Volume 44 — Board of Tax Appeals

1. Petitioner, a nonresident alien, during years 1925 to 1935, inclusive, received certain payments from a foreign corporation in which he owned all the capital stock except qualifying shares. Held: to the extent the amounts received constituted dividends, petitioner is taxable thereon under the provisions of section 217(a)(2)(B) of the Revenue Act of 1926 and section 119(a)(2)(B) of the Revenue Acts of 1928, 1932, and 1934, respectively.

1. A dividend of $125 a share was declared on the last day of a fiscal year, but credited to the accounts of stockholders in the following and taxable fiscal year. Held: that the dividend of $25,000 was paid during the taxable fiscal year within the meaning of section 27, Revenue Act of 1936; held, further, that the distribution was without preference, since it was pro rata, equal in amount, and available to each stockholder immediately upon credit thereof to his account. 2.

A taxpayer, after her former husband's death, receiving income from a trust created by him for her support in contemplation of separation and divorce, held, taxable thereon. Held: taxable thereon.

The term supplies and equipment as used in section 101(12) of the Revenue Act of 1936 includes grain and feed used by farmers in the operation and maintenance of a farm. Held: petitioner is not exempt from tax as a farmers' cooperative association.

1. Petitioner in the taxable period realized a profit of $17,949.49 on liquidation of a corporation of which it was the sole stockholder. Held: that such profit did not constitute gains from the sale of stock or securities within the meaning of section 351(b)(1)(A) of the Revenue Act of 1934; held, further, that the construction of the term sale in article 351-2(5) of Regulations 86 extending its meaning to include exchange is unauthorized and invalid.

Where, pursuant to a plan of reorganization, T corporation merged with R corporation, and stockholders of T delivered practically its entire stock and received stock of R corporation in exchange, the nonrecognition provision of the Revenue Act of 1936, section 112, held applicable under all the circumstances, notwithstanding temproary lodging of T company stock in R company's subsidiary.

Interest paid during the taxable year on Federal income tax deficiencies for prior years, held, to reduce the net income of the taxpayer * * * from the property for purposes of computing the… Held: to reduce the net income of the taxpayer * * * from the property for purposes of computing the deduction for percentage depletion under section 114(b)(3) of the Revenue Act of 1934.

1. Where petitioner did not own substantially all of the stock of any other corporation, and its income consisted exclusively of interest, dividends, and gains from the sale of securities and during… Held: petitioner was a mere holding or investment company as that phrase is used in section 104(b), Revenue Acts of 1928 and 1932. 2.

In January 1928 the petitioner, his father, and a third person being taken in the name of the father. Held: that the petitioner sustained no deductible loss in 1936 from such relinquishment.

1. Taxpayer, a Tennessee corporation, owned and operated prior to November 1932 a sawmill at Memphis, Tennessee, and another at… Held: that the Arkansas corporation neither functioned as a corporation nor operated the Arkansas properties; held, further, that even if it had been completely organized as a corporation, under the peculiar circumstances, it did not operate as a separate entity and taxpayer is entitled to deduct from its gross income the loss sustained in…

1. The amount of cash, diminished by expenses, received by lessor upon cancellation of lease constitutes income. Warren Service Corporation v. Commissioner, 110 Fed.(2d) 723. 2. The value of the obligation of lessee to pay certain improvement bonds is not deductible from the cash payment. Mary E. Evans,42 B.T.A. 246. 3.

Petitioners were members of a partnership which purchased certain real property in 1928, subject to a mortgage. Held: that the partnership sustained a loss upon the foreclosure sale in 1935 in the amount of its investment in the property, and (2) that such loss was a capital loss deductible only to the extent provided in section 117(d), Revenue Act of 1934.

Amounts paid to brokers in lieu of dividends on shares of stock sold short, held, deductible by a taxpayer engaged in the business of buying and selling securities for his own account. Held: deductible by a taxpayer engaged in the business of buying and selling securities for his own account.

- Petitioner entered into a written contract as of November 10, 1933, whereby it leased for a term of 10 years a moving picture theatre… Held: that the payment of dividends by petitioner during the taxable years out of the specified earnings, either in cash or bonds, would have been in violation of the provisions of the contract; held, further, that petitioner is entitled to the credit provided by section 26(c)(1), Revenue Act of 1936, to the extent of earnings accumulated…

The petitioner was president of and a stockholder in a corporation which at the end of 1932 owed to a bank certain indebtedness represented by promissory notes on which the petitioner was an endorser and in connection with which he had pledged certain personally owned assets as collateral. The corporation operated at a loss throughout its existence and by 1932 its capital had been fully exhausted. In the early part of 1933, when several of the notes had become due but remained unpaid and the balance of the notes were to become due within a few weeks, a representative of the bank, after having ascertained that the corporation was insolvent but that the petitioner was solvent, approached the petitioner with respect to making payment of the notes. In order to avoid having to make present payment of his liability as endorser on the notes and in order to reduce if possible the amount he would eventually have to pay on them, the petitioner entered into an agreement with the bank's representative whereby the time of payment was extended for four years in consideration of the petitioner's guaranteeing that a certain contemplated four-year lease of the corporation's property, which was to be assigned to the bank, would be kept in full force and effect throughout the life thereof and that the corporation would not default in the performance of its covenants thereunder. Pursuant to the agreement the petitioner, during the years 1935, 1936, and 1937, made payment of certain of the corporation's operating expenses to enable it to carry out the terms of the lease, knowing, however, that the corporation was not and would not be able to make repayment to him. held, that the amounts so paid represented losses sustained by the petitioner in the respective years and were deductible as such in the years in which paid.

On Dember 28, 1935, the petitioner, which reports its income by the cash receipts and disbursements method, purchased real estate located in the State of Iowa. Held: that it is

Patronage dividends paid by petitioner to its patron stockholders are excludable from gross income as part of cost of goods sold and the method employed by the respondent in computing the amount of such dividends was proper and is approved.

A citizen of the United States residing in 1917 in the Philippine Islands, a member of a partnership in the Philippine Islands having no income from sources within the United States, held, not… Held: not subject to 1917 war excess profits tax upon his distributable share of such partnership income.

Pursuant to leave granted by the Board the petitioner, more than 90 days after the date of the mailing of notices of deficiency in income tax for 1936 and 1937, filed amended petitions alleging an… Held: that the amended petitions were timely filed.

1. A mortgagee purchased certain mortgaged property at a foreclosure sale. Taxes and water rates against the property had been paid by mortgagee prior to acquisition by foreclosure. Held: that such payments by mortgagee enlarged her mortgage investment and must be recognized in determining the gain or loss resulting from the foreclosure sale. 2.

Petitioner sought to compute the amount of his loss from the operation of a fish hatchery through the use of inventories. Held: that respondent in making his determination was justified in disregarding the so-called inventories and, further, that petitioner has made no showing that he sustained any loss in excess of that allowed by the respondent.

A taxpayer who, separated from his wife, is the sole support of his aged mother and sisters in a home in another city where they have lived for many years, held, entitled as the head of a family to a… Held: entitled as the head of a family to a personal exemption of $2,500.

1. Profits from the sale of an interest in lots in a subdivision which the taxpayer acquired and held primarily for sale to customers, not for sale as a whole, held, not… Held: not capital gains. 2. In determining whether profits of an individual member of a group from sales of land are taxable as capital gains, it is irrelevant whether the group constitutes a partnership and also whether the taxpayer is in the real estate business entirely or only to some extent. 3.

Petitioner transacted business with both member and nonmember patrons. During the taxable years 1934 and 1935 only its member patrons were entitled to share in the corporate profits. Held: petitioner is not exempt from tax as a farmer's cooperative marketing association under section 101(12) of the Revenue Act of 1934.

