Volume 43 — Tax Court Reports

Held, amounts paid by petitioners were contributions to and for the use of the Sudan Interior Mission, an exempt charitable organization, and were not personal gifts to four designated… Held: amounts paid by petitioners were contributions to and for the use of the Sudan Interior Mission, an exempt charitable organization, and were not personal gifts to four designated missionaries. Such amounts are deductible as charitable contributions under section 170, I.R.C. 1954.

In 1956 petitioner held a license under contract with a British corporation, entered into in 1954, to manufacture and sell Guinness beer and ale in the United States for a period of 20 years. Held: that the amount of $ 500,000, (out of a total of $ 600,000 minimum royalties) is not accruable in 1956 as a fixed and determined liability of that year.

In their joint return for 1960 petitioners claimed as a deduction Florida sales tax in the total amount of $ 678.17. Held: no error was committed by the respondent.

Petitioner James C. Hamrick and another invented a device, applied for a patent, and, with others providing capital, formed a… Held: the stock received by the petitioner to the extent of one-third of the issued stock was, pursuant to section 351, I.R.C. 1954, received without recognition of gain; (2) the additional stock from one-third to 44 percent of the issued stock was received as ordinary income; and (3) the value of this additional stock when received was $…

Petitioner, a closely held corporation engaged in the operation of a truck-leasing business, acquired all the assets of a partnership in a nontaxable exchange on January 2, 1958. Held: Respondent erred in setting up a closing inventory of the supplies petitioner had on hand at the end of 1958. 2. Petitioner is entitled to deduct 95 percent of the cost of operating one automobile used in the business in 1958. 3.

Held, petitioner's conviction for willful attempted evasion of income taxes for the years 1955 through 1958 in violation of section 7201,… Held: petitioner's conviction for willful attempted evasion of income taxes for the years 1955 through 1958 in violation of section 7201, I.R.C. 1954, necessarily carries with it the ultimate factual determination that a part of the resulting deficiencies for those years was due to fraud within the purview of section 6653(b), I.R.C. 1954.

1. During the years 1944, 1945, and 1946 the corporate petitioner understated its sales of ice cream and related frozen dairy products. Held: amount of understated sales, understated purchases, and understated income determined. 2. On the facts, held, a part of the deficiencies in income, declared value excess-profits, and excess profits taxes of the corporate petitioner for the year 1944 was due to fraud with intent to evade tax. 3.

Held, that $ 18,615.21 which petitioner Franklin D. Roosevelt, Jr., received during the taxable year 1958 as his share of the box office… Held: that $ 18,615.21 which petitioner Franklin D. Roosevelt, Jr., received during the taxable year 1958 as his share of the box office proceeds from a stage play dealing with events in the life of the late President Franklin D. Roosevelt -- which play was written and produced after a certain contract relating to the same had been…

Held, on the facts, advances made by a limited partner to his partnership were capital contributions and not loans. Held: on the facts, advances made by a limited partner to his partnership were capital contributions and not loans.

1. Held, that Shafford Co., which merchandised, distributed, and sold throughout the United States, ceramic ware that was imported into the United States by the corporate petitioner, U.S. Asiatic… Held: that Shafford Co., which merchandised, distributed, and sold throughout the United States, ceramic ware that was imported into the United States by the corporate petitioner, U.S. Asiatic Co., Inc., was a business separate and distinct from Asiatic. 2.

Held, in the circumstances of this case decision of Supreme Court of New York is accepted as an authoritative adjudication in respect of widow's power of appointment over remainder interest in trust with the consequence that marital deduction is allowed.

False Issue -- Commissioner Still Auditing Return. -- A net operating loss question still being timely considered by the Commissioner in the course of his audit of a return may not be the basis of a proper issue before the Tax Court.

On March 1, 1958, petitioner Harry Trotz sold nearly all of his construction business assets to a newly-formed corporation. Held: that by virtue of the complete control petitioner had over the stock issued in Kelly's name, he was the owner of more than 80 percent of the stock in the corporation at the time of sale of his depreciable items, and his gain in such sale transaction is taxable as ordinary income under the provisions of section 1239, I.R.C. 1954.

