Volume 43 — Tax Court Memorandum

Petitioner was president of ULT Co. but had no direct interest therein. Held: The principal amount petitioner paid under the guarantee arrangement is deductible as a nonbusiness bad debt under section 166(d), I.R.C. 1954, rather than as a business bad debt. 2. The interest paid by petitioner, which accrued after the demand for payment, is deductible under section 163(a). 3.

Petitioner-husband filed two preprinted documents with respondent. The Form 1040 portion of the first document was signed under penalties of perjury. Held: Petitioners are liable for income tax deficiencies. (2) The documents filed by petitioner-husband do not constitute returns; additions to tax imposed under section 6651(a)(1) (failure to file return), I.R.C. 1954. (3) Additions to tax imposed under section 6653(a) (negligence), I.R.C. 1954.

H and W executed a document entitled PROPERTY SETTLEMENT AGREEMENT, which was subsequently incorporated into their divorce decree. Held: the monthly payments were intended to be in the nature of alimony or support and were not part of a property settlement. Held, further, the duration of such payments was contingent on future events; therefore, such payments were periodic within the meaning of sec. 71, I.R.C. 1954, and are includable in W's gross income.

Held, since H and W did not appear at trial and offered no evidence, the Commissioner's motion to dismiss for lack of prosecution is… Held: since H and W did not appear at trial and offered no evidence, the Commissioner's motion to dismiss for lack of prosecution is granted; therefore, H and W are liable for the deficiencies determined by the Commissioner, W for the additions to tax under secs. 6651(a) and 6653(a), I.R.C. 1954, and H for the additions to tax under sec.…

Held, advances made to petitioner by its shareholders were loans, not contributions to capital, and amounts paid with respect thereto by petitioner to the shareholders are deductible as interest.

In 1972 and in 1973 petitioner-husband provided more than $ 1,200 for the support of four children from his former marriage. The former wife was the custodial parent. Held: As to these four children, petitioners are entitled to two dependency exemptions for 1972 and three for 1973. Sec. 152(e), I.R.C. 1954.

Held: All grounds for redetermination set forth in the amended petition are either insufficient, as a matter of law, to form the basis for a redetermination of the… Held: All grounds for redetermination set forth in the amended petition are either insufficient, as a matter of law, to form the basis for a redetermination of the deficiency set forth in the statutory notice or, if legally sufficient on their face, are rendered insufficient by the uncontroverted facts.

Held, the collapse of a well on petitioners' property was not a casualty within the meaning of section 165(c)(3). Held: the collapse of a well on petitioners' property was not a casualty within the meaning of section 165(c)(3).

Respondent issued a notice of deficiency to petitioner corporation within 3 years after its dissolution. Held: within the meaning of 18 Fla. Stat. Ann. sec. 607.297 an action or proceeding was begun at least with the issuance of a statutory notice. Accordingly, petitioner has the capacity to file a petition in this Court and respondent's motion to dismiss for lack of jurisdiction is denied.

Held, payments made by petitioner on mortgage and for repairs on home owned by petitioner but occupied by his former wife rent free under… Held: payments made by petitioner on mortgage and for repairs on home owned by petitioner but occupied by his former wife rent free under divorce decree are not deductible as alimony. Held, further, rental value of the home owned by petitioner but occupied by his former wife rent free under divorce decree is not deductible as alimony.

Held: Judgment of default entered against petitioners on remaining contested issue for failure to comply with an Order requiring full and adequate responses to respondent's discovery requests. Held: Judgment of default entered against petitioners on remaining contested issue for failure to comply with an Order requiring full and adequate responses to respondent's discovery requests. Rule 104(c)(3).

Held: The date-of-contribution fair market values of four paintings determined. Held: The date-of-contribution fair market values of four paintings determined.

Held, transfers of funds between sibling corporations constituted bona fide loans and thus no constructive dividend resulted to common controlling shareholder. Held: transfers of funds between sibling corporations constituted bona fide loans and thus no constructive dividend resulted to common controlling shareholder. Held further, $ 100,000 transfer to controlling shareholder constituted the repayment of indebtedness and not a dividend.

