Volume 50 — Tax Court Reports

In 1956, petitioner, a physician, inherited a building which he used as a combination office and residence until October 1961, when he moved his family from the building and, in… Held: on the facts, in October 1961, petitioner entered into a transaction for profit as to the residential portion of the building and at that time did not intend to demolish it; loss deduction allowed under sec. 165(a), I.R.C. 1954, as amplified by sec. 1.165-3(b)(1), Income Tax Regs.

The petitioner was, in 1959, a partner of Bache & Co.Bache borrowed large sums of money for the purposes of carrying on its brokerage business. Held: An interest deduction is denied under sec. 265(2), I.R.C. 1954, only when indebtedness is incurred or continued for the purpose of purchasing or carrying tax-exempt securities. The circumstances of this case establish that the indebtedness was not incurred or continued for such purpose.

Held: That petitioner, a physician employed as a full-time anesthesiologist at a county hospital, is not entitled to deduct as a business expense the cost of operating her… Held: That petitioner, a physician employed as a full-time anesthesiologist at a county hospital, is not entitled to deduct as a business expense the cost of operating her automobile in traveling from her home to the hospital in order to assist in specially scheduled operations and emergency cases.

The petitioners claim to own substantial real estate and accordingly request that an appeal bond be fixed at 25 percent of the deficiency… Held: To warrant a reduction in the customary amount of an appeal bond the petitioners must furnish security which assures the Internal Revenue Service it can collect any deficiency plus interest ultimately approved by the appellate courts. Under the circumstances in this case, the petitioners have failed to provide such security.

Procedure. -- Procedure that may be used when one of joint petitioners dies after petition is filed but before case is called for trial and there has been no administration of deceased's estate.

Petitioners were partners in a partnership which entered into an agreement with Fuller Laboratories, Inc. The agreement provided that the partnership could exploit a secret process owned by Fuller to… Held: the agreement is a license for tax purposes and the partnership's payments thereunder are royalties deductible under sec. 162 (a), I.R.C. 1954.

The three partners of a partnership had a buy-sell agreement to take effect upon the death of the first to die. Held: When the first partner died, the realities of the situation were that the surviving partners received the insurance proceeds from the policy on the deceased partner's life and then paid them to the deceased partner's wife in exchange for the interest in the partnership to which she was entitled because of her husband's death.

Petitioner, a wholly owned subsidiary, is engaged solely in the handling of its parent's accounts receivable. Its parent operated department stores which sold tangible personal property at retail. Held: that, by virtue of sec. 166(g), I.R.C. 1954, respondent's disallowance of petitioner's addition to a reserve for bad debts is sustained.

Held, earnings received by petitioner while on an expedition in Antarctica are not exempt from tax under sec. 911(a)(2), I.R.C. 1954, since Antarctica is not a foreign country within the meaning of… Held: earnings received by petitioner while on an expedition in Antarctica are not exempt from tax under sec. 911(a)(2), I.R.C. 1954, since Antarctica is not a foreign country within the meaning of those provisions.

Petitioners sold their sole proprietorship business pursuant to an agreement dated Aug. 29, 1961, for a stated consideration of $ 50,000 and the assumption by the purchasers of all business… Held: petitioners do not qualify for installment reporting of the gain on the sale of their business under sec. 453, I.R.C. 1954, because they received in excess of 30 percent of the selling price in the year of sale.

Petitioners purchased the names and addresses of a number of home pickup-and-delivery laundry customers from another laundry company. Held: Petitioners are not entitled to deductions in the year of purchase for the entire cost of the customer lists.

T transferred the entire business of his sole proprietorship, including accounts receivable, in exchange for all the capital stock of a corporation in a transaction which qualified for nonrecognition… Held: T was not entitled to a deduction for an addition to the proprietorship's bad debt reserve in the year of the transfer. Held, further, the remaining balance in the bad debt reserve must be restored to income in that year.

Petitioner and his sister paid for and held 9 out of 10 shares of stock of a family-owned corporation. The shares were income-producing property. Held: That the legal fees paid by petitioner were paid for the purpose of fending off a groundless and ill-founded attempt by his stepmother to have his clearly owned shares transferred to his father's estate. The legal fees were not paid to perfect petitioner's title to the shares.