Petitioner, during the year 1955, contracted to sell all of the assets of his quarrying and rock-crushing business, with the exception of the cash, accounts receivable, two automobiles, and a pickup… Held: respondent's determination regarding the depreciation claimed on the assets contracted to be sold is sustained to the extent of approximately $ 14,600.

1. Petitioner sold light-gray crushed granite for use as road material and for use as poultry grit. Held: petitioner's gross income from the property for computing the deduction for percentage depletion on crushed granite sold for use as poultry grit is the actual receipts from sales reduced by the cost of shipping the grit in bags. 2.

In 1952 petitioner Joseph Marcello, Jr., along with his brothers and sisters, inherited from his father an interest in real property. Held: Inherited property was in fact sold in 1958. 2. Respective interests of the mother and the children determined. 3. Fair market value of notes determined. 4. Amounts of business expense deductions determined. 5. Petitioners' overstatement of business deductions was due to negligence.

Petitioner, an accrual basis taxpayer, entered into renegotiable contracts with another company which had a contract to supply items to the Federal Government. Held: petitioner's reduction of its taxable income by the amount of its reserve for refund on its contracts is improper since sections 1341 and 1482, I.R.C. 1954, provide the method of adjustment for such refunds and also because petitioner's liability for refunds was contingent and not properly accruable.

Petitioner's decedent executed two wills, one dated December 12, 1956, and another dated May 8, 1957. Held: A legal fee incurred by decedent's son in attempting to procure the probate of the will dated May 8, 1957, is deductible as an administration expense under section 2053(a) of the Internal Revenue Code of 1954. 2.

Petitioner is engaged in the automobile-leasing business. Held: Petitioner is not entitled to use the declining-balance method of depreciation because the useful life of its vehicles is less than 3 years. 2. Petitioner is entitled to depreciate its vehicles in the year of sale below the resale price.

Held, in computing the alternative tax on long-term capital gains under section 1201(b), I.R.C. 1954, the amount of such gains is not to be reduced by the amount set aside by the… Held: in computing the alternative tax on long-term capital gains under section 1201(b), I.R.C. 1954, the amount of such gains is not to be reduced by the amount set aside by the taxpayer for charitable purposes. Walter M. Weil, 23 T.C. 424 (1954), affd. 229 F. 2d 593 (C.A. 6, 1956), followed.

Held: That the net amount received by petitioner in 1947 in settlement of two stockholders' derivative suits against the Pennsylvania… Held: That the net amount received by petitioner in 1947 in settlement of two stockholders' derivative suits against the Pennsylvania Railroad Co., for recovery of losses resulting from breach of a fiduciary relationship in causing improper investments of petitioner's funds, is properly allocable among the investments complained of in the…

Premiums paid by taxpayer for business interruption fire insurance must be deducted from taxpayer's gross income from mining in computing petitioner's taxable income from the property for percentage depletion purposes.

Petitioner, a cash basis taxpayer, made excessive liquidating distributions to its shareholders retaining insufficient assets to pay a deductible State excise tax. Held: An obligation running from shareholders to petitioner existed when the tax was paid. Petitioner paid the tax in form and in substance and is entitled to the deduction.

Petitioners Max A. Burde and Bernard Weiss each acquired a one-third interest in a bath oil invention in consideration for their promise to assist the inventor in the development thereof. Held: Section 1235 is inapplicable because the transfer constituted a sale to related parties. Sec. 1235(d). Pursuant to section 707(b)(2)(B), the gain realized by petitioners Burde and Weiss is taxable as ordinary income.

Petitioner in 1954, 1955, and 1956 was the owner of contract rights to exhibit or license others to exhibit on television certain motion-picture films which it had acquired in five groups on which it… Held: petitioner's basis as to one group was the amount of its fixed obligation to pay the vendor; a price reduction in a subsequent year will only affect the basis in the later years.