(1) Petitioner-husband owned a subchapter S corporation which sustained substantial losses. Held: Petitioners have failed to show petitioner-husband's basis in his investment in the subchapter S corporation exceeds the amount determined by respondent; net operating loss pass-through deduction in excess of this amount is disallowed. Sec. 1374(c)(2), I.R.C. 1954. (2) Petitioner-wife did not sign the tax return for 1973; she claims she signed the tax return for 1974 under duress. Held: Both the 1973 and the 1974 tax returns were intended to be joint returns and they constitute joint returns. Sec. 6013(a), I.R.C. 1954. (3) The asserted deficiencies are attributable to disallowed net operating loss carryback deductions and disallowed itemized deductions. Held: Petitioner-wife does not qualify for relief under the innocent spouse provisions. Sec. 6013(e), I.R.C. 1954.

In 1964, petitioner Richard W. Sterling, a self-employed attorney, established an owner-employee retirement plan. Held: respondent's determination of the tax applicable to the distribution under sec. 72(m)(5)(B)(i), I.R.C. 1954, is sustained.

Held, petitioner, a truck driver, is not entitled to deduct amounts in excess of those allowed by respondent for meals purchased away from home. Held, further, deduction denied for estimated cost of transporting mattress, tool chest, and other items from home to truck terminal and back.

On December 29, 1975, petitioner purchased an apartment complex for $ 2,600,000, giving a non-recourse note for the purchase price. Held: The prepaid interest is not deductible in 1975.

Held: Petitioner's failure to file a timely agreement under section 1.47-4(b), Income Tax Regs., was due to good cause and respondent abused his discretion in failing to validate petitioner's… Held: Petitioner's failure to file a timely agreement under section 1.47-4(b), Income Tax Regs., was due to good cause and respondent abused his discretion in failing to validate petitioner's untimely agreement.

Held, the distribution to the shareholders pursuant to a reorganization has the effect of a distribution of a dividend within the meaning of section 356(a)(2) and their gain realized is to be treated as a dividend to the full extent of the boot property received.

Petitioner-husband made advances in 1972 through 1975 on behalf of Y Corporation to pay its creditors pursuant to prior commitments to them. He owned no stock in Y Corporation, but made the commitments to gain it as a client for X Corporation, in which he was a 50-percent shareholder through mid-December 1974, and 100-percent shareholder thereafter, and employed as an engineering and computer consultant. Y Corporation had revenue only in two years of its existence and had no sales after some time in 1974. In 1974 and 1975, Y Corporation was insolvent and any suit by petitioner-husband to recover the advances would have been futile. He claimed deductions for these advances in 1974 and 1975. In the notice of deficiency, respondent disallowed the deductions on the grounds that: (1) it was not established that the debts became worthless and (2) the advances were nonbusiness debt. Held: (1) respondent has not shown that the advances were not debts; (2) petitioners have not shown that the debts were business debts; (3) the debts became worthless in 1974 and 1975.

X was the chief executive officer of P and X's wife and son owned both directly and indirectly all of the stock of P. X was also the sole individual general partner of certain limited… Held: the acquisition of drilling contracts by P from the limited partnerships resulted from X's dominance over all the relevant entities. Thus, commissions paid by P but owed by the partnerships to selling agents were not an ordinary and necessary expense of P in the pursuit of its business.

Petitioner was an Internal Revenue Service Revenue Agent assigned to audit a corporation's 1969 employment taxes. Held: petitioner has not sustained his burden of proof and respondent's deficiency determination is sustained.Held further, petitioner is not liable for the addition to tax provided under section 6653(b).

Held, fair market value of stock determined.

P claimed deductions for the alleged theft of cash and property in two separate burglaries. Held, P failed to prove that he sustained any thefts deductible under sec. 165, I.R.C. 1954. Held: P failed to prove that he sustained any thefts deductible under sec. 165, I.R.C. 1954.

For 1970, 1971, and 1972, petitioner filed with respondent the first page of a Form 1040 and various attachments, in which petitioner asserts a variety of constitutional objections to the Federal… Held: The documents filed by petitioner do not constitute returns; the statute of limitations does not bar assessment of deficiencies. Sec. 6501(c)(3), I.R.C. 1954. (2) Petitioner is liable for deficiencies; petitioner's constitutional arguments are rejected.