The taxpayer is an incompetent who is unable to manage her finances and is physically unable to care for herself. Held: incompetent is not entitled to a personal exemption as head of family under section 25(b)(1) of the Revenue Act of 1936; held, further, that amounts paid by the committee in connection with incompetency proceedings and pursuant to court order are not deductible from gross income of the incompetent.

Taxpayer corporation, a manufacturer of sporting goods, kept its books on an accrual basis. Held: taxpayer is not entitled to a deduction on its 1937 income tax return of the amount so paid in 1938 which was accrued by it in 1937.

Petitioner held not entitled to a depletion allowance computed on a percentage basis in 1936 in respect of a gold and silver mine, where no election for such depletion allowance was made in its returns for 1934 and 1935, although reporting net incomes for those years, and where the property was fully exhausted through depletion deductions at the close of 1922.

1. In 1920 petitioner purchased real property for $100,000. It paid $20,000 in cash and gave notes for the remaining $80,000. Held: the transaction constituted a reduction in the purchase price of the property and did not result in taxable gain to petitioner. Hirsch v. Commissioner, 115 Fed.(2d) 656. 2. Under the facts shown petitioner is entitled to deduct as business expenses certain contributions made to the Y.M.C.A. and the chamber of commerce.

During the taxable year petitioner's grain mill, which was operated by water power, was damaged as a result of unusual ice formations exerting pressure against the underpinning or foundation of the… Held: under the facts shown, petitioner is entitled to a loss deduction under section 23(f) of the Revenue Act of 1934 in the amount of the damage sustained.

The petitioner kept its books and filed its return on the accrual basis for the fiscal year ended June 30, 1937. Held: that the obligation to pay $10,000 as further bonus for services rendered did not become fixed and certain during the taxable year and the amount thereof did not constitute an allowable deduction for that year. Commissioner v. Brooklyn Radio Service Corporation, 79 Fed.(2d) 833, followed.

The petitioner, a Delawere corporation, issued all of its capital stock in exchange for all of the shares of capital stock of four corporations. Held: that the petitioner is a personal holding company within the meaning of section 351(b)(1) of the Revenue Act of 1936, as amended.

During the taxable year 1936, petitioner was employed by the United States Army Engineers as a wireless operator on dredging vessels. Held: petitioner is not entitled, in computing income tax liability, to deduct or exclude from gross income the amount paid for lodging and subsistence.

1. The Rowan Drilling Co., a Texas corporation, transferred all of its assets to petitioner, a Delaware corporation organized for that… Held: that the waiver is valid and extended the period for assessment beyond the date the notice of deficiency was mailed to the transferor. 2. Within the time prescribed by statute the respondent filed an amended answer asking that the deficiency be increased and that petitioner be found liable as a transferee for the increased deficiency.

1. Payments of specified amounts made as general consideration under a contract for the optional purchase and the operation of mines, which… Held: not deductible as ordinary and necessary business expense. 2. Payments made as minimum royalties before production under a contract for the optional purchase and the operation of mines, which belong at once to the vendor and are to be applied to the purchase price, held, not deductible as ordinary and necessary business expense.

1. Petitioner purchased municipal bonds on which interest payments were in default and during the taxable years collected the interest which had accrued and… Held: such interest payments represent return of capital and are not tax-exempt interest; held, further, interest paid to carry the municipal bonds may not be deducted by petitioner. 2. During the taxable years petitioner made incidental purchases of nongovernmental securities for purposes of investment and speculation.

In 1933 petitioner entered into a written contract for the purchase of a dredge to be used in its mining business, and as a part of the consideration therefor agreed that no dividends should be paid… Held: petitioner is not entitled to any additional credit under subdivision (1) or (2) of section 26(c), Revenue Act of 1936.

In 1925 petitioner entered into a separation agreement with his wife and in accordance therewith created an irrevocable trust for her benefit. Held: that in the taxable years the trust and the Ohio law had given petitioner a full discharge from his duty to support his divorced wife and that in the taxable years he is not taxable on any of the income of the trust. Helvering v. Fuller,310 U.S. 69.

The amount paid to petitioner pursuant to its contract with an individual covering the loan of a principal sum and measured by a percentage of profits earned by the individual, held to constitute interest. Consequently, petitioner is a personal holding company, as defined by section 351(b)(1) of the Revenue Act of 1934, and is subject to the tax prescribed by section 351(a).

1. PERSONAL HOLDING COMPANY - SEC. 351(b)(1), REVENUE ACT OF 1934 - GROSS INCOME - FOREIGN CORPORATIONS. - The gross income of a foreign corporation for the purpose of section 351(b)(1)(a) is its gross income from sources within the United States only. 2.

1. NONRESIDENT - SEC. 116(a), REVENUE ACT OF 1936 - EXCLUSION FROM INCOME. - An American citizen, who for many years had resided in France and had conducted a business there, remained a nonresident of the United States during the taxable year even though he spent all of that year in this country to which he had returned for a short visit and from which illness prevented his leaving until after the close of the year. 2.

The decedent and his two brothers each transferred an equal number of shares to a trustee and were to receive the income during life, the death of each resulting in the enlargement of the income of… Held: the gross estate includes the value of his interest in the trust.

In 1927 while petitioner was a director of a corporation dividends were declared and paid under circumstances which were later claimed by bondholders to violate provisions of the Oregon Code. Held: petitioner sustained a loss during the taxable year that was not compensated for by insurance or otherwise.

1. EVIDENCE - PAROL EVIDENCE TO VARY THE TERMS OF A WRITTEN CONTRACT. - While parol evidence was admissible to show the true agreement of… Held: that the actual agreement of the parties was shown by the written contract. 2. INCOME TAX DEDUCTIONS - INTEREST. - Where the parties agreed that the purchase price of a piece of property in the amount of $40,000 should be paid in periodic payments extending over a period of 15 years, held, that no part of the payments was interest.

1. The decedent, by will, left his residuary estate in trust with directions that the trustees pay over to his window and his sons, from principal and from profits and income realized thereon, such… Held: that certain amounts paid to the widow during the years 1934, 1935, and 1936 from the income of those years, respectively, constituted allowable deductions for such years under subdivision (c) of section 162 of the Revenue Acts of 1934 and 1936, respectively. 2.

Petitioner in 1933 acquired from a partnership certain securities in a transaction which was nontaxable under section 112(b)(5) of the Revenue Act of 1932. Held: the basis for determining the gain to petitioner on such sale is the cost of such securities to the individual partners who originally contributed them to the partnership and not the fair market value of the securities at the time they were contributed by the partners to the partnership.

Prior to May 1, 1936, petitioner executed a written contract which contained a provision prohibiting it from paying dividends until a debt owed by it was paid in full. Held: that under section 26(c)(1) of the Revenue Act of 1936 petitioner is entitled to a credit in the amount of its adjusted net income for purposes of computation of the surtax on undistributed profits.

Petitioner created an irrevocable trust, of which she was not a remainderman, but received the income. Held: petitioner may not deduct as a loss in her individual Federal income tax return the amount of an assessment upon bank stock, paid by the trustee with funds paid to the trust by the petitioner.

Where petitioner, who was heavily interested in a corporation which was in financial difficulties, loaned securities to the corporation, giving it full power to sell and dispose of them for its… Held: that a sale of such securities after they had thus been loaned to the corporation resulted in no taxable gain to the petitioner. Foremont C. Peck et al., Executors,31 B.T.A. 87, followed.

