Volume 41 — Board of Tax Appeals

In 1913 decedent and his wife acquired title to certain land as joint tenants. Held: the burden is upon petitioner to show that the deficiency determined by respondent is erroneous; (2) that the burden of proving the essential facts can not be shifted to respondent because of any presumption arising from the circumstances under state law or court decisions; and (3) that whether the jointly owned property would…

The taxpayer, engaged in the business of making and certifying abstracts of title, agreed with a title insurance company that in… Held: to be includable in taxable income because the subsequent use of or restrictions on income after receipt do not affect its taxability, (George Hyatt,36 B.T.A. 121, followed); (2) not to entitle the taxpayer to a credit under section 26(c)(1) of the Revenue Act of 1936, because the agreement with the insurance company did not restrict…

In 1920 petitioner and others purchased a farm for cash and executed a purchase money mortgage, contemplating a resale at a profit. Held: there was no sale or exchange of a capital asset, and the loss sustained is deductible as an ordinary loss under the provisions of section 23(e) of the Revenue Act of 1934.

1. Tenants in common of inherited real property which they improved and rented held not within the term partnership under section 801, Revenue Act of 1934, and each of them may offset the income from such property by his individual capital losses. 2. The basis for gain from a condemnation award in respect of inherited property held to include the cost of improvements and the basis of structures demolished for the purpose of new construction. 3.

1. INCOME OF EMPLOYEE TRUST. - A participant in an employees' savings and profit sharing fund is taxable with the income of his participation in 1934, when the credit to his account was actually distributed to him. 2.

Petitioner, in order to enable one Smith to pay off his note to a bank, executed its note to Smith which Smith endorsed to the bank in payment of his own notes. Held: petitioner is entitled to a deduction for the uncollectible balance of Smith's obligation as a debt ascertained to be worthless and charged off in the taxable year.

1. Two brothers in 1931 owned certain oil properties and desired to incorporate. Held: the basis of the oil properties thus acquired by petitioner in 1931 was cost to petitioner and not the basis in the hands of the transferors, as the transaction viewed as a whole did not come within section 112(b)(5) of the Revenue Act of 1932 and was not controlled by exception (8) of section 113(a) of the same act. 2.

Held, under the special statutes applicable to Suffolk County, New York, real estate taxes are accruable on the date of the warrant annexed to the tax roll. Held: under the special statutes applicable to Suffolk County, New York, real estate taxes are accruable on the date of the warrant annexed to the tax roll.

Under a will of 1918 providing that the testator's children should receive shares of trust corpus upon reaching a certain age, one of the children upon his birthday in 1934 received securities from… Held: the basis for gain or loss, Revenue Act of 1934, section 113(a)(5), was the fair market value on the date of the death of the testator.

ESTATE TAX. - A decree of a state court, which was rendered after a hearing on the merits, in a suit which was between adverse parties and of which the court had jurisdiction, and determined that a transfer of certain property to decedent in her lifetime by her four children which was absolute on its face was intended to convey only a life estate in such property, and reformed the instrument of conveyance from one of absolute conveyance into a life estate only, is binding…

- Debts and taxes due from the estate of a prior decedent are not deductible from the estate of the present decedent although property of the prior decedent is included in computing the value of the gross estate.

A taxpayer holding a note due in 1935 who in 1934 ascertained the worthlessless of notes of the same maker due in 1934, held, on the evidence, not entitled to a bad debt deduction in 1935 of the note… Held: on the evidence, not entitled to a bad debt deduction in 1935 of the note due in that year.

Where a corporation in 1933 exchanged a portion of its assets for shares of its own capital stock, it sustained no loss deductible in computing its taxable net income. Helvering v. Reynolds Tobacco Co.,306 U.S. 110.

On the facts, held, that the transaction in controversy constituted a sale by the corporation of its business and assets from which it derived a taxable profit, and not a sale by the stockholders of… Held: that the transaction in controversy constituted a sale by the corporation of its business and assets from which it derived a taxable profit, and not a sale by the stockholders of their shares of stock.

1. TRUST INCOME - TAXABILITY OF GRANTOR. - Income of a trust not taxable to the grantor under sections 22(a), 166, or 167 where he was not to receive the income, could not revoke the trust, and could not amend so as to receive income or principal but could amend to change beneficiaries and beneficiaries could revoke trust. 2. INCOME - INSURANCE INSTALLMENT. - Annual installment on a life insurance contract held exempt from tax under section 22(b)(1), Revenue Act of 1934.

Petitioners' wards were remaindermen of a trust created in 1926 in the State of New York, where it was administered. The trust provided that, upon the death of the survivor of two life beneficiaries, the inheritance taxes against the estate of the settlor should be paid out of corpus and that the corpus, together with any accumulations thereon, be paid over to petitioners' wards in equal parts. The life beneficiaries died simultaneously in 1929. The inheritance taxes were not all determined nor paid until August 1934. In May 1935, the trust instituted action for judicial settlement of its account, which was not concluded until after 1935. Held, none of the income of this trust became currently distributable to petitioners within the meaning of section 162(b) of the Revenue Acts of 1932 and 1934 during 1933, 1934, or 1935, nor was it taxable to petitioners for any of those years.

1. Decedent's death occurred in 1933. In 1932, being heavily in debt, he had transferred substantially all of his property, including his life insurance, to a trust, the trustee being authorized to… Held: that the value of the property transferred to the trust must be included in decedent's gross estate. Paul F. Donnelly,38 B.T.A. 1234, distinguished. Value of property determined. 2.

1. Where during the taxable year petitioner received as consideration for drilling an oil well for others, an oil payment contract which it capitalized on its books, but as to which it had received no assignment from the lessee of the fractional oil interest out of which the payment was to be made, petitioner is not the owner of any economic interest in the oil in place, is not entitled to depletion on any payment received under such contract, and should return as a part of…

Petitioners issued all their capital stock to R. W. Briggs & Co. in exchange for a portion of the latter's machinery and equipment. Held: nontaxable exchanges occurred between R. W. Briggs & Co. and each of these petitioners, and the basis for depreciation is the same as it would be in the hands of the transferor. Sec. 113(a)(8), Revenue Acts of 1932 and 1934.

TRUSTS. - Where, by the trust instruments operative during the taxable periods in question, the petitioner, as settlor, declares that he, as trustee, holds certain stock in trust irrevocably to pay… Held: This case does not fall within the express provisions of sections 166 or 167 of the Revenue Act of 1934. (2) Petitioner was not, in substance, the owner of the stock transferred in trust and he was not taxable on the income therefrom under section 22(a) of that act.

The normal corporate tax and undistributed profits tax under the Revenue Act of 1936, both being imposed by provisions of Title I of the act, are Held to be income taxes. The respondent having determined a deficiency in normal tax and an overassessment of a greater amount of undistributed profits tax, the net result is the determination of an overassessment of income tax, and a petition based on such determination is not within our jurisdiction.