Effective Oct. 1, 1958, the following events took place: (1) Halbouty transferred undivided interests in certain oil and gas leases to Scripps for $ 2,750,000, $ 240,000… Held: respondent has failed to sustain his burden of proof. Held, further, respondent's determinations as to the fair market values of certain property are sustained. Held, further, respondent's determinations of transferee liability are sustained subject to the modifications required by the opinion herein.

K, a distributor for a food supplement company, had subordinate salesmen who were required to purchase the company's product solely from K. Three of these salesmen paid $ 10,000 each to the company,… Held: these transactions do not qualify as a sale or exchange of a capital asset under sec. 1221, I.R.C. 1954, and the gain attributable thereto is taxable as ordinary income.

In 1944, Mokan offered to redeem the stock of any stockholder in exchange for a proportionate share of its assets. Held: collateral estoppel does not apply in the circumstances of this case, and Mokan was not in the process of complete liquidation in 1960.

Abegg, a nonresident alien in 1957, liquidated Hevaloid, a wholly owned Delaware corporation, which was a personal holding company, and exchanged the property and cash he then received for all the… Held: Cresta was not engaged in trade or business in the United States during the taxable years ended in 1958, 1959, and 1960. 2. The liquidation of Hevaloid and transfer of its assets to Suvretta amounted to a reorganization under sec. 368(a)(1)(D), I.R.C. 1954. 3.

1. Held, that petitioners are not entitled to deduct the cost of maintaining a private airplane. Held: that petitioners are not entitled to deduct the cost of maintaining a private airplane. Fischer was not in the business of flying the plane for charter and did not use the plane as an engineering consultant during the taxable years in issue. 2.

Held, on the facts, petitioner was not a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year… Held: on the facts, petitioner was not a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year for the purposes of sec. 911(a)(1), I.R.C. 1954. Held, further, petitioner is entitled to a deduction under sec. 162(a)(1) for certain secretarial expenses.

1. Held, a contract as manager of a Texas mutual assessment insurance company assigned to petitioner has no reasonably ascertainable useful life and… Held: a contract as manager of a Texas mutual assessment insurance company assigned to petitioner has no reasonably ascertainable useful life and therefore the amount paid for the assignment is not subject to depreciation or amortization. 2. Held, further: The notice of deficiency issued by respondent is a valid notice.

In 1961, two partners organized a corporation to take over their partnership business. On Oct. 31, 1961, they paid cash for all the stock of the corporation. Held: the stock purchase and asset transfer were parts of a single transaction to which sec. 351(a), I.R.C. 1954, applies. Held, further, the 10-year promissory note constituted a bona fide indebtedness of the corporation and was a security within the meaning of sec. 351(a), I.R.C. 1954.

In 1962, petitioners purchased stock and notes of a corporation for $ 75,000. The purchase contract allocated $ 5,000 to the stock and $ 70,000 to the notes. Held: amounts received by petitioners from the corporation on the principal of the notes did not constitute amounts received in exchange for such notes under sec. 1232(a), I.R.C. 1954.

Two individuals transferred an apartment building to a corporation in a transaction under sec. 351, I.R.C. 1954, and received in return all the stock of the corporation and a note secured by a fourth… Held: on the facts, the note in substance represented equity rather than indebtedness.

Petitioner purchased a going, general insurance agency business including the goodwill and list of insurance expirations and all other intangible assets utilized by the seller in the operation of the… Held: the list of insurance expirations was a part of the goodwill and it had an indefinite useful life and petitioner was not entitled to an allowance for depreciation with respect to the purchase of said intangible property.

1. Held, for purposes of computing the allowable portion of a deductible corporate net operating loss under sec. 1374(c)(2)(B), I.R.C. 1954, petitioners,… Held: for purposes of computing the allowable portion of a deductible corporate net operating loss under sec. 1374(c)(2)(B), I.R.C. 1954, petitioners, as cash basis taxpayers, had a zero basis in notes issued by their electing small business corporation, as evidence of indebtedness arising from an employment contract. 2.

Where petitioner's business included the harvesting, storage, aeration, drying, blending, manufacture, and shipment of grain, and where petitioner constructed five concrete grain storage bins to… Held: such storage facilities satisfied the requirements of sec. 48, I.R.C. 1954, and petitioner was therefore entitled to the investment tax credit provided for by sec. 38, I.R.C. 1954.