1. Bad debe deduction disallowed on evidence held not to present facts upon which Board is able to form independent opinion as to worthlessness. 2. Held: such amount was a capital expenditure and not deductible from gross income as business expense. Morgan Jones Estate,43 B.T.A. 691, followed.

- A taxpayer and his partner gave to the mortgagee a quitclaim deed for a piece of property subject to a debt for which they were personally liable and subject to a large amount of back taxes. Held: that the transaction was a sale or exchange and the resulting loss was subject to the limitation of section 117(d) of the Revenue Act of 1936.

1. During the years 1933 and 1934 the petitioner, a mutual life insurance company, maintained the following reserves: (a) additional reserve on noncancellable accident and health policies; (b) Unpaid… Held: that the above reserves constitute reserve funds required by law within the meaning of section 203(a)(2) of the Revenue Acts of 1932 and 1934. 2.

1. Assets held against a liability present value of amounts not yet due on supplementary contracts not involving life contingencies held not to be reserve funds required by law within the meaning of section 203(a)(2) of the Revenue Act of 1932. 2.

During 1928, in recognition of the valuable services theretofore rendered by the petitioner to a corporation of which he was an officer and stockholder and of which his father was president and owned… Held: that the difference between $50 a share and the fair market value thereof represented compensation for services and constituted taxable income to the petitioner.

In 1931 petitioner established trusts for brothers and sisters of petitioner's deceased husband. The beneficiaries had never been members of petitioner's household. Held: income from the trusts is not taxable to petitioner.

In 1934 the corporation in which taxpayers were stockholders increased its capital stock from $500,000 to $1,000,000, consisting of 7,400 shares common and 1,000 shares of class A and 1,600 shares of… Held: that the redemption of the class B preferred stock of taxpayers in 1935 and 1936 was essentially equivalent to the distribution of a taxable dividend under section 115(g) of the Revenue Acts of 1934 and 1936.

1. Sums of money received by petitioner from R corporation were loans and not taxable dividends. 2.

1. Petitioner realized no gain upon the purchase of its own stock. National Home Owners Service Corporation,39 B.T.A. 735, followed. 2. Petitioner was not in receipt of income to the extent it was freed from its obligation to declare dividends on preferred stock repurchased. Houghton & Dutton Co.,26 B.T.A. 52, followed. 3. Amounts recovered in the taxable year upon debts previously charged off as worthless must be included in the income of the taxable year. 4.

A taxpayer, unmarried, who supports and maintains his aged aunt and her family in a residence necessarily apart from his own home, held, entitled as the head of a family to a personal exemption of… Held: entitled as the head of a family to a personal exemption of $2,500.

1. A taxpayer advanced funds for the development of oil leases under a contract which gave him a 30 percent interest in the leases and business and the right to 75 percent of the proceeds of oil… Held: amounts received from oil sales were income and not repayment of loan. 2. Commissions paid by a trading partnership on sales of securities, held, deductible as a business expense. Neuberger v. Commissioner, 104 Fed.(2d) 649, followed. 3.

The return filed by petitioner on March 15, 1933, for the year 1932 did not give the required information as to items of income and… Held: that respondent has not shown that any part of the deficiency was due to fraud with intent to evade tax; held, further, that respondent has shown negligence and intentional disregard on the part of petitioner with respect to the rules and regulations covering the filing of returns and reporting of income and under an alternative…

Committees representing bondholders and shareholders of petitioner entered into an oral agreement that the bondholders would not foreclose on a deed of trust and that the shareholders would not pay… Held: the minutes of the meeting of the shareholders did not constitute a written contract executed by the corporation and petitioner is not entitled to a credit under section 26(c)(1) of the Revenue Act of 1936.

A gift to the National Girl Scouts, Inc., of the remainder interest in the decedent's residuary estate, upon the condition that it remain in possession of and continue to operate certain real… Held: deductible as a charitable bequest.

1. Petitioner, a foreign corporation, realized gain from the purchase of its own American debentrues at a discount in a transaction taking place within the United States. 2. Interest accrued and paid on petitioner's american issue of debentures is not deductible from its income arising from such purchase. (Sec. 232, Revenue Act of 1934.)

Held, on the facts, that the petitioner had no right in the taxable years to income from sale of corporate stock received as dividends by the trust of which she was life beneficiary and that the respondent erred in including same in her income under section 162(b), revenue Act of 1934.

- Although the legal title was in others, the petitioner was the equitable owner of an undivided one-half interest in real estate upon which he had personally given a mortgage accompanied by his own… Held: that he is entitled to deduct a loss in that year under section 23(e) of the Revenue Act of 1936, following Park Chamberlain,41 B.T.A. 10.

Petitioner's amended charter provided for sinking fund for retirement of preferred stock, whereby percentage of net earnings of taxable year after payment of preferred dividends was to be set aside… Held: petitioner is not entitled to credit of such amount under section 26(c)(1), Revenue Act of 1936; charter provision held not a contract within meaning of act.

INCOME - FORGIVENESS OF INDEBTEDNESS. - Forgiveness of debts for back rent and accrued interest, held, to have taken place in the taxable year rather than prior thereto; the forgiveness was not a gift; and the resulting tax liability need not be limited to the tax benefit measured in dollars received by the taxpayer in prior years when it claimed deductions on an accrual method for the rent and interest.

Shortly after the marriage of decedent his wife invested her savings in a business of operating a store in Chardon, Ohio, which decedent had been operating with a partner. Held: that the partition was effective and should be given effect. Accordingly, only that property which decedent left by will should be included in his gross estate.

Taxpayer corporation applied to the R.F.C. for a loan July 2, 1935. Held: there existed no written contract between R.F.C. and the taxpayer executed prior to May 1, 1936, within the meaning of section 26(c)(1) of the Revenue Act of 1936, and taxpayer is, therefore, Frank M. Thompson, Esq., for the respondent.

1. Petitioner in 1932 borrowed a large amount from a bank and agreed in writing to pay no dividend on its capital stock so long as the loan was unpaid, but with a… Held: petitioner is entitled to credit under section 26(c)(1), Act of 1936. Columbia River Paper Mills,43 B.T.A. 263; Paraport Theatre Leasing Corporation,44 B.T.A. 108. 2. The fact that petitioner had cash sufficient to pay the balance of the loan prior to maturity, held not to justify the denial of such credit.

The respondent in determining that certain amounts received by the petitioner ostensibly as compensation for services in 1933 and 1934 constituted income predicated his determination upon the… Held: that the petitioner will not be heard to assert the illegality of the contract as a defense against the deficiencies in tax.

1. In considering exemption of voluntary beneficiary association under section 101(16), Revenue Act of 1934, income used as basis for percentage of employee collections held to include employer contribution. 2. In percentage clause of section 101(16), Revenue Act of 1934, the term income held not to mean net income. 3. Employer contributions to employee voluntary beneficiary association held not constructively received from employees.

Held, that where title to property was retained during the taxable year and petitioner fails to establish alleged worthlessness and abandonment, the respondent's disallowance of claimed loss is… Held: that where title to property was retained during the taxable year and petitioner fails to establish alleged worthlessness and abandonment, the respondent's disallowance of claimed loss is approved.

1. An amount paid upon the purchase of stock, computed at the rate of 6 percent on the agreed price from the time of acceptance by trustees of an offer of the petitioner to buy the stock to the time of judicial approval and consummation of the sale, held not deductible under section 23(b), Revenue Act of 1936, as interest paid or accrued within the taxable year on indebtedness. 2.

1. Petitioner in 1936 and 1937 made all mortgage loans except one to borrowers who were not stockholders. Held: that petitioner is not exempt from Federal income tax under section 101(4) of the Revenue Act of 1936, since substantially all of its business was not confined to making loans to members. 2.