1. Losses sustained on the sale of non-Government securities held for less than two years may not be offset against gains from the sale of Government securities, in view of the parenthetical exception contained in section 23(t) of the Revenue Act of 1932. 2. An initiation fee paid to the New York Stock Exchange upon the transfer of the use of a membership may not be deducted as a business expense in the absence of proof as to whether the use of the membership was bought for a limited period or was transferable as a capital asset.

1. A corporation which was organized and operated for religious, charitable, or educational purposes but also engaged in advocating the enactment (and in opposing the repeal) of laws for suppression… Held: no part of any such bequest is an allowable deduction from decedent's gross estate under the estatute, for the reason that there existed at decedent's death no reasonably ascertainable basis for the computation of the value of any specific bequest.

1. A trust provision requiring the transfer of all trust property to the grantor upon his notice to the trustee that he and his wife, a beneficiary, have separated for any cause whatever can not be… Held: to be compensation for such services and within his gross income.

Petitioner created a revocable trust with a life estate to her husband. Subsequently, she released her rights to revoke, revest in herself, or modify the trust in any way inimical to her husband's interest during his life. She later made gifts to the trust as modified and paid gift taxes only upon the value of the life estate of her husband. Held, upon authority of Estate of Sanford v. Commissioner,308 U.S. 39, and Rasquin v. Humphreys,308 U.S. 54, petitioner is liable for gift tax only upon the value of the life interest of her husband in each gift.

Petitioners exchanged bonds for bonds of the same corporation. Held, section 112(b)(1), Revenue Act of 1934, requires recognition of gain or loss on the transaction and section 112(b)(2), providing for nonrecognition of gain or loss on exchange of common stock for common stock, or preferred stock for preferred stock in the same corporation, does not control.

JURISDICTION. - A statement by the Commissioner in an otherwise regular deficiency notice that the statute of limitations has run, does not convert it into something other than a notice of deficiency, and a petition based on such notice is within the jurisdiction of the Board.

Where a decedent created a trust for the benefit of his children and grandchildren, reserving only a power to alter the disposition of the trust income among the several beneficiaries,… Held: The value of the corpus is not includable in the decedent's gross estate either as a transfer to take effect at or after death under section 302(c) of the Revenue Act of 1926, or as a transfer subject to a power to alter, amend, or revoke under section 302(d) of the Revenue Act of 1926.

- Decedent died June 30, 1933, owning realty situated in the State of Alabama. The tax on such porperty for the fiscal year ended September 30, 1933, became due and payable on October 1, 1933. Decedent's administrator, who kept the estate's books on a cash basis, paid the tax during the year 1934. Following decisions of the Supreme Court of Alabama, it is held that the tax did not accrue until October 1, 1933.

In 1928 petitioner, in order to retain the services of a valuable employee, agreed, in addition to the compensation he was then receiving for his services, to pay to his widow after his death $12,000… Held: payment made to the widow in 1934 under the terms of the agreement was an ordinary and necessary expense paid or incurred during the taxable year in connection with petitioner's business and is deductible from gross income.

An individual taxpayer receiving three notices of deficiency each for the deficiency of one year, is entitled to contest all three deficiencies in one petition filed with the Board seasonably with regard to the time of mailing of each notice.

Corporate stock issued as a stock dividend was redeemed nine years later because of desire to reduce indebtedness to the corporation by the stockholders, in order to have the high credit rating… Held: the stock was not redeemed at such time and in such manner as to make the distribution essentially equivalent to a taxable dividend under section 115(g), Revenue Act of 1934.

In 1927 and in 1929 the decedent informed his wife, his son, and his daughter that he was making gifts to them of certain shares of stock of the International Petroleum Co., Ltd. They accepted the… Held: that the gifts made in 1927 and in 1929 were absolute gifts, and that the decedent was not liable to income tax in respect of the dividends paid on the donated shares.

Where property was conveyed to a trustee, during the period section 504(b) of the Revenue Act of 1932 was in force, to be held for the benefit of the settlor's wife and three children, held, that in… Held: that in computing the gift tax due, four exclusions of $5,000 each should be allowed. Welch v. Davidson, 102 Fed.(2d) 100; Robertson v. Nee, 105 Fed.(2d) 651; Rheinstrom v. Commissioner, 105 Fed.(2d) 642; and McBrier v. Commissioner, 108 Fed.(2d) 967, followed.

Petitioner having claimed as a loss on the sale of stock in 1934 the difference between the sale price and an amount, greatly in excess of fair market value, credited by it in 1931 as the purchase price to the vendor, another corporation wholly owned by the same individual, held application of the Revenue Act of 1934, section 45, and allocation to petitioner of only a portion of the claimed deduction, sustained.

During 1935 the estate of Richard E. Traiser received taxable and nontaxable income and distributed part of its total income to beneficiaries. Held: that the estate is not entitled to the deduction of such part of the distribution as came from the nontaxable income. Held,further, that since the distribution of the taxable income was in part from dividends received from domestic corporations the petitioner's dividend credit must be reduced by the amount of such distribution.

1. Amounts paid or permanently set aside to be used exclusively for religious, charitable, etc. purposes are allowed as deductions in computing the income of an estate or trust as provided in subdivision (a) of section 162 of the Revenue Act of 1934 and the organizations receiving such payments may not be classified as beneficiaries for the purpose of applying subdivision (b) of the same section. 2. Dividends, depreciation, tax-exempt income and taxable income should, in the absence of specific directions in the trust instrument to the contrary, be allocated between the taxable and the nontaxable beneficiaries of a trust.

Where petitioners failed to elect percentage depletion in their original returns for 1934, 1935, and 1936, they may not do so by amended returns filed in 1939.

The purchases and sales of wheat futures by a wheat farmer, made entirely for protection against price fluctuations, held, related to his business of production and sale of wheat, and losses… Held: related to his business of production and sale of wheat, and losses sustained in such transactions, held, not capital losses subject to the deduction limitations of section 117, Revenue Act of 1934.

1. Taxes due and payable October 1, had been officially fixed and bill therefor sent to taxpayer in March. Held: taxpayer was entitled to deduct such taxes in the period stated. United States v. Anderson,269 U.S. 422. 2.

Petitioner was engaged in the business of operating an independent cottonseed oil mill. Held: that the futures contracts were capital assets and that the loss resulting from sales thereof is deductible only to the extent allowed by respondent. Sec. 117, Revenue Act of 1934.

Petitioners prior to the taxable years in question acquired by investment certain oil payment contracts which by assignments and conveyances contained in such contracts entitled them to… Held: that the respondent's treatment of the matter was proper, and that petitioners are not entitled to the benefit of the capital gains provisions of the applicable statutes since they did not sell or exchange any of the oil interests which they held during the taxable years involved.

- Beneficiary entitled to fixed annuity had right in discretion of trustee to receive all or part of principal of two trusts if needed for his maintenance. Under one trust principal and accumulations remaining at his death were to be distributed as appointed by his will and under the other they were to go to his children.

Petitioner filed an original capital stock tax return for the year ended June 30, 1936, on July 29, 1936, in which it declared a capital stock valuation of $600,000. Held: that the valuation declared in the original return could not be changed in the amended return submitted after expiration of the period for filing such return for the taxable year. Haggar Co. v. Helvering,308 U.S. 389, distinguished.

