Volume 45 — Board of Tax Appeals

1. Taxpayer on the accrual basis is entitled to accrue the value of certain equipment in the year the right to receive it becomes fixed, notwithstanding actual delivery is not made until a subsequent… Held: under the facts the accrued salary of $24,000 was deductible as an ordinary and necessary business expense incurred in the taxable year. 3.

A personal holding company had a deficit at the beginning of the taxable year, taxable net income during the year, but, due to nondeductible capital losses, an actual loss from the operation of the… Held: the respondent did not err in determining a deficiency based upon the taxable net income of the year; held, further, no error in asserting 25 percent penalty for failing to file personal holding company return.

Pursuant to a resolution of the board of directors the petitioner, in 1936, offered to purchase from its three shareholders not to exceed 50 shares of its preferred stock at a price of $450 per share. Two of the stockholders waived their rights under the option, the third accepted the offer and in 1936 sold to the petitioner 38 shares at the price offered. Held that the petitioner is not entitled to a dividends paid credit representing the difference ($13,300) between the issued price of the stock and the price paid in the redemption thereof.

Personal exemption of $2,500 as head of a family disallowed where the taxpayer supported his divorced wife and his invalid sister in separate residences.

1. Petitioner is the transferee of one Giles, who in the year 1926 sold certain real property with a basis of $5,720, taking in exchange therefor notes with a face value of $98,700. Held: petitioner must use as basis in computing gain the basis of the property to its transferor. Gain so computed is the difference between $5,720 and $80,000. 2. Payment of $5,000 extra compensation to petitioner's general manager for special services, held, reasonable. 3.

- Where the petitioner placed property in trust, to be divided equally and the income from one-half to be paid to her mother for life, but retained the power to appoint by will the remainder after the life estate and the right to withdraw up to a certain amount with the consent of the mother, the income from the one-half set up for the benefit of the mother is not taxable to the petitioner. Sections 166, 167, and 22(a) of the Revenue Act of 1936 have no application.

In 1937 the petitioner, owning a one-sixth undivided interest in real estate and being unwilling to advance money for the payment of accrued interest and taxes due, and for the purpose of making a… Held: that the petitioner's loss from his investment in the property is not a legal deduction from gross income under section 24(a)(6) of the Revenue Act of 1936, since the transaction was between members of a family.

In 1937 petitioner was vice president of a bank in Atlanta, Georgia, at a salary of $19,000 per annum and received notice that he was to be elected president of the bank in 1938 at an increased… Held: that the amounts which petitioner thus paid in 1937 were in the nature of personal expenditures and were not ordinary and necessary expenses paid by petitioner in carrying on his business of being one of the chief executive officers of the bank.

1. Irrevocable trust to which were transferred agreements by an insurance company to make payments upon decedent's death, which were only available to decedent and acquired by her in connection with… Held: includable in decedent's gross estate under Revenue Act of 1926, section 302(c) as amended. 2. Fees and expenses of proceeding to account in connection with the trust held not deductible as charge against estate or administration expense.

- A termination charge due and paid to trustees of a trust which terminated at the death of a decedent who had retained and exercised a power of appointment by will over the trust was deductible from the gross estate under section 303(a)(1) of the Revenue Act of 1926 as amended.

The petitioner issued first and second mortgage bonds in 1923, secured by mortgage contracts which were amended in 1933 and 1934 respectively. Held: the only contract which required the petitioner to set aside its earnings and profits in the taxable year to discharge a debt or which prohibited it from paying dividends was executed after May 1, 1936, and petitioner is therefore not entitled to credit under the provisions of section 26(c)(1) or (2) of the Revenue Act of 1936.

In 1930 the decedent purchased an oil royalty in California, taking title in himself and wife as joint tenants with the right of survivorship. Held: decedent and his wife owned the contract as tenants in common and only the value of his interest therein should be included in his gross estate.

Petitioners owned property in a special improvement sewer district created under authority of a state statute. Held: that the taxes assessed under authority of the repealing act against petitioners' lands, and paid by them, not being assessed against a benefit of a kind tending to increase the value of such lands, their deduction in computing net income is not precluded by section 23(c)(4) of the Revenue Act of 1936.

Petitioners' father took out life insurance policies on his own life and, pursuant to his request, the company agreed to pay the proceeds thereof to the insured's mother in monthly installments for… Held: the payments received by petitioners are exempt from taxation under section 22(b)(1) of the Revenue Act of 1936, and no part thereof is taxable to them as interest.

Under the evidence it is held that the payment of a substantial sum to the petitioner by his former employer constituted additional income rather than a gift. Bogardus v. Commissioner,302 U.S. 34, distinguished.

1. Petitioner is engaged in the outdoor advertising business and keeps its books on the accrual basis. Held: advance payments received by petitioner during the taxable year are includible in gross income of that year. 2. In the taxable year petitioner paid $4,000 in compromise of litigation brought against it involving substantially the same issues as a previous suit which it had won. Both suits attacked petitioner's title to property.

- 1936 income taxes of Massachusetts imposed upon an estate are not deductible by a trustee under the will of the decedent, who later took over the residue of the estate and actually paid the amount of the taxes, since the estate and the trust are separate taxpayers and no obligation qua taxes was imposed upon the trust.

X, recently a widower, offered to give petitioner, his niece, 300 shares of A.T. & T. Co. stock if she would come to his home to live with him and his family in Illinois. Held: under the facts, these receipts constituted taxable income and not a gift.

Robert Lyons Hague and Mary Lewis Hague, husband and wife, filed a joint income tax return for 1936. Hague died in March 1939. Held: that as to the estate of Robert Lyons Hague the respondent is justified in treating as income the bank deposits to the extent not shown to be of a character other than income, but as to Mary Lewis Hague none of the deposits in question constituted income and as to her there is no deficiency.

In 1936 petitioner's issued and outstanding stock consisted, in part, of 8 percent cumulative preferred stock on which undeclared dividends were in arrears. Held: That part of the new stock received by the stockholders was not a stock dividend, no stock dividend being involved in the exchange. (2) Petitioner is not entitled to a dividends paid credit of $35,100 under section 27(e).

1. Value of trust created by decedent held not part of gross estate by reason of decedent's inter vivos power to terminate trust with consent of the life tenant, merely because she was his wife,… Held: taxable as part of decedent's estate. Lehman v. Commissioner, 109 Fed.(2d) 99, and Estate of Mary H. Hughes n, 44 B.T.A. 1196, followed.

Pursuant to an agreement to which the beneficiary of a testamentary trust was a party, distribution of funds in an estate was delayed… Held: the sum received by the beneficiary was interest and as such was properly includible in the gross income of the beneficiary, and, since it was in excess of 25 percent of the amount reported in the return for 1936, section 275(c) of the Revenue Act of 1936 applies and thereby extends the statutory period for assessment from 18 months…

The petitioner during each year of its existence, up to and including the taxable year, had operated at a loss. Held: the Commissioner did not err in adjusting the cost basis of the property sold by the depreciation allowable, though no income existed from which to deduct such depreciation. United States v. Ludey,274 U.S. 295; Hardwick Realty Co. v. Commissioner, 29 Fed.(2d) 498.