Petitioners and others contracted to sell all the stock of a gambling casino for $ 10 million, the initial payment of $ 500,000 to be… Held: the amounts received by the petitioners under the settlement are taxable as ordinary income, following Ralph A. Boatman, 32 T.C. 1188 (1959), and A. M. Johnson, 32 B.T.A. 156 (1935), and not as capital gains from a sale of capital assets, as in Alvin B. Lowe, 44 T.C. 363 (1965), or as damages for injury to the value of their stock.

Under sec. 805(b)(4) of the 1954 Code, as amended by the Life Insurance Company Income Tax Act of 1959, the following items are includable or not includable in assets used in computing a life insurance company's taxable investment income (phase I): 1.

Petitioner and his wife were divorced in 1962 in Kentucky. Pursuant to a Kentucky court judgment petitioner's wife restored all of his property to him, including two installment notes. Held: petitioner realized a gain when the Kentucky court awarded one of the notes to his wife. United States v. Davis, 370 U.S. 65 (1962), followed.

Petitioners Robert E. Catron and Eugene D. Catron are brothers who were engaged as partners in an apple-farming operation in Nebraska during 1962. Held: Neither the sorting-working-boxing area of the facility nor the applied insulation therein qualifies for the investment credit.

Petitioner's liquid assets were fully committed to the reasonable needs of its business, as reflected in sufficiently definite plans for expansion and working capital requirements, to justify the retention of its entire accumulation of earnings and profits during 1961, 1962, and 1963. Consequently, petitioner was not liable for the surtax imposed by sec. 531, I.R.C. 1954.

Petitioner and her husband were divorced in 1962 in Kentucky. Pursuant to a Kentucky court judgment petitioner restored all of her husband's property to him, including two installment notes. Held: petitioner has a cost basis in the note awarded to her by the Kentucky court equal to the note's fair market value in 1962.

1. Held, that the amount received by a partnership, of which the petitioners were general partners, representing a percentage of the… Held: that the amount received by a partnership, of which the petitioners were general partners, representing a percentage of the proceeds from the sale by the play authors of the motion-picture rights to the story The Idyll of Miss Sarah Brown, constituted ordinary business income, rather than capital gain, to the partnership, and hence…

Petitioner, an attorney, purchased 32,000 additional shares of stock in a corporation to protect his position as its secretary and general counsel. Held: the corporation's stock became worthless in 1962. Held further, petitioner is entitled to deduct the loss occasioned by the worthlessness of the 32,000 shares as an ordinary loss under sec. 165(a), I.R.C. 1954.

Petitioner, an incorporated construction company, had a pension plan with a salaried-only classification. Held: the plan was not a qualified plan under sec. 401(a) in that in operation it discriminated in favor of officers, stockholders, and highly paid individuals and petitioner's deductions for contributions to the plan were properly disallowed.

In 1956 petitioner executed a collective-bargaining agreement with the Soft Drink Workers Union, Local 812. The agreement contained a severance-pay provision. Held: sec. 404(a) (5), I.R.C. 1954, prohibits petitioner from deducting in its taxable year 1960 the amount of its liability under the 1956 severance-pay provision, because said amount was not paid in its taxable year.

The filing of a statement of intent to dissolve in compliance with Colorado statutes by the sole corporate shareholders was tantamount to the adoption of a plan of liquidation by the corporation within the meaning of sec. 333, I.R.C. 1954. Therefore, the attempted elections of the shareholders under said sec. 333 (which they now seek to avoid) were out of time and ineffective.

Held, that the corporate petitioner failed to prove, pursuant to the provisions of sec. 274 (d), I.R.C. 1954, that it is entitled to deduct any greater amount than that allowed by respondent on… Held: that the corporate petitioner failed to prove, pursuant to the provisions of sec. 274 (d), I.R.C. 1954, that it is entitled to deduct any greater amount than that allowed by respondent on account of expenses for entertainment.

Respondent's motions to dismiss for lack of jurisdiction granted where petitions were filed on the 150th day after statutory notices of deficiencies were mailed to corporate petitioners at their last-known address.

T, the majority stockholder and principal executive officer of X, a small family corporation, became ill in 1957 and received payments of $ 100 a week from X for a prolonged… Held: the amounts received by T during 1960-1962 did not in fact represent bona fide sick pay for an employee but were paid to him because he was the majority stockholder; they are taxable to him as dividends, and are not deductible by X. Cf. Alan B. Larkin, 48 T.C. 629, affirmed 394 F.2d 494 (C.A. 1).