Failure of petitioner, a coal mining company, to elect percentage depletion in its original return filed for 1934 or in any subsequent return filed for that year, held to preclude allowance on that basis for 1934 or 1935 under Revenue Act of 1934, section 114(b)(4), even though it had no cost basis, its 1934 return showed no net income, and percentage depletion was claimed in its 1935 return. Dorothy Glenn Coal Mining Co.,38 B.T.A. 1154, followed.

An organization of Chinese people in San Francisco, doing manufacturing business, with active and inactive members, held, a partnership and not an association taxable as a corporation. Held: a partnership and not an association taxable as a corporation.

Two partners provided by contract that insurance upon the life of each, payable to his wife or children, the premiums of which were paid by the partnership and charged to the individuals, should be… Held: that insurance proceeds received by the wife of the first to die and applied upon such purchase price were not received by the surviving partner, nor paid by him, and may not be included in the cost basis of the partnership interest so acquired by him.

1. Respondent's determination disallowing a portion of the amount claimed by petitioner as an addition to its reserve for bad debts approved. 2. Held: under the facts here petitioner is entitled to deduct the amount of the salary as fixed by its directors in 1928, notwithstanding petitioner's books do not show an accrual of the unpaid salary in the tax year, or reflect petitioner's liability therefor to its subsidiary. 3.

The taxpayer is not subject to tax under section 104 of the Revenue Act of 1932, since it was not formed nor was it availed of in 1933 for the purpose of preventing the imposition of surtax upon its shareholders through the medium of permitting its gains and profits to be accumulated instead of being divided or distributed.

Pursuant to a partnership agreement entered into between the three petitioners and their father, the petitioners upon their father's death… Held: that the notes did not represent indebtedness of the petitioners, since they were to become payable only upon a contingency within the obligors' control; held, further, that the payments which petitioners made to their mother as interest on the notes were in fact annuities and are not deductible from petitioners' gross income as…

REORGANIZATION. - In 1930 the holders of unsecured notes of an insolvent corporation caused a proceeding in bankruptcy to be instituted against the corporation pursuant to a plan… Held: that the transaction constituted a reorganization within the meaning of section 112(i)(1)(A), Revenue Act of 1928; and (2) that petitioner is entitled to compute deductions for depreciation and depletion for the taxable year 1934 on the basis of the assets in the hands of the old corporation.

Petitioner, a corporation on the accrual basis, held demand promissory notes of its stockholders representing net withdrawals for personal use. Held: petitioner is not required to accrue interest on said notes as income.

The petitioner was organized under the general corporation laws of the State of Mississippi for the purpose of purchasing and operating… Held: that the amount so distributed was a part of petitioner's earnings for the year and may not be excluded from gross income as a rebate or refund of a portion of the charges paid by its stockholders for the ginning of their cotton, and further, that the distribution of the amount in question constituted the payment of a dividend which…

1. A corporation exchanged its capital stock for securities. Held: that for purposes of computing earnings or profits to ascertain amounts available for distribution as dividends, the cost to the corporation, i.e., fair market value of the securities at date of exchange, should be taken as base, and not cost to the transferor of the securities to the corporation.

The parent corporation of an affiliated group of corporations acquired all the stock of X corporation in the taxable year. The acquisition and ownership of the stock of X corporation was without any business purpose. Held, the X corporation was not a member of the affiliated group of corporations within the intent of section 141 of the Revenue Act of 1932.

The owner of one-fourth of the stock of a corporation desired to acquire his proportionate share of its assets and continue its business, either as an… Held: There was but one transaction, the substance of which was an exchange by the taxpayer of his stock in the old corporation for stock in the new corporation. (2) The exchange was not made pursuant to a plan of reorganization within the purview and intendment of the statute and the gain realized by the taxpayer is taxable.

1. The amount received by an employee from his employer in consideration for the cancellation of a contract of employment which had several years to run, held ordinary income and not capital gain. 2.

In computing petitioner's net income for percentage depletion, under the provisions of section 114(b)(4) of the Revenue Act of 1934, amounts paid in settlement of silicosis claims must be deducted from its gross income. Helvering v. Wilshire Oil Co.,308 U.S. 90.

In compuing petitioner's net income for percentage depletion, under the provisions of section 114(b)(4) of the Revenue Act of 1936, amounts paid as interest on money borrowed for development and equipment expenses and capital stock taxes must be deducted from its gross income. Helvering v. Wilshire Oil Co.,308 U.S. 90.

Petitioner, a California corporation, had as its principal business the importation and sale of a certain distinctive brand of olive oil, which was imported from an Italian corporation, the two… Held: the expenditure was neither an ordinary expense of trade or business under section 23(a), nor a loss under section 23(f) of the Revenue Act of 1934.

Held, on the facts, that petitioners were not participants in an association taxable as a corporation, and the distribution upon termination of the organization was not in… Held: on the facts, that petitioners were not participants in an association taxable as a corporation, and the distribution upon termination of the organization was not in liquidation of such an association, and petitioners' base upon sale of stock distributed was the net investment in the organization.

The petitioner, an automobile dealer, kept its books of account and reported its income on the accrual method. Held: that in determining petitioner's taxable income the entire amount of the selling price of such notes is to be accrued at the time the notes were sold.

1. Petitioners' decedent created a trust and reserved the power to change the beneficiaries or substitute beneficiaries other than himself. In 1937 he renounced the reserved power. Held the renunciation of the reserved power in 1937 resulted in a taxable gift of the fair market value of the corpus at that time. 2. During the taxable years the trustee distributed the net income of the trust property to the beneficiary named in the trust instrument.

Fixed investment trusts under which, for the purpose of conserving the trust property, the trustee has ministerial functions of holding corpus and collecting and distributing income and sales proceeds and a Depositor has limited power to direct sales so as to eliminate unsafe investments but has no power to direct reinvestment, held not taxable as associations.

1. Preferred stock issued by a corporation at the time of its organization which had no fixed retirement date and on which dividends were to be paid only out of earnings, held, not to constitute an… Held: not to constitute an indebtedness of the corporation within the meaning of either section 23(b) or section 351(b)(2)(B) of the Revenue Act of 1934. 2.

Held, an unborn child is not a person for the purpose of computing the amount of credit for a dependent. Held: an unborn child is not a person for the purpose of computing the amount of credit for a dependent.

Petitioner created a trust and transferred to the trustees irrevocably several policies of insurance on his life and certain securities. Held: that under the provisions of section 167(a)(3) of the Revenue Act of 1936 the petitioner is taxable on so much of the net income of the trust as was used or might have been used to pay the premiums on policies of insurance on his life; held, further, that as so applied the statute is not unconstitutional, Burnet v. Wells,289 U.S.…

Where decedent transferred substantially all of her estate to a trust under an instrument which provided for monthly payments out of income or corpus to decedent, in stipulated amounts in excess of… Held: respondent properly included the trust corpus as a part of decedent's gross estate.

