Volume 46 — Tax Court Memorandum

P, a pilot and Air Force veteran, attended flight training courses in 1977 and 1978, which maintained or improved skills required by him in his trade or business. Held: the reimbursed portions of the flight training expenses are not deductible by P under sec. 265(1), I.R.C. 1954. Manocchio v. Commissioner,78 T.C. 989 (1982), on appeal (9th Cir., Sept. 20, 1982), followed.

Petitioner and his former wife entered into a written separation agreement in 1975 under which petitioner agreed to make certain monthly payments to his wife. Held: for the year 1977 petitioner is not entitled to deduct as alimony the additional amounts he paid his wife under the oral amendments to the 1975 agreement. Held,further, by incorporating the terms of the separation agreement in its decree, the court did not retroactively amend the written agreement of 1975.

Held, in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a), I.R.C. 1954, sustained. Held: in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a), I.R.C. 1954, sustained. Held further, damages are awarded to the United States in the amount of $500 since this proceeding was instituted merely for delay. Sec. 6673, I.R.C. 1954.

Held, based on all the facts presented, the compensation paid by the petitioner corporations to their president/majority stockholder was reasonable. Held: based on all the facts presented, the compensation paid by the petitioner corporations to their president/majority stockholder was reasonable. Held further, the payments made by the petitioner corporation to relatives of its majority stockholder were not purely for services rendered and are adjusted accordingly.

Decedent Elbert B. Whitt owned 18 tracts of real property at some point during his lifetime. Held: Tract Nos. 2, 3, 4, 5, 8, 9, 10, 11, 14, 15, and 17 are includable in the Estate of Elbert B. Whitt (docket No. 13389-78) under section 2033. Held further: Completed gifts of Tract Nos. 1, 6, 7, 12, 13 and 16 were made in the years the deeds were recorded. Held further: Tract No. 18 was sold in 1952.

Petitioner is not subject to the income tax on excess distributions, if any, received from the estate of her husband. Lyeth v. Hoey,305 U.S. 188 (1938) followed.

P held 22 percent of the stock of B, an electing small business corporation. P never paid money to B in exchange for the stock nor was B indebted to P at the end of its 1974 taxable year. Held: under sec. 1374(c)(2), I.R.C. 1954, as in effect during 1974, P is not entitled to deduct his share of B's net operating loss for its 1974 taxable year, since P failed to prove that his basis in B's stock was other than zero.

Petitioners established Clifford Trusts for the benefit of their children. They funded the trusts with cash and their own promissory notes made payable to the trustees. Held: For lack of consideration, the notes are unenforceable under state law. Thus, payments on the notes constitute nondeductible gifts.

During the taxable years in issue, petitioners deducted various expenses incurred incident to the promotion and development of a Theme Park. Held, such expenses were not proximately related to any trade or business carried on by petitioner Charles Brown or his wholly owned subchapter S corporation and, therefore, are not currently deductible under section 162, I.R.C. 1954.

Held: Summary judgment granted for respondent where petitioners allege no facts contrary to those determined by respondent and advance legal arguments that are patently frivolous. Held: Summary judgment granted for respondent where petitioners allege no facts contrary to those determined by respondent and advance legal arguments that are patently frivolous.

On December 8, 1979, Victor Simeone and William Bennett were arrested at South Bimini in the Bahama Islands and charged with criminal possession of 435-3/4 pounds of cocaine. Held: respondent's determination with respect to Mr. Simeone is upheld. Held further, respondent is correct in the assertion that Mr. Bennett had unreported income, but the amount of his determination is excessive and is adjusted accordingly.

Held: Transfers of insurance policies from decedent to his wife were not in contemplation of death.

Held: (1) Respondent's determined deficiencies in Federal individual income taxes are upheld. (2) Additions to tax are imposed under sec. 6653(b) (fraud), I.R.C. 1954. Held: Respondent's determined deficiencies in Federal individual income taxes are upheld. (2) Additions to tax are imposed under sec. 6653(b) (fraud), I.R.C. 1954. Doncaster v. Commissioner,77 T.C. 334 (1981). (3) Additions to tax are imposed under sec. 6654 (estimated tax), I.R.C. 1954.

In 1972, G, a corporation, sold its principal asset. Held: that G's return for 1972 was fraudulent, and the statute of limitations does not bar the assessment of deficiencies and additions to tax for 1972.