GIC's corporate charter was cancelled by North Carolina in 1967. Thereafter, the corporation continued to hold nominal legal title to real estate, but the property was developed and sold by H as a sole proprietor. In 1976 the corporation applied for reinstatement of its charter and commenced some business activity. In the same year, H married P and transferred all of the stock in GIC to P. Held, GIC was neither a corporation nor an association taxable as a corporation, for tax purposes, from 1969 to February 9, 1976 and therefore is not taxable on the gains realized from the sales of property from 1969 until the date of reincorporation in 1976. Held further, GIC is taxable on gains arising after February 9, 1976. See sec. 301.7701-2, Proced. & Admin. Regs. GIC was neither a passive dummy nor a valid corporate agent for its shareholders. Held further, respondent's determination of GIC's taxable income for 1976 and 1977 is correct, except that sales occurring prior to February 9, 1976 should not be attributed to GIC. Held further, GIC is liable for additions to tax for 1976 and 1977 under sec. 6651(a)(1), I.R.C. 1954, for failure to file timely returns, under sec. 6653(a) for negligence or intentional disregard of the rules and regulations, and under sec. 6655 for failure by a corporation to make estimated tax payments. Held further, P received dividend income in 1976 and 1977 from GIC in the form of distributions of cash upon receipt by GIC of payments on various notes and a distribution of property without consideration. Held further, P is taxable in 1977 on interest credited to accounts held jointly in her name and her children's names. Held further, P is liable for the addition to tax under sec. 6651(a)(1) for failure to file a timely tax return for 1977.

To determine whether the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954, was satisfied, respondent included in his calculations the stock of a shareholder who did not own stock in all of the… Held: consideration of stock of one who does not own stock in each of the members of a group of corporations is improper for purposes of applying the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954. United States v. Vogel Fertilizer Co., 455 U.S. (Jan. 13, 1982), followed.

In 1971, Old Import, a corporation engaged in the wholesale costume jewelry business, sold its assets to Import Specialties. At the same time, two key employees of Old Import entered into employment contracts and covenants not to compete with Import Specialties. Held, the payments made by Import Specialties to the two employees did not constitute disguised payments for the goodwill of Old Import and therefore are deductible as compensation and as the amortized cost of covenants not to compete. Held further, Import Specialties improperly reduced its inventories under the lower of cost or market method for the years in issue.

1. Petitioner, separated but not divorced from his spouse and living in a community property State, is taxable on one-half of the community income even though his spouse reported and paid tax on all of her income on separate returns. 2. Petitioner's constitutional arguments are not valid. 3. The Forms 1040 filed by petitioner who answered most of the questions with either asterisks, constitutional arguments, the word "none," or a a figure "0" do not constitute returns and petitioner is liable for the addition to tax under sec. 6651(a)(1) for failure to file timely returns. 4. Addition to tax under sec. 6651(a) for negligence or intentional disregard of the rules and regulations approved.

To determine whether the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954, was satisfied, respondent included in his calculations the stock of a shareholder who did not own stock in all of the corporations in the alleged controlled group. Held, consideration of stock of one who does not own stock in each of the members of a group of corporations is improper for purposes of applying the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954. United States v. Vogel Fertilizer Co., 455 U.S.     (Jan. 13, 1982), controls.

To determine whether the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954, was satisfied, respondent included in his calculations the stock of a shareholder who did not own stock in all of the… Held: consideration of stock of one who does not own stock in each of the members of a group of corporations is improper for purposes of applying the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954. United States v. Vogel Fertilizer Co., 455 U.S..

In two separate Court appearances, petitioners failed to testify or submit any other evidence in support of their claimed "contribution" deduction. Held, respondent's motion to dismiss pursuant to Rule 149(b), Tax Court Rules of Practice and Procedure, is sustained.

To determine whether the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954, was satisfied, respondent included in his calculations the stock of a shareholder who did not own stock in all of the… Held: consideration of stock of one who does not own stock in each of the members of a group of corporations is improper for purposes of applying the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954. United States v. Vogel Fertilizer Co., 455 U.S. (Jan. 13, 1982), controls.

Petitioner failed to cooperate with respondent in preparing for trial and failed to appear when his case was called for trial. Held: respondent's motion to dismiss for lack of prosecution under Rule 123(b), Tax Court Rules of Practice and Procedure, is granted. Held further, respondent's motion for and of damages under sec. 6673, I.R.C. 1954, is denied.