A corporation, the petitioner, conveyed assets to its creditors in consideration of release of liability. The assets were assigned to a third party and reconveyed to the petitioner. Held: on the facts, that the conveyance by petitioner was absolute and not by way of security, and that the basis for depreciation of the assets was the purchase price when reacquired. Rate of depreciation determined on the evidence.

An individual conveyed to trustees 16 policies of insurance on his life to be held for the benefit of his wife, son, and daughter. Held: In determining the gift tax due, three exclusions of $5,000 each should be allowed under the provisions of section 504(b) of the Revenue Act of 1932; and (2) Under the terms of the trust instrument, the wife, son, and daughter each received a gift of a present interest in property rather than a future interest.

Petitioner was residuary legatee under a will and codicil. The testatrix later made another will. Held: such receipts are to be excluded from gross income under section 22(b)(3), Revenue Act of 1934. Lyeth v. Hoey,305 U.S. 188; Magruder v. Segebade, 94 Fed.(2d) 177, followed.

Where property is included in the estate tax return for the wife who died six days before her husband's death and the tax thereon is paid simultaneously with the filing of the return, but the… Held: that such property is not prior taxed property deductible from the estate of the husband under section 303(a), Revenue Act of 1926, as amended by section 806, Revenue Act of 1932.

Hele, income and absenteeism taxes paid by petitioner to the Republic of Mexico on salaries received by her in 1935 and 1936 from a Mexican corporation are not allowable as credits against her income tax in the absence of proof that she rendered any services to the corporation either within or without the United States.

Petitioner was formed by a bondholders' committee, with the committeemen as its only stockholders, to hold title to property in process of foreclosure. Held: on the facts, petitioner was a mere conduit or agent for the bondholders, and rentals received by it and spent largely upon taxes and foreclosure expense did no constitute income to petitioner.

Petitioner owned real estate which was leased to a corporation for a term of years at a monthly rental of $3,125, the rent payable in advance on the 16th day of each month. Held: that the rents constituted taxable income of 1935.

In computing gift tax on property transferred in turst, the value of the property transferred need not be reduced by the value of income of the trust which the trustee in his uncontrolled discretion has power to pay to the grantor.

Where petitioner was required by a trust indenture to pay 25 cents for each ton of sand produced and sold by it during the preceding month to a trustee, and the latter was required to place moneys so… Held: petitioner is entitled to the credit provided by section 26(c)(2) of the Revenue Act of 1936.

1. When the property of an incompetent is placed in the hands of a court, the court acts for and in the place and stead of the incompetent. Held: the action of the state court is final and binding on the Board. Such allowances being in recognition and satisfaction of an obligation imposed by law, they do not constitute gifts. 3.

1. Held, trustees under a testamentary trust may be "legatees" under the provisions of section 162(c), Revenue Act of 1936. 2. Held, that income of an estate was properly paid the trustees, as legatees, and, since the trustees included it in computing their net income, it is deductible from petitioners' gross income under the provisions of section 162(c), Revenue Act of 1936.

1. Transaction whereby one corporation in 1930 acquired all of the assets of another corporation in exchange for its entire issue of preferred stock, $1,000,000 in cash, and the assumption of liabilities of $90,127.89, held to be a statutory reorganization. Nelson Co. v. Helvering,296 U.S. 374. 2.

1. No basis exists for taxing the grantor of an irrevocable trust upon the income thereof under section 166 of the Revenue Act of 1934, where the grantor retains only a reversion in the corpus, and… Held: Petitioner is not taxable on any trust income paid or payable to his mother since he was under no obligation to support her. (b) Petitioner is taxable on trust income payable to his children and his wife under the rule of Douglas v. Willcuts,296 U.S. 1. 4.

Petitioner created a trust for his wife in accordance with the terms of a property settlement. Held: the income of the trust paid the wife which was allocable to the support of the son is taxable to petitioner under the rule of Douglas v. Willcuts,296 U.S. 1. The remainer of the income is not taxable to petitioner.

1. CAPITAL GAIN - SALE. - An assignment of an oil and gas lease providing for the payment of a certain amount in cash, an additional amount of cash to be paid out of one-eighth of the oil produced, and an overriding royalty, all payable to the assignor, was not a sale, and the payments received on account of the cash and the additional amount to be paid out of one-eighth of the oil were not proceeds from the sale of a capital asset. 2.

ESTATE TAX. - An inter vivos transfer of property in trust, with reservation to the grantor of the power to revoke, alter, or change the terms of… Held: to be a transfer with provision for a possible reverter to the grantor upon a contingency terminable by his death and thus a transfer intended to take effect in possession or enjoyment at or after death within the meaning of section 302 (c) of the Revenue Act of 1926, as amended. Helvering v. Hallock,309 U.S. 106, followed.

Kate Hay Brown died intestate October 28, 1923, leaving a husband and three children. The estate consisted principally of real property. Held: that Stuart Brown had only a dower interest in his wife's estate and that each of the children conveyed to the trust a one-third interest in fee in their mother's estate, subject to the dower rights of Stuart Brown; held, further, that a one-third interest therein is includable in the gross estate of the decedent, one of the three…

Where the will of a decedent makes no provision that the income shall be paid currently to the residuary legatee and the residuary legatee receives the residue of the estate upon the completion of the administration, he is not liable to income tax in respect of any portion of the amount received by him as residuary legatee.

The petitioner is a holding or investment company which had on December 31, 1929, a surplus of $19,615,905.69 and a capital surplus of $6,450… Held: that the petitioner had no need for the accumulation of gains and profits beyond the amount accumulated to December 31, 1929, and a further accumulation of profits in subsequent years was beyond the reasonable needs of the business, and that during the years 1930, 1932, and 1933 the petitioner was availed of for the purpose of…

1. Where in 1935 a part of the income of an estate in process of administration or settlement was credited upon the executors' books to the residuary legatees but used by the executors to pay state inheritance tax, the credit and paying being made on the same day, the estate may not in its income tax return for 1935 deduct from gross income the amounts credited to the legatees. 2.

1. ESTATE TAX. - Held, that where an insurance policy is assigned without valuable consideration, the assignee falls in the class of all other beneficiaries within section 302(g) of the Revenue Act… Held: that where an insurance policy is assigned without valuable consideration, the assignee falls in the class of all other beneficiaries within section 302(g) of the Revenue Act of 1926. May Billings et al., Executors,35 B.T.A. 1147, followed. 2.

Petitioner, a personal holding company, having acquired for its capital stock a remainder over after intervening life estates in Connecticut real estate, held, not to be entitled to deductions for… Held: not to be entitled to deductions for real property taxes and fire insurance premiums paid by it on the property pursuant to its agreement with the life tenant grantor; held further, deduction for depreciation thereon disallowed to petitioner. Revenue Act of 1934, sec. 23(1).

