Volume 58 — Tax Court Reports

Held, during the calendar years 1962, 1963, and 1964, petitioner Marc H. Tanenbaum was not employed as a minister of the gospel within the meaning of sec. 107, I.R.C. 1954. Held: during the calendar years 1962, 1963, and 1964, petitioner Marc H. Tanenbaum was not employed as a minister of the gospel within the meaning of sec. 107, I.R.C. 1954.

1. Your Host, Inc., was formed in 1947 by Wesson and Durrenberger to operate four Your Host Restaurants. Held: respondent abused his discretion in allocating all of the income and deductions of the 10 restaurant corporations to Your Host under sec. 482; Held, further, respondent did not abuse his discretion in allocating all of the income and deductions of the bakery corporation to Sher-Del and vending machine corporation to Your Host under…

P made claims against his former employer for breach of contract and personal injuries arising out of the termination of his employment. He received $ 105,000 in settlement of his claims. Held: P has shown that $ 45,000 of the payment was made on account of personal injuries and exempt from taxation under sec. 104(a)(2), I.R.C. 1954.

Petitioner Robert W. Adams in two related transactions first transferred all of his equity interest in Two States Uranium Corp. to Wyoming Mining & Milling Co. in exchange for… Held: the original transfer of stock in Two States and the valuable mining property was a transfer to Wyoming within the terms of sec.351. Held, further, petitioner received a valid debt instrument in the exchange, and such instrument is considered other property within the meaning of sec. 351(b).

Following an initial audit of the Federal estate tax return of Ella T. Meyer, petitioner received a document from the district director of internal revenue entitled Estate… Held: The letter did not constitute a final closing agreement under sec. 7121, I.R.C. 1954. It also does not estop the Commissioner from making a timely determination of a deficiency in estate tax based upon an increase in the valuation of certain securities included in the gross estate of the decedent.

In 1959 decedent established a trust, the income of which was payable to her two children. Held: that the transfer of the reversionary interest was a substitute for a testamentary disposition of such interest and therefore constituted a transfer in contemplation of death within the meaning of sec. 2035 of the Internal Revenue Code of 1954.

H & G made payments to R.R. which they allege represented the purchase price of calves and the costs of raising them to maturity. Held: the transaction was not a sham; on this holding, respondent concedes that H & G are entitled to deductions for depreciation. Held, further, under the terms of their agreement with R.R., H & G acquired mature milch cows and, therefore, are not entitled to deduct the raising costs under sec. 1.162-12, Income Tax Regs.

BMC was an electing small business corporation under subch. S of the 1954 Code during its fiscal year ending Mar. 31, 1966. Held: the distribution of notes on May 31, 1966, was not a tax-free distribution to BMC's shareholders under sec. 1375(f), I.R.C. 1954, because: (1) The $ 50,212 distribution made by the corporation on Mar. 31, 1966, must be applied first against its $ 48,683 taxable income for its fiscal year ending on that date, with the consequence that…

In 1961, C & D corporation borrowed money from a bank in order to purchase from Commonwealth corporation two notes which soon became worthless. Held: all the funds transferred by Commonwealth to C & D are taxable to S. E. Copple as a constructive dividend. Tirzah A. Cox, 56 T.C. 1270 (1971), modified.

Respondent's application for order to take depositions on written interrogatories of Swiss bank officials in Switzerland for the purpose of identifying and authenticating the records of the bank pertaining to the bank accounts maintained or controlled by petitioner, granted.

In 1964, petitioner established a self-employment profit-sharing retirement plan with an investment fund held under a bank custodial account. Held: on the facts presented there was no premature distribution to petitioner within the meaning of sec. 72(m)(5)(A)(i), I.R.C. 1954, and no tax is imposed under sec. 72(m)(5)(C).

Decedent made transfers of certain property within 3 years preceding his death. Held: that the transfers of property by decedent were made in contemplation of death. Sec. 2035, I.R.C. 1954.

Held: 1. The accumulated-earnings tax imposed under sec. 531, I.R.C. 1954, applies to a publicly held corporation whose management group is dominated by a single large shareholder or a… Held: The accumulated-earnings tax imposed under sec. 531, I.R.C. 1954, applies to a publicly held corporation whose management group is dominated by a single large shareholder or a small group of large shareholders that exercises effective control over the dividend policy of the company. 2.

In his last will and testament, the decedent created three trusts. Held: the disclaimers executed by the life beneficiaries are valid and effective, and such disclaimers qualify the charitable remainders for the deduction established by sec. 2055.

EF and VF, husband and wife, owned all the stock in R, a corporation. Held: The transaction in which the petitioner obtained the R stock from EF and VF constituted a redemption through the use of a related corporation under sec. 304(a)(1), I.R.C. 1954; (2) such redemption did not qualify for treatment as an exchange under either sec. 302(b)(1) or sec. 302(b) (3), I.R.C. 1954; thus, the annuity payments are…

Decedent's will directed his executrix to set aside in trust for the benefit of his wife an amount equal to the maximum estate marital… Held: applying New Jersey law to the language of the will and all the surrounding circumstances, the testator's intent was to have the residue of his estate bear the sole burden of the New Jersey transfer inheritance tax and the value of the property to the trust for the benefit of the widow qualifies for the estate tax marital deduction…

1. The petitioners received a condemnation award in 1962. Held: the statement was not adequate notification to commence the running of the special statute of limitations contained in sec. 1033(a)(3)(C); it was not attached to the return for the year 1964, when the replacement allegedly occurred, and did not contain adequate details concerning the replacement.