- Real estate taxes and trustees' commissions of a trust of which the decedent was life beneficiary must be allocated to the period before and the period after his death in accordance with the laws of the situs of the trust for the purpose of determining the distributable income of each period.

Petitioner, a syndicate organized to develop and sell lots in a Florida cemetery, during the taxable years assumed active management of the cemetery. Held: the petitioner is taxable as a corporation; held, further, it was engaged in business and is liable for excess profits tax.

1. Petitioner, prior to the taxable year, created separate trusts for each of his five minor children. He named himself and his wife as trustees. Held: the trusts were irrevocable and the income of the trusts is not taxable to petitioner under section 166, Revenue Act of 1934. 2.

- A trust created to execute a lease on a single property and pay rent to a group of beneficial owners was not taxable as a corporation.

- A trust to hold real estate for a partnership using the premises as a restaurant, which trust merely received enough rent to defray expenses, was not an association taxable as a corporation.

1. Notations on the face of, and in, the return that petitioner had dissolved and a request made at the close of a document attached to the return for an immediate examination of the return were not sufficient to put the Commissioner on notice of intention to shorten the statutory period for assessment. 2. The petitioner has not shown that it is entitled to an adjustment of its surtax liability for dividends paid during the taxable year.

The petitioner received in 1936 income under an oil payment reserved in an assignment of oil and gas leases, payment of which income was refused in earlier years because of… Held: that the assignees producing the oil or gas were not agents, joint adventurers, or fiduciaries with reference to the petitioner, and that the proceeds of production were not available to the petitioner until 1936 because of the litigation, and were properly included in his income in 1936.

In determining that part of a distribution in liquidation which is properly chargeable to the earnings or profits accumulated after February… Held: that all liabilities, including Federal income and surtaxes and penalties, which are proper accruals must first be accrued and deducted from such earnings or profits accumulated after February 28, 1913; held, further, that the Commissioner is in error in contending that the deficiency and penalty which he has determined against…

A corporation procured a contract with a steel company to take all its slag for a term of years, and then agreed with the petitioner, a corporation organized… Held: that only the cost of the plant to petitioner is depreciable by it, since cost, as used in the statute, means cost to the taxpayer only; held, further, that the half of the cost of the plant paid for by the slag company was not a gift by that company to petitioner, so as to thereby increase its depreciable basc.

Where a testamentary trust provided that the income thereof could be either distributed to the beneficiaries or added to the principal, in the sole discretion of the trustee, without obligation to… Held: further, that income received during the taxable year by the trustee and not distributed or credited to the beneficiaries within that year but held by the trustee is taxable to such trustee and not to the beneficiaries.

1. By contract petitioner was obligated to pay certain sums periodically to sinking fund trustees in order to meet interest and retirement requirements under a bond issue. Held: contract did not expressly deal with earnings and profits of the taxable year and petitioner is not entitled to credit for payments made thereunder pursuant to section 26(c)(2), Act of 1936. 2. Petitioner in the taxable year purchased certain of its bonds at a discount.

Held, that the sole or principal support of a first cousin or other individual of a more remote degree of blood relationship does not entitle the taxpayer to the exemption of a head of a family. Held: that the sole or principal support of a first cousin or other individual of a more remote degree of blood relationship does not entitle the taxpayer to the exemption of a head of a family.

JOINT RETURN - DEATH OF SPOUSE - COMMUNITY. - The right to file a joint return ceases upon death of a spouse. The surviving wife must report on her return for the full year, one-half of the community income for the short period preceding the death of her husband. The community is not a taxpayer, has no taxable year. and has no right to file a joint return.

Where the petitioner made a sale of certain stock for a cash payment and five further payments to be made annually, and elected to report income on the installment basis; and thereafter the petitioner-creditor in 1931 agreed to cancel two of the payments, and did cancel them; held, that the percentage of the 1938 payment returnable as income under section 44, Revenue Act of 1928, must be adjusted to the reduced sale price, the petitioner having neither claimed nor taken any deduction for a loss in the year of the reduction.

1. Petitioner for a good many years has been a real estate dealer and trader and developer. Held: that petitioner held his one-half interest in this building primarily for sale to customers in the ordinary course of his trade or business within the meaning of section 117(b), Revenue Act of 1936, and it was not a capital asset and his loss is deductible in full as an ordinary loss. 2.

Because of a desire to assure itself of the services of its president, petitioner optioned 8,000 shares of its capital stock to him at a price slightly over its then market value, in consideration… Held: Such profit is taxable to petitioner under section 22(a) of the Revenue Act of 1936. (2) Article 22(a)-16 of Regulations 94 is a valid and effective interpretation of that section in its application to profits realized by a corporation from sales of its stock.

1. The gain on installment sales of pianos and electric refrigerators held taxable in the years when the installment sales contracts were turned over to finance companies for cash or credit for the face amount of the contracts, less finance charges or hold-backs, or both. 2. In 1938 the petitioner purchased a Buick automobile at a price of $1,401.28 and was allowed a credit of $575.28 on a Chrysler car turned in by the petitioner in part payment therefor.

NET LOSS - SECTION 117, REVENUE ACT OF 1928. - Gains unrecognized under section 112 are not a part of gross income for the purpose of section 117.

Petitioners owned all the stock in corporation A, which in turn owned all the stock of corporation B. Petitioner withdrew amounts of money from corporation B which were charged on the books of that… Held: that the net withdrawals from corporation B were distributions from its earnings or profits made to petitioners and constituted dividends includable in petitioners' income.

Space rented in United States by petitioner, a foreign corporation, with no purpose of carrying on any part of its manufacturing business therein, but merely for the receipt of dividend income from domestic corporations, held not an office or place of business within the United States so as to constitute petitioner a resident foreign corporation within meaning of Revenue Act of 1936, section 231(b).

The taxpayer, a Swiss corporation, through an American agent rented an office from a Jersey City lawyer without obtaining the exclusive use of any room or even desk in his office, it being the… Held: that the petitioner had no office in the United States within the meaning of section 231(b), Revenue Act of 1936.

1. Nonresident alien owners of real estate in the United States consented to its sale in reliance upon the fraudulent representations of their agent. Held: that the total amount constituted damages and the Commissioner erred in including part of it in their gross income, as interest from sources within the United States, under section 211(a) of the Internal Revenue Code. 2.

In 1934 petitioner and another jointly owned certain farms, purchased and held by them for resale at a profit. The farms were worth less than the first mortgages thereon. Held: no deductible loss was sustained in 1937 by reason of such payment.

