Volume 41 — Tax Court Reports

In 1957, petitioner Clarence A. Luckey became a member of a syndicate or venture, having 10 shares or interests and composed of seven members, for the purchase and… Held: that the syndicate or venture was a joint venture, and thus a partnership within the meaning of section 761 of the Internal Revenue Code of 1954. Held, further, that the gain to petitioner on the sale of the unit 1 lots in 1958 and 1959 was gain from the sale of property other than a capital asset.

Partnership loss claimed by petitioner held, on the facts, not to have been incurred in a business or transaction entered into for profit and hence not deductible under section 165, I.R.C. 1954.

1. Gains on the sale of real estate by a corporation engaged exclusively in purchasing, renting, and selling real estate with its income about equally divided between rentals and gains on sales,… Held: ordinary income rather than long-term capital gains. 2. Respondent held not estopped from treating as ordinary income installment payments received in taxable years on sales made in prior years and treated as sales of capital assets in prior returns.

One of petitioners pursuant to an agreement incorporated into a divorce decree from his former wife paid $ 1,455 in 1957 and $ 1,430 in 1958 for support of each… Held: petitioner has failed to prove error in respondent's disallowance of the dependency exemption for one of his sons in each of the years 1957 and 1958. 2. Held, further, petitioner is entitled to deduct moving expenses in excess of amount for which reimbursement was received but not included in reported income.

Partnership, engaged in the real estate subdivision business, had surplus funds as a result of adverse zoning in respect of part of its property, and determined to use such funds in securities speculation. It bought and sold securities and made short sales of securities, for its own account, through a licensed broker. Held, the net loss of $ 114,115.59 which it sustained from all such trading in the year ending March 31, 1959, was a capital loss and not an ordinary loss.

Where the constant experience of an accrual basis taxpayer, extending over 16 years, was that no claim against or payment out of a designated liability account had been made, held, that the yearly… Held: that the yearly transfers to such account are determinative of income accrual rather than the subsequent transfer of the entire account to surplus.

Held, on consideration of the documents themselves and the total factual complex surrounding the transactions, that the series of five… Held: on consideration of the documents themselves and the total factual complex surrounding the transactions, that the series of five documents executed by Julian and Mildred in 1943 and 1944, did not constitute a sale or exchange to their controlled corporation of all substantial rights to the patents or inventions which Julian owned at…

Held, distributions in redemption of portions of the principal petitioner's preferred stock in the H. A. Leed Co. were essentially equivalent to dividends; and accordingly they are taxable as… Held: distributions in redemption of portions of the principal petitioner's preferred stock in the H. A. Leed Co. were essentially equivalent to dividends; and accordingly they are taxable as ordinary income from dividends to the extent of the corporation's earnings and profits.

Petitioner sold accounting systems to small businesses throughout the country and also agreed to prepare the income tax returns of the subscribers for 2 years on request, all for a single package… Held: respondent did not err in disallowing the deductions.

Petitioners are entitled to deduct amounts expended for construction of an earthen dam and filling in eroded gullies on their farm under the provisions and limitations of section 175, I.R.C. 1954.

Corporate petitioner, engaged in the promotion and operation of trade expositions, made an incidental short sale of 2,500 shares of stock in a corporation which had already adopted a plan of… Held: corporate petitioner was not a dealer or trader in securities and therefore its payment of $ 50,000 on account of the liquidating dividend on the short sale transaction was not an ordinary and necessary business expense under section 162 of the 1954 Internal Revenue Code.

Petitioners received a bonus of $ 69,604.16 on January 5, 1959, for the execution of an oil and gas lease to Sinclair. A well was drilled and subsequently plugged and abandoned as a dry hole in 1959. Held: that petitioners are not entitled to depletion of $ 19,120.07 on the bonus where it was established within the taxable year that no production would occur under the lease. Dolores Crabb, 41 B.T.A. 686 (1940), distinguished.

Held, statutory notice of deficiency in D's 1945 income tax for addition to tax under section 294(d)(1)(B), I.R.C. 1939, otherwise barred by limitations, was timely since D's return… Held: statutory notice of deficiency in D's 1945 income tax for addition to tax under section 294(d)(1)(B), I.R.C. 1939, otherwise barred by limitations, was timely since D's return had falsely claimed a prepayment credit of estimated tax and was false and fraudulent with intent to evade tax.

