Volume 44 — Tax Court Memorandum

Held, amounts paid for the purchase of a tractor and snow blower were not deductible as medical expenses. Held further, the Court will not consider an issue not raised in the pleadings. Held: amounts paid for the purchase of a tractor and snow blower were not deductible as medical expenses. Held further, the Court will not consider an issue not raised in the pleadings.

During 1976 and 1977, P owned and operated a farm with respect to which he never reported a profit. He also owned a tavern and a beauty shop and engaged in the practice of law. Held: the operation of the farm was an activity * * * not engaged in for profit within the meaning of sec. 183, I.R.C. 1954. Held, further, P may deduct expenses allocable to the tavern as it was used in a trade or business.

Held, issuance of a note to a qualified profit-sharing plan does not entitle the issuer to a deduction under section 404(a). Don E. Williams Co. v. Commissioner,429 U.S. 569 (1977) followed. Held: issuance of a note to a qualified profit-sharing plan does not entitle the issuer to a deduction under section 404(a). Don E. Williams Co. v. Commissioner,429 U.S. 569 (1977) followed.

Held: (1) Petitioner's status as an individual does not require that he be exempt from income taxation. Held: Petitioner's status as an individual does not require that he be exempt from income taxation. (2) Petitioner's status as an individual precludes him from being exempt from income taxation as a church.

Held: (1) Petitioners have failed to show that the $ 3,100 they paid, for materials from Educational Scientific Publishers and for instruction in the use of such materials, qualifies for deduction… Held: Petitioners have failed to show that the $ 3,100 they paid, for materials from Educational Scientific Publishers and for instruction in the use of such materials, qualifies for deduction under any of the paragraphs of section 212, I.R.C. 1954.

Held, a $17,000 check drawn on a Swiss bank and deposited in petitioner's account was not additional income to petitioners in 1975. Held,further, petitioner adequately substantiated the business purpose of trips taken to Equador and New Haven in 1975 and the expenses incident thereto are deductible. Held,further, petitioners are not liable for an addition to tax for negligence under sec. 6653(a), I.R.C. 1954, for 1975.

In 1975, P, who maintained his family residence in Jonesboro, Ga., accepted employment with the TVA at Spring City, Tenn. Held: P may not deduct his expenses of traveling to and living in Spring City since he was not away from home while working there.

H and W were divorced in 1975. Under the divorce decree, W was awarded custody of their three minor children, and H was required to make monthly payments to W for the support of W and such children. Held: under Georgia law, H's legal obligation to pay alimony to W ceased on her remarriage, since the divorce decree did not otherwise provide.

Petitioner, a minister, did not file an appropriate application for exemption from payment of self-employment tax within the time limits set forth in sec. 1402(e), I.R.C. 1954. Held, application of the self-employment tax does not violate petitioner's First Amendment rights. Henson v. Commissioner,66 T.C. 835, 838 (1976). Held further, the time requirements for filing an application provided in sec. 1402(e)(2) do not violate the Fifth Amendment.

Petitioner never filed any application for exemption from self-employment tax after 1967. Held, petitioner's request around 1960 to the Social Security Administration for refund of self-employment taxes does not constitute a proper assertion of exemption under sec. 1402(e), I.R.C. 1954. Held further, application of the self-employment tax does not violate petitioner's First Amendment rights. Henson v. Commissioner,66 T.C. 835, 838 (1976). Held further, the time requirements for filing an application provided in sec. 1402(e)(2) do not violate the Fifth Amendment.

Held: For income averaging purposes in computational year 1977, negative taxable income for the 4 base years must be adjusted to zero pursuant to section 1.1302-2(b)(1), Income Tax… Held: For income averaging purposes in computational year 1977, negative taxable income for the 4 base years must be adjusted to zero pursuant to section 1.1302-2(b)(1), Income Tax Regs., prior to addition of the zero bracket amount as required by section 1302(b)(3) of the Internal Revenue Code.

Petitioner has been an independent Baptist minister since 1954. Held: Petitioner is not entitled to an exemption from the tax on self-employment income provided by section 1402(b) since he failed to file an application for exemption (Form 4361) within the time prescribed by section 1402(e)(2).