- The corpus of a testamentary trust could be used if in the discretion of the trustee it was necessary for the comfort, support, maintenance, and/or happiness of the life tenant. Held: the possibility of invading corpus was sufficiently remote to justify deduction of the charitable bequest for estate tax purposes and for allowing an income tax deduction under section 162 for capital gains accumulated.

The grantor of a trust who was the sole income beneficiary, the sole remainderman, and for a part of the trust term, one of the two trustees, held, entitled to the deduction of losses to the trust… Held: entitled to the deduction of losses to the trust corpus in his individual income tax return.

Petitioners sold real estate in 1925 under an installment contract and reported income therefrom in subsequent years on the installment… Held: that the petitioners received interest income to the extent of the interest due on the installment contract, Helvering v. Midland Mutual Life Insurance Co.,300 U.S. 216; held, further, that the foreclosure transaction resulted in a disposition by the petitioners of their installment obligation on which their gain or loss is to be…

- The petitioner, which refused to pay a state gasoline tax on solvent used by it, but made a closing accrual upon advice of counsel, was not entitled to deduct the amount of the accrual as taxes for 1937 where the court later decided that the tax never applied to the solvent.

- A debt, the value of which depended upon whether or not it was subordinate to other debts, was properly ascertained to be worthless in 1937, when the District Court reversed an order of the referee in bankruptcy and held that it was subordinate.

Petitioner was one of several stockholders of a corporation which had been operating at heavy losses and had incurred a heavy deficit… Held: following Helene Baldwin Burdick, Executrix,20 B.T.A. 742; affd., 59 Fed.(2d) 395, that petitioner is entitled to deduct from his gross income for the taxable year the cost of the 200 shares of stock which he surrendered, less the proportionate benefit to petitioner's remaining stock in the corporation resulting from the cancellation…

In 1937 petitioners received shares of preferred stock in a laundry corporation, issued as a stock dividend on common stock, subject to a prior oral agreement of all stockholders (1) that such… Held: testimony respecting the terms and extent of the stockholders' agreement is properly admissible; held, further, the shares of socalled preferred stock did not constitute taxable income to petitioners.

The petitioner, as stockholder of a national bank, surrendered her stock to the bank under a plan authorized by the Comptroller of the… Held: that petitioner is not entitled to deduct as a loss the difference between the cash received and the cost of one-half the shares surrendered, as a liquidation of one-half the bank's stock, but only to a readjustment on the basis of her remaining stock on a future disposition, since the transaction was not a distribution in partial…

1. BASIS. - Transferee takes transferor's basis for depreciation under 1936 Act where, by applying (f)(1) and (h)(1) of section 213 of the Revenue Act of 1939, a 1928 transaction comes within section 112(b)(5) of the Revenue Acts of 1928 and 1936. 2. SECTION 112(b)(5) - CONTROL - TRANSFEROR. - An investment firm paying in cash for stock which it intended to sell was one of the transferors for the purpose of the control test in section 112(b)(5). 3.

- Income of a trust held not taxable to petitioner who was not the grantor, although his gift a number of years previously was the source of the corpus, and who could not benefit personally from the trust, but as trustee was to manage the trust for the benefit of others named by the grantor.

- Income of a trust held not taxable to petitioner who was not the grantor, although his gift of property was the source of the corpus, and who could not benefit personally from the trust but as trustee was to manage the trust for the benefit of others named by the grantor.

A farmers' cooperative association, the articles of which restrict membership to common stockholders, and which does business with nonstockholders the value of which is greater than the value of business done with stockholders, is not entitled to exemption under Revenue Acts of 1934 and 1936, section 101(12).

DEDUCTION - BAD DEBT OR CAPITAL LOSS. - A mortgagee foreclosed, bought in the mortgaged property for more than its fair market value but less than the debt, obtained a deficiency judgment for the balance due, ascertained that the principal involved in the deficiency was a worthless debt, and charged it off on her return. Held, the amount charged off was deductible as a bad debt and not as a capital loss.

A corporation is not entitled to a dividends paid credit where the facts show that no dividend was declared or paid or credited in the taxable year.

1. Payments made by petitioner to two of its officers for services rendered by them in supervising and directing the remodeling of certain of its buildings, and the construction of others, which services were equivalent to those of a general contractor and supervising architect, held, to be capital expenditures constituting a cost of construction and not deductible as reasonable compensation for services rendered in carrying on business. 2. Where petitioner on the cash basis was indebted to its tenant for advances made by the latter, and such tenant was indebted to petitioner in a lesser amount for rental, and petitioner had the authority to offset the rental due against its indebtedness, and it was understood that such offset would be made, it is held, that petitioner was thereupon in constructive receipt of the amount of the rentals due, although the offsetting entry was not made on its books before the close of that year. 3. On the record, it is held, that there was no negligence or intentional disregard of rules or regulations by petitioner in the filing of its returns, and the imposition of 5 percent negligence penalties is not warranted.

Petitioners owned stock in a corporation which they had acquired prior to June 29, 1927. In 1937 the corporation formulated a plan of complete liquidation, to be completed on or before two years from December 31, 1937. The first payment pursuant to the plan was made in 1937. Additional amounts upon which petitioners realized a capital gain were distributed during 1938. Held, gains realized on distributions made during the year 1938 are to be included in income in accordance with the provisions of the Revenue Act of 1938 and not in accordance with the Revenue Act of 1936, under which the first payments pursuant to the plan of complete liquidation were made.

1. Petitioner's income tax returns failing to report large sums received as dividends in 1928 and 1929 held on facts shown to have been false and fraudulent with intent to evade tax. 2. Petitioner, a holding company, having failed to overcome statutory presumption, held subject to tax under Revenue Act of 1928, section 104. W. S. Farish & Co.,38 B.T.A. 150; affd. (C.C.A., 5th Cir.), 104 Fed.(2d) 833, distinguished.

In some instances the petitioner extends its lines to outlying districts, receiving from the parties desiring the extensions deposits to cover the estimated costs thereof. The petitioner claims the deduction from gross income of the years 1936 and 1937 of depreciation upon the cost of the extensions paid for by its customers. Held, that the petitioner is not entitled to any depreciation allowance in respect of extensions paid for by its customers.

DEDUCTION - LOSS - TRANSACTION ENTERED INTO FOR PROFIT. - The petitioner, a participant in a profitable syndicate who reported his profits in 1928 and 1929, was required to contribute in 1937 to pay alleged taxes due from the syndicate. Held, that the amount paid in 1937 was a deductible loss in 1937, under section 23(e)(2), following W. R. Hervey,25 B.T.A. 1282.

The petitioner insures railway employees against loss of their jobs through (a) discharge; (b) retirement on account of disability; and (c) retirement on account of age. Held: that the petitioner is not a life insurance company within the meaning of section 201(a) of the Revenue Acts of 1934 and 1936.