Sec. 722, I.R.C. 1939. -- Where the taxpayer enjoyed a period of abnormally high earnings and then suffered a depressed level of earnings which began at a time several years prior to and thus… Held: that the business of the taxpayer was not depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer, within the meaning of subsection (b)(2). Petitioner's claims for relief, denied.

On or about December 20, 1956, Federman, an employee of the firm which the petitioner principally used as his stockbroker, and who handled the petitioner's transactions with the firm, advised… Held: borrowed, or delivered any shares of such stocks with respect to their dealings with the petitioner.

Held, petitioner, a cash basis taxpayer, received a taxable dividend in 1958 when he constructively received three life insurance policies which were owned by his controlled corporation. Held: petitioner, a cash basis taxpayer, received a taxable dividend in 1958 when he constructively received three life insurance policies which were owned by his controlled corporation.

Petitioner borrowed from a bank $ 159,000 and purchased stocks and debentures, the dividends and interest on which were subject to income tax. Held: petitioner continued her $ 159,000 indebtedness to purchase and carry obligations the interest on which is not subject to income tax and therefore is not entitled to deduct the interest paid on the $ 159,000 loan in either of the years 1958 or 1959.

Held, turnpike tolls not deductible as taxes under section 164(a), I.R.C. 1954. Held: turnpike tolls not deductible as taxes under section 164(a), I.R.C. 1954.

Acting pursuant to a prearranged integrated plan, a corporation which owned both domestic and foreign rights in certain patents,… Held: that the Bermuda trusts were employed merely as conduits for passing the foreign patent rights from the corporation to the newly organized partnership; that all income derived from the use of the rights was earned by the partnership; and that the portions of such income which the partnership paid over to the trusts do not qualify for…

The petitioner, a teacher in the public school system of New York City, was hospitalized on April 14, 1959, and remained incapacitated… Held: that the salary received by her for her normal summer vacation period and for the Christmas vacation period does not constitute wages or payments in lieu of wages for a period during which she was absent from work on account of personal injuries or sickness within the meaning of section 105(d), I.R.C. 1954, and that therefore no…

Decedent conducted a mercantile business involving the use of inventories and filed his returns (including his last return for the taxable period January 1, 1956, to June 26, 1956) on a cash basis of… Held: the amount of $ 336,331.33 was properly included in the estate's income under section 691(a), I.R.C. 1954, as income in respect of a decedent.

Petitioner, an automobile dealer, sold automobiles on installment sales contracts. Held: Petitioner is not entitled to deduct additions to its reserve for bad debts based on a percentage of the balance in the dealer reserve accounts. Wilkins Pontiac, 34 T.C. 1065 (1960), and Foster Frosty Foods, Inc., 39 T.C. 772 (1963), followed.

Petitioner, a sales corporation, incurred substantial operating losses in the first year and a half of its operations and in December 1955 ceased operations. Held: petitioner's acquisition was for the principal purpose of avoidance of income tax within the meaning of section 269, I.R.C. 1954, and the net operating losses carried forward from prior years were properly denied as deductions.

Petitioner owned 145 shares of the common stock of a corporation, such shares having a basis in her hands, as well as a fair market value, of $ 206,625. Held: The provisions of section 302(c)(2)(A)(iii), requiring the filing of an agreement to notify the Commissioner of reacquisitions of stock within a 10-year period of a section 302(b)(3) redemption in the manner prescribed by regulation, are directory rather than mandatory.

Held, petitioner is not exempt from the provisions of the Renegotiation Act of 1951 merely because it is a Puerto Rican corporation and maintained its principal office and place of business in Puerto… Held: petitioner is not exempt from the provisions of the Renegotiation Act of 1951 merely because it is a Puerto Rican corporation and maintained its principal office and place of business in Puerto Rico.

Held, the petitioner is entitled to an estate tax marital deduction with respect to certain property received by the spouse of the deceased under a joint and reciprocal will. Held: the petitioner is entitled to an estate tax marital deduction with respect to certain property received by the spouse of the deceased under a joint and reciprocal will.

In the latter part of 1950, Howard H. Perelman and others formed a partnership to sell improved real estate. In 1951 and 1952, certain parcels of real estate were sold. Held: Whether petitioners' method of accounting was changed or whether there was merely a correction of an error, respondent's determinations were erroneous.

E. F. G. Corporation, a cash basis taxpayer, did not file a personal holding company return for 1948. Held: there was no payment of interest in 1955 on indebtedness within section 163(a), 1954 Code, with respect to the disputed and proposed deficiencies in 1948 taxes, and a deduction for interest paid is not allowable under section 163(a).