The investment company, of which petitioners' decedent was virtually sole stockholder, having indicated upon its income tax return,… Held: decedent was bound thereby in spite of petitioners' present position that such reference was a clerical error; held further, the corporation was formed and availed of for the purpose described in section 104; held further, petitioners are taxable on decedent's entire distributive share of the corporation's net income computed under…

Petitioners held land for investment and sale. A tract was sold to a corporation which subdivided it and caused various improvement assessments to encumber it. Held: the property was held primarily for sale to customers in the ordinary course of petitioners' trade or business. Sec. 117(b), Revenue Act of 1934. Commissioner v. Boeing, 106 Fed.(2d) 305; Richards v. Commissioner, 81 Fed.(2d) 369.

- Where pursuant to a reorganization of a company under section 77(b) of the Bankruptcy Act, petitioner exchanged her old bonds for new and different bonds having a lesser face value, held, that… Held: that petitioner is not entitled to deduct the difference in such value as a partially worthless debt.

Held, bonds issued under the California County Water Works District Act of 1913, the California Drainage Improvement District Act of 1919, and… Held: bonds issued under the California County Water Works District Act of 1913, the California Drainage Improvement District Act of 1919, and the California CountySanitation District Act of 1923 were direct obligations of political subdivisions of the State of California, and interest received on such bonds by petitioner during the…

1. For the purposes of the credit provided by section 26(c)(1) of the Revenue Act of 1936, a corporate bylaw is not a written contract executed by the corporation. 2. Petitioner may deduct from gross income the actual amount of interest accrued on its indebtedness for the taxable year, despite a deduction of a lesser amount in its return.

1. Petitioner transferred to a trust securities for the equal benefit of certain of his grandchildren. Held: the gifts of the securities were to the beneficiaries of the trust and not to the trust itself, and were gifts of present interests in property rather than of future interests, and petitioner is entitled to one $5,000 exclusion for each gift to a grandchild, under section 504(b) of the Revenue Act of 1932. 2.

1. In 1932 each petitioner owned an undivided one-fourth interest in a Texas ranch as his or her separate property. They conveyed the ranch to trustees for a period of ten years. Held: Jas. F. Welder Heirs was properly classified as a partnership by the Commissioner under section 1001(a)(3), Revenue Act 1936; held, further, Jas F.

1. The petitioner is the life beneficiary of a testamentary trust. Certain securities delivered to the trustee by the executor were valued for estate tax purposes at $392,750. Held: that the $70,000 constituted taxable income of the petitioner for 1934. 2. Over a period of several years the petitioner borrowed money from his father-in-law. The amount borrowed up to and including October 1, 1934, was $68,320.98. The accrued interest to October 1, 1934, was $7,636.66.

1. Petitioner opened brokerage accounts with his own funds and traded in stocks from 1925 through 1929, realizing gains and dividends. Held: that there was no trust; that all dividends and gains are petitioner's income, taxable to him; that respondent properly applied the first in, first out rule in determining gains from sales; that petitioner filed false and fraudulent returns in the taxable years with intent to evade tax. 2.

Petitioner was a member of a partnership which in 1935 became insolvent and made an assignment to an agent and attorney in fact of its assets for the benefit of its creditors. Held: the former agent and attorney in fact, in receiving the draft, cashing it, and spending the money for his own personal use, was not acting as agent for petitioner, and petitioner is not taxable on any part of the amount of the draft, since he received none of it and he is on the cash basis.

Under the terms of an irrevocable inter vivos trust, the settlor reserved the income for life together with the absolute right to… Held: the then value of the corpus was includable in the estate of the settlor, for estate tax purposes, under the Revenue Act of 1926, section 302(c), as it existed prior to its amendment by section 803(a) of the Revenue Act of 1932, as the value of property of which the decedent has * * * made a transfer, by trust * * * intended to take…

Petitioner, a resident of Pennsylvania, declared a trust for the benefit of his mother, a resident of New Jersey. The trust was revocable by joint action of settlor and beneficiary. Held: that the income of the trust was not taxable to the petitioner either under section 166, Revenue Act of 1934, or, the petitioner having no duty of supporting his nonresident mother under the law of Pennsylvania, under section 167 or the principles of Douglas v. Willcuts,296 U.S. 1.

1. The petitioner accrued in 1932 as real property taxes for such year and deducted and was allowed in her Federal income tax return for that year amounts in excess of such real property taxes for… Held: that the respondent did not err in including the amount of the excess deduction for 1932 in the petitioner's income for 1934. 2.

1. In 1927 petitioner Augustus E. Staley informed some of his children of an intention to give them a portion of his holdings of stock in the A. E. Staley Manufacturing Co. No transfers were made at… Held: that there were no gifts of the stock prior to 1934. 2.

1. Amounts paid to the adult, married daughter of grantor under a deed of trust, held not paid to satisfy a duty, legal obligation, or indebtednes of the grantor and therefore not taxable to her under Douglas v. Willcuts,296 U.S. 1. 2.

1. Held, under the facts in the record, petitioner, an Oklahoma express trust, is an association taxable as a corporation, Morrissey v. Commissioner,296 U.S. 344. 2. Held: under the facts in the record, petitioner, an Oklahoma express trust, is an association taxable as a corporation, Morrissey v. Commissioner,296 U.S. 344. 2. Held, under the facts in the record petitioner is entitled to depletion computed under section 114(b)(3) of the Revenue Act of 1934.

Petitioner's sole indirect stockholder being an insolvent bank the real estate holdings of which were carried in petitioner's name, and liquidation of petitioner's assets under supervision of the… Held: petitioner is exempt from tax to the same extent as the bank. Act of Congress of March 1, 1879, sec. 22 (20 Stat. 351); Revenue Act of 1938, sec. 818.

A husband transferred, without consideration, his residence to himself and wife as tenants by the entireties. Held: that the transfer was subject to gift tax, and that computation of the gift tax does not require deduction of depreciation upon the property to the problematical date of death of the husband, or the value of the donee's right to support from her husband, the donor.

1. For estate tax purposes, section 811(g), Internal Revenue Code, a policy taken out by the decedent upon her own life the proceeds of which are receivable by beneficiaries other than her estate is… Held: there was no transfer to take effect in possession or enjoyment at or after death and no part of the value of the annuity contract is within the gross estate.

1. A corporation in 1926 took a conveyance of real estate, subject to a mortgage, in consideration of execution of a lease to the grantor and… Held: taxes and interest for the years 1935 and 1936 are deductible from gross income and were not capital expenditures; held, further, that though the corporation was in business the leased property was not used in trade or business and depreciation thereon was not deductible under section 23(c)(1) of the Revenue Act of 1934. 2.

Petitioner made an irrevocable transfer of property to a trust with the provision that the net income was to be paid to his wife during her life, with remainders to his descendants surviving at… Held: except as to petitioner's wife, who received the present interest in the property, which entitles petitioner to a $5,000 exclusion under section 504(b) of the Revenue Act of 1932, the gifts were gifts of future interests with respect to which the statute allows no exclusions.

Petitioners' decedent purchased certain real estate in the District of Columbia on September 17, 1935, on which local taxes for the fiscal year commencing July 1, 1935, were unpaid. Held: that the taxes paid by the decedent in March 1936 were not a part of the cost of the property and are deductible in his income tax return for that year, which was made on a cash receipts and disbursements basis.

