Volume 46 — Board of Tax Appeals

Where, pursuant to a contract with its principal stockholder, the petitioner made distributions out of its gross income to persons who had no business or contractual relations with and rendered no… Held: that such distributions were not deductible business expenses, but distributions of profits.

During 1935 the Coca-Cola Co. acquired and retired 200,000 shares of its class A preferred stock, a part of which had been held by… Held: the exchange of petitioner's International A stock for Coca-Cola A stock represented amounts distributed in partial liquidation of International, as that term is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934; and that 100 percent of petitioner's gain, offset by the loss which he incurred in the sale…

Petitioner, after acquiring by purchase part of the assets and business of another corporation, was made a party defendant to an action brought by the vendor against some of its former stockholders… Held: the payments made by petitioner are not deductible by it as ordinary and necessary expenses incurred in carrying on its trade or business.

1. The gross estate of a deceased member of a law partnership includes the value of a contract between the partners providing for payments of a percentage of net profits of the succeeding partnership for a certain period after the death, as consideration for the deceasing member's interest in capital, assets, receivables, possibilities, and good will of the firm. 2.

Petitioners requested and were granted extensions of time to file 1937 income and excess profits tax returns. Held: that the delinquent filing was due to reasonable cause and not due to willful neglect and no penalty for deliquency may be imposed.

The respondent determined a deficiency in income tax, under Title I of the Revenue Act of 1936, and a deficiency in personal holding… Held: the petition filed timely in this proceeding alleging error with respect to the deficiency in the personal holding company surtax, only, does not give the Board jurisdiction over the deficiency in income tax, about which no allegations of error were made, so that an amendment to the petition filed after the ninety-day period, making…

The Vinson Act, section 3, prohibits the Secretary of the Navy from making any contract for the construction and/or manufacture of any… Held: that a contract of the petitioner to manufacture shells, or torpedo heads, intended for outfitting new destroyers, was a contract for the manufacture of a portion of a complete naval vessel within the meaning of section 3, supra, and that petitioner is liable to pay the excess profit on the contract as provided in that statute.

Petitioner was organized by apple growers as a nonprofit corporation to promote the sale of apples grown in the State of Washington. Its only source of income, other than gifts, was from the payment of 1 cent a box on apples shipped. Petitioner's bylaws and the contracts under which there funds were collected provided that this promotion was petitioner's sole function. Held, petitioner is a "business league" exempt from tax under section 101(7) of the Revenue Act of 1936.

For the years 1932 to 1935 petitioner claimed depreciation at the rate of 10 percent when the proper rate should have been 8 percent. Held: to the extent that petitioner received no tax advantage in such preceding years, its base for depreciation as of December 31, 1935, should be computed by employing the rate of 8 percent for the years 1932 to 1935.

Where a timely written contract of petitioner provides that payments be made thereunder on account of indebtedness existing prior to April 30, 1936, on a basis necessarily requiring the use therein… Held: in computing its surtax on undistributed profits, for 1936, petitioner is entitled to deduct those payments. Sec. 26(c)(2), Revenue Act of 1936. Saginaw & Manistee Lumber Co.,45 B.T.A. 780; Michigan Silica Co.,41 B.T.A. 511 (on appeal, C.C.A. 6th Cir.), followed.

1. The declared value of capital stock shown on a return filed within thirty days must be used and a higher value may not be substituted by an amended return tendered after the thirty days have expired. 2. A first return signed by two employees temporarily left in charge of the taxpayer's affairs during the thirty days within which the capital stock tax return was required to be filed may not be repudiated by the taxpayer, and a new return may not be filed.

Lake Cable, Inc., owned certain real property upon which Ohio real estate taxes became a lien in April 1936. Held: on the facts, the transaction between Lake Cable, Inc., and the petitioner was a sale and not a statutory merger under the laws of Ohio which would have imposed Lake Cable's liabilities primarily upon the petitioner; held, further, the payment by the petitioner was a part of the cost of acquiring the land and is not a deductible item.

Petitioner was a member of certain partnerships engaged in the business of bottling soft drinks in the State of Alabama. Held: such contributions are not deductible under article 23(q)-1, Regulations 94. Textile Mills Securities Corporation v.

1. Two of the stockholders of a coal mining corporation became indebted to the corporation in large amounts extending over a period of… Held: the transaction did not represent a distribution essentially equivalent to a dividend under section 115(g), Revenue Act of 1936, nor was it a partial liquidation as defined in section 115(i), but was a sale of the stock to the corporation, and the resulting gains are taxable to petitioners as capital gains under the provisions of…

During the taxable year the petitioner received payments from certain patent licensees. Held: that a portion of the total amount received by the petitioner from the licensees during the taxable year was compensation for services rendered and not royalties within the meaning of section 353(a) of the Revenue Act of 1937 and to that extent the payments received from the licensees did not constitute personal holding company…

Immediately prior to the taxable year petitioner was notified by state taxing authorities that it owed additional state income taxes for prior taxable years. Held: further, that only that portion of the interest on the additional taxes attributable to the taxable year is deductible in the taxable year.

The income from trusts and accounts set up by a stock broker for his children held properly within his gross income under section 22(a), Revenue Acts of 1934 and 1936.

The petitioners are stockholders of a corporation which on January 1, 1933, had a book deficit of $70,971.52 as a result of having made distributions to the stockholders in excess of earnings. Held: such payments constitute in the hands of the stockholders ordinary taxable dividends (sec. 115 (a), Revenue Act of 1934), or distributions essentially equivalent to taxable dividends (sec. 115(g), Revenue Act of 1934).

A receipt by a corporation entirely of money in complete liquidation of another corporation of which it owns all the shares, held, not within section 112(b)(6), Revenue Act of 1938, and the loss may… Held: not within section 112(b)(6), Revenue Act of 1938, and the loss may be recognized.

1. Where a corporation had no accounting period which ended on last day of month, it had no fiscal year within meaning of section 48(b) of the Revenue Acts of 1934 and 1936, and is required… Held: Commissioner was authorized to reject returns filed by petitioner covering periods beginning January 26, 1935, and ending January 25, 1936, and beginning January 26, 1936, and ending January 26, 1937, and to compute petitioner's income for 1935 and 1936 upon a calendar year basis.

1. Employment contracts between oil companies and a commercial gelogist provided generally that the geologist should devote his time and skill to exploring possible oil developments, for which he was… Held: that the amount so paid must be included in the geologist's gross income for 1937.

A corporate distribution in liquidation was made to the petitioner in the taxable year. Held: further, that the corporate resolutions in later years did not effect, in the taxable year, a specification of the time limitation.

Petitioner is a limited partnership organized under the Uniform Partnership Law of New York, under which limited partners have a limited… Held: notwithstanding petitioner's resemblance in some particulars to a joint stock association, on the whole it is more like an ordinary partnership and taxable as such, the line of determination being one of fact, dependent upon the particular powers conferred, as required by Treasury Regulations 94, art. 1001-5, as amended by T.D. 4894.