1. Held, under the provisions of section 127, I.R.C. 1939, the petitioner sustained in 1941 a war loss on German External Loan 1924 7 percent Bonds, due October… Held: under the provisions of section 127, I.R.C. 1939, the petitioner sustained in 1941 a war loss on German External Loan 1924 7 percent Bonds, due October 15, 1949, sometimes referred to as old bonds, and on the facts the recovery date of the bonds was on or about May 13, 1958, or a prior date in that year. 2.

Petitioner's house and personal property were damaged by fire on December 3, 1958. Held: petitioners failed to prove that they sustained a loss not compensated for by insurance or otherwise in 1959. Sec. 1.165-1(d)(2), Income Tax Regs., applied.

In 1959, petitioner was regularly employed at Sycamore facility, a division of General Dynamics Corporation, located about 9 miles from the General Dynamics plant in San Diego City. Held: Petitioner was transferred to Sycamore in 1956; it became his regular and only place of employment; he was not temporarily assigned to work there.

Petitioner, a company involved in the mining and sale of molybdenum, engaged in a program of exploration and development. Held: a portion of the petitioner's 1942 income arising from the sale of molybdenum constitutes net abnormal income resulting from such exploration and development within the meaning of sections 721(a)(2)(C) and 721(a)(3), I.R.C. 1939, and is allocable to those years prior to 1942, during which the exploration and development work was…

In order to forestall a jeopardy assessment by the respondent, petitioners on or about August 31, 1954, deposited $ 1 million with the respondent. Held: the petitioners' remittance of $ 1 million at a time when no assessment or agreement existed with respect to their tax liabilities constituted a deposit rather than a payment of tax. Held, further, section 6401(c), I.R.C. 1954, has no application when a remittance is voluntary and prior to a determination of tax liability.

Cost of construction of fallout shelter held, on the facts, not deductible as a medical expense. Held: on the facts, not deductible as a medical expense.

Petitioners, during the years in issue, together owned 50 percent of the stock of the Russell-Lacey Manufacturing Co., Inc. Edward D. Lacey, as a step toward having the corporation obtain key man or… Held: Under applicable State law the beneficial ownership of the policies was vested in the corporation, not in the petitioner, and the amounts paid as premiums by the corporation did not constitute income to the petitioner.

During the years 1959 and 1960, the petitioner husband embezzled funds of the United States while employed as an assistant postmaster. Held: that the funds embezzled by petitioner in 1959 and 1960 constitute taxable income to him within the meaning of section 61(a) of the 1954 Code. Principles of Rutkin v. United States, 343 U.S. 130, and James v. United States, supra, applied.

Held, that the value of the interest of the surviving spouse in property passing to her from the decedent must be reduced, in computing the amount of the marital deduction under section 2056 of the Internal Revenue Code of 1954, by the amount of Federal estate tax and Massachusetts inheritance tax attributable thereto, since, as of the date of the death of the decedent, such interest was, under the laws of Massachusetts, burdened with such taxes.

Held, salary received by taxpayer from his employer during his absence from work because of illness is not excludable from his gross income as sick pay under section 105(d),… Held: salary received by taxpayer from his employer during his absence from work because of illness is not excludable from his gross income as sick pay under section 105(d), I.R.C. 1954. Payments were not received through accident or health insurance nor under a wage continuation plan of the employer.

Where petitioner accumulated earnings substantially in excess of its working capital requirements; where it was not necessary for petitioner to retain its earnings to meet any contingent liability it… Held: that under section 102, I.R.C. 1939, petitioner was availed of during the taxable years involved for the purpose of preventing imposition of surtax upon its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed.

Petitioner, who owned all or nearly all of the stock in a corporation, was the settlor of a trust of shares of said stock which obligated the trustee to pay his wife's estate $ 50,000, and if… Held: the $ 51,102.70 was not essentially equivalent to a dividend distribution to petitioner within section 302(b)(1), I.R.C. 1954.

A corporation which had sustained approximately $ 1 million of losses in a hardware business entered into an agreement with two partners engaged in numerous real estate development activities as… Held: The principal purpose of the real estate partners in entering into the agreement of October 18, 1954, was to obtain the benefit of the loss carryover of the hardware business against the anticipated profits of the real estate subdivision business.

