Volume 5 — Tax Court Reports

In each of the taxable years petitioner sold certain properties which it had acquired in 1937 in exchange for its capital stock. Held: that the transaction in 1937 whereby petitioner acquired the properties was a nontaxable exchange under section 112 (b) (5) of the Internal Revenue Code, and that petitioner's basis for determining gain or loss on the sale of the properties is the same as it would have been in the hands of its transferors.

A nonresident alien individual who, as a beneficiary of a trust, was entitled to the entire income of the trust after the deduction therefrom of expenses, held not taxable on any income in excess of the amount received by her from the trust.

1. Petitioner, the owner of timber land, entered into a contract with K which, among other things, granted to K the right to cut certain timber within a definite period of time; K was to pay… Held: that the gain realized by petitioner from the sale of timber under the contract was properly reported by him as capital gain. 2. For a number of years petitioner had been undertaking to sell from a tract of land owned by him the timber suitable for sawmill purposes.

From February 15, 1933, to July 1, 1940, the petitioner, individually, operated an oil and gas distributing business as commission agent for Shell Oil Co., the latter furnishing the distributing… Held: that the petitioner has failed to show that the respondent erred in his determination.

An American citizen who had resided in Mexico for many years, had carried on his business there, and had otherwise qualified as a nonresident of the United States, is not deprived of the exclusion from income granted by section 116 (a) of the Revenue Act of 1938 by reason of having been absent from Mexico for more than 183 days during the taxable year. Estate of W. M. L. Fiske, 44 B. T. A. 227, followed notwithstanding reversal in 128 Fed. (2d) 487.

Where there was, in fact, no contribution of capital or services to a partnership by the wives of two partners, the partnership will not be recognized for income tax purposes as including the wives and the income from such partnership is taxable to the husbands.

In settlement of its liability for default under a long term lease and pursuant to its offer to release, quitclaim, or assign its leasehold interest in property belonging to petitioner as petitioner… Held: that petitioner first received surrender of the leased property in 1934, and any income realized by it through acquisition of improvements erected thereon by the original lessee was income realized in 1934 and not in 1939, as determined by respondent.

For several years prior to 1941 the petitioners operated a metal plating business in Jackson, Michigan, as equal partners. Held: as the respondent has determined, that each petitioner is taxable upon one-fourth of the partnership profits for 1941.

Petitioner made two nontaxable stock distributions to its stockholders prior to the taxable year. Held: its equity invested capital for excess profits tax purposes under section 718 (a), Internal Revenue Code, should not include the amount of such stock distributions.

Attorney fees which petitioner paid in 1940 to a firm of lawyers for representing her in a suit brought before the Supreme Court of Pennsylvania to establish her legal right to act as coexecutor of… Held: deductible under section 23 (a), Internal Revenue Code, either as an ordinary and necessary business expense or as a nonbusiness expense paid for the production or collection of income.

During 1939 and 1940 and until February 28, 1941, petitioners operated a tool and die manufacturing business under corporate form. Held: that the wives and minor son were not bona fide partners in the business and that all of the income from the business for 1941 is taxable to petitioners in proportion to their proprietary interests therein.

C corporation, organized to acquire the assets of corporations A and B, under a plan of reorganization, acquired such assets in December 1928 for 24,131 shares of the capital stock of C and $… Held: that the distribution to petitioners in 1940 was from earnings and profits of C and was therefore taxable to the petitioners as an ordinary dividend. Commissioner v. Sansome, 60 Fed. (2d) 931; certiorari denied, 287 U.S. 667.

Petitioner's wife joined in hypothecation of insurance policies under which she was beneficiary, in order that he might borrow money and purchase 125 shares, half of the corporate stock of a… Held: the Commissioner erred in taxing the petitioner upon the entire partnership income.

A corporation which reported income from long term construction contracts on the completed contract method of accounting was liquidated… Held: that the method of accounting used by the corporation in the last taxable period of its existence did not clearly reflect its income under section 41 of the Internal Revenue Code, and that the profits from the contracts are to be allocated between the corporation and the individual according to the method of computation used by…

The petitioner owned a railroad of approximately 110 miles, subject to a 999-year lease executed in 1890, which provided for delivery, at the end of the lease, of the property in the original good… Held: the petitioner incurred by the abandonment no loss deductible under section 23 (f) of the Internal Revenue Code.

Amounts received by petitioner, under contracts entered into between him and two men who had previously been associated with him and a corporation in which all were interested, which represented a… Held: under the contracts, to be ordinary income to petitioner and not to have been derived from the sale or exchange of capital assets.

1. Petitioner, the Great Island Holding Corporation, and several related corporations had the same officers and offices and had, to some extent,… Held: the amount paid and deducted by petitioner, less the sum of $ 14,500 represented by specific adjustments made herein, is deductible by petitioner. 2. Petitioner is not entitled to deduct franchise taxes and interest thereon in the taxable year where it did not accrue such taxes and where its liability therefor was disputed.

During the years 1938 to 1941, inclusive, Bersel Realty Co. redeemed shares of its noncumulative preferred stock out of earnings. The petitioner was its sole stockholder. Held: that the redemptions of the preferred stock were made at such time and in such manner as to be essentially equivalent to distributions of taxable dividends.

Loss on sale of inherited yacht, held on facts, sustained in a transaction entered into for profit and deductible as such.

Evidence relevant to ground for refund of processing taxes not specified in petitioner's refund claim, held, inadmissible and subject to respondent's motion to strike, in absence of showing that… Held: inadmissible and subject to respondent's motion to strike, in absence of showing that formal requirements relating to refund claims have been waived.

Petitioner, a nonresident alien, not engaged in a trade or business in the United States and not having an office or place of business… Held: First, the payment was in the nature of a royalty paid for a license to use the serial rights and represents taxable income within the meaning of section 211 (a) of the Internal Revenue Code; second, the total payment was received from sources within the United States, since the petitioner has failed to show by convincing proof that…

1. A corporation which had reported its income on a calendar year basis was dissolved by merger on June 30, 1941. Held: that the period from January 1 to June 30, 1941, constitutes a short taxable year and the excess profits net income must be placed on an annual basis under section 711 (a) (3) of the Internal Revenue Code. 2.

