Volume 47 — Board of Tax Appeals

In 1934 a partnership, after paying and deducting Federal revenue stamp taxes, had a net income of over $700,000. Held: that the partners are taxable on their distributive shares of the partnership income for 1938, which was determined by including in its computation the refunded tax, even though the partners would not have paid a tax in 1934 if the deductions for stamp taxes had not been taken by the partnership.

These proceedings were originally decided in favor of petitioner upon the ground that the beneficiaries of the trust and not the trust itself were the donees of the gifts. Held: that such motion was timely filed, the Commissioner should be permitted to file his amended answer, and the proceedings should be set down for further hearing on the issue of future interests. Prior opinion entered March 9, 1942 (published at 46 B.T.A. 492), is superseded.

Petitioners purchased stock in the Equitable Trust Co. and Equitable Corporation. This stock was later exchanged for units of Chase Bank and Chase Securities stock. Held: that, since no cost bases can be apportioned to the separate stocks, no loss can be taken until there is a disposition of the whole unit. Barber Securities Corporation,45 B.T.A. 521, followed.

During 1936 and 1937 all of petitioner's income came from an agreement by which it received a percentage of all oil and gas produced from certain property on which petitioner held the underlying… Held: the amounts received were royalties and petitioner was taxable as a personal holding company under the Revenue Acts of 1936 and 1937; held, further, imposition of the 25 percent penalty for failure to file a personal holding company return is mandatory.

Insurance on the life of a decedent held by a trustee for decedent's family, the trustee having power, but being under no duty, to use, and not using, the proceeds to pay charges against the decedent's estate, held receivable by one other than the executor and included within the gross estate only to the extent of the excess over $40,000, sec. 811(g), Internal Revenue Code.

1. In 1919 the Court of Appeals of Kentucky ordered that a receiver be appointed for the Louisville Property Co., a Kentucky corporation, for the purpose of paying its debts and winding up its… Held: Williams during the taxable years 1935 and 1936 was operating the property or business of the Louisville Property Co., and should have made returns for that corporation under section 52 of the Revenue Acts of 1934 and 1936. 2.

The personal exemption of $2,500 given to a head of a family or a married person living with husband or wife is not allowed to a husband as the head of a family consisting of divorced wife and children living in a separate household, when separate returns are filed by him and his present wife with whom he lives, and the wife, with his consent, takes the entire exemption on her return.

Upon permission granted by the respondent, a partnership of which petitioners were members changed from the specific charge-off to the reserve method of computing its bad debt deductions and at the… Held: that in computing its net income for the year of the change, the partnership is entitled to the deduction claimed.

1. Employee participants in pension fund held taxable on amounts received in the taxable year in excess of their contributions to the fund. 2. Held: that the taxable amounts received by the employees from the fund in the taxable year, other than accretions attributable to the contributions of the employees, are earned income for purposes of computing the earned income credit.

After the death of her husband in 1929 Kate H. Alexander, decedent herein, was the owner of a parcel of real estate in the city of Louisville, Kentucky, which had been leased by… Held: that the fair market value of the building was income to decedent in 1933 when complete and untrammeled possession of the building was given her by the assignee of the lease, and not in 1934 when formal written surrender of the lease was executed, as has been determined by the Commissioner.

Petitioner realized no gain on liquidation and retirement of all of its outstanding preferred stock.

At the time of decedent's death there were in force eight policies of insurance on his life, six of which were ordinary life policies payable at death to his wife, if living, otherwise to his estate. Held: that the proceeds of all of the policies, in excess of $4,000, are includable in the decedent's gross estate under section 302(g) of the Revenue Act of 1926, as amended.

1. In 1936 taxpayers transferred bonds of X corporation to Y corporation and received in exchange, pursuant to an option agreement, certain shares of X corporation's stock held by Y, which stock… Held: that taxpayers realized no deductible loss thereby in 1936. 2. In 1937 X corporation canceled the bonds received from Y corporation, thus relieving certain lands held by X of a trust lien. Corporation Z had an agreement with X to purchase these lands for a sum certain.

A fund of $41,020.48 credited to decedent in the customer's ledger account of a trust company held to constitute moneys deposited within the meaning of section 303(e) of the Revenue Act of 1926, as amended by section 403(d) of the Revenue Act of 1934.

1. Taxpayer corporation was indebted to two individuals jointly in the amount of $182,188.06. Held: that taxpayer realized capital gain in the amount of $82,188.06 as the result of the transaction with the two individuals. 2. In the fiscal year 1936 taxpayer was indebted to Y corporation in the sum of $52,247.30, but was relieved of this debt by a compromise settlement by virtue of which taxpayer paid only $11,250.

The gain received in 1938 in an installment of price in a sale made in 1936 of capital assets held more than ten years is taxable to the extent of 50 percent, as provided in section 117(b), Revenue Act of 1938, and not 30 percent, as provided in section 117(a), Revenue Act of 1936.

1. Petitioner, engaged in selling false teeth by mail, received initial deposits from customers under a written promise to refund all moneys in case of dissatisfaction after 60 days' trial. Held: that the liability to refund was only contingent and that the deposits constituted income. 2.

Pro rata distribution in partial liquidation of petitioner where stock certificates were surrendered and canceled and new certificates issued in the amount of the par value of the stock less the amount of the distribution, held properly chargeable to capital account within the meaning of Revenue Act of 1936, section 115(c), and consequently not chargeable to earnings or profits for the purpose of a dividends paid credit under section 27(f).

In 1939 the petitioner owned 210 shares of the Colonial Trust Co. of Waterbury, Connecticut, which company redeemed one-half of its… Held: that the redemption of the stock was not made at such time and in such manner as to make the distribution of the shares essentially equivalent to the distribution of a taxable dividend; held, further, that the basis for computing the gain or loss upon the shares redeemed is the cost to the petitioner of the shares represented by…

Taxpayer is an individual and was in the years involved engaged in the growing and selling of barley, cotton, and wheat. Held: on the facts that certain of the transactions were hedging transactions the resultant losses from which are deductible in full, and that other losses did not result from hedging transactions, and therefore were capital losses.

Benefit payments made by the United States for carrying out approved range improvement practices under the Soil Conservation and Domestic Allotment Act are includable in gross income.

1. The taking of property by condemnation and the payment of just compensation therefor is a sale or exchange within the meaning of section 117(a) of the Revenue Act of 1936 and profit from that transaction is capital gain. 2.