Two individuals were the sole stockholders of corporation A which conducted a construction business, and corporation B, which owned and leased to… Held: that the various steps, including the liquidation of corporation B, were integral parts of a reorganization of corporation B within the purview of section 368(a)(1)(D) of the Internal Revenue Code of 1954, that the gain to the stockholders upon the surrender of their stock of corporation B is taxable as a dividend from such…

Four individuals formed Cromwell, which acquired all of the stock of Cornwell, an operating company which owned all of the stock of Kennedy. Held: respondent erred in determining that under section 269, I.R.C. 1954, the corporations were not entitled to the privilege of filing consolidated returns.

Pursuant to regulations section 1.162-12 a farmer has an option either to deduct or to capitalize so-called cultural practices expenditures; and the Commissioner admits that the… Held: that taxpayer-farmer who in fact deducted certain cultural practices expenditures on his 1958-60 returns may not be required to capitalize them merely because in electing to capitalize other such expenditures in those years he erroneously thought he was capitalizing all such expenditures. 2.

Held, that a wife who is a member of a Philippine conjugal partnership and who is an American citizen domiciled in the Philippines has… Held: that a wife who is a member of a Philippine conjugal partnership and who is an American citizen domiciled in the Philippines has such interests under Philippine law in the property of such partnership as to make one-half of the income becoming the capital of the partnership taxable to her under the Internal Revenue Code of the United…

Investors Loan Corp. acquired all the stock of Colonial Loan Co., which owned all the stock of two other small loan companies, for a price of $ 16.60 per share. Held: No part of the amounts paid by Investors to the stockholders of Colonial for their stock is allocable to the covenant not to compete. Entire profit of sellers was capital gain.

1. Held, that the petitioner has not shown error in the respondent's disallowance of depreciation deductions claimed with respect to truck tractors disposed of in the taxable year 1959… Held: that the petitioner has not shown error in the respondent's disallowance of depreciation deductions claimed with respect to truck tractors disposed of in the taxable year 1959 for amounts in excess of the adjusted bases of such truck tractors as of the beginning of the taxable year. 2.

Held, petitioner was not availed of during the taxable years for the purpose of avoiding the income tax in respect of its shareholders by permitting earnings and profits to accumulate instead of… Held: petitioner was not availed of during the taxable years for the purpose of avoiding the income tax in respect of its shareholders by permitting earnings and profits to accumulate instead of being divided or distributed. Sec. 532(a), I.R.C. 1954.

1. Petitioner omitted a variety of specific items of income from his separate individual income tax returns for the years 1943-47. Held: the returns were false and fraudulent with intent to evade tax and part of the deficiency for each year was due to fraud. 2. For each year in issue, the Commissioner had determined the amount of deficiency by a net worth statement involving the joint increases in net worth of both petitioner and his wife.

Held, petitioner's failure to file a timely estate tax return was not due to reasonable cause, thereby requiring addition to tax under section 6651, I.R.C. 1954. Held: petitioner's failure to file a timely estate tax return was not due to reasonable cause, thereby requiring addition to tax under section 6651, I.R.C. 1954.

During the years 1948 through 1954, petitioner regularly deposited large portions of business receipts from his sole proprietorship into personal bank accounts and failed to record them in the… Held: Petitioner did not lack the mental capacity to intend to evade or defeat tax. (2) Petitioner filed false and fraudulent returns with intent to evade and defeat the tax. Fraud has been proved for each year by clear and convincing evidence.

Forty-five corporations adopted plans of complete liquidation on September 16, 1960. On September 20, 1960, the corporations made an offer to sell all of their assets. Held: on these facts, the gain realized on the sales of the securities is not recognized at the corporate level by virtue of section 337, I.R.C. 1954.