1. Decedent's father created a testamentary trust which provided that the trustee should pay (a) $ 5,000 per year to the decedent for life; (b) the income from two-thirds of… Held: The value of two-thirds of the trust estate is not includible in decedent's gross estate under section 811 (f), Internal Revenue Code, as property passing under a general power of appointment, Helvering v. Grinnell, 294 U.S. 153, followed; and, further, is not so includible as intestate property.

1. Decedent, who died in 1939, was a partner in a baking business. Held: that the Commissioner did not err in including in the decedent's estate his one-fourth partnership interest, and the entire value of other properties standing in the joint names of decedent and his wife, acquired with moneys distributed by the partnership to decedent. 2.

For many years the petitioners were engaged in business as equal partners until 1941, when their wives were made equal partners with them. Held: that the respondent did not err in taxing the entire income of the partnership for 1941 to petitioners equally.

Loss deduction claimed on sale of membership certificate in the New York Coffee and Sugar Exchange, Inc., disallowed where eight days previously the holder had purchased another certificate in contemplation of the sale of his old certificate for the purpose of establishing a tax loss deduction.

Petitioner, as principal, deposited with one Boltz, as attorney in fact, $ 20,000 in 1938 under a written agreement. Boltz was to invest and reinvest the fund for profit. Held: That petitioner sustained a loss in 1940; (2) the amount which is deductible in 1940 is a net sum after small recoveries in 1942 and 1943 from a receiver. Schwabacher Hardware Co., 45 B.T.A. 699, followed.

1. Right of petitioner to proceeds of three insurance policies, transferred to it by one of its officers who died in 1939, was questioned by the decedent's widow. Held: petitioner, on the accrual basis, properly refrained from accruing the taxable proceeds of these policies as income in 1939, and correctly included them in income for 1940. 2.

1. In 1934 the taxpayer inherited an interest in a parcel of real estate which for many years prior to his father's death had been used by him as a private residence. Held: the transaction, in so far as the taxpayer was concerned, was one entered into for profit within the meaning of section 23 (e) (2) of the Internal Revenue Code, and the taxpayer's loss is an allowable deduction, except to the extent that it is limited by section 117 of the code.

Petitioner and her husband were domiciled in Louisiana and filed separate returns on a community property basis. Held: petitioner administered her separate property separately and alone and the royalties thus received by her were the separate property of petitioner rather than the property of the community.

Petitioner, an Ohio corporation on an accrual basis, was owned by two brothers and their wives, who were on a cash basis of accounting. Held: that the provisions of subdivisions (1) and (2) of section 24 (c), Internal Revenue Code, do not apply and, accordingly, that the unpaid salaries credited to the officers' accounts were constructively received by them and were properly includible in the income tax returns of the officers for the years in question, and the…

Petitioner and his wife were domiciled in Louisiana and filed separate returns for the taxable year 1941 on the community property basis. Held: under the law of Louisiana, the above mentioned income from the oil leases represented rent and as such was the community income of petitioner and his wife.

1. Petitioner sold stock, a capital asset, in the taxable year, after holding it one month. He received the stock in an exchange for which no gain or loss was recognized. Held: that the determination of the period for which the stock was held is controlled by subsection (h) (1) of section 117, and, consequently, the period for which the stock was held includes the period for which the taxpayer held the property given in the exchange. 2.

The acquisition by a corporation of all of one class of stock which was to be redeemed according to the terms of the stock is within section 115 (i) and (c), Internal Revenue Code, treating the gain to the shareholder as a short term capital gain, regardless of an original contract assumed by the corporation to purchase the stock, where, after assignment of the contract to the corporation, the stockholders adopted a plan of recapitalization under which three classes of stock…

1. Petitioner, on the accrual method of accounting in years prior to 1939, improperly set up certain so-called special reserves and made additions thereto which were claimed and allowed as deductions… Held: although the so-called reserves set up and the additions thereto claimed and allowed as deductions reduced petitioner's taxable income in those years when allowed, the amounts thereof are not properly includible in petitioner's income in the subsequent year, 1939. 2.

Petitioner withdrew his interest in a joint account operated by himself, his mother, and his two sisters as a joint venture, receiving cash equivalent to his undivided interest in the assets in the… Held: that the transaction was tantamount to a sale by petitioner to the other participants of his interest in assets in the joint account and that the loss thereon is nondeductible under the provisions of section 24 (b) (1) (A), Internal Revenue Code.

Petitioner was the owner of 12,121 of the 23,417 outstanding shares of common stock of the A. Nash Co. During the period 1920 to 1924, that company had capitalized earnings and profits accumulated since March 1, 1913, in the sum of $ 1,687,500 by issuance of 16,875 shares of $ 100 par value, in nontaxable stock dividends.

1. Petitioner, a corporation organized under the laws of the State of Texas, held to have come into existence as a separate taxable entity on the date of the filing of its charter (Apr. 25, 1941),… Held: sustained where the issue pertaining thereto was not raised by the pleadings and was advanced by petitioner on brief for the first time. 3. Petitioner's promoters purchased in March 1941 the improvements on three small tracts of land at a cost of $ 9,250.

Debentures distributed to petitioner by a corporation of which he was the principal common stockholder in connection with elimination of old common stock and issuance of new without par value, held,… Held: on facts failing to show corporate business purpose for the transaction, to constitute a taxable dividend to the extent of their value and of the corporation's accumulated earnings, notwithstanding that surplus account remained unchanged on corporate books.

Jurisdiction -- Renegotiation -- Notice of Excessive Profits Determination. -- Notice by War Contracts Price Adjustment Board delegatee of a determination of excessive profits under Renegotiation Act does not start the running of the 90-day period within which an aggrieved contractor may petition the Tax Court for review, since such a determination is not the final order of the Board determining excessive profits, but becomes final only if the War Contracts Price Adjustment…

Petitioner, from 1936 to 1939, operated a chain of filling stations under a trade name. Held: under the facts, showing has not been made that the several individuals were, in 1940 and 1941, engaged in carrying on business in partnership, and the Commissioner did not err in including the earnings of the business in petitioner's gross income.