In 1935 officers of a corporation were given options to purchase shares of its stock at a price which was lower than the market value of the stock at that time. Held: that the excess of the fair market value of the stock at the time of its acquisition by the optionees over the option price constitutes additional compensation paid to them in 1936.

On December 28, 1937, petitioner, as settlor, executed three indentures of trust, making himself sole trustee of each trust. Held: that the petitioner is liable to income tax for 1937 upon the income of the trusts for that year.

- Dividends were not taxable to an assignor who had sold, for a valuable consideration in cash, a participating interest in the shares which gave to the assignees ownership of a substantial beneficial interest in the shares, including the right to and control over the dividends.

- The question of whether an oil payment, contingent upon the production of oil, has a fair market value for the purpose of computing gain from the disposition of property is a question of fact. Here the evidence shows the fair market value of such an oil payment.

Petitioner's husband created trusts for petitioner and their four minor children, giving the petitioner the right to the income of her trust for life and the income of the children's trusts during… Held: that petitioner is taxable on all of the income from the trusts, including the profits from the sale of a part of the principal of the trusts, which was not paid over to her but retained by the trustees as principal.

During 1935 the Coca-Cola Co. acquired and retired 200,000 shares of its class A preferred stock, including 1,000 shares held by petitioner… Held: that the amount received by petitioner for his stock represented amounts distributed in partial liquidation as that term is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934; and that 100 per centum of petitioner's gain should be taken into his account in computing net income as provided in section…

The X securities corporation was organized by a national bank for the purpose of carrying on types of business which it could not… Held: the bank was, as to the assets transferred to it under the trust indenture of May 1934, a liquidating trustee and not a trustee in dissolution within the meaning of Regulations 94, article 52-2, and was not required to file a corporation return as to income resulting from such liquidation, pursuant to section 52 of the Revenue Act of…

1. In conformity with its articles of incorporation petitioner issued and sold two series of Cumulative Preferred Serial Stock. Held: that the certificates were what they purported to be and not merely evidence of the relation of debtor and creditor; held, further, that the amounts paid as dividends may not be deducted as interest nor may the discounts allowed or the premiums paid in connection with the sale and redemption of the stock in the taxable years be…

1. Corporation B was the lessee of certain real property under a 99-year lease. Held: that N was a party to a reorganization as defined by section 112(g) of the Revenue Act of 1934, so that its basis for purposes of depreciation is that of its transferors under section 113(a)(7) of the Revenue Act of 1934; held, further, that the basis may not be reduced by liabilities of the transferors assumed by N. 2.

On December 28, 1936, petitioner corporation declared a dividend and immediately credited it to the accounts of its two stockholders, who thereupon had the… Held: the dividend was paid during the taxable year 1936, within the meaning of section 27(a), Revenue Act of 1936, and the assessment upon the stock was a bona fide assessment and neither a diminution in the amount of the previously declared dividend nor a renunciation by the stockholders of their rights thereto.

1. A taxpayer, on the accrual basis, rendered services under two contingent contracts. Held: that the fair market value of the stock should be included in taxpayer's gross income. 3. Under the other contract the taxpayer became entitled to receive a cash fee for services which had been rendered partially before, and partially after, the filing of a petition in bankruptcy.

1. In the sale, in 1935, to certain of its employees, at a price in excess of cost, of shares of its own stock, reacquired for that purpose, petitioner is held to have realized no taxable gain. Held: further, that with respect to similar sales by petitioner in 1937, the gain realized is subject to tax, Trinity Corporation,44 B.T.A. 1219; and Brown Shoe Co.,45 B.T.A. 212, followed. 2.

Petitioner's husband, as her attorney in fact, sold for her through a broker over a period of several days certain bonds owned by petitioner individually. Held: that petitioner sustained a loss on the sale of the bonds; held, further, that the sale was not an indirect sale from petitioner to her husband as trustee and hence the loss thereon is not denied deduction by section 24(a)(6) of the Revenue Act of 1936 as amended by section 301(a) of the Revenue Act of 1937.

Petitioners are fire insurance companies doing business in the State of Missouri. In 1922 the superintendent of insurance ordered a reduction in fire insurance rates. Held: the amounts paid into the custody of the court in 1935 were properly deducted in that year as return premiums.

Petitioner was indebted on certain promissory notes executed prior to May 1, 1936. Held: a showing by parol evidence that it was the intent of the parties that amounts should be set aside and payments should be made out of current earnings and profits for the taxable year does not satisfy the requirement of section 26(c)(2) of the Revenue Act of 1936 that the contract under which a credit for purposes of the surtax on…

Petitioner and several other attorneys were engaged by the State of Missouri to defend the interests of the state and of the policyholders in fire insurance rate litigation cases. Held: Petitioner was not an employee of the State of Missouri. (2) The taxation of the fee received by petitioner does not impose any substantial burden on the state; and (3) The compensation received by petitioner is not exempt from Federal income tax.

1. The return charged for the use of money loaned in small amounts is interest as that word is used in section 353(a), Revenue Act of 1936, as amended by the Revenue Act of 1937, and, therefore, taxpayer whose business consisted of making small loans was taxable as a personal holding company where its interest income constituted more than 80 percent of its gross income, and more than 50 percent of its stock was owned by not more than five individuals. 2.

Where dividends are declared payable in future to stockholders of record on a future date and a stockholder dies after the declaration of dividend… Held: The question of whether such dividends are corporate debts upon declaration and thus accruable to decedent must be determined by the law of the corporation's domicile. (2) Such dividends declared by corporations domiciled in New Jersey are accruable to decedent, following Estate of Lewis Cass Ledyard, Jr.,44 B.T.A. 1056.

During 1930 petitioner acquired as a unit an equal number of shares of stock of a bank and a securities corporation. Prior to 1934 the shares were not separately transferable. Held: there is no factual basis upon which an apportionment can be made.

1. Petitioner filed a capital stock tax return for the taxable year ended June 30, 1936, on or about July 31, 1936, declaring a capital stock value of $500,000. Held: that petitioner's excess profits tax liability for the taxable years ended June 30, 1937 and 1938, must be computed on the basis of the original return filed on or about July 31, 1936, since that was the first return specified by section 105 of the Revenue Act of 1935. 2.

Petitioner acquired in 1934 a long term lease, together with subleases thereunder. Held: petitioner is not entitled to the credit provided for in section 26(c)(2) of the Revenue Act of 1936.

- A taxpayer on a cash basis is not in receipt of income at the time he gives away his right to receive accrued but unpaid interest which is not collected until a later year.

Taxpayer was required to set aside and apply two-thirds of its cash on hand over and above $7,500 on its indebtedness under the terms of a written contract executed by it prior to May 1, 1936, which… Held: taxpayer is not entitled to a credit under either section 26(c)(1) or section 26(c)(2) of the Revenue Act of 1936 in the amount of $29,924.38 paid on the indebtedness.