P filed an application for exemption from tax on self-employment income, wherein he indicated that he was conscientiously opposed to the acceptance of public, but not private, insurance benefits. Held: the Commissioner did not act arbitrarily in denying P's exemption. Held, further, the self-employment tax is constitutional as applied to P, and he is liable for such tax.

Held, petitioner has not established its right to deduct a country club transfer fee it paid. Held: petitioner has not established its right to deduct a country club transfer fee it paid. Heldfurther, no deduction is allowed for a note which was delivered to a profit-sharing trust within the statutory time period for making deductible contributions but which was not actually paid within such period.

Held: (1) Payments of $1,000,000 and $25,000 made by the corporate petitioner to petitioner-husband were dividends and not repayments of loans. Held: Payments of $1,000,000 and $25,000 made by the corporate petitioner to petitioner-husband were dividends and not repayments of loans. These amounts are includible in petitioner-husband's gross income. Sec. 301(c)(1), I.R.C. 1954. (2) The corporate petitioner's working capital did not exceed the reasonable needs of its business.

P purchased an aircraft in 1973, sold it in 1976, and purchased another aircraft on which he claimed an investment tax credit. Held: P is not entitled to an investment tax credit since he failed to prove that the arrangement with the corporation was not a lease and that the lease met the requirements of sec. 46(c)(3)(B), I.R.C. 1954, relating to noncorporate lessors.

Excess of reimbursements to its shareholders for travel expenses over amounts actually spent by them for travel held to be nondeductible constructive dividends rather than additional compensation for services rendered.

1. Use of source and application of funds method for computing petitioners' taxable income, approved under the circumstances. 2. Taxpayer's personal expenses determined by using appropriate Bureau of Labor Statistics tables. 3. Additions to tax for negligence not imposed.

Petitioners acquired assets of four corporations in the business of automotive parts sales and one corporation in the warehouse business. Held: the total value of opening inventory for petitioners was $ 1,332,646.35; held further, a portion of the purchase price was attributable to goodwill; held further, the value of such goodwill is determined by use of the residual or gap method.

Held: Various sums disbursed by petitioner were not made with an intent to create an indebtedness of the payee to the payor; therefore, petitioner was not entitled to claim bad debt deductions with respect to these disbursements.

Petitioner is a religious organization, which conducts weekly worship services and intercessory prayer services, and Bible study. Petitioner also has its own school with three teachers. Held: in this action for declaratory judgment under section 7428(a), I.R.C. 1954, the administrative record fails to establish that no part of petitioner's net earnings inures to the benefit of private individuals.

Held, checks deposited in petitioner's United States bank account are amounts received within the United States for purposes of section 931(b). Held: checks deposited in petitioner's United States bank account are amounts received within the United States for purposes of section 931(b).

Held, evidence obtained in a search and seizure, conducted by the Seattle Police Department and assumed for purposes of this case to have been illegal, is admissible in this Federal… Held: evidence obtained in a search and seizure, conducted by the Seattle Police Department and assumed for purposes of this case to have been illegal, is admissible in this Federal civil tax proceeding. United States v. Janis, 428 U.S. 433 (1976); Guzzetta v. Commissioner, 78 T.C. 173 (1982).

P was a pilot of a C-130 in the Air National Guard. Held: the expenses of the flight engineer course are not deductible as ordinary and necessary business expenses since such training did not maintain or improve the skills required by P in his employment as a pilot, and such training led to P's qualifying for a new trade or business.

Petitioner-husband was president of a corporation in which he owned no stock. He paid for blazer and vest sets to be worn by those employees who were to represent the corporation at a trade show. He did not apply for reimbursement of his expenditure. Held: the expenditure is deductible by petitioners as an ordinary and necessary expense of petitioner-husband's trade or business as an employee.

During the years 1957 to 1974, petitioner acquired interests in a number of business enterprises. These interests generally were acquired by petitioner with a view to increasing their value through his personal efforts and through the infusion of capital. In 1970 petitioner incorporated General Illumination as sole shareholder. Thereafter, he executed guaranties of a number of loans to General Illumination from various creditors. In 1973 General Illumination declared bankruptcy and petitioner was required to honor the guaranties in the amount of $287,437.42. Held, the guaranties did not constitute bona fide debt obligations, but rather constituted capital contributions to General Illumination to the extent of the payments on such guaranties. Held further, petitioner was not engaged in the trade or business of developing and promoting corporations, and therefore the loss incurred by petitioner is governed by sec. 165(g)(1), I.R.C. 1954. Held further, respondent did not timely raise the issue of whether petitioner's "stock" in General Illumination became worthless in 1974.