1. Petitioner is not entitled to credit for amount of adjusted net income under section 26(c)(1), Revenue Act of 1936, even though, under an existing capital deficit, it was prohibited by a Federal law from distributing its profits earned in taxable year as dividends. Crane-Johnson Co. v. Helvering,311 U.S. 54, followed. 2.

Payments received in 1937 and 1939 by petitioner, a naturalized citizen and resident of the United States, from the Canadian Government under its pension act, as compensation for disabilities incurred from injuries received in 1918 while in active service as a member of its armed forces, are taxable income to petitioner in the respective years when received.

By a computation of average margins as provided by subsection (e)(1) of section 501, Revenue Act of 1936, the Commissioner has… Held: the prima facie case made out by the Commissioner's computation of margins has been overcome by the evidence and such evidence shows that petitioner did not shift, either directly or indirectly, to its customers the tax which it paid under the Bituminous Coal Conservation Act of 1935, and hence is not liable for any unjust enrichment…

A partnership in which petitioners are members received bonds in payment for services in lieu of cash, with the intent of converting them into cash. Held: that the bonds were not capital assets, but were property held primarily for sale to customers in the ordinary course of the partnership's business.

- A parent who maintained a common home in which she and her minor daughter resided, and who contributed substantially to the support of the minor daughter, is the head of a family within the meaning of section 25(b)(1) of the Revenue Act of 1938 for the entire year even though during the last four months of the year the daughter was away from home at college and maintained and supported herself for that period with her own funds.

1. Petitioner, an employee of Louisiana State University, entered into an arrangement with the president of the university whereby taxpayer received a certain percentage of cost… Held: as to income arising from such source, petitioner was not an employee of the state and the income was not exempt from tax. 2. Respondent's determination that certain kickbacks or rebates received by petitioner from contractors and materialmen were income, approved. 3. Fraud penalties approved.

In 1931 decedent made three gifts in trust, naming her children respective beneficiaries. Held: The gifts in trust were not includible in decedent's gross estate under section 302(a) of the Revenue Act of 1926, as amended, or under section 302(d) of the Revenue Act of 1926, as amended.

A state statute, applicable to provisions in petitioner's stock certificates, prohibited payment of dividends. Held: no credit allowable under section 26(c)(1), Revenue Act of 1936; held, further, under the same section, that a general provision in a mortgage did not expressly deal with payment of dividends.

Petitioner's deceased, a nonresident alien not having a place of business in the United States, held subject to income tax upon the… Held: further, that respondent correctly determined the deficiency by computing the tax at the rate of 10 percent as imposed by section 211 of the Revenue Act of 1936, regardless of the fact that prior to the enactment of that act the royalties in question had been transmitted to petitioner's decedent and a tax at the rate of 4 percent as…

1. Tax-free transaction whereby a corporation issued its stock to the shareholders of another corporation in exchange for their shares and simultaneously took over the bulk, and later the balance of… Held: to result in the successor's acquisition and retention of the predecessor's earnings and profits. 2.

Petitioner was the beneficiary of one-third of the income from a trust under his father's will which provided that petitioner was to receive one-third of the corpus on becoming 30 years of age. Held: the evidence not establishing that the delay in distribution was not unreasonable, petitioner is taxable on the capital gains under section 22(a) of the Revenue Acts of 1936 and 1938.

1. In each of the taxable years the Commissioner, under section 45 of the applicable revenue acts, has allocated to two subsidiary… Held: the portion of executive expenses allocated to the subsidiaries for 1937 was without justification because taxpayer had already charged the subsidiaries their full share of these expenses for that year; held, further, a portion of such expenses for 1938 allocated to the subsidiaries was justified and is approved, and the balance is…

1. The Board is without jurisdiction to redetermine a deficiency for 1938 upon an amended petition filed more than ninety days after the notice was mailed, notwithstanding the original petition was timely filed to contest a deficiency for 1937. 2. Accrued income of a decedent during the last period of his life does not include an amount received by the administrator after death in settlement of a stale and doubtful claim denied by the claimee during the decedent's life.

Petitioner purchased and sold some of its own common stock, partly because of a desire to use the proceeds to purchase its preferred stock. Held: petitioner realized taxable gain on the purchase and sale of its common stock.

The portion of the undistributed supplement P net income of a foreign personal holding company, as measured by subsection (b) of section 337 of the Revenue Act of 1938, is properly included in the gross income of the petitioners, shareholders therein, residents of the United States, for Federal income tax purposes, under section 337, subsection (a), despite restrictions preventing the legal transfer to the United States, if it had been actually distributed.

Petitioner was employed as a crew member of an American ship registered in San Diego, California. Held: that petitioner's earned income was not exempt from income tax under section 116(a) of the Revenue Act of 1936.

Gifts in trust for an indeterminate period during which neither principal nor income was distributable to beneficiaries except in trustees' discretion, held, future interests and not subject to… Held: future interests and not subject to $5,000 exclusions, regardless of beneficiaries' possible right under the terms of the trust of immediate disposition of their interests.

Petitioner corporation was organized in 1911 for the purpose of holding investments. Its stock was held by 5 brothers and sisters. Held: amount claimed and received by petitioner as such interest was interest within the meaning of section 353(a) of the Revenue Act of 1937; held, further, petitioner is a personal holding company and is liable for penalty on account of failure to file return as such.

Decedent desired to make gifts of stock to his five children but did not have sufficient funds to pay the estimated gift taxes payable on the contemplated gifts. Held: that the $150,000 is taxable as income to decedent.

A personal holding corporation prior to January 1, 1934, was indebted to its sole stockholder and to others. Held: that the corporation is not entitled to deduction for payments claimed in either taxable year, under section 1 of the Revenue Act of 1937, adding section 355(b) by amendment to the Revenue Act of 1936, and section 405(b) of the Revenue Act of 1938.

From 1924 through 1939 the petitioner sold under oral agreements made from year to year and on a competitive basis practically all of its output to a single customer. Held: that the petitioner was not availed of during those years for the purpose of permitting its stockholders to escape surtax.

1. A foreign personal holding company, with income from sources within the United States, is within the meaning of the term any corporation, as used in section 351(b)(1) of the Revenue Act of 1936 and is subject to surtax imposed under subsection 351(a) of that act, even though all of its stockholders are nonresident aliens. 2.