1. Since the unearned premium reserve of a fire and marine insurer subject to tax as an insurance company under section 204, Internal Revenue Code, is not a part of its accumulated earnings and profits for income tax purposes, it is not includible in equity invested capital as accumulated earnings and profits under section 718 (a) (4), Internal Revenue Code, as amended by the Second Revenue Act of 1940. 2.

In 1926 the A. J. Tower Co., a Massachusetts corporation, was reorganized and 6,000 shares of common stock and 10,000 shares of… Held: the primary purpose of the purchase by the corporation of these 750 shares in July 1941 was for later cancellation and retirement, and the amount which it paid petitioner for such stock was a distribution in partial liquidation within the meaning of section 115(i), Internal Revenue Code, and 100 percent of the gain in the transaction…

A portion of the current income of a trust for 1940 which the trustee withheld from the life beneficiary and paid over to the executor of the grantor's estate for payment of interest due on an estate… Held: not taxable to the life beneficiary of the trust as income distributable to her.

Petitioners were the members of a partnership engaged in the business of manufacturing men's suits from piece material. Held: the loss thus sustained by the partnership was a short-term capital loss as that term is defined in section 117 (a) of the Internal Revenue Code and was not a business expense deductible from gross income under section 23 (a) (1) (A); held, further, the partners are not entitled under sections (s). 122, and 189 to deduct from their…

The petitioner received reimbursements of processing taxes on flour manufactured into bakery products during the period May 4, 1935, to January 6, 1936. Held: that the evidence supports the Commissioner's determination.

Held, the evidence does not support petitioners' contention that there was constructive receipt of income during the year 1940. Held: the evidence does not support petitioners' contention that there was constructive receipt of income during the year 1940.

Where in determining the excess profits net income for one of the base period taxable years under code section 711 (b) (1), as amended,… Held: that the deduction taken by petitioner in the said base period taxable year for the amount so paid to the employee was attributable to a claim against petitioner and was abnormal for the taxpayer as those terms are used in code section 711 (b) (1) (H), as amended; that the said abnormality was not a consequence of one or more of the…

Petitioners transferred stock in family corporation to members of both their families shortly before the declaration of substantial dividends in each of the years 1937, 1938, and 1939. Held: there were no bona fide gifts of stock by petitioners in 1937, 1938, or 1939, and respondent did not err in taxing the dividends on the stock in question to the petitioners.

1. Petitioner, for several years prior to 1940, owned all of the stock of two subsidiary companies, A and B. During some of the earlier years losses sustained by A were… Held: petitioner's stock investment in A became worthless in 1940 and was properly deducted from its gross income as a capital loss; held, further, that the computation of the loss was correctly made by petitioner, inasmuch as it excluded the operating losses previously deducted on consolidated returns.

Petitioners had each bought stock in Kreuger & Toll for the production of income and had received dividend income thereon before and during 1931. Held: such fees were deductible under section 23 (a) (2), I. R. C.Trust u/w of Mary Lily ( Flagler) Bingham v. Commissioner, 325 U.S. 365.

Petitioner invested $ 25,000 in a right to redeem certain land in Michigan from tax sale, but let that right of redemption expire without exercising it. Held: the petitioner properly added to that amount the $ 25,000, in computing its cost basis in the land.

As a distributee of his father's estate the petitioner became entitled to receive two-thirds of the balance due the estate from a stock brokerage partnership of which his father was a member and… Held: that the amount is not a legal deduction from gross income.

1. Decedent and others created an irrevocable trust in 1923, under the terms of which four-fifteenths of the trust income was to be paid to decedent during her lifetime and upon the… Held: decedent's death was not the intended event which enlarged the estate of any of the grantees and no amount is includible in decedent's gross estate as a transfer intended to take effect in possession or enjoyment at or after death under section 811 (c) of the Internal Revenue Code. 2.

Held, on the facts, that the capital losses sustained by the trust are chargeable against corpus and are not deductible from income. Held: on the facts, that the capital losses sustained by the trust are chargeable against corpus and are not deductible from income.

1. The sum of $ 17,000 received by petitioner in a compromise settlement of a suit for specific performance of a contract to deliver $ 40,000 of stock in a corporation, the alleged right to which… Held: taxable as ordinary income and not as capital gain. 2.

Petitioner in 1902 started a business which he operated as a sole proprietor until January 1, 1939. He had two sons, born in 1905 and 1909, respectively. Held: the partnership thus established was a valid, bona fide partnership, which should be recognized for income tax purposes.

1. Petitioner contended that in computing its equity invested capital for excess profits tax purposes it had acquired certain assets in a tax-free reorganization and that the base of… Held: that the assets in question were not so acquired. 2. Petitioner contended that certain salaries which it paid and deducted in its tax returns, which were in part disallowed as deductions by respondent, were reasonable. Held, that such salaries were reasonable and were deductible in full.

Sums paid to members of a teachers' retirement fund upon dissolution of the fund determined as in part annuities and in part gifts.

Claims for Refund -- Processing Tax -- Adequacy. -- A proceeding for refund of processing taxes is dismissed where it is based upon the disallowance of a claim for refund that is insufficient to enable the court to grant any refund, since petitioner, if allowed to go to trial, would be limited to proof of the facts stated in its claim, and those facts, if proven, would not support a decision for the petitioner.

Petitioner, an Ohio building and loan corporation engaged principally in the business of making chattel loans, conducted its affairs on a cash basis for a fiscal year ending September 30. Held: Petitioner's first taxable year began February 1, 1940, and ended September 30, 1940. Its stipulated net income for such period is taxable under the Second Revenue Act of 1940 as received in a taxable year beginning after December 31, 1939. Royal Highlanders, 1 T. C. 184.

Settlor, in conveying property to trustee, provided that the trustee should divide the trust estate into three equal shares, one for each of settlor's children, and that the share set aside for each… Held: the trust indenture created three separate trusts rather than a single trust having three equal beneficiaries.

Two railroad companies which owned all of petitioner's capital stock in equal shares made an agreement with petitioner in 1908 for the use of its tracks and other… Held: that the petitioner was not controlled by the same interests during the taxable years and that the Commissioner is not authorized by section 45 to make an allocation of gross income of the two railroad companies; held, further, that the amended agreement did not become effective until September 27, 1939.

All stock of A corporation was held by B corporation. Both were under the same management. Held: that A is taxable upon the profit upon the sale.