Held, that the income of three trusts as to which the petitioner was the grantor and trustee is not taxable to him under section 22(a), section 166, or section 167, of the Revenue Acts of 1936 and… Held: that the income of three trusts as to which the petitioner was the grantor and trustee is not taxable to him under section 22(a), section 166, or section 167, of the Revenue Acts of 1936 and 1938.

Petitioner, a nonresident alien, whose only source of income from within the United States is rentals paid by the lessee of a building owned by her but operated by such lessee, which rentals are paid for her account to attorneys she employs and who maintain an office in the United States and who, in turn, pay interest due on a mortgage on the property from such rentals, is neither engaged in business in the United States nor maintaining an office or place of business…

Under a trust indenture securing its bonded indebtedness petitioner was required, on June 1 of each year for a specified period, to make a sinking fund payment the amount of which was to be measured… Held: petitioner was not required to pay or set aside in the taxable year any portion of its earnings of the taxable year and is not entitled to a credit under section 26(c)(2) of the Revenue Act of 1936. See Fox River Paper Co.,44 B.T.A. 986.

Petitioner, the manager of an insurance agency in a noncommunity state, was induced to accept an agency in California by the agreement of the company to waive its right to collection charges upon… Held: that such commissions paid without deduction of the company's collection charge to the petitioner while employed by the company in California, had their inception in the noncommunity state and constituted separate property of the petitioner.

Petitioner and others executed a joint note to a bank for the purpose of acquiring stock then pledged by other borrowers as security for their loan. Held: that the loss was sustained in a year prior to 1936. A. W. D. Weis,13 B.T.A. 1284, followed. Eckert v. Burnet,283 U.S. 140, distinguished.

A business associate of petitioner acquired bank stocks, borrowing the money and pledging the stocks as collateral. Held: further, that the parties were not joint adventurers since they had not contributed their money or property in carrying out a venture for their common benefit.

The decedent guaranteed the creditor of his wife's account against loss, and at the time of his death the account showed a deficit and the wife was not insolvent but had a substantial income from a… Held: the amount of the deficit is not deductible as a claim against the estate.

Exemption as a business league is denied a nonprofit corporation which buys supplies for its members and sells them to the members at a price which includes a service charge or fee which is placed in a fund which under its bylaws may be distributed among the members.

A corporation reacquired some of its own stock by purchase for cash from its surplus. The reacquired stock, treasury stock, was distributed pro rata to all the stockholders. Held: the distribution of the treasury common stock to the holders of common stock did not constitute income to the distributees.

1. A corporation the shares of which are owned by two individuals and the income of which is derived from rent of its building to a partnership composed of the two shareholders, held a personal holding company, the income being personal holding company income. 2. The failure to file a personal holding company surtax return held without reasonable cause and to support penalty.

Petitioner acquired property in Nevada upon which were dumps composed of broken ore-bearing rock taken from mines located on adjacent property. Held: these dumps are not mines and petitioner is not entitled to percentage depletion under sections 23(m) and 114(b)(4) of the Acts of 1936 and 1938. Atlas Milling Co. v. Jones, 115 Fed.(2d) 61, followed; Kennedy Mining & Milling Co.,43 B.T.A. 617, distinguished.

1. Petitioner, a man of mature age with adult children by a first marriage, created a trust as part of an antenuptial agreement with his second wife, a woman of mature age with an adult child by a first marriage, the income to be paid to her for her use in purchasing clothing and for any other use which she might choose. Petitioner agreed to furnish necessaries other than clothing to his wife from his own income, and in consideration of the establishment of the trust the wife surrendered all community rights to petitioner's property and income. Held, under facts, only that part of the income of the trust used by the wife for her maintenance is taxable to petitioner. 2. Petitioner made a contribution to the Society of California Pioneers. Held, under the facts, this Society was an organization coming within the provisions of section 23(o), Revenue Act of 1936. 3. Petitioner owned certain preferred stock of X corporation which was called for retirement by the corporation as part of a plan of recapitalization which eventuated in an expansion of the company's capital structure. Held, this was a partial liquidation as defined by section 115(i), Act of 1936 (L. B. Coley,45 B.T.A. 405);held, further, under the facts, petitioner is taxable on the entire compensation paid him during taxable year.

Petitioner guaranteed notes of a corporation of which he was an officer and director and pledged his own securities as collateral for the notes. Held: that petitioner sustained a capital loss on the sale of securities so that his loss is limited by the provisions of section 117(d) of the Revenue Act of 1936.

Petitioner was to receive, in consideration for services rendered in connection with the acquisition of oil and gas leases, assignment of a one-tenth interest therein or 10 percent of the net profits… Held: that he was not a joint adventurer and that he may neither deduct from his gross income nor capitalize one-tenth of the excess of expenditures over receipts. Reynolds v. McMurray, 60 Fed.(2d) 843, distinguished.

Petitioner furnishes protection and indemnity insurance to its member shipowners upon a mutual assessment basis. Held: petitioner is not exempt under section 101(11), Revenue Acts of 1936 and 1938, nor entitled to the deductions allowed by section 207(c)(3), since both of these sections are general and must give way to the specific provisions of section 116(g). Petitioner is granted only that part of the deduction allocable to its nonexempt income.

Personal holding company provisions of Revenue Act of 1936, Title I A, requiring stock ownership in not more than five individuals, held applicable to petitioner by virtue of ultimate ownership by members of same family notwithstanding that stock was owned in part through intervening operating corporation and that some of the stock was pledged and its holders insolvent.

1. Decedent, by will, left the residuum of his estate in trust for his wife for life, with remainder over in trust for a charitable institution. Held: that the items set off to decedent's widow are includible in the gross estate of the decedent for purposes of the estate tax; held, further, that those items are not valid deductions from the gross estate. 2.

Petitioner entered into an agreement with Ford Motor Co., the lessee of an iron ore mine, to operate the mine for a term of five years and to furnish the Ford Motor Co. as much ore as required in its… Held: that under such agreement petitioner acquired an economic interest in all the ore in place on the property and is entitled to depletion deductions, computed on the percentage basis, on the proceeds from the sale of all of such ore, including that sold to Ford Motor Co.

1. The petitioner is a contractor and files its income tax returns on the calendar year basis. Some contracts are begun and completed within the taxable years. Held: that it may not take a deduction in the taxable year 1937, as a reserve for loss, of an amount estimated as the loss sustained in that year on a contract begun in that year and completed in 1938. 2.

1. Petitioner corporation agreed, in writing, to liquidate an indebtedness at the rate of $10,000 per month and that no cash dividends would be paid until the loan was liquidated. Held: petitioner is not entitled to any credit under section 26(c)(1) of the Revenue Act of 1936 in computing its undistributed net income. 2.

The petitioner performed services while a member of a marital community in California, but received payment therefor after an agreement of separation and division of property rights had been executed… Held: the petitioner is taxable upon the entire amount received as ordinary income.

On December 20, 1937, the Mid-Continent Securities Co., a personal holding company, sold to its principal shareholders shares of stock held by it as investments at a large profit, the purchasers… Held: that the sales by the company were bona fide and that the company did not receive and is not taxable upon the dividends paid on the shares sold; held, further, that the purchasers are entitled to the deduction of the interest paid by them on their obligations to the seller.