Held, alleged short sale of $ 2 million United States notes was a sham, and interest in respect of such notes purportedly paid by the alleged seller during the period of the short sale… Held: alleged short sale of $ 2 million United States notes was a sham, and interest in respect of such notes purportedly paid by the alleged seller during the period of the short sale was not deductible as an expense paid for the production or collection of income. Sec. 212(1), I.R.C. 1954.

In 1957 one of petitioners caused an endowment insurance policy which he had purchased in October 1938 and which was to mature in October 1958 to be divided into five policies. Held: petitioner received income in 1958 upon the maturity of the policies he transferred to charities in that year since he received the economic benefit of the income from the policies on their maturity date by using such income for charitable contributions. Helvering v. Horst, 311 U.S. 112 (1940).

Petitioner's predecessor, a bank, had its main banking and administration offices in a bank building owned by it. Held: that the $ 267,553.59 is not deductible as an abandonment loss.

1. Held, rebates paid by petitioner to certain employees of its customers are not deductible under section 162, I.R.C. 1954. 2. Held: rebates paid by petitioner to certain employees of its customers are not deductible under section 162, I.R.C. 1954. 2. Held, further, the amounts of these rebates are includable in gross income under section 61(a), I.R.C. 1954. 3.

Held, respondent's determination that certain automobile expenses claimed by petitioner as business expenses incurred in earning his compensation as a minister are not deductible is sustained. Held: respondent's determination that certain automobile expenses claimed by petitioner as business expenses incurred in earning his compensation as a minister are not deductible is sustained.

Petitioner's self-propelled ship, Belvedere, was damaged and petitioner invested the insurance proceeds ($ 100,000) and proceeds from the sale of the damaged ship ($ 100,000 less commission) in a $… Held: the sale of the damaged ship (which was completely repairable) was not an involuntary conversion within the meaning of section 1033(a)(3)(A) and hence the gain on the sale of the ship in 1958 was taxable.

Under the will of her first husband May Hrobon was entitled to receive all the income of the Clay M. Thomas trust for life with the remainder going to the heirs of Clay M. Thomas… Held: In substance for tax purposes May transferred all her equitable interest in the corpus of the trust, the terminal interest she may have had in the estate, and 40 percent of the distributions of the trust to Emil and retained 60 percent of the net distributions of the trust for herself. 2.

1. Held, petitioner is not entitled to a deduction of $ 750,000 in 1952 for purposes of creating a reserve account in anticipation of a refund it… Held: petitioner is not entitled to a deduction of $ 750,000 in 1952 for purposes of creating a reserve account in anticipation of a refund it may have to make under a Government contract since the liability is (1) contingent and not accruable, and (2) subject to a statutory scheme of mitigation under section 3806, I.R.C. 1939. 2.

The allowable deduction for depreciation of a building owned by an estate is to be apportioned between the estate and the distributees of income of the estate for the years in question, pursuant to sec. 167(g), I.R.C. 1954, despite an allocation to corpus by the executor, pursuant to a provision of the testatrix's will, of additions made in the years in question to a reserve for depreciation of the building.

1. Held, petitioner J on May 21, 1957, sold his one-third interest in a partnership to his two partners, petitioners F and G, under section 741, I.R.C. 1954. Held: petitioner J on May 21, 1957, sold his one-third interest in a partnership to his two partners, petitioners F and G, under section 741, I.R.C. 1954. The transaction did not constitute a liquidation of J's interest under sections 736 and 761(d). 2.

Petitioners submitted an offer in compromise of their unpaid 1943 and 1944 deficiencies in tax, penalties, and interest. The terms of the offer were contained in two documents. Held: the excess payments of $ 16,329.67 were allocable to unpaid interest and were paid by petitioners during the years 1959 and 1960; they were deductible as interest to the extent claimed for those years.

Petitioners controlled corporations H, N, and G. Petitioners transferred to H all of their N and G stock and received in return $ 64,850 cash and H stock worth $ 48,640. Held: since section 351, I.R.C. 1954, applies, the language of sections 302(d) and 301(a) precludes dividend treatment despite the fact that section 304 also applies.

Petitioners reported gain from sales of real estate in 1959 upon the deferred-payment method -- a method inconsistent with the installment sales method. Held: they made an election not to use the installment sales method and were not thereafter entitled to have their tax computed upon the installment sales method when it later turned out that the deferred-payment method was unavailable to them. Sec. 453, I.R.C. 1954; sec. 1.453-8(b), Income Tax Regs.

