Volume 40 — Tax Court Reports

Petition for Order To Take Deposition in Perpetuam Rei Memoriam. -- Such a petition filed prior to issuance of statutory notice of deficiency and filing of petition in the Tax Court for redetermination, denied. Louisville Builders Supply Co. v. Commissioner, 294 F. 2d 333 (C.A. 6, 1961), reversing an order of the Tax Court followed.

For many years prior to 1958 petitioner had been engaged in selling costume jewelry to department stores and specialty shops in the southern part of the United States, primarily on a commission basis. Held: that such expenditures, made during a reasonable period of transition, qualify for deduction as ordinary and necessary business expenses to the extent that they were proximately related to petitioner's business. 2. Amount of expenses deductible in 1958 determined.

Petitioner, a former employee of the United States, received a civil service retirement annuity, the aggregate amount of which receivable in the first 3 years was greater than the amount of… Held: the amount received in excess of the retirement deductions is includable in gross income pursuant to sec. 72(d), I.R.C. 1954.

Between March 1947 and March 1954 petitioner acquired a net number of 40,000 shares of stock in the New York Central Railroad Co. Prior to 1955 petitioner was a practicing physician in Baltimore and… Held: the expenditure by petitioner is not an allowable deduction under sections 162, 165, or 212, I.R.C. 1954.

Losses resulting from payments made by petitioner, a stockholder of an insolvent corporation, to another stockholder, pursuant to an agreement between the two stockholders to share losses equally on… Held: deductible in full as losses incurred in a transaction entered into for profit. Sec. 165(c)(2).

Petitioner, who was a highly competent waitress employed in first-class restaurants during the taxable years 1957 and 1958, failed to keep any record of income from tips… Held: respondent's determination that petitioner received tip income during 1957 and 1958 in an amount equal to 12 percent of her sales to patrons is entitled to a presumption of correctness. Petitioner has failed to overcome this presumption and the respondent's determination is therefore sustained.

Held, T's purported short sale of large amount of Government notes coupled with purported purchase of like amount of Government bonds… Held: T's purported short sale of large amount of Government notes coupled with purported purchase of like amount of Government bonds which he allegedly deposited as collateral for his obligation with respect to the short sale were a sham, and he was not entitled to deductions in respect of bookkeeping entries attempting to establish that…

Amount paid to petitioner as a participant in Veterans' Administration program in fulfillment of a unversity requirement as to candidates for a Ph. Held: on the facts, to have been primarily for training and hence excludable from income as a fellowship under sec. 117, I.R.C. 1954.

Without seeking or receiving the permission of the Commissioner, petitioner's predecessor accrued vacation pay under certain union agreements amounting to approximately $ 25,000 in 1954. Held: under these circumstances accrual of such vacation pay was a change in accounting method which could not be employed without the consent of the Commissioner. American Can Co., 37 T.C. 198, involving the 1939 Code, distinguished.

Held, that payments made by petitioner to his wife (from whom he was separated by mutual consent and with the sanction of the marriage tribunal… Held: that payments made by petitioner to his wife (from whom he was separated by mutual consent and with the sanction of the marriage tribunal of the Roman Catholic Archdiocese of Boston contained in a decree entered in 1952), which were made for her support pursuant to an oral (but not a written) agreement between them, are not…

Petitioner sold a building, which was rented to commercial tenants as a warehouse and place of business, to the City of Cincinnati, Ohio, under threat of condemnation. Held: that the property purchased did not constitute property similar or related in service or use to the property so converted, within the meaning of section 1033(a)(3)(A), I.R.C. 1954, and that the petitioner is therefore not entitled to nonrecognition of gain upon the disposition of the converted building.

In determining taxpayers' holding period for real estate for purposes of section 1231, I.R.C. 1954, consideration must be given not only to the dates on which bare legal title passes but also the dates on which the burdens and benefits of ownership are transferred in closed transactions. Holding period determined, under circumstances which involved acquisition and disposition of property under California escrow arrangements.

Petitioner, an associate professor of physiology, was awarded a grant by the Markle Foundation in 1953 (to continue over several years) to enable him to continue his research and training in… Held: the payments received by petitioner in 1956 under the grant qualify as a fellowship grant and are, therefore, excludable from income under section 117, I.R.C. 1954, subject to the limitation in subsection 117(b)(2)(B).

Held: 1. Proceeds of a fire insurance policy paid on account of a fire, where the lessee paid the premiums covering machinery and… Held: Proceeds of a fire insurance policy paid on account of a fire, where the lessee paid the premiums covering machinery and equipment placed upon the property by the lessee, belonged to the lessor where the lease gave the lessor ownership of the machinery and equipment and the proceeds are taxable to the lessor at capital gains rates.