1. Unexplained deposits in petitioners' savings accounts determined to be taxable income to petitioners 2. Loans made to owner-employee by issuing insurance company on an annuity policy issued under an HR-10 retirement plan covering the owner-employee are taxable to the owner-employee as income under secs. 72(m)(4)(B) and 72(a), I.R.C. 1954. 3. Petitioners failed to prove petitioner made a direct contribution of $832.85 to the HR-10 plan in 1974. 4.

Respondent determined that petitioners understated income and that they are not entitled to various miscellaneous deductions for the taxable year 1974. Held: respondent's determinations with respect to the unreported income and excessive deductions are sustained. Held further, petitioners are not liable for the addition to tax pursuant to section 6653(a), I.R.C. 1954.

Petitioner Ronald taught industrial arts in a multiracial and multicultural junior high school in Minneapolis in 1977, and petitioner Alice was a second grade teacher in a low income area about 60… Held: Petitioners are entitled to deduct as educational expenses that part of the travel, food, and lodgings expenses incurred on the trip attributable to Ronald, but may not deduct that part of those expenses attributable to Alice and the children. Allocation determined.

Held: The sale of a shipyard by petitioner Edgar S. Everhart to petitioner Associated Naval Architects is to be respected for tax purposes. Held: The sale of a shipyard by petitioner Edgar S. Everhart to petitioner Associated Naval Architects is to be respected for tax purposes. Held further: Marine railways, piers and wharves involved herein are properties described in section 1250 and thus the recapture provision of that section is to be applied.

Petitioner, Virginia Woods Briant, was a U.S. citizen in 1976 but had lived in Canada since 1972. Held: petitioner is subject to the U.S. self-employment tax. Held,further, a debt arising out of a loan made by petitioner in 1975 to an individual who thereafter disappeared became worthless in 1976 and petitioners are entitled to a nonbusiness bad debt deduction in the amount thereof for 1976.

Respondent determined that petitioner under-reported income by $18,590.74 for 1975 and by $40,799.49 for 1976. Held: petitioner's testimony with respect to purported loans from his father during 1975 and 1976 is credible. Accordingly, the discrepancies revealed by respondent's bank deposits and cash expenditures method are in part attributable to these loans.

Petitioners (policemen, firemen, magistrates, FAA employees, and maintenance employees) were residents of the Canal Zone during the years at issue. The Canal Zone Government did not allow private ownership of housing or land in the Canal Zone by any United States Government employee. Hence, all lodging and utilities were owned by the Canal Zone Government. The value of rent and utilities was withheld each month from the wages of petitioners. Petitioners claimed exclusions under sec. 119, I.R.C. 1954, from their taxable income for the years at issue for the amounts withheld from their wages for the payment of rent and utilities. Held, the claimed exclusions are denied on the ground that petitioners have failed to satisfy the requirement that their lodging be furnished on the business premises of the employer. Sec. 1.119-1(b), Income Tax Regs.Benninghoff v. Commissioner,71 T.C. 216 (1978), affd. 614 F.2d 398 (5th Cir. 1980) followed.

Taxpayer D lost his records of and receipts for his 1977 employee business expenses. He attempted to reconstruct these expenses in part by using his records and receipts for 1978. Held, D lost his 1977 records and receipts due to circumstances beyond his control within the meaning of sec. 1.274-5(c)(5), Income Tax Regs.Held further, D's records and receipts for 1978 reasonably reconstruct his 1977 expenses for meals, laundry, and cleaning incurred while he was away from home on business.

During the years at issue, petitioner claimed deductions for expenses incurred incident to his research in shrimp and fish culture. Held: petitioner lacked an actual and honest profit objective and therefore the research expenses are not deductible under either sec. 162, sec. 212, or sec. 174, I.R.C. 1954.

Petitioners failed to file Federal income tax returns for the taxable years 1973 through 1976. Held: respondent's determinations are sustained.