In collateral proceedings in the United States District Court, brought by the United States of America against the taxpayers herein to protect the lien of its jeopardy assessment for deficiencies in taxes for the same taxable years here involved, the taxpayers submitted an offer in settlement of all their tax liabilities for those years. The offer was accepted by the Attorney General of the United States and, pursuant to stipulation of the parties, the District Court entered judgment in accordance therewith, the amount of which taxpayers have paid in full. Held, the settlement agreement is conclusive of the amount of the deficiencies owed by taxpayers for the years here involved and, taxpayers having paid that amount, respondent's motions to enter decisions of no deficiencies in these proceedings are granted.

Petitioner, contending to be in the trade or business of inventing, constructed an alleged experimental house at a cost of $ 287,474.11 for his family's personal use and occupancy. Held: Such expenditures were not connected with a trade or business and were not of a research and experimental nature within the intendment of the statute. 2. Other miscellaneous trade or business expense deductions denied for lack of substantiation.

Petition was received and filed in the Tax Court on the 94th day after the notice of deficiency was mailed. Held: Petitioners failed to prove that they obtained a sender's receipt properly postmarked on or before the 90th day; consequently, the actual filing date controls. The petition was not filed on time and the Tax Court has no jurisdiction. Motion to dismiss granted. Sec. 7502(c)(2), I.R.C. 1954; sec. 301.7502-1, Proced. and Admin. Regs.

In 1954 petitioner transferred a building to Sanfran Company in a three-way agreement among petitioner, Sanfran, and Stauffer Chemical. Held: the amounts disallowed should be treated as capital losses under the rationale of Arrowsmith v. Commissioner, 344 U.S. 6, and Estate of James M. Shannonhouse, 21 T.C. 422.

Held, petitioners are not entitled under section 107, I.R.C. 1954, to exclude from gross income on their Federal income tax returns for the taxable years 1958, 1959, and 1960, amounts expended in… Held: petitioners are not entitled under section 107, I.R.C. 1954, to exclude from gross income on their Federal income tax returns for the taxable years 1958, 1959, and 1960, amounts expended in those years for rent and utilities on their home.

Prior to 1942 petitioner and her husband were domiciled in California and held three pieces of real property as community property under the… Held: petitioner's basis of the properties for determining gain or loss and depreciation is cost as to the one-half undivided interest she held as a tenant in common at the date of her husband's death and the fair market value of the property at the date of the decedent's death as to the one-half undivided interest acquired from her…

Held, legal expenses incurred by petitioners in settling disputed Federal income tax liabilities for prior years are deductible under section 62, I.R.C. 1954, in computing adjusted gross income. Held: legal expenses incurred by petitioners in settling disputed Federal income tax liabilities for prior years are deductible under section 62, I.R.C. 1954, in computing adjusted gross income.

A parent corporation's intercompany profit, properly eliminated from a consolidated return in 1953, held not to constitute income to the parent in 1957, when the parent sold all the subsidiary's stock to an unrelated party.

Amounts paid by tax-exempt institute to scientists selected to engage in research at its laboratory held, on facts, to require substantial future services and accordingly not to be excludable from… Held: on facts, to require substantial future services and accordingly not to be excludable from gross income as prizes or awards under sec. 74, I.R.C. 1954.

1. Petitioner's predecessor sold a hydroelectric plant for a minimum sales price of $ 1,522,000, payable after a cash downpayment of $ 100,000, over a 12-year period at the rate of 3.75 mills per kilowatt hour of power generated by the plant, but subject to a yearly minimum of 31,600,000 kw.-hrs., or, stated in dollars, $ 118,500. The minimum purchase price was subjected to upward adjustments, depending upon the amount of electrical energy generated over the 12-year period. In specifying the minimum purchase price as $ 1,522,000, the contract stated "including both principal and interest on deferred payments." Held, from the circumstances underlying the sale, the $ 1,522,000 minimum purchase price constituted principal only. 2. Organization expenses of $ 8,625 were capitalized by petitioner's predecessor upon incorporation. Held, upon liquidation, petitioner's predecessor properly deducted these organization expenses on its final tax return. 3. Accounting expenses of $ 3,905.67 were incurred in the preparation of financial statements of petitioner's predecessor as of June 30, 1957. These statements were to be consolidated with financial statements of petitioner as of that date. Held, these accounting expenses were properly disallowed on the final tax return of petitioner's predecessor.