Petitioner was beneficiary under a testamentary trust provided in her husband's will. The independent executor continued the administration throughout the taxable year and thereafter sued as such to collect a note forming a part of the corpus of the testamentary trust, of which he was also named trustee. Though the petitioner in later litigation alleged and the executor-trustee admitted the existence of the trust, held, on the facts, and absent plea or proof of estoppel, that the estate was during the taxable year in process of administration and the petitioner taxable only upon income actually received, under section 162(c), Revenue Act of 1932.

Assets acquired by petitioner in dissolution of two predecessor corporations the stock of which it had just obtained in exchange for its… Held: under Revenue Act of 1932, section 113(a)(7), to entitle petitioner to a basis for depreciation of no more than the basis to its transferors, the predecessor corporations, the assets having been acquired in connection with a reorganization, and after the transfer more than a 50 percent control remaining in the old shareholders…

1. In 1926 the decedent, at the age of 66 and about 11 years prior to his death, transferred two 160-acre farms to his daughter. Held: under the facts, the transfers were not made in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926, as amended. 2.

Rights to subscribe to preferred stock of corporation issued to petitioner as a common stockholder therein, held, taxable to petitioner in the amount of their fair market value when received. Held: taxable to petitioner in the amount of their fair market value when received. Helen Whitney Gibson,44 B.T.A. 950, followed.

Held, that under the laws of Arizona an agreement between husband and wife that the husband's income from his earnings and investments… Held: that under the laws of Arizona an agreement between husband and wife that the husband's income from his earnings and investments would be and remain his separate property, was valid and that, therefore, under authority of Helvering v. Hickman, 70 Fed.(2d) 985, the husband's earnings from the practice of law constituted his separate…

For the purpose of procuring a dividends paid credit in computing its surtax on undistributed profits under section 14 of the Revenue Act of 1936, the directors of petitioner, a personal holding… Held: The petitioner is not entitled, under section 27 of the Revenue Act of 1936, to a dividends paid credit for the purpose of computing its surtax on undistributed profits imposed by section 14 of the act.

In 1925 petitioner established an account with his broker by depositing various stocks which he had held for more than ten years theretofore. Held: that the purchase of covering short stock and the sale of long stock were independent transactions and petitioner is entitled to compute gain or loss on them separately. duPont v. Commissioner, 98 Fed.(2d) 459; certiorari denied, 305 U.S. 631.

The property of the Idaho Copper Co. was sold in 1932 under mortgage foreclosure. Prior to the expiration of the period of redemption and before execution of sheriff's deed, proceedings were instituted attacking the validity of the foreclosure proceedings, which had the effect of postponing finality of the foreclosure and sale until 1937.

In 1937 petitioner transferred, without consideration, 416 shares of preferred stock to the president of a corporation, individually, of which petitioner was a director and formerly had been… Held: the transfer of the stock constituted a gift, and petitioner is not entitled to a loss deduction of any part of the cost thereof.

1. Petitioner in 1923 created a trust, later made irrevocable, the income of which was payable 60 percent to his wife and 40 percent to his two daughters by a prior… Held: income from the trust is taxable to petitioner under Helvering v. Leonard,310 U.S. 80; held, further, capital gains of the trust are not taxable to petitioner, in view of impossibility of reversion to him. 2. A corporation the stock of which was owned by petitioner made certain advances to his credit.

1. Petitioner, a resident of the Philippine Islands from 1898 until 1924, filed income tax returns with the Philippine Government for… Held: that respondent is not barred by the statute of limitations provided in section 250(d) of the Revenue Act of 1918 from asserting deficiencies in petitioner's income tax for the years 1918, 1919, and 1920, since section 250(d) of the Revenue Act of 1921 is the applicable statute; held, further, that petitioner is subject to income tax…

Held, where facts show that taxpayer received no tax benefit from bad debt deductions taken in previous years, amounts recovered on the debts previously charged off are not properly included in… Held: where facts show that taxpayer received no tax benefit from bad debt deductions taken in previous years, amounts recovered on the debts previously charged off are not properly included in income.

Capital stock returns filed in behalf of petitioner, a trust taxable as an association, by a deputy collector pursuant to section 3176, R.S., upon its refusal to file such returns after their due… Held: to constitute petitioner's first returns under Revenue Act of 1934, section 701, and Revenue Act of 1935, section 105, so that declaration of value therein was binding upon petitioner.

The Bituminous Coal Conservation Act of 1935 imposed an excise tax on coal, effective November 1, 1935. On October 1, 1935, petitioner increased its coal prices. Held: that the increase in prices was to absorb increased labor costs and no part of the excise tax burden was shifted to petitioner's vendees so as to render petitioner liable for the unjust enrichment tax imposed by section 501, Revenue Act of 1936.

Trust income, not distributed or distributable to the grantor but applied by the trustee to a sinking fund set up for the restoration to corpus of such amounts as had theretofore been used to repay a loan from a bank which had been used in earlier years to discharge an indebtedness of the grantor, held not properly taxable to the grantor under section 167, Revenue Act of 1936.

Petitioner was organized in 1928 to take title to certain mortgaged real property on which the mortgagee agreed to advance further funds on condition that the petitioner should be organized. Held: petitioner functioned as a mere agent and its existence must be disregarded in taxing gain on the sale of the property.

The petitioner, an operating company, and its parent company were both upon the accrual basis of accounting. Held: that the Commissioner erred in denying deduction of the interest accrued.

During October 1935 petitioner by an exchange of letters entered into an agreement with a local bank whereby it was agreed that in the event petitioner declared any… Held: that the writings between petitioner and the bank were not a contract prohibiting petitioner from the payment of dividends and, in computing the surtax on undistributed profits under section 14 of the Revenue Act of 1936, petitioner is not entitled to any credit under section 26(c)(1) of the same act.

The petitioner bank was reorganized in the year 1933 in the following manner: Its depositors relinquished 50 percent of their deposits in consideration of receiving certificates of participation in the income and liquidation of specific assets which were set aside in a trust for their benefit.

1. Petitioner, after receiving in 1936 a substantial amount of processing taxes impounded in court prior to invalidation of the act under which such taxes had been imposed, reimbursed some of its… Held: following Cannon Valley Milling Co.,44 B.T.A. 763, that the amounts so paid to vendees are deductible in computing petitioner's net income for 1935. 2.

1. Held, the facts showing that the several steps were but parts of an integrated transaction agreed to in advance, petitioner is not… Held: the facts showing that the several steps were but parts of an integrated transaction agreed to in advance, petitioner is not entitled to deduct interest paid on a promissory note given by her to her husband and herself as trustees of a trust established by her for her daughter, the note being given to evidence an alleged loan to her…

1. In 1938 the class A stock of the Nestle Le Mur Co. was listed on the Cleveland Stock Exchange and on the New York Curb Exchange. Held: the fair market value of the stock on the basic date was the mean between the highest bid and the lowest asked prices on the two exchanges. 2. In order to effect the distribution of cash legacies stipulated in the decedent's will, it was necessary for petitioners to sell certain securities of the estate.