All of petitioners' income was derived from sources within the Philippine Islands, to the Government of which petitioners paid income… Held: under the plain wording of section 131(b) of the Revenue Act of 1936, the total amount of the Credit for the tax paid to the Government of the Philippines is at least an amount equal to the amount of the tax due to the United States, against which the credit is taken, and the credit allowed by the terms of section 131(a)(1), subject…

Petitioner uses trucks in the conduct of its business as a common carrier. Held: the prices of tires with short life as shown by the record purchased by a motor carrier are properly deductible as business expense.

The petitioner spun yarn from baled lint cotton; also purchased cotton yarn. Held: That in making the marginal computations under section 501(e)(2) of the Revenue Act of 1936 to determine the extent, if any, to which petitioner shifted to others the processing taxes imposed upon it in 1935 but not paid, there should be included as the selling price of articles with respect to which such Federal excise tax was…

1. X corporation became insolvent. Pursuant to a plan of reorganization a majority of its bondholders deposited their first mortage… Held: that the taxpayer corporation did not acquire X's assets as the result of a tax-free reorganization, as that term is defined in section 112(g) of the Revenue Act of 1934. Commissioner v. Southwest Consolidated Corporation,315 U.S. 194. 2. The bondholders' committee purchased X's land and building at the foreclosure sale for $100,000.

1. Reorganization under section 112(i)(1) of the Revenue Act of 1932 was effected when a new corporation acquired substantially all the… Held: that under the Revenue Acts of 1934 and 1936, which are the applicable acts to the taxable years involved in this proceeding, none of the interest charges so incurred can be included as a part of the cost to petitioner's transferor of the property in question in computing the depreciation deductions to which petitioner is entitled.

1. Petitioner is a United States citizen and was a bona fide nonresident of the United States for more than six months of each of the taxable years. Held: that petitioner's earned income from sources without the United States, excludable from gross income under section 116(a) of the Revenue Acts of 1936 and 1938, is limited to 20 percent of his share of the partnership's net profits, which included the amounts designated salary. 2.

The settlor established a trust which provided for certain monthly payments to the beneficiaries. Held: the income is not to be distributed currently as income within the meaning of section 162(b), Revenue Act of 1936, since the payments were to be made at all events.

Decedent made inter vivos gifts to two trusts for the benefit of his sons. He reserved the right in each trust to modify, amend, or declare new trusts respecting the settlements made but not to revoke the trusts, in whole or in part. Later he amended each trust so that the sons each received life estates in the trust income and power to appoint, by will, remaindermen to receive the trust corpus, in each trust. If the sons failed to exercise the general power of appointment the corpus of each trust was to pass to each son's wife, or descendants, or both. If a son died prior to decedent, leaving no wife or children and without having exercised the power of appointment, the corpus of the particular trust was to revert to the decedent or his legal representatives. Held, under the rule of Day v. Commissioner, 92 Fed.(2d) 179 (C.C.A., 3d Cir. - to which this proceeding may be appealed), decedent's power to modify, amend, or declare new trusts, being indistinguishable from the power which was exercised in the Day case, was a power which once exercised was exhausted, and, therefore, the value of the properties transferred inter vivos to each trust is not includable in the value of the decedent's gross estate under section 302(d) of the Revenue Act of 1926, as amended; held, further, that, under the rule of Helvering v. Hallock,309 U.S. 106, parts of the values of each trust corpus are includable in the value of the decedent's gross estate under section 302(c) of the Revenue Act of 1926, as amended, because of the possibility of reverter to the decedent in each trust, the values of the life estates of each son to be excluded from the value of the gross estate, as adjusted under section 302(j)(2) of the Revenue Act of 1926, as amended, in accordance with article 11 of Regulations 80 (1937 Ed.).

Trust income distributable within grantor's intimate family group, but which could be withheld from the beneficiaries, grantor's wife and child, by action of the cotrustee, a family corporation… Held: taxable to the grantor.

Where dividend resolution dated September 28, 1936, provided for a dividend payable October 1, 1936, and checks were dated October 1, 1936, the dividend was not paid in the taxable year ended September 30, 1936, although some of the checks were handed to stockholders on September 30, 1936, and others were placed in the mail on the same date.

In a statutory merger and consolidation of petitioner and its subsidiary, petitioner received all the assets of the subsidiary in exchange for all its stock and the assumption of the liabilities of… Held: petitioner was thus in receipt of a distribution in liquidation and so taxable under section 115(c) of the Revenue Act of 1934, since it was not relieved by any of the nonrecognition provisions of section 112 of that act.

In 1936 Jacob with Conley and Barnes acquired a certain hotel property and transferred it to a newly organized corporation, each… Held: that the respondent is not estopped to assert transferee liability against the petitioners and that the prior proceeding in which Jacob sought to litigate his individual liability as transferee is not res judicata in these proceedings; held, further, that the petitioners are liable as transferees of the corporation to the extent of…

1. A partnership which was engaged in the brokerage business paid a large sum for cancellation of leases upon which it was lessee. Held: that the aggregate of the cost of canceling the leases and the unamortized improvements to the leaseholds is deductible in the year the leases were canceled. Denholm & McKay Co.,2 B.T.A. 444, followed. 2.

1. New Jersey personal property taxes are accruable and deductible by a taxpayer keeping its books on the accrual basis on October 1 of the year preceding that for which they are levied. 2. A taxpayer reporting its income for the fiscal period January 1 to August 31, 1937, and keeping its books on the accrual basis, is entitled to accrue and deduct New Jersey real estate taxes levied for the year 1937.

1. Neither a six-month corporate promissory note, secured by a mortgage and other collateral, nor demand notes are "securities" within the meaning of section 112(b)(3) of the Revenue Act of 1936, even though the holder of these notes was a heavy stockholder of the maker and, in fact, controlled it. 2. Such notes here merely evidence a creditor-debtor relationship between the maker of the notes and the owner so that when the maker satisfied such notes by the transfer of stock owned by the maker in another corporation no exchange giving rise to gain or loss occurred under section 112 of the same revenue act.

In 1929 petitioner created a trust for the benefit of his wife and children, reserving the right to amend the trust by rearranging the benefits to be received both as to principal and income. Held: the payment over of trust income to the wife constituted a gift in the year paid.

Petitioner is transferee from a corporation, through reorganization proceedings under section 77-B of the Bankruptcy Act. Held: that the interest accrued on the old bonds during the trustee proceedings was properly deducted from income. Sexton v. Dreyfus,219 U.S. 339; Hummel-Ross Fibre Corporation,40 B.T.A. 821; Shamrock Oil & Gas Co.,42 B.T.A. 1016.