1. The value of corporate shares carrying a provision of the articles requiring the holder, desirous of transferring them by sale or gift, to offer them first to the corporation, which may buy them… Held: not limited by reason of the restriction to book value. 2. Corporate shares were left in trust, the income to go successively to two persons for life. One such person had the right to direct the trustee to sell and otherwise change investments.

1. In 1935 the petitioner incurred expenses of $5,465 in connection with a recapitalization of its capital structure by which its shares of… Held: that the petitioner is not entitled to the deduction claimed. 2. As the result of a judgment obtained against it in 1937 the petitioner was compelled to pay $5,100 transfer tax of its predecessor, an Ohio corporation, whose liabilities the petitioner had assumed as a part of the cost of the assets acquired from such corporation.

1. Petitioner, a manufacturing company, held, on the facts subject to tax under Revenue Act of 1934, section 102, as having been availed of during the taxable years for the purpose of avoiding surtax… Held: on the facts subject to tax under Revenue Act of 1934, section 102, as having been availed of during the taxable years for the purpose of avoiding surtax on its shareholders. 2.

Certificates for common stock of a corporation were issued in the name of petitioner and delivered to an escrow agent under an agreement providing that when certain photoplays were delivered to the… Held: further, that the amounts accumulated in earlier years and paid over to petitioner in the taxable year are dividends rather than ordinary income.

1. Securities issued under the name of income bonds held to be, in substance, shares of preferred stock and the amounts payable thereunder… Held: that the instruments do not constitute written contracts entitling petitioner to the benefits of subsections (1) and (2) of section 26(c) of the Revenue Act of 1936. 3. A portion of the dividends on the preferred stock was paid by the Ticker Publishing Co., a New York corporation, to a Delaware corporation, owner of the stock.

1. A stock dividend of 5 percent cumulative preferred stock paid to holders of common stock, the only outstanding class of stock, is taxable under the Revenue Act of 1936. 2. Held: the Revenue Act of 1936 was retroactively effective from January 1, 1936. 3. Held, that the issuing corporation had accumulated and current earnings and profits sufficient to pay such stock dividend.

Petitioner, the owner of all the outstanding stock of corporation, sold that stock at a loss in the taxable year. Held: that petitioner's loss on his claim against the corporation was a capital loss, subject to the limitations of section 117 of the Revenue Act of 1936.

During the year 1935 original petitioner made gifts of certain insurance policies, some of which were fully paid up and some of which were not paid up. Held: replacement cost is the proper criterion of value of the policies for gift tax purposes. Guggenheim v. Rasquin,312 U.S. 254; United States v. Ryerson,312 U.S. 260; Houston v. Commissioner, 124 Fed.(2d) 518; Margaret R. Phipps,43 B.T.A. 790.

1. Taxpayer was the owner of a certain parcel of land and in 1934 leased it to a tenant who erected a building thereon at its own expense. Held: that since taxpayer had no actual cost basis of the building and did not take its fair market value into income in 1935, it can not claim a cost basis in 1936 of the property equal to the cost of the land plus fair market value of the building in 1935. Commissioner is sustained in his computation of gain on the transaction.

During the year 1935 executors of decedent's estate distributed certain property to a trust for his widow. During that same year the trust realized income on the property distributed to it. Held: the tax on the income received by the widow's trust during 1935 was properly paid by that trust and no part of that income was taxable either to the decedent's estate or to the daughter's trust.

Held, the operation of a store was an independent business enterprise and not an integrated part of the operation of a cotton mill. Held: the operation of a store was an independent business enterprise and not an integrated part of the operation of a cotton mill. Accordingly, the net income of the store should be excluded from taxpayer's net income in determining whether it was subject to unjust enrichment tax.

The petitioner's son, the fee owner of certain real estate, gave the petitioner a lease thereon. Thereafter in connection with the sale of the property and during the term of the lease the petitioner executed to the purchaser a quitclaim deed to the property, reciting his intent to convey thereby all of his rights and interest in the property and more particularly to convey all his rights under the lease. No other instrument of conveyance was executed by the petitioner, nor was any instrument of cancellation executed between him and the son, nor was any endorsement of cancellation made on the lease instrument. Held: (1) The petitioner did not cancel his lease but sold it. (2) In computing his gain on the transaction, the petitioner is entitled to the use of a basis. (3) The lease was a capital asset in the hands of petitioner and the gain therefrom was capital gain.

- Held, that the unjust enrichment tax imposed by Title III of the Revenue Act of 1936 is an income tax within the meaning of the specific exception set forth in section 23(c)(1) of the… Held: that the unjust enrichment tax imposed by Title III of the Revenue Act of 1936 is an income tax within the meaning of the specific exception set forth in section 23(c)(1) of the Revenue Act of 1938 and, accordingly, is not deductible from gross income under section 23(c) of that Act.

Held, that under reciprocal annuity contracts purchased by the petitioner and his brother, pursuant to agreement at a time when the… Held: that under reciprocal annuity contracts purchased by the petitioner and his brother, pursuant to agreement at a time when the brothers were indebted and involved in contentions as to taxes, the petitioner is taxable upon 3 per centum of the consideration in fact paid by him for life annuities applied for by his brother, but payable…

1. Upon the evidence, held, petitioner is not entitled to exemption as a charitable, scientific, or educational corporation, as it was… Held: petitioner is not entitled to exemption as a charitable, scientific, or educational corporation, as it was not organized and operated exclusively for such purposes and a part of its earnings inured to the benefit of private shareholders and individuals; held, further, it is not entitled to exemption as a business league, part of its…

The entire consideration in cash and its equivalent paid to the respective petitioners by the remainderman, their son, for their life interests in parallel trusts they had previously created, held,… Held: taxable as ordinary income.

Claim for increased deficiency resulting from opinion of Circuit Court of Appeals upon question not raised before the Board may not be asserted in amended answer tendered after mandate is filed.

1. In years prior to 1934 the petitioner claimed and was allowed depreciation on a class of assets designated as Piers and Waterfront… Held: that the petitioner is not entitled to depreciation allowances in respect of such depreciable assets for the years 1934, 1936, and 1937. 2. In its income tax returns for 1933 and 1934 the petitioner deducted from gross income as accruals of real property taxes amounts of such taxes which became due and payable during those years.

During the taxable year, petitioner gave a brokerage firm an order to sell 100 shares of Coca-Cola International stock which it owned. Held: the exchange of petitioner's International common for Coca-ColaCola common represented amounts distributed in partial liquidation of International as that term is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1936; that 100 percent of petitioner's gain should be taken into account in computing net income…

Petitioner bank having failed to charge off partially worthless debts, held, not to be entitled to bad debt deduction under Regulations 101, article 23(k)-1(c), which substitutes directions of bank… Held: not to be entitled to bad debt deduction under Regulations 101, article 23(k)-1(c), which substitutes directions of bank examiners for ascertainment of worthlessness but does not change charge-off requirement.

Petitioner trusts were created in England by an English settlor for English beneficiaries. Held: that the trusts are resident alien entities and do not come within the provisions of section 211(a) of the Revenue Act of 1936, as amended, and section 211(a) of the Revenue Act of 1938; held, further, that the trusts had an office or place of business in the United States within the purview of the sections cited, supra.