Held: 1. Amount received by insurance agent as sales price of commissions on renewal premiums on 5-year fire and casualty insurance policies constitutes ordinary income. Held: Amount received by insurance agent as sales price of commissions on renewal premiums on 5-year fire and casualty insurance policies constitutes ordinary income.

Held, where deficiencies for income taxes were immediately assessed and timely claimed in the bankruptcy proceeding of petitioner, but additions to tax for fraud which were also assessed were not claimed in bankruptcy, and would have not been allowed as a claim against the assets of the bankrupt had they been claimed, sec. 6871, I.R.C. 1954, precludes petition to the Tax Court as regards the deficiencies in tax but not as regards the additions to tax for fraud.

Decedent's will created a trust for the benefit of his widow, in lieu of dower and other rights in his estate. She was dissatisfied with this provision. Held: based upon New Jersey law, the $ 10,000 did not pass to the widow from the decedent and hence did not qualify for the marital deduction under sec. 2056, I.R.C. 1954.

The petitioner sold automobiles on credit and discounted the promissory notes with several financial institutions. Held: the petitioner's losses due to the prepayment of notes were not losses due to the worthlessness of debts, and a reserve for such anticipated losses is not recognized for tax purposes.

Held, that portion of a bonus for the signing of a contract by petitioner (a minor) to play baseball for a professional baseball team which was paid directly to his mother by prearrangement in the… Held: that portion of a bonus for the signing of a contract by petitioner (a minor) to play baseball for a professional baseball team which was paid directly to his mother by prearrangement in the contract was taxable to petitioner under sec. 73 or sec. 61, I.R.C. 1954.

1. Held, proceeds from discounting fraudulently obtained mortgages on nonexistent fertilizer tanks, on which mortgages the recipient was not directly liable but some of which he had guaranteed, are… Held: proceeds from discounting fraudulently obtained mortgages on nonexistent fertilizer tanks, on which mortgages the recipient was not directly liable but some of which he had guaranteed, are taxable income, including proceeds from guaranteed transactions.

Petitioner held the position of minister of education in a Baptist church. He was not an ordained minister and the church had a regular pastor who was an ordained minister. Held: under the facts, petitioner was not a minister of the gospel within sec. 107 and therefore not entitled to an exclusion for designated rental allowance paid to him by the church as part of his compensation.

1. Petitioners retained the services of Realty to facilitate the sale of the Evergreen Ballroom. Realty found a purchaser and the sale was consummated. Held: petitioners must report their allocable portions of gain and interest income resulting from each monthly payment. 2. Held, further: Petitioner Ronald Sholund has not met his burden of proof in reference to the deduction of various expenses. Respondent's disallowance is sustained.

The investigation of a widespread conspiracy involving hundreds of taxpayers residing in two adjoining internal revenue districts and also involving many I.R.S. employees of those districts was… Held: The statutory deficiency notice sent to these petitioners, residents of the Brooklyn district, and signed by the district director of the Manhattan district, was good and sufficient. Petitioners' motion to dismiss for lack of jurisdiction is denied.

In 1963, petitioner received a payment of $ 8,000 from her former husband pursuant to an Indiana divorce decree which awarded her a lump-sum alimony judgment for $… Held: $ 3,800 of $ 8,000 payment was a periodic payment under sec. 71(c)(2), I.R.C. 1954, which arose out of her former husband's obligation to support and is taxable to petitioner under sec. 71(a) (1), I.R.C. 1954. Payment was not in exchange for petitioner's share of property accumulated during the marriage.

Petitioner adopted a plan of complete liquidation and thereafter within 12 months sold its trade accounts receivable at their actual value, a negotiated price, which was… Held: the accounts receivable are installment obligations within the meaning of sec. 337(b), I.R.C. 1954, and therefore the loss realized by petitioner should be recognized. Family Record Plan, Inc., 36 T.C. 305 (1961), affd. 309 F. 2d 208 (C.A. 9, 1962), certiorari denied 373 U.S. 910 (1963), followed.

In 1957, LATC and CBS organized a corporation (POP) to construct and operate an amusement park, investing $ 1,800,000 in stock and guaranteeing a line of credit of $ 8,750,000. Held: LATC incurred an ordinary loss in 1959, deductible under sec. 165(a), I.R.C. 1954, of $ 4,396,000 on payment for its release from the guaranty obligation; held, further, LATC incurred a capital loss of $ 900,000 on the transfer of its POP stock to Pacific.