In 1966, P retired on disability, but at the time of such retirement and during 1976 and 1977, he was not permanently and totally disabled. Held: since P was not permanently and totally disabled at the time of his retirement or in 1976 or 1977, he does not qualify for the exclusion of any of his disability pension under sec. 105(d), I.R.C. 1954, as applicable to taxable years beginning after 1976, or under the transitional rules contained in sec. 505(c), Tax Reform Act of…

Petitioner is organized to collect monthly payments from franchisees of Insty-Prints, Inc. which payments are to be used solely for the advertising and promotion of the Insty-Prints business. Held: Payments received by petitioner for advertising and promotion are not income to petitioner. Ford Dealers Advertising Fund, Inc. v. Commissioner,55 T.C. 761 (1971), affd.

Held, since P did not appear at trial and offerred no evidence, the Commissioner's motion to dismiss for lack of prosecution is granted; therefore, P is liable for the… Held: since P did not appear at trial and offerred no evidence, the Commissioner's motion to dismiss for lack of prosecution is granted; therefore, P is liable for the deficiencies determined by the Commissioner and for an addition to tax under sec. 6654, I.R.C. 1954, for failure to pay estimated tax.

Held: in this action for declaratory judgment under section 7428(a), I.R.C. 1954, the administrative record fails to establish that… Held: in this action for declaratory judgment under section 7428(a), I.R.C. 1954, the administrative record fails to establish that petitioner is organized or operated exclusively for one or more of the exempt purposes enumerated in section 501(c)(3) or section 170(c)(2)(B), I.R.C. 1954, (and not to promote its founder's ideas and writings…

Respondent determined that petitioners under-reported income by $42,145.81 for 1974 and by $20,042.11 for 1975. Held: the discrepancies revealed by respondent's bank deposit method are in part attributable to loans made to petitioners by various persons. Held further, petitioners have not proved that they are entitled to deduct alleged partnership losses for the years in question.

Held: Petitioner is not entitled to a bad debt deduction in 1973 because the debt was a nonbusiness debt and he did not establish that it became wholly worthless in 1973. Held: Petitioner is not entitled to a bad debt deduction in 1973 because the debt was a nonbusiness debt and he did not establish that it became wholly worthless in 1973.

Petitioners filed their 1976 income tax return on or about April 18, 1978. Held: Petitioners did not have reasonable cause for their failure to timely file their 1976 income tax return and so are liable for an addition to tax under section 6651(a)(1), I.R.C. 1954.

Held: Petitioner is not entitled to a bad debt deduction in 1977 because the debt arising from his payment as guarantor on the note of a corporation in which he owned stock was a non-business debt… Held: Petitioner is not entitled to a bad debt deduction in 1977 because the debt arising from his payment as guarantor on the note of a corporation in which he owned stock was a non-business debt that did not become totally worthless in 1977.

Held, deductions for business mileage, employee compensation and sales tax determined. Held: deductions for business mileage, employee compensation and sales tax determined. Held further, petitioners are liable for an increased deficiency attributable to a mathematical error on their 1975 return.

P was employed by GEC as a chief engineer. Additionally, GEC paid P a percentage of the selling price of inventions created by P and marketed by GEC. Held: although P was employed by GEC as a chief engineer he was also a self-employed inventor. Accordingly, contributions made by P to a self-employment retirement plan are deductible and interest earned thereon is nontaxable.

Held: Because the term of the lease was not limited to the three-year period stated in the lease agreement but was of indefinite duration, it was not… Held: Because the term of the lease was not limited to the three-year period stated in the lease agreement but was of indefinite duration, it was not less than 50 percent of the useful life of the leased equipment; therefore, sec. 46(e)(3) precluded the lessor from taking any investment credit with respect to such property.

Petitioners received a partnership interest from B and J in exchange for discharging B and J's indebtedness to petitioners. Held: the basis of a partnership interest received in exchange for the cancellation of indebtedness is limited to the fair market value of the interest at the time acquired, unless such interest has no ascertainable fair market value, in which case the basis for such interest is the face amount of the indebtedness discharged.