1. Petitioner is not entitled to credit for amount of adjusted net income under section 26(c)(1), Revenue Act of 1936, even though, under an existing capital deficit, it was prohibited by a Federal law from distributing its profits earned in taxable year as dividends. Crane-Johnson Co. v. Helvering,311 U.S. 54, followed. 2. Petitioner is entitled, under section 26(c)(2), to a credit of $14,000, the amount of current earnings set aside as a sinking fund payment, that amount being less than it was required to pay into the sinking fund, cf. Brockway Glass Co.,43 B.T.A. 267, and the payment having been made pursuant to a written contract executed prior to May 1, 1936.

1. Where stock of B corporation was exchanged for stock of C corporation, pursuant to a plan which contemplated the transfer of the assets of B to a subsidiary of C and the dissolution of B, the stock of C corporation was not stock of a corporation a party to a reorganization and the gain realized by a stockholder of B in the exchange is taxable. 2. Fair market value of C stock, and length of time the B stock was held by petitioner, determined. 3.

For a legitimate business purpose a corporation having outstanding common shares of no par value and 7 percent preferred shares issued 4 $25 par value common shares in exchange for each no par value… Held: the exchange was of stock for stock and securities in pursuance of a plan of reorganization, and no gain is recognizable to the shareholders from receipt of bonds for preferred shares. Sec. 112(b)(3), Revenue Act of 1938.

For a legitimate business purpose a corporation having $100 par value shares outstanding issued in exchange for each share a no par value share and $100 in long term debentures. Held: the exchange was of stock for stock and securities in pursuance of a plan of reorganization and the debentures received by the taxpayer shareholders are not taxable to them as dividends. Sec. 112(b)(3), Revenue Act of 1938.

Corporation S, which owned all the shares of another, C, had a large amount due from C on open account for materials. In 1937 it was clear that C could not operate profitably and the debt could not be paid. C transferred all its assets to S and S assumed C's liabilities. Held, the transfer was not a liquidation distribution by C, and S may deduct the worthless debt and the cost of the worthless shares.

Petitioner, in 1933, entered into a written agreement with the holder of its bond. The agreement provided that from 1933 on petitioner would set aside from its yearly profits, as a reserve, the sum of $15,624.24 (10 percent of the debt). Until the bond was paid only the yearly profits in excess of the amount to be set aside could be used for the payment of dividends. During each of the years 1936 and 1937 petitioner added $15,624.24 to a reserve account set up on its books.

Petitioners, which are foreign investment corporations with large holdings of United States securities, established an office in this country under the charge of a United States citizen designated an… Held: that petitioners maintained an office or place of business within the United States and are resident foreign corporations taxable under section 231(b) of the Revenue Acts of 1936 and 1938.

1. The petitioner set up an irrevocable trust, with his wife as sole beneficiary and cotrustee with him, and with no rights in the petitioner to corpus or income. Held: that trust income was not taxable to the petitioner. 2. The petitioner owned stock in corporations and actively engaged in the internal affairs of such corporations. Held, that expenses are deductible as of trade or business to the extent shown not to be mere investment expense.

1. In 1914 the decedent received a property dividend consisting of shares of stock of the Timken-Detroit Axle Co. The fair market value of the shares received was not reported as taxable income of 1914. In 1935 the decedent sold some of the shares at a price less than their fair market value at the date of receipt. Held, that the total proceeds of the sales in 1935 constituted taxable income. 2. In 1933 the decedent acquired convertible trust bonds of the Chesapeake Corporation. These bonds entitled the owner to convert them into shares of stock of the Chesapeake & Ohio Railway Co. In 1936 the decedent exercised the conversion privilege and received shares of stock of the railway company of a fair market value greatly in excess of the cost of the bonds. Held, that the excess of the fair market value of the shares received over the cost of the bonds was taxable income to the decedent. 3. (a) In 1935 the decedent's brother, W. R. Timken, owed him a balance of $3,166,113.37 on a contract executed on January 16, 1931, plus $668,525 under a provision of the contract whereby he guaranteed dividends upon certain shares of stock held by the decedent. The brother gave the decedent in 1935 his promissory note for $3,166,113.37, partially secured by collateral, and another promissory note for $668,525, unsecured. On July 1, 1935, the decedent made a gift of the latter note to the Timken Foundation of Canton. At the date of the gift it was uncertain whether the note would ever be collected. In 1937 the decedent gave his brother shares of stock to enable him to pay his note, which shares of stock were accepted by the Foundation in payment therefor. Held, that the decedent derived no taxable income in 1935 from the gift of the note or in 1937 from the payment thereof. (b) In 1931 the decedent and his two sisters jointly loaned to their brother, W. R. Timken, $3,000,000 in cash and securities. The unpaid interest on the note in January 1935 amounted to $476,539.87, one-third of which, or $158,846.62 was the decedent's portion. On January 24, 1935, the decedent and his two sisters by deed of gift irrevocably conveyed all their interest in the indebtedness to the Timken Foundation of Canton. At the date of the gift it was uncertain whether the interest on the note would ever be collected. W. R. Timken paid the interest on the indebtedness to the Foundation in 1936 and 1937. Held, that the decedent derived no taxable income from the gift in 1935 nor from the payment of the interest in 1936 and 1937. 4. In 1936 the decedent, owning three-eighths of the capital stock of the Imperial Investment Co., a personal holding company, received cash and property dividends from the company of $150,937.50. The earnings and profits of the company for 1936 amounted to $247,011.94, and it had no accumulated earnings at the beginning of the year. Held, that the taxable dividend received was in the amount of $92,649.48 (three-eights of $247,011.94) and that the excess of the distribution represented a distribution of capital and not taxable income.

1. An amount paid by petitioner in 1936 as interest on deferred payment of the purchase price of certain bonds was in fact interest and not a part of the cost of such bonds. 2. Held: that petitioner was thereupon completely liquidated and may not be considered as in possession of undistributed profits subject to surtax under section 14(b) of the Revenue Act of 1936.