The trustee (who was also the trustor) of a trust, acting under a claimed power conferred in the trust instrument, transferred purportedly as a gift to his wife, the trust beneficiary, certain trust… Held: that the transfer in question did not constitute a gift of the securities to the wife and the loss resulting from the sale thereof was not her loss, and consequently is not deductible in the joint income tax return.

1. INCOME - RECOVERY OF AMOUNT DEDUCTED IN PRIOR YEAR. - A refund in 1935 of 1917 partnership excess profits taxes was taxable income of the partners for u935, where it appears that the amount of taxes refunded was deducted once in computing the taxable net income of the partners for 1917. The partners, in the computation of their taxable income for 1917, were not entitled to benefit twice from the partnership tax due for 1917. 2.

Petitioner sold ore to two smelters in 1933 and 1934, when in its developmental stage. Held: the payments were not accruable on petitioner's books prior to May 20, 1935, since its right to receive the payments had not been determined; (2) the payments could not be credited to developmental expense in 1935, under articles 235(a) and 23(m)-15 of Regulations 77 and 86, since they were accruable only after petitioner had entered…

Petitioner and two associates owned undivided one-third interests in certain oil leases which were developed and operated as a joint venture, and financed from borrowed money obtained on the joint… Held: that the entire profit computed as the difference between the amount received and the cost of drilling is taxable income to petitioner.

Petitioner was the owner of real estate, but he was not personally liable for the mortgage thereon. Held: the assumption of the taxes due January 1, 1935, constituted consideration, the transaction was a sale or exchange of the property, and the loss was a capital loss under section 117(d) of the Revenue Act of 1934.

Decedent and his wife orally agreed that all property owned or to be acquired by either should be community property. Held: the income from that property may be reported one-half by each spouse in the taxable years.

1. A gift in trust to an unborn child is a valid gift of a present as distinguished from a future interest in respect of which the donor is entitled to the statutory exclusion of $5,000. 2. Held: that in respect of the gifts of her interest in the policies petitioner is entitled to three exclusions of $5,000 each. 3.

A corporation issued its shares for money and purchased securities for money without filing a list of securities which is required by the state of its creation where capital stock is issued for… Held: the acquisition of the securities was not in exchange for the corporation's shares and the corporation's basis for computing gain or loss on the sale of the securities is not the same as would be applicable to the transferor, but cost.

The value of a one-fourth interest in a building erected by petitioners' lessee and repossessed on his default in the payment of rentals during the taxable year held to be income in the year of repossession. Helvering v. Bruun,309 U.S. 461.

The discharge by a solvent taxpayer, owning other property, of a mortgage debt, for which he was personally liable, by the payment, several years later, of less than the amount borrowed, the value of the property having diminished to the amount paid in settlement, held to result in taxable gain.

Petitioner was the owner of certain shares of stock in several corporations, which it had been holding for investment purposes. Held: that, because of the limitations of section 24(a)(6), petitioner can not offset the gains from the sale of two of the blocks of stock by losses from the sale of the other two blocks. Each block of stock must be treated separately and the losses in question can not be deducted because of the provisions of that section.

Petitioner in 1935 and 1936 gave certain property to a trust which she had created in the former year. The beneficiaries of the trust were petitioner and her four living children. Held: gifts were not complete and not subject to Federal gift taxes in 1935 and 1936. Estate of Sanford v. Commissioner,308 U.S. 39.

ESTATE TAX - GROSS ESTATE - INSURANCE POLICIES - SECTION 302(g), REVENUE ACT OF 1926. - The proceeds of an endowment policy of insurance taken out by the decedent prior to the estate tax act, which were payable to him in case he lived to the maturity date of the policy, but were payable to his wife if he died before that date survived by her, are not to be included in his gross estate under section 302(g) of the Revenue Act of 1926, where he retained none of the incidents of…

1. Petitioner, a foreign corporation, did not file income tax returns for any of the taxable years 1929 to 1932, both inclusive, until (a) after the Commissioner had determined deficiencies and… Held: the returns so filed did not comply with the requirements of section 233, Revenue Acts of 1928 and 1932, so as to entitle petitioner to the benefit of deductions and credits. Taylor Securities, Inc.,40 B.T.A. 696. 2.

Petitioner and his wife, living apart, entered into an agreement whereby he assigned to her 25 percent of his earnings, payable monthly for her life unless she remarried. Held: that the separation agreement destroyed the community property interests of petitioner and his wife and petitioner's entire earnings are taxable to him in the taxable years.

Oral transfer of interest in sweepstake lottery ticket without consideration or delivery, held ineffective to establish ownership of any part of ticket in others so as to free petitioner from tax on its proceeds, notwithstanding that payment, at petitioner's request, was made to the alleged transferees.

1. Where two individuals transferred oil leases to a wholly owned corporation in 1931, at which time it was orally agreed between the… Held: the individuals were not in receipt of any income, constructively or otherwise, during the years 1934 and 1935 by virtue of the 1931 reservations; held, further, the corporation correctly included in its income the income from the oil produced during 1934 and 1935 which would have gone to the individuals were it not for the existence…

1. Petitioner issued four notes for $500,000 each as part of the consideration for the conveyance to it of certain oil lands, and the notes were subordinate in… Held: that petitioner may deduct interest accrued on such subordinate notes during each of the taxable years. 2. Petitioner is not entitled to depreciate the cost of drilling water wells which were used to stimulate the production of its oil wells. United States v. Dakota-Montana Oil Co.,288 U.S. 459, applied. 3.

1. AFFILIATION. - Upon the evidence it is held that the T. T. Word Supply Co. was not the owner of the stock of the Lucey Manufacturing Corporation of Texas, and, therefore, was not entitled to make a consolidated return with that corporation and the Word Specialty Manufacturing Corporation for the year 1931. 2.

Held, an amended petition raising a new issue, filed more than three years after the payment of the tax, does not relate back to the time of filing of the original petition for… Held: an amended petition raising a new issue, filed more than three years after the payment of the tax, does not relate back to the time of filing of the original petition for the purpose of applying section 322(d) of the Revenue Act of 1934, as amended by section 809(a) of the Revenue Act of 1938.

Interest credited unconditionally to petitioner's account during 1924 and 1925 held to have been constructively received by him during those years.

INCOME - TRUSTS. - Petitioner created an irrevocable trust providing that the income be paid to his wife during her lifetime and that upon her death the principal be paid to the grantor, if living,… Held: that during the taxable year 1934 the petitioner continued to be owner of the trust corpus for the purposes of section 22(a) of the Revenue Act of 1934 and that the income therefrom is taxable to him. Helvering v. Clifford,309 U.S. 331, followed.

Under the terms of an employment contract wherein a corporation agreed to pay petitioner $45,000 per annum, he was granted, as further consideration for entering into the… Held: the options were not granted as additional compensation for services rendered and to be rendered by petitioner, and he did not realize taxable income to the extent of the difference between the option prices and the fair market value of the stock in the year the purchases of stock were made.

