Volume 47 — Tax Court Reports

Held, that portion of the decline in market value of a residence which is attributable to a fear of recurring floods and which is not… Held: that portion of the decline in market value of a residence which is attributable to a fear of recurring floods and which is not caused by actual physical damage to the residence is not deductible as a casualty loss under sec. 165, I.R.C. 1954.1Unless otherwise indicated, all statutory references are to the Internal Revenue Code of…

R was an employee of NL Co. which had a tax-exempt pension trust under the terms of which the employer made contributions for the purchase of annuity contracts to provide retirement benefits for its… Held: that the distribution is taxable in 1959 as ordinary income under sec. 402(a)(1), I.R.C. 1954, and not as a capital gain under sec. 402(a)(2). Held, further, that sec. 72(e)(3) was not applicable in 1959 to a distribution from an employees' trust.

Petitioner owned an automobile dealership business and all of the stock of a corporation which owned three parcels of real estate. Held: Petitioner -- not Enterprises -- was the owner of the so-called experimental department and all amounts paid to or for the benefit of said experimental department were income to petitioner. 2.

Decedent and his wife created three trusts, naming themselves as trustees, one for the benefit of each of three minor children of decedent. Held: that the inter vivos trusts to the extent of the one-half interest therein transferred by the decedent are includable in his gross estate under sec. 2038, I.R.C. 1954; held, further, that the increments in the value of the trusts represented by the stock dividends received by the trustees prior to decedent's death on the shares…

Held: 1. Petitioner, an accrual basis taxpayer, may not defer the recognition of income, with respect to revenue received for advertising in certain of its publications, from the year the revenue is… Held: Petitioner, an accrual basis taxpayer, may not defer the recognition of income, with respect to revenue received for advertising in certain of its publications, from the year the revenue is received to the year the publication is printed and distributed. 2.

Held, that amounts received by a district director, as agent for respondent, from notices of levy served on a bank and an insurance company to… Held: that amounts received by a district director, as agent for respondent, from notices of levy served on a bank and an insurance company to reach property of petitioner-husband constitute involuntary payments which the district director has a right to apply as he chooses to outstanding assessments of tax, penalty, and interest.

Petitioner, an unmarried person working at his first full-time job, traveled 50 weeks during the year 1961 contacting his employer's customers. He spent the other 2 weeks at the residence of his parents in Arkansas. He maintained a permanent mailing address and bank account there, paid his automobile license and assessed his automobile for personal property tax purposes there, reported to the Paragould draft board, and contributed $ 100 toward the expenses of his parents' home. Held, that petitioner is not entitled to deduct under sec. 162(a)(2), I.R.C. 1954, his traveling expenses for meals and lodging while away from Paragould, Ark., in pursuit of his business because he had no "tax" home there. Held, further, that transportation expense from petitioner's place of assignment in Los Angeles to Memphis, Tenn., for the purpose of taking a selective service physical examination is not a business expense, but a nondeductible personal expense under sec. 262.

1. Held, that the amounts of certain installment obligations payable to the petitioner, but unpaid, in the taxable year ended Jan. 31, 1959, did… Held: that the amounts of certain installment obligations payable to the petitioner, but unpaid, in the taxable year ended Jan. 31, 1959, did not constitute omitted items of gross income; that therefore the 6-year statute of limitations provided by sec. 6501(e)(1)(A) of the Internal Revenue Code of 1954 is not applicable; and that…

1. A group of persons joined together to buy and operate a hotel. They formed a Florida corporation for this purpose and purchased its stock. Held: the corporation had four classes of stock with disproportionate voting rights (not withstanding that the certificates issued failed to contain descriptive words identifying the various classes) and did not qualify as a small business corporation under sec. 1371(a), I.R.C. 1954. 2. Amount of loss on sale of stock determined. 3.

Petitioner Walter E. Buck was an executive officer and director of one corporation and a director of several others. He suffered a convulsive seizure in 1962. Held: the salary of his chauffeur is not deductible as a medical expense.