1. Respondent disallowed the deduction of the cost of certain preferred stock to the petitioner, as a loss, on the ground that the stock became worthless prior to the taxable year. Held: such stock was not worthless prior to that year but became so during that period. 2. Held, that certain amounts were deductible from petitioner's gross income of the taxable year.

On November 1, 1926, petitioner executed a first mortgage trust indenture with a trust company as trustee, wherein petitioner agreed,… Held: petitioner's net quick assets on December 31, 1936, were in excess of $500,000 and that to the extent of this excess, petitioner could have paid a cash dividend in 1936; held, further, that in determining the credit which petitioner is entitled to receive under section 26(c)(1) of the Revenue Act of 1936, the cash dividend which it…

Corporation A transferred to corporation B, a wholly owned subsidiary, shares of stock of another corporation having a value of $8,562.50 in exchange for shares of B having a value of approximately… Held: that corporation B is not entitled to a deduction of more than that amount.

Gifts in trust were made in 1938 for the benefit of the donor's two minor grandchildren. Held: that the gifts are of present interests in property and an exclusion of $5,000 should be allowed under section 504(b) of the Revenue Act of 1932 for each of the gifts in computing the donor's gift tax liability.

Under a property settlement agreement, made in lieu of alimony, which provided for the creation of a trust with all the trust income payable to petitioner's former wife for life, petitioner… Held: that petitioner is taxable on the trust income to the extent that it was used to discharge his obligation, and, as his obligation was limited to $3,000 per year, petitioner is taxable only upon $3,000 of the trust income in 1936, and upon all of the trust income in 1937.

1. For a number of years the General Electric Co., decedent's employer, followed the practice of creating profit sharing trusts for the benefit of deserving employees. The beneficiaries who were to share in those trusts were disignated by the president of the company after the trusts were created and usually several months after the close of the calendar year covered by the particular trust. Prior to the decedent's death he had been designated a beneficiary of the trusts covering the years 1930 to 1934, inclusive. He was not at the time of his death a beneficiary of the trust covering 1935 and it was not until two months after his death that he was so designated. Held, the decedent's interests in the five trusts covering the years 1930 to 1934, inclusive, should be included in his income as "amounts accrued up to the date of his death" within the meaning of section 42 of the Revenue Act of 1936; held, further, that the decedent at the time of his death had no interest in the trust covering 1935 and such interest later acquired by his estate should not be treated as amounts accrued up to the date of his death within the meaning of the statute. 2. Petitioner failed to file an income tax return for the decedent for the year 1936, but such failure was due to reasonable cause and not due to willful neglect. Held, the respondent erred in imposing the 25 percent penalty under section 291 of the Revenue Act of 1936.

A decedent procured certain insurance policies upon his own life from the petitioner herein. He retained the right to change the beneficiary named in the policies, but never exercised that right. The respondent determined a deficiency against decedent's estate. Administration on that estate has been concluded, no part of the deficiency has been paid, and no assets remain in the estate for its payment. Respondent proposes to assess that liability, together with interest thereon, against petitioner insurance company. Held, petitioner is not liable for the tax and interest in question as transferee.

Income of trust which petitioner set up for his wife for life, with remainders over to their children, pursuant to the terms of a predivorce agreement, held, not taxable to… Held: not taxable to petitioner where there was no liability on petitioner's part during the taxable years to contribute to the wife's support, either under the terms of the settlement agreement and trust indenture, or under the laws of the State of Arizona, where the divorce decree was obtained.

During 1929 and 1930 the petitioner acquired 944.29 units of Executives' Investment Trusts of the Employees of the General Electric Company at a cost of $94,948.94. Held: that the basis for the computation of the net loss is not to be reduced by the $10,076.10 net losses claimed for the years 1930 to 1934, inclusive.

1. By his will the decedent left his property in trust, the income to be paid to his widow for life, and in the event the income was insufficient to provide for her suitable support, comfort, and maintenance the trustee was authorized to invade the corpus for such purpose. The trustee was also authorized to pay her $25,000 per annum from the corpus of the trust to be used by her for charitable purposes or for the support of relatives. Upon her death the trust estate remaining was to be divided into two parts, one of which was to pass under the widow's will or to her next of kin and out of the remaining half specific bequests aggregating $100,000 were to be paid to the decedent's relatives. If that half was insufficient to pay such bequests in full, they were to be ratably abated. If there was a surplus it was to be divided into two equal parts, one of which was to go to decedent's relatives and the other to charity. During the taxable years the petitioner realized capital gains which under Ohio law became a part of the trust corpus. Held, no part of such capital gains was "permanently set aside" for charitable purposes within the meaning of section 162(a) of the Revenue Act of 1934, and petitioner is entitled to no deduction thereunder. 2. Petitioner properly ascertained certain debts to be worthless in the taxable years and is entitled to the deductions claimed.

Petitioners, as holders of certain 6% Convertible Obligations of the Associated Gas & Electric Co., received in 1936 in payment of accrued interest 4 percent interest-bearing… Held: that the scrip constituted taxable income, and that it was realized by the petitioners in the year of receipt to the extent of its then fair market value; held, further, that the 5 percent negligence penalty should not be imposed for petitioners' failure to return the scrip as income in 1936.

Petitioner was organized as a mutual life insurance company under the laws of California. Held: the sums paid by petitioner as interest pursuant to such certificate were properly deductible by it as interest paid, pursuant to section 203(a)(8), Revenue Act of 1934.

1. Evidence held insufficient to overcome presumption that decedent's conveyance of real property to his wife within two years of his death was a transfer in contemplation of death. 2. Funds in joint savings account established by surviving spouse with funds furnished by decedent, held, includible in decedent's gross estate in absence of showing that the funds had been acquired from decedent for an adequate and full consideration in money or money's worth. 3. Evidence held insufficient to fix value of bonds lower than that determined by respondent. 4. Proceeds of life insurance policies taken out by decedent, a resident of Tennessee, payable to his estate, held within the $40,000 exemption of Revenue Act of 1926, section 302(g) as not "receivable by the executor."

The taxpayer on the accrual basis may not accrue within the year 1937 a sum that it is under no legal liability to pay simply because of the fact that within that year it made a compromise offer of settlement as a matter of good business policy, where the facts show that the settlement agreement was not entered into until 1938.

1. Petitioner during the taxable year 1935 was engaged, among other things, in the processing of hogs, upon which a processing tax was… Held: that mere general testimony of one witness that petitioner suffered a loss on its sales of hog products in 1935 without any figures taken from accounting records to substantiate such loss, even though some of the records have been destroyed and are no longer available to petitioner, is not sufficient to show that petitioner had no…

1. BAD DEBT DEDUCTION. - Petitioner, a junior partner of a bro kerage firm, handled a trading account for a customer on a discretionary basis, without financial responsibility on his part. Held: petitioner has not established the existence of a debt and is not entitled to a bad debt deduction for 1935. 2. Id. - When petitioner returned from Europe he found that his interest in the firm, amounting to approximately $250,000, had been completely lost.

