gas having been produced therefrom, the Commissioner did not err in restoring to petitioner's income for 1936 the amounts of the depletion deductions legally taken in 1926 with respect to these certain leases.

Petitioner assigned to a trust established by him all of the retirement pay, or pension, receivable by him in the future from an annuity system established by his employer to carry out a plan of… Held: that the amount of a pension received by petitioner's assignee in the taxable year under the assignment is not to be included in petitioner's income for that year.

1. LOSS ON STOCK. - The distribution of stock of other corporations as a dividend does not give rise to deductible loss where the dividend resolution provides for payment in the stock, following General Utilities & Operating Co. v. Helvering,296 U.S. 200. 2.

Upon the organization of petitioner in 1932 by Terminal Barber Shops, Inc., a corporation having a large surplus accumulated over a period of about 25 years, but which sustained an operating loss in… Held: from the evidence, that petitioner was not formed or availed of during 1932 for the purpose of preventing the imposition of surtax upon its shareholders by permitting its gains to accumulate instead of being divided or distributed.

1. The fact that a taxpayer elects, under the provisions of article 23(m)(16) of Regulations 86, 1934 Act, to deduct expenditures for wages, fuel, repairs, supplies, etc., incident to and necessary for the drilling of wells and preparation of wells for the production of oil or gas rather than to capitalize them and is allowed such deduction in determining his net income does not forfeit his right to a deduction for percentage depletion under the provisions of section…

1. Petitioner acquired certain real and personal property by bequest, devise, or inheritance from her father. Held: that, with respect to such property, the time of such acquisition, as that term is used in sections 113(a)(5) of the Revenue Acts of 1934 and 1936, is the date of death of petitioner's father, irrespective of whether the interests acquired by her on that date were vested or contingent, and their fair market values on that date are to…

A, the mother of four sons, who were her only heirs at law, died testate. She created a testamentary trust of her residuary estate, the income of one-fourth share of which was to be paid to each of her sons during his life. By her will A gave to B a general power of appointment to dispose of the remainder of such trust property by will. A made no other provision for the disposition of such remainder. B exercised the power of appointment.

1. Limitation period against assessment of deficiencies in income and profits tax for 1933 did not begin to run on date of the filing of a return unsupported by oath of officer signing the return. The return filed did not meet the statutory requirements of section 52(a) of the Revenue Act of 1932. 2. No proper return having been filed, the respondent properly asserted claim for the delinquency penalty of 25 percent of the tax under section 291 of the Revenue Act of 1932. 3.

Petitioner, desiring to perpetuate the memory of her father, created a committee for the award of an annual literary prize. Held: contribution to committee for awarding the prize is deductible from petitioner's gross income for the year 1936 under section 23(0)(2) of the Revenue Act of 1936.

The basis for computing gain or loss from the sale in 1933 by an individual of property which had been received by distribution from a trustee of a trust created gratuitously by his grandparent before 1921 is the basis of the trustee and not the value of the property when received by distribution.

GIFT TAX. - Petitioner made a transfer in trust providing for a life estate to herself and for certain future interests to others if she died within 10 years and, further, reserving to herself a… Held: A power which is not presently exercisable and may never become susceptible of being exercised, does not presently exist and, accordingly, the petitioner did not possess, after the transfer in trust, a power of revocation which would render the transfer a nullity as a gift.

1. CONSTRUCTIVE RECEIPT - DIVIDENDS ON BUILDING AND LOAN SHARES. - Dividends accumulated on and credited to unmatured building and loan association shares are not constructively received by the shareholders for income tax purposes where the right to actual receipt of the dividends is qualified by and conditioned upon the surrender of the shares and the withdrawal of the total investment represented by the shares. 2.

Petitioner, through a subsidiary, operates as a public utility in the District of Columbia, and in 1928 owned certain property located in what is now known as the Government Triangle the use of which… Held: no gain or loss is to be recognized to petitioner as a result of such involuntary conversion of property pursuant to section 112(f), Revenue Act of 1928.

1. An amount paid in settlement of litigation involving a controversy as to a note given in connection with the alleged purchase of stock which became worthless prior to the year of the payment,… Held: under the circumstances, a deductible loss in the year of accrual. 2. The difference between an amount paid in such settlement and the amount of the note, held not taxable income, and Kirby Lumber Co. v. United States,284 U.S. 1, inapplicable.

1. In the absence of considerations invoking equitable estoppel, held parol evidence offered by taxpayer is properly admissible to show that a transaction, described in… Held: the ownership of such transferred stock by the parent corporation was direct within the meaning of section 141, Revenue Act of 1932; (2) the corporations were affiliated within the purview of the same statute; and (3) were entitled to file a consolidated income tax return for the taxable year 1933.

The excess of a reserve for bad debts over the amount actually found to be unrecoverable held income for the year in which the reserve was closed out and distributed, even though petitioner had several years previously changed from the reserve to the specific bad debt method, with respondent's tacit approval, and even though all debts outstanding on the date of such change had been paid in full.

Under the statutes of the State of California, property owned by the regents of the university of California is the property of the… Held: petitioner is a corporate entity separate from its stockholders, and it is not an agency of the State; (2) no income accrued to the State by virtue of mere ownership of stock in 1933, and none of petitioner's income for 1933 is exempt from tax under section 116(d) of the 1932 Act; (3) while $10,000 of petitioner's income accrued to…

A national bank, X, proposed to acquire the assets and business of another national bank, Y, as a branch; and to effect this in accordance with the national banking laws, two parallel agreements were… Held: not a reorganization within the definition of the statute.

1. DEDUCTION - LOSS - ORDINARY OR CAPITAL. - Loss from foreclosure was ordinary loss not capital loss. 2. PLEADINGS - AMENDING ANSWER TO CONFORM TO PROOF. - Commissioner can not profit by a motion to amend his answer to conform to the proof, which proof he contends is a failure of proof on the part of his adversary on a fact not in issue up to that time. 3.

In 1933 petitioner entered into a contract with the Sunbeam Co., under the terms of which the latter was granted the exclusive right to… Held: Payments received by petitioner up to the time the option was exercised on June 13, 1935, constitute royalty income and payments received subsequent to that time constitute proceeds from the sale of its patents; (b) Petitioner is subject to surtax as a personal holding company under section 351 of the Revenue Act of 1934 and is…

The corporations of an affiliated group of which in 1933 one was a bankrupt, its business and properties being operated by a trustee in bankruptcy, were not entitled to have their tax for 1933 determined on a consolidated return, since no consent on form 1122 was filed by the bankrupt corporation. Revenue Act of 1932, secs. 52 and 141.

Decedent created an inter vivos trust, the corpus consisting of securities, and six policies of life insurance of a face value of $165,000, payable to the trustee. Held: in the absence of direction to pay estate taxes from property in the trust other than insurance, part of the insurance was for the benefit of the estate and is insurance receivable by the executor.

1. Petitioner, an individual on the cash basis, owned more than 50 percent of the stock in a corporation and under section 24(a)(6), Revenue Act of 1934, was not entitled to deduction of loss upon… Held: petitioner is entitled to deduction of such interest and taxes. 2. Petitioner as stockholder received an amount in complete liquidation of a corporation, which amount exceeded the aggregate cost or other base of all of the stock.