The petitioners, owning a farm subject to a mortgage, entered into an agreement with the mortgagee in 1933 whereby, as consideration for being given… Held: that the losses sustained by the petitioners in 1936 of their investments in the farm did not arise from a sale or exchange of property within the meaning of section 117(d) of the Revenue Act of 1936 and that the petitioners are entitled to deduct from their gross incomes of 1936 the full amount of the losses sustained.

Petitioner's husband created a trust for the benefit of petitioner during her lifetime and for the benefit of his sisters and their children after… Held: The general intent of the grantor as gathered from the whole instrument was that petitioner should receive the net annual income of the trust during her lifetime. (2) Respondent properly included both the cash and the debenture notes in the computation of the income of the trust currently distributable to petitioner.

1. Corporation actively engaged in the business of pawnbroker, and more than 50 percent of the stock of which was owned by less than 5 individuals, held to be a personal holding company within meaning of Revenue Acts of 1934 and 1936, section 351. Noteman v. Welch, 108 Fed.(2d) 206, followed. 2. Failure to file personal holding company returns held to justify imposition of penalties.

As a part of an agreement postponing an earlier contract to buy stock of the W Co. owned by petitioners, the T Co. agreed to pay petitioners annual amounts equivalent to $1.50 per share upon their… Held: the entire dividend on petitioners' shares paid in the taxable year is taxable to petitioners.

Trust created when grantor of four prior trusts, in order to reconstitute them, exercised his reserved power to change beneficiaries and made one of the beneficiaries trustee for all, held, on the… Held: on the evidence one trust rather than four, to which trust income is taxable, beneficiaries not being entitled as grantors to have income taxed to them under section 22(a), 166, or 167, Revenue Act of 1934.

During 1936 petitioner received reimbursements from two of his vendors representing amounts of Federal excise tax burdens included in prices paid by petitioner to such vendors in 1935.

Where petitioner set up a reserve for bonus payments to employees before the legal liability for their payment existed, the amounts so set up are not thereupon deductible.

1. The decedent in her will appointed to her son, an only child, a life estate in trust property, in which her father had bequeathed her a life estate with a general power of appointment over the… Held: that under the laws of the Commonwealth of Pennsylvania the life estate passed to the son under the donor's will and not under the power of appointment exercised by the donee. 2.

- Where two affiliated corporations have been engaged in a series of continuous transactions resulting in a debtor-creditor relationship, and the debtor has sustained losses which have been deducted from income on a consolidated return, the creditor thereafter may not claim another deduction, either by way of worthless stock or had debt, which is traceable directly or indirectly to the losses deducted on the consolidated return, except to the extent that the later losses…

1. All the stockholders of a corporation by petition addressed to its board of directors authorized and consented to a dividend distribution not in proportion to stockholdings, but in proportions… Held: such dividend distribution was preferential within the meaning of section 27(g), Act of 1936. 2. Held, on the facts, that compensation paid to one of petitioner's officers was unreasonable and excessive.

1. Decedent, during his lifetime, executed a deed to the trustee of a trust contemporaneously created by him, conveying an interest to the extent of $200,000 in certain real… Held: since the amount paid by the estate to the trustee did not represent a claim or an indebtedness incurred or contracted by the decedent for an adequate and full consideration in money or money's worth, deduction may not be allowed under section 303(a)(1) of the Revenue Act of 1926 as amended. 2.

Upon the expiration of its charter, a lumber company transferred its timber and timberlands by one deed, and its manufacturing plant and… Held: upon consideration of the terms of the deeds and the activities of the trustee, that the trusts were not created in order to liquidate the assets acquired from the lumber company, but for the purpose of carrying on business for profit, and that the form of their organization more nearly resembled that of a corporation than that of a…

Held, that the date of tax incidence in Texas is January 1, and petitioner, on the accrual basis, is required to accrue its entire city and… Held: that the date of tax incidence in Texas is January 1, and petitioner, on the accrual basis, is required to accrue its entire city and county taxes on real and personal property in that state during its taxable year, which includes January 1, and may not accrue eleven-twelfths thereof in a taxable period beginning the following…

The transferor taxpayer filed a return for 1923 on June 12, 1924, reflecting all transactions during that year except a sale of its assets on August 3, 1923. Held: such return set in motion the operation of the statute of limitations and the assessment of the deflciency in tax resulting from such sale for 1923 against petitioners as transferees is barred by the statute of limitations.

In 1937, the taxable year, petitioner transferred all its assets to the X corporation in exchange for stock of that corporation and then distributed the stock in the X corporation to its stockholders… Held: that in the computation of the surtax imposed by section 14 petitioner is not entitled under section 27(f) to a dividends paid credit.

1. Where a woman created a trust and irrevocably assigned to it certain insurance policies taken out on the life of her husband and also transferred certain securities to the trust with directions to… Held: the income used to pay the premiums on the insurance policies is not taxable to her. Lucy A. Blumenthal,30 B.T.A. 591, followed. 2.

The taxpayer is an incompetent under the guardianship of Raymond J. Koch. Held: that the conservator is not engaged in a business of conserving the estate and he is not engaged in any other business, under the facts; and that the fees of the conservator, custodian, attorney, accountant, court costs, and surety bond costs are not deductible as business expenses under section 23(a) of the Revenue Act of 1936.

Petitioner received income in taxable year from legal sources. Held: such expenditures for illegal purposes are not deductible business expenses under section 23(a) of the Revenue Act of 1936.

CREDIT - PROFITS REQUIRED TO DISCHARGE DEBT. - A provision in a note that the current installment and one additional installment on the principal of the note be paid before any dividends are paid in any year from surplus or net profits, does not entitle the debtor to a credit under section 26(c)(2) of the Revenue Act of 1936, since it does not require that any portion of the earnings and profits of the taxable year be paid in discharge of a debt.

Petitioner's common stock was owned by X corporation. The latter's common stock was owned by Y corporation, which also, together with an individual and Z corporation, owned all of X's preferred stock. Y, Z, and the Individual, as owners of X's pre ferred stock, entered into a contract which provided, among other things, that no dividend should be declared by X or any of its subsidiaries until their indebtedness should be paid. By custom Y acted in contractual matters for petitioner, which acquiesced in such action. Held, that the contract was not executed by petitioner within the meaning of section 26 of the Revenue Act of 1936.

Beginning prior to the year 1934 and extending through the years 1936 and 1937, petitioner continuously operated a coal mine. Held: that for the taxable years 1936 and 1937 petitioner is not entitled to percentage depletion for such property for the reason that it did not elect to have depletion allowance computed on the percentage basis in its first return under the Revenue Act of 1934. sec. 114(b)(4), Revenue Act of 1936; J. E. Riley Investment Co. v.…

- Stockholder-tenants of an apartment building were assessed, and a part of the assessment was intended and was used to retire bonds of the corporation. Held: following Paducah & Illinois Railroad Co.,2 B.T.A. 1001, and 874Park Avenue Corporation,23 B.T.A. 400, that the portion of the assessment collected to retire bonds was a capital contribution to the corporation by the stockholders and was not income to the corporation.

Petitioner's decedent was at the time of his death a member of a New York law partnership under a contract entitling his estate to an accounting by the surviving partners for his interest in the… Held: that the action of respondent was correct in treating such value as properly accruable at date of death and thus includible in income of decedent under section 42 of the Revenue Act of 1936. Helvering v. Enright,312 U.S. 636.

