Volume 5 — Board of Tax Appeals

Upon the evidence, held, that the transfer of stock by the taxpayer in 1921 did not constitute a bona fide sale and no deductible loss was sustained on account thereof. Held: that the transfer of stock by the taxpayer in 1921 did not constitute a bona fide sale and no deductible loss was sustained on account thereof. The return for 1921, including a deduction on that account, was false and fraudulent and willfully so made.

Petitioner was not a personal service corporation during 1918 and 1919.

- The reasonable compensation of a railroad company, for the use of its properties during the period of Federal control, awarded to a taxpayer keeping its accounts on the accrual basis, was income for each of the accounting periods for which the compensation was allowed, although not received until a later date.

1. The net addition to reserve funds which an insurance company is entitled to deduct from gross income, under section 234(a)(10) of the Revenue Act of 1918, is the excess of the reserve funds required by statute law of any State in which it transacts business at the close of the taxable year over the corresponding reserve at the beginning of the taxable year, and it is immaterial that the highest reserve funds required by statute at the close of the year is in a different…

1. Net value of rights to purchase stock in addition to stock held, and in proportion to such stock so held, enters into computation of cost of original stock purchase, in determining amount of gain… Held: and in proportion to such stock so held, enters into computation of cost of original stock purchase, in determining amount of gain or loss in sale thereof. 2. Taxes paid at source on tax-free covenant bonds are not taxable income.

1. Upon the evidence submitted, held, that transfer of certain stock by the decedent to his wife was not made in contemplation of death but was a transfer intended to take effect in possession or… Held: that transfer of certain stock by the decedent to his wife was not made in contemplation of death but was a transfer intended to take effect in possession or enjoyment at death. 2.

1. Under the Revenue Act of 1921, the proceeds of life insurance policies made payable to beneficiaries other than the estate of the decedent prior to the effective date of the Revenue Act of 1918, may not be included in the gross estate of the decedent. Lewellyn v. Frick,268 U.S. 238. 2. Section 1400(a) of the Revenue Act of 1921 repealed the estate tax imposed by the Revenue Act of 1918, and section 1400(b) provided that the parts of that Act which are repealed shall remain in force for the assessment and collection of all taxes which have accrued at the time such parts cease to be in effect. Held, that no liability for estate tax accrued, within the meaning of section 1400(b), against the estate of a decedent who died subsequent to the date of the repealing statute. 3. Prior to the effective date of the Revenue Act of 1918, decedent took out a policy of insurance on his life, naming his estate as beneficiary; in 1920, prior to the enactment of the Revenue Act of 1921, which repealed the estate tax imposed by the Act of 1918, decedent named his wife as beneficiary, and, upon his death in 1923, the proceeds of the policy were paid to her. Held that, in determining liability for estate tax imposed by the Act of 1921, the proceeds of such policy may not be included in the gross estate of the decedent.

1. Petitioner was not entitled to classification as a personal service corporation during 1918 and 1919. 2. Evidence held insufficient to show that the Commissioner erred in his computation of the profits tax for 1918 under section 328 of the Revenue Act of 1918. 3. Petitioner is entitled to have its profits tax for 1919 computed under the provisions of section 328 of the Revenue Act of 1918.

Upon the evidence, held, that the loss taken as a deduction from gross income of the petitioner for the year ended January 31, 1919, was not realized during such taxable year. Held: that the loss taken as a deduction from gross income of the petitioner for the year ended January 31, 1919, was not realized during such taxable year.

1. Salaries paid to executives of the petitioner determined to have been reasonable. 2. Rate of depreciation on property used in printing and publishing determined.

The fixed payments made by a Kansas cooperative corporation to its stockholders upon the capital stock in accordance with a statute providing for "fixed dividends" held not deductible as interest.

Payment received in 1919 by a taxpayer under an agreement canceling a war-supply contract made between April 6, 1917, and November 11, 1918, is income attributable to a Government contract, within section 301(c)(1) Revenue Act of 1918.

1. A deduction for exhaustion, wear and tear and obsolescence of buildings at 5 per cent per annum, and of machinery at 10 per cent per annum, during the taxable years, held reasonable in the circumstances of this proceeding. 2. The earnings available for the payment of a dividend on a given date during the taxable year should not be reduced by the amount of a tentative tax computed upon such earnings to such distribution date. Appeal of L. S. Ayers & Co.,1 B.T.A. 1135. 3.

The taxpayers were each one of a group of corporations which filed a consolidated return for the year 1920. Held: that the determination by Commissioner Blair was not an overruling of Commissioner Williams with respect to the year 1920. Held, further, that in the computation of the deficiency against the taxpayers, credit should be given for the pro rata portion of the tax paid by the parent corporation theretofore advanced by the taxpayers.

1. Where one Commissioner of Internal Revenue, with full knowledge of the facts, held certain income to be taxable in 1916 and collected a tax thereon, and his successor, on the same facts and after… Held: that the decision of the first Commissioner, even if it has no greater influence, should be considered as prima facie correct by his successor in office. 2. Held, upon the evidence in the instant appeal, that the ruling of the first Commissioner should not be disturbed. 3.

1. In determining whether the cost of securities of an American citizen seized by the German Alien Property Custodian may be deducted, it is necessary to distinguish between a loss sustained and a… Held: that a deductible loss was sustained in 1918.

Upon the evidence, held, that the petitioner has not established its right to have its tax liability for the years 1918, 1920 and 1921, computed under the provisions of section 303 of the… Held: that the petitioner has not established its right to have its tax liability for the years 1918, 1920 and 1921, computed under the provisions of section 303 of the Revenue Act of 1918, and is not entitled to relief for such years under the provisions of section 328 of the same Act.

Depreciation of tangible assets determined.

Value of certain farm lands at March 1, 1913, determined.

Petitioner sustained a loss during the year 1921, but failed to prove a net loss. Held, that it is not entitled to relief under the provisions of section 204(b) of the Revenue Act of 1921. Held: that it is not entitled to relief under the provisions of section 204(b) of the Revenue Act of 1921.

The income and profits-tax return of the petitioner for the taxable year held to have reflected its true net income.

On the evidence, the value of the estate involved in this appeal is determined for Federal estate-tax purposes.

Depreciation reserves relating to tangible assets, set up prior to the taxable year involved, will not be disturbed for invested capital purposes without positive evidence that the depreciation actually sustained had not been written off by the taxpayer.

Taxable gain realized from the receipt of liquidating dividend determined.

The March 1, 1913, fair market value of property determined.

A stockholder who owned substantially all the stock of a corporation acquired a leasehold on real estate at a cost of $23,000, and had the lease made to the… Held: that such lease was paid in to and became invested capital of the corporation in the amount of its cost to the stockholder from the date so acquired, and that the corporation is entitled to deduct aliquot parts of such cost from its income in making its income and profits-tax returns during the term of the lease.

1. The provisions of Title XII Revenue Act of 1924 allowing a credit or refund of 25 per cent of the tax shown by 1923 returns did not reduce the rates of 1923 within the meaning of section 207(b). 2.

1. In view of the political nature of the power of Congress, the absence of any reference to Federal tax in respect of mineral rights in the Allotment Act of 1906, and the express and inclusive terms… Held: that a member of the Osage Indian tribe is subject to income tax on royalties and proceeds from mineral rights of the tribe. 2.