Held: Petitioner, by failing to show that his former spouse was not a title owner of certain properties received by him pursuant to a divorce decree, did not bear his burden of proving that payments made by him to his former spouse were in the nature of support. Accordingly, the payments are not deductible.

Held: Petitioners' claimed expenses for entertainment, the maintenance of a mobile home and emergency call-back transportation expenses are not ordinary and necessary business expenses under section 162; Heldfurther: Petitioners are liable for the section 6653(a) negligence penalty.

Held: Petitioner, a primary schoolteacher, is not entitled to an employee business expense deduction under section 162(a) for expenses attributable to the purchase of a newspaper subscription, a… Held: Petitioner, a primary schoolteacher, is not entitled to an employee business expense deduction under section 162(a) for expenses attributable to the purchase of a newspaper subscription, a camera and an aircraft.

Held: Income from a contract between P and a contractor was not properly accruable in its taxable year ended April 30, 1976, as all events which fixed its right to the income did not occur prior to… Held: Income from a contract between P and a contractor was not properly accruable in its taxable year ended April 30, 1976, as all events which fixed its right to the income did not occur prior to the close of its taxable year.

During the 1977 taxable year, petitioner deducted $1,385 in expenses incurred by him to make long-distance phone calls while away from home on business. Held: petitioner has failed to prove that the disputed expenses were incurred for business reasons, and therefore the claimed deductions must be disallowed.

Petitioner was an employee of Penn Central, earning $18,868.91 in 1974. On occasional weekends, petitioner also performed work for the P.J. Polinsky Construction Company doing track repair. He received a Form 1099 MISC for 1974 from Polinsky Construction indicating he was paid $2,624 during 1974. Petitioner reported this amount on his tax return for that year. Thereafter, the Internal Revenue Service received a Form 1099 MISC from Polinsky Construction which showed petitioner had received income of $18,631 during 1974. Respondent determined a deficiency in tax based on the latter amount. Held, petitioner earned only $2,624 from Polinsky Construction in 1974; any excess paid to him was distributed to workers under his supervision for their services and is not properly taxable to him.

Held, the deductibility of 1977 and 1978 losses from taxpayers' activities in connection with the charter boat Hippocanudius are not limited by sections 183 and 280A, I.R.C. 1954. Held: the deductibility of 1977 and 1978 losses from taxpayers' activities in connection with the charter boat Hippocanudius are not limited by sections 183 and 280A, I.R.C. 1954.

Inland Asphalt elected to terminate its subchapter S election in 1969. Immediately prior to such termination, it made certain distributions to its two shareholders. Held: Inland Asphalt is not entitled to deduct the payments made by its as ordinary and necessary business expenses under section 162. Old Town Corp. v. Commissioner,37 T.C. 845 (1962) distinguished.

Floyd Paxton, the decedent of the petitioner estate invented and patented plastic closures. He licensed the patents to corporation Y which, in turn, granted its subsidiary, petitioner corporation I, non-exclusive licenses to exploit the patents. Paxton later invented and patented plastic closures with labels attached and assigned these latter patents to IDT, a family trust. IDT sold the patents to petitioner corporation Y, which then granted petitioner corporation I an exclusive license to exploit the patents. The corporation granted an exclusive license to another petitioner corporation. Held: The patents for closures with labels are not embodied in the earlier patent for closures without labels; therefore, all of the transactions among the parties are effective for tax purposes. In an earlier proceeding we held that the income of PFT trust was taxable to petitioner grantor because the grantor's son, a trustee, did not hold a substantial adverse interest. That decision was affirmed, based, in part, upon the size of the son's ownership in the trust which was not the rationale of our holding. In the instant proceeding the son owns a larger interest in the trust. Held: The doctrine of collateral estoppel does not apply because there has been a change in facts which form the basis of the opinion of the Court of Appeals. Held further: Based upon the facts presented in this proceeding the son does not hold a substantial adverse interest and the income of the PFT trust is taxable to the grantor. Individual petitioners created IDT trust, naming son as trustee. Held: Petitioner grantor's son holds a substantial adverse interest in IDT and tis income is not taxable to individual petitioners.

Held: (1) The notice of deficiency was mailed less than three years after the returns were filed for the years in issue; assessments are not barred by the statute of limitations. Held: The notice of deficiency was mailed less than three years after the returns were filed for the years in issue; assessments are not barred by the statute of limitations. Sec. 6501(a), I.R.C. 1954.