1. The Quintana Petroleum Co. acquired an oil lease by assignment, agreeing to pay to the assignor one-fourth of the net proceeds from the operation of the leased properties. Held: that the $7,142.28 is a capital expenditure and not a legal deduction from gross income. 2.

In 1935 petitioner was indebted to 3 banks and it executed a written agreement with them that, effective January 1, 1936, any net income, as… Held: that, for purposes of section 26(c)(2) of the Revenue Act of 1936, the contractual provision requiring all of petitioner's net income to be applied to the loans was a provision dealing with the disposition of petitioner's earnings and profits of the taxable year; (2) that the contractual provision in the agreement with the banks…

In 1934 petitioner applied to a private loan company for a loan. The loan company obtained from R.F.C. a loan to be reloaned to petitioner. Held: that the original loan and loan agreement was extended by the R.F.C. and in 1937 petitioner was prohibited from paying dividends by a written contract executed prior to May 1, 1936, and was therefore entitled to a credit under section 26(c)(1) of the Revenue Act of 1936.

Taxpayer corporation on September 9, 1935, entered into a written agreement with a second corporation, whose properties had been turned over to petitioner to operate. Held: inasmuch as it does not appear that this income was earned subsequent to August 28, 1936, the taxpayer is not entitled to credit pursuant to section 26(c)(1) of the Revenue Act of 1936.

1. Gifts by decedent to natural objects of his bounty within one year of death, held, on facts, not to be transfers in contemplation of death. 2. Held: on facts, not to be transfers in contemplation of death. 2. Attorneys' fees incurred in present proceeding held deductible from gross estate.

At the beginning of 1936 petitioner had no earnings or profits accumulated after February 28, 1913. It distributed in 1936 $125,000. Held: that petitioner is not entitled to a dividends paid credit for nontaxable distributions in the amount of $44,248.36 under the limitation of section 27(h).

1. Petitioner executed a mortgage in which it agreed not to pay dividends until the principal of bonds maturing in each year and interest on all outstanding bonds shall have been provided for. Held: the contract did not prohibit payment of dividends in the taxable years under section 26(c)(1) of the Revenue Act of 1936. 2.

Held, on the facts, that the petitioner was in the taxable year domiciled in Texas, and entitled to report his Federal income on a community property basis. Held: on the facts, that the petitioner was in the taxable year domiciled in Texas, and entitled to report his Federal income on a community property basis.

State court decree adopting construction, urged by parties, including present petitioner, that property in issue passed by decedent's exercise of a testamentary general power of appointment, held,… Held: conclusive and to require that property be included in decedent's estate.

Loss incurred by partnership in trade or business of buying and selling securities for its won account, held, capital loss subject to limitations of Revenue Act of 1936, section 117, O, L. Held: capital loss subject to limitations of Revenue Act of 1936, section 117, O, L. Burnett,40 B.T.A. 605; affirmed on this issue (C.C.A., 5th Cir.), 118 Fed.(2d) 659, followed; that section so applied, held, further, not to be unconstitutional.

1. During the taxable year two North Carolina corporations entered into a written agreement of merger and consolidation to form a new corporation, the petitioner. Held: the transfer of the assets of the debtor corporation to the new corporation was a sale and not a reorganization and petitioner is not entitled to use as a basis for depreciation the transferor's cost of the assets thus acquired. Prairie Oil & Gas Co. v. Motter, 66 Fed.(2d) 309. 2.

By the creation of a trust whereby the income is to be paid to the settlor for life, then to two others for life, the property then to go to children, if any, when they reach twenty-one, or, if none, then to testamentary appointees of the settlor, held, the settlor is not subject to gift tax upon the value of the remainder.

Petitioner transferred to his wife, without consideration, shares of stock which had been pledged as collateral security for his debt. The stock had a value slightly in excess of the indebtedness. Held: that the value of the gift is an amount equal to the excess of the value of the stock over the indebtedness.

In 1922 petitioner took out two 20-payment life insurance policies. Held: petitioner in discharging the liens sustained a loss in the amount of the liens; held, further, the loss was incurred in a transaction entered into for profit and is deductible under section 23(e)(2), Revenue Act of 1936.

During the years 1920 through 1935 a corporation keeping its books on the accrual basis credited to its vice president and deducted in its income tax returns certain amounts as salary and interest. Held: that the amount of the canceled indebtedness is includable in the corporation's income for 1936 only to the extent it benefited from the deductions taken in prior years.

- The income of a trust for the taxable year, which was to be accumulated and added to corpus, was taxable to the grantor, who retained the power to revoke the trust at any time after January 1, 1950, and regain the corpus.

1. The petitioner, from 1927 to 1936, inclusive, withdrew funds from the corporation in which he held stock in excess of his salary and other credits. Held: that the excess withdrawals constituted a liquidating dividend. 2.

Petitioner's husband, while in prison, assigned his equity in certain real property to her to dispose of for his benefit. Held: petitioner is not liable as the transferee within the meaning of section 311, Revenue Acts of 1934 and 1936.

Held, petitioner did not actually or constructively receive certain stock or the value thereof in the taxable year. Held: petitioner did not actually or constructively receive certain stock or the value thereof in the taxable year.

1. Prior to 1920 petitioner created two trusts for his then wife A and in consideration therefor she released him from all rights to alimony. Held: that petitioner is not taxable on the income from the trusts which was distributed to A in the taxable years. 2. In 1938 petitioner's then wife B began an action against him for divorce and alimony in the Superior Court of Connecticut.

Petitioner during the years 1934 and 1935 was acting as executor for a large estate, and for his services as executor he was paid substantial sums as compensation in both years. Held: that petitioner in performing his duties as executor for pay was carrying on a trade or business within the meaning of section 23(a), Revenue Act of 1934, and the sums which he paid out for the above described services are deductible as ordinary and necessary business expenses.

The petitioner owned all the stock of another corporation and borrowed $15,000 from that subsidiary. Held: that a $15,000 dividends paid credit is allowable. Credit Alliance Corporation,42 B.T.A. 1020, followed.

Petitioner corporation entered into contracts with its four shareholders for the purchase of milk products from the shareholders. Held: that the bonus was in the nature of a dividend and was not a part of cost of goods sold. Peoples Gin Co.,41 B.T.A. 343; affd., 118 Fed.(2d) 72, followed.

During its fiscal year ended in 1937 petitioner entered into agreements with and reimbursed its vendees for a portion of processing taxes which it had included in the price of wheat products sold to… Held: In order to clearly reflect petitioner's income for the fiscal year ended June 30, 1935, such reimbursements are deductible in computing its net income for that year under the provisions of section 43 of the Revenue Act of 1934.

Petitioner was devised and bequeathed a life estate in personal property, including securities, with right to income during life, right to use principal for support of himself,… Held: interpreting the provisions of the will under the law of Ohio and on the facts, that capital gains from sale of securities belonging to the estate constituted principal and that the respondent erred in including them in petitioner's gross income under sections 161 and 162, Revenue Act of 1936.

1. INCOME. - Petitioner accrued, but did not pay, real estate taxes which were deducted from income on its returns for several years prior… Held: that, petitioner having derived the benefit of deductions from income in prior years on account of accrued but unpaid realty taxes in the amount of $5,336.30 and having been relieved through cancellation in 1936 of its liability to pay such taxes, the amount of liability of which it was relieved constituted taxable income in 1936.…

1. In the taxable year petitioner transferred to profit and loss (surplus) certain amounts representing unclaimed deposits of former customers, and certain amounts representing unclaimed overpayments… Held: the amounts so transferred to surplus were taxable income to petitioner in the year transferred to surplus. 2. Losses from embezzlement of funds are sustained in the year embezzled and are deductible only for that year.