A reserve for bad debts set up in 1921 held to be a legal deduction from gross income.

In 1911 an individual invented a device and made application for United States letters patent thereon. Held: that the patent and patent applications were property and had an actual cash value at the time paid in and on March 1, 1913, of $74,970.09, and should have been included in invested capital for the years 1917 to 1921, inclusive, at that value, subject to the limitations prescribed by law.

Deduction allowed for exhaustion, wear and tear and obsolescence of business property.

1. Taxpayer is not entitled to deduct from its gross income its reserve for liability on account of unreturned bottles and cases in making its income and profits-tax returns for the taxable years. 2. Taxpayer's alleged loss on account of obsoleteness of buildings resulting from Federal prohibition legislation disallowed for lack of evidence.

1. Distributive net earnings of a vessel jointly owned should be included in the gross income of the co-owners in proportion to their several undivided interests. 2. Deduction from gross income of amounts paid as bonus or extra compensation to employees allowed.

A transfer of oil-producing property by a father to his son upon the agreement of the son to divide the proceeds among the father, his wife and his children, held not to constitute the son an agent of the father so that the entire proceeds of the sale are taxable to the father, but to be a conveyance to the son of all interest of the father, except to the extent to which the father retained an interest in the proceeds.

An individual keeping his books of account on the accrual basis and setting aside on those books amounts to be held by him in trust and to be paid to his sons at a future date under the circumstances stated herein, is not entitled to deduct such amounts from gross income in income-tax returns as ordinary and necessary expenses.

Personal service classification denied.

Held, that no part of the dividends involved herein is taxable at the rates prescribed for the year 1917. Held: that no part of the dividends involved herein is taxable at the rates prescribed for the year 1917.

Held, that no part of the dividends involved herein is taxable at the rates prescribed for the year 1917.

Salaries paid to officers of the taxpayer held reasonable in amount and properly deductible from gross income.

The deduction of a reserve of $5,000, set up as the estimated cost of reopening a mine, disallowed.

The petitioner was not a personal service corporation within section 200 of the Revenue Act of 1918.

Affiliation under the provisions of section 240(b) of the Revenue Act of 1921 determined.

A taxpayer keeping his books of account on the basis of a fiscal year should file his first return under the Revenue Act of 1918, under section 226 of that Act.

For lack of evidence, the action of the Commissioner in disallowing as a deduction certain amounts claimed by the taxpayer as compensation to officers is approved.

The valuation of stock and bonds determined by the Commissioner not shown by the evidence to have been incorrect.

Upon the evidence, held, that the petitioner and the Craig Coal & Mining Co. were affiliated during the year 1919.

The taxpayer is not entitled to a deduction in 1920 on account of breach of contract in that year.

Held, that the debt with respect to which the petitioner claimed a deduction in his return was not ascertained to be worthless in 1922. Held: that the debt with respect to which the petitioner claimed a deduction in his return was not ascertained to be worthless in 1922.

The deduction on account of loss by fire is allowable in the year during which the property was destroyed, although the amount of the loss was not ascertained until a subsequent year.

Held, on the evidence, that the debts were not shown to have been ascertained to be worthless during the taxable year involved. Held: on the evidence, that the debts were not shown to have been ascertained to be worthless during the taxable year involved.

Evidence examined and held insufficient to establish the existence of a partnership during the taxable years.

1. During 1920 taxpayer made advances totaling $98,140.27 against lumber as cut and which was to be on its order. Held: that taxpayer sustained a loss in 1920 of $48,078.19. 2. Deduction for a worthless debt allowed. 3. The Commissioner's determination of the deduction for 1920 as reasonable compensation for officers approved.

A member of the Osage Indian Tribe is subject to tax on royaltles and proceeds from the sale of mineral rights.

The sole beneficiary for life of the entire income of an estate or trust, created under a will, is taxable on the basis of such income as is credited or distributable to her, regardless of the fact that it was not actually distributed within the taxable year.

A corporation expended large sums of money in an advertising and promotion campaign over a period of years, and the portions thereof respectively allocable to capital for the building up of future… Held: the disallowance of the entire expenditure and of any portion thereof as invested capital is proper. Held, further, that under the facts of this case the petitioner is entitled to have its profits tax computed under the provisions of section 328 of the Revenue Act of 1918.

The amounts paid as premiums on life insurance may not be deducted from gross income in the computation of net income.

Held, that there was no evidence to warrant a conclusion that the Commissioner was not correct in determining that the petitioner's net income was 18 per cent of his gross sales. Held: that there was no evidence to warrant a conclusion that the Commissioner was not correct in determining that the petitioner's net income was 18 per cent of his gross sales.

In the circumstances of this proceeding, held, that he value of a stock subscription agreement may not be included in invested capital for the taxable years. Held: that he value of a stock subscription agreement may not be included in invested capital for the taxable years.

The March 1, 1913, fair market value of shares of stock sold in 1921 determined.

The basis for determining gain or loss on the sale of stock determined from the evidence.

1. Evidence held insufficient to show that the value of real estate as determined by the Commissioner was not correct. 2. Petitioner was residuary legatee and also executor. The will did not make specific provision that the executor should have the legacy over and above the commissions. Held, under the law of Louisiana, that the executor was not entitled to commissions, and no deduction is allowable in determining the net estate subject to the estate tax.

Evidence held insufficient to establish value of property at the time it was turned in for stock.

A contribution on Tulane Universityheld not a business expense.

1. Income received by the owner of a life estate acquired by will is taxable and can not be regarded as a non-taxable legacy or bequest. 2. Losses sustained by an estate upon the sale of securities are not deductible from the gross income of a person holding a life interest in such estate. 3. The Mining and Mechanical Institute of the Anthracite Coal Region, Inc., of Freeland, Pa., held to be a corporation contributions to which are deductible under the Revenue Act of 1918, section 214(a)(11). 4. The Board will not judicially notice the nature of an organization merely from the names of the individuals who sponsored it; and the fact that a corporation was organized to promote world peace is not sufficient per se to bring it within the classification of "corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes."

- Compensation at the rate of $175 and $115 per week, respectively, for the two principal officers who are also the sole stockholders of a mercantile corporation during a year when the gross business exceeded $190,000, held to be reasonable compensations for such officers and a proper deduction from gross income.

The petitioners were not affiliated during the years 1919, 1920 and 1921.

The selling of goods with a protection clause against market declines does not result in an actual liability until there is a decline in the market; and, where payments or credits are made in adjustment of prices due to a decline in a subsequent taxable year, gross sales for the preceding year may not be reduced by the amount thereof.

The Commissioner's action in reducing the petitioner's invested capital by $321,300, approved.

1. Additional allowance for amortization of war facilities denied for want of proof. 2. Amount expended by petitioner for repairs in 1920 determined.

1. VALUATION OF PATENT. - In 1918 the petitioner acquired a certain patent for which it issued shares of its capital stock. Held: that at the time acquired this patent had a cash value of $12,500. 2. DEDUCTION FOR EXHAUSTION. - During the taxable years petitioner is entitled to deduction for this patent on the basis of $12,500 prorated over the life of the patent.

A debt ascertained to be worthless after the close of the taxable year is not deductible from the gross income of the petitioner for such taxable year.