Petitioner was employed as an administrative assistant from January through September of 1977 and was not employed during the remainder of the year. Held: the costs of the courses taken during 1977 are not deductible since petitioner failed to prove that such education maintained or improved the skills required in her employment as an administrative assistant and the courses taken by petitioner were part of a program which led to qualifying her for a new trade or business.

Parker Tree Farms, Inc. Held: 1. Petitioner received unreported interest income in the amount of $7,500 in 1970. 2. Held: Petitioner received unreported interest income in the amount of $7,500 in 1970. 2. Petitioner overstated its basis in land sold to Weyerhauser Paper Company in 1967 by $46,368.74. 3. Petitioner is liable for an addition to tax for failure to timely file corporate income tax returns for 1968 and 1970, under section 6651 (a). 4.

T, an executive and stockholder of foreign corporation S, was forced to resign his position with S in June 1974. Held: irrespective of whether the 1974 transfer of $1,000,000 from S to W was a bona fide loan, T may not be taxed on the $1,000,000 in 1974 unless he had unfettered control over it and may thus be said to have constructively received it at that time.

1. Depreciation deductions denied. Basis in assets exhausted by prior years depreciation. 2. Respondent did not conduct an unnecessary examination or second inspection of petitioner's books for 1979. 3. Addition to tax for negligence under sec. 6653(a), sustained.

Held: Deficiencies and I.R.C. 1954 sec. 6653(b) addition to tax not sustained.

Held: Losses in commodity futures trading through a joint venture are deductible when incurred even though funds for margin requirements and to make good the losses were borrowed. Held: Losses in commodity futures trading through a joint venture are deductible when incurred even though funds for margin requirements and to make good the losses were borrowed.

Held: Petitioners are not entitled to deduct as business expenses amounts paid for a print and a plant placed in petitioner's office, and for parking fees for the automobile petitioner drove to her… Held: Petitioners are not entitled to deduct as business expenses amounts paid for a print and a plant placed in petitioner's office, and for parking fees for the automobile petitioner drove to her office.

Held, payments to P under the Gulf Tuition Assistance Program are not excludable from income under sec. 117, I.R.C. 1954. Held: payments to P under the Gulf Tuition Assistance Program are not excludable from income under sec. 117, I.R.C. 1954.

Ps resided in New Jersey, owned rental properties, and operated a gas station there. In 1969, they sold one of their properties, moved to Florida, and opened another gas station there. Held: Ps are liable for a determined amount of deficiencies. (2) Part of the underpayment of tax for each year was due to fraud on the part of H. (3) The statute of limitations does not bar the assessment and collection of deficiencies. Sec. 6501(c)(1), I.R.C. 1954.

Held: Petitioner corporation has not met its burden of proving that 78 artworks (i.e., paintings, sculpture, batik prints and pottery) displayed in its medical offices… Held: Petitioner corporation has not met its burden of proving that 78 artworks (i.e., paintings, sculpture, batik prints and pottery) displayed in its medical offices had determinable useful lives so as to entitle it to depreciation deductions and an investment tax credit for the taxable years 1976 and 1977.

Held, respondent's reconstruction of petitioners' income based on the net worth method for the years 1965 and 1966 sustained. Held: respondent's reconstruction of petitioners' income based on the net worth method for the years 1965 and 1966 sustained. Held,further, respondent failed to prove that any part of the underpayments was due to fraud on the part of Rosalie and she, therefore, is not liable for the additions to tax for fraud determined by respondent.

Held: R's motion to dismiss for lack of prosecution with respect to deficiencies in income tax for the taxable years 1975, 1976 and 1977 and… Held: R's motion to dismiss for lack of prosecution with respect to deficiencies in income tax for the taxable years 1975, 1976 and 1977 and with respect to the sec. 6654(a), I.R.C. 1954, addition to the tax for the taxable years 1976 and 1977 granted. Held further: R's motion to impose sanctions pursuant to Rule 104 denied as moot.

Petitioner owned stock of a corporation that held a long-term lease to a hospital. Held: all gain to petitioner on the stock sale is capital gain. Berenson v. Commissioner,59 T.C. 412 (1972), revd. and remanded 507 F.2d 262 (2d Cir. 1974), on remand T.C. Memo. 1978-89, revd. and remanded 612 F.2d 695 (2d Cir. 1979); and Estate of Scharf v. Commissioner,38 T.C. 15 (1962), affd. 316 F.2d 625 (7th Cir. 1963), distinguished.