1. In 1937 the petitioner, at a cost of $20,413.80, acquired certain contracts from the Keedoozle Corporation for the operation of food stores by the use of electrical devices. Held: that the loss was sustained in 1937. 2. In 1937 the petitioner elected to redeem its outstanding 8 percent and 7 percent preferred stock, which was callable at a premium.

Petitioner has continuously resided in the State of Washington for the last 46 years. Prior to October 7, 1919, he was unmarried. Held: that the dividends received on such stock in the taxable years were the separate property of petitioner and properly includable as income in computing his tax liability.

A distribution in liquidation in 1937 held taxable upon 30 percent of the gain, since earlier distributions in 1935 and 1936 are shown not to have been in liquidation.

1. A cooperative association, by appropriate resolution of its board of directors, accrued upon its books its earnings, less taxes, interest on its paid-up capital, and an addition to its permanent… Held: that the amounts credited to the members represented rebates upon the business transacted by them and should not be included in computing the income tax of the cooperative association. Cooperative Oil Association, Inc. v. Commissioner, 115 Fed.(2d) 666, distinguished. 2.

Decedent and her husband were residents of the State of Washingtonduring the existence of their marriage and inseparably commingled their… Held: that the whole of such intermingled income was the community property of the spouses; held, further, that decedent's estate was the beneficial owner of such land to the extent that her one-half interest in the community funds was used in its purchase and that gain realized on the sale of such interest is taxable to her estate.

The value for estate tax purposes of the decedent's interest in a partnership composed of himself and his son, which terminated with his death, held, to be one-fourth of the book value of the assets… Held: to be one-fourth of the book value of the assets of the partnership and not one-fourth of 10 times the average annual earnings of the partnership for the period of 5 years prior to the death of the decedent.

Held, that the basis of corporate stock sold is, in accordance with agreement that Helvering v. Gambrill,313 U.S. 11 controls, the value at… Held: that the basis of corporate stock sold is, in accordance with agreement that Helvering v. Gambrill,313 U.S. 11 controls, the value at date of receipt by testamentary trustee from executor; held, further, that in the absence of plea estoppel, and on the facts, petitioner is entitled to deduct the basis of the stock from the sale…

Petitioners' decedent, a solvent taxpayer, denied, in a court proceeding, his liability under a mortgage given in lieu of one assumed in connection with the purchase of a piece of real estate,… Held: that the transaction did not result in taxable income to the decedent.

Petitioner on facts held to be an association taxable as a corporation. Del Mar Addition v. Commissioner (C.C.A., 5th Cir.), 113 Fed.(2d) 410, followed.

1. DEDUCTIONS - INTEREST OR DIVIDENDS. - Six percent cumulative nonvoting, so-called preferred stock redeemable on fixed dates was not preferred stock but an indebtedness, and the amount paid thereon as dividends, which was payable regardless of profits, was interest and deductible under section 23(b) of the Revenue Act of 1936. 2.

Under the provisions of a will creating a testamentary trust, petitioner was given so much of the net income thereof as she may desire in each and every year, and any unexpended portion of the net… Held: that none of the amount in question was capital gain of the trust in 1935 and it is not taxable to petitioner. 2. For the years 1932 and 1933, petitioner reported for taxation on her income tax returns only the amounts which she actually received from the trust.

Under a merger of two corporations the petitioners exchanged their shares of stock in one corporation solely for shares of stock of the continuing corporation. Held: that the merger resulted in a reorganization of the corporations within the meaning of section 112(g)(1) of the Revenue Act of 1934 and that under section 112(b)(3) of the same act the gain, if any, to the shareholders resulting from the exchange of shares is not recognizable for income tax purposes.

During 1937 petitioner received from certain Canadian corporations dividends less the Canadian income tax thereon. In his income tax return for that year, filed on March 12, 1938, petitioner reported the amounts actually received, the amount of net income being the same as would have been shown by the inclusion of the full dividends in gross income and the deduction of the Canadian income tax withheld.

In determining the value of a revocable trust includable in the gross estate for estate tax purposes, under section 302 of the Revenue Act of… Held: Attorneys' fees incurred subsequent to the time of dededent's death are not proper reductions; (2) trustee's commissions existing as a liability of the trust at the time of decedent's death are proper reductions; and (3) other miscellaneous expenses attributable to the administration of the trust which were not shown to be…

Held, on the facts, that the petitioner, a class I steam railroad under the Classification of the Interstate Commerce Commission, keeping its accounts upon the retirement method not reflecting… Held: on the facts, that the petitioner, a class I steam railroad under the Classification of the Interstate Commerce Commission, keeping its accounts upon the retirement method not reflecting depreciation, has not shown error in denial of deductions for depreciation.

Two foreign corporations, outside of the United States, exchanged oil and gas leases in Texas for stock in a transaction which, if between domestic corporations, would have constituted a nontaxable… Held: that the transaction resulted in income from sources in the United States, under section 119(a)(5), and that section 112(i) was properly applied to require taxation thereof to the foreign corporation exchanging the leases for stock.

In 1930, prior to the taxable years involved in these proceedings, petitioners acquired certain N. V. Held: petitioners did not acquire the Unilever shares in 1930 as a gift; held, further, that petitioners acquired such shares in a taxable exchange and that, in the determination of gain or loss upon the sale of such shares of stock in the taxable years, petitioners have failed to prove that the stock had any cost basis to them, and the…

1. In May 1927 Isaac W. Frank, and in 1930 he and his wife each, created irrevocable trusts with securities as corpus. Held: The Frandel Partnership is a partnership within the meaning of section 1001(a)(3) of the Revenue Act of 1936.

The receipt of warrants, representing rights to subscribe to preferred stock of a corporation by the petitioner, who was a holder of its common stock, and having a fair market value at the time of such receipt, constituted taxable income under the provisions of section 22(a) and (d) and section 115(f)(1) of the Revenue Act of 1936.

Petitioner, a bus transportation company, has not established its right here to deduct as its ordinary and necessary business expense the operating deficit of its subsidiary, to the payment of which petitioner was committed by contract with the subsidiary.

To determine whether a citizen engaged in the wholesale tobacco business in the Philippine Islands, who filed no return, is entitled to the benefit of section 251(a), Revenue Acts of 1934 and 1936, because the gross income from the active conduct of trade or business in the Philippines is more than 50 percent of his total gross income, the Philippine tobacco taxes are not a factor in the computation of gross income, but are to be treated as a deduction from gross income.

On its return for the taxable year petitioner deducted $2,340 as a reasonable allowance for personal services actually rendered by one of its officers and directors. Held: the amount allowed by respondent constitutes a reasonable allowance for the personal services actually rendered; held, further, no part of the $1,740 disallowed id deductible as a pension, or as a payment in the nature of a pension.

On October 18, 1934, petitioner borrowed $125,000 from trust company A and delivered that amount to trust company B, as trustee, to be held under a trust indenture for the benefit of a sister-in-law. Held: that the bond was not a legally enforceable obligation and that petitioner is not entitled to a deduction for interest paid on indebtedness with respect to the payments made to the trustee in the taxable year.

An insurance company, doing a small life insurance business and a large health and accident insurance business, was required by the laws of Missouri to maintain a reserve for the fulfillment of its… Held: The reserve maintained by petitioner during the taxable years in connection with its health and accident business was an unearned premium reserve.

Where a trust mortgage securing petitioner's bonded indebtedness required payment to the sinking fund of an amount equal to a percentage of its earnings for any year, and in any event, a minimum… Held: petitioner was not required to pay or set aside in the taxable year any portion of its earnings of the taxable year and is not entitled to a credit under section 26(c)(2) of the Revenue Act of 1936.