1. The evidence is insufficient to show that taxpayer acquired good will of any determinable cash value, when it purchased the assets and business of another corporation in 1903. 2. Held: that the amount of $48,091.59 should be restored to surplus and included in invested capital for the fiscal year ending April 30, 1920.

The amount of earnings credited to stockholders' accounts held to have been properly excluded from invested capital.

- Evidence respecting the value of properties acquired by the petitioners by devise as of March 24, 1916, held to be too indefinite and uncertain to warrant us in overthrowing the values determined by the Commissioner.

Taxpayer sold stock on March 11, 1916, for more than cost and less than the March 1, 1913 value. Held: that the transaction in 1916 was a completed sale resulting in no taxable gain or loss, and the payments made under the contract in the taxable year were in part a return of capital, that is, the present worth of the future payments as of the time of the receipt of the contract, and a portion was gain.

A payment made by a corporation to another corporation organized and operated exclusively for the promotion of social welfare work among the employees and families of the employees of the incorporators, for the advancement of the physical, mental and moral interests of such employees and their families, and to assist them in sickness, disability, old age and death, is an ordinary and necessary expense of the business of the petitioner.

1. A corporation which was legally organized in 1908, but which never issued any shares of stock or received any assets of any description, or transacted any business whatever, derived no income from a business operated by a partnership, which, at the time the corporation was formed, it was intended the corporation should take over and carry on. 2.

- In valuing the stock of a bank which is closely held and of which few sales have ever occurred, consideration must be given not only to the earnings of the bank but also to the established dividend rates and the book or liquidation value of the bank's assets.

1. Proof relative to certain deductions for losses claimed by the petitioner and disallowed by the Commissioner, considered and held insufficient to establish error. 2. Proof relative to an alleged error in the computation of invested capital held insufficient to establish error.

1. Amount of reduction of invested capital for the year 1918 by reason of exhaustion of franchises determined. 2. Deduction claimed by the taxpayer for the years 1918 and 1920 for exhaustion, wear and tear, and obsolescence approved. 3. Value of certain mineral and gas rights, and leaseholds determined for invested capital purposes.

1. Value of tangible assets as of March 1, 1913, determined for depreciation purposes. 2. Gain or loss on sale of capital assets determined.

A corporation which conducted an insurance agency and financed, partly with its own funds and partly with funds of a trust company, the purchase of automobiles upon which it wrote insurance, is not within section 303, Revenue Act 1918.

Upon the evidence, held, that petitioner, an unincorporated association, was affiliated with several other corporations during 1918 and 1919. Held: that petitioner, an unincorporated association, was affiliated with several other corporations during 1918 and 1919.

Held, on the evidence, that the dividend received by the petitioner was a cash dividend and not a stock dividend. Held: on the evidence, that the dividend received by the petitioner was a cash dividend and not a stock dividend.

1. The taxpayer's distributive share of the income of a partnership of which he was a member, from April 1, 1919, to December 31, 1919, determined. 2. Held: that the Massachusetts income tax did not accrue within the year in which the income upon which it was levied was earned, and it can not be said that the method of accounting employed by the taxpayer in keeping his books did not clearly reflect income.

1. Petitioner was engaged in the business of tanning hides and producing finished leather. A number of years prior to the taxable years it constructed 322 tanning vats which, when completed, had a useful life of 50 years. Held, that the cost of constructing and tanning the vats was a capital expenditure and that such cost, less depreciation at 2 per cent per annum, should be included in invested capital for the taxable years. 2. The evidence submitted does not warrant the conclusion that petitioner is entitled to include in invested capital for the years 1917 and 1918 any amount with respect to the cost of tanning liquor in its vats at the beginning of these years. 3. Loss from fire determined.

PAID-IN SURPLUS. - The taxpayer claimed a paid-in surplus under the provisions of section 326(a)(2) of the Revenue Act of 1918. Held, that the evidence respecting the character and value of the property paid in, as well as the opinion testimony concerning such value, is too general and indefinite to warrant the Board in finding a definite value in excess of the amount for which stock was issued, and that the claim for paid-in surplus is not sustained.

Value of gross estate determined.

Evidence held insufficient to show that the Commissioner's determination of the fair market price or value of buildings, machinery and equipment on March 1, 1913, was erroneous.

SEVERABLE CONTRACTS. - Written instruments evidencing contractual relations between the petitioner and the Board of Water Commissioners of the City of St. Paul, Minnesota, held to evidence two separate contracts upon which the contractor's losses may be taken in the accounting period within which work upon each separate contract was completed.

VALUATION OF PATENTS FOR EXHAUSTION DEDUCTION. - Evidence respecting the value of petitioner's patents considered and valuation determined.

1. Under the Sixteenth Amendment and section 213 of the Revenue Act of 1918, defining gross income, income includes the entire gain realized upon the sale of goods in the ordinary course of business in this country, irrespective of where an increment in value has its situs. 2. The capital or labor from which income is derived in this country need not be within the territorial jurisdiction of the United States in order that the income may be taxed. 3.

1. In the absence of any evidence of the method of accounting regularly employed in keeping the books of a taxpayer, the action of the Commissioner in computing income upon a cash receipts and disbursements basis must be approved. 2. Where the evidence dicloses that the taxpayer, an insurance company, is required to file report with the insurance departments of the jurisdictions in which it operates, showing income and disbursements upon a cash basis and its balance sheets upon an accrual basis, it can not be assumed that the books of account are kept upon an accrual basis. 3. Prior to 1919, returns had been made upon the basis of cash received and disbursed. In 1919 gross income was reported on the basis of cash received and deductions upon the basis of cash disbursed plus liabilities accrued and unpaid. Held, that the return upon such basis distorts taxable income. 4. In the case of corporations issuing policies covering life, health, and accident insurance combined in one policy, issued on the weekly premium payment plan, continuing for life and not subject to cancellation, the net addition to be made to reserve funds is to some degree in the discretion of the proper officials of the company. Where the evidence is insufficient clearly to establish that the addition to the reserve made during the taxable year was insufficient, no greater amount will be allowed as a deduction than that set up on the books. 5. Quaere: Whether any amount can be allowed as an addition to reserve funds where such amount has not been set up as a part of such reserve?

1. A corporation advanced sums of money to three of its principal stockholders, who promised to repay and were at all times solvent. The amounts were carried as accounts receivable. Held, the accounts are properly included in invested capital. 2. A corporation, having paid a dividend, needed credit, and the stockholders adopted a resolution that the dividend be "rescinded," and gave their notes. Held, the notes are properly included in invested capital.

1. Taxes and other expenses paid in carrying property over a period of years may not be capitalized and added to the cost. 2. Held: the sale of property was on the installment basis.

1. Money advanced to a corporation for permanent improvements by its stockholders in proportion to their stockholdings and evidenced by promissory notes, held not to be invested capital prior to the date when stock was issued in payment of such advances. 2. Interest credited on such advances held to be a proper deduction.

Where the books of account of the taxpayer are kept upon the accrual basis, a payment received in 1920 of an amount which accrued in 1918 for work done in that year is properly returned as a part of 1918 gross income.

Petitioners were partners engaged in business as wholesale and retail dealers in general merchandise. Held: that the amount paid to the father in 1920 was not deductible by the partnership as an ordinary and necessary expense as interest paid for the purpose of determining the distributive shares of the petitioners.