1. Petitioners' interests in three unimproved parcels of real estate sold by petitioners during the years in issue were capital assets and the gain on such sales was properly reported as capital gain. 2. Petitioners' interest in the Choate property was held no longer than 6 months and the gain on the sale thereof was a short-term capital gain. 3.

K received royalties and a license fee under an agreement by which he transferred the right to make, sell, and use in Japan an invention (which was the subject of a patent application in Japan) as… Held: K did not transfer to the licensee all substantial rights in the invention, technology, and know-how. Thus, amounts received under the agreement are not entitled to preferential treatment as long-term capital gains. Secs. 1235, 1222(3), I.R.C. 1954.

During a part of 1972, P was employed by a construction company. Held: The amount of P's deductible business expenses with respect to such remodeling business determined; (2) P failed to report income from such remodeling business received by him during 1973 in the amount of $ 18,956; (3) For 1973, 1974, and 1975, the amount of deductions for P's business use of an automobile determined; (4) For 1973…

In the decades before the years in issue, petitioners held a series of jobs, the husband-petitioner owned and operated a produce proprietorship, and petitioners owned and operated a restaurant. Held: Additions to tax are imposed under section 6653(b) (fraud), I.R.C. 1954, for each of the years in issue. (2) The statute of limitations does not bar assessment of the deficiencies. Sec. 6501(c)(1), I.R.C. 1954. (3) Amounts of deficiencies (and additions to tax) are determined.

Petitioner, an accrual basis taxpayer, guaranteed a 9-1/4 percent yield to transferees of participating interests in notes. Held, petitioner's obligation is one to pay interest. Held: petitioner's obligation is one to pay interest. Held further, when principal may be prepaid, the passage of time is necessary before an accrual basis taxpayer may deduct an obligation to pay interest.

(1) P, a dentist, incorporated his dental laboratory and transferred 40 percent of the stock of such corporation to 2 of his 5 children. Held: such transfers were ineffective for Federal income tax purposes since they lacked economic reality, and P remained the beneficial owner of such stock; therefore, all the income of such corporation is taxable to P. (2) Such corporation used, in part, for business purposes an automobile owned by P and claimed deductions for the…

Qualification of petitioner's pension and profit-sharing plans depends on whether petitioner and another corporation constitute a sec. 1563(a)(2) brother-sister controlled group. Held: consideration of stock of individuals who do not own stock in each of the members of a group of corporations is improper for purposes of applying the 80 percent test of sec. 1563(a)(2)(A), I.R.C. 1954. United States v. Vogel Fertilizer Co., 455 U.S. (Jan. 13, 1982), controls.

Despite warnings from the Court, petitioners intransigently refused to furnish organized documentation of multi-deductions claimed, preferring to rely on attacks on the constitutionality of acts of… Held: some rental and business deductions allowed.

Held: (1) Extent to which proceeds of certain checks issued by petitioner B.B. Rider Corp. during its taxable years 1966 and 1967 were paid as interest on loans from various individuals, including… Held: Extent to which proceeds of certain checks issued by petitioner B.B. Rider Corp. during its taxable years 1966 and 1967 were paid as interest on loans from various individuals, including petitioner John Howald, or were retained by petitioner Benjamin Stratmore determined.

Held, the amount of petitioner's deductible transportation expenses determined. Held: the amount of petitioner's deductible transportation expenses determined.

Held: The date-of-contribution fair market values of four parcels of land determined. Sec. 170, I.R.C. 1954. Held: The date-of-contribution fair market values of four parcels of land determined. Sec. 170, I.R.C. 1954.

Petitioner failed to cooperate with respondent in preparing for trial and failed to appear when his case was called for trial. Held: respondent's Motion to Dismiss for Lack of Prosecution under Rule 123(b), Tax Court Rules of Practice and Procedure, is granted. Held further, addition to tax for fraud under sec. 6653(b), I.R.C. 1954, is sustained.

Reimbursement of employee's moving expense on return from foreign assignment held to be income from without the United States for purposes of the foreign tax credit under secs. 901 and 904, I.R.C., 1954. Dammers v. Commissioner,76 T.C. 835 (1981), followed.