In 1933 the petitioner made an outlay to secure a new breakwater and harbor improvements at the port where it was carrying on business. In making the outlay the petitioner expected that certain shipping business would be anchored to the port and that for a period its lighterage operations would be benefited. About the time of the completion of the new breakwater and harbor improvements in 1935 it became certain that a wharf would be built at the port, that it would be completed in 1939, and that its completion would result in the termination of the petitioner's lighterage business. Held, that petitioner is entitled to deduct ratably such portion of its contribution to the cost of the breakwater as is properly chargeable or allocable to the lighterage business.

In 1932 petitioner had a serious and extensive operation for cancer. Held: under all the facts and circumstances, the transfers of December 31, 1936, and the transfers of August 4, 1937, to the extent of the difference between the selling price and the fair market value of the stock, were gifts in contemplation of death and properly includable in decedent's gross estate.

The petitioner during a period of about seventeen years procured about twelve patents on inventions developed outside his regular hours of employment. Held: that the patent sold in 1935 was property held by the petitioner his trade or business such sale in 1938 and 1939 is taxable as ordinary gain.

1. A materialman is not comprehended in the term subcontractor within the meaning of section 3 of the Vinson Act. 2. Under section 3 of the Vinson Act the cost of performing the contract furnished by it as contractor and not by their market value at the time of appropriation.

Petitioner was engaged in the business of buying and selling poultry, eggs, butter, and cheese. The volume of its egg business during the taxable year was 150 carloads. Held: such losses are subject to the limitations of section 117(d)(1), Revenue Act of 1938, since they did not result from hedging transactions or from the sale of property includable in petitioner's inventory.

1. Trust beneficiary, being beneficial owner of property at the time of accrual of property taxes in the States of Illinois, Indiana, and… Held: entitled to deduct the taxes when paid by her after termination of the trust. Estate of John Edgerly Morrell,43 B.T.A. 651; Hord v. Commissioner (C.C.A., 6th Cir.), 95 Fed.(2d) 179. 2. Petitioner may not deduct interest paid on the obligation of another nor attorney's fees not shown to have been incurred in a trade or business.

1. Petitioner canceled royalties and other debts accrued prior to the taxable year and also royalties accrued for the first six months of the taxable in… Held: such cancellation is a capital expenditure; held, further, the royalties accrued for the first six months of the taxable year are properly includable in gross income. 2. Penalties for failure to file returns on time are not to be assessed where petitioner has shown reasonable cause. Sec. 291, Revenue Act of 1936.

1. In determining the extent, if any, to which petitioner under section 501:e):2) of the Revenue Act of 1936 shall be presumed prima facie… Held: the proper tax was imposed 2. Upon the evidence, held, that as to certain contract sales petitioner has rebutted the statutory presumption provided by section 501:e):2) of the Revenue Act of 1936 that presumably it had shifted to others the tax on such sales imposed by section 3 of the Bituminous Coal Conservation Act of 1935;…

1. Held, petitioner was not entitled to deduct as a business expense money paid to accountants in connection with a dispute over income taxes for prior years. 2. Held: petitioner was not entitled to deduct as a business expense money paid to accountants in connection with a dispute over income taxes for prior years. 2.

1. In 1930 petitioner was indemnified against any loss resulting from payment to the indemnitor of the proceeds of production of an oil well in accordance with existing agreements. Held: that the debt was ascertained to be worthless and charged off in 1936. 2. In 1936 petitioner canceled and credited to surplus the amount of $7,000 representing salary accrued on its books in 1931 in favor of one of its officers. Petitioner sustained a net loss of about $90,000 in 1931.

Under the facts it is held that petitioners made bona fide gifts to their minor children of interests in a partnership and the income derived from such interests is the separate income of each child, as well as the income from other property acquired by the children from investments of their funds and membership in another partnership. The control over the property involved by one parent, one of the donors, was exercised in his capacity as a natural guardian at law.

In 1937 petitioner sold his tire retreading and repairing plant to his brother at less than its depreciated net value. Held, he is entitled to no deduction for the loss arising from the transaction. Held: he is entitled to no deduction for the loss arising from the transaction. (Sec. 24:a):6):A) of the Revenue Act of 1936.) Held, further, petitioner may not, on the record be allowed any loss in useful value under article 33(e) - 3 of Regulations 94.

Petitioner, a corporation, pursuant to a tax-free reorganization on December 23, 1936, acquired in exchange for its capital stock the business and assets of a Wisconsin corporation. Held: the amounts received by petitioner in settlement of such claims constituted income to it in the year of receipt.

Held, no binding contract governing the sale of patents by decedent to the Davol Rubber Co. was entered into prior to March 24, 1938, the date of decedent's death. Held: no binding contract governing the sale of patents by decedent to the Davol Rubber Co. was entered into prior to March 24, 1938, the date of decedent's death.

Pursuant to section 602 of the Revenue Act of 1936, petitioner, which was on an accrual basis, was reimbursed in 1938 for the processing tax burden borne by it on account of the floor stock tax. Held: the payment received by petitioner in 1938 accrued in 1936, because the right to the payment ripened when the statute authorizing it was enacted. Continental Tie & Lumber Co. v. United States,286 U.S. 290.

Decedent was a member of the New York Teachers' Retirement System and, upon his retirement as superintendent of schools of New York City, was entitled… Held: that decedent at his death owned an annuity with an offsetting death benefit and the amount of such benefit then paid to his sons in accordance with his direction was not insurance within the meaning of section 302 :g) of the Revenue Act of 1936 and is includable in his gross estate under section 302:c) of that act.

1. Petitioner was the owner of certain lands which it had purchased in prior years at an agreed cost. The land had no independent mineral cost to petitioner. Held: in computing petitioner's capital gain from the sale the Commissioner properly adjusted petitioner's original cost of the land by deducting therefrom the depletion claimed and allowed in prior years. Sec. 113(b)(1)(B), Revenue Act of 1938. 2.

Funeral expenses and expenses of last illness of a married woman dying testate a resident of Florida, paid pursuant to the terms of the last will and allowed by the laws of the state as a charge… Held: a legal deduction from the gross estate.

In 1936 the petitioner, who had been the sole support of his mother for years prior thereto, entered into a written agreement with his mother whereby the mother transferred… Held: upon the evidence, that petitioner did not hold any part of the partnership interest as trustee for his mother, and that the payments made by petitioner to his mother were in part payments under the contract and in part voluntary contributions to her support and maintenance and are not deductible.

1. Legal expenses, court costs, etc., incident to securing petitioner's release from a mental institution and restoration of control over his property, held personal expenditures and consequently nondeductible. 2. Value of property may not be proved by the mere submission of computations based upon formulas.