1. During 1919 petitioner had contracts whereby it was obligated to sell the entire stock issues of other companies at such an amount as would net the… Held: that the Commissioner properly included the $311,573.75 in gross income for 1919. 2. Petitioner, a stock-selling organization, by proper resolution fixed the compensation of its officers at a stated amount per month and authorized the payment to them of a certain commission upon the sale of stock of other corporations.

Taxpayers are permitted under regulations of the Commissioner to take inventories upon the basis of (a) cost, or (b) cost or market, whichever is lower. Held, that a taxpayer who took his inventory upon the basis of cost or market, which was the same as cost, at the close of the year 1920, is permitted to take his inventory upon the basis of cost or market, whichever is lower, at December 31, 1921.

The petitioner during the years in question was not a personal service corporation as defined by section 200 of the Revenue Acts of 1918 and 1921.

Amounts paid into a fund during each year for pensioning its employees are deductible from gross income for the year as ordinary and necessary expenses of carrying on the petitioner's business, where the facts and circumstances connected with the creation and operation of the fund show that it is a trust and a separate taxable entity.

Interest and taxes paid during the period of development of real estate for subdivision and sale may not be capitalized and treated as a part of the cost of such property.

1. BAD DEBTS. - Evidence respecting three certain accounts receivable and two items of bills receivable examined, and held that the same were ascertain to be worthless and charged off against the gross income of the year 1919 and should be allowed as a deduction in redetermination of deficiencies. 2.

1. PATENT VALUES. - For the purposes of invested capital and allowance for exhaustion, the values of patents acquired by a corporation for stock at some prior date determined upon the evidence of… Held: that the statute of limitations had run against any alleged deficiency for the year 1916.

1. The provisions of section 240(a) of the Revenue Act of 1918, which require affiliated corporations to make a consolidated return of net income and invested capital, contemplate that the affiliated group shall be treated as existing with the attributes of a single taxpayer. 2. Shares of capital stock of any of the members of an affiliated group, outstanding in the hands of the public, are shares of capital stock of the affiliated group. 3.

The taxpayer was the owner during the taxable year of stock of a subsidiary which had cost $31,980.38 and was sold to stockholders of the parent (affiliation continuing) for $85,000. Held: that the sale made under the circumstances set forth did not give rise to taxable gain.

Where corporations are affiliated during the taxable year, but were not affiliated during the prewar years, the prewar invested capital is the aggregate of the average invested capital of the separate corporations.

1. A note receivable of a stockholder held to represent a bona fide indebtedness to the corporation and should be included in invested capital. 2. The earned surplus of corporations included in a consolidated return should be reduced by an operating deficit of one of the corporations in the group in excess of its own earned surplus, earned during a year when a consolidated return is required by statute.

1. Where two corporations are affiliated the consolidated net income is to be computed as for one corporation. 2. Where the parent corporation acquires the stock of its subsidiary at its book value and subsequently sells it at its book value, no profit or loss to the affiliated group results.

1. Certain coal leases paid in for stock held to have had no actual cash value in excess of the stipulated royalties. 2. The reduction of invested capital on account of insufficient depletion taken in prior years, and the reduction of surplus of the consolidated group in the amount of the deficit of certain subsidiaries, approved. 3. The evidence is not sufficient to show that the Commissioner's determination of reasonable compensation for the year 1917 was erroneous.

1. PATENTS AND GOOD WILL. - The value of patents and good will acquired for stock at the time of organization determined on the basis of stipulation between parties. 2. PAID-IN SURPLUS. - A paid-in surplus, resulting from the acquirement from its stockholders of the stock of another corporation, and this resulting in an affiliation of the two companies, cannot affect invested capital of the affiliated group. 3.

The opinions of witnesses as to the value of a leasehold on March 1, 1913, considered and held to be not sufficiently well founded to prove value.

Book inventory at the close of the year was properly reduced to accord with the physical inventory. Where the book inventory reflects an increase in value offset by a reserve for appreciation, the action of the Commissioner in adding the amount of the reserve for appreciation to the net income returned by the petitioner is, in the absence of evidence showing material facts, approved.

Petitioner was not during the year 1918 a personal service corporation.

In the light of the circumstances in this case, held, that the tax return filed for 1918 was not fraudulent and that the petitioners are not liable to the assessment of the penalty provided by the… Held: that the tax return filed for 1918 was not fraudulent and that the petitioners are not liable to the assessment of the penalty provided by the statute for the filing of a fraudulent return.

A corporation is subject to tax upon its net income for 1920 although such income is not sufficient to wipe out a pre-existing deficit.

The evidence is insufficient to show that the Commissioner's valuation of property acquired by inheritance in 1918 was erroneous.

1. Husband and wife, domiciled in the State of California, may not file separate returns, each reporting one-half of the community income. 2. Depreciation on prune orchard and vineyard determined.

VALUE; OPINION. - Since value implies both a purchaser and a seller, it is not enough that he who would be a seller expresses a categorical opinion as to value. Held, value not proven. Held: value not proven.

1. Petitioner did not possess a patent on March 1, 1913, and is not entitled to ascribe any value to a patent subsequently issued as of that date. 2. Opinions of value upon the hypothesis that a patent existed on March 1, 1913, based upon estimated royalties from the patented article, are insufficient to enable the Board to determine the fair market price or value, if any, of the application for letters patent.

An amount withdrawn from a corporation by its sole stockholder as a loan and carried on the corporation's books and balance sheets as an account receivable upon which credit has been secured, there being no evidence of a dividend, is within its invested capital.

The petitioner corporation, both before and after March 1, 1913, acquired gravel lands in exchange for its stock. Held: that the Commissioner did not err in his computations of value and cost used by him in the computation of invested capital and the allowance for depletion.

In determining whether the net income for 1922 is $25,000 or less and the credit of $2,000 provided for by section 236(b) of the Revenue Act of 1921 is to be allowed, the net loss provided for by section 204(b) may not be deducted.

The share of profit from a joint venture is income to the venturer, although transferred to another immediately upon its receipt.

On March 12, 1920, the petitioner filed what it designated as a tentative return, which contained no statement of gross income, deductions, credits, or net income, but it did set forth the estimated… Held: that the return filed May 15 was the return required by law, and that the period of limitations prescribed in section 277, paragraph (a)(2) and paragraph (b), of the Revenue Act of 1924, commenced to run at the date of the filing of the completed return.

The petitioner created a trust by a conveyance of a life estate in certain real property. Held: that the expenditure was an additional gift to the trust and that the petitioner is entitled to no deduction by reason thereof.

The evidence does not establish that petitioner made a bona fide transfer of the deferred purchase-price installments for property sold by him.

1. Under the provisions of the Revenue Act of 1926, the Board has jurisdiction to determine an overpayment of tax in respect of a taxable year for which the Commissioner has determined a deficiency, whether the proceeding before the Board is filed prior to or subsequent to the passage of the Revenue Act of 1926. 2.

The cash value of patents paid in for shares of stock of a corporation determined.

Petitioner was employed by a partnership at a salary of $200 per month and a cash bonus of one-sixth of the cash profits. He was not a member of the partnership, and had no capital investment therein. Held: that he is not chargeable with any income accrued to the partnership other than his salary of $200 per month, and one-sixth of the partnership's cash income.