A taxpayer having separate accounting systems for separate activities may not in one of such systems on the cash basis deduct taxes and interest when accrued but not paid.

1. Petitioner borrowed funds from a bank under conditions imposed by a letter from the bank to petitioner. Held: that, since petitioner did not execute a written contract prior to May 1, 1936, restricting its payment of dividends, it is not entitled to a credit under section 26(c)(1) of the Revenue Act of 1936. 2. Funds were embezzled from petitioner by one of its employees in the taxable year.

A dividend received by a shareholder of one corporation in shares of two others of which he is also a shareholder is properly included in the shareholder's income and is not a tax-free stock dividend, although his percentage interest in the shares of each was the same before and after the dividend.

In 1933 the petitioner, at a cost of $5,461.08, acquired a lease for 99 years, renewable forever, on certain land and a six-story building situated thereon. Held: that the lease was property used in a trade or business and of a character subject to an allowance for depreciation and, therefore, was not a capital asset within the definition of section 117(a)(1) of the Revenue Act of 1938.

Prior to and in the taxable year, 1936, bonus awards in the stock of another corporation were made by petitioner to certain of its… Held: that the amount deductible in the taxable year as a business expense with respect to such bonuses was the fair market value of the 150 shares of stock at the time of delivery rather than the cost thereof to petitioner; held, further, that petitioner realized taxable gain in the amount of the difference between the cost of such shares…

1. Taxpayer was engaged in the business of adjusting insurance losses. It made representations that it operated at no profit and rendered services at cost. Held: the undistributed net receipts for 1936 and 1937 constituted income taxable to taxpayer in 1936 and 1937, respectively. 2.

In 1920 petitioner and his then wife agreed upon a property settlement. Held: the property settlement and decree of divorce terminated petitioner's marital obligation, and the children having reached their majority prior to the taxable years, no obligation rested upon petitioner for their support and he is not taxable on the income of the trust.

1. Taxpayer in 1936 made a sale of British corporation shares which in 1930 it had acquired with other assets and rights in a conglomerate… Held: the sale and the redemption were separate and may not be regarded as an exchange so as to reduce the amount of gain from the sale. 4. In an accrual method of accounting, capital stock tax for 1935-1936 was, in accordance with established practice, accrued in 1935 upon a low declared value and deducted on the 1935 income tax return.

Petitioners, members of a partnership engaged in the baking business, received from their vendors reimbursements for processing taxes included in the cost of flour purchased. Held: in determining the extent to which the burden was shifted to their vendees and their liability for unjust enrichment taxes under section 501, Revenue Act of 1936, such inclusion was proper.

1. PLEADINGS - FAILURE TO REPLY. - The Commissioner proceeded under Rule 18 to have the allegations of his answer deemed to be admitted because no reply was filed. Those allegations justify the imposition of the fraud penalty. 2. INCOME - FEES. - Amounts paid to the petitioner as fees for legal services which he was free to enjoy and use as he saw fit, were a part of his gross income.

Petitioner created a ten-year trust, terminable earlier under certain contingencies, income payable to his wife, with retention in himself of complete control over trust corpus. Held: petitioner is taxable on net income of the trust under section 22(a), Revenue Acts of 1934 and 1936. Helvering v. Clifford,309 U.S. 331, followed.

Stock certificates issued by petitioner provided that the holders of prior preference stock would be entitled to receive, out of the surplus or net profits of the company, cumulative dividends… Held: the stock certificates do not constitute written contracts restricting the payment of dividends within the meaning of section 26(c)(1) of the Revenue Act of 1936 and petitioner is not entitled to the credit claimed. Helvering v. Northwest Steel Rolling Mills, Inc.,311 U.S. 46.

By the terms of a mortgage indenture petitioner was required to pay to the corporate trustee $2.50 per thousand feet of logs and lumber currently sold and used and the trustee was required to place… Held: petitioner is entitled to the credit provided by section 26(c)(2) of the Revenue Act of 1936 to the extent of the amount paid by it pursuant to such contractual provision. Michigan Silica Co.,41 B.T.A. 511, followed.

1. In 1938 certain corporate stock which the estate had held for more than ten years was redeemed by the issuing corporation for cash, which represented part of a distribution in partial liquidation… Held: that 100 percent of the gain realized by the estate on the redemption of the stock is to be considered in computing net income. 2. The estate of Charles C. Ingalls had four distributees.

Where the petitioner, on the accrual basis of accounting, was one of several defendants in a proceeding in a District Court which on May 1, 1937, entered a decree against all the defendants and… Held: that the amount of the judgment of the District Court against petitioner in 1937 remained a contingent liability and was not properly accruable during its fiscal year ended May 31, 1938.

- A protest against additional taxes proposed in a letter from the Commissioner prior to the notice of deficiency was not a claim for refund within the meaning of section 322 of the Revenue Act of 1932, even though the Commissioner, in computing the proposed deficiency, had eliminated the items reported by the petitioner and had substituted a wholly new item and the protest was against the taxation of that new item as income of the petitioner.

1. ESTATE TAX. - Petitioners have not shown that the respondent erred in determining the fair market value of certain shares of preferred and common stock in the Fre-Dou Corporation of New York… Held: the Federal Government had jurisdiction to levy the tax, since the decedent was domiciled in the United States; held, further, the due process clause of the Fifth Amendment does not constitute a constitutional restriction on the power of the Federal Government to levy the tax.

1. The petitioners were owners of common stock of the A. Schoenhut Co., which was declared by the court to be insolvent in 1935. Held: that the petitioners' shares of common stock became worthless prior to 1937. 2. Petitioners Otto Schoenhut and Minnie Schoenhut filed a joint income tax return for 1937 and the respondent determined a deficiency in income tax upon the joint return.

Although both petitioner, who signed and swore to the correctness of his income tax return for the year 1930, and his agent, who actually prepared such return, were grossly negligent in arriving at… Held: petitioner's income tax return for 1930 was not false or fraudulent with intent to evade tax and the statute of limitations has barred the deficiency which the Commissioner determined for that year. Mitchell v. Commissioner, 118 Fed.(2d) 308.

1. INCOME - TRUSTS - DISTRIBUTED CURRENTLY. - Income paid to a beneficiary under a provision to pay over the net income thereof in semiannual or other convenient payments * * * or in the uncontrolled discretion of the Trustees to apply the same to her use and benefit, and under the provision of another trust to pay over the net income to the child for whom the trust is held during the term of his or her natural life, is income to be distributed currently within the meaning…

Pursuant to written agreement with Butler University of Indianapolis, indiana, decedent, for the purpose of providing funds for the completion of a large building on… Held: the $100,000 is not deductible in arriving at the value of the net estate for the purpose of determining estate taxes, either as a claim against the estate or as a bequest or transfer to a corporation organized and operated exclusively for educational purposes under section 303(a)(1) and (3), 1926 Act.