The petitioner owned all the stock in a corporation, the charter of which expired. The business was continued as before. Held: that the basis to petitioner of new shares sold was the average cost of the new shares, represented by the cost base (cost of old shares) of the assets transferred to the new corporation.

X corporation, all of whose stock was owned by Y corporation, contracted with its sole stockholder to pay over to it all of its net earnings in each year. Held: The credit to Y by X on its books of its entire net earnings, on which it had paid tax, and the entry by Y on its books of these earnings as received from X constituted payment by X of the amount of the credit, in the year in which such earnings were determined and the several book entries made.

Upon the facts disclosed, it is held: (1) A one-fifth interest in a farm, acquired by petitioner Robert M Harriss in 1920 and sold to a brother in 1933, was a capital asset and the loss realized on… Held: A one-fifth interest in a farm, acquired by petitioner Robert M Harriss in 1920 and sold to a brother in 1933, was a capital asset and the loss realized on the sale was a capital loss.

1. Trust provisions reserving to the grantor broad powers of operation and control, including the right to sell to and buy from himself trust property at his own price, to speculate without accountability, and to invest with no restrictions whatever and with no liability for loss, constitute the substantial equivalent of a power to revest. Income from such trust property is taxable to the grantor under section 166 of the Revenue Acts of 1934 and 1936. 2.

1. In 1936 the petitioner paid its secretary, who owned two-ninths of its preferred stock and one-third of its common stock, a salary of $125 per week from May 27, 1936, to the end of the calendar… Held: that reasonable compensation for the services performed was not in excess of $1,538.25, the amount allowed by the respondent. 2.

Petitioner corporation was organized by a committee of bondholders subsequent to default of interest on the bonds. The bonds had been issued in connection with a mortgage on real property. Held: that the interest was properly accrued and is deductible by petitioner.

Held, on the facts, that each petitioner was a member of a partnership within the meaning of section 1001(a)(3), Revenue Act of 1936;… Held: on the facts, that each petitioner was a member of a partnership within the meaning of section 1001(a)(3), Revenue Act of 1936; held, further, that the respondent did not err in allowing the partnership capital loss of $2,000 in computing partnership net income distributable to the partners, and in denying the claim of each partner…

Petitioner was the owner of some bonds which had been issued in a prior year by a corporation operating a chain of hotels. Held: the reorganization under section 77B of the Bankruptcy Act was a reorganization within the meaning of section 112(g), Revenue Act of 1936, and petitioner was not entitled to take his loss as a bad debt at or about the time he exchanged his old bonds for cash and the new income bonds; held, further, when petitioner, later on in the…

1. Shares of a corporation held by an employee with the restriction that he could not sell them without its consent, and upon his resignation or death they should be offered to the corporation for a… Held: for gift tax purposes, not to be without value. 2. The value fixed by the Commissioner held not shown to be too high.

1. Petitioner's decedent was at the time of his death a member of a law partnership and executor and trustee of estates. Held: following Helvering v. Enright,312 U.S. 636, that the amounts received by the petitioner constitute accrued income to the decedent within the meaning of section 42 of the Revenue Act of 1936, which does not violate the Fifth and Sixteenth Amendments. 2.

1. Where an individual moves out of one residence into another, using his equity in the first as part of the purchase price for the second, and then continues to use the latter as a residence for a… Held: under the evidence, to constitute a gift and not additional compensation for services rendered.

1. The aggregate of the amounts which can be distributed within the taxable year as dividends without violating a provision of a written contract executed by the corporation prior to May 1, 1936 includes undivided profits on hand at the beginning of the taxable year and the current net earnings of that year. 2.

- The petitioner acquired Illinois realty on August 1, 1938. The real property taxes for the year 1938 accrued on April 1, 1938. Held: the petitioner may not deduct five-twelfths or any other portion of the 1938 taxes, since they accrued before it purchased the property.

Petitioner in 1936 transferred certain properties in trust, reserving to herself an annuity of $700 per month and disposing of the corpus on her death among her descendants. Held, petitioner did not make a completed gift of the trust properties in 1936 subject to gift tax under section 501 of the Revenue Act of 1932 as amended by section 511 of the Revenue Act of 1934.

1. Petitioner is the surviving spouse of decedent, who died testate in the taxable year leaving a large estate consisting entirely of community property. Held: that community property interest, rents, and dividends received by the executor of decedent's estate during administration are taxable to the estate in toto and no part thereof to the surviving spouse. Barbour v. Commissioner, 89 Fed.(2d) 474 followed. 2.

1. Two partners acquired the interest of a third. In order to effectuate a transfer of the real estate from the partnership of three to the partnership of two the property was deeded to a straw man. Held: that the two were at all times the equitable owners of the real estate, the straw man being a mere accommodation holder of, and conduit for, the title. Their basis is therefore the actual cost of the realty rather than $100. 2.

During the taxable year petitioner and its principal creditor, who was its majority stockholder, mutually waived the restrictions as to payment of dividends contained in a written contract executed… Held: such waiver deprives petitioner of any credit under section 26(c)(1), Revenue Act of 1936.

Petitioner, the owner of railroad properties in Pennsylvania, concluded in 1930 that these properties would be obsolete in 1934. Held: the petitioner is not concluded by the judgment of the District Court in contesting before the Board the disallowance of obsolescence deductions in the taxable years, following Bankers Pocahontas Coal Co. v. Burnet,287 U.S. 308.

1. Increase, due to delay in payment, in award paid to petitioner under Michigan law in condemnation of property of which she retained possession until payment, held, taxable as capital gain and not as interest. Estate of Edgar S Appleby,41 B.T.A. 18, followed. 2. Depreciation on condemned property between determination of value and relinquishment of possession held not allowable.

ORDINARY AND NECESSARY EXPENSES. - Dues on exchange seats carried purely as an investment are not deductible.

Petitioner created two trusts in 1920 and reserved in himself alone the power to change the disposition of both principal and income among the beneficiaries of each trust but reserved no power to… Held: the release of the reserved powers in 1938 resulted in taxable gifts of the fair market value of the corpora at that time. Sanford's Estate v. Commissioner,308 U.S. 39.

Petitioner, a Puerto Rican corporation engaged in the manufacture of rum, in the taxable year 1935 entered into an exclusive marketing agreement with a New York distributor under which it sold 66… Held: gross income from such sales did not arise within the United States but in Puerto Rico, where the sales were completed.

1. Property held by the entirety was conveyed to a trust less than two years before the husband's death; the spouses reserved income and a joint power of revocation or modification during their joint… Held: properly included in the husband's gross estate (a) because the evidence fails to overcome the determination that the trust was created in contemplation of death; (b) because of the power to revoke and the reservation of life income. 2.

1. In contemplation of divorce petitioner executed two trust instruments irrevocable in form and providing for a possibility of reverter in one trust and a reversion is… Held: that only that part of the income of the first trust which was devoted to the support of the petitioner's minor child is taxable to him. The income of the second trust which was paid to his former wife in the taxable years is not taxable to petitioner. Helvering v. Fuller,310 U.S. 69, followed. 2.

- Syndicate was not an association taxable as a corporation and no loss was realized when it was terminated and its assets distributed.

Petitioner and his wife owned all of their property in community in the State of Washington until, by a property settlement approved by decree of the Superior Court in the year 1935, such… Held: that the income tax act of 1936 imposed income taxes on such income as his separate property and an obligation on petitioner to pay the same, prior to the entry of the vacating decree, and that such decree did not affect the right of the Government to tax the income on such basis.