In a case where the Commissioner has declined to accept amended returns of a taxpayer seeking to return his income on the installment basis, the Board can not disturb the Commissioner's determination where the taxpayer has produced no evidence as to the amount of income for the year in question, the proportion of the installment payments actually received, the total profit realized when the payment is completed, and the total contract price.

Houses erected or acquired by a coal mining company for its employees, under the facts of this case, are facilities erected or acquired for the production of articles contributing to the prosecution of the war, and as such are subject to the amortization deduction.

Interest paid by a water corporation on borrowed funds used in the construction of a dam may not be included in the cost of the dam in determining the amount deductible as a loss upon its destruction.

Interest paid upon money used during the erection of a building held not to be an item which can be properly capitalized for the purpose of computing invested capital.

Deduction of losses alleged to have been sustained from sale of stock in the taxable year disallowed in the absence of proof of cost of stock sold.

Where a taxpayer had a net loss resulting from operations for nine months from incorporation to the end of 1919, it is not entitled to deduct the net loss from net income of 1920, under section 204(b) of the Revenue Act of 1918.

No taxable gain resulted from the exchange for stock of newspaper assets owned by the petitioners.

1. Use and occupancy insurance involved in this proceeding was compensation for the loss of a property right, and was not dependent upon or measured by the loss of profits in the operation of the business in connection with which such property was used. 2.

1. The Board will not consider questions of administrative policy and procedure. Appeal of Cleveland Home Brewing Co.,1 B.T.A. 87. 2. Accelerated depreciation of machinery allowed. 3. Reduction of surplus in the computation of invested capital upon payment of additional taxes for preceding year sustained. 4. The reduction of current earnings by a tentative tax to determine the amount of such earnings available for the retirement of capital stock disallowed.

1. The amount of the deductible loss on the sale of a business determined from the evidence. 2. The value of real estate as of March 1, 1913, determined.

1. The common law doctrine of estates by the entirety obtains in the State of Missouri. 2. The fact that the husband pays the full consideration out of his own funds for land conveyed to him and his wife as tenants by the entirety does not have the effect of constituting such grantees other than tenants by the entirety. 3.

Decedent and wife were tenants by the entirety of lands conveyed of them in 1909. Decedent died November 15, 1921, a resident of the State of New York wherein the lands were situate.

1. An alleged partnership was merely a scheme of the taxpayer to defeat and evade the tax upon the income of a business owned entirely by him and the Commissioner correctly determined that the profits of the business constituted income to him and that the 50 per cent penalty imposed by section 250(b) of the Revenue Act of 1918 should be added to the deficiency. 2.

1. PERSONAL SERVICE CORPORATION. - The taxpayer corporation, although organized without paid-in capital, immediately thereafter acquired a 10-year lease of a building valued at $800,000 or more,… Held: that under such conditions it can not be found that capital, either, invested or borrowed, is not a material income-producing factor and personal service classification must be denied. 2.

Evidence held insufficient to establish that the loss involved herein was a loss of the petitioner.

Where petitioner keeps its books on the accrual basis, it may not deduct for the year 1919 officers' salaries voted in 1918 for that year but credited to the accounts of the officers in 1919.

1. Adjustment of invested capital made by the Commissioner on account of income and profits taxes for prior years held to be correct under section 1207 of the Revenue Act of 1926. 2. Invested capital may not be reduced in determining the extent to which a dividend is paid from current earnings of the year by a tentative tax theoretically set aside out of such earnings pro rata over such year.

1. TENTATIVE TAX COMPUTATION. - The Commissioner is without authority to reduce invested capital for any year by reducing current earnings applicable to dividends by a tentative tax computation. Appeal of L. S. Ayers & Co.,1 B.T.A. 1135, followed. 2.

1. VALUATION OF AN INVENTION FOR INVESTED CAPITAL. - The petitioner's exclusive license to use a patentable process held to have had a cash value of $25,000 at the time paid in for stock. 2. DEDUCTION FOR EXHAUSTION. - A taxpayer having a license for the exclusive use of a patentable process can not claim a deduction for exhaustion of the value of such license during a taxable period ended prior to the issuance of the patent.

During the years 1918, 1919, and 1920, the petitioner was engaged in building wooden ships for the United States Shipping Board Emergency Fleet Corporation on a cost plus fixed fee basis, the… Held: that the petitioner was not entitled to deduct from gross income, in its tax returns for the years 1918, 1919, and 1920, amounts for amortization of property which were reimbursed to the petitioner in 1923.

The difference between the fair marker value of land conveyed to petitioner and the amount paid therefor held to be a gift, and the taxable gain arising from the sale of the land is the difference between the fair market value at the time received and the selling price thereof.

Salaries deducted by petitioner in its 1918 return for services rendered by its officers during the year held to be reasonable.

The Board is unable from the evidence submitted to determine the value of alleged good will acquired for stock in 1910.

Net income from a business conducted by petitioner as an individual determined.

1. Surplus of a corporation may not be reduced in determining the extent to which a dividend is paid from current earnings of a year by a tentative tax theoretically set aside out of such earnings pro rata over such year. Appeal of L. S. Ayers & Co.,1 B.T.A. 1135. 2.

Losses and expenses incurred in prior year are not deductible from gross income of the taxable year.

The cost of goods sold should be deducted from the gross receipts in determining net income.

Where the wife of a member of a partnership in Louisiana dies intestate leaving minor children surviving her the issue of her marriage with the member of the partnership, and such partner informs his… Held: that in the circumstances in this case, the partner is liable to income tax upon his entire share of the profits of the partnership.

1. A claimed loss, due to a judgment rendered against petitioner and another in a suit for personal injury, disallowed in the absence of evidence showing petitioner made the compromise settlement. 2. The probable useful life of a five-story building of fire proof construction determined to be 33 1/3 years as of March 1, 1913, and depreciation thereon allowed at the rate of 3 per cent. 3.

In the absence of competent evidence, the March 1, 1913, value of timberlands, as determined by the Commissioner, affirmed.

The amount of debts ascertained to be worthless and charged off within the year, and deductible from gross income, determined.

1. Taxpayer was not entitled to classification as a personal service corporation for the year 1919. 2. Taxpayer kept its books upon the accrual basis. Held: that the taxpayer was not entitled to deduct from gross income for 1919, as an accrued expense, the amount of $16,243.83, representing $4.16 2/3 a share on 3,899 shares of The Insurance Corporation's stock sold during the year. 4.

The evidence is insufficient to show that the Commissioner erred in valuing inventories at cost.

1. RETURN FOR FACTIONAL YEAR. - The petitioner's income-tax liability for the period of six months ended June 30, 1918, should be computed on the basis of a separate return for that fraction of a year. Following Appeals of Henry D. Weed,2 B.T.A. 84, and Coghlin Electric Co.,3 B.T.A. 1071. 2.

1. Salaries for the year 1919 were neither paid nor accrued during that year and are not deductible under section 234(a)(1) of the Revenue Act of 1918. 2. As to other items in controversy, action of the Commissioner has been approved as correct for lack of evidence to the contrary.

Evidence held insufficient to show that leases for which capital stock of $10,000 par value was issued had that or any other value.

The evidence fails to show that the Commissioner was in error when he included, in the calculation of the 1920 deficiency, income received from the sale of notes in 1920 at a price which was greater than their fair market value in 1919.

Upon a sale of personal property, the receipt of an agreement from the purchasers to execute promissory notes in a subsequent year, in part payment of purchase price, does not constitute the receipt of cash or its equivalent to the seller who accounts on a basis of cash receipts and disbursements.