Distributions to petitioner as beneficiary of a testamentary trust, out of the income thereof, held taxable to her under section 22 (a) and section 162 (b) of the Revenue Act of 1938 and the Internal Revenue Code, and no part of the distributions constitutes an annuity. Helvering v. Butterworth, 290 U.S. 365.

Petitioner sold various corporate stocks to a stockholder owning more than 50 percent of its stock. Held: on the facts, that the sale was not indivisible and that the Commissioner did not err in applying section 24 (b) (1) (B) of the Internal Revenue Code and disallowing losses on some of the stocks while taxing gain upon others.

During years prior to 1939 in which a gift tax act was in effect petitioner's decedent transferred property to a trust, the corpus of which was to be divided into… Held: the several transfers were completed gifts, for tax purposes, when made. They were then so taxable and not upon the decedent's later relinquishment of his contingent right to name after-born grandchildren as additional beneficiaries. Smith v. Shaughnessy, 318 U.S. 176; Robinette v. Helvering, 318 U.S. 184.

Petitioner is the life beneficiary of a testamentary trust. The trust corpus included an undivided interest in certain real estate owned by testator at his death. Held: this $ 6,500 is includible in petitioner's gross income for the year 1940.

Deduction -- Loss -- Worthlessness of Stock. -- Shares of bank stock held by an officer of the bank were capital assets, and the deductible loss resulting from their worthlessness is limited under section 23 (g), I. R. C.

Petitioner's wife created two trusts, consisting of securities, each of which named petitioner as sole trustee. Held: petitioner's power to alter or amend the trust and his control, dominion, and power of disposition over the trust income and trust estate are not sufficient to impute to him the substantive ownership thereof, and the income from the trust is not taxable to him under section 22 (a) of the Internal Revenue Code.

1. The Commissioner has determined deficiencies in income tax and a 50 percent fraud penalty against petitioners for the taxable years… Held: that the 1930 return was not false or fraudulent with intent to evade tax, and the statute of limitations now bars the assessment and collection of any deficiency and penalty for that year; held, further, that the 1931 return was false and fraudulent with intent to evade tax and the statute of limitations has not run as to that year.

Sales of listed securities through the New York Stock Exchange by several members of a family, followed by purchases through the Exchange of like securities at the same prices by other members of the… Held: not sales between members of the family within the meaning of section 24 (b) (1) (A) of the Internal Revenue Code. Pauline Ickelheimer, 45 B. T. A. 478, followed.

1. The proper amounts of compensation for petitioner's general manager and a salesman for the year 1941, determined. 2. The facts of record do not justify the imposition of the surtax under the provisions of section 102, Internal Revenue Code.

The amount received by petitioner, a general agent for a group of fire insurance companies, in consideration for the cancellation of a contract under which petitioner was to obtain outright a general… Held: ordinary income and not capital gain.

Estate Tax -- Deduction -- Administration Expenses -- Section 812 (b) (2). -- Expenses paid by surviving spouse in connection with entireties property in gross estate, not being allowed by state law as an expense of administering the estate, are not deductible under section 812 (b) (2), I. R. C.

Gift Tax -- Value. -- The value of six gifts determined from the evidence.

1. About one month before decedent died she transferred certain securities standing in her name in an agency account at a bank to the joint names of her husband and herself either or the survivor. Held: Except for transfers made in contemplation of death, Congress never intended either section 811 (c) or section 811 (d) (1) to apply to jointly held property which is covered by section 811 (e).

Liquidation of old company and acquisition of its assets by new corporation in exchange for delivery of new corporation stock and… Held: integrated transaction resulting in reorganization under sections 112 (g) (1) (D) and 113 (a) (7), Internal Revenue Code, notwithstanding pursuit of stockholders' personal, rather than corporate, purposes; and, no gain or loss being recognized under sections 112 (b), (d), and (e), held, further, basis for depreciation to corporate…

Issue 1. Each decedent created a trust at about the same time, naming the other as life beneficiary. Held: that the trusts were reciprocal and were created in consideration of each other, and the corpus of the trust created by each decedent is includible in the other's gross estate under section 811 (c), I. R. C. Issue 2. A decedent created an irrevocable trust for the benefit of her grandson, who was to receive the income and principal.

On a tax free split-off reorganization a building corporation issued its stock and bonds in exchange for approximately 35 percent of the assets of the old company, which as… Held: the building corporation inherited approximately 35 percent of the old company's earned surplus, which amount was thereafter available for dividend distribution; held, further, the bond issue in question did not serve to distribute the inherited earnings. Commissioner v. Sansome, 60 Fed. (2d) 931.

Petitioner's business was operating slot machines in club rooms of various lodges of the Loyal Order of Moose in the State of Ohio. Held: that petitioner is not taxable on the income which belonged to and was received by the Ohio State Moose Association.

Excess Profits Net Income -- Exclusion for Recoveries of Bad Debts -- Reserve Method. -- Petitioner using reserve for bad debts, accompanied by uniform practice of accounting for subsequent recoveries by adjustments to reserve rather than additions to income, was entitled to exclude bad debt recoveries from normal tax net income in computing excess profits net income under section 711 (a) (1) (E).

Decedent created a trust in 1911, reserving the income to himself for life. Held: the corpus is includible in his estate as a transfer intended to take effect in possession or enjoyment at death. Sec. 811 (c), I. R. C.

1. For a number of years prior to 1940 petitioners, who were brothers, were equal partners in a wholesale men's furnishings business. Held: that the respondent did not err in allocating petitioner's cost to the assets acquired upon dissolution and in his determination that on the reduced basis petitioner realized additional income from the disposition of certain of the assets during the last 2-month period of the year. 2.

Income Tax -- Deductions -- Contributions. -- Unincorporated organizations of volunteer firemen held organized for charitable purposes within the meaning and purpose of section 23 (o) (2), I. R. C., and contributions thereto are deductible.

Payment to petitioner in return for termination of her life interest in income of trust and in full settlement therefor, held, taxable as ordinary income in year of receipt. Held: taxable as ordinary income in year of receipt.

Gift Tax -- Florida Homestead Property -- Quantum of Gift. -- A husband who has children living can not make a gift to his wife of the fee in property held by him as homestead property in Florida.