In June 1959 petitioner George W. Mitchell purchased at public auction the property in Baltimore, Md., known as Old Sinai Hospital for the price of $ 708,000. Held: The gain from the sale of the Old Sinai Hospital property by the joint venture was properly treated by the joint venturers as gain from the sale of a capital asset; and 2.

In 1956, petitioner, who owned 49.5 percent of the stock of a corporation and whose sons owned the remaining stock, entered into an agreement with the corporation for the redemption of his stock over… Held: the payments in exchange for petitioner's stock were not essentially equivalent to a dividend.

Petitioner is in the business of manufacturing advertising signs. Held: respondent's adjustments requiring petitioner to include in its income in the year of receipt the advance payments from its customers are proper.

The allowable portion of a net operating loss properly deductible by a shareholder in an electing small business corporation does not include corporate debts to third parties which have been guaranteed by such shareholder. The obligation of the shareholder-guarantor was secondary and would not support the proposition of [an] indebtedness of the corporation to the shareholder under sec. 1374(c)(2)(B), I.R.C. 1954.

Held, petitioner is not entitled to a deduction for her expenditures for full-time graduate study which she undertook after she resigned from a position as a social studies teacher… Held: petitioner is not entitled to a deduction for her expenditures for full-time graduate study which she undertook after she resigned from a position as a social studies teacher in a Minnesota junior high school and prior to commencing teaching social studies in an Illinois junior high school.

Petitioners' principal business during the years 1960 and 1961 was breeding, raising, and training harness horses for the purpose of racing… Held: Horses culled from the herd and sold because of defects or other inadequacies as potential harness racehorses qualified as property used in petitioners' trade or business of a character subject to the allowance for depreciation as defined in sec. 1231(b), I.R.C. 1954, and gain on the sale thereof is taxable as gain on the sale of…

In her last will and testament the decedent devised her residuary estate to named trustees for the purpose of assisting in the establishment of a Catholic hospital in Spartanburg County, S.C., or for… Held: that petitioners are not entitled to a charitable deduction under sec. 2055, I.R.C. 1954, in any amount by reason of the alleged charitable devise.

Held, insurance proceeds from an accidental death insurance policy not includable in decedent's gross estate because he lacked incidents of ownership in said policy within the meaning of sec. 2042,… Held: insurance proceeds from an accidental death insurance policy not includable in decedent's gross estate because he lacked incidents of ownership in said policy within the meaning of sec. 2042, 1954 Code.

Petitioner Bijou 2 acquired all of the issued and outstanding shares of Bijou 1 and then completely liquidated the latter. Held: the distribution of such installment obligations by Bijou 1 in the course of liquidation did not constitute a taxable disposition under sec. 453(d) of the Internal Revenue Code of 1954; held, further, that by reason of sec. 334(b)(3)(C) the liquidation is not covered by sec. 334(b)(2) and the basis of such obligations to Bijou 2 is…

1. Held, T was sole stockholder of X corporation and election filed by it as small business corporation, accompanied by T's consent, under sec. 1372, I.R.C. 1954, not to be taxed was valid and… Held: T was sole stockholder of X corporation and election filed by it as small business corporation, accompanied by T's consent, under sec. 1372, I.R.C. 1954, not to be taxed was valid and binding.

Held, that petitioner, a casualty insurance company, may deduct the prorata portion of its investment expenses attributable to items of interest and dividends which are themselves deducted from gross… Held: that petitioner, a casualty insurance company, may deduct the prorata portion of its investment expenses attributable to items of interest and dividends which are themselves deducted from gross income in computing taxable income.

Held, an initial downpayment and subsequent installment payments made by a corporation in connection with the acquisition of its… Held: an initial downpayment and subsequent installment payments made by a corporation in connection with the acquisition of its preferred stock were payments on the overall purchase price of the stock under a valid redemption contract, not dividend distributions; they resulted in the complete termination of the shareholder's interest in…

Stock owned by the petitioner and her brother was redeemed so that the petitioner's son became the sole stockholder. The petitioner remained a salaried employee of the corporation. Held: the distributions in redemption of petitioner's stock were essentially equivalent to dividends within the meaning of sec. 302(b)(1), I.R.C. 1954.