Held: Additions to tax are sustained for each of the years 1974 through 1978 under section 6653(b) (fraud), I.R.C. 1954. Held: Additions to tax are sustained for each of the years 1974 through 1978 under section 6653(b) (fraud), I.R.C. 1954.

1. Held: Amount of unreported income redetermined. 2. Held: Petitioner had self-employment income in 1978 which was subject to self-employment tax. Sec. 1401, I.R.C., 1954. 3. Held: Amount of unreported income redetermined. 2. Held: Petitioner had self-employment income in 1978 which was subject to self-employment tax. Sec. 1401, I.R.C., 1954. 3.

Petitioner was president of 26 adult theater corporations and, as such, had signatory authority over the checking accounts of each of the corporations. Held: the funds so transferred did not constitute income to petitioner since he received them in an agency capacity and did not improperly divert any portion of them to his personal use. Held further, the film expense deductions to which the corporations are entitled are determined.

Pursuant to P's request, P's brother executed a power of attorney appointing X to act as his lawful attorney in connection with the creation of a foreign situs trust with ABC Trust… Held: Based on all the facts and circumstances, P's transfer of his properties was not a sale in exchange for an annuity. LaFargue v. Commissioner,689 F.2d 845 (9th Cir. 1982), affg. in part and revg. in part 73 T.C. 40 (1979) distinguished. Held further: P is taxed on the payments he received.

In 1975, petitioner purchased a new principal residence and properly took a $1,248 credit pursuant to sec. 44, I.R.C. 1954, on his return for that year. Held: petitioner must recapture the previously taken credit on his 1978 return. Sec. 44(d)(1).

Held, the portion of petitioner's flight training expenses which were reimbursed by the Veterans Administration are not deductible as educational expenses. Held: the portion of petitioner's flight training expenses which were reimbursed by the Veterans Administration are not deductible as educational expenses. Manocchio v. Commissioner,78 T.C. 989 (1982), on appeal (9th Cir., Sept. 20, 1982), followed.

Held, petitioner's costs of attending law school in 1977 are not deductible. Section 1.162-5(a), Income Tax Regs.Held further, amounts deductible for the purchase of books and publications useful in petitioners' businesses in 1977 and 1978 determined. Held further, additions to tax under section 6653(a), I.R.C. 1954, for 1977 and 1978 imposed.

Upon retiring, petitioner's wife was entitled to receive, under her employer's retirement plan which was an unfunded, non-exempt plan and was not a qualified plan or… Held: this payment is fully includable in petitioner's income and does not qualify for the $5,000 exclusion otherwise allowed by sec. 101(b)(1) since petitioner, immediately before death, had a nonforfeitable right, within the meaning of sec. 1.101-2(d)(1), Income Tax Regs., to receive this amount while living.

Held, the portion of petitioner's flight training expenses which were reimbursed by the Veterans Administration are not deductible as educational expenses. Held: the portion of petitioner's flight training expenses which were reimbursed by the Veterans Administration are not deductible as educational expenses. Manocchio v. Commissioner,78 T.C. 989 (1982), on appeal (9th Cir., Sept. 20, 1982), followed.

Held: Petitioners received income from promoters' shares before 1973. They did not receive income, as respondent determined, in 1973 when permanent stock certificates were distributed. Held: Petitioners received income from promoters' shares before 1973. They did not receive income, as respondent determined, in 1973 when permanent stock certificates were distributed.

Held, in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a),… Held: in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a), I.R.C. 1954, sustained. Held further, on the Court's own motion, damages are awarded to the United States in the amount of $500 since this proceeding was instituted merely for delay. Sec. 6673, I.R.C. 1954.

During 1977 petitioner paid $1,294 in union dues, $916.28 of which was in payment of required contributions to his union's pension fund. Held: the payment of $916.28 constitutes either a capital expenditure or a personal expense and therefore is not deductible as a business expense.

In 1978 petitioners hired two persons to guard their personal residence in Ecuador in order to deter burglary attempts. Held: amounts paid for such purpose constitute personal expenses which do not give rise to a deduction. Also during 1978 petitioner-wife traveled to the United States.