Held: In the absence of a court order awarding custody of a child, where the mother took the child from his father's home without the consent of the father to her sister's home to live,… Held: In the absence of a court order awarding custody of a child, where the mother took the child from his father's home without the consent of the father to her sister's home to live, there is no violation of the Pennsylvania kidnaping statute. Leon Turnipseed, 27 T.C. 758, not applicable.

T, an accrual basis corporation, performs investment management services for clients who pay quarterly fees measured from the date such services were first engaged by the particular client and based… Held: T may not defer as income those portions of the fees for the quarter extending beyond the close of T's taxable year where such fees have in fact been received or were otherwise properly accruable by T during that year. Schlude v. Commissioner, 372 U.S. 128.

1. During the years 1954, 1955, and 1956, petitioner purchased certain watches which it gave away as premiums. Held: the refunds were taxable income to petitioner in 1958 and 1959 notwithstanding the decision in United States v. Consolidated Edison Co., 366 U.S. 380, the result of which decision has been avoided by the enactment of section 223 of the Revenue Act of 1964. 2.

Petitioner was an employee of the Globe-Democrat Publishing Co. and a member of the St. Louis Newspaper Guild, Local No. 47 of the American Newspaper Guild. Held: On the facts, the $ 436.70 received by petitioner from his union represents gross income and was not a gift excludable from gross income under section 102(a), I.R.C. 1954. United States v. Kaiser, 363 U.S. 299 (1960), distinguished.

Held, that an amount received by the petitioner did not represent proceeds from the sale of a capital asset, and that such amount is taxable as ordinary income. Held: that an amount received by the petitioner did not represent proceeds from the sale of a capital asset, and that such amount is taxable as ordinary income.

Petitioner was in the road construction business and had suffered operating losses prior to and in 1956. Held: petitioner continued to carry on substantially the same business it conducted prior to the change in control and is not denied the right to deduct its operating loss carryovers under section 382, I.R.C. 1954.

Charitable Deduction -- Remainder Interests. -- Petitioners conveyed to a private trustee remainder interests in improved real property, retaining unto themselves for their lives the right to all the… Held: that because of the powers retained by the donor-petitioners, no assured gift of an ascertainable value on the date thereof was made in each of the taxable years, and respondent's disallowance of claimed charitable deductions is sustained.

For a number of years prior to June 30, 1957, four families had owned in equal proportions two corporations, one engaged in the business of supplying… Held: The new partnership was not a sham but a bona fide business entity and its entire income and deductions are not those of the warehousing corporation. (2) Respondent properly attributed $ 78,000 a year rental to the warehousing corporation for the lease of its assets to the partnership under section 482, I.R.C. 1954.

Petitioner, an employee of the Bureau of Public Roads of the U.S. Department of Commerce, was assigned to do work in Iran pursuant to an agreement by which his salary was to be paid from funds to be… Held: the amounts of such salary were not amounts paid by the United States or any agency thereof within the meaning of section 911 of the Internal Revenue Code of 1954.

1. Held, that the amount of $ 968,000 which petitioner Jacob M. Kaplan received in 1952, in the form of unsecured, non-interest-bearing open… Held: that the amount of $ 968,000 which petitioner Jacob M. Kaplan received in 1952, in the form of unsecured, non-interest-bearing open account advances from Jemkap, Inc. (a wholly owned subsidiary of Navajo Corp., of which said petitioner was the sole stockholder), and which has never since been repaid, constituted in substance and…

Held, that the principal petitioner is not entitled to a deduction, under section 642(h) of the 1954 Code, for a claimed excess of the deductions over the gross income of the estate of his deceased… Held: that the principal petitioner is not entitled to a deduction, under section 642(h) of the 1954 Code, for a claimed excess of the deductions over the gross income of the estate of his deceased father for the year of termination of the estate.

1. Retroactive application of the Renegotiation Act of 1951 to construction contracts entered into before its enactment held constitutional. 2. Amounts of excessive profits for 1951 and 1952 determined.