Decedent retired on July 1, 1956, and received a pension until he died on December 31, 1959, under his employer's Plan for Employees' Pensions,… Held: the employer's plan, which provided both for a pension to a retired employee and for a death benefit payable to a deceased retiree's beneficiary, was a contract or agreement within the meaning of sec. 2039, I.R.C. 1954, and the value of the periodic payments for a term certain made to decedent's widow is, under these facts,…

Amount received as readjustment pay by a reserve officer in the U.S. Air Force when involuntarily released from active service is includable in his taxable income in the year received even though there was a possibility that he might have to repay 75 percent of that amount through reduction in his retirement pay if he subsequently became eligible for such retirement pay after reenlistment and completion of 20 years of active service.

Pursuant to a divorce settlement agreement, decedent created a trust whereby his former wife, Helen, was to receive all or a portion of the income from the trust property and was further given… Held: the value of the contingent interest retained by decedent is not includable in his estate. Held, further, the value of the contingent remainder in decedent's issue is includable in decedent's estate under sec. 2038(a).

Petitioners, husband and wife during the taxable years, were engaged in divorce proceedings. They filed joint income tax returns for those years. Held: litigation expenses incurred by the wife were not deductible in the joint returns. Those expenses related in substantial part to the spouses' community property, and to the extent that they related to alimony they were allocable to alimony pendente lite which was not reportable as income in the joint returns.

Held, the cost to petitioner in 1961 of $ 260,257.96 for 5,000 shares of capital stock of Commercial Credit Co., which stock petitioner… Held: the cost to petitioner in 1961 of $ 260,257.96 for 5,000 shares of capital stock of Commercial Credit Co., which stock petitioner transferred in 1961 to Greyhound Rent-A-Car, Inc., pursuant to a second amendment to an agreement of sale entered into in 1959 between petitioner's assignor (Commercial Credit Corp.) and Greyhound,…

Decedent was insured under 25 different life insurance policies. Held: The 1934 instrument created a bona fide and effective trust, which trust acquired title, by assignment from decedent, to all 25 of the insurance policies. Decedent retained no incidents of ownership in any of the policies at his death.

Held, that amounts paid to the petitioner by her former husband pursuant to judgments of the State court granting a separation are… Held: that amounts paid to the petitioner by her former husband pursuant to judgments of the State court granting a separation are includable in her gross income under sec. 71(a) of the Internal Revenue Code of 1954, since no portion thereof was fixed by such judgments as a sum which is payable for support of minor children of the husband,…

Held, Feldman Furniture Co., Inc., was not entitled to be treated as a small business corporation under subchapter S of the 1954 Code for… Held: Feldman Furniture Co., Inc., was not entitled to be treated as a small business corporation under subchapter S of the 1954 Code for either of its taxable years ending Sept. 30, 1961, or Sept. 30, 1962, since no valid election was filed under sec. 1372(c)(1), I.R.C. 1954, for 1961, and no election of any kind was filed for 1962.

Petitioner, an organization exempt under sec. 501(c)(5), I.R.C., 1954, filed Forms 990 but not Forms 990-T for 1959 and 1960. Held: that the deficiency notice was untimely for the reason that, under sec. 6501(g)(2), the Forms 990 constituted the return for the purposes of the 3-year period of limitations.

At the end of 1959 petitioners acquired a large business building held for sale by the estate of a deceased owner. Held: that the statutory notice of deficiency was sufficient to impose the burden of proof to show error in the determinations upon the petitioners, and they have successfully carried that burden as to the first issue.

Held: The lump-sum payment received from a bank by a restaurateur to cease the operation of his business and surrender immediate possession of the leased restaurant premises to the bank did not… Held: The lump-sum payment received from a bank by a restaurateur to cease the operation of his business and surrender immediate possession of the leased restaurant premises to the bank did not qualify in whole or in part for long-term capital gains treatment.

Held: The agreement between Jisco and the petitioners is not substantively different from the agreements involved in Parsons v. Smith, 359 U.S. 215 (1959), and Paragon Coal Co. v. Commissioner, 380… Held: The agreement between Jisco and the petitioners is not substantively different from the agreements involved in Parsons v. Smith, 359 U.S. 215 (1959), and Paragon Coal Co. v. Commissioner, 380 U.S. 624 (1965).