Pursuant to a Probate Court decree, a widow's allowance was paid out of and charged to the estate's principal account. Held, sec. 1.661(a)-2(e), Income Tax Regs., invalid so far as here applicable. Held: sec. 1.661(a)-2(e), Income Tax Regs., invalid so far as here applicable. Held, further, the amounts distributed were deductible, under sec. 661(a), I.R.C. 1954, from the income of the estate.

Over a period beginning in August of 1960 and ending in October of 1962 petitioners expended various sums for labor and materials in building the unfinished attic in their home into a… Held: That the expenditures made in constructing the recreation room constituted amounts paid for permanent or continuing improvements or betterments within the meaning of section 263 of the Internal Revenue Code in respect of which the said section provides that no deduction shall be allowed.

Petitioner, a construction worker employed by the State of Iowa, worked in and around Des Moines. Held: Petitioner's expenses for meals and lodging in Des Moines and for weekend traveling to his family residence were not deductible because he did not incur them while away from home, i.e., away from his principal place of employment. 2. Petitioner was employed for an indefinite rather than temporary period during the years in issue. 3.

Held, the petitioner, which is in a loan business, was a personal holding company in 1964 because it was precluded by sec. 225(l)(1) of the Revenue Act of… Held: the petitioner, which is in a loan business, was a personal holding company in 1964 because it was precluded by sec. 225(l)(1) of the Revenue Act of 1964 (see I.R.C., sec. 542(d) (2)(A), as amended) from deducting interest in ascertaining whether its business deductions exceeded 15 percent of its ordinary income.

Decedent had been a participant in his employer's qualified profit-sharing plan, payable in the discretion of the trustees in a lump sum or in installments during a period not exceeding 180 months. Held: no portion of decedent's interest in the plan is includable in his gross estate. Sec. 2039(c), I.R.C. 1954. Decedent did not constructively receive a portion of his interest in the plan prior to his death.

In 1960, petitioner organized a Swiss corporation, and transferred to it undivided working interests in oil-producing properties. Held: the corporation is a separate entity for Federal tax purposes and its undistributed income is not properly taxable to petitioner.

1. T was one of several trustees of a trust which terminated in 1960, and which in fact paid $ 920,000 in terminal corpus commissions to the trustees during… Held: T is chargeable with receipt of his entire share of the commissions in 1960. 2. T was also a trustee of four other trusts. As a result of an intermediate accounting in respect thereof, the State court entered a decree in 1961 awarding corpus commissions in the aggregate amount of $ 674,273.37 to the trustees.

Rapid American Corp. had granted restricted stock options under sec. 421, I.R.C. 1954, which were exercised at times when the market value of the stock greatly exceeded the option… Held: Since under sec. 421 (a)(3), I.R.C. 1954, no amount other than the option price may be considered as received by Rapid, it follows that Rapid may not consider that an expense was generated or satisfied by the options. Therefore, nothing may be deducted from Rapid's earnings and profits.

Petitioners sought exemption deductions of $ 600 for each of two 18 year old boys who were full-time students and who each earned over $ 600 in the year in issue. Held: The boys did not qualify as petitioners' dependents under sec. 151(e)(1)(B), I.R.C. 1954, giving the exemption for a child of the taxpayer. That phrase is defined to mean the natural child of the taxpayers or one of them or their adopted child, including the child placed in their home for adoption.

In 1955, Caldwell and associates purchased all of the capital stock of petitioner, a wholesale dealer in hardware and industrial supplies, for $ 20,000. Held: on the facts presented, that the principal purpose for the acquisition of the stock of petitioner in 1955 was the evasion or avoidance of Federal income tax, within the meaning of section 269(a), I.R.C. 1954, and respondent's disallowance of a net operating loss carryover from 1954 to 1959 is sustained.