Held: (1) The value of 2,309 shares of common stock of Leyman Corporation on May 24, 1954, was $ 630 per share. Held: The value of 2,309 shares of common stock of Leyman Corporation on May 24, 1954, was $ 630 per share. (2) The executor of the estate of Harry Stoll Leyman willfully made a false or fraudulent estate tax return.

Decedent created an inter vivos trust providing for payment of $ 2,500 income to each of her four children and the balance to herself during her lifetime and upon her death the division of the corpus… Held: the portion of the trust corpus necessary to produce $ 10,000 annual income is not includable in decedent's gross estate.

Sale of petitioner's store site to private garage operator under threat of condemnation, proceeds of which were invested in sites for other stores to be used by petitioner, held, on facts, an… Held: on facts, an involuntary conversion under section 1033, I.R.C. 1954, entitling petitioner to non-recognition of gain.

Long-Term Capital Gain or Ordinary Income -- Secs. 1222, 736 (a)(1). -- An amount received by one partner, the petitioner, from the only other partner under an agreement to terminate the partnership, represented long-term capital gain from the sale of the petitioner's interest in the partnership business rather than payment for past services, unrealized receivables, or partnership income under section 736(a)(1).

H purchased callable bonds at a premium on the open market. The amortization deduction of the excess of the purchase price over the special call price is not in issue. Held: the sales between H and W were lacking in bona fides and amortization deductions are not allowable in respect of such sales. Sec. 171, I.R.C. 1954.

Losses. -- Held, deductions taken for the years 1927, 1928, and 1929 for theft losses were properly taken in those years and petitioner cannot take a deduction in 1958 for the same loss, either as a… Held: deductions taken for the years 1927, 1928, and 1929 for theft losses were properly taken in those years and petitioner cannot take a deduction in 1958 for the same loss, either as a bad debt or as an embezzlement loss.

A transferred a business in corporate form to B, a charitable foundation. Held: The transfer from A to B in this case constituted a bona fide sale of a capital asset. 2. C's rental payment disallowed in part because it was not paid for the use of the leased property. Fair rental value determined.

Discount on non-interest-bearing bonds purchased in 1952 deemed ordinary income when recovered by redemption at maturity.

A corporation, in which petitioners were stockholders, resolved on November 14, 1958, to elect to be taxed as a small business corporation under subchapter S of the 1954 Code. Held: The regulations are authorized by section 1372(c)(1) to prescribe the manner of making an election. Despite the corporate resolution to make an election, no effective election was made until the petitioners complied with these regulations.

Held: Lump-sum payment received by petitioner for the transfer of waterline refund agreements to the city of Phoenix was taxable as ordinary income rather than capital gain. Held: Lump-sum payment received by petitioner for the transfer of waterline refund agreements to the city of Phoenix was taxable as ordinary income rather than capital gain. Petitioner had previously deducted the amounts it advanced to the water companies under the agreements as cost of houses sold.

Petitioners, who were partners, transferred 100 percent of the stock of four grocery store corporations of which they were the sole owners to Boogaart Supply Co., Inc., of which they were major… Held: the distribution was essentially equivalent to a dividend.

Where after making a jeopardy assessment respondent fails to mail his deficiency notice to the taxpayer within 60 days of such assessment but does mail his deficiency notice within the time permitted by the general limitation sections of the Code, a petition filed in the Tax Court within 90 days following the mailing of such deficiency notice establishes jurisdiction in the Court to determine the issues raised by the petition.

Held, amounts of a wage dividend death benefit and a salary death benefit, paid to decedent's widow pursuant to discretionary action of the former employer, are not includable in decedent's gross… Held: amounts of a wage dividend death benefit and a salary death benefit, paid to decedent's widow pursuant to discretionary action of the former employer, are not includable in decedent's gross estate either under section 2033 or under section 2039, I.R.C. 1954.

Held, that the amount which the administrator of a Connecticut estate allowed and paid to the named executor of a purported will which… Held: that the amount which the administrator of a Connecticut estate allowed and paid to the named executor of a purported will which was denied admission to probate -- representing attorneys' fees and expenses incurred by said named executor in litigation respecting the decedent's testamentary capacity to make such purported will -- is…

1. Decedent was a nonresident alien not engaged in business in the United States. Held: The money thus owed to decedent was not excludable from his gross estate as bank deposits. Sec. 2105(b), I.R.C. 1954. The mere fact that the brokerage firm had bank accounts of its own was not sufficient to justify treating them as reflecting moneys deposited * * * by or for the decedent in a bank. 2.

Petitioner purchased from a dealer in remainder interests in trust estates, two contingent remainders, and the dealer assigned to him insurance policies covering the lives of… Held: The gain received by petitioner from the sale of the remainder interests constitutes ordinary income. (2) The net costs to petitioner of the insurance premiums are properly added to the costs of the remainder interests in determining petitioner's gains from the sales of the remainder interests.