Petitioner's husband died on May 12, 1962. Held: the joint return was valid and petitioner is jointly and severally liable for the tax due thereon.

Petitioner funeral home collected funds from prospective customers under two forms of written contracts each denominated Pre-Need Funeral Plan Agreement. Held: only the amounts paid under the later form of contract are taxable income to petitioner when received.

The petitioners, six airline pilots for Southern Airways, Inc., went out on strike against the airline in June 1960, and during 1960 and 1961 received strike benefit payments from their union, Air… Held: that the strike payments constituted gross income within the meaning of the 16th amendment to the Constitution and sec. 61(a) I.R.C. 1954, and are not excludable from gross income as gifts under sec. 102(a) of the Code.

In Walter Wilson Flora, T.C. Memo. 1965-64, this Court held that petitioner was not entitled to an operating loss deduction based on a carryover of alleged operating losses incurred in 1954 and 1956… Held: petitioner's claim of a net operating loss deduction for 1959 based on a carryover of alleged operating losses from 1954 and 1956 is barred by the doctrine of collateral estoppel.

Held, petitioner is not entitled to a personal exemption deduction for Judy Karn von Tersch for either 1962 or 1963. Held: petitioner is not entitled to a personal exemption deduction for Judy Karn von Tersch for either 1962 or 1963. Held, further, petitioner is not entitled to dependency deductions for the two minor children of Judy Karn von Tersch for either 1962 or 1963.

Payments made by the petitioner, which was engaged in the production and sale of music records, to disc jockeys and other employees of radio stations for the purpose of inducing them to give preference to the playing of its records are not deductible as ordinary and necessary business expenses under sec. 162(a) of the Internal Revenue Code of 1954 since the making of such payments was in violation of sec. 439 of the Penal Law of the State of New York and allowance of the…

1. Held, the value of a Corvette automobile which was awarded to petitioner for being named the outstanding player in the 1961 National Football League championship game constituted gross income… Held: the value of a Corvette automobile which was awarded to petitioner for being named the outstanding player in the 1961 National Football League championship game constituted gross income under sec. 74, I.R.C. 1954, in the year of receipt, 1962. 2.

Petitioner was a dealer in farm implements as agent for John Deere Plow Co. Deere terminated the agency. Petitioner sued Deere on an alleged oral contract. Held: the fine and court costs and related expenses are not deductible as ordinary and necessary expenses of petitioner's businness.

Petitioner and two individuals equally owned all of the capital stock of a corporation that had been organized in 1948. Held: petitioner acted as a mere agent or conduit for the corporation and did not realize a constructive distribution under sec. 301, I.R.C. 1954, from the corporation due to the payments by the corporation to the two individuals for their stock.

Cash basis petitioners, d.b.a. Rialto Theater, and Pioneer Drive-In Theatre, Inc., agreed in writing to initiate legal action against several defendants for injuries sustained under the Clayton… Held: secs. 1306 and 1305, I.R.C. 1954, do not apply to offer spreadback relief to petitioners on the $ 35,000 which they received. Held, further, petitioners may only deduct legal costs incurred in the Pioneer suit in the years in which such costs were actually paid.

Held, determination of the fair market value of securities in an estate for estate tax purposes was properly made by respondent by arriving at… Held: determination of the fair market value of securities in an estate for estate tax purposes was properly made by respondent by arriving at the average of the means of quoted over-the-counter bid and ask prices for the last business day prior and the first business day subsequent to a Sunday which was the evaluation date for such…

1. By its collective-bargaining agreements with a labor union, the petitioner was required to grant vacations with pay to those employees… Held: that the respondent correctly determined that the amount accrued and deducted by the petitioner as of the end of each taxable year for the first half of the vacation year ending the following June 1 had not accrued at that time and therefore was not deductible for that year but constituted a proper deduction for the following year.