Distributions made in January and April 1936 by a corporation which had a deficit at the beginning and close of its fiscal year ended June 30, 1936, but had earnings during that fiscal year in excess of the distributions, do not constitute taxable dividends within the meaning of section 115(a) of the Revenue Act of 1936 to shareholders keeping their books and filing their returns on the calendar year basis.

1. Corporation forbidden by the law of the state of its incorporation from paying dividends because of an accumulated deficit, held, not entitled to credit under section 26(c) of the… Held: not entitled to credit under section 26(c) of the Revenue Act of 1936. Helvering v. Northwest Steel Rolling Mills, Inc.,311 U.S. 46. 2. Held, taxation of petitioner is not violative of the Fifth Amendment to the Constitution. Helvering v. Northwest Steel Rolling Mills, Inc., supra.

Petitioner, a domestic corporation with its main office in this country, operates a plant in Canada. Held: that such sales were made in Canada, within the purview of section 119(e) of the Revenue Act of 1936. East Coast Oil Co., S.A.,31 B.T.A. 558; affd., 85 Fed.(2d) 322, followed.

Executors paid to the petitioner, as principal beneficiary under her husband's will, amounts within the income of the taxable year Held, on the facts, that the payments are… Held: on the facts, that the payments are identified as made from income accumulated by the executors from earlier years which the estate had reported in its income tax return and that the amounts received were improperly included by the Commissioner in the petitioner's income for the taxable year.

Petitioner, james T. Pettus, having made absolute gifts of stock to each of his two minor children, in 1925 and 1926, and not gifts to trusts for them, and dividends received thereafter having been returned as income of such children and the taxes paid, neither he, as grantor of the trusts, nor his wife, as trustee thereof, is taxable on such dividends received in 1936.

1. In June 1932 Stroud & Co., a Delaware corporation, found itself in financial diffculties. Held: that the transfer was for a valuable consideration and section 22(b)(2), Revenue Act of 1936, governs the amount of taxable gain. 2. Premiums paid by the transferee, even if claimed and allowed as deductions in previous years, are exempt from taxation under section 22(b)(1).

- Petitioner, on the accrual basis, issued its notes in December 1937, for salary bonuses and on account of such accrued expense was allowed a deduction from gross income for 1937. Held: that petitioner is entitled to a dividends paid credit under section 27(a)(4), Revenue Act of 1938, for the amount used to pay off such notes.

Respondent's allowance to petitioner in a prior year of an excessive deduction for damage and use due to certain liens created by the defaulting vendee against stock which petitioner had previously… Held: not to justify charging petitioner with income in the tax year on account of its discharge of the liens in that year for a smaller amount than the earlier deduction.

1. The profits from the sale of timber under a contract by which the owners agreed to sell the standing timber as cut, the purchaser to cut and market a minimum amount each year… Held: to constitute capital gains rather than ordinary income. 2. and 3. In the estate tax returns filed for the estates of the two decedents a deduction of $42,500 from the gross estate of each decedent was allowed against contemplated future losses to arise from the operation of the Carroll lease.

1. Held, certain contracts were not policies of insurance, within section 302(g), Revenue Act of 1926, as amended. Helvering v. Le Gierse,312 U.S. 531; Keller v. Commissioner,312 U.S. 543. 2. Held: certain contracts were not policies of insurance, within section 302(g), Revenue Act of 1926, as amended. Helvering v. Le Gierse,312 U.S. 531; Keller v. Commissioner,312 U.S. 543. 2.

Petitioner is not entitled to a credit under section 26(c)(1) of the Revenue Act of 1936 in computing its surtax on undistributed profits for 1936 or 1937 under section 14 of that act, but it is entitled under section 26(c)(2) of such act in computing that tax for 1937 to a credit of $87,500, the amount it actually paid its creditors during 1937 from its current earnings.

1. The managing and operating of petitioner's property by trustees under the provisions of the Public Control Act of Massachusetts (1918) and acts amendatory thereof, did not create the relationship… Held: the amounts so received were income to petitioner and not loans. Boston Elevated Railway Co., supra, no longer followed on this point.

- In correspondence between petitioner and a bank from which it obtained a loan, petitioner stated that it would be its policy to take no action with respect to the payment of… Held: under the facts shown the amount distributable as dividends during the taxable year under the consent so given was in excess of the petitioner's adjusted net income for the taxable year and petitioner is accordingly not entitled to any credit under section 26(c)(1) of the Revenue Act of 1936.

1. Petitioner's furniture plant was destroyed by fire in 1936 and petitioner collected certain amounts under use and occupancy insurance… Held: since the use and occupancy insurance did not insure petitioner against the loss of net profits of the business, but was merely additional insurance on the destruction of the plant by fire of a certain amount per day multiplied by the number of days it would reasonably take to rebuild the plant, there is no reason for treating these…

Petitioner, in consideration for the surrender of its outstanding 2-year 8 percent notes in the amount of $50,121,787.72 principal and accrued interest, issued 1,499,000 shares of its stock and… Held: the amount of bond discount to be amortized is $3,778,212.28.

An elderly woman created trusts for the benefit of her 2 granddaughters, who were 16 years of age, and her 2 grandsons, who were 19 years of age. Held: that the gifts were of future interests in property and therefore exclusions should not be allowed under section 504(b), Revenue Act of 1932, in computing the donor's gift tax.

1. The value for gift tax purposes of single premium life insurance policies on the donor's life which the donor transferred as a gift in trust, held, the cost of the policies to the donor. Guggenheim v. Rasquin,312 U.S. 254. 2. In 1937 petitioner conveyed to a trustee, irrevocably, certain bonds for the benefit of her grandchildren. The net income of the trust was to be distributed annually on December 20 to the beneficiaries (or to their parents or guardians until they were 21 years of age) until they attained the age of 25 years, when their proportional interests in the trust corpus were to be distributed to them free of trust. If any grandchild should die without issue his share of income and corpus was to go to the surviving grandchildren or their issue. Held, as to the corpus of the trust, the gifts were limited to commence in use, possession, or enjoyment at some future date and were therefore gifts of future interests with respect to which no exclusion is allowable under section 504(b) of the Revenue Act of 1932. United States v. Pelzer,312 U.S. 399. Held, further, that as to the income of the trust, there were gifts of present interests in the trust fund to each of the living grandchildren and that the donor is entitled to an exclusion, not to exceed $5,000 with respect to each of such gifts.

By an amendment to petitioner's bylaws adopted April 7, 1925, it was provided that No cash dividend shall be paid to the holders of Stock other than First Preferred Stock… Held: that the provision of the bylaws above referred to which was incorporated in the stock certificates does not constitute a written contract respecting the payment of dividends within the meaning of section 26(c)(1) of the Revenue Act of 1936, and the petitioner is not entitled to the credit claimed.