Petitioner made two casual sales of stock in the taxable year, the total consideration in each case being a promissory note payable on or before five years from date. Held: that the payment made in each case was an initial payment under section 44(b) of the Revenue Act of 1936, and petitioner is entitled to return on the installment basis the gain realized in each transaction.

1. Depletion and depreciation deductions redetermined. 2. Written contracts not expressly dealing with the payment of dividends held not to justify credit under section 26(c)(1), Revenue Act 1936. 3.

- Where an insolvent corporation transferred al of its assests, subject to liabilities, to its principal creditor for a sum and in cancellation of the remaining indebtedness, there was no distribution in complete liquidation within the meaning of section 112(b)(6) of the Revenue Act of 1936, even though the creditor owned practically all of the stock of the insolvent corporation.

On December 27, 1935, the Mary E. Fulham trust, which is set out in 40 B.T.A. 48, was amended so as to forever preclude any part of the corpus, income or accumulations of the trust fund from vesting… Held: no part of the income of the trust is taxable to the grantor under the provisions of sections 166, 167, or 22(a) of the Revenue Act of 1936. Commissioner v. Branch, 114 Fed.(2d) 985, followed.

1. Where the wife of a grantor of a trust was given the current income for life and a limited testamentary power of appointment over corpus and income, she had an interest in the corpus substantially adverse to that of the grantor, and capital gains of the trust are not taxable to the grantor under section 166 of the Revenue Act of 1936. 2.

A contract made in 1928 with an insurance company by the decedent during life, whereby she was to receive an annuity, the fund thereafter to be used and distributed among her descendants in prescribed manner and at prescribed times, held to take effect in possession or enjoyment at or after death, and the value thereof held properly within the gross estate of decedent who died in 1935. Revenue Act of 1932, sec. 803(a).

The petitioner is a Virginia industrial loan association whose business during the years 1936 and 1937 consisted entirely of receiving deposits and making loans and discounts. Held: that it is a bank within the meaning of section 104(a) of the Revenue Act of 1936.

Petitioner, a corporation organized in 1923 for the purpose of conducting department stores either directly or through stock ownership and acting as purchasing agent for them and others, operated a… Held: the receipts of the petitioner for these services in the taxable years are gross income to it for those years and are not such income as is defined in section 351(b)(1)(A) of the Revenue Act of 1934.

Petitioner during the taxable year leased properties owned by it under an agreement by which it received from the lessee a $21,000 payment at the time of the execution of the lease to serve as… Held: the payment thus received is taxable to the petitioner in the year of its receipt as advance rental.

1. Article 22(a)(16) of Regulations 94, promulgated under the 1936 Act, continuing the administrative interpretation announced in 1934 by T.D. 4430, relating to gain or loss to a corporation in dealings in its own capital stock, is applicable to a transaction made in 1937. 2. The fair market value of shares of its own stock received by petitioner in an exchange of property determined for the purpose of computing gain or loss.

Petitioner issued preference shares and provided for annual dividends thereon, and for the payment by petitioner of the state income tax… Held: the amounts paid representing the state income tax imposed on the shareholders as to dividends paid to them are not deductible by petitioner either as ordinary and necessary expenses or as taxes paid under section 23 of the Revenue Acts of 1934 and 1936; held, further, that the amounts paid for shareholders' state income taxes were…

- A dividend declared but not paid or credited because of litigation as to the ownership of shares does not entitle the corporation to a credit under section 27(a) of the Revenue Act of 1936.

1. When a solvent taxpayer settles a debt for less than the full amount, the saving as a general rule is income. 2. Held: upon the evidence, not to establish insolvency. 3. In the settlement of a secured debt for less than its amount, it is not the release of the pledged property from the lien that constitutes the realization of income, it is the obliteration of the debt itself. 4.

- One who inherits an oil payment is entitled to recoup the value thereof at date of acquisition before he has income from the receipts, but oil royalties are all income to the heir, being income from the inheritance. Sec. 22(b)(3), Revenue Act of 1936. Commissioner v. Laird, 91 Fed.(2d) 498, followed.

DEDUCTION - DEPLETION. - Percentage depletion does not depend upon whether or not the taxpayer has any cost basis for the property.

INCOME - ACCRUED TO DATE OF DEATH - SECTION 42, REVENUE ACT OF 1934. - A share of a fee, unearned and unpaid at the date of death of a law partner, thereafter paid to his estate as a moral obligation, is not income accrued up to the date of his death within the meaning of section 42 of the Revenue Act of 1934.

- The profit from the sale of land was not properly accrued for 1935 when the acreage to be purchased had not been determined, title had not been examined or approved, and purchase and payment were dependent upon those things being done, even though the seller, without request from the purchaser, placed a deed for an excessive acreage on record and accrued on its books an excessive amount as purchase price.

Decedent and his wife were married in 1910 and until the date of his death in 1936 they lived in the State of Washington, a community property state. Held: the total amounts credited to decedent's account in the fund in excess of contributions by decedent are taxable to him and his surviving wife in the year of his death. Dillis C. Knapp,41 B.T.A. 23, followed.

- Since a gift from one spouse to another remains revocable by the donor under the laws of Louisiana, the value of the gift is included in the gross estate of the donor under section 302(d)(1) of the Revenue Act of 1926 as amended by section 401 of the Revenue Act of 1934, which makes no distinction between a right of revocation acquired in this way and one expressly retained by the donor.

Prior to the last quarter of 1930, petitioners were engaged in investing in securities. Held: From October 9, 1930, through 1933, petitioners were engaged in the business of trading in securities; (2) those securities acquired by petitioners subsequent to the advent of their new policy, October 9, 1930, and held for more than two years were being held for sale in 1933 in the course of a trade or business and losses from the…

Pro rata redemption by a corporation of a portion of its stock at a value computed upon net current earnings for the taxable year with the intention of legally distributing such earnings, thus… Held: essentially equivalent, on the facts, to the distribution of a taxable dividend under section 115(g) of the Revenue Act of 1936.

In addition to petitioner's farming activities, which are conceded to constitute a business carried on by him, he managed his own personal… Held: under the facts, petitioner's activities other than his farming operations did not constitute a trade or business carried on by him during the taxable years, and 75 percent of the necessary office expenses should be allocated to business and deducted from gross income in each of the years and the remainder is not deductible as a…

ESTATE TAX - DEDUCTIONS - CLAIMS AGAINST ESTATE. - Alimony decreed by court is deductible, not being based upon agreement.

In late 1932 and early 1933 the major stockholder of Motor Works proposed a merger or consolidation of that corporation with a… Held: that the assets were not acquired by the new corporation from Motor Works in a reorganization within the meaning of section 112(g)(1) of the Revenue Act of 1934 and the assets sold by the sheriff and thereafter transferred to the new corporation for stock did not retain in the hands of the new corporation the same basis as when the…

Corporation A and corporation B entered into a contract whereby A was to incorporate petitioner and transfer to it certain patent rights in exchange for all of petitioner's stock, a portion of which… Held: the contract entered into by the promoters of petitioner was not executed by petitioner within the meaning of section 26(c)(1) of the Revenue Act of 1936, and petitioner is not entitled to the credit provided for in that section.

1. INCOME. - Held that the net fair market value of the building erected by the lessee on leased premises owned by petitioners constituted income to petitioners in the year of the forfeiture of the… Held: further, that such income constituted ordinary income rather than capital gain. 2.

Discharged executor held to be the proper person to file a petition for redetermination where the notice of deficiency was directed to him and he had failed to notify the respondent of the termination of his fiduciary capacity as required by section 312, Revenue Act of 1936.