In 1977, P, a pilot and veteran of the Armed Forces, attended flight training courses, which maintained or improved skills required of him in his trade or business. Held: P is not entitled to deduct the reimbursed portion of the flight training expenses under sec. 265(1), I.R.C. 1954. Manocchio v. Commissioner,78 T.C. 989 (1982), on appeal (9th Cir., Sept. 20, 1982), followed.

P, a pilot in the Air Force from 1968 through 1972, took flight training courses in 1976. He also paid dues to the Future Airline Pilots Association in 1976. Held: P was not carrying on the trade or business of an airline pilot in 1976 and therefore is not entitled to an educational expense deduction for amounts expended on flight training and related travel and lodging.

Decedent and wife created trusts which had similar terms but under decedent's trust, wife had a special power of appointment over the trust corpus. Held: trusts are not interrelated and therefore not reciprocal within the meaning of United States v. Estate of Grace,395 U.S. 316 (1969); Estate of Bischoff v. Commissioner,69 T.C. 32 (1977); Krause v. Commissioner,57 T.C. 890 (1972).

Held, in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a),… Held: in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a), I.R.C. 1954, sustained. Held further, on the Court's own motion, damages are awarded to the United States in the amount of $500 since this proceeding was instituted merely for delay. Sec. 6673, I.R.C. 1954.

Held: Petitioners Hawthorne and Helen Tucker are taxable on the net profits received from D & H Custom Homes during 1974, 1975 and 1976 in the amounts determined by… Held: Petitioners Hawthorne and Helen Tucker are taxable on the net profits received from D & H Custom Homes during 1974, 1975 and 1976 in the amounts determined by respondent. Held further, a part of the underpayment of tax attributable to such unreported income for all 3 taxable years was due to fraud.

In February 1969, petitioners moved from Manhasset, on Long Island, in New Yorks State, to an apartment in Manhattan, New York. On December 5, 1969, petitioner-husband and his corporate-employer, W & G, executed a written employment agreement, in part providing for reduction of his salary by 15 percent if he had his principal residence outside of Manhattan. For 1973 his salary was $100,000. During 1973, petitioners resided in the Manhattan apartment, which also was used by petitioner-husband to entertain W & G business associates, to conduct business negotiations, and to do other work. On their 1973 tax return, petitioners deducted $15,000 of their expenses for the apartment. Held: (1) The $15,000 is not excludable from gross income under section 119, I.R.C. 1954, as it is not lodging furnished in kind. (2) The full amount of $15,000 is not deductible under sections 162 and 262, I.R.C. 1954, as petitioners have not shown the extent of business use of the apartment nor is the portion of the $15,000 representing entertainment so deductible, as petitioners have not satisfied the requirements of section 274, I.R.C. 1954. (3) A deduction is allowed for business use of a telephone in the apartment, as estimated under Cohan v. Commissioner,39 F.2d 540 (CA2 1930). The wedding of petitioners' daughter took place on August 18, 1973 (Saturday), at 4 p.m. Thereafter, from 5 p.m. to 11:30 p.m., a wedding reception was held, at which 90 of the 242 attendees were W & G business associates or their spouses. Of the 90, 28 attended a W & G International Divisional Managers meeting from August 20, 1973 (Monday) through August 22, 1973 (Wednesday). On their 1973 tax return, petitioners deducted approximately three-eighths of the wedding reception expenses. Held: (4) The wedding expenses are not deductible under sections 162 and 262, I.R.C. 1954.

Petitioners purportedly transferred to a family trust most of their business and personal assets, including their home, petitioner-husband's office equipment, and their lifetime personal services and… Held: The trust was devoid of economic reality and is not recognizable for Federal income tax purposes. (2) In docket No. 28467-81, petitioners are liable for additions to tax under section 6653(a), I.R.C. 1954.

Held, the employment of petitioners, who are construction workers, at the site of a nuclear plant was indefinite, rather than temporary. Held: the employment of petitioners, who are construction workers, at the site of a nuclear plant was indefinite, rather than temporary. Accordingly, deductions for transportation expenses and away from home traveling expenses under section 162(a)(2) are denied.

Held, petitioner's employment at the Watts Bar Nuclear Plant was indefinite rather than temporary. Accordingly, a deduction for transportation expenses incurred during the taxable year is denied. Held: petitioner's employment at the Watts Bar Nuclear Plant was indefinite rather than temporary. Accordingly, a deduction for transportation expenses incurred during the taxable year is denied.