A corporation, after exchanging most of its assets for cash and securities in another corporation on August 1, 1933, repurchased and retired, during 1933, 1934, 1935, and 1936, so much of its stock as its assets covered, which resulted in the insolvency of the corporation and its consequent inability to pay its income and excess profits taxes arising from the exchange on August 1, 1933.

Assignment by an attorney of his interest in an uncompleted case, in which the assignor had collected substantial fees, to another attorney with authority to complete the case and collect the fee,… Held: not a gift of the fee by the assignor.

Under article 5 of a mortgage trust deed executed in 1930, petitioner was entitled to retain possession, use, and control of the mortgaged property and all… Held: the provision of the trust deed relative to the payment of dividends, being contingent on default and imposing a restriction by implication only, was not a written contract restricting the payment of dividends within the meaning of section 26(c)(1), Revenue Act of 1936, entitling petitioner to a credit thereunder.

Petitioner maintained a home for himself and his widowed mother and contributed over one-half the cost of the mother's support. Held: that petitioner is the head of a family under section 25(b)(1) of the Internal Revenue Code.

Under reinsurance agreements with another insurance company the petitioner on May 19, 1932, reinsured a large number of the company's… Held: that the transferor company was indebted to the petitioner at the time of the settlement in the amount of $1,002.587.01; held, further, that the petitioner is entitled to deduct from its gross income of 1937 the difference between $1,002,587.01 and $501,180.42, or $501,401.59, ascertained to be worthless and charged off in 1937.

1. Petitioners were engaged in the distribution of petroleum products on a cooperative basis, doing business with members and nonmembers. Held: in computing surtax on undistributed profits such corporate charters, bylaws, and certificates of stock are not written contracts executed by the corporation within the meaning of section 26(c)(1), Revenue Act of 1936, and petitioners are not entitled to a credit thereunder. 2.

Petitioner's decedent was president of the X corporation from 1930 until his death in February 1936. Held: the items of income represented by such notes were received by decedent in the periods in which such notes were issued to him and are not subject to the application of section 42, Act of 1936.

On June 4, 1940, the respondent sent by registered mail a notice of transferee liability addressed to the petitioner at 2 West 86th Street, New York, N.Y. The petitioner had moved from there on May… Held: that the Board lacks jurisdiction of the proceeding. Petitioner's motion to dismiss for lack of jurisdiction granted.

A transaction pursuant to a plan of reorganization under section 77-B of the Bankruptcy Act, whereby a corporation exchanged money for stock of a new or reorganized company and the noteholders exchanged convertible gold notes of the old company for stock and securities of the new company, held to constitute nontaxable exchanges within section 112(b)(5), Revenue Act of 1934.

Dividends on corporate stock which when declared became a debt in favor of petitioner, a stockholder on the accrual basis, held returnable as income in the year of declaration.

At the end of 1935 petitioner owed the Bettendorf Co. $519,278.58, evidenced by notes payable, for advances made to it from 1921 to 1933, inclusive, plus interest accrued, not evidenced by notes,… Held: the financial condition of petitioner was such as to preclude any reasonable certainty that the interest would be paid in the normal course of business and petitioner is not entitled to the deduction claimed.

1. Petitioner received certain shares of stock during the taxable year which respondent has determined had a fair market value of 12 1/2 cents per share. Held: on all the evidence, that the stock had a fair market value when received of 12 1/2 cents per share. 2. Petitioner's board of directors duly resolved during the taxable year to set aside its net profits for that year to retire its bonded indebtedness.

In 1937 the petitioner, making its tax return on the cash receipts and disbursements basis, deducted from its adjusted net income, in computing the amount of income upon which the personal holding… Held: that the respondent did not err in disallowing the deduction of the $4,477.74 in question.

Petitioners, in 1931, were stockholders in the Savings Co. The state bank examiner ordered the Savings Co. to write down or sell certain… Held: the excess of the price paid over value of the assets of Elbamon was not paid as part of the cost of the bonds but was a contribution or gift, Majestic Securities Corporation v. Commissioner, 120 Fed.(2d) 12, and is not allowable as a bad debt deduction; held, further, in so far as the price represented actual payment for the bonds…

A corporation formally adopted a pension plan for certain of its officers and employees, providing for annual contributions by it to a trustee to be held and administered by the latter under… Held: This pension trust was within the purview of section 165 of the Revenue Acts of 1936 and 1938.

1. A bequest of income to testatrix' husband for life and at his death to children of testatrix or their issue, held violative of the rule against perpetuities. 2. A bequest of income from one-third of testatrix' residuary estate to be paid to her daughter for life and at her death to her surviving children for their lives, held in violation of the rule against perpetuities. 3.

Under date of June 1, 1929, petitioner entered into an agreement with a trust company, as trustee of an issue of bonds by petitioner, in which petitioner agreed not to declare dividends upon common… Held: that petitioner is not entitled to a credit under either section 26(c)(1) or section 26(c)(2) of the Revenue Act of 1936.

A nonprofit corporation was organized in 1926 under the laws of California for the purpose of operating and managing memorial park cemeteries in that state; acquiring, selling, and dealing in lands… Held: petitioner is exempt from Federal income tax under the provisions of section 103(5) of the Revenue Act of 1932 and section 101(5) of the Revenue Acts of 1934 and 1936.

1. Under section 275(c) of the Revenue Act of 1934, in determining whether an amount in excess of 25 per centum of the income reported on the return of the taxpayer… Held: that such power alone did not constitute a right to revoke the trusts and revest in herself the corpus, and petitioner is therefore not taxable under section 166 of the Revenue Act of 1936 on capital gains realized by the trust, added to corpus, and reported by the trustee, who has paid the tax thereon.

The individuals owning a corporation used the company books to record all personal transactions, the company drawing its checks and charging the individual accounts accordingly. Held: the donations were not made in the taxable years 1936 and 1937 and deductions are not allowable.

STOCK DIVIDEND. - A taxable stock dividend resulted where preferred stock was issued proportionately to the holders of no par value common stock and the only change in the no par value common stock, the only other outstanding stock, was to reduce its stated value by an amount equal to the par value of the preferred stock.

1. A taxpayer making sales of clothing upon the installment basis and so keeping its books of account as correctly to reflect its net income is entitled to make income tax returns upon the… Held: that the petitioner is not entitled to the deduction of the $4,500 in question.

1. On the facts held, that there was no such ascertainment of partial worthlessness of debt as is required by section 23(k), Revenue Act of… Held: that there was no such ascertainment of partial worthlessness of debt as is required by section 23(k), Revenue Act of 1936, to warrant deduction for bad debt. 2. held, that there was an exchange of property for stock of a corporation within the provisions of section 112(b)(5) and that no loss sustained thereby can be recognized.