Basis for depreciation of nonbusiness property converted to business use held to be fair market value at date of conversion, whether or not property was simultaneously contributed to a partnership.

In 1955 petitioner transferred his sole proprietorship's assets and liabilities to his controlled corporation. The liabilities exceeded petitioner's adjusted basis in the transferred assets. Held: sec. 357(c) is applicable and petitioner is taxable on the excess of liabilities assumed by the corporation over petitioner's adjusted basis in the transferred property.

Determinations made of: (1) Extent of Court's jurisdiction; (2) limits on scope of Court's considerations under Rule 50; (3) correctness of various computations submitted by respondent under Rule 50.

1. The petitioner by letter dated March 4, 1952, addressed to the respondent, elected, pursuant to section 22(d)(6)(F) of the Internal Revenue Code of 1939, to replace its inventory of zinc… Held: that the election made on March 4, 1952, was a valid and binding election under section 22(d)(6)(F), that such election was irrevocable in view of the provisions of section 22(d)(6)(D), and that the letter of December 12 was ineffective to revoke the election previously made. 2.

1. Held, amount of deductible theft loss sustained by petitioner, determined. Held: amount of deductible theft loss sustained by petitioner, determined.

Held, amounts expended by a licensed physician as attorney's fees and related legal expenses in the unsuccessful defense against a prosecution for criminal abortion are not deductible as ordinary and… Held: amounts expended by a licensed physician as attorney's fees and related legal expenses in the unsuccessful defense against a prosecution for criminal abortion are not deductible as ordinary and necessary business expenses in computing his taxable income.

Held, (1) legal expenses incurred by reason of a trademark infringement action brought by petitioner where an agreement of settlement was… Held: legal expenses incurred by reason of a trademark infringement action brought by petitioner where an agreement of settlement was entered into with the alleged infringer are capital expenditures; (2) petitioner cannot now elect to amortize these expenses under the provisions of section 177, I.R.C. 1954, as amended; and (3) petitioner…

Petitioner purchased new trailers and tractors, fully equipped, including tires. It leased them to a motor carrier for a period (including extensions) of 4 years. Held: petitioner may not spread the allocable cost of the original tires over a period of only 1 year but must depreciate them as part of and over the life of the vehicles. W. H. Tompkins Co., 47 B.T.A. 292, distinguished.

1. Petitioner is a United States citizen who was, for the year 1958 and a number of years prior thereto, a bona fide resident of Italy. 2. Income received by petitioner in 1958 from an estate of her deceased husband, which estate was being administered in New Jersey, is taxable to petitioner and is not excluded from United States income taxes under the provisions of the tax convention between the United States and Italy. 3.

1. Sec. 1034(a), 1954 Code -- Nonrecognition of Gain from Sale of Property Denied. -- Held, that the vacating of a residence with the intention of not returning and the holding of… Held: that the vacating of a residence with the intention of not returning and the holding of the same property for 2 years while looking for new property do not satisfy and are incompatible with the requirement that the property which is sold was used by the taxpayer as his principal residence.

1. Held, petitioner's mining activity for depletion allowance purposes ended immediately after the rock salt passed through the screening process and, consequently, its gross income from the property… Held: petitioner's mining activity for depletion allowance purposes ended immediately after the rock salt passed through the screening process and, consequently, its gross income from the property is computed at that point. 2.

Held, in view of petitioner's failure to keep any records of his wagering transactions, his failure to appear at the trial or to offer any… Held: in view of petitioner's failure to keep any records of his wagering transactions, his failure to appear at the trial or to offer any evidence from which his net income might more accurately be determined, and the ineffectiveness of efforts of respondent's agent to discover other facts which might enable him to compute petitioner's…

The petitioner obtained a judgment for money borrowed against one of its two stockholders who owned 50 percent of its stock and upon… Held: that the petitioner's stock so acquired had a fair market value of at least $ 56,000 on the date of acquisition by the petitioner and that the petitioner is not entitled to deduct any amount, either as an ordinary and necessary business expense under section 162(a) of the Internal Revenue Code of 1954 or as a bad debt under section…

1. The decedent's will left the residue of his estate to the widow, son, and daughter in equal shares and directed that estate and… Held: in computing the marital deduction the value of the widow's share of the residue is to be computed after deduction of such taxes. 2. A widow's allowance of $ 12,000 was authorized by the probate court and paid in a lump sum. There were no minor children. Held, under Missouri law the widow's allowance was not a terminable interest. 3.

Petitioner during the taxable year was a candidate for a degree in medicine at the University of Kansas. Held: that the limitation in section 117(b)(1) of the Internal Revenue Code of 1954, applicable to individuals who are candidates for degree, applies and the payments received by petitioner for the research done are not excludable from his gross income under section 117(a).