The petitioners as trustees of a testamentary trust paid the entire net income of the trust for 1941 to charitable and educational institutions. Held: that petitioners had no net income liable to income tax for 1941.

Where petitioners' wives contributed neither capital nor services to two partnerships and the petitioners retained economic ownership and control of the partnership properties and income, it is held that the wives were not members of the partnership during 1941, for Federal income tax purposes; and the income thereof is properly taxable one-half to each of the petitioners.

Petitioner's wife having contributed no new capital nor furnished any services to established business, held, not a partner therein for tax purposes, the portion of partnership income allocated to… Held: not a partner therein for tax purposes, the portion of partnership income allocated to her being properly attributed to petitioner.

The decedent and X each owned an undivided interest in an oil lease. Held: the executors of decedent-donor, who was on the cash basis, received taxable income in 1940 when the litigation was terminated and the income released.

During the taxable years the petitioner was the trustee of an irrevocable trust which he created in 1937 for the benefit of his son and any of his children who might be born thereafter. Held: that the petitioner is not taxable upon the income of the trust for the taxable years.

1. Petitioner in 1935 liquidated wholly owned subsidiaries whose operating losses in prior years had been availed of by petitioner in consolidated income… Held: in the computation of equity invested capital for excess profits tax purposes, petitioner's accumulated earnings and profits must be reduced by the entire amount of its losses sustained in the liquidations, computed without adjustment to basis by reason of the operating losses availed of in consolidated returns. 2.

Treatment in income tax return of foreign taxes as a deduction from gross income, without subsequent amendment, held to constitute a binding election to deduct taxes imposed by a foreign country from gross income under section 23 (c) (2), to the exclusion of a credit therefor against the Federal income tax under section 131 (a) (1).

1. Held, on the facts, that petitioner is not entitled to include in its basis for depreciation on certain barges, or in computing… Held: on the facts, that petitioner is not entitled to include in its basis for depreciation on certain barges, or in computing operating loss carry-over, or in computing invested capital, amounts of alleged excessive depreciation charged off on its books in earlier years and later restored to capital; held, further, that such marked off…

Held, on the facts, that petitioner is taxable under section 22 (a) of the Internal Revenue Code and of the Revenue Acts of 1936 and… Held: on the facts, that petitioner is taxable under section 22 (a) of the Internal Revenue Code and of the Revenue Acts of 1936 and 1938, upon the income of trusts set up for the benefit of his two sons, he having retained, with other broad powers, absolute discretion to control distribution of income or principal, or accumulation thereof…

The amount of debenture bonds and notes which were purchased by one of petitioner's stockholders at a large discount and paid in to petitioner, in a recapitalization, in exchange for new shares of… Held: not includible in equity invested capital in the absence of any showing as to what portion of the amount of the old obligations was paid in for stock and what portion for bonds, or any facts upon which such an allocation might be made.

On September 15, 1937, petitioner purchased for $ 16,500 cash certain real property in Tulsa, Oklahoma, and received a deed therefor on… Held: that the failure of the vendor to discharge the lien of such delinquent taxes constituted a breach of its warranty and that upon petitioner's payment of such taxes in 1941 vendor became indebted to him in the amount so paid; held, further, that since such indebtedness was uncollectible from the vendor petitioner was entitled to a bad…

1. Petitioner is one of the largest buyers and sellers of raw wools in the United States and has had a very prosperous business for many years. Held: petitioner is entitled to deduct as reasonable compensation all of the basic salaries plus the bonuses. 2. During August 1941 petitioner also adopted a retirement plan whereby annuity contracts would be taken out with insurance companies for all officers or employees who had been with petitioner for at least 19 years.

Assets of insolvent predecessor corporation received by petitioner in exchange for its voting stock and by issuance of its new bonds in substitution for those of predecessor, held to have been acquired in connection with a reorganization under section 112 (g) of the applicable revenue acts, entitling petitioner to predecessor's basis under section 113 (a) (7), notwithstanding that a small minority of nonassenting creditors were paid in cash out of retained funds available as…

1. Inventories -- Opening After Discontinuance of Consolidated Returns. -- A proper downward adjustment of the opening inventory on the first separate return after a period for which consolidated returns were filed, under the circumstances of this case, is the equivalent of the amount of intercompany profit represented in that inventory which has escaped tax up to the date of the opening inventory in question. 2.

Petitioners in 1937 organized, by oral agreement, a partnership to engage in the business of selling household goods and furniture at… Held: that each grantor-petitioner retained such dominion and control over the corpus and income of the trusts which they created by the trusts and partnership agreements as to render them respectively taxable on the income thereunder under section 22 (a), I. R. C., as construed in Helvering v. Clifford, 309 U.S. 331; held, further, that…

Petitioner, an industrial or consulting engineer, incorporated his business in 1922 after a number of years of individual operation. Held: respondent did not err in treating said withdrawals as income to petitioner and requiring petitioner to substantiate their expenditure for purposes of deductions; held, further, it appearing that at least some part of the withdrawals was used for ordinary and necessary business and traveling expenses, petitioner is entitled to a…

Loss sustained by petitioner-stockholder as a result of reduction in corporation's stated capital, exchange of old stock for new representing reduced capitalization, and redemption of part of new… Held: not recognizable under Internal Revenue Code, section 112 (e).

1. In 1903 the decedent created a trust for the benefit of himself and remaindermen. Held: that the trust corpus was a part of decedent's gross estate. 2. Between 1918 and 1932 the decedent created five trusts for the benefit of different persons, with remainders over. These trusts were not created in contemplation of death. By the trust instruments the grantor retained no power to revoke, amend or alter the trusts.

Personal Holding Company -- Dividends Paid Credit. -- A corporation which had no earnings accumulated after February 28, 1913, and no current earnings is not entitled to reduce its subchapter A net income by the amount of a liquidating distribution, one of a series in complete liquidation, since that distribution was not a dividend within the definition of that term contained in section 115 (a).

Held, a partnership is not a taxable entity for purposes of the unjust enrichment tax, Title III, Revenue Act of 1936. Held: a partnership is not a taxable entity for purposes of the unjust enrichment tax, Title III, Revenue Act of 1936.