Petitioner's predecessor received an offer by an individual to have his corporate nominee purchase the stock of two of its subsidiaries… Held: since the parties by specific agreement arranged for the dividend to be paid to petitioner's predecessor prior to entering into the contract of sale for the stock and since the transaction was executed by having the dividend declared prior to either corporate party to the transaction taking the necessary corporate action to finally…

Decedent agreed by a statement at the end of her husband's will to permit her share of California community property in which she had an… Held: decedent transferred her share of the community property to the trust set up by her husband's will at the time of his death in 1942, retaining a 50-percent income interest for her life in the property she transferred to the trust, and therefore 50 percent of the value at the date of her death in 1962 of the property she transferred…

Petitioner was transferred from his place of employment in Connecticut to Florida in the year 1961. In the summer of 1962, his family also moved to Florida. Held: Petitioner has not proved that the damage to his yacht was the result of shipwreck or other casualty. He is not entitled to deduct any amount as a loss under sec. 165(c)(3), I.R.C. 1954. Additionally, petitioner failed to prove the amount of the alleged casualty loss.

Petitioner purchased raw whisky, distilled as bourbon, as an investment and, at the time of purchase, made payment in advance to the seller of 4 years of carrying charges, consisting of insurance,… Held: that petitioner's objective was to acquire 4-year bourbon whisky. Held, further, that the expenditures for carrying charges are not deductible expense under sec. 212(2), even on a prorated basis, and are required to be added to the cost of the whisky.

Decedent owned subordinated corporate debenture bonds which had been issued at a discount and which became due on Jan. 1, 1956. Held: the increment in value (discount) of the bonds is taxable as ordinary income to decedent's estate, as income in respect of a decedent under sec. 691, I.R.C. 1954, in the year 1957; the increment was not taxable to decedent, a cash basis taxpayer, in 1956 when the bonds became due.

Petitioners, who live and work in the United States, received distributions in respect of their limited-partnership interests in a German… Held: in computing petitioners' taxable income from sources without the United States, the numerator of the overall limitation fraction, the Commissioner properly deducted from foreign gross income a ratable portion of certain deductions claimed by petitioners for charitable contributions, interest, taxes, storm damage, and accounting…

Petitioner's wife was granted an interlocutory judgment of divorce in 1964. She was granted a final judgment of divorce in 1965. Held: petitioner is not entitled to use the head of household tax rates in sec. 1(b)(1), I.R.C. 1954, for the taxable year 1964.

Petitioner paid over to the estate of a Canadian resident, a former agent of petitioner, renewal commissions becoming due on insurance sold by decedent prior to his death, before it had notice that a… Held: petitioner is not liable for payment of the estate tax due by the Canadian estate out of its own assets to the extent of the payments made to the estate.

The petitioners formed corporations for the construction of an apartment housing project. Held: The corporations were collapsible corporations within the meaning of sec. 117(m), I.R.C. 1939, and more than 70 percent of the gain recognized by the petitioners in 1950 and 1951 was attributable to the construction of the project. No part of such gain was attributable to the value of the leaseholds.

Held: Purported sec. 1244 stock did not qualify as such because, though issued to a partnership in cancellation of claimed preexisting… Held: Purported sec. 1244 stock did not qualify as such because, though issued to a partnership in cancellation of claimed preexisting debt, such claimed debt was, or had become, equity capital of the corporation (under all of the circumstances here present) at the time of the adoption of the sec. 1244 plan, and remained equity capital…

Pursuant to its longstanding and generally accepted accrual method of accounting, Peoples Bank deducted as an interest expense the balance of a reserve existing at the end… Held: since there existed no fixed and certain interest liability on the savings deposits as of Dec. 31, no interest expense was properly accruable at that time. Held, further, respondent initiated a change in Peoples Bank's method of accounting authorizing an adjustment under sec. 481(a)(2), I.R.C. 1954.

Petitioner and her husband lived together with their three children during the taxable year 1961. Held: The year in which the support is received by the children is controlling in determining whether a taxpayer has furnished over one-half the support of dependents. (2) Petitioner contributed over one-half the support for her three minor children during the year in issue, and therefore is entitled to deductions for personal exemptions.

Petitioners were shareholders in corporations which had elected to be free from tax under subch. S of chap. 1, I.R.C. 1954. Held: the advances by petitioners to the corporations did not create a second class of stock. Held, further, petitioners are entitled to deduct the corporate net operating losses in proportion to their nominal stockholdings only to the extent of their direct advances to the corporations.

Petitioner's predecessor contracted to furnish the U.S. Government with the use of oil storage facilities and related services. Held: the increased payments to petitioner during the first year were income in their entirety in that year and were not loans or return of capital, nor could they be treated as income properly deferrable to subsequent years. Held, further, the period over which petitioner could depreciate the facilities was 20 years and not 5 years.