By statutory notice dated September 25, 1979, respondent determined a $ 4,066.72 deficiency and a $ 1,016.68 addition to tax for the 1975 taxable year. Held: contrary to petitioners' contention, respondent properly mailed the statutory notice to petitioners' last known address for purposes of section 6212(b)(1), I.R.C. 1954. Accordingly, respondent's motion to dismiss for lack of jurisdiction is granted.

Held: The Federal income tax return filed for 1975 was intended by petitioner and his then wife to be their joint income tax return; it constitutes their joint income tax return even though it was not signed by the wife. Sec. 6013(a), I.R.C. 1954.

Petitioner-wife received distributions under her brother's profit-sharing plan in 1977 and 1978, as a result of her brother's death. Held: the distributions are taxable as ordinary income. Held: the distributions are taxable as ordinary income. Sec. 72, I.R.C. 1954.

Petitioners J and D were partners in the J and D partnership, which was in the trade or business of operating a sawmill. Held: respondent's determination of petitioners' distributive shares of partnership income is sustained.

Petitioner has failed to produce documents and answer respondent's interrogatories despite a specific Order of this Court directing him to do so. Held, Petitioner's failure constitutes a default under the circumstances of this case. Respondent's Motion for Order Imposing Sanctions seeking a judgment for default under Rule 104(c)(3), Tax Court Rules of Practice and Procedure, is granted.

Held: (1) petitioners are taxable on unexplained bank deposits; (2) petitioners are not taxable on a sale of timber; (3) petitioners are taxable on a sale of land; (4) additions to tax are imposed… Held: petitioners are taxable on unexplained bank deposits; (2) petitioners are not taxable on a sale of timber; (3) petitioners are taxable on a sale of land; (4) additions to tax are imposed under sec. 6653(a) (negligence), I.R.C. 1954.

In Larchmont Foundation, Inc. v. Commissioner,72 T.C. 131 (1979), this Court held that the provisions of sec. 4945(b), I.R.C. 1954, relating to the second-tier taxes on private foundations and their… Held: since the Court of Appeals for the Seventh Circuit vacated and remanded the decision of this Court, res judicata is not applicable, and the amendments of the second-tier tax provisions are applicable in this case.

During the years in issue, an Indian Creek Lumber Company subsidiary, X, purchased four helicopters. Held: X was not the original user of the four helicopters within the meaning of secs. 48(b) and 167(c), I.R.C. 1954, and therefore, X was not entitled to treat the helicopters as new section 38 property or claim depreciation deductions therefor under the double declining balance method of depreciation.

Individual petitioners, the Langs, purchased all the stock of Kim-Sek, Ltd., which owned a ski lodge, for $ 742,000, represented by the Langs' notes. The ski lodge was carried on Kim-Sek's books at approximately $ 260,000. Several years later Kim-Sek was liquidated and all of its assets were transferred to a new corporation, Lang Properties, Inc., in which the Langs owned all the stock, in exchange for the assumption of liability on the Langs' note. Held, the Langs did not intend to liquidate Kim-Sek and acquire its assets when they purchased the Kim-Sek stock. Held,further, the liquidation and reincorporation of Kim-Sek was a reorganization and the basis of Lang Properties in the assets was the same as Kim-Sek's basis in those assets. Held,further, the assumption of liability on the Langs' notes did not create a bona fide indebtedness of Lang Properties and payments made by Lang Properties on those notes constituted dividends to the Langs. Held,further, Lang Properties may not deduct the interest it paid on the Langs' notes.

A created an electrical contracting corporation (E). J was A's assistant. A died. V, A's widow, became E's sole owner. Held: M was a separate entity for tax purposes. (2) M's pension plan did not discriminate in favor of prohibited groups (employees who are officers, shareholders, highly compensated, or supervisory). Secs. 401(a)(3) and 401(a)(4), I.R.C. 1954. (3) Contributions by M to the pension plan are not currently includible in V's and J's incomes.

For the taxable years 1972 through 1976, petitioners claimed miscellaneous deductions, the majority of which were deducted as business expenses. Held, properly deductible amounts determined. Held: properly deductible amounts determined.