Held, petitioner, the sole trustee and sole income beneficiary of a trust, is not liable under section 6903, I.R.C. 1954, for estate tax deficiency assessed against the estate of the remainderman. Held: petitioner, the sole trustee and sole income beneficiary of a trust, is not liable under section 6903, I.R.C. 1954, for estate tax deficiency assessed against the estate of the remainderman. Estate of Nathan P. Cutler, Jr., 5 T.C. 1304, 1315-1316, distinguished.

1. Held, that the gain received by Petitioner Abram Nesbitt 2d on three endowment policies which he sold in 1958 shortly before they were to mature was ordinary income and not long-term capital gain. Held: that the gain received by Petitioner Abram Nesbitt 2d on three endowment policies which he sold in 1958 shortly before they were to mature was ordinary income and not long-term capital gain. The fact that the sale was bona fide does not affect the result. 2.

Three individuals acquired a tract of undeveloped land in 1957 for $ 100,000. They decided to subdivide and improve the land, and sell lots therefrom. Held: the transfer of the land to petitioner is an equity contribution, and the purported promissory notes are in the nature of preferred stock. Held, further, the transfer of the land and the transfer of the cash were part of an integrated transaction immediately after which the transferors were in control of petitioner.

A partnership and two individuals each owned one-third of the stock of a corporation. Held: that the transaction did not constitute an exchange under section 351 of the Internal Revenue Code of 1954 and that the assumption and payment of the partnership's personal liability constituted in substance the payment of a dividend to the partnership.

Held, that the fair market value of 57 items of personal property (principally used clothing and household furnishings) which petitioners contributed to a charitable organization in 1958,… Held: that the fair market value of 57 items of personal property (principally used clothing and household furnishings) which petitioners contributed to a charitable organization in 1958, was $ 500 at the time contributed, rather than the larger amount of $ 5,550 which petitioners claimed.

Four adult members of a family transferred income-producing real property to a corporation controlled partly by two of the transferors and partly by a related third person. Held: on the facts, the transaction constituted a bona fide sale; two mortgage notes executed by the corporation represented bona fide indebtedness; the transaction is not governed by section 351, I.R.C. 1954.

The superintendent, assistant superintendent, and office manager of a corporation engaged in manufacturing woolen cloth were told by their employer to live in company-owned… Held: The fair rental value, including cost of utilities, of company-owned houses furnished to petitioners by Packard Mills is not excludable from their gross income under the provisions of section 119, I.R.C. 1954. 2. Amounts determined for fair rental values and cost of utilities of each house. 3.

Held, that payments made by Glassner in 1958, 1959, and 1960, pursuant to his written agreements to secure creditors Gerhardt and Goodman… Held: that payments made by Glassner in 1958, 1959, and 1960, pursuant to his written agreements to secure creditors Gerhardt and Goodman by obtaining certain life insurance policies on his life and paying the premiums thereon, are not deductible because Glassner was directly or indirectly benefited by the payments within the meaning of…

During the taxable year 1957 the petitioner commenced and operated a car sales business as a sole proprietorship. Held: that the petitioner is not a person to whom the Dealer Reserve Income Adjustment Act of 1960 applies, and that accordingly the petitioner may not elect, under the provisions of that Act, to pay in installments the tax for 1957 resulting from the inclusion of dealer reserve income in taxable income for that year.

The G.B.M. Co., a partnership comprised of petitioners and two other partners, sold the Raleigh Hotel located in Washington, D.C., on October 26, 1953, for a stated purchase price of $ 3,240,000. Held: the same ruling is required here.

Petitioner was employed by the Great Northern Railroad as a brakeman. His daily routine included the boarding of a work train in Glasgow, Mont., for a tour of duty of 10 to 16 hours. Held: the costs of the meals were not deductible under section 162(a)(2), I.R.C. 1954, as petitioner was not traveling * * * while away from home.