Held, that petitioner George E. Bailey, who was a licensed insurance agent in the State of Missouri and in the taxable year wrote an insurance… Held: that petitioner George E. Bailey, who was a licensed insurance agent in the State of Missouri and in the taxable year wrote an insurance policy on his own life with an insurance company of which he was an agent on which the gross premium was $ 514.80 and on which he was entitled to a 50-percent commission, is taxable on the…

The petitioner, in his capacity as an employee of the General Services Administration of the U.S. Government, was the chairman and executive director of a task force which obtained reductions in rates charged for certain communication services and thereby accomplished substantial savings to the Government. The members of this task force, including the petitioner, received cash awards for superior accomplishment under the Government Employees' Incentive Awards Act. Held, that the cash award received by the petitioner constituted additional compensation for services rendered, taxable to him under section 61(a)(1) of the Internal Revenue Code of 1954, and is not excludable from gross income under section 74(b) or any other section of the 1954 Code.

Payments were made by a partnership to a retiring partner in liquidation of her partnership interest, and an amount was paid for goodwill, even though the partnership agreement was silent regarding… Held: the payment for goodwill was within the purview of sec. 736(a)(2), I.R.C. 1954, and was deductible by the partnership.

Petitioners, former members of a city police department, were retired on account of physical disability prior to the taxable years and received payments, continuing through the taxable years, from a special fund administered by the department made up of fines imposed on policemen, rewards, contributions by the member employees, and appropriations by the city, from which fund payments were made without any allocation as to source to members who had retired voluntarily after reaching the age of 60 and after 30 years of service, to members involuntarily retired at age 70, to members retired on account of injuries received in the line of duty, and to members retired on account of physical disability. The proportion of the sources of the fund is not shown. During the taxable years the petitioners would have been retired voluntarily had they remained in the employ of the department since all had reached the age of 60 and would have had 30 years' service. Held, that, even assuming arguendo that payments to petitioners during taxable years were received under health or accident insurance, such payments were not excludable from gross income under section 105(d), I.R.C. 1954, but were includable in gross income under section 105(a), I.R.C. 1954.

Petitioner entered into several partnership or joint ventures for drilling and developing oil and gas wells. Held: petitioner may deduct as intangible drilling and development expenses the amounts he paid the promoter-operators.

1. Notice of deficiency mailed to Estate of Lawrence E. Berry covering taxable years prior to his death, alleged to be defective in that it was not issued to a person or entity, held, on these facts,… Held: on these facts, to be valid. 2. Community survivor in Texas acting under section 160, Tex. Prob. Code, held to occupy a fiduciary relationship to the estate of the deceased spouse and to be a proper party to file a petition in the Tax Court.

Held: Transactions between petitioner and certain individuals resulted in contributions to petitioner's capital, rather than a sale and loans, so… Held: Transactions between petitioner and certain individuals resulted in contributions to petitioner's capital, rather than a sale and loans, so that respondent properly disallowed interest deductions. Petitioner's basis in the contributed property is that of its transferor, section 113(a)(8)(B), I.R.C. 1939, not the sale price.

A church subsidiary managed several businesses as vehicles for the spreading of the church's religious doctrines. On the facts, held the church and its subsidiary were organized and operated exclusively for religious purposes. Sec. 501(c)(3), I.R.C. 1954. Held, further, a property-holding subsidiary is exempt under section 501(c)(2), I.R.C. 1954.

Held: 1. Charges made to the drawing account of petitioner M. O. Rife, Jr., in 1955, 1956, and 1957 on the books of a partnership of which he was a partner for amounts billed to him by the partnership for drilling done for him by the partnership did not constitute payment of the amounts by petitioner until the close of the partnership's fiscal years on March 31, 1956, 1957, and 1958. Since petitioner kept his books and reported his income on the cash basis, the amounts of such charges were deductible by him when paid by him at the close of the partnership's fiscal years and not prior thereto. 2. The deficiency determined by respondent for the year 1955 is not invalid because of a second examination of petitioners' books for that year, there being no showing that such second examination was without the knowledge and consent of petitioners.

WGB, a corporation which engaged in the manufacturing and distribution of beer, incurred large losses in 1952, 1953, and 1954. Held: that petitioner is not entitled to deduct claimed net operating loss carryovers for the taxable years 1957, 1958, and 1959 because petitioner has not continued to carry on a trade or business substantially the same as that conducted before the change in stock ownership.