In the absence of exceptional circumstances, as here, the prices at which shares of stock are traded on a free public market at the critical date is the best evidence of the fair market value for estate tax purposes of identical shares of stock. Considering such evidence as well as all other evidence in this record, the fair market value of certain stock for estate tax purposes is determined.

1. Taxpayer was owner of 300 shares of stock in X corporation. Held: petitioner's intent was to make gifts of a proportion of the distributions in liquidation and not bona fide gifts of stock to his sons, and the gain upon liquidation of the shares purportedly transferred is taxable to him. 2.

Petitioner was organized in 1938 in a merger of three corporations, one of which was Abraham Levitt & Sons, Inc. It acquired the assets of the predecessor… Held: that the $ 65,000 did not constitute an ordinary and necessary expense of petitioner in the conduct of its business. The holding is made pursuant to further proceedings under a mandate of the United States Circuit Court of Appeals for the Second Circuit. See Levitt & Sons, Inc. v. Nunan, 142 Fed. (2d) 795.

1. Taxpayer in 1940 transferred to X corporation all his stock in that corporation, plus a sum in cash, receiving in exchange therefor all the stock in Y and Z corporations, which had been owned by… Held: the transaction was a sale or exchange of his stock by the taxpayer and his gain thereon is to be computed under section 117, Internal Revenue Code. 2. Taxpayer's basis for computing gain on the above transaction determined. 3.

Petitioner seeks to invoke application of section 734 of the Internal Revenue Code to adjust excess profits credit in determining excess profits tax liability for the taxable year 1942 because of… Held: the facts of record are insufficient to establish inconsistency of treatment necessary to the application of section 734.

Husband and wife each created a trust naming their children beneficiaries. Held: the respective petitioners are taxable on the income from the trust nominally created by the other under section 22 (a) of the Internal Revenue Code.

On April 1, 1941, petitioner and his brother agreed to dissolve their partnership of public accounting and real estate tax practice, with petitioner taking the accounting practice and his brother the… Held: petitioner rather than his wife is taxable on one-half of the net profits arising from the liquidation of the tax cases that were liquidated between April 30, 1941, and the balance of the taxable year.

The petitioner purchased certain land and the buildings thereon. Several years later the buildings were demolished, with intent to replace them with other buildings; and such replacement was made.

Estate Tax -- Irrevocable Transfer to Take Effect After Death Made Before First Estate Tax Act. -- Value of trust property included in gross estate following Estate of Harold I. Pratt, 5 T. C. 881.

1. In 1939 petitioner established a trust and named his mother as principal beneficiary. Held: the trustees had no interest adverse to petitioner, they paid the $ 20,000 out of income of the trust under authority and discretion granted to them by petitioner in the trust indenture, and the amount so used was used to discharge what was in effect petitioner's own obligation and is taxable to petitioner under section 167, Internal…

Petitioner, an individual American citizen, on a calendar year cash basis, paid Canadian income taxes in 1941 which were imposed on his Canadian income for 1939 and 1940, during each of which years… Held: petitioner is limited in his deduction of such Canadian income taxes for United States income tax purposes in 1941 by section 24 (a) (5) of the Internal Revenue Code, as validly construed for present purposes in Regulations 103, section 19.24-4.

1. Decedent's husband died in 1923, leaving the residue of his estate in trust. Held: that decedent had a vested interest in one-third of the income of the trust; that there had been no waiver or disclaimer; and that one-third of the undistributed income of the trust is includible in her gross estate under section 811 (a) of the Internal Revenue Code. 2.

Petitioner created separate trusts for four of his minor children, in which he reserved the right to have the income applied to their support, maintenance, and education and also the right to have… Held: that petitioner as grantor is taxable on all the income of the trusts.

1. Petitioner during the taxable years 1939, 1940, and 1941 was a beneficiary of five trusts created in 1937 by her husband. Held: all of the income of the five trusts for the taxable years in question is taxable to petitioner. 2. Petitioner for 1939 omitted from her gross income an amount in excess of 25 percent of the amount stated in her return. The deficiency notice was mailed within five years after the return was filed.

Gift Tax. -- Settlement at Divorce. -- A lump sum paid by a husband, pursuant to a court order, to his wife in connection with a divorce decree, was not a gift. Herbert Jones, 1 T. C. 1207, followed.

The profits for 1940 of a business of buying and selling and renting road building and construction equipment which petitioner organized in 1932 and continued to manage and control up to and during… Held: taxable to him individually and not one-half to him and one-half to his wife, with whom he claims to have formed a business partnership in January 1940.

The Commissioner, in his determination of the deficiencies in these proceedings, allowed the wholly owned subsidiary of petitioner a deduction of $ 4,753 as ordinary and necessary business expenses… Held: the action of the Commissioner is sustained.

Petitioners, residents of California, claimed deductions on their returns computed on community property basis, for legal fees and expenses paid during the taxable years for services rendered in… Held: under section 23 (a) (2) of the Internal Revenue Code, that petitioner Herbert Marshall is entitled to deduction for the legal expenses claimed by him.

Respondent may not invoke the provisions of section 711 (b) (1) (J), I. R. C., and disallow a bad debt deduction as an abnormality in computing excess profits net income for the basic period year 1936 where taxpayer has computed its excess profits credit under section 713 (f) and such action will result in a decrease in the taxpayer's excess profits credit.

In 1930 the decedent, a widow, created a trust of substantially all of her property, with her son as trustee. Held: that the trust corpus is includible in the decedent's gross estate.

Petitioner's deceased wife was the beneficiary of a trust established by her father and had a general power of appointment, to be exercised by will, over the trust corpus. Held: that the petitioner is liable for income tax upon only such portion of the income as accrued upon the portion of the principal of the trust fund contributed by him.

1. Pursuant to a plan of reorganization, a state bank in 1933 subscribed to and received all of the capital stock of a newly organized national bank, except… Held: the receipt of the new bank shares by the shareholders of the old bank was an exchange pursuant to a plan of reorganization and no gain is recognizable on their receipt. Sec. 112 (b), (g), and (h), I. R. C., as operative during the taxable year. 2. Petitioner's claimed deductions for certain expenses allowed.