Held, petitioners underreported income for all years in issue. Held: petitioners underreported income for all years in issue. Held further, petitioners are liable for the addition to tax provided under section 6653(b), I.R.C. 1954, for all years in issue except 1965. Held further, the statute of limitations bars respondent from assessment and collection of the deficiency determined for 1965.

Ps used certified mail to send their petition to this Court. Held: to rely on certified mail, Ps must have obtained a timely postmark on their sender's receipt. Other documentary evidence of timely mailing is not sufficient. Sec. 301.7502-1(c)(2), Proced. and Admin. Regs.

(1) Graphic and its three major shareholders were sued for $ 1,050,000, an accounting of profits, and an injunction. The four defendants counterclaimed for an aggregate of $ 1,340,283.42. Held: Graphic may deduct its payments in full. (2) Graphic owned 70 percent of the outstanding stock of VRE. The remaining 30 percent was owned by R, who was unrelated to the shareholders of Graphic.

1. Held, petitioner is not entitled to a bad debt deduction for 1973. 2. Held,further, the entire gain realized by petitioner on the sale of a farm and improvements to Dr. Barnes in 1973 is taxable as long-term capital gain. No gain was realized on the sale of sec. 1245 property. 3. Amount and character of gain realized by petitioners on sale of equipment at auction determined. 4. Held, petitioner is liable for the addition to tax imposed under sec. 6653(a), I.R.C. 1954, for each of the years 1972, 1973, and 1974. 5. Held, petitioner is liable for the addition to tax imposed under sec. 6651(a)(1), I.R.C. 1954, for each of the years 1972, 1973, and 1974.

Petitioner worked as a licensed pharmacist for a pharmacy. He was also a stockholder, and Secretary-Treasurer, of the pharmacy. Held: under section 280A, petitioner is not entitled to deduct the costs of maintaining either the office area or the storage area at his personal residence.

Petitioner, an over-the-road truck driver, estimated his expenditures for meals purchased while on business travel during 1976. Held: petitioner's maintenance of a daily log-book which did not itemize meal expenses fails to meet the substantiation requirements of section 274(d).

The will of decedent, who died in 1975, created two trusts, one for the benefit of his sister and one for the benefit of his brother. Held: the remainder interests, under the will as written, did not qualify for deduction as charitable bequests under sec. 2055(e)(2), I.R.C. 1954.

In two years, petitioner-husband made 80 round trips (500 miles each) between his tax home and an area where he worked as a real estate agent and also held property for the production of income. Held: No deduction is allowable for traveling expenses because petitioners' substantiation is insufficient. Sec. 274(d), I.R.C. 1954. (2) Some transportation expenses allowed. Cohan v. Commissioner,39 F.2d 540 (CA2 1930).

Collateral estoppel bars petitioner's claim that part of the retirement payments he received from the Air Force in 1978 constituted disability payments excludable from gross income under sec. 104(a)(4), I.R.C. 1954. See Sidoran v. Commissioner,T.C. Memo. 1979-56, affd. 640 F.2d 231 (9th Cir. 1981).

Petitioners' residence was at Danville, Virginia. Held: Petitioner-husband's employment at the North Anna project site was indefinite, rather than temporary; his 1976 and 1977 expenses for food and lodging at Louisa and for transportation between Louisa and Danville are not deductible as expenses incurred while traveling away from home. Sec. 162(a)(2), I.R.C. 1954.

Petitioners' residence was at Virginia Beach, Virginia. Held: Petitioners have failed to show that petitioner-husband's employment at the North Anna project site was temporary; petitioner-husband's daily transportation expenses are not deductible under section 162(a), I.R.C. 1954.

Held: The useful life of petitioner's indoor motion picture theaters is 15.82 years. Held: The useful life of petitioner's indoor motion picture theaters is 15.82 years.

P was employed as a truck driver and, in connection with such employment, incurred meal expenses while traveling away from home. Held: P did not comply with the substantiation requirements of sec. 274(d), I.R.C. 1954; therefore, P is not entitled to a deduction for such mean expenses. Held,further, since P did not introduce any evidence to support his claimed deduction for miscellaneous employee business expenses, P is not entitled to such deduction.

Petitioners had substantial underpayments of income tax for each of the years 1967 through 1971. Petitioner-husband pleaded guilty to criminal tax fraud for 1970. Held: Additions to tax are imposed under section 6653(b) (fraud), I.R.C. 1954, for each of the years 1967 through 1971.