Upon the merger of two corporations, petitioner exchanged his common stock in one for common stock and common stock purchase warrants in the surviving corporation. Held: The warrants were not stock within the meaning of section 354(a)(1), I.R.C. 1954, and therefore constituted other property within the meaning of section 356(a), I.R.C. 1954. 2. The exchange did not have the effect of the distribution of a dividend under the provisions of section 356(a)(2), I.R.C. 1954.

Held, petitioner was a licensed personal finance company within the meaning of sec. 501(b)(6)(A), I.R.C. 1939, and sec. 542(c)(6), I.R.C. 1954, and did not constitute a personal holding company… Held: petitioner was a licensed personal finance company within the meaning of sec. 501(b)(6)(A), I.R.C. 1939, and sec. 542(c)(6), I.R.C. 1954, and did not constitute a personal holding company during the years involved.

All the stock of M corporation was owned by individuals A, B, C, and D. In 1955, petitioner issued some of its voting stock and, pursuant to written contract with A, B, C, and D, exchanged it for all… Held: The transaction constituted a reorganization ( sec. 368(a)(1)(B), I.R.C. 1954) to which M was a party ( sec. 368(b)(2), I.R.C. 1954).

Petitioner was an officer of L Corporation in which he had a substantial proprietary interest by virtue of his ownership of 45 percent of the stock of C Corporation which in turn owned 66 percent of… Held: petitioner's losses on the corporate obligation which he paid and to which he became subrogated are not deductible as business bad debts. Trent v. Commissioner, 291 F. 2d 669, reversing 34 T.C. 910, distinguished.

Decedent David Wein, a sole proprietor of a business, elected to have said business taxed as a domestic corporation under subchapter R, sec. 1361, I.R.C. 1954. Held: such action is directly covered by the various subsections of said sec. 1361, and results in gain or loss being recognized to petitioner.

Charitable Deduction -- Consent Dividend Under Sec. 565, I.R.C. 1954. -- An amount reported as 1957 income by the petitioner by consent under section 565, which amount it never received or accounted for as income in the administration of the estate but, if received, was received and accounted for as principal of the estate, was not shown to be properly a part of a charitable deduction for 1957.

Held, that the servicing contract between petitioner and Bowery Savings Bank effective during petitioner's fiscal years ending June 30,… Held: that the servicing contract between petitioner and Bowery Savings Bank effective during petitioner's fiscal years ending June 30, 1955, June 30, 1956, and June 30, 1957, did not give rise to accruals as of the end of said respective fiscal years in excess of the actual payments at level payment rates made to it by the Bowery Savings…

1. Held, that the amount of accounts carried on the petitioner's books as optional shares did not constitute deposits or withdrawable… Held: that the amount of accounts carried on the petitioner's books as optional shares did not constitute deposits or withdrawable accounts of its depositors for the purpose of the computation, under section 593 of the Internal Revenue Code of 1954, of the amount of the deduction to which the petitioner is entitled under section 166(c) of…

A corporation which had formerly leased its business property from a stockholder found it necessary to acquire title to the property in order to obtain a $ 150,000… Held: The gain of $ 78,000 was compensation for the use of real property and in the nature of a deferred rental payment, taxable under section 61(a) of the 1954 Code, in the year of receipt. 2. The $ 13,611.29 loss incurred by the corporation on the sale is deductible under section 162(a)(3) of the 1954 Code.

A decedent's will left his residuary estate in trust with the income payable to certain beneficiaries for life. Held: The trustees were not limited in their invasion of the trust principal by any ascertainable standard. Therefore, the value of the charitable deduction cannot be determined and is not allowable under section 2055 of the Internal Revenue Code of 1954.

Petitioner entered into an agreement with a licensed California contractor for the construction of a swimming pool on her property, payment to… Held: petitioner has not shown that the untrue statements as to the quality of the work done by the contractor were knowingly and designedly false and, therefore, has not shown that the amounts expended by her because of these untrue statements represented a theft loss, but has shown that the contractor's representations as to the…

Petitioners for 1955 reported on their Federal income tax return gain on the exchange of land for corporate stock and paid tax thereon. Held: respondent's notice of deficiency for the year 1956, mailed on February 9, 1962, was timely under sections 1311 through 1314, I.R.C. 1954.

The petitioners and others, as partners of three partnerships, and two corporations of which the petitioners were stockholders, agreed to sell to a national food chain, for stated considerations, the merchandise and physical assets of a chain of going retail grocery stores operated by the partnerships and the corporations in the Memphis, Tenn., area. The agreement also provided for payment of a specific sum of $ 400,000 without specification as to the consideration therefor. The agreement was expressly conditioned upon the execution by each of the petitioners of an individual covenant not to compete with the purchaser within a 250-mile radius of Memphis for 5 years in consideration of payment by the purchaser of $ 10,000 per year for 5 years to each of the petitioners. The separate covenants not to compete were executed by each petitioner. Held, that the payments of $ 10,000 made by the purchaser to each of the petitioners in each of the years 1956, 1957, and 1958 constituted consideration to them for their covenants not to compete, rather than the proceeds of a sale of goodwill or other capital asset, and that such amounts are taxable to them as ordinary income.