Held,ESP-type family trust not recognized.

Held: (1) Petitioners' unreported income determined. (2) Expenses attributable to unreported income determined. Held: Petitioners' unreported income determined. (2) Expenses attributable to unreported income determined. (3) Amount of constructive dividends inuring to controlling shareholder's benefit determined. (4) Amount of business purchases determined. (5) Certain alleged commission expenses disallowed.

Petitioner was the owner of two tractors, both of which were operated under contract to Bekins Van Lines. One of the tractors was driven by petitioner, the other by a Mr. Paulsen. Held, petitioner incurred deductible labor expenses for compensation paid to Mr. Paulsen in the amounts of $10,400 in 1973, $13,000 in 1974, and $15,000 in 1975. Held further, petitioner incurred deductible expenses for the hiring of temporary labor in the amounts of $14,497 in 1973, $15,014 in 1974, and $14,118 in 1975. Labor expense deductions claimed in excess of these amounts are denied for failure to substantiate. Held further, petitioner's deductions for meals and lodging expenses are limited to the amounts allowed by respondent. Held further, petitioner is liable for additions to tax pursuant to sec. 6653(a), I.R.C. 1954.

Held: Petitioner provided at least one-half of his support in each of the years 1972 through 1976; therefore he is entitled to use income averaging in computing income tax for 1976 and 1977. Held: Petitioner provided at least one-half of his support in each of the years 1972 through 1976; therefore he is entitled to use income averaging in computing income tax for 1976 and 1977. Held further: Certain charitable contributions are found to be substantiated and allowed.

Held: A deposit received by G corporation was not received as an advance payment for the sale of goods, but was received as the purchase price for shares… Held: A deposit received by G corporation was not received as an advance payment for the sale of goods, but was received as the purchase price for shares of its stock that were purportedly issued for security purposes only. G corporation is, therefore, not required to recognize any gain or loss upon receipt of the deposit.

Petitioners failed to produce books and records, failed to cooperate with respondent's auditing agent, failed to respond to respondent's discovery requests, and failed to appear for trial. Held: respondent carried his burden of proof on the fraud issue.

Held: Respondent's disallowance of petitioner's claimed business expense and casualty loss deductions sustained. Held: Respondent's disallowance of petitioner's claimed business expense and casualty loss deductions sustained.

Held: Amount of adjusted basis in the stock of Cuban corporations whose assets were confiscated by the Castro regime determined. Held: Amount of adjusted basis in the stock of Cuban corporations whose assets were confiscated by the Castro regime determined. Held further: Respondent's determination of basis in timber sold by Trust to Crown-Zellerbach corporation in 1973 sustained.

Held, fair market value of unlisted stock contributed to charity determined.

P filed Forms 1040 for 1976 and 1977 on which he failed to provide specific information as to income and deductions. Held: P is liable for the deficiencies determined by the Commissioner. Held, further, as the Forms 1040 do not constitute returns, P is liable for the additions to tax under sec. 6651(a)(1), I.R.C. 1954, for failure to file returns.

Held: (1) Deduction for automobile expoenses disallowed for failure to satisfy substantiation requirements of section 274(d) and for failure to adduce any evidence as to what portion of the deduction… Held: Deduction for automobile expoenses disallowed for failure to satisfy substantiation requirements of section 274(d) and for failure to adduce any evidence as to what portion of the deduction claimed is allocable to local transportation expenses.

Held: Because petitioner's mother had income in excess of $750 during each of the years in issue petitioner is neither entitled to a dependency exemption… Held: Because petitioner's mother had income in excess of $750 during each of the years in issue petitioner is neither entitled to a dependency exemption deduction for her nor entitled to head of household filing status. Held further: Under Louisiana law there was no valid inter vivos donation of funds to petitioner.

P, a pipefitter, earned wages during 1977 and 1978. He filed false Forms W-4 with his employers and claimed that he was exempt from withholding. Held: P's wages constitute income received by him. Held, further, P is liable for the addition to tax for fraud under sec. 6653(b), I.R.C. 1954.