In 1955, the five individual petitioners, engaged as partners in the business of processing and selling sausage products, decided to incorporate the business. It was determined that the four petitioner corporations would be organized, each to take over a portion of the partnership business. Articles of incorporation for the four corporations were filed on July 29, 1955, but it was not until 1956 that most of the steps were taken to transfer the business to the corporations. The stock of each of the four corporations was issued to the five individual petitioners in equal amounts. The business conducted by the four petitioner corporations in 1956 and thereafter was the same business as that previously conducted by the partnership. Held: 1. The income of the business was taxable to the individual petitioners as partners throughout 1955, the corporations not having taken over the business until 1956. 2. The principal purpose for the organization of the four corporations, rather than a single corporation, was to avoid income taxes by securing the benefit of additional surtax exemptions, and three of the surtax exemptions were properly disallowed by the respondent under section 269 of the Internal Revenue Code of 1954. 3. Determination made of amounts representing reasonable compensation paid to officers and employees of petitioner Made Rite Investment Co. during 1956 and 1957. 4. Respondent's determination of reasonable compensation paid to petitioner Dillier by petitioner Made Rite Transportation Co. during 1956 and 1957 was proper.

Petitioner acquired on November 30, 1956, the CBS network affiliation contracts of WISH-TV in Indianapolis and WANE-TV in Fort Wayne in… Held: That of the total basis for the assets acquired by petitioner, $ 4,625,000 represented the cost of the two network affiliation contracts, of which $ 4 million was properly allocated to the WISH-TV CBS contract and $ 625,000 to the WANE-TV CBS contract. 2. That the two network affiliation contracts do not constitute goodwill. 3.

Under a divorce decree granted in 1954 petitioner's ex-husband was obligated to pay petitioner $ 300 per month as alimony. Held: the two $ 4,000 payments received by petitioner in 1958 were in settlement of arrearages of alimony due under the original divorce decree and do not qualify as installment payments of a principal sum due under a divorce decree or agreement incident thereto; hence they are includable in petitioner's taxable income for 1958 under sec.…

Held, that the operations of a long-established and successful downtown store and those of a separately and newly incorporated suburban… Held: that the operations of a long-established and successful downtown store and those of a separately and newly incorporated suburban store were all part of a single integrated business enterprise under common ownership and control; and that the Commissioner did not err in determining that, under section 482 of the 1954 Code, all taxable…

Petitioner, which owned a number of farms leased to tenant farmers pursuant to crop share agreements, distributed during 1958 through 1961 a portion of the crop share rents received by it to its… Held: the crops, in substance, were sold by petitioner and the net proceeds are to be imputed to it.

Petitioners concede they are liable as transferees of the assets of West Coast Trailer Sales, a dissolved corporation, but contend they are entitled under the Dealer Reserve Income Adjustment Act of… Held: petitioners are not so entitled.

T paid $ 14,128.10 to CFC purportedly as interest with respect to an alleged loan of $ 141,812.84. Held: no such loan was in fact made to T and the payment was not deductible as interest paid * * * on indebtedness. Sec. 163(a), I.R.C. 1954.

Held, where psychoanalysis is obtained for the purpose of diagnosis, cure, mitigation, treatment, or prevention of disease, or for the… Held: where psychoanalysis is obtained for the purpose of diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any function of the body, the amount spent therefor is for medical care even though a further and additional benefit is obtained thereby such as qualification for admission to a school…

Held, that petitioner did not furnish over half of the total support for her mother in 1959. Held: that petitioner did not furnish over half of the total support for her mother in 1959.

1. Basis for Gain or Loss -- Acquisition by Reorganization or Purchase. -- Held, petitioner South Bay's acquisitions of the properties… Held: petitioner South Bay's acquisitions of the properties of two corporations in 1925 were in connection with separate reorganizations under section 203(h) of the Revenue Act of 1924, and pursuant to section 113(a)(7), I.R.C. 1939, petitioner's basis is the same as it would be in the hands of each respective transferor and, further, that…

The petitioner borrowed $ 164,683.61 from a bank for a period of 3 years, under an arrangement whereby the borrower's obligation to repay said principal sum and also… Held: that the Commissioner did not err in computing the amount of the accrued and deductible interest on said promissory note for a portion of the taxable year involved, by using the straight-line method, rather than by using a sum of the months-digits method which petitioner contends should have been used.