Petitioner Norman Petty transferred his own promissory note to the Norman Petty Foundation in 1958. Held: the transfer of the note does not constitute a contribution or gift, as those words are used in section 170(c), I.R.C. 1954, and thus does not entitle petitioner to a deduction for a charitable contribution in that year.

Intrafamily transfer by a nonresident alien of real property situated in the United States in return for a note secured by a mortgage, the face amount of which was less than the fair market value of… Held: on the facts, to constitute a gift of an interest in property situated in the United States; held, further, gifts of cash abroad sufficient to retire the note, made without prearrangement in a later year, were not gifts of property situated in the United States.

Held, a valid trust was created by the settlors by an agreement dated October 19, 1914, and the amounts distributed to petitioner Frances M. Strong by the trustee pursuant to the trust in 1953, 1954, 1955, 1956, and 1958 are taxable income to petitioners Frances and Seymour Strong. The amounts distributed by the trustee in 1954, 1955, and 1956 are deductible under section 661, I.R.C. 1954.

Decedent gave his attorney a power of attorney to handle his tax matters pending before the Treasury Department. Held: the power of attorney was revoked or suspended by operation of law as of the time the decedent lapsed into a coma and, therefore, the settlement stipulation was not signed by decedent or by one authorized to act on his behalf.

The petitioner, an attorney at law, prepared Federal income tax returns for many taxpayers, such returns disclosing refunds due. Held: that the total amounts so deposited in the petitioner's account constituted taxable income to him in the year in question irrespective of the fact that the petitioner orally guaranteed such notes to the bank and made payments pursuant thereto in the following year on account of the nonpayment of some of such notes.

Petitioner, during the years 1929 through 1949, had contracts with his employers to do work as an engineer and to work on improvements of his employers' products. Held: petitioner was not employed to invent but had a contractual agreement to transfer his inventions to his employers.

Petitioner, a wealthy and public spirited resident of Racine, Wis., who was engaged in the real estate and investment business, established ledger sheets on his books of account headed North Cape… Held: that since the moneys were not paid either to or for the use of the organizations during 1956, 1957, and 1958, petitioner is not entitled to charitable deductions in those years within the meaning of sec. 170, I.R.C. 1954.

1. Held, taxpayers are entitled to full bond premium amortization deductions on 1954 bond purchases based on the call price of the bonds and such deductions are not limited to the put or buyback… Held: taxpayers are entitled to full bond premium amortization deductions on 1954 bond purchases based on the call price of the bonds and such deductions are not limited to the put or buyback options granted by the bond seller. 2.

Taxpayer maintains a household in Beverly Hills, Calif., and a household in Reno, Nev. The Beverly Hills household is the principal place of abode of taxpayer's dependent son. Held: taxpayer is not the head of a household within the meaning of section 1(b)(2), I.R.C. 1954.

1. Sec. 722. -- Held, the respondent failed to establish error in his partial allowance of relief because of numerous affirmatively alleged contra-adjustments to the reconstruction. Held: the respondent failed to establish error in his partial allowance of relief because of numerous affirmatively alleged contra-adjustments to the reconstruction.

Petitioner, a professional drummer, was required to furnish his own drums when he was employed in an orchestra or when he played as an… Held: Petitioner is entitled to deduct in computing adjusted gross income (1) the cost of transportation between his two engagements; (2) portion of transportation expenses from home to first engagement and returning from final engagement allocable to transporting his drums; and (3) the cost of transportation in soliciting engagements for…

1. Held: Petitioners are entitled to deduction for loss in respect of factory property in Belgium arising out of damage from German V-bombs. Held: Petitioners are entitled to deduction for loss in respect of factory property in Belgium arising out of damage from German V-bombs. Although the property had previously been seized or deemed seized by the enemy, there was a recovery in 1944, and the bomb damage occurred thereafter.

The seller of a going proprietorship package goods liquor store received a sum in payment for the inventory and an amount in payment for the remainder of the assets. Held: the covenant not to compete did not have a separate value apart from the other assets. Held, further, the sellers could properly report the amount received for the noninventory assets under the installment sales provisions.

Building Co., engaged in selling new houses, accepted 151 houses as trade-ins and gave to purchasers of new houses trade-in allowances equal to their equities in the houses traded in. Held: the fair market value of the trade-in houses was at least equal to the total of the encumbrances on such houses plus the equities of the owners, and consequently the full amount of the trade-in allowances granted by Building Co. are includable in its sales income for the years before us.