Held: Mortgage payments made by petitioner's former husband on residence awarded to petitioner by divorce decree are not alimony under sec. 71. Held: Mortgage payments made by petitioner's former husband on residence awarded to petitioner by divorce decree are not alimony under sec. 71.

Held: Petitioner's chartering of a canal barge was not an activity engaged in for profit.

Held: Petitioner's unreported income determined; fraud addition to the tax not sustained.

Petitioner advanced $37,869.49 to H & R on December 26, 1975, to cover his share of the estimated costs of drilling two oil wells. Held: petitioner's advance to H & R constituted an investment in a drilling venture and was not itself deductible as intangible drilling and development costs (IDC). Sec. 263(c), I.R.C. 1954; sec. 1.612-4, Income Tax Regs. The wells never were drilled, H & R did not prepay drillers or service companies in 1975.

Ps failed to file returns within the meaning of sec. 6011, I.R.C. 1954, and at trial, they offered no evidence to refute the Commissioner's determination of deficiencies and additions to tax. Held, the Commissioner's determination of deficiencies is sustained. Held, further, additions to tax under secs. 6651(a)(1), 6653(a), and 6654(a), I.R.C. 1954, are sustained.

Held, fair market value of real property determined. Held: fair market value of real property determined.

Held: Amounts of reasonable compensation determined. Held: Amounts of reasonable compensation determined.

In 1968 petitioner advanced a total of $25,000 to his brother in order to enable him to set up a leasing business. Held: a bona fide debt was created between petitioner and his brother in 1968. Held further, petitioner has not proven that the the debt became worthless in 1975, the year at issue. Held further, because petitioner introduced no evidence in support of a claimed $83.42 medical expense deduction, it must be disallowed.

Petitioner was a pathology resident at the Northwestern University Medical School. As a member of the house staff of Northwestern University, he was assigned to two hospitals during 1977. Held: the primary purpose underlying the payment was to compensate petitioner for services rendered and not to educate him. Therefore, petitioner's exclusion claimed pursuant to sec. 117, I.R.C. 1954, is denied.

(1) Petitioners bought an apartment house in 1973; they made rehabilitation expenditures in each of the years 1974 through 1977. Held: petitioners did not make a valid election of 60-month depreciation under section 167(k), I.R.C. 1954, nor did they properly request permission to change from straight line depreciation to 125-percent declining balance depreciation otherwise available under section 167(j), I.R.C. 1954.

From October 4, 1973 until late 1976, petitioner was assigned to an offshore drilling rig anchored outside the territorial waters of Singapore. Petitioner worked 2 out of every 3 weeks during this period. He spent his free time in Singapore, where he leased an apartment. In December 1976, petitioner was transferred to Malta, where he again took up lodgings. Petitioner remained in Malta until the early part of 1979. During 1975 and 1976, petitioner returned to the United States three times. Held, petitioner has established by "strong proof" that he was a bona fide resident of a foreign country for the 1975 and 1976 taxable years.

Ps purchased a new residence on June 13, 1975, and on their Federal income tax return for that year, they claimed a credit under sec. 44, I.R.C. 1954, for the purchase of a new residence. They encountered economic difficulties and sold such residence on April 29, 1977. In attempting to find a new residence, they again encountered economic difficulties and did not purchase one until March 31, 1980. Held, the credit allowed on the purchase of the first residence is subject to recapture since it was sold prematurely and was not replaced timely with another residence.

Held: (1) During 1973, P was married and must file as a married person filing separately, since he failed to show that he was legally divorced or separated from his wife, or that she was no longer… Held: During 1973, P was married and must file as a married person filing separately, since he failed to show that he was legally divorced or separated from his wife, or that she was no longer living.

Petitioner and her husband were legally separated during the year in question and lived in separate residences during this time. Held: petitioner's income for 1974 must be calculated by reference to the head-of-household rates. Held further, petitioner is not entitled to a dependency exemption for her husband. Held further, a home office deduction claimed by petitioner for 1974 is disallowed.

Petitioners claimed casualty loss for estimated cost of repairs to garage floor which cracked due to freezing weather. Held: cost of repairs method for establishing the amount of a casualty loss under sec. 1.165-7(a)(2)(ii), Income Tax Regs., is only satisfied by actual repairs and expenditures. Since petitioners only presented an estimate of the costs of repairs they are not entitled to any casualty loss.