In 1926, petitioner, an American corporation, purchased a bond of a German corporation, payable in dollars. Held: a completed transaction resulted from the payment in blocked marks in 1935 of the bond acquired by petitioner in 1926.

In 1937 the Chilhowee Mills, Inc., surrendered its charter. Held: :1) Income from business carried on by the partnership is taxable as partnership income. :2) The partnership is a proper party petitioner under the facts for purposes of questioning the correctness of respondent's determination that it was taxable as a corporation.

1. Corporation C owned all :$500,000) the bonds of corporation P, at a cost of $15,160. Held: no gain to C may be recognized. 2. The exchange by P of preferred shares, having a value of $50,000, for its outstanding bonds, having a face value of $500,000, was in pursuance of a plan of recapitalization. Held, no gain to P may be recognized. 3.

1. Held, that petitioners, taking the statutory depletion allowance under section 114(b)(3) of the Revenue Acts of 1936 and 1938, under the… Held: that petitioners, taking the statutory depletion allowance under section 114(b)(3) of the Revenue Acts of 1936 and 1938, under the percentage method, were not required to return as income in the taxable year part of depletion deductions taken on bonuses received on certain oil and gas leases under the provisions of article…

1. Petitioner executed an oil payment contract to its chief stockholder, X, in consideration for his paying the costs of drilling certain wells. Held: that X acquired through his investment in the wells an economic interest in the oil in place and the amounts received therefrom by him in the taxable years constituted income to him and was not petitioner's income. Question controlled by Thomas v. Perkins,301 U.S. 655, Anderson v. Helvering,310 U.S. 404, does not apply. 2.

Petitioner owned practically all of the capital stock and some of the bonds of a subsidiary company which in 1937 underwent a reorganization under section 77B of the Bankruptcy Act. As a part of the reorganization plan petitioner surrendered all of its old stock and some of its bonds for cancellation, paid off in cash approximately $2,000,000 of the subsidiary's bonds which it had guaranteed, canceled the subsidiary's indebtedness to it of over $522,000, and received all of the subsidiary's newly issued capital stock and some of its bonds. Held, that there was a reorganization of the subsidiary company within the meaning of section 112(g)(1) of the Revenue Act of 1936 and that the gain or loss resulting to petitioner from the exchange of old stock and bonds and other indebtedness for new stock and bonds is nonrecognizable under section 112(b).

1. Held, that the profit derived from the liquidation of Certificates of Claim issued against an insolvent Ohio bank was ordinary income and not capital gain. 2. Held: that the profit derived from the liquidation of Certificates of Claim issued against an insolvent Ohio bank was ordinary income and not capital gain. 2. Such certificates are not certificates or other evidences of indebtedness under section 117(f) of the Revenue Act of 1938.

1. Unpaid balance of installment obligation due petitioners by a corporation of which they were major stockholders held not rendered subject to tax by Revenue Act of 1938, section 44, upon the distribution in liquidation of the corporation's assets to, and the assumption of its liabilities by, a partnership of which petitioners were members. 2.

1. The petitioner by merger acquired the assets and assumed the liabilities of a second corporation, subject, however, to the rights of special… Held: that there was no completed or closed transaction in the taxable year with respect to the assets of the merged corporation and that the petitioner is not required to report income or gain received or realized in respect of those assets and is not entitled to deduct losses in respect thereto in determining its own net income.

1. Petitioner, in 1934, in order to obtain a loan from the Reconstruction Finance Corporation, executed a written contract containing a provision that so long as the note remained unpaid it would pay no dividends "without the prior written consent of the R.F.C." Petitioner during the taxable year did not ask for or obtain such consent and paid no dividends. Held, petitioner is entitled to credit under section 26(c)(1), Revenue Act of 1936. 2. In the same written contract petitioner agreed that it would not increase the compensation of its officers without the prior written consent of R.F.C. During the taxable year petitioner authorized an increase of salary to two of its officers, subject to the approval of R.F.C. and with a proviso that any part of such increase not so approved should be cumulative subordinated to the payment of Reconstruction Finance Corporation loan. In a year subsequent to the taxable year the R.F.C. approved a part of such increases and and they were paid in the amounts approved. Held, petitioner is not entitled to deduct any part of such increase in the taxable year.

Petitioner was the owner of seventeen $1,000 bonds of the X corporation issued as a part of a million dollar bond issue secured by a mortgage covering all of the property of X, under which mortgage… Held: the debt to petitioner evidenced by the bonds was not merged into the deficiency judgment taken by the trustee, and continued to be evidenced by securities. Therefore, any deduction on account thereof is subject to the limitations of section 117.

As a result of a reorganization corporation A's undistributed earnings and profits of the taxable year became the earnings and profits of B corporation and subject to distribution by B to its stockholders. Such distribution was made by B in the taxable year. Held that under article 27(f)-1(c) of Regulations 94 the dividends, paid by the transferee (B) during the portion of the transferor's taxable year subsequent to the consummation of the tax-free reorganization, should be apportioned and allocated to the transferor as a distribution out of the earnings or profits of the transferor in computing the credit for dividends paid under section 27 of the Revenue Act of 1936.

1. Gifts to decedent's children made more than two years prior to death, held, upon the evidence, not to have been made in contemplation of death. 2. The value of decedent's proportionate interest in a trust fund created by him and several others, in which he had power in conjunction with two other trustees in their discretion to take action which would terminate the trust, whereupon the trust property was to be redistributed proportionately to the contributors, held within the gross estate under Revenue Act of 1926, section 302(d).

1. By a written contract executed prior to May 1, 1936, petitioner was prohibited from distributing cash dividends. Held: since there was no contract restriction on paying dividends in some form other than cash, petitioner is not entitled to a credit under section 26(c)(1), Revenue Act of 1936, following Commissioner v. Columbia River Paper Mills, 127 Fed.(2d) 558. 2.

Expenditures by a taxpayer for the entertainment of public officials of town and county governments with which he has or seeks contracts, held, not deductible, being contrary to public interest. Held: not deductible, being contrary to public interest.

1. Decedent in 1923 established a trust for the benefit of his children, reserving the power to alter, amend, or revoke the trust. Held: that decedent's transfer in trust was not within the scope of section 302(c) of the Revenue Act of 1926, as amended, or section 302(d) of the Revenue Act of 1926, as amended. 2.