Petitioner, a Ford car dealer, assigned a certain number of new cars to its officers, employees, and members of the Moorhead family. The cars were generally held for less than 1 year and then sold. 1. Held: gain realized on the sale of petitioner's cars was ordinary income because the cars did not constitute property used in the trade or business within the meaning of section 1231 of the 1954 Code. 2.

The decedent, within 3 years of her death, transferred certain properties to her stepchildren in compromise of a dispute between them concerning title to those properties. Held: the transfer of the properties was made for a full and adequate consideration in money or money's worth. Catherine S. Beveridge, 10 T.C. 915 (1948), followed.

Held, certain payments of educational expenses made by the U.S. Navy Department constitute a scholarship and, therefore, are not to be taken into account in computing… Held: certain payments of educational expenses made by the U.S. Navy Department constitute a scholarship and, therefore, are not to be taken into account in computing the total support of the beneficiary of them for the purpose of determining whether he is a dependent as defined in section 152, I.R.C. 1954.

Petitioner corporation was dissolved on November 4, 1957, under Wisconsin law which provides that upon dissolution the corporation ceases to exist except for suits or other proceedings commenced… Held: No suit or other proceeding was commenced within 2 years to extend the existence of the corporation and, therefore, no one was authorized under Wisconsin law to extend the period of limitations. Ann C. Field, 32 T.C. 187, distinguished. 2.

Petitioner was in the business of selling automatic coin vending and amusement type machines to operators. Held: petitioner failed to establish that the additions to the reserve for bad debts for 1956 and 1957 were reasonable within the meaning of sec. 166(c) of the 1954 Code.

Held, petitioner corporation did not acquire substantially all of the assets of a sole proprietorship owned by a decedent, and was… Held: petitioner corporation did not acquire substantially all of the assets of a sole proprietorship owned by a decedent, and was therefore not an acquiring corporation under section 461(a)(1) (D) or a purchasing corporation under section 474(a)(1)(A), I.R.C. 1939, as amended, so as to entitle it to use the earnings experience of the sole…

In 1957 petitioner reported on her gift tax return one-half of the gifts made by her husband in August 1957 and claimed her entire $ 30,000 specific exemption. Her husband died in November 1957. Held: petitioner is not entitled to deduct any portion of her $ 30,000 specific exemption in computing her 1958 gift tax; held, further, the gift tax law so interpreted is not unconstitutional.

Held: That petitioner was, for each of the taxable years here involved, availed of for the purpose of avoiding the income tax with respect to its shareholders, by permitting its earnings and profits… Held: That petitioner was, for each of the taxable years here involved, availed of for the purpose of avoiding the income tax with respect to its shareholders, by permitting its earnings and profits to accumulate instead of being divided or distributed.

Held, petitioners' motions to declare the statutory notices of deficiency * * * Deficient and in Contravention of Law and to Dismiss the Proceedings denied. Held: petitioners' motions to declare the statutory notices of deficiency * * * Deficient and in Contravention of Law and to Dismiss the Proceedings denied.

S Corporation paid a sum to California in settlement of an action under a California statute which prohibited corporations with shareholders of certain types of alien descent from owning land in… Held: The Commissioner may disallow net operating loss carryforwards by adjusting income in years prior to those covered in statutory notices of deficiency even though the relevant prior years are barred for deficiency purposes by the statute of limitations. 2.

Corporation A was transferred to B, a charitable foundation. B liquidated A and leased the bulk of the assets to C, a corporation formed to operate the business. Held: petitioner failed to show that C's rental payments were made for the use of property in which C had no equity.

Will devised residue of estate to decedent's daughter, as trustee, to hold the property in trust and to make available the net income therefrom to decedent's wife during her lifetime, reserving to… Held: the wife's interest does not qualify as a life estate with power of appointment under section 2056(b)(5), I.R.C. 1954, and hence does not qualify for the marital deduction under section 2056(a), I.R.C. 1954.

The petitioners, minority stockholders in A corporation, received by way of distribution from A corporation, all of the stock of B… Held: that the date of the distribution of the stock of B corporation to the petitioners was not later than February 9, 1956, that the date of acquisition by A corporation of control of the predecessor of B corporation was April 17, 1951 (or, in any event, no earlier than March 26, 1951), that the date of acquisition by A corporation of…

Petitioner, a physician, owned a building and certain equipment which he used in his medical practice. Held: that such rental payments are not deductible as ordinary and necessary business expenses under sec. 162(a)(3).

T Corp. purchased the operating assets of a predecessor company, and continued the business of the predecessor. Held: T may not increase its cost basis of the assets purchased by reason of its contingent liability for severance pay.