Petitioner-husband retired from the Federal Communications Commission in 1971 because of high blood pressure and heart problems. Held: Petitioners are not entitled to exclude from income any portion of petitioner-husband's 1978 disability pay under section 105(d), I.R.C. 1954, under the grandfather clause enacted by the Congress, or under any implied or inherent Grandfather Rights.

In 1974 and 1975, P was a dealer in used cars, and many of the sales were made on credit. P held the notes and reported the payments thereon as income when he received them. Held, P must report the income from the sale of cars by the accrual method and must report the face amount of the notes as income when received. Held, further, P is entitled to deductions for reasonable additions to a reserve for bad debts. Sec. 166, I.R.C. 1954.

Held, in these circumstances, respondent's determinations of an income tax deficiency and an addition to the tax under sec. 6653(a), I.R.C. 1954, sustained. Held further, on the Court's own motion, damages are awarded to the United States in the amount of $500 since this proceeding was instituted merely for delay. Sec. 6673, I.R.C. 1954.

Petitioners transferred to a family trust most of their business and personal assets, including their home, petitioner-husband's office equipment, and their lifetime personal services and all… Held: The trust was devoid of economic reality and is not recognizable for Federal income tax purposes. (2) Petitioners are liable for additions to tax under section 6653(a), I.R.C. 1954.

Held, in these circumstances, respondent's determinations of income tax deficiencies and additions to the tax under secs. 6653(b) and 6654, I.R.C. 1954,… Held: in these circumstances, respondent's determinations of income tax deficiencies and additions to the tax under secs. 6653(b) and 6654, I.R.C. 1954, sustained. Held further, on the Court's own motion, damages are awarded to the United States in the amount of $500 since this proceeding was instituted merely for delay.

1. Petitioner owned and maintained three buildings on Ocracoke Island, North Carolina, which it used, as hunting and fishing lodges, for the entertainment of employees of its major customers and… Held: deductions for petitioner's expenses with respect to its entertainment activity and facility are disallowed by section 274(a). Held further, petitioner's expenditures for meals and beverages do not fall within the exception of section 274(a) contained in section 274(e)(1). 2.

Held: Interest deductions disallowed where, by prearrangement, checks drawn by petitioner, reflecting the interest payments, were endorsed by the payees, returned to petitioner and deposited in… Held: Interest deductions disallowed where, by prearrangement, checks drawn by petitioner, reflecting the interest payments, were endorsed by the payees, returned to petitioner and deposited in petitioner's bank account.

Held:Sec. 162, I.R.C. 1954, deduction for payments made to avoid damage to business reputation determined. Similar payments motivated by sense of integrity and to maintain and enhance personal reputation nondeductible.

In 1976, petitioner's medical license was revoked and he did not practice medicine during any part of the year. Held: expenditures incurred by petitioner during 1976 in connection with his membership in a country club were nondeductible personal expenses. Petitioner failed to prove that he was engaged in carrying on a trade or business of medicine during 1976 or that the expenditures met the requirements of secs. 162 and 274, I.R.C. 1954.

Held, Stocks and bonds in the residue of decedent's estate were sold by the executor prior to distribution so that capital gains are taxable to the estate rather than to petitioner as residuary… Held: Stocks and bonds in the residue of decedent's estate were sold by the executor prior to distribution so that capital gains are taxable to the estate rather than to petitioner as residuary trustee.

H, a U.S. citizen, married W, a citizen of Argentina, in 1970. W came to U.S. in 1970 giving as the reason her marriage and stating an intention to make U.S. her permanent residence. Held: W did not carry her burden that she had abandoned her permanent residence in U.S.

From 1970 to 1975 decedent and her daughter lived together. In 1975 decedent purchased another house and the two moved there. Shortly thereafter decedent deeded the house to her daughter. The motive was an expression of gratitude for her daughter's giving up her own residence in 1970. Held,sec. 2036, I.R.C. 1954, is not applicable and value of house is not includable in decedent's estate. Facts show each considered that title to house had changed and acted accordingly.

Held: Respondent's motion to dismiss under Rule 149(b), Rules of Practice and Procedure, United States Tax Court, for failure to produce evidence, granted. Held: Respondent's motion to dismiss under Rule 149(b), Rules of Practice and Procedure, United States Tax Court, for failure to produce evidence, granted.