Petitioner, the sole stockholder of Hewett Studios, Inc., transferred 30,000 shares of his own stock in that corporation to two salesmen as commissions for selling unissued but authorized stock of… Held: petitioner is not entitled to deduct on his individual return the value of the shares of stock he transferred to the two salesmen under either sec. 162 or sec. 212, I.R.C. 1954.

In 1942, Herbert C. Tiffany, decedent, and his wife created a trust, with themselves as cotrustees, holding certain property in trust for their children. Held: that the claim so made against the decedent's estate was not a claim incurred for adequate and full consideration in money or money's worth within the meaning of sec. 2053(c) (1) (A) of the 1954 Code. 1Unless otherwise indicated, all references are to the Internal Revenue Code of 1954, as amended.

Petitioner Doris Eaton Travis operated dance studios as a sole proprietor during January 1958, and during the remainder of that year through a subchapter S corporation of which she was the sole… Held: The corporation was required to include in income amounts due and payable at the end of 1958 under contracts to give dancing lessons. 2.

Pursuant to secs. 6331, 6335, 6338, and 6339, I.R.C. 1954, a revenue officer of the Internal Revenue Service seized in 1960 certain shares of common and preferred stock owned by petitioner-husband in… Held: that the loss sustained by petitioners on the sale of the stock was prohibited by the provisions of sec. 267, and petitioners are not entitled to capital loss carryovers to 1961 and 1962.

Petitioner, a general insurance agent, gave either a discount or rebate to customers and retained a correspondingly lesser amount as his commission, remitting the full net premium to the insurance… Held: the discounts and rebates are not includable in petitioner's gross income.

The petitioner, a Delaware corporation, was organized by a New York corporation and acquired the assets of the New York corporation… Held: that as a result of the transactions there were three separate reorganizations, namely, the merger and the two exchanges of stock; that the merger constituted a reorganization under sec. 368(a)(1) (F), I.R.C. 1954; that under sec. 381 of the Code the taxable year of the New York corporation did not end on the date of transfer of its…

The petitioners, John and Elizabeth, entered into a community property settlement agreement in 1958 in anticipation of a divorce, whereby… Held: The amount paid to Elizabeth with respect to the sale of the shares assigned to her is taxable to her in 1959 as long-term capital gain as determined by respondent; 2. Elizabeth is not entitled to a deduction in 1959 for a loss by theft or otherwise from the concealment by John of the 486 additional shares which he held; 3.

Petitioner made payments to his former wife pursuant to a decree of separate maintenance entered in the District of Columbia, which did not fix any part of such payments as child support, and… Held: no part of such payments was fixed as child support within the meaning of sec. 71(b), I.R.C. 1954.

1. Gain on the sale of houses in three separate real estate subdivisions held taxable to transferor corporations which acquired title to the land, built the houses thereon through… Held: there was no omission of gross income in excess of more than 25 percent of gross income reported in the returns filed by the transferor corporations, and no extension of the statute of limitations under sec. 275(c), I.R.C. 1939. Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), controls. 4.

Held, a reasonable attorney's fee paid in effecting a recovery of sec. 165(c)(3), I.R.C. 1954, theft losses is itself deductible under such section. Held: a reasonable attorney's fee paid in effecting a recovery of sec. 165(c)(3), I.R.C. 1954, theft losses is itself deductible under such section.

In the summer of 1960 petitioners invested in the stock of and made loans to a corporation organized in Arizona to own and operate a restaurant business in Scottsdale. Held: that the losses claimed by petitioners were not incurred in the operation of their business and are not deductible under sec. 165 or as a business bad debt under sec. 166(a). The restaurant was not operated by petitioners in 1961 as a sole proprietorship but by the corporation, a viable business entity.

M, a minister of the gospel, received total compensation from his church in 1963 in the amount of $ 13,474.83, which was designated in its entirety as a rental allowance. Held: the Commissioner did not err in determining that the rental allowance excludable from gross income under sec. 107(2), I.R.C. 1954, could not exceed $ 3,142.22.