A agreed, in consideration of his employment by B, to assign to B all inventions relating to B's business that might be made by A during said employment. Held: such amounts received by A from B qualified as capital gains under sec. 1235.

During 1952 and 1954 Joseph and Bessie Stanley, residents of California, sold certain of their community property, payment therefore to be… Held: since the interest of Joseph Stanley, deceased, in his one-half of the community property represented by the installment obligations constituted a right to receive an item of income with respect to a decedent, sec. 1014(c) makes sec. 1014 inapplicable to Bessie Stanley's one-half community interest in the installment obligations.

Petitioner and its president were indicted for violation of the Sherman Antitrust Act. Held: the legal expenses paid by petitioner for defending petitioner and its president were correctly disallowed.

1. On March 30, 1956, petitioner entered into a contract with an insurance company wherein he was appointed an assistant director of agencies. The contract was amended on August 17, 1956. Held: the receipt of the consideration was taxable as ordinary income and not as a long-term capital gain. 2.

Petitioner acquired all the stock in one corporation and a controlling interest in another. Held: the consolidated corporation is not entitled to carry over and deduct from its postmerger income under section 122, I.R.C. 1939, the net operating losses it sustained in its premerger business. There did not exist the necessary continuity of business enterprise within the meaning of Libson Shops, Inc. v. Koehler, 353 U.S. 382.

A grandfather entered into trust agreements providing for gifts to minor grandchildren which, in the event of death prior to age 21, would pass to the donees' next of kin other than the grandfather. Held: the grandfather was not entitled to $ 3,000 gift tax exclusions, since the relevant gifts did not come within the terms of section 2503(c), I.R.C. 1954.

During 1955 and 1956 petitioner-employer had in effect a multipurpose plan, referred to in its contract with the union as Severance Pay, which provided not only for a dismissal wage but also payments… Held: the payments upon voluntary termination of service constitute deferred compensation within section 404, I.R.C. 1954, and therefore may not be deducted even by an accrual basis taxpayer prior to the year such payments are actually made.

Petitioner deducted on its Federal income tax returns for the calendar years 1958 and 1959, and for the taxable period January 1 to April 30, 1960, commission compensation which was authorized by… Held: the deductions claimed by petitioner are prohibited by section 267(a)(2) of the Internal Revenue Code of 1954.

Petitioner Howe A. Stidger was a captain in the United States Marine Corps during the taxable year 1958. On October 1, 1957, he was assigned to duty in the Far East. Held: no part of the $ 650 is deductible under sections 62(2)(B) and 162(a)(2), I.R.C. 1954, as traveling expenses while away from home in the pursuit of a trade or business.

Held, that the petitioner's basalt deposit, which was used for the production of roofing granules, is stone, entitled to percentage depletion… Held: that the petitioner's basalt deposit, which was used for the production of roofing granules, is stone, entitled to percentage depletion at the rate of 5 percent under section 613(b)(5) of the Internal Revenue Code of 1954, and that it does not fall within all other minerals entitled to depletion at the rate of 15 percent under…

Petitioner, Frank J. Matula, Jr., secretary-treasurer of a local labor union, was tried, convicted, and sentenced for committing perjury by giving false testimony before a legislative committee in… Held: that the amounts so paid by the employer in each year constituted taxable income to the petitioners.

Petitioner's predecessor in interest acquired an interest-bearing $ 1 million promissory note at a cost of $ 700,000. Prior to maturity petitioner sold the note and realized a gain of $ 270,000. Held: the gain so realized was, in fact, interest and was taxable as ordinary income notwithstanding the fact that the transaction resulting in the realization of such gain was a sale.

Petitioner, a California corporation, purchased certain revolving fund credits at a discount from Culbertson, an agricultural cooperative packing house. Held: that the revolving fund credits have basic characteristics of both stock and indebtedness, the revolution of which, in either event, constituted an exchange under sections 302(a) and 1232(a)(1), I.R.C. 1954, entitling petitioner to capital gains treatment.

1. Held, notes issued by corporate taxpayer to its three stockholders did not in fact represent an indebtedness within the meaning of section 163(a), I.R.C. 1954. Held: notes issued by corporate taxpayer to its three stockholders did not in fact represent an indebtedness within the meaning of section 163(a), I.R.C. 1954. The funds were not advanced with reasonable expectation of repayment regardless of the success of the venture; they were, in substance, risk capital.

In 1946 the directors of P, a real estate corporation, adopted a plan of liquidation. Held: that the 1958 plan and P's activities subsequent to its adoption were merely part of P's 1946 plan of liquidation; therefore, the gains realized on sale of the remaining tract were not entitled to nonrecognition under section 337(a), I.R.C. 1954.