1. INVESTED CAPITAL. - The true cost of petitioner's buildings and foundry equipment is the amount at which such properties must be reflected in invested capital and form a basis for depreciation… Held: not to have been a paid-in surplus for the purposes of prewar invested capital. 4. REASONABLE COMPENSATION OF OFFICERS. - Fifteen thousand five hundred dollars held to have been a reasonable aggregate of compensation for four officers of taxpayer company during the year 1920.

1. The principal stockholders of the petitioner owned property used to produce power which was furnished the petitioner. Held: there was no intent on the part of petitioner to evade tax, and 50 per cent penalty asserted by Commissioner disallowed.

Petitioner is entitled to inventory its used cars at bona fide selling prices, less selling cost.

Value of good will acquired in exchange for stock determined.

The petitioner was not a personal service corporation during the years 1919 and 1920.

A net loss sustained by petitioner in the year 1921 as a result of the liquidation of a corporation, stock in which he had purchased as an investment and to which he had made occasional loans, was not a net loss from the operation of a trade or business regularly carried on by him, and the excess of the loss sustained in 1921 over his income for that year was not a proper deduction, under the provisions of section 204 of the Revenue Act of 1921, from his income for the…

An appeal does not lie to this Board from the rejection of a claim filed for the abatement of taxes reported on the tax return of the petitioner. Estate of Ballot,3 B.T.A. 583.

The petitioner held on the evidence not to have been a dealer in securities during 1918, and was not, therefore, entitled to inventory unsold securities at the market value.

The evidence is insufficient to show that the Commissioner's determination of the value of stock acquired by gift in 1920 was erroneous.

Petitioner has not shown that it was entitled to a greater invested capital than that determined by the Commissioner, or that the Commissioner's determination in respect of the allowance for exhaustion, wear and tear of the property was erroneous: not has it shown that the Commissioner's adjustment of the closing inventories for the fiscal years ending July 31, 1920 and 1921, was erroneous.

Reserves set up to cover estimated shrinkages in weight of cotton shipped to Europe and reserves for exchange and for hedges are not allowable deductions.

Amounts paid by petitioner during the taxable year for the use of money for which first preferred shares were issued represented the payment of a dividend and not the payment of interest on indebtedness.

The amount of bad debts ascertained to be worthless and charged off from the petitioner's books of account in 1919 and deductible from gross income in the petitioner's income-tax return for that year determined.

1. Petitioners were affiliated during the calendar year 1920. 2. In view of the evidence in this proceeding, it is held that the Commissioner was not justified in reducing the allowance claimed by C. P. Lathrop & Co., Inc., for compensation paid to its officers.

During the year 1917 the petitioner purchased 75 per cent of the capital stock of a competing company. Held: that the purchase of the stock of the competing company by the petitioner and its shareholders resulted in the affiliation of the two companies, and that the purchase of the assets was an intercompany transaction from which no gain or loss resulted.

Subject to limitations of section 214(a)(11)(B) of the Revenue Act of 1921, the petitioner is entitled to deduct from gross income an amount contributed to a chartered religious corporation.

1. The petitioner was incorporated on October 26, 1915, to take over the assets and business of an existing partnership. Held: that for the purpose of computing the invested capital the assets should be valued as of October 26, 1915. 2. The plant account shown upon the books of the predecessor business at the date of incorporation stood at $120,000.

The petitioner bought a piece of property the actual cash value of which was not in excess of $25,000, and paid as the purchase price therefor the sum of $250 in cash and $250 per month, beginning on the first day of the next succeeding month, for 167 months. The total of these payments is $42,000. During the taxable years the petitioner was not entitled to deduct as interest any portion of the payments made during those years.

The sale of real property by petitioner in 1920 held to be a sale on the installment plan. The income to be returned for the year 1920 from this transaction determined.

Where a corporation filing returns on a calendar year basis is dissolved March 31, 1919, the return which included the income from January 1 to that date was a return for the year and it is entitled to the entire specific exemption of $3,000, but is entitled to a credit of only three-twelfths of the average invested capital, the invested capital being averaged over the entire twelve-month period.

Inventory methods used consistently and uniformly for many years that reflect taxpayer's income accurately should not be disturbed by arbitrary adjustments that result in distortion of actual income.

1. The income from long-term contracts taken on the bases of lump sums, cost plus a fixed fee or plus a percentage, and cost plus a fixed fee with a guarantee that the total price was not to exceed a certain sum, is properly accruable during the period of construction in the same ratio that the work completed in each year bears to the whole. 2.

1. Value of farm land acquired by the petitioner prior to March 1, 1913, determined. 2. Date of sale of real estate determined, and petitioner held entitled to return income therefrom on the installment basis.

1. Auditors working on the petitioner's books of account for the year 1918 discovered in May, 1919, that although there was no shortage in the cash account of petitioner as of December 31, 1918,… Held: upon the evidence, that the loss was sustained within the year 1919. 2. Depreciation upon machinery was sustained at the rate of 10 per cent per annum for the years 1920 and 1921, instead of at the rate of 5 per cent per annum, as determined by the Commissioner.

1. Under the facts, held, that petitioner is entitled to charge off as bad debts ascertained to be worthless certain advances made in behalf of a corporation. 2. Held: that petitioner is entitled to charge off as bad debts ascertained to be worthless certain advances made in behalf of a corporation. 2. Amount paid by petitioner to sales manager of a corporation of which petitioner was president held not deductible as a business expense. 3.

1. The installation of equipment that reduced competition and resulted in large profits is not an abnormal condition under section 327(d) of the Revenue Act of 1918 requiring special assessment under section 328 of that Act. 2. The evidence does not establish the existence of alleged abnormalities due to low salaries and the exclusion of earnings in prewar years from income for those years for purposes of computing prewar credit.

Deductions allowed under section 214(a) of the Revenue Act of 1921, but not connected with the trade or business regularly carried on by the taxpayer and not specially considered in the method of calculation of the net loss, as set out in section 204(a) of the same Act, must be subtracted from the total deductions allowed under section 214(a) before the calculation is made, so that the result of the calculation will be the net loss defined in section 204(a) of the Act.

1. Expenditures over the years 1909 to 1913 properly applicable to the cost of perfecting and developing a patent determined and allowed as a deduction from the sales price of the patent in 1917 for the purpose of determining the gain or loss upon such sale. 2. Interest paid by a subsidiary upon its indebtedness to the parent should be excluded as a deduction by the subs diary and from income of the parent, in determining consolidated invested capital for the purpose of the 1917 excess-profits tax, and the amount of the indebtedness of the subsid ary to the parent in excess of the amount of the indebtedness on which it was entitled to deduct interest paid for income-tax purposes under Title I of the Revenue Act of 1917 was not a proper item to be included in computing consolidated invested capital.

Common-law doctrine of estates by the entirety obtains in Maryland, and upon the death of one spouse there is no transfer of any part of such estate to the survivor; hence there is nothing upon which to impose an estate tax under the Revenue Act of 1921.

- Evidence respecting the nature and purpose of various items of building alterations and repairs examined and certain items held allowable deductions for losses and repairs.

Rates of depreciation to be used or to be considered in determining gain resulting from sale of orange orchards determined.