In 1936 petitioner entered upon a plan of liquidation which was to be completed within two years. Held: that petitioner is entitled to a dividends paid credit under the provisions of section 27(f), Revenue Act of 1936, of so much of the distribution which she received in that year as is properly chargeable to petitioner's earnings and profits accumulated after February 28, 1913; held, further, that the dividends paid credit to which…

1. Taxpayers created a trust for the benefit of their four adult children and pursuant thereto conveyed to the trustees certain real property, some of which was then under mortgages. Held: that the interests of the four children were future interests and that no $5,000 exclusions were allowable. Commissioner v. Brandegee, 123 Fed.(2d) 58, followed. 2.

Held, that decedent and his wife, a California marital community, had an oral understanding and agreement transmuting separate property into community estate. Held: that decedent and his wife, a California marital community, had an oral understanding and agreement transmuting separate property into community estate.

1. Held, that Max Thomas Davis was not entitled to a deduction of $2,000 for 1936 as a bad debt. 2. Held: that Max Thomas Davis was not entitled to a deduction of $2,000 for 1936 as a bad debt. 2. In 1937 the Government was claiming that Max Thomas Davis and the M. T. Davis Co. owed certain amounts of additional income taxes, penalties, and interest for certain prior years and Max Thomas Davis was indicted in connection therewith.

Under a plan previously agreed upon, substantially all the stockholders of an insolvent corporation in 1937 purchased, through a trustee, the outstanding bonds of the corporation at a discount of 50… Held: that the petitioners did not exchange their shares of stock of the old corporation for shares of the new in a statutory reorganization, and that they sustained a deductible loss in 1937 of their investment in the old shares.

1. In 1932, petitioner created an irrevocable trust for a period of three years, with reversion to her or her estate. Held: that the income of such trust for the calendar year 1937 is not taxable to petitioner under section 22(a), 166, or 167 of the Revenue Act of 1936. 2. On the facts, held, petitioner is entitled to the deduction of depreciation for 1937 upon a property, including its furnishings, in Florida.

During the taxable year petitioner made a gift of certain policies of insurance on her own life to a trust, the income from which was to be… Held: since the charitable remainder was subject to being diverted through the exercise of the power of appointment, it was uncertain in fact and incapable of valuation, and that petitioner is not entitled to any charitable deduction under section 505(a)(2) of the Revenue Act of 1932; held, further, petitioner is not entitled to any…

During 1935 the petitioner, at a cost of $40,021.15, purchased all the first mortgage bonds ($50,000 face value), of another corporation, which were secured by a deed of trust to certain dock… Held: that petitioner, through application of the selling price of the dock property to the satisfaction of its claim for principal and interest under the bonds, realized taxable income. Helvering v. Midland Mutual Life Insurance Co.,300 U.S. 216.

Petitioner entered into a contract to construct certain buildings for the United States Army prior to the enactment of the Industrial Recovery Act in 1933. Held: petitioner is not entitled to a deduction of the amount of the claim as a debt ascertained to be worthless and charged off in 1936.

Decedent's will, after making a number of specific bequests, left all the residue of the estate to trustees who were directed to pay… Held: such bequests were contingent, indefinite, and uncertain, and money and property transferred thereunder within the sole discretion of the trustees to the Columbia Hospital and the Norris Foundation are not deductible from the value of the gross estate as charitable bequests under section 303(a)(3), Revenue Act of 1926, as amended.

The petitioner in 1937 made gifts of the value of $5,075 each to seven trusts, the primary beneficiary of each of which was a grandchild of petitioner. Held: each gift, with respect to the income therefrom, was a gift of a present interest, and, as to the principal, a future interest, within the meaning of section 504(b) of the Revenue Act of 1932.

1. The petitioner in 1936 was the transferee of the assets of another corporation in reorganization under section 77B of the Bankruptcy Act, and the basis for depreciation of such assets in… Held: the basis may not be reduced, in the years ended June 30, 1937, and June 30, 1938, by the amount of indebtedness of the transferor canceled in the reorganization because section 270 of the National Bankruptcy Act, effective September 22, 1938, has only prospective operation. 2.

Grantor of a short term trust in favor of his wife, held, taxable under section 22(a) of the Revenue Act of 1934. Helvering v. Clifford,309 U.S. 331, followed. Held: taxable under section 22(a) of the Revenue Act of 1934. Helvering v. Clifford,309 U.S. 331, followed.

Prior to and during each of the taxable years 1934 and 1935 petitioner made short sales of both the common and class A stocks of the… Held: that the exchanges of petitioner's International stocks for Coca-Cola stocks represented amounts distributed in partial liquidation of International, as that term is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934; that 100 percent of petitioner's gain should be taken into account in computing net…

1. Income from contract between petitioner and another corporation, where the contract designates and officer of petitioner to perform services, held, to be personal holding… Held: to be personal holding company income under section 403(e) of the Revenue Act of 1938. 2. Held, that a reimbursement for advances made by petitioner to a syndicate is not gross income to petitioner. Kresge Department Stores, Inc.,44 B.T.A. 1210, and Andrew Jergens Co.,40 B.T.A. 868, distinguished.

Petitioner's decedent was the sole executor and sole residuary legatee of an estate, the administration of which commenced in 1932. Held: on the facts, there was nothing arbitrary or capricious in continuing the administration of the estate during 1938 and the income of the estate for that year, prior to distribution of the corpus to petitioner's decedent, was not taxable to him as an individual.

1. Preferred share dividends being in arrears, a corporation adopted a recapitalization plan under which assenting shareholders received some cash and two series B shares, declared and accepted as the dividend in arrears, and four series B shares in exchange for one preferred share. The two series B shares, being declared as a dividend, held taxable as such and not as received in exchange for the preferred share. 2.

1. Two contracts reserving title in the vendor are construed under Kansas law to be chattel mortgages rather than conditional sales. As such, payments on these contracts are payments on an indebtedness as defined in section 27(a)(4), Revenue Act of 1938 and I.R.C., and give rise to a dividends paid credit. 2. No dividends paid credit is allowable under section 27(a)(4) for payments on promissory notes given in a prior year in satisfaction of dividends.

In 1929 the decedent purchased in the State of Minnesota certain bank stock from the National City Co. of New York. Held: the money recovered in 1939 does not constitute taxable income to the decedent.

By reason of a loss in 1930 on the sale of certain bank stock, deduction for which was claimed and allowed, petitioner sustained and reported a net loss for that year. Held: that the amount recovered in 1939 constitutes taxable income in the year of recovery to the extent that the amount recovered is in excess of the 1930 net loss, and that such income is taxable as ordinary income.

Petitioner's transferor was a small loan company which kept its books on the cash basis. Held: the loan company was entitled to use the reserve method of deductions for bad debts.

Where, under a trust indenture securing bonds of petitioner, part of rents were required to be paid monthly to the trustee for deposit in a sinking fund for purchase and cancellation of bonds, held,… Held: petitioner is entitled to the credit provided by section 26(c)(2) of the Revenue Act of 1936.