1. Held, petitioner was prohibited from paying dividends by a written contract and is entitled to a credit under section 26(c)(1) of the Revenue Act of 1936. 2. Held: petitioner was prohibited from paying dividends by a written contract and is entitled to a credit under section 26(c)(1) of the Revenue Act of 1936. 2.

Decedent created an irrevocable trust in 1903, reserving a life interest. She also retained a power to appoint the remainder by will in the event that her daughter died without issue. Held: that section 811(c) of the Internal Revenue Code can not be applied to the transfer in trust, which took place prior to the first Federal estate tax statute. Nichols v. Coolidge,274 U.S. 531.

Reservations by decedent and her husband of voting rights and of possession as pledgees, of corporate stock, and of a stipulated salary from the corporation during their lifetime, held, to require… Held: to require inclusion of the stock in decedent's gross estate, notwithstanding its inter vivos transfer to decedent's children.

1. Prior Board adjudication of March 1, 1913, value of fully improved lots sold in petitioner's cemetery in 1929-1933, held, res judicata of value of that part of petitioner's cemetery property and… Held: res judicata of value of that part of petitioner's cemetery property and hence binding in present determination of similar question as to lots sold in 1934 and 1935. 2.

1. Petitioner was the owner as her own separate property of an undivided one-half interest in certain improved real estate lots in the city of… Held: that in computing her capital gain from such sale petitioner's basis for the undivided one-half interest in the lots acquired by gift from her mother in 1919 was the fair market value of a one-half interest in the lots at the time of gift; held, further, that the basis to be used for the undivided one-half interest in the lots…

Trust income paid to divorced wife held not taxable to the husband where he was under no continuing obligation, imposed either by contract or state law, to support and maintain her.

Petitioners, life beneficiaries of income of a trust, relinquished to trustees the right to certain types of dividends to be held in trust… Held: That petitioners had no right of property in the special dividend in 1935 under their agreement and under the Orphans' Court adjudication, which is binding on the Board as a determination of property rights under local law, so that the special dividend was not income distributable to petitioners under section 162(b) of the Revenue…

The withdrawal of corporate funds by sole stockholder, carried on the corporation's books as "accounts receivable" and written down in a subsequent year pursuant to action of the corporation's board of directors, appropriately reflected on its books, constituted a taxable dividend to the stockholder in the year the accounts were written down.

An individual borrowed a substantial sum from a bank and used it in the purchase of stock. Thereafter he organized a personal holding company under the laws of Delaware and transferred to it shares. other than those purchased with the borrowed funds, in exchange for its capital stock. Shortly thereafter a corporation was organized under the laws of Newfoundland.

The taxpayer, the beneficiary of income for life under a trust of which her children were the remaindermen, was also the donee of a power to amend the trust in any way she might determine. Held: the relinquishment was not a transfer of property subject to gift tax.

The petitioners acquired two oil and gas leases; also, both earlier and later, certain rights of participation in the working interests, each limited to certain wells drilled upon such leases. Held, that each lease, and not each well, is a "property" of the petitioners, within the meaning of section 114(b)(3), Revenue Act of 1938, and the petitioners may deduct depletion upon the gross income received by them from each lease, subject to the limitation to 50 percent of net income from such property.

1. The transfer to and acquisition by petitioner corporation in 1935 of depreciable and depletable properties for its shares, credits, cash, and a promise to pay cash over a period, held not to be in a reorganization under the Revenue Act of 1934, section 112, and therefore the basis of depletion and depreciation is cost and not the predecessor's basis. 2. Petitioner's opening inventory used on its first return held, upon the evidence, not to be based upon the lower of cost or market, and petitioner is not entitled to use market value as a factor of inventory; held, further, upon the evidence, that the figures of inventory used on the return and adopted by the Commissioner are sustained.

1. An award for severance damages to property remaining after a condemnation, where no special benefit assessment is levied, held to be applied against, and in reduction of, the basis of the remaining property, rather than added to the gain upon the property taken. 2. The amount added to a condemnation award as interest is not ordinary income.

Petitioner is an insurance company organized under the laws of Florida. Held: Petitioner in those years was not a life insurance company within the meaning of section 201(a) of the Revenue Acts of 1934 and 1936, because the reserves were not computed on an actuarial basis, using recognized mortality tables.

Petitioners are members of a partnership which acquired a metal mine during 1938. No partnership return was filed for 1938 until September 1940, although income was derived from the property in 1938. Held: the partnership can not elect to take percentage depletion after the period for filing its 1938 return had expired.

Petitioner established a trust of which she was the sole beneficiary. Her husband was trustee. Petitioner was to receive a minimum of $1,200 annually from the trust, to be paid out of trust income if sufficient, but if the income were not sufficient therefor, the deficit was to be paid out of corpus. The trustee had sole discretionary power to pay petitioner at any time any additional sums either out of the income or corpus of the trust. Petitioner, with the consent of her husband, who had no beneficial interest under the trust agreement, could revoke the trust at any time. The only interest the husband had in petitioner's property was that conferred by the Ohio statutes relating to dower and to descent and distribution, and by an existing will of petitioner which she could revoke or alter at any time. Held, that in respect of the trust corpus or income such interest was neither "substantial" nor "adverse" within the meaning of sections 166 and 167 of the Revenue Act of 1938 and the Internal Revenue Code, and that the total income of the trust was taxable to petitioner.

Decedent in 1929 created an irrevocable trust which provided that the income was to be paid to the decedent's wife for life and on her death to the decedent for his life. Held: that as to the remainder interests the creation of the trust was a transfer intended to take effect in possession or enjoyment at or after death. Helvering v. Hallock,309 U.S. 106; Estate of Mary H. Hughes,44 B.T.A. 1196.

1. These proceedings, previously considered at 41 B.T.A. 686, were remanded to the Board (121 Fed.(2d) 1015) in order that full opportunity may be given [petitioners]… Held: that the income in question was the separate income of petitioners. 2. In the year 1934, Jas. F. Welder Heirs, acting through James F. Welder, Jr., trustee, representing petitioners, executed a lease to an oil company for oil and gas production from lands which were the separate property of petitioners.

1. The owner of real estate, for consideration not questioned, conveyed real estate to her husband for his life, with remainder to herself. Held: that there was a sale of a capital asset and that there was error by the Commissioner in treating the proceeds of the sale as ordinary income from rental on a lease. 2. Held, that the grantee has not shown himself entitled to depreciation as using the property in trade or business.