Pursuant to the opinion and mandate in Commissioner v. Danielson, 378 F. 2d 771 (C.A. 3, 1967), and further evidence adduced, held, on the facts, that petitioners were not… Held: on the facts, that petitioners were not fraudulently induced by Thrift to sign noncompetition agreements in conjunction with the sale of their stock in Butler Loan. Thus, petitioners are bound by the agreements, and the amounts of consideration received therefor are taxable as ordinary income.

Petitioner, in the business of operating skiing facilities, made capital investments in slopes and trails for which it claimed a 7-percent investment credit under sec. 38, I.R.C. 1954. Held, the slopes and trails do not qualify as "section 38 property" since they were not "other tangible property * * * used as an integral part of * * * furnishing transportation * * * services" within the meaning of these words in sec. 48(a)(1)(B)(i), I.R.C. 1954.

The petitioner sold working interests in certain oil and gas leases to B, retaining production payments which he then sold to C, a partnership with substantial net worth. Held: The petitioner's agreement with the bank did not constitute a guarantee of the production payments, and after their sale, the petitioner had no economic interest in them.

Petitioners, through a partnership, sold certain property under a contract in which they retained the right to remove or salvage the improvements. Held: petitioners failed to prove that their intent to utilize the improvements was fixed and a sufficiently significant force to support an abandonment loss to the partnership. Held, further, petitioners failed to prove that certain business bad debts became worthless during the taxable year.

T maintained a diary in which he recorded alleged business entertainment expenditures for which he received no reimbursement from his employer. Held: The Commissioner properly disallowed deduction for all such expenditures of $ 25 or more. Sec. 1.274-5(c)(2), Income Tax Regs., supporting such action, is valid.

T maintained a diary in which he recorded alleged business-entertainment expenditures for which he received no reimbursement from his employer. Held: The Commissioner properly disallowed deduction for all such expenditures of $ 25 or more. Sec. 1.274-5(c)(2), Income Tax Regs., supporting such action, is valid. William F. Sanford, 50 T.C. 823, followed.

Petitioners and their wholly owned corporation, which had in effect an election under subchap. S of the Code during 2 of the 3 years in issue, were in the business of dealing in oil leases. Held: the notices of deficiency were valid notwithstanding the fact that such notices were not mailed to the corporation. Held, further, that the oil leases which petitioners and the corporation sold were property held for the sale to customers in the ordinary course of business.

T, executor of his father's will, filed a formal waiver of his right to receive statutory commissions some 14 months after qualifying as… Held: petitioner may not be charged with having constructively received executor's commissions for income tax purposes, notwithstanding the fact that an estate tax return was filed claiming a deduction for estimated executor's fees, and notwithstanding a court order which erroneously contained a provision authorizing the payment of…

The decedent was the sole beneficiary under the will of her husband, who died within 6 years prior to her death. Held: in determining the value of the property transferred to the decedent by her husband for purposes of the credit for tax on prior transfers provided by sec. 2013, I.R.C. 1954, such expenses must be deducted from the gross estate of the decedent's husband, even though not claimed on her husband's estate tax return.

Held: 1. Research and development expenses incurred in 1954 are not allocable to petitioner's renegotiable business. 2. Held: Research and development expenses incurred in 1954 are not allocable to petitioner's renegotiable business. 2. Advertising expenses incurred in 1954 are not allocable to renegotiable business. 3. Petitioner's profits for 1954 were not excessive.

Divorced husband continued to make periodic payments to his ex-wife after she had remarried and respondent determined that such payments were alimony, includable in ex-wife's gross income under sec.… Held: Sec. 71(a) is of a dual character, covering payments imposed on the husband under the decree, or incurred by the husband under a written instrument incident to divorce.

Held, shares in open-end investment companies or mutual funds were properly valued for estate tax purposes at the public offering price on the date of death in accordance with sec. 20.2031-8(b),… Held: shares in open-end investment companies or mutual funds were properly valued for estate tax purposes at the public offering price on the date of death in accordance with sec. 20.2031-8(b), Estate Tax Regs., rather than at the redemption price.

Petitioner, the widow of the American Minister to Rumania who died in Bucharest a few days after Rumania declared war on the United States in December 1941, was forced to leave valuable furnishings… Held: confiscations under color of law of petitioner's property by agents of the Communist government of Rumania, even though arbitrary and despotic, do not give rise to theft losses deductible under sec. 165(c)(3), I.R.C. 1954.