- The Commissioner contended for the first time in his brief that the income of a trust was taxable to the petitioner under section 22(a)… Held: that since the law of the case, as established by the court, is that the Commissioner had made a case showing taxability of the trust income to the petitioner under section 22(a), the only question for decision by the Board is whether the additional evidence, all of which was introduced by the petitioner, overcomes the case of the…

Petitioner loaned $22,000 in 1909 on a note made by a professional straw who at all times had no assets. The note was secured by a mortgage on real property. Held: the deduction was properly disallowed because the claim against the mortgagor was at all times known to be worthless, except for the security of the property, which was owned by the petitioner after 1931. Petitioner sustained a capital loss on the transaction in the taxable year.

Petitioner acquired all the assets of its predecessor, the A corporation, pursuant to a plan for reorganization under section 77B of the Bankruptcy Act, but there was… Held: that the measure of the part of the cost represented by the shares of stock was the fair market value of the stock at the time of issue. Amerex Holding Corporation,37 B.T.A. 1169; affd., 117 Fed.(2d) 1009; certiorari denied, 314 U.S. 620. Fair market value of all of the assets determined under the facts.

In the taxable year petitioner had outstanding Certificates of Indebtedness issued under a contract whereby petitioner agreed to set aside irrevocably 50 percent of its net earned income of each… Held: that petitioner irrevocably set aside in the taxable year the sum of $1,200 within the meaning of section 26(c)(2) of the Revenue Act of 1936 and section 351(b)(2)(B) of the Revenue Act of 1936, as amended.

1. Petitioner, during the taxable year 1936, was obligated under a mortgage indenture securing its bond issue to pay or declare no… Held: that payment of cash dividends in excess of the amount actually paid by petitioner in 1936 would have so reduced the net current assets in violation of the mortgage indenture; held, further, that under the established facts, petitioner could have paid common stock dividends, only, on its outstanding common stock which would not have…

A corporation obtained policies of insurance on decedent's life. Held: that decedent, as the insured, was the nominal holder of such reserved rights for the corporation's benefit; that the corporation was the real owner of the policies, and that hence the proceeds thereof should be excluded from decedent's estate.

1. Art. 19(9), Regulations 79, is applicable to a gift in trust of a single premium annuity contract. When the gift is made some time after the date of contract and no comparable contracts are obtainable, the interpolated terminal reserve may be used as a measure of the value of the contract at date of gift. 2. Petitioner is entitled to an exclusion of $5,000 for each beneficiary. Helvering v. Hutchings,312 U.S. 393. 3.

Prior to 1935 petitioner operated its business under a line of credit established with the Northwestern Bank. Held: the agreement did not prohibit petitioner from paying taxable stock dividends and it is not entitled to the credit provided for in section 26(c)(1) of the Revenue Act of 1936.

A taxpayer purchased conditional sale contracts of automobile dealers with customers, assigned them to another for a greater amount, and made collections on them which it transmitted to the assignee. Held: not interest and the taxpayer not a personal holding company.

Held, that separate property was not transmuted into community estate by oral agreement between husband and wife, under the law of Arizona. Held: that separate property was not transmuted into community estate by oral agreement between husband and wife, under the law of Arizona.

1. In 1937 petitioner issued and distributed as dividends notes of a fair market value equal to the face thereof, due January 1, 1939. Held: the general provisions of section 27(a)(4) are limited by the specific provisions of section 27(e), and petitioner is not entitled to a dividends paid credit in the amount paid in discharge of the notes. Spokane Dry Goods Co. v. Commissioner, 125 Fed.(2d) 865. 2.

In 1922 Louise Knapp created three trusts to each of which she gave 1,000 shares of X corporation stock. Held: On the question whether there were six trusts making sales instead of three, the Board is bound by the judgment of the state court in the reformation action. Hugh D. Rhodes et al., Administrators,41 B.T.A. 62; affd., 117 Fed.(2d) 509; George N. Spiva,43 B.T.A. 1174.

1. Petitioner was organized under the laws of the State of Kentucky as a corporation with a stated capital stock. Held: petitioner is not an exempt corporation under section 101, Revenue Act of 1936. 2.

Pursuant to an integrated but unwritten plan of reorganization, corporation A increased and issued most of its shares to corporation B for most of B's assets; B distributed the A shares among its… Held: exchanged for stock in the course of a reorganization and no gain is recognizable on their receipt by a shareholder of B. Sec. 112(b)(3), Revenue Act of 1936.

1. Petitioners' father took out life insurance policies on his own life and at his request the companies inserted provisions therein to the effect that upon his death the proceeds thereof would be… Held: installments received by petitioners by reason of the death of the insured are excluded from gross income under section 22(b)(1) of the Revenue Act of 1934. 2.

1. Petitioner is the beneficiary of two endowment insurance policies on the life of her husband, both of which matured in 1938. Held: that petitioner is not taxable in 1938 upon any part of the proceeds of such policy. 2. The second policy was issued upon application of the petitioner, who paid all of the annual premiums and had full ownership and control of the policy.

In 1931 petitioner acquired a bond and securing mortgage at a cost of $35,000, knowing the obligor mortgagor had died without any estate. Held: in the computation of its income tax for 1937, petitioner was entitled to deduct the difference between $43,587.91 and $21,000 as a then ascertained worthless debt under section 23(k) of the Revenue Act of 1936.

1. Petitioner, a manufacturer, sold its product through agents under installment conditional sales agreements. Held: petitioner should accrue as gross income the entire selling price of its merchandise and is entitled to accrue in the same taxable year, as deductible expenses of selling its goods, the entire amount of agent's commissions on the articles sold. Air-Way Electric Appliance Corporation v. Guitteau, 123 Fed.(2d) 20, followed. Reuben H.

In the taxable year 1937 petitioner conveyed to a trustee as gifts for the use and benefit of nine beneficiaries certain common stock which he owned. Held: that the gifts of the income interests to the nine beneficiaries named in the trust indenture were gifts of future interests and petitioner is not entitled to any $5,000 exclusion under section 504(b), Revenue Act of 1932. Helvering v. Blair, 121 Fed.(2d) 945, followed.

A corporation in 1933 adopted a plan of reorganization under which a part of its assets were to be transferred to a new corporation for all of the stock of the latter and the new stock was to be… Held: that the petitioners became the owners of, and acquired complete dominion and control over, the new stock on August 15, 1933, and hence the dividend may not be taxed to them in the year 1934 under section 115 of the Revenue Act of 1934 and article 112 (g)-5, Regulations 86.

Petitioner transferred certain of his property to a trust. The income was to be accumulated and added to principal throughout the existence of the trust. Held: that the income is taxable to the grantor under section 167 of the Revenue Act of 1936, Mary Ryerson Frost,38 B.T.A. 1402, and under the rule laid down in Helvering v. Clifford,309 U.S. 331.

In computing the net income of the taxpayers for 1937 the respondent included in gross income the amount of the depletion deductions taken and allowed in prior years with… Held: that the respondent's action was correct in the case of each of the taxpayers, except that in the case of Bessie P. Douglas the amount so included is to be reduced to the extent that it represented a deduction which did not effect an offset of taxable income for the year in which taken and allowed.