Petitioner filed Forms 1040 which contained no figures or other information with respect to his income. Held: Petitioner's constitutional rights were not violated and the deficiencies determined by respondent are sustained. Held,further: Petitioner is liable for additions to tax under sections 6651(a)(1), 6653(a), and 6654, I.R.C. 1954.

Held: There being no genuine issue as to any material fact and petitioner's having presented no valid legal argument to prove error in the notice of deficiency, respondent's motion for summary… Held: There being no genuine issue as to any material fact and petitioner's having presented no valid legal argument to prove error in the notice of deficiency, respondent's motion for summary judgment is granted.

During 1978, Ps sold shares of stock and realized a long-term capital gain. One-half of such gain constituted an item of tax preference, subject to the minimum tax. Held: Ps are not entitled to utilize the income averaging provisions to determine their liability for the minimum tax on tax preference items. Riley v. Commissioner,66 T.C. 141 (1976), followed.

During the years 1974 through 1977, the decedent made approximately 16 loans, five of which are at issue herein. Held: the decedent was not in the trade or business of lending money during the years 1974 through 1977 and, accordingly, is not entitled to a business bad debt deduction for the five loans at issue herein.

Held, wages are income. Held further, deficiencies and additions to tax under sections 6653(a), 6653(b) and 6654(a) are sustained. Held: wages are income. Held further, deficiencies and additions to tax under sections 6653(a), 6653(b) and 6654(a) are sustained.

Held: Understatement of income and additions to tax under I.R.C. 1954 sec. 6653(b) determined. Held: Understatement of income and additions to tax under I.R.C. 1954 sec. 6653(b) determined.

Petitioner was the primary target of an undercover police investigation of an illegal lottery. Held: based on petitioner's failure to introduce evidence controverting respondent's allegations, respondent's deficiency determinations are upheld. Held further, respondent's proof linking petitioner to illegal lottery activity is not of sufficient probative value to establish the existence of fraud by clear and convincing evidence.

In 1977, P, a college professor, claimed deductions for miscellaneous business expenses, travel and transportation expenses, medical expenses, and casualty and theft losses. Held: (1) P's miscellaneous business expenses determined. (2) P may not deduct the costs of attending a convention in Minnesota since she failed to prove the amount of her unreimbursed expenses. P may not deduct amounts claimed for airfare, meals and lodging, telephone, and taxi expenses since she failed to substantiate such expenses under sec. 274(d), I.R.C. 1954. However, P may deduct the registration fee for an interterm conference since she substantiated the expense. P's automobile business mileage determined. (3) P may deduct $2,218.77 for the cost of hospitalization since she proved that she was not compensated by insurance. However, P may not deduct the costs of doctor and dentist treatment, nor the cost of a special chair since she failed to prove these expenses were not compensated by insurance. P may not deduct the cost of household help, nor the cost of heating and cooling her home, as medical expenses. Secs. 213, 262, I.R.C. 1954. (4) Amount of theft and casualty losses determined. (5) P is liable for the addition to tax under sec. 6653(a), I.R.C. 1954, for negligence.

Prior to his death, decedent entered into a contingent fee arrangement whereby he was to share in the proceeds of a medical malpractice suit. Held: the value of the gross estate includes the value of the contingent fee arrangement. Secs. 2031 and 2033. Held further, the value of the fee is $79,538.87, which was received prior to the alternate valuation date. Sec. 2032.

Petitioners failed to file income tax returns for 1975, 1976, and 1977, and failed to appear for trial. Held: Evidence was sufficient to prove that underpayment of tax was due to fraud. Addition to tax for fraud approved.

Held, petitioners had gross income from wages during 1977 of $19,414.39. Their legal and constitutional arguments to the contrary are frivolous and wholly without merit. Held: petitioners had gross income from wages during 1977 of $19,414.39. Their legal and constitutional arguments to the contrary are frivolous and wholly without merit.

Held: Fraud addition sustained.

Held, petition dismissed for failure properly to prosecute under Rule 123(b) and summary judgment granted as to addition to tax under sec. 6653(b), I.R.C. 1954, based upon deemed admissions.

Held: Petitioners activity consisting of breeding, training, showing, boarding and grooming dogs was an activity engaged in for profit. Consequently, their losses from such activity were deductible. Held: Petitioners activity consisting of breeding, training, showing, boarding and grooming dogs was an activity engaged in for profit. Consequently, their losses from such activity were deductible.