Petitioner was employed as a writer-producer by KTTV at an agreed salary and an agreement that in addition to this salary he was to have a 5-percent interest in certain receipts from TV programs to… Held: the amount received by petitioner from KTTV representing 5 percent of that company's net profit from the sale of the TV series was ordinary income and not capital gain.

Respondent determined that petitioner was liable, to the extent of $ 37,559.93, plus interest, as transferee for the tax deficiencies, plus interest, of a transferor corporation. Held: the petitioner's liability as transferee is not extinguished by the payments of their transferee liabilities by the other transferees where the payments are, or can be, the subject of claims for refund.

Petitioner contracted on Nov. 3, 1960, to purchase an eight-unit printing press. The major pieces of the last three units were on petitioner's premises on or before Dec. 31, 1961. Held: petitioner is entitled to an investment credit under secs. 38 and 48(b)(2), I.R.C. 1954.

Petitioner purchased a plastics injection molding machine which was picked up by a contractor from the manufacturer pursuant to petitioner's instructions on Dec. 29, 1961, and delivered by the… Held: petitioner is not entitled to an investment credit under secs. 38 and 48(b)(2), I.R.C. 1954.

Held, under New York law, the language should [my wife] die before said residuary estate shall have been distributed to her, then * * * I give, devise and… Held: under New York law, the language should [my wife] die before said residuary estate shall have been distributed to her, then * * * I give, devise and bequeath said residuary estate, * * * to our two sons, as it affected realty, created a terminable interest which was nondeductible under sec. 2056, I.R.C. 1954.

Real estate was transferred by decedent to his wife, decedent retaining a life interest, pursuant to a predivorce property settlement agreement which was set forth and approved by the court in its… Held: the transfer of such real estate to the wife was for an adequate and full consideration in money or money's worth within the meaning of sec. 2036, I.R.C. 1954, and the value thereof is not includable in decedent's gross estate.

The petitioner rendered substantial services in arranging for the Dorsey Corp. to acquire a trailer-manufacturing business. Held: allowing the petitioner to acquire the Dorsey stock for less than its fair market value was the payment of compensation for his services in arranging the acquisition of the trailer business; the fair market value of the stock acquired by the petitioner is determined by taking into consideration the restrictions and other…

Petitioners made numerous gifts of stock to various donees, in accordance with an instrument designated Agreement of Trust. Held: that, aside from the income interest, the restriction created a future interest in property for purposes of the annual gift tax exclusion. Sec. 2503(b), I.R.C. 1954.

Petitioner reinstated a lapsed insurance policy and paid amounts designated as "interest" on back premiums and on a loan outstanding at the time of lapse. Held, such amounts are not deductible under sec. 163, I.R.C. 1954.

Petitioner was in Iran from Sept. 29, 1957, to Sept. 29, 1959, and from June 19, 1960, to June 24, 1962, working as an employee of the Bureau of Public… Held: petitioner was not paid by the United States or an agency thereof while working in Iran and since he also otherwise meets the requirements of sec. 911(a)(2), I.R.C. 1954, is entitled to exclude from his gross income for each of the years 1959, 1960, 1961, and 1962 the compensation he received for his work in Iran.

Held, petitioner has failed to prove error in respondent's disallowance of the dependency exemption for his daughter in 1963.

Petitioner, Burde, and Weiss each held a one-third interest in a bath oil formula which petitioner invented. They transferred said formula to a partnership consisting of petitioner, Burde's wife, and Weiss' wife, in exchange for a royalty. The assets of the transferee partnership were subsequently transferred to a corporation and petitioner, Burde's wife, and Weiss' wife received 80 percent of the transferee corporation's outstanding capital stock; the transferee corporation also assumed the royalty agreement. Held, the transfer of the bath oil formula to the partnership was not a transfer of all substantial rights thereto for the purposes of sec. 1235, I.R.C. 1954. Held, further, the amounts realized by petitioner pursuant to the royalty agreement constitute ordinary income under the provisions of sec. 707(b)(2), I.R.C. 1954. Held, further, no gain is recognized on the transfer of the partnership's assets to the corporation under sec. 351, I.R.C. 1954, and, consequently, sec. 1231, I.R.C. 1954, has no application in the instant case.