1. Petitioners, husband and wife, operated a photography studio which elected to report its income as a small business corporation pursuant to… Held: the husband's salary was properly increased to reflect the additional value of his services to the studio business, requiring a reallocation of dividends as to all other shareholders. 2. In 1964, the studio received $ 1,000 from Donald and Marilyn Wick for the Wicks' services rendered purportedly under a franchise agreement.

A-M, a partnership which owned and operated a vending-machine business, purchased the assets of several other such businesses including certain oral agreements for vending-machine locations… Held: A-M could not deduct as a loss under sec. 165, I.R.C. 1954, any amounts which it allocated to the oral location agreements that were terminated during the taxable year.

During 1962 and 1963, petitioner, a sole proprietor, acquired certain sec. 38 property on which he claimed investment credit pursuant to sec. 46, I.R.C.… Held: petitioner's 7.22-percent interest in S corporation was not substantial so as to make the sec. 47(b) exception to the general rule applicable. Held, further, petitioner made an early disposition of the above-described sec. 38 property and must recapture the investment credit attributable thereto under sec. 47(a)(1).

Decedent's wife owned several insurance policies taken out on the life of her husband. She died 14 months before her husband. Held: the proceeds of the policies were correctly included in decedent's estate and he held incidents of ownership over the policies within sec. 2042, I.R.C. 1954, and the fact that his powers, affecting the beneficiaries' enjoyment of the proceeds, were held by him in his capacity as trustee, was immaterial.

In two separate transactions, the petitioners and their associates purchased the working interests in oil and gas leases, subject to production payments. Held: A portion of the operating expenses is attributable to the production of the oil accruing to the production payment, and such portion is not deductible but must be capitalized.

Held: 1. Where respondent failed to raise the affirmative defense of collateral estoppel in his pleadings or by motion, the defense is not available to him. 2. Held: Where respondent failed to raise the affirmative defense of collateral estoppel in his pleadings or by motion, the defense is not available to him. 2.

In 1958, the petitioner purchased the stock of the corporation that employed him and remained with such corporation with increased responsibilities. Held: the petitioner has failed to prove that the distribution to him was on account of his separation from the service within the meaning of sec. 402(a)(2), I.R.C. 1954, and therefore, he is not entitled to capital gains treatment of the distribution.

In respect of an award of damages for breach of contract, held, G, a cash basis taxpayer, the recipient of the award, must include in his gross income for 1963, the year of receipt, the full amount of the award undiminished by the pertinent legal expenses; held, further, sec. 1305, I.R.C. 1954, must be applied to the full amount of the award, but the pertinent legal expenses, deductible in the year paid, may not be prorated over the earlier years; held, further, G must take into consideration the total amount of the award in computing whether he incurred a net operating loss under sec. 172, I.R.C. 1954, for the taxable year 1963.

Petitioner contracted in 1956 to perform the professional engineering services required for the construction of a sewerage system and treatment plant for 7 1/2 percent of the… Held: petitioner's employment was for a single project and is not severable for the purpose of computing under sec. 1301, I.R.C. 1954, the tax on the income received in 1963. Held, further, respondent is sustained in disallowing deductions for expenses not substantiated as required by sec. 274(d).

Petitioner made charitable contributions of two oil paintings. With respect to one painting, there were serious questions as to the identity of both the subject matter and the artist. Held: it is unnecessary to decide the ultimate issue of such identity, the questions thus raised constituting simply depressants of value. Held, further, on the basis of the entire record, the value of one painting is $ 500, the value of the other painting $ 8,000.

Petitioner was formed by the Salmanson brothers in 1960 to acquire all the stock of National Ring Traveler Co. After the stock was acquired Ring advanced $ 615,000 of its funds to petitioner to pay… Held: the payment of petitioner's note due the bank by Ring, petitioner's wholly owned subsidiary, constituted the payment of a dividend by Ring to petitioner to the extent of Ring's accumulated earnings and profits.

Held, petitioner's activities in connection with automobile racing, under the facts in this case, constitute a trade or business and therefore the expenses of these activities are deductible. Held: petitioner's activities in connection with automobile racing, under the facts in this case, constitute a trade or business and therefore the expenses of these activities are deductible.