1. A decree of the Superior Court of California, having jurisdiction, approving the account of trustees of a testamentary trust wherein the amount of income distributable to the beneficiary in the taxable year was determined, is final and binding upon the Board as to the amount of income currently distributable and taxable to the beneficiary of the trust under section 162(b) of the Revenue Act of 1938. 2. Amounts paid by the trustees of a testamentary trust in the taxable year for Federal transfer taxes and for state income taxes imposed in part upon income derived from the sale of securities, a part of the trust corpus, and in part upon income accumulated by the trustees prior to the majority of the beneficiary, and charged to income by the trustees in determining the amount distributable to the beneficiary, held, under all the circumstances, deductible from gross income in determining the amount currently distributable.

- The petitioner, after due notice, has failed to pay the filing fee required by the Board's rules and authorized by law. Held: that section 1112 of the Internal Revenue Code, imposing a burden of proof upon the Commissioner under certain circumstances, does not apply, since this has not become a proceeding involving the issue of fraud; held, further, the Board has authority under section 1117(d), in dismissing the proceeding, to specify in its order that…

1. Petitioner is the transferee of the assets of an estate. The executors filed a written application for determination of the amount of the tax pursuant to section 313(b), Revenue Act of 1926. Held: the determination of a deficiency against the estate and petitioner is not barred because the executors have been relieved of personal liability. 2. On the facts, held that no gift was intended or made by a corporation in transferring certain property to petitioner.

Petitioner, having consistently taken depreciation on oil well equipment on the unit of production method based on the estimated oil reserve of a lease and the cost of all equipment thereon, in the absence of a sale or showing of unusual conditions justifying earlier retirement, held not entitled to take a retirement loss on equipment used in connection with an abandoned well on the lease while the lease is producing from other wells located thereon.

Petitioner, a Florida insurance company, made additions to reserves in each year of not less than 3 percent of premiums received in that year in compliance with a Florida statute. Held: Petitioner was not a life insurance company within the meaning of section 201(a) of the Revenue Acts of 1934 and 1936, because its reserves were not computed on an actuarial basis, using recognized mortality tables. Independent life & Accident Insurance Co.,47 B.T.A. 894, followed.

The respondent determined a deficiency in excess profits tax and an overassessment in income tax in a lesser amount, for the same taxable year. Held: the Board is without jurisdiction to offset the overassessment of income tax against the deficiency in excess profits tax.

Within 2 1/2 months after the close of the taxable year petitioner, on the accrual basis, issued to its officers notes for accrued but… Held: the notes did not constitute payment within the meaning of section 24(c), Revenue Acts of 1936 and 1938 and the Internal Revenue Code; held, further, on the facts, that the conditions of subparagraphs (1), (2), and (3) of section 24(c) coexist and that deduction should be denied for the part of salaries unpaid within the time above…

1. Held, on the facts, that amounts paid to lawyers for various services were not paid for political influence but were ordinary and… Held: on the facts, that amounts paid to lawyers for various services were not paid for political influence but were ordinary and necessary business expenses and deductible as such. 2. Decedent, without legal obligation so to do, decided to pay bonuses in certain amounts to his employees, but died before any other action thereon was taken.

By an alimony trust agreement prior to an absolute divorce in Pennsylvania, the husband, the trustor, guaranteed that the trust would pay… Held: that the liability of the trustor is taxable, to the extent of $18,000 per annum, upon both ordinary trust income and capital gains; held, further, that a release of the obligation by the wife on December 29 of one taxable year does not prevent taxation of the trustor upon trust income earlier received in that year; held, further,…

1. INCOME - EXCHANGE OF PROPERTY. - Held, that a refunding of outstanding defaulted bonds of the city of Detroit pursuant to a refunding… Held: that a refunding of outstanding defaulted bonds of the city of Detroit pursuant to a refunding agreement did not create a new debt, but resulted in a continuation of the existing indebtedness; held, further, that petitioner's surrender of defaulted bonds and receipt of the refunding bonds in lieu thereof, as evidence of the city's…

Prior to the taxable years petitioner established a trust for the benefit of his wife. The trust could be altered or amended by petitioner only with the consent of his wife. In 1937 petitioner and his wife entered into a separation agreement which provided for the payment of $100 per month and the continuation of payment of the trust income to the wife. This agreement was incorporated into a decree for alimony by the Ohio court. Held, petitioner is not taxable upon the trust income, (1) for the period prior to the separation agreement under section 167 of the Revenue Act of 1936, since petitioner's wife had a "substantial adverse interest", and (2) for the taxable periods subsequent to the agreement, since the trust was not used to relieve petitioner of any continuing obligation either under state law or under contractual duty. Helvering v.Fuller,310 U.S. 69.

1. Petitioner is a nonstock association of employees of Swift & Co., created under a deed of trust and carrying on a business in Illinois of writing insurance upon its members under noncancelable life contracts and combined life, health, and accident upon the level premium plan. Its trustees are required by its deed of trust to hold all of its funds in excess of its actual cost of operation for the protection of its policy risks and such funds are held in an account entitled "reserve." Twice each year petitioner computes the value of its life risks upon a recognized and accepted actuarial basis using the American Experience Table of Mortality, with interest at 3 1/2 percent, to determine the sufficiency of its reserve for such risks. For each of the years 1935 and 1936 the amount of such reserve funds held was in excess of the amount so computed and this was in excess of 50 percent of the total reserve. Petitioner is not controlled or supervised by the Insurance Department of the State of Illinois and is not required by the laws of that state to maintain reserves. Held: (1) Petitioner is not a life insurance company within the definition of section 201(a) of the Revenue Acts of 1934 and 1936 and, consequently, is not entitled to computation of its tax under section 203 of those acts. Standard Industrial Life Insurance Co.,42 B.T.A. 1011. (2) Petitioner is not a mutual insurance company other than life under section 207 of those acts, but is taxable as an insurance company other than life or mutual under section 204. 2. in computing petitioner's tax under section 204, (a) there may not be included in gross income the amount collected by petitioner from its members and from Swift & Co., and by it paid to the Aetna Life Insurance Co., as the premium upon a group policy issued by that company upon petitioner's members with respect to which insurance petitioner has no liability, and (b) petitioner is entitled to the deduction of its unearned premiums represented in each year by the increase in its computed reserve maintained for the protection of its life risks.