The top management employees of the Evendale operations of Avco sought to purchase that operation. Held: the agreements between Schott and CEC were at arm's length; the form of the agreements coincides with its economic substance; and Schott is entitled to report the gain from redemption as capital gain.

In 1974, Ps withdrew cash from a corporation controlled by them, used part of such cash to purchase tax-exempt bonds, and loaned the other part of the cash to a relative to purchase tax-exempt bonds. Held: all the cash withdrawn constituted dividends received by Ps. Held, further, Ps are liable for the addition to tax under sec. 6653(a), I.R.C. 1954, relating to negligence.

In a prior criminal case tried in United States District Court, petitioner Richard Nell was convicted of various offenses which included the crimes of embezzlement, extortion, conversion and making… Held: respondent's motion for partial summary judgment that Mr. Nell be collaterally estopped to deny certain facts previously litigated in the criminal trial is granted to the extent that the determination of such facts was essential to the judgment of conviction.

H and W filed joint Federal income tax returns for 1975 and 1976. They omitted income exceeding 25 percent of the gross income stated on the return. Held: H is not entitled to relief as an innocent spouse under sec. 6013(e), I.R.C. 1954, since he failed to prove that he did not know or have reason to know of the omissions of income.

Held: Petitioners' operation of a farm was not an activity engaged in for profit. Held: Petitioners' operation of a farm was not an activity engaged in for profit.

Held, petitioners failed to substantiate business travel expenses in compliance with sec. 274(d), I.R.C. 1954; certain charitable contributions are determined under the Cohan rule ( Cohan v. Commissioner,39 F.2d 540 (2d Cir. 1930)).

Held, commercial feedlot operator is a farmer within the meaning of sec. 1.471-6(a), Income Tax Regs., and therefor is entitled to file its federal income tax return on the cash receipts and disbursements method of accounting. Maple Leaf Farms, Inc. v. Commissioner,64 T.C. 438 (1975), applied. Hi-Plains Enterprises, Inc. v. Commissioner,60 T.C. 158 (1973), affd. 496 F.2d 520 (10th Cir. 1974), followed.

P transferred his medical property to Clifford trusts and leased such property back from the trusts. The term of the lease corresponded to the term of the trusts, and before the transfer in trust, P and the trustees understood that the property would be leased back to him. Subsequently, P transferred to his wife his reversionary interest in such trusts. Held, under the circumstances, the criteria for allowing a deduction for the payments of rent made by P have been satisfied. May v. Commissioner,76 T.C. 7 (1981).

P established pension and profit-sharing plans with respect to which the Commissioner issued favorable determinations in 1961. Held: the plans violated the coverage requirements of sec. 401(a)(3)(B), I.R.C. 1954, for such years. Held, further, the Commissioner's retroactive revocation of the qualification of the plans did not constitute an abuse of discretion.

Held, under sec. 2041(a)(2), I.R.C. 1954, decedent at her death possessed a general power of appointment over certain property pursuant to her deceased husband's will, even though she was incompetent… Held: under sec. 2041(a)(2), I.R.C. 1954, decedent at her death possessed a general power of appointment over certain property pursuant to her deceased husband's will, even though she was incompetent at his death and so remained until her own death.

Petitioner entered into a nonqualified deferred compensation agreement with his employer, NFIB, in 1974. Held: Petitioner was not in constructive receipt of the amounts withheld by NFIB under the agreement during the years here in issue.

Held: Respondent's determinations of defficiencies upheld in view of the absence of any evidence establishing error in the determinations. Held: Respondent's determinations of defficiencies upheld in view of the absence of any evidence establishing error in the determinations. Held further: Imposition of fraud penalty on petitioner Milton Reid upheld.

Petitioner lived in Texas, a community property state, in 1975, 1976, and 1977. Held: Petitioner is taxable on one-half of his wife's earnings for 1975 and for 1976 up until the time they were divorced. Alleged oral agreement between petitioner and his wife to treat their future earnings as separate property was not valid under Texas law in those years. Held, further: Petitioner's constitutional rights not violated.