X was indebted to Y in the sum of approximately $ 750,000. Held: dividends on this stock received by the two trusts in 1939 and 1940 constituted taxable income to X.

Gift Tax -- Section 501 (c), Revenue Act of 1932 -- Power To Revest in Grantor. -- Petitioner transferred property in trust with son as trustee and life beneficiary, but son, as a part of the same… Held: petitioner retained the power to revest title to the trust property in herself and the transfer was not a taxable gift. Sec. 501 (c), Revenue Act of 1932.

Petitioner's deceased husband left his residuary estate in trust, one-half of the income thereof to be paid to petitioner, with the proviso that it is my hope that out of such income she may be able… Held: that petitioner is taxable on the trust income that was so distributed to her in 1940.

Grantors of trusts of which the corpus and accumulated income was invested in stock of wholly owned family corporations, of which their children and grandchildren were beneficiaries, and of which… Held: taxable on income of trusts under section 22 (a) of the Internal Revenue Code.

Held, that in the taxable years a bona fide partnership existed between decedent, his wife, and his adult son for the carrying on of a… Held: that in the taxable years a bona fide partnership existed between decedent, his wife, and his adult son for the carrying on of a wholesale paper business, the decedent and the son having contributed both capital and services and the wife having contributed her entire time to the business, and that the shares of partnership income…

Common stock subscription warrants were acquired by petitioner along with shares of common stock, as a unit. Held: the warrants had value when received by petitioner; held, further, under the circumstances there is no practical basis upon which an allocation of cost as between the warrants and the stock can be made.

Petitioner and his father had conducted an undertaking establishment in partnership for a number of years. Held: that the bequest to the widow of a portion of the income from the testator's share in the business gave her an interest in the property itself and that the payments to her, which were only a reasonable return on the capital investment, constituted income to her growing out of her interest in the property.

Income Tax -- Deductions -- Percentage Depletion -- The Property. -- The petitioner had two mines, in each of which coal was being mined from a definite area assigned to it for practical and economic… Held: that the petitioner had two properties, and only two, for the purpose of computing percentage depletion under section 114 (b) (4).

Petitioner, a Georgia corporation, filed its tax returns on a fiscal year basis for the years 1921 to 1938. Held: the allowable depreciation for the 10 years in which no depreciation was claimed by petitioner or allowed by the respondent should be computed upon a 33-year useful life period, since it appears from the facts and circumstances that such period was at all times the proper one.

1. The president of corporation H, assisted by its secretary, carried on preliminary negotiations for a transfer of its assets to corporation O in exchange for cash and stock of O. Shortly before the reorganization was carried out he transmitted letters to the stockholders of H requesting that their certificates of stock be endorsed in blank and turned over to him so that he might be placed in a position to act with authority and finality in connection with the proposed…

1. Where a state court made an adjudication of ownership of property on the basis of an admission of such ownership by all parties to… Held: that the distribution of the property, which constituted all of its assets, among the stockholders, under the direction of a court of equity, was a distribution in liquidation of the corporation; (b) that cash funds and other assets distributed in the liquidation can not be considered as capital or income received by the stockholders…

1. Where, in an oil payment contract, the oil payment covered a greater interest in the lease than that sold and where a lien was reserved covering such larger interest, held, following Anderson v.… Held: following Anderson v. Helvering, 310 U.S. 404, the seller retained additional security beside the oil payment and income arising from the production and sale of oil is taxable to the petitioners, the purchasers at the sale. 2.

As the beneficiary of a testamentary trust to whom the entire net income was distributable, the petitioner reported in her income tax returns for 1940 and 1941 the net amounts of income distributed… Held: that the petitioner is not taxable upon greater amounts of income of the trust than were actually distributed to her during the taxable years.

Change in character of business which could not have been made but for the occurrence of the European War, held not to entitle petitioner to relief under section 722.

1. Amounts agreed by the petitioner corporation to be paid to its president out of royalties received under a patent license granted by it… Held: under section 721, Internal Revenue Code, that the royalty income received in 1940 was income resulting from the development of patents and was abnormal income, and that, in accordance with section 30.721-8, Regulations 109, the net abnormal income should be attributed to the years during which expenditures were made on account of…

Commissioner's denial of application for excess profits tax relief under section 722 sustained where the evidence fails to show that the excess profits tax complained of is excessive and discriminatory and that the average base period net income is an inadequate standard of normal earnings.

Petitioner Leland J. Allen, an attorney, conducted litigation under a contingent fee agreement made in 1933 whereby, if successful in… Held: petitioner was entitled to receive his interest in the lease and accumulations upon completion of his contract and not before; (2) Commissioner's determination that petitioner's interest in the lease had a value of $ 3,483.90 in 1940 sustained; (3) petitioner received at least 95 percent of his fee in 1940 and is entitled to apply…

1. Howard T. Hallowell created two irrevocable trusts under which the entire income was payable to his wife Blanche during her life, upon… Held: that the income of each trust accumulated during the respective fiscal years of the trusts is taxable to the petitioner Blanche Hallowell, not as income to be distributed currently under code section 162 (b), but by reason of the power given to the beneficiary to receive such income each year upon request, which must be regarded as…

Included in the gross estate of petitioner's decedent were 19 items of property having an aggregate value of $ 2,477,631.67, all of… Held: the deduction for prior taxed property provided for in section 812(c), Internal Revenue Code, in so far as here material, extends only to the residue of the prior estate after payment of debts, taxes, expenses, and all other charges identified in the latter estate, and, to the extent the property received by decedent exceeds that to…

1. Income -- Family Trusts. -- The income of trusts created by the petitioner for members of his family, held, taxable to him under section 22 (a), I. R. C. 2. Held: taxable to him under section 22 (a), I. R. C. 2. Dividends -- Transfer of Assets for Less Than Fair Market Value. -- G Corporation transferred securities at less than fair market value to trusts created by the controlling stockholders of Y Corporation. Y Corporation owned all of the stock of G Corporation.

Certain bonus payments comprising a percentage of the net profits of the business were not ascertained until some five months after the end of the taxable year and the amounts thereof were not at any… Held: there is no constructive receipt by the payees and section 24 (c) of the Internal Revenue Code applies to preclude deduction thereof by petitioner in the taxable year.