Petitioner employed attorneys to bring suit against the estate of his deceased father to determine his claim to an interest therein. Held: that amounts which petitioner paid his attorneys, which were received by him in the taxable years from earnings of properties in the estate, in which he was awarded an interest, and of properties distributed to him out of the estate under court awards, were his income and were taxable to him; held, further, that the expenditures for…

Despite an affirmed decision of the Board holding that income of three Pennsylvania trusts for 1932 is currently distributable to the beneficiaries and therefore taxable to them, in the absence of collusion, nisi decrees of an Orphans' Court of Pennsylvania, having jurisdiction, deciding that income of such trusts for later years is not currently distributable, are final and binding upon the Board in its determination of whether such income for later years is currently…

- Upon an issue of whether the recovered portions of deductions for had debts taken in prior years are income in the year of recovery, the petitioner carries its burden of proof where the stipulated facts show that the deductions did not result in tax benefits, and the petitioner is not required to negative possibilities concerning which no facts were stipulated and which were suggested for the first time in the respondent's brief.

1. In the taxable year 1936 taxpayers, husband and wife, conveyed to themselves as trustees, as gifts for the use and benefit of their three children, income interests in certain property. Held: that the gifts of both the income interests and the remainder interests in the corpus of the trusts were gifts of future interests and no $5,000 exclusion is allowable under section 504(b), Revenue Act of 1932. Helvering v. Blair, 121 Fed.(2d) 945, followed. 2.

Petitioner acquired certain assets in a tax-free reorganization but did not succeed to the leasehold of its predecessor. Held: that petitioner is not entitled to depreciation on leasehold improvements made by the old corporation even though petitioner occupied the premises.

1. A corporation proposing to declare a stock dividend sent a notice to shareholders seeming to give each an election to choose stock or cash but adding that, since it had insufficient cash, the… Held: that no election was given; that, under section 115(f)(2), Revenue Act of 1936, the stock dividend was not taxable to the shareholders, and that it did not provide the basis for a dividends paid credit under section 27(e). 2.

It appearing that the separate property of taxpayer was administered by her husband, the income therefrom was community income under the law of Louisiana.

Petitioner, engaged in the manufacture of coconut oil in San Francisco, purchased copra in the Philippines through its agents there, who were authorized to buy at a certain price and to whom funds… Held: Petitioner realized no income in 1936. (2) As to 1936, estoppel, not having been pleaded by respondent, can not be considered as an issue. (3) Respondent's determination of deficiency for year 1937 approved.

Petitioners were stockholders in a corporation which readjusted its capital structure during the taxable year 1936. Held: there was a recapitalization and hence a reorganization under section 112(g)(1)(D) of the Revenue Act of 1936; held, further, petitioners exchanged their old shares in the corporation a party to a reorganization pursuant to the plan of reorganization solely for new stock in the same corporation, and under section 112(b)(3) no gain or…

Waiver of statute of limitations for year 1934 signed by its secretary-treasurer on behalf of petitioner corporation which had no seal, held valid, although not accompanied by certified copy of the resolution of petitioner's board of directors authorizing the signing of the consent.

An importer of merchandise, keeping its books on an accrual basis, during 1929 and 1930 paid duties computed on the entered value of the merchandise imported. Appropriate steps were taken by the Government to collect additional duties but because of litigation carried on by petitioner and others the additional duties were not paid until 1935.

Petitioner entered into a contract to purchase from X corporation the common stock of Y corporation, the price to be the net worth of Y. The price was paid and the stock delivered. The same contract contained an executory agreement that petitioner would purchase or cause to be purchased from X certain preferred stock of Y, payments to be made on or before a certain date in each year. X was permitted at any time to sell all or any part of the preferred stock to any other person. Petitioner caused Y to purchase the preferred stock, which Y then held as treasury stock. Respondent seeks to tax to petitioner the payments made by Y to the extent such payments were made out of earnings as constituting a constructive dividend received through the discharge of an obligation. Held, that purchase of the stock by Y itself was a satisfaction of the obligation in accordance with its very terms and did not constitute income to petitioner. United Statesv. Kirby Lumber Co., 284 U.S. 1, distinguished; held, further, that dividends paid to the owners of the preferred stock, none of which was owned by petitioner, are not taxable to it.

Prior to the effective date of the Amended Vinson Act of June 25, 1936, petitioner had under contract delivered two airplanes to the Navy Department. Held: that the contractual definition of completion of contract was ineffectual, that the contract was completed prior to the effective date of the Vinson Act as amended, and that the profit or loss on the contract can not be offset against that of other contracts.

1. On the facts held that during period in question petitioner shifted the burden of its liability for taxes imposed by the Bituminous Coal Conservation Act of 1935 in certain instances, so as to be liable to the tax on unjust enrichment, and did not shift the burden in other instances. 2. Date when excise tax was declared unconstitutional held to be crucial date in computing extent of unjust enrichment, rather than earlier date when payment under taxing statute was due.

The petitioner was the stockholder of a corporation which annually distributed amounts in excess of its earnings and profits. Held: that in determining the amount of the distribution in the taxable year which constituted dividends under section 115(a) of the Revenue Act of 1936, income and excess profits taxes for that year accrued but umpaid must be taken into account.

Petitioner is a corporation the stock of which was held 40% by S, and the balance by members of S's family. Held: petitioner is entitled by the agreement of January 1, 1936, to a credit under section 26(c)(1), Revenue Act of 1936, in the computation of its surtax on undistributed income for the year 1936.

Compensation received by petitioner from the State of Alabamaheld taxable, since petitioner was not an offcer or employee of that state within the meaning of the Public Salary Act of 1939.

1. The law partnership of which petitioners were members was retained by the Superintendent of Banks of California to perform legal services in connection with the liquidation of insolvent state… Held: that the petitioners were not officers or employees of the State of California and that the compensation received by the partnership in 1938 for services performed by its members constitutes taxable income. 2.

A contract entered into by petitioner, its executives and a creditor of petitioner, who was also a stockholder, providing for a dividend restriction on common stock on the first $54,000 of its net profits for the taxable year, held to restrict payment of dividends from current profits and surplus so that petitioner is entitled to a credit under section 26(c)(1) of the Revenue Act of 1936.

The tax imposed by article XV of the Cuban Law of July 6, 1928, amending Military Order No. 463 of 1900, on gross income obtained for freight and passengers shipped in national ports of Cuba, is an income tax and may be claimed as a credit under section 131(a)(1) of the Revenue Act of 1936.

Petitioners were stockholders of a Columbia, South Carolina, wholesale grocery company which in turn owned the majority of stock in a Charleston, South Carolina, wholesale grocery company. Held: that the transaction represented a dividend distribution by the Columbia company to its stockholders of the excess of fair market value of the stock over the $100 which the stockholders paid for it, and petitioners are taxable on their part of the dividend.

Decedent's husband created a trust, reserving to himself the income for life and the right to withdrawals of principal for his maintenance and support, within the discretion of the trustee. Held: that no part of the trust corpus is includable in decedent's gross estate for the purpose of the Federal estate tax.