Petitioner and members of her family owned all the stock of General Auto Supply Co., which has been in the automotive parts and equipment business for a number of years both as a warehouse… Held: section 355, I.R.C. 1954, applies to the division of General Auto's business activities, the transaction met all the requirements of that section, and under that section no gain or loss was recognizable to petitioner on the receipt by her of stock of Warehouse in that transaction.

Held, expenditures made by T in behalf of a Cuban corporation which he was promoting were not deductible as business expenses. Sec. 162, I.R.C. 1954. Held: expenditures made by T in behalf of a Cuban corporation which he was promoting were not deductible as business expenses. Sec. 162, I.R.C. 1954. T was not in the business of promoting corporations, nor were the expenditures related to any trade or business carried on by him.

Held, in computing the amount deductible as medical expenses for the care of petitioner's dependent mother, the total disbursements for medical care must be reduced by the amount of reimbursement… Held: in computing the amount deductible as medical expenses for the care of petitioner's dependent mother, the total disbursements for medical care must be reduced by the amount of reimbursement received from petitioner's brothers in the same year.

Inter vivos trusts created by decedent under which he retained powers of invasion of corpus and accumulation of income held, on the facts,… Held: on the facts, includable in gross estate, Lober v. United States, 346 U.S. 335 (1953); Estate of Milton C. Budlong, 7 T.C. 756 (1946), followed, notwithstanding that upon decedent's petition a conservator had been appointed, Estate of Edward L. Hurd, 6 T.C. 819 (1946), followed; undistributed trust income accumulated and added to…

Petitioner with active offices in New York City and Washington, D.C., had used the New York address in his dealings with the Commissioner. Held: letter to the New York District Director dated October 19, 1962, on the facts, did not make the Washington, D.C., address his last known address with reference to a notice of deficiency mailed October 25, 1962, under section 6212 of the 1954 Code.

For its fiscal year ended October 31, 1957, and prior fiscal years, K corporation filed its returns on an accrual basis and consistently followed the practice of accruing on its books its property… Held: it was entitled to deduct only that portion of its property taxes that were properly allocable to the 3-month period.

Petitioner, who is engaged in producing sod, sought to justify his deductions for cost of soil by claiming allowances for cost depletion on his mineral lands and percentage depletion on land containing peat soil. Without deciding whether a sod producer is entitled to any allowance for depletion, it is held petitioner failed to present sufficient evidence from which any amount of cost or percentage depletion could be computed under the statutes and applicable regulations.

Herman and Ruth were married in New York and resided together there until 1946 when they entered into a separation agreeement which provided that Herman should pay Ruth a certain amount per… Held: Payments made by Herman to Ruth subsequent to the Mexican divorce in the amounts specified in the separation agreement were not includable in the income of Ruth and were not deductible by Herman. 2. Herman and Hermine were not entitled to file joint returns for the years involved.

Petitioner formed a partnership with another person for the purpose of operating a private employment agency. He contributed no capital. Held: Amounts received by petitioner in 1957 and 1958 from the partnership were guaranteed payments under section 707(c), I.R.C. 1954, and taxable as income to him under section 61(a)(1). 2.

Held, loan by a profit-sharing trust to the employer, creator of the trust, in exchange for an unsecured 1-year promissory note of the… Held: loan by a profit-sharing trust to the employer, creator of the trust, in exchange for an unsecured 1-year promissory note of the employer was without adequate security and therefore constituted a prohibited transaction within section 503(c)(1), I.R.C. 1954; consequently, section 503(a)(1) requires that the trust be denied exemption…

The petitioner sustained net operating losses in the taxable years 1950, 1951, and 1952 in the conduct, in 15 States on or near the east… Held: that the petitioner is not entitled, under sections 23(s) and 122 of the Internal Revenue Code of 1939 and section 172 of the Internal Revenue Code of 1954, to carry over and deduct the net operating losses sustained by it in the years 1950, 1951, and 1952 in the conduct of the east coast business from income earned by it in the…

Petitioners sold their farm and residence in 1957 by a single deed of conveyance for $ 100,000, receiving a payment in that year of $ 10,000 cash and a promissory note for $ 90,000, secured by a deed… Held: that petitioners are entitled to report their gain on the sale on the installment basis, and that no recognizable payment was received on the installment sale in 1957.

Award received in patent infringement litigation held to include, in addition to compensation for lost profits which is conceded to be taxable as ordinary income, (a) reimbursement for litigation expenses, which is taxable as ordinary income, and (b) compensation for injury to capital structure and goodwill which is taxable as capital gain to the extent that such compensation exceeds basis.

Opinion in 40 T.C. 725 withdrawn in part and modified. Held: that since no suit or other proceeding was commenced within 2 years after the dissolution of Badger Materials, Inc., under Wisconsin law, the corporate petitioner was nonexistent and no one was authorized to act for it in filing the petition herein. Therefore, such proceeding must be dismissed for lack of jurisdiction.