In 1934 petitioner negotiated a long term bank loan for $50,000 in order to secure additional working capital. Held: that petitioner is entitled to the credit provided by section 26(c)(1) of the Revenue Act of 1936 because the 1936 transactions did not remove the restrictions on payment of dividends contained in the 1934 contract.

Petitioner created a trust in favor of his wife for his life, and two short term trusts naming his sister-in-law and uncle as respective beneficiaries. Held: petitioner is not taxable on the income from these trusts under section 166 of the Revenue Act of 1934, Meredith Wood,37 B.T.A. 1065; affd., 309 U.S. 344; held, further, that the trusts were substantial and not within the scope of Helvering v. Clifford,309 U.S. 331.

1. Petitioner and other relatives of his children contributed money and securities to custodian accounts for the children. Held: the contributions were present gifts and not by way of trust. 2. Petitioner and his mother contributed separate amounts to a revocable trust for the benefit of one of petitioner's children. Held, petitioner is taxable upon the income from the amount contributed by him.

Petitioner incurred, during the taxable year, legal and other expenses of $28,427.69 in connection with his suit to annul a settlement agreement previously made by him, for the purpose of relieving… Held: that the $28,427.69 may not be deducted as an ordinary and necessary business expense.

1. In the taxable year petitioner purchased certain collaterally secured notes at a substantial discount. Held: that petitioner's profit should be determined by considering the entire transaction, and not by the situation that existed at the end of each intermediate step. 2.

1. Petitioners, owners of an undivided interest in a group of oil and gas leases, assigned their interest for a cash payment and an agreed amount to be… Held: the transaction was not a sale within the provisions of section 102, Revenue Act of 1932, which entitled petitioners to the limitation provisions of said section, but was in the nature of a leasing transaction, and petitioners are entitled to depletion deductions on all payments received as a result of the transfer. 2.

In July 1933 the petitioner, a British subject married to an English actress, accompanied by his wife went to Los Angeles, California,… Held: that the petitioner was not domiciled in California in 1933 and that he is taxable upon his entire net income for that year; held, further, that the delinquency in filing an income tax return for 1933 was due to a reasonable cause and not to willful neglect and that the 25 percent penalty for delinquency in filing the return was not…

Petitioners made an overpayment of $2,011.91 in income tax for the year 1932 within two years before filing a claim for refund, which… Held: that the claim for refund could not be amended more than two years after the overpayment was made to state the grounds from which the overpayment resulted, and that the overpayment of $2,011.91 was not made within two years before the filing of a valid claim for refund under section 322(d) of the Revenue Act of 1932 as amended by…

- Shares of stock have the same basis for gain or loss in the bands of a donee as they had in the hands of the donor at the time of the transfer, and that basis is not increased by a later transfer to the paid-in surplus of the corporation by the original donor, who had retained for himself the remaining shares of the corporation.

- Purchases and sales of refined cottonseed oil futures by a manufacturer of crude cottonseed oil made entirely as a hedge or protection against the forced sale of perishable crude cottonseed oil at… Held: to relate directly to its business of the manufacture and sale of crude cottonseed oil, and losses sustained in such transactions were not capital losses subject to the deduction limitation of section 117 of the Revenue Act of 1934.

1. Prior to and at the time of his marriage in 1930 petitioner owned a patent for the manufacture of near-beer. After his marriage he developed a process for the manufacture of beer. In 1934 petitioner licensed a brewery to use the patent and the new process for a specified royalty. Held, that petitioner has not proved that the patent was community property, and all of the income received therefrom during the taxable years is taxable to petitioner as income from separate property. 2. The licensing agreement obligated petitioner, without conflicting with his other activities, to supervise the manufacturing operations of the brewery, which included the production of yeast, but did not specify any compensation therefor or the amount of royalty payable for the use of each class of property - patent and the new process. Of the income received under the contract as royalties, amounts, based upon the evidence, are allocated to compensation for services rendered and income from the patent. 3. Held, that the Board has no jurisdiction to order an adjustment under the provisions of section 820 of the Revenue Act of 1938.

The income of trusts created by petitioner in 1932 in favor of his wife and children and terminable five years after their inception by petitioner as grantor, but meanwhile irrevocable, is not taxable to petitioner under section 166 of the Revenue Act of 1934. Corning v. Commissioner, 104 Fed.(2d) 329, and John Edward Rovensky,37 B.T.A. 702, followed.

On July 1, 1929, petitioner created a separate trust for the benefit of each of her four children, naming her husband as trustee of each… Held: no part of the ordinary net income received by the trusts during the taxable years 1934 and 1935 is taxable to petitioner; and (2) the capital net gains derived by the trusts in the taxable years, which were accumulated as part of the corpus and paid over to petitioner upon revocation of the trusts in 1936, are taxable to petitioner…

Petitioner and a number of other corporations, banks, and individuals engaged in business in St. Louis, in December of 1931, signed an instrument of guaranty and deposited with one of the banks an… Held: that the expenditure was made by petitioner for the protection of its business and is deductible as an ordinary and necessary business expense under the provisions of section 23(a) of the Revenue Act of 1936.

Where certain negotiations were in progress for the sale of eight oil leases owned in part by petitioner, and before any agreement of sale was entered into, petitioner, upon authority derived from duly adopted resolutions of its stockholders and directors, unconditionally distributed its interest in the leases in kind to its stockholders, who later in their own right and in pursuance of their own contract of sale sold their respective interests in the leases to the party with whom petitioner's vice president had carried on the negotiations, held, the sale of the leases was a sale by petitioner's stockholders for their own account, and the profits resulting therefrom were not taxable to petitioner as its income.

Three corporations, operating adjacent plants, leased a power plant and purchased the equipment therein from one of the corporations, and thereafter, through representatives, one appointed by each,… Held: that petitioner is not an association taxable as a corporation.

Three corporations authorized, by permission granted annually, to act as self-insurers under the Workmen's Compensation Law of Pennsylvania, designated a joint agency operated by them under the name… Held: that petitioner was not an association taxable as a corporation.

ESTATE TAX - GROSS ESTATE. - Held that the decedent reserved a power to amend a trust which he had created and, therefore, the corpus of the trust was properly included in his gross estate under section 302(d) of the Revenue Act of 1926, and, further, that this is so even though the power to amend was allowed to continue in the surviving trustees.

Petitioner was organized in 1922 by three members of a partnership, to whom petitioner's stock was issued in exchange for assets transferred to it by the partnership and the three… Held: petitioner was availed of in the taxable year ended November 30, 1930, for the purpose of preventing the imposition of the surtax upon its sole shareholder through accumulation of its gains and profits, and is subject to the penalty tax imposed by section 104 of the Revenue Act of 1928.

The settlor of a trust, established pursuant to an agreement made with his wife in contemplation of divorce, held, not taxable on the trust income distributed to his divorced wife for… Held: not taxable on the trust income distributed to his divorced wife for her maintenance and support where the divorce decree releasing him from all obligation to support was not subject to later modification and the settlor made no guarantees of income or principal in the trust instrument.

Where executor elects optional valuation date (sec. 202(a), Revenue Act of 1935), income of estate prior to such valuation date must be included in gross estate.