(1) Petitioners acquired a parcel of real property in Richmond, Virginia, in late 1977. They rented the property to a relative beginning in January 1978. Held: they are not entitled to deduct their 1977 expenses with respect to this property. (2) Petitioners owned several rental properties in or near Ahoskie, North Carolina. Held: they have failed to show that claimed management fees for these properties were paid in 1977.

Petitioner was married from 1936 until 1979, and filed joint income tax returns with her husband for the years of their marriage prior to 1974. Held: petitioner intended to file joint returns with her husband during the years in question.

Petitioner, an air traffic controller, held a private pilot license. Held: the courses maintained and improved his skills but their costs are nondeductible as educational expenses because the training qualified him for a new trade or business. Sec. 1.162-5(b)(3), Income Tax Regs.

Petitioner, an air traffic controller, took flight training courses that culminated in his receiving a private pilot's license and instrument rating certification. Held: the private pilot's course maintained and improved his skills as an air traffic controller and therefore that cost of such course is deductible as an educational expense.

Petitioners owned a lakefront residence on Lake Erie. In 1973 petitioners built a breakwall to protect against erosion. Held: petitioners have established that the diminution in the value of their property in 1975 was at least equal to the amount of the casualty loss claimed and therefore they are entitled to the claimed deduction.

Petitioner-husband was an independent contractor producing counter tops. Held: Petitioners did not use any portion of their house exclusively for business purposes and so may not deduct any of the expenditures for their house as trade or business expenses. Sec. 280A, I.R.C. 1954. (2) Deductible amount of telephone expenses is determined.

Petitioners' purchase of a new residence in 1975 qualified for the new principal residence credit provided by sec. 44, I.R.C. 1954. Held: the credit claimed in 1975 must be recaptured in 1978 despite the fact that the disposition produced a loss.

1. Individual life insurance policies issued to all officers and wives of corporate petitioner were issued as part of a group term life insurance plan and the premiums paid by corporate petitioner constituted additional compensation to the officers and are deductible as such by the corporation. 2.

Held: Petitioner's weekly payments of $35.00 to his former wife for two years were not for support nor contingent on death, remarriage, or change in economic… Held: Petitioner's weekly payments of $35.00 to his former wife for two years were not for support nor contingent on death, remarriage, or change in economic circumstances of either spouse. Thus, they may not be treated as periodic within the meaning of section 71 and hence are not deductible under section 215.

Petitioners have failed to produce documents despite a specific order of this Court directing them to do so. Held, petitioners' failure constitutes a default under the circumstances of this case. Held: petitioners' failure constitutes a default under the circumstances of this case. Respondent's Motion to Impose Sanctions seeking a judgment for default under Rule 104(c)(3), Tax Court Rules of Practice and Procedure, is granted.

Petitioners used one room in their house exclusively for practice and rehearsals in connection with their trades or businesses as employees of the University of Rhode Island and the Rhode Island… Held: Petitioners did not use this room as their principal place of business for each of their trades or businesses and so may not deduct any of their expenses and depreciation for this room. Sec. 280A, I.R.C. 1954.

Petitioner served as accountant for Ohio Farmers and B & T Tool during the years in issue. Over that period of time, he wrongfully appropriated funds of these two corporations for his personal use. Held: the amounts appropriated by petitioner during 1969 through 1972 constitute income to him for those years. Held further, petitioner is liable for the addition to tax for fraud pursuant to section 6653(b), I.R.C. 1954, for each of the years in question.

Petitioners claim that the self-employment taxes are unconstitutional because (1) there will not be sufficient funds in the Social Security system to pay petitioner-husband's benefits when due, and… Held: the self-employment taxes are not unconstitutional even if petitioner-husband receives no benefits under the Social Security system.

Held, under the facts petitioners did not make a completed gift of land to the United States. Held: under the facts petitioners did not make a completed gift of land to the United States.

Held, petitioner failed to report $1,500 of taxable income. Held further, petitioner is not entitled to a home office deduction under sec. 280A(c)(1). Held further, petitioner is not entitled to a deduction for moving expenses in excess of the amount allowed by respondent.