1. INCOME - ADVANCE RENTAL. - Sums paid in advance for the use of a building and equipment held to be advance rentals and income in the year of receipt. 2. STATUTE OF LIMITATIONS. - Advance rent not being income in the year of termination of a lease, there was no omission from its return of gross income properly includible therein and the three-year period of limitations is not extended by section 275(c), Revenue Act of 1934. 3.

Insurance policies on decedent's life in which the wife was named beneficiary, subject to revocation by insured, were unconditionally assigned by the insured and his wife as collateral security for a… Held: such proceeds are includable in decedent's gross estate under section 302(g), Revenue Act of 1926, as amended.

1. A state bank, in financial difficulty but apparently solvent, made a contrace with petitioner whereby all of its liabilities were assumed… Held: since no relation of debtor and creditor existed between the state bank and petitioner, no bad debt deduction may be allowed; held, further, since the transaction was not completed at the end of 1935, a substantial portion of the assets being yet unsold and a large sum being still due from the directors and the other banks, no…

- Gross income, for the purpose of section 351(b)(1)(a) of the Revenue Act of 1936, as amended by section 1 of the Revenue Act of 1937, in the case ofa dairy farm, is determined by deducting the cost of production from gross sales of dairy products. The cost of feed for the cows and the wages of employees who take care of and milk the cows and prepare the dairy products for market are included in the cost of production.

Decedent during the years 1921 to 1937, inclusive, opened savings accounts in various banks and deposited funds therein as trustee for her… Held: that the funds in such accounts at the date of decedent's death are includable in her gross estate for estate tax purposes, since they were not transferred ferred to the beneficiaries as inter vivos gifts during the decedent's lifetime, and since if they were trust conveyances the trusts were intended to take effect at or after…

The taxpayer, now deceased, was a citizen of the United States and resided in the Philippine Islands during the years 1917 and 1918. Held: the return which the taxpayer filed for 1918 did not constitute such return as the taxpayer was required to file as a citizen of the United States; (2) the period of limitations applicable to the income tax for 1918, and the excess profits tax for 1917, is contained in section 250 (d) of the 1921 Act, which permits assessment and…

Held, petitioners, who were active traders in securities, may not deduct commissions paid on the sale of securities as ordinary and necessary business expenses; held,… Held: petitioners, who were active traders in securities, may not deduct commissions paid on the sale of securities as ordinary and necessary business expenses; held, further, petitioners, who, as husband and wife, filed a joint return, may not deduct capital losses sustained by each, to the extent of $2,000.

1. A trust which provided that named relatives of the settlor receive specified amounts for college education and that funds not required for that purpose be used for educational aid… Held: not charitable within the meaning of sections 1004(a)(2)(B) and 101(6), Internal Revenue Code. 2. A donor who, under a mistaken conception of law, took no part of the specific exemption in the computation of gift tax, held, entitled to claim the exemption in a proceeding before the Board.

Petitioner, a personal holding company, was organized in 1927. Held: the distributions being nontaxable in 1938 in the hands of the shareholders, petitioner is not entitled to a dividends paid credit in the computation of personal holding company surtax for that year.

Petitioners are held to have been domiciled in the State of New York in 1936 and 1937, and they were not entitled to divide between themselves the net income of Nathaniel Shilkret for purposes of income tax.

- The Chrysler Corporation created a trust for a definite term of years as part of a plan for the benefit of certain of its executives. Held: The trust was not an association taxable as a corporation. (2) The trust was not for the exclusive benefit of the corporation's employees and was therefore not an employees' trust under section 165 of the 1938 Act, but was a pure trust, taxable under section 161 of that act and prior acts.

During the taxable years petitioner was chief support of his sons' families. Held: this does not in the circumstances entitle him to statutory credit for dependents on the ground the petitioner was the chief support of his four grandchildren.

1. The acquisition by the Johnstown Water Corporation of its preferred stock on November 20, 1936, was a partial liquidation of that corporation. The gain derived by petitioners as preferred stockholders is taxable in full. 2.

Petitioner whose interests in real property bacame worthless in 1937 held entitled to deduct the amount of the loss notwithstanding that she retained legal title throughout the year.

The petitioner, a nonresident alien individual, was a residuary legatee of an estate in the United States which consisted in part of a prior estate that was in trust pending final distribution. Held: that the petitioner was not engaged in a trade or business in the United States and did not have an office or place of business therein, and that she is not taxable under section 211(b) of the Revenue Act of 1936.

A willed B a percentage of the residuum of her intangible property. B died before distribution. The fair market value of B's share at her death was about $124,000. Held: no loss within the meaning of section 111(a), Revenue Act of 1936, was sustained by petitioner because there was no disposition of property.

1. Petitioner is held to be a dealer in real estate holding certain property for sale to customers in the ordinary course of its business. Held: only the interest on the amount of the original mortgage is a carrying charge which section 113(b)(1)(A) of the Revenue Act of 1934 permits a taxpayer to capitalize; held, further, that the basis of the property is reduced by the amount of the depreciation allowable, although deducted in a lesser amount.

1. In 1931 petitioner and another corporation entered into an agreement whereby petitioner was to lend the latter $40,000, in consideration for which the borrower was to pay petitioner a… Held: both the original and renewal commissions constituted taxable income received in 1934; held, further, on the evidence, such commissions constituted income taxable to petitioner and not to its sole stockholder, who furnished the money to petitioner with which to make the loan. 2.

1. Petitioner is a corporation which was engaged in the business of selling resort real estate. It owned certain recreational property, consisting, among other things, of a country club, a beach, a golf course, and a golf lodge. It transferred this property to a country club corporation in return for all of its corporate stock. In order to promote the sale of the residential property remaining in its hands, petitioner undertook to sell associate memberships in the country club at its own expense. Held, such expenses are deductible by petitioner as ordinary and necessary business expenses. 2. Petitioner was organized for the purpose of carrying on indirectly activities theretofore carried on directly by two individuals who were its only stockholders, each holding 50 percent of its stock, and who advanced certain sums to petitioner. During the taxable year petitioner purported to sell certain real estate to the individuals at a price fixed without regard to market value and paid for by a credit on the account of petitioner running to its two stockholders. The purpose of the sale was to establish a loss for tax purposes. Held, the purported sale was not in reality such a transfer of ownership as to justify a loss deduction under the revenue act. Higgins v. Smith,308 U.S. 473.

The deduction allowable to decedent's estate on account of property acquired from the estate of a prior decedent, held, to be the value at which such property was included in the estate of the prior… Held: to be the value at which such property was included in the estate of the prior decedent (reduced in accordance with a concession made by the petitioner) without reduction on account of the liabilities of the estate of the prior decedent.

1. TRUSTS. - Held, that petitioner was the trustee of a liquidating trust which was subject to tax under section 161 of the Revenue Act of 1936 upon its entire net income for… Held: that petitioner was the trustee of a liquidating trust which was subject to tax under section 161 of the Revenue Act of 1936 upon its entire net income for the year 1937. 2. DEPRECIATION. - Held, that the basis for depreciation is the fair market value of the property at date of foreclosure sale.