During 1935, 1937, and 1938, the petitioner made payments to its former assistant secretary-treasurer, who had suffered a nervous breakdown in 1934 and was receiving mental treatment in a veterans'… Held: that the payments so made are not deductible from petitioner's gross income as ordinary and necessary expenses.

1. An executor in the District of Columbia is not entitled to fees or commissions until completion of the administration of the estate and the allowance of such fees or commissions by the Probate… Held: that such fees or commissions are not includable in the gross income of the decedent, who died during the administration of the estate of which he was acting as executor, as income accrued at the time of his death. 2.

1. The decedent at the time of his death was acting as coexecutor of two estates in process of administration, for which services he was entitled to executors' fees in amounts not at that time… Held: that the decedent's right to receive such executors' fees was property which is includable in his gross estate at its fair market value at the time of his death. 2.

1. Petitioner was engaged in the business of purchasing and selling stocks, bonds, and commodities for profit. Held: selling commissions paid to brokers were properly deducted as business expense. Neuberger v. Commissioner, 104 Fed.(2d) 649. 2. Prior to determination of deficiency, petitioner filed a claim for refund of taxes paid, on the ground that he had not taken deduction for stamp taxes paid.

Sale, for less than its face amount, of a participation certificate which represented a portion of petitioner's unpaid deposit in a closed bank, and which petitioner had received in a previous year… Held: to justify a capital loss deduction in the year of sale, notwithstanding that both the face amount of the certificate and the price received upon the sale exceeded its value upon receipt.

Petitioners, during the taxable year, transferred to their creditor mortgage certificates issued by the creditor for which they received credit on their indebtedness equal to the face value of the… Held: petitioners realized no income even though the certificates cost them less than their face value. The transaction was, in effect, an exchange in which petitioners received property, the value of which was not in excess of the cost of the certificates.

Petitioner was one of the beneficiaries of a testamentary trust for $300,000, which her deceased husband's will directed should be set up. Held: the $21,041.41 was paid in lieu of income from the testamentary trust and under the doctrine of Irwin v. Gavit,268 U.S. 161, it is taxable income to petitioner. Chase National Bank of the City of New York et al., Executors,40 B.T.A. 44, distinguished.

1. Where nonbusiness property is acquired by gift, held basis for depreciation is value at date of conversion to business use by donee. 2. Surrender for cash to issuing company of insurance policy acquired by gift, held to require computation of gain as ordinary income. George A. Hellman,33 B.T.A. 901, followed. 3. Various other questions determined relating to losses and bad debts claimed by petitioners.

A husband created an irrevocable trust for his wife's benefit without color of alimony, and, after beginning a divorce action against her two years later in Illinois, transferred additional securities to the trust in consideration of her release of all claims growing out of the marital relation. A divorce decree was granted, denying the wife alimony.

Where a corporation is party to a contract with creditor banks forbidding, without written permission of the banks, the declaration of dividends, such corporation being in dire financial straits,… Held: it is not necessary, as a prerequisite to taking credit under section 26(c)(1) of the Revenue Act of 1936, that the corporation request and obtain written refusal of permission to pay dividends.

GIFT TAX - A transfer in trust for the purpose of accumulating income until the death of the settlor, at which time the corpus and accumulated income is to be distributed to named beneficiaries and… Held: a transfer of present, as distinguished from future interests, and an exclusion of $5,000 from the interest of each named beneficiary should be allowed under section 504(b) of the Revenue Act of 1932.

Installment obligation passing at death of petitioners' decedent to a charitable institution, held subject to inclusion in decedent's income for last year of his life as to installments not yet returned by him as income (Revenue Act of 1934, section 44(b)) no bond having been filed assuring return of such installments as income by transferee. Id., section 44(d).

JURISDICTION. - The Commissioner determined deficiencies against a corporation, all of the property of which several years prior thereto had been transferred to an assignee in trust for the payment of the corporation's debts and the distribution of the remainder, if any, to the corporation's stockholders. The corporation is still in existence. The Commissioner mailed the deficiency notice to the corporation in care of the assignee and the assignee received it and has filed a petition with the Board alleging sufficient jurisdictional facts and contesting the deficiency. Held, the assignee of the corporation comes within the provisions of section 52 of the Revenue Acts of 1934 and 1936 and the Board has jurisdiction.

Where a corporation was the owner and operator of a certain oil and gas lease on which there were three producing wells and its two sole stockholders, who were also directors of the corporation and… Held: the contract of sale signed by the two stockholders in their individual names was for and on behalf of the corporation and the sale of the lease when consummated was the sale of the corporation and it is taxable on the profits derived therefrom.

Petitioner paid in 1933 an amount of $24,506.46 on certain indebtedness of his son which he had guaranteed when the latter was solvent in order to prevent the sale of stock held by the creditor as… Held: petitioner is entitled to a deduction in 1933 for the amounts so paid as a debt ascertained to be worthless and charged off in that year.

- A transfer in trust with a possibility of reverter in the grantor is not a completed gift of the entire fund transferred.

Where income of a trust created by petitioner was to be paid to his wife, the trustee in addition being permitted to invade corpus to properly care for and support her, held the latter limitation so restricts the use of the income to her care and support that petitioner is taxable thereon, under Douglas v. Willcuts,296 U.S. 1. J. Edward Johnston,41 B.T.A. 550, followed.

Contract requiring application of a portion of petitioner's earnings and profits for the taxable year against indebtedness incurred prior to 1936. held, to require irrevocable setting aside of such… Held: to require irrevocable setting aside of such portion and to entitle petitioner to a credit for purposes of the undistributed profits tax to the extent that such payment was actually made in the taxable year. Revenue Act of 1936, sec. 26(c)(2).

A testator bequeathed his property to his wife for life, with remainder to their daughter absolutely in fee. Held: the daughter took the securities under the will of her father, and their value at the time of the widow's death is not includable in her gross estate under the provisions of section 302 of the Revenue Act of 1926 as amended by section 803 of the Revenue Act of 1932.

Where a taxpayer enters into a contract of employment providing, together with other compensation, a bonus, measured in money, computed upon net earnings of the employer, and an inseparable provision… Held: the taxpayer realizes taxable income in the amount of the fair market value of such stock when he receives it.

The petitioner in 1933 came into possession of cash and securities pursuant to a decree of the Court of Appeals of Ohio in an action brought by him against a trust company to compel it to deliver to… Held: that no capital gain was derived or income received by petitioner in 1933, since the income arising from the agreement and stock was taxable to him in the years during which it was received by the trust company on his behalf.

Proceeds of certain life insurance policies taken out by the decedent, a resident of Tennessee, on his own life and made payable to the executor of his estate, were receivable by the executor within the meaning of the first clause of section 302(g) of the Revenue Act of 1926, as amended, and the entire amount thereof is includable in his gross estate.

Petitioner is not liable under section 311(a)(2) of the Revenue Act of 1928 and section 3467 of the Revised Statutes for payment of debts of a decedent in disregard of the Government's priority in respect of claims for income taxes against the decedent, where the obligations so discharged constituted valid prior liens.