Where neither the cost nor the March 1, 1913, value of real estate acquired prior to March 1, 1913, and sold in 1918 is established, the loss sustained upon the sale under the Revenue Act of 1918 can not be determined.

In 1918 petitioner orally agreed to sell his partnership interest at a price to be later determined. In 1919 the price was agreed upon and the sale made. Held: the agreement in 1918 did not constitute a sale to permit of a deduction in that year of the loss sustained.

1. Taxpayer held to be a stockholder in a corporation which, for services rendered, issued stock in his name, but placed it in the hands of a bonus custodian to insure carrying out a contract that taxpayer would not sell, transfer, or assign his stock. 2.

JURISDICTION. - Under the provisions of section 283(f) of the Revenue Act of 1926, the Board has jurisdiction in a case in which a jeopardy assessment was made in February, 1924, a claim for abatement made, considered, and finally rejected on March 31, 1925.

Held that a loss was sustained as the result of the purchase and sale of German marks.

Held, that the dividend declared by a corporation was a stock dividend and that the petitioners received no taxable income thereby. Held: that the dividend declared by a corporation was a stock dividend and that the petitioners received no taxable income thereby.

In the taxable year the petitioners received certain payments from a corporation of which they were stockholders, officers and executives. Such payments were accounted for as salaries. Held: that the payments in question were salaries or bonuses and were subject to normal tax and surtax.

On the evidence, held, that cost of liming soil for the purpose of increasing productiveness over a term of years is a capital expenditure which is subject to annual deductions for exhaustion, wear… Held: that cost of liming soil for the purpose of increasing productiveness over a term of years is a capital expenditure which is subject to annual deductions for exhaustion, wear and tear during the period in which such liming is effective.

1. A commercially operated lemon grove is a depreciable asset. 2. Rates of depreciation on lemon trees, orchard equipment, trucks, and tractors, determined.

The Board has no jurisdiction to determine whether an overpayment of tax shall be credited or refunded, or whether refund is barred by the period of limitation provided by the statute.

1. The petitioner kept no itemized account of traveling expenses paid, but the amounts spent by him were in excess of the amounts repaid to him for traveling expenses. Held: that the petitioner derived no income from the repayments. 2. The petitioner acquired land and platted it into twenty-four lots.

1. The common-law doctrine of estates by the entirety obtains in Pennsylvania, and as, under the common law, there was no transfer of such estate to the surviving spouse upon the death of the decedent, the value of such estate may not be included in the gross estate of the decedent. 2. Ground rents being real estate, and title thereto being held by decedent and his wife as tenants by the entirety, the value of such rents may not be included in the gross estate.

- The petitioner's husband, for each of the years 1917, 1918, and 1919, made and filed joint returns for himself and his wife. Held: that the statute of limitations began to run against an assessment of a proposed deficiency against the wife on the day when such joint returns were filed. Appeal of Belle R. Weaver,4 B.T.A. 15, followed.

Where the entire income from property held in trust is distributed annually by the trustee to the beneficiaries of the trust pursuant to the discretion reposed in the trustee by the provisions of the… Held: that the income is distributed periodically within the meaning of section 219(a)(4) of the Revenue Acts of 1918 and 1921, and the beneficiaries are liable for the tax on the amounts received.

The amount by which a debt was reduced under the terms of a composition agreement was a deductible loss in the year in which the agreement was made.

The petitioner was not a personal service corporation during the years 1918 and 1919, as its income could not be ascribed primarily to the activities of its principal owners or stockholders who were regularly engaged in the active conduct of its affairs.

A widow maintaining a residence for herself and her daughter, who is an adult and not dependent on her mother for support, is not entitled to the exemption granted the head of a family by section 216(c), Revenue Act of 1921, though she in fact contributes to the support of her daughter.

The petitioner filed his return for the year 1923. Held: that inasmuch as the Commissioner had determined a total tax liability in excess of the amount shown on the original return to be due, there was a deficiency and that the Board had jurisdiction.

Where a man and wife living in Louisiana filed a joint return and included therein the income of both, they can not subsequently file a return under the community property law.

Taxpayer, having filed a joint return of the income of himself and wife for 1923, is not entitled to have his tax computed on the basis of his separate income. Appeal of R. Downes, Jr.,5 B.T.A. 1029, followed.

On the evidence, an inventory taken at cost reduced by 25 per cent, representing the estimated decline in market values, does not establish the market price of the goods inventoried.

1. NOTICE OF DEFICIENCY. - A letter prepared in the office of the Commissioner reciting the determination of a deficiency and addressed to a taxpayer residing at Jackson, Tenn., and mailed to the same taxpayer at Jacksonville, Tenn., by registered mail, and later returned by the postal service to the Commissioner's office undelivered, did not notify the taxpayer of such deficiency as required by section 274(a) of the Revenue Act of 1924 or section 274(a) of the Revenue Act…

1. Payments of $3,065.30 and $1,066.96, received by the petitioner, Edgar P. Haney, in the years 1919 and 1920, respectively, were not salary. 2. Held, that the amount of $10,000 was erroneously included in gross income. 3. The determination of the Commissioner in all other respects is approved because of insufficient evidence to support the petitioners' contentions.

1. The value of United States and Canadian patents paid in to a corporation for a consideration of $1 and $2, respectively, may not be included in invested capital under the Revenue Acts of 1918 and 1921 as a paid-in surplus. 2. March 1, 1913, value of patents determined.

An amount received by an attorney for professional services rendered to the Commonwealth of Kentucky under a contract is not exempt from income tax.

The decedent owned and operated a stock-breeding and produce farm. He kept numerous mares and stallions for breeding purposes, and produced some vegetables, poultry, and eggs for market. Held: that, in the circumstances disclosed by the evidence adduced in this appeal, the farm of the decedent was not a business conducted for profit.

Before a debt can be deducted under section 214(a)(7) of the Revenue Act of 1921, it must be proven that the ascertainment of worthlessness took place in the taxable year.

The petitioner procured a policy of insurance on his own life, naming therein as beneficiaries certain religious and charitable corporations. Held: that the payment of the premium was not a gift or contribution within the meaning of section 214(a)(11) of the Revenue Act of 1921.

1. The Board has no jurisdiction to inquire into the motives of the Commissioner in making an assessment or into the conduct of his subordinates in levying or enforcing it, nor does the fact that the United States is not suable in tort confer such jurisdiction. 2. A deficiency otherwise found to be valid will not be disapproved on the ground that the Commissioner has failed to grant a hearing authorized by law prior to making an assessment based on the alleged deficiency. 3.

On May 15, 1921, an extension of time having been theretofore obtained, the petitioner filed its return for the year 1920, showing a net income of $165,508.12 and the tax due thereon to the $64,114.37. To the return was attached an application for special assessment. On December 15, 1921, it filed a claim in abatement pending the decision on its claim for special assessment.

A promissory note payable to the Secretary of War, executed by the three owners of a corporation in their individual capacity, and securities in dividually owned or borrowed by such owners, which note and securities were turned over to the corporation and by it put up as security for the repayment of an advance made to it by the United States in aid of the performance of a supply contract between the corporation and the United States, and returned to said owners upon the…

1. Amounts paid for surveys of land involved in litigation held to be capital expenditures. 2. Held: that the transaction upon which the taxpayer sought to deduct a loss did not constitute a sale, and that the Commissioner properly added a penalty of 50 per centum of the total amount of the deficiency resulting from the disallowance of the deduction sought by the taxpayer.