Petitioner corporation, capitalized at $ 1,000,000, was organized in 1898, and in that year acquired, in exchange for its capital stock,… Held: petitioner is entitled to include in its equity invested capital the assets so acquired in an amount equal to its unadjusted basis for determining loss upon a sale or exchange, which basis is cost; (2) that, under the facts, the fair market value of the tangible property so acquired in 1898 was $ 134,926.34, and of the intangible…

The decedent set up a trust providing for income to herself for life, thereafter income to her two sons and her husband for life, then corpus to their issue. Held: the entire value of the trust corpus was properly included in decedent's gross estate, under section 811 (c), I. R. C.Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108.

1. Where a corporation's gross income appears to have been entirely derived from trading as a principal and it appears that the use of capital in the… Held: such corporation is not entitled to the classification of a personal service corporation under section 725 (a) of the Internal Revenue Code. 2. In the circumstances here present a penalty of 25 percent under section 291 (a) of the Internal Revenue Code for failure to file an excess profits tax return may not be imposed.

In 1941 petitioner was managing editor of the American Bar Association Journal, and some controversy arose between him and the editorial board of the Association as to policy. Held: the check for $ 2,666.67 received by petitioner December 30, 1941, was taxable income to him in that year, although he did not actually deposit the check in his bank account until January 2, 1942.

Decedent created a testamentary trust, providing that the net income thereof should be paid to his niece for life, upon her death to other named beneficiaries, and upon the death of their survivor… Held: the value of the gift to charity was not capable of calculation with reasonable accuracy at the date of decedent's death.

In 1939 petitioner leased one of its stores for a term of 10 years, paying a commission of $ 3,070.83 to a real estate broker for making the lease. Held: Since the distribution of all of its assets in kind to its stockholders was a nontaxable transaction, petitioner was entitled to deduct, as respondent determined, only such part of the unamortized balance of the broker's commission as was applicable to the taxable year.

Petitioner was engaged in selling coal for its own account and as broker on commission. Held: such shares of stock, acquired for the aforesaid purposes, constituted capital assets under section 117 of the Internal Revenue Code and hence inadmissible assets under section 720 (a) (1) (A).

Decedent created a testamentary trust devising to the trustee certain property and, under a general power of appointment in a prior trust, the income from such prior trust during the further term… Held: The value of the property passing under the power of appointment exercised by decedent in his will is the sum of the separate values of the life estate and the remainder.

1. Certain sums paid into trust funds during the taxable years involved by two corporations of which petitioner was a stockholder and principal officer, held, not to have been made pursuant to a… Held: not to have been made pursuant to a pension plan within the meaning of section 165 of the Internal Revenue Code and, on the facts, petitioner is taxable thereon under section 22 (a) of the code. 2.

Petitioners were officers and directors of a corporation. During the taxable year 1941 the corporation purchased certain nonassignable single premium, nonforfeitable annuity contracts providing for a certain amount of income for life for each of the petitioners and delivered such contracts to petitioners during the taxable year as further compensation for valuable services rendered. Held, the fair market value of the contracts which the respondent had determined was the cost of the contracts to the corporation represented taxable income to petitioners, following Renton K. Brodie, 1 T. C. 275.

Held, a payment of $ 900 received by petitioner from the Pot O' Gold program on the radio was an outright gift and not income. Held: a payment of $ 900 received by petitioner from the Pot O' Gold program on the radio was an outright gift and not income.

Prior to 1941 taxpayer, who was on a cash basis, guaranteed certain obligations of a country club of which he was a member. The country club later became insolvent. Held: taxpayer did not make constructive payment of the $ 4,000 in 1941 and is not entitled to a bad debt deduction for that year.

1. Congress in 1942 repealed the provision taxing the gain from amounts distributed in partial liquidation as short term capital gain, without making the repeal retroactive. Held: further, that the separate entity of a corporation in which the petitioner was a stockholder may not be disregarded. Moline Properties, Inc. v. Commissioner, 319 U.S. 436. 2.

1. Payments of proceeds of life insurance policies received by petitioner in installments, at her election exercised after the insured's death, are not taxable to her. Commissioner v. Pierce, 146 Fed. Held: taxable to her as income. Irwin v. Gavit, 268 U.S. 161.

Pursuant to agreements entered into by the petitioner and certain of his brothers and sisters with their brother Charles, involving the income from property left by their mother, Charles became entitled to receive annually 4/24 of the net income from the property for life and the balance was to be equally divided among the other children.

1. The sum of $ 65,000 cash and improved real estate, furniture, fixtures, and equipment, received by petitioner in a compromise settlement of litigation for an accounting and payment of 25 percent of the net profits of various hotel properties, the right to which payment was based on a contract providing for the payment to petitioner of such proportion of the net profits of all hotel properties brought into a hotel chain organization by petitioner, held taxable as ordinary…

Petitioners' nonpayment of processing tax on account of hogs slaughtered for them, for a fee, by another, held not to subject petitioners to unjust enrichment tax, notwithstanding that slaughterer may be treated as vendor within Revenue Act of 1936, section 501 (a) (2), there having been neither imposition of tax on petitioners nor payment by them to such vendor and reimbursement by it as are also required.

Prior to January 1941 petitioners, husband and wife, operated an auto parts concern as equal partners. The success of the business was due primarily to the activities of the husband, who was in complete control of the conduct of the business. On January 1, 1941, each of the petitioners gave one-half of his interest in the business to one of their two minor sons. The firm's books were set up to show an equal capital account for all parties.

Petitioner computed its excess profits credit for the fiscal year ended August 31, 1941, under section 713 of the Internal Revenue Code. Held: that section 711 (b) (1) (J) is a relief provision for the exclusive benefit of taxpayers and that respondent is without authority to revise the excess profits tax net income for the base period years in accordance therewith when the application of such section has not been invoked by the taxpayer as provided in subsection (K) (ii).

Petitioner was a beneficiary of a trust created by the will of her deceased husband which provided that the trustees should pay to her such portion of the income as she [petitioner] deems necessary… Held: Petitioner was not entitled to payments from trust income beyond her necessities for support and therefore not taxable on entire net income of trust. Edward Mallinckrodt, Jr., 2 T. C. 1128; affd., 146 Fed. (2d) 1, distinguished.