Petitioner, who rented farm property which was taken in condemnation proceedings by a railroad for use as a marshalling yard, reinvested… Held: that since both the converted and replacement properties were held by petitioner for investment purposes, the replacement property was similar or related in service or use to the property so converted, within the provisions of section 1033(a)(3)(A), I.R.C. 1954, and that the petitioner is entitled to nonrecognition of gain upon the…

Distributions in redemption of all the stock of a corporation were made pursuant to a plan under which certain operating assets were first sold to a new corporation. Held: The transaction did not qualify as a statutory reorganization under section 368(a)(1) (D) or (F), I.R.C. 1954. 2. The distributions to the shareholders of the old corporation constituted distributions in payment for the exchange of stock under sections 346(a)(1) and 331(a), I.R.C. 1954. 3.

Petitioners each owned 951 registered shares of stock in a Canadian corporation. Held: the bearer warrants constitute stock for the purpose of determining whether the Canadian corporation is a foreign personal holding company.

1. Hobby losses from operation of a ranch were properly disallowed, sec. 270, I.R.C. 1954. 2. Constitutionality of this section upheld. 3. Disallowance of depreciation deduction sustained. Petitioner failed to take into account any salvage value or to show error in respondent's determination.

By transactions entered into for profit petitioner, a corporation, organized as a duck-hunting club, repeatedly leased its property for the exploration for and production of oil and gas. Held: that respondent did not err in his determination that petitioner, during the taxable years, was not exempt from tax under section 501(c)(7) of the Internal Revenue Code of 1954. Held, further, that respondent did not abuse his discretion in revoking his prior ruling of exemption.

1. Petitioner, a waiter, failed to keep adequate records of tip income. Held: respondent's formula was reasonable and essentially accurate, although two minor adjustments were required in its application to petitioner. Respondent's determination, as modified, is sustained. 2. Petitioner earned no tips at Recineway Restaurant, a catering house.

Petitioner, an exempt cooperative corporation, operated a grain department as well as a feed and fertilizer department. Held: the petitioner's method of allocating its nonpatronage income is an acceptable one within the meaning of section 522(b)(1)(B), I.R.C. 1954, and the regulations under that section.

Held, petitioners have shown on this record by clear evidence that they paid out sums of money to enter into certain tax-avoidance schemes… Held: petitioners have shown on this record by clear evidence that they paid out sums of money to enter into certain tax-avoidance schemes by reason of misrepresentations of M. Eli Livingstone, that they relied upon those misrepresentations and would not have paid out such sums otherwise, that they were thus swindled by Livingstone, and…

Under the facts of the instant case petitioner was required by section 1.1502-13(g), Income Tax Regs., to file an income tax return for the short period of its calendar year, January 1 to April 30,… Held: petitioner was not required to annualize its income for said short period by section 443(b)(1), I.R.C. 1954.

The petitioner, sole stockholder of a corporation, elected under section 333 of the Internal Revenue Code of 1954 to have the gain upon the… Held: that the basis of such assets in the hands of the petitioner, computed under section 334 of the Code, is properly allocable among such assets (including the receivables) in proportion to their net fair market values, pursuant to the provisions of section 1.334-2 of the Income Tax Regulations.Held, that such regulations are not…

Uncollectible arrearages in child support payments ordered paid by husband to wife in a divorce decree held not deductible by wife as a bad debt; and expenses incident to collection of such arrearages held not deductible as part of alleged bad debt or otherwise.

Petitioner transferred the assets of two retail dry goods businesses and stock and securities having a fair market value considerably in excess of petitioner's basis therein to a newly formed… Held: Petitioner's principal purpose with respect to the assumption by the corporation of the liabilities, and with respect to the acquisition by the corporation of properties subject to liabilities, was not to avoid income tax on the exchange and was a bona fide business purpose.

The decedent, a resident of California, acquired policies of insurance upon his life during his marriage, paying the premiums with… Held: that at the time of the death of the decedent's wife her interest in the policies was limited to one-half the cash surrender value thereof, that such was the interest that she bequeathed to her sons, and that the respondent did not err in including in decedent's gross estate, under section 2042 of the Internal Revenue Code of 1954,…