Upon the evidence, held, that a transfer of shares of stock by the taxpayer did not constitute a sale and that no deductible loss resulted therefrom; also, that the fixing of a… Held: that a transfer of shares of stock by the taxpayer did not constitute a sale and that no deductible loss resulted therefrom; also, that the fixing of a fraud penalty of 50 per centum of the total amount of the deficiency, resulting from the disallowance of the deduction sought, was proper.

DEPLETION. - Commissioner's determination of the March 1, 1913, value of the right to receive royalties from leases of iron ore approved.

1. The decedent, an architect, was engaged by contracts between himself and the Commonwealth of Pennsylvania and the cities of Albany and New York, N.Y., for work, not permanent or continuous in… Held: that the compensation paid to him was subject to Federal income tax. 2.

1. The Board does not have jurisdiction to hear and determine a proceeding filed with it pursuant to the provisions of section 279(b) of the Revenue Act of 1924, if prior to the filing of the petition there has been an adjudication of bankruptcy of the petitioner. 2. The Board is not deprived of jurisdiction where adjudication of bankruptcy of the petitioner occurs subsequent to the filing of a petition with the Board.

1. By unanimous consent of all the stockholders corporate net profits may be divided and distributed among the stockholders other than ratably according to stockholdings. 2. The evidence in the instant case discloses the intent of the only two stockholders of the petitioner to divide the net profits between them without regard to stock holdings, and the proceeds of such division did not constitute additonal salaries to the recipient.

The debts herein were ascertained to be worthless and were charged off within the taxable year. Held properly deductible from gross income.

1. The Board has no jurisdiction of an overassessment not arising from the allowance in part of a claim in abatement. 2. A taxpayer making his return on a cash basis may not report as income for 1919 salary received in 1920. 3.

1. Certain losses sustained in business operations allocated to the years 1919 and 1920 and allowed as deductions from petitioner's gross income for such years. 2. Loss claimed on account of construction of a building on land held on an oral month-to-month lease not allowed in the absence of evidence establishing petitioner's rights under such oral lease or agreement. 3.

1. Loss on account of unextinguished cost of discarded parts of a reconstructed building determined and allowed. 2. Loss on account of unextinguished cost of discarded furniture disallowed.

The amount paid in 1923 in settlement of a damage suit, instituted in December, 1921, growing out of the wrongful mining of another's coal, was not deductible from 1920 income.

The facts in this proceeding fail to establish that amounts expended for railroad fare, meals, lodging, and laundry are ordinary and necessary expenses paid or incurred in carrying on a trade or business, within the purview of section 214(a)(1) of the Revenue Act of 1921.

Amortization allowed under section 234(a)(8) of the Revenue Act of 1918.

Petitioner in 1892 leased its premises and property for a term of years, the leassee agreeing to pay all taxes imposed upon the lessor with reference to the rental. Held: the amount of the tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

1. A taxpayer lessor who keeps his books and renders his returns upon a cash receipts and disbursements basis, which method in the circumstances of this proceeding is held clearly to reflect income, is entitled to a reasonable allowance for depletion only upon the amount of royalties received. 2.

Value of a leasehold at date paid in to a corporation for stock and of the same property at March 1, 1913, determined for invested capital and exhaustion purposes.

On the facts stated, held, that the petitioner and the Irvington Cooperage Co. were affiliated during the year 1920. Held: that the petitioner and the Irvington Cooperage Co. were affiliated during the year 1920.

1. INVESTED CAPITAL. - The taxpayer's surplus at the beginning of each of the years under consideration was properly reduced by the prorated amount of the prior year's income and profits taxes computed according to existing regulations, and under the provisions of section 1207 of the Revenue Act of 1926. 2. INVESTED CAPITAL. - The taxpayer's surplus at the beginning of each taxable period was properly reduced by the amount of additional income taxes found to be due for the years 1913 to 1915, inclusive. Appeal of Harriet Cotton Mills,5 B.T.A. 734, followed. 3. INVESTED CAPITAL. - Invested capital at the beginning of a fiscal year may not be reduced in determining the extent to which a dividend is paid from current earnings by a tentative tax theoretically set aside out of such earnings pro rata over the year. Appeal of L. S. Ayers & Co.,1 B.T.A. 1135, followed.

1. Invested capital may not be reduced in determining the extent to which a dividend is paid from current earnings of a year by a "tentative tax" theoretically set aside out of such earnings pro rata over such year. 2. In the absence of evidence that the action of the respondent in reducing invested capital on account of depreciation sustained was erroneous, his action is approved.

1. The March 1, 1913, value of certain real estate, acquired by the petitioner prior to that date, determined. 2. The petitioner in computing its net income for the year 1919 is not entitled to deduct, as a debt ascertained to be worthless and charged off within the taxable year, the amount of the promissory note involved herein.

1. Property owned by an individual and used in his trade or business is not affected, as to its status for invested capital purposes, by the formation of a partnership, where such property is not transferred to such partnership. 2. Under the Revenue Act of 1917, property paid in to an individual trade or business prior to January 1, 1914, goes into invested capital at its cash value on January 1, 1914. 3.

1. The petitioner, a manufacturer of cotton goods, asserts that its net income is overstated as the result of the Commissioner's computations with respect to inventories. Held: that the evidence is insufficient to establish such contentions. 2. The Commissioner by answer asserted an additional deficiency. One of the grounds therefor is that the tax was erroneously computed. The petitioner filed a return for the period January 1 to September 30, 1918.

1. The Commissioner computed the petitioner's net income from a drug business by taking 5 per cent of the gross sales. Held: that net income should be reduced by the amount of $5,000. 2. The Commissioner concluded that he was unable satisfactorily to determine the petitioner's invested capital and computed the tax under the provisions of section 210 of the Revenue Act of 1917.

1. A petition appealing from the determination of deficiency in tax for 1920 was not filed within sixty days after mailing of notice of deficiency, and the Board therefore has no jurisdiction to redetermine this deficiency. 2. The petitioner and the Circle Realty Co. and the Losey Real Estate Co. held to have been affiliated in 1919. The Seneca Dried Fruit Co. held not to have been affiliated with petitioner in 1919. 3.

1. A letter sent by the Commissioner in 1916 to an attorney advising him that a foreign corporation was in his opinion entitled to deduct from gross income in a tax return made under the Revenue Act of 1916, such portion of the income received from sources within the United States as represents the actual commission for buying silk in Japan, is not such an interpretation of the statute as has any binding effect upon a successor Commissioner in determining true tax liability…

Personal service classification denied to a railroad construction and maintenance corporation.

1. Held, upon the evidence, that the cash dividend of $344,050 distributed by the Sheridan Coal Co. on April 16, 1920, was paid out of earnings accumulated after February 28, 1913, and that the… Held: upon the evidence, that the cash dividend of $344,050 distributed by the Sheridan Coal Co. on April 16, 1920, was paid out of earnings accumulated after February 28, 1913, and that the entire amounts received by the petitioners who participated therein are taxable to them. 2.

In the taxable year the petitioner was the owner of certain stock of its subsidiary which had cost $21,929.40 and was sold to its stockholders and the stockholders of the subsidiary (affiliation… Held: that the sale did not give rise to a taxable gain.