Held, in these circumstances, respondent's determinations of income tax deficiencies and additions to the tax under secs. 6653(a), 6653(b) and… Held: in these circumstances, respondent's determinations of income tax deficiencies and additions to the tax under secs. 6653(a), 6653(b) and 6654, I.R.C. 1954, sustained.Held further, on the Court's own motion, damages are awarded to the United States in the amount of $500 since this proceeding was instituted merely for delay.

W and H entered into a transaction in December 1967 which, in form, was a sale from W to H and a leaseback from H to W. Petitioner-husbands were the shareholders of W, a subchapter S corporation. Held: (1) The transaction is in substance a sale-leaseback, petitioners having failed to present "strong proof" that the transaction is a financing arrangement. Accordingly, W received interest income from H in W's fiscal year 1970. Held: (2) In applying the passive income test of section 1372(e)(5), I.R.C. 1954, W's fiscal year 1970 interest income is not netted against W's fiscal year 1970 rental payments to H. Held: (3) For W's fiscal year 1970, its passive investment income exceeded 20 percent of its gross receipts. W's subchapter S status terminated and its losses for its fiscal year 1970 and thereafter are not passed through to its shareholders. In January 1968, some of the properties leased by W and owned by H under the sale-leaseback were damaged by flooding. Held: (4) Petitioners have failed to meet their burden of proving that W is entitled to a casualty loss deduction for its fiscal year 1968 and thus, that they, as shareholders of a then subchapter S corporation, are entitled to a pass-through deduction on account of the casualty loss. The Federal individual income tax return of Gs, petitioners in docket No. 10103-75, was due on June 15, 1973. The return was received by the IRS on June 18, 1973. Held: (5) Gs' return was not timely filed; Gs do not have reasonable cause for filing late; and so, an addition to tax under sec. 6651(a), I.R.C. 1954 is sustained.

Held: Petitioner's gross income and deductions determined; additions to tax under secs. 6653(b) and 6654, I.R.C. 1954, found. Held: Petitioner's gross income and deductions determined; additions to tax under secs. 6653(b) and 6654, I.R.C. 1954, found.

As a result of two sinkings in 1977, salt water was deposited in P's boat engine. Salt gradually accumulated in the oil ports and caused the engine to seize in 1978. Held, P is not entitled to a casualty loss deduction for the year 1978 since the requisite "suddenness" did not exist with respect to the engine seizure and there is no evidence that any damage caused by the sinkings themselves could not have been ascertained in 1977.

In 1974, P purchased an interest in a cash method oil and gas limited partnership. Held: Ps are entitled to the deduction for the intangible drilling costs in 1974 since the payments clearly reflected the income of the partnership in that year. Keller v. Commissioner,79 T.C. 7 (1982), on appeal (8th Cir., Dec. 6, 1982), followed.

P made a gift of stock on condition that the donees pay the gift tax liability on the transfer. The donees paid the gift tax liability, which exceeded P's adjusted basis in the stock. Held, P realized gain measured by the excess of the gift tax liability over her adjusted basis in the stock. Diedrich v. Commissioner,457 U.S. 191 (1982), followed.

Held: Amounts of business expenses determined. Held: Amounts of business expenses determined.

On his 1978 tax return, petitioner claimed a deduction for employee business expenses totaling $6,012. Held: petitioner failed to prove that the claimed employee business expenses met the requirements of secs. 162 and 274, I.R.C. 1954. Held further, petitioner is entitled to a casualty loss deduction of $500.

Petitioner was retired from the New York City Police Department in 1975 at the age of 46 because of an injury to his left wrist. Held: none of the disability retirement payment received by petitioner is excludable from income under sec. 104(a)(1), I.R.C. 1954, since petitioner's injury was nonservice connected.

Petitioner was a 50-percent shareholder of Champs Outboard Sales and Service, Inc., while his former spouse owned the remaining 50 percent. Held: petitioner is liable as a transferee for the income tax due from the transferor corporation for the taxable year 1973.

On June 30, 1980 respondent mailed a notice of deficiency for 1975 to petitioners at an incorrect address. This notice was returned to the Internal Revenue Service marked, Moved, not forwardable. Held: assessment of a deficiency in petitioners' income tax for 1975 is barred by the 3-year statute of limitations prescribed by sec. 6501(a), I.R.C. 1954. Reddock v. Commissioner,72 T.C. 21 (1979), followed.