Held: (1) Respondent's reconstruction of petitioner's income sustained. Held: Respondent's reconstruction of petitioner's income sustained. (2) Sale of stock by petitioner allegedly acting as trustee resulted in income to petitioner on the ground that petitioner could not substantiate that he was acting in a fiduciary capacity.

In 1975 petitioners deposited $ 55,500 in cash in a bank account which they used to pay deficiencies and additions to tax determined by respondent to be due for the years 1972-74. Held: Petitioners proved that a part of the $ 55,500 cash deposited came from a cash hoard accumulated in prior years. Amount determined. Held, further: Addition to tax for negligence or intentional disregard of rules and regulations not approved.

After petitioners had signed numerous Forms 872 extending the statute of limitations, petitioners executed Forms 872-A extending the statute until 90 days after a written notification of termination of the consent to the extension was received by respondent from petitioners. By letter dated October 28, 1975, petitioners' counsel indicated to an Appeals Officer of the Internal Revenue Service that due to the impasse reached by the parties in the Appellate Division of the Internal Revenue Service he was requesting the issuance of notices of deficiency. Held: The letter of October 28, 1975, contained sufficient elements of notice so as to constitute a termination of petitioners' consent to extend the statute of limitations. Accordingly, respondent's issuance of notices of deficiency on March 15, 1977, was untimely and assessment of deficiencies and additions to tax are therefore barred by the statute of limitations.

During 1977, P earned wages. In that year, he executed a vow of poverty and assigned all his possessions, including future possessions,… Held: P was not an agent of such church. The income received from his employment was earned by P in his individual capacity and is taxable to him under sec. 61, I.R.C. 1954, and sec. 1.61-2(c), Income Tax Regs.Held, further, P is liable for an addition to tax under sec. 6653(a), I.R.C. 1954, relating to negligence or intentional disregard…

This case is presently before us on respondent's Motion to Dismiss for Lack of Jurisdiction. Petitioners received a statutory notice bearing the date April 6, 1981. Held: in absence of the postmark on the envelope containing the statutory notice, the postmark on the Form 3877 is the date of mailing for purposes of section 6213(a). Accordingly, respondent's motion to dismiss is granted.

Petitioners purchased a jet in July 1974. They also decided to go into the commodities trading business. They became 50-percent stockholders in a trading corporation and agreed to lease their jet to the corporation. Held, petitioners were engaged in the air charter business and commodities trading business for profit in 1974. Sec. 183, I.R.C. 1954. Held further, expenses incurred by petitioners with respect to use of the jet by the corporation were not loans to the corporation but were deductible as business expenses. Sec. 162. Held further, the commodities trading business did not commence operation until Oct. 13, 1974. Thus, expenses incurred by petitioners prior to that date were pre-operating expenses and are not deductible. Held further, petitioners have adequately substantiated under sec. 274 expenses for travel and entertainment. Petitioner was a 50-percent general partner in a partnership that owned an apartment building. Held, petitioner cannot deduct under sec. 164 his portion of special tax assessments paid, see sec. 1.164-4(b)(2), Income Tax Regs., except for the portion attributable to interest. Held further, for purposes of depreciation, the proper useful lives of the heating, plumbing and electrical systems in the apartment building were 20 years. Petitioners guaranteed a loan from a local bank to an aircraft service corporation. When the loan came due and the borrower failed to pay, petitioners paid on their guaranty. Held, petitioners have failed to prove that the payment on the loan gave rise to a business bad debt deduction under sec. 164(a), (d).

P, an orthodontist, stored dental records in the attic and basement of his residence and used a portion of a room in such residence as a home office. Held: under sec. 280A, I.R.C. 1954, P is not entitled to deduct expenses attributable to either the storage or the office areas.

Held, payments by petitioners (life insurance agents) to satisfy premium obligations of purchasers of life insurance policies may not be applied to reduce petitioners' gross commission income. Alex v. Commissioner,70 T.C. 322 (1978), affd. 628 F.2d 1222 (9th Cir. 1980), followed; however, such payments are deductible business expenses not paid in violation of a "generally enforced" state statute within the meaning of section 162(c)(2), I.R.C. 1954. Boucher v. Commissioner,77 T.C. 214 (1981), distinguished. Held further, substantiation of various business travel and entertainment expenses under the strictures of section 274 determinated.