A corporation was formed to develop and market a disposable toothbrush. Subsequently, the corporation sold all its assets pursuant to a plan of liquidation. Held: The corporation was not a collapsible corporation as defined in sec. 341(b)(1). Having otherwise complied with the provisions of sec. 337, no gain or loss is recognizable to the corporation on account of such sale.

T, a United States citizen, was a bona fide resident of Venezuela in the taxable years. His wife was a citizen of Venezuela and a nonresident alien of the United States. Held: T is entitled to exclude $ 35,000 in 1964 and $ 25,000 in 1965 and 1966 as earned income from sources without the United States under sec. 911(a) and (c), I.R.C. 1954, instead of $ 17,500 and $ 12,500 as determined by the Commissioner.

The taxpayer was employed as an administrator. In 1968, he engaged the services of a job-counseling organization for a flat fee of $ 1,500 to assist him in obtaining a better job. Held: the fee paid by the taxpayer is deductible as an ordinary and necessary business expense. Sec. 162(a), I.R.C. 1954.

1. Held, the funds embezzled by the petitioner in the taxable year 1965 did not constitute gain or income to him since in the same taxable year, there was, by agreement of the parties, a confession… Held: the funds embezzled by the petitioner in the taxable year 1965 did not constitute gain or income to him since in the same taxable year, there was, by agreement of the parties, a confession of judgment entered against him for the amount taken. 2.

Held: Petitioners must recognize gain on the sale of their former principal residence to the extent that the adjusted sales price… Held: Petitioners must recognize gain on the sale of their former principal residence to the extent that the adjusted sales price exceeds the cost of purchasing new property and the existing improvements thereon plus the cost of erecting a guesthouse, which petitioners completed and used as a principal residence within 18 months after the…

Held: 1. The Court will not consider an issue which was raised by petitioner for the first time on brief. 2. Held: The Court will not consider an issue which was raised by petitioner for the first time on brief. 2.

On Sept. 28, 1971, respondent mailed to petitioners a statutory notice of deficiency covering Federal income taxes for the years 1968… Held: The delay caused by the erroneous mailing of the petition to the Internal Revenue Service deprives the Tax Court of jurisdiction; and (2) the petition was not timely filed with the Tax Court within the period prescribed by secs. 6213(a) and 7502(a), I.R.C. 1954; therefore, respondent's motion to dismiss for lack of jurisdiction will…

After the corporation had adopted a plan of liquidation under sec. 337 of the Code, had exercised its rights to sell its assets under an outstanding sales… Held: Petitioners are taxable on the liquidating distributions DePauw received when the liquidation was brought to a close. A major portion of the distributions in liquidation had been made prior to the date of the gift and after DePauw received its interest in the corporation, it was powerless to prevent the liquidation.

On Dec. 30, 1966, the petitioner transferred certain stock to his attorney in order to terminate the subchapter S election by a corporation of which the petitioner was the sole shareholder. Held: the transfer of stock was not bona fide and had no economic reality, and such transfer was insufficient to terminate the corporation's subch. S election under sec. 1372(e)(1), I.R.C. 1954.

Petitioner has been a legal resident of Arizona since 1935. Held: during 1968 petitioner was not temporarily away from home while employed in Pensacola, but rather held recurring seasonal employment which cannot be distinguished from Commissioner v. Flowers, 326 U.S. 465 (1946).

Respondent mailed the petitioner a statutory notice of deficiency in Federal income tax for the year 1969 on May 28, 1971. Held: The petition was not filed within the time prescribed by secs. 6213(a) and 7502, I.R.C. 1954, and therefore respondent's motion to dismiss for lack of jurisdiction will be granted; (2) the audit changes made after the notice of deficiency was mailed did not extend the 90-day period for filing a petition with the Court; and (3) since…

Held, that the $ 12,000 received by petitioner during the taxable year 1969, under a contract entered into between Philip Carey and petitioner on Jan. 5, 1962, was not self-employment income subject… Held: that the $ 12,000 received by petitioner during the taxable year 1969, under a contract entered into between Philip Carey and petitioner on Jan. 5, 1962, was not self-employment income subject to tax under sec. 1401, I.R.C. 1954.

The petitioner maintains a coupon book installment plan under which a book of coupons is paid for in installments, and the coupons may be exchanged for merchandise at any of the petitioner's… Held: Sales under the coupon book installment plan qualify for installment reporting under sec. 453(a), I.R.C. 1954; and 2. The net dividend credits made by the petitioner under its employee stock purchase plans constituted compensation deductible under sec. 162(a)(1), I.R.C. 1954.

No gain was recognized upon the exchange of a general partnership interest in one California partnership for a general partnership interest in a California limited partnership where before and after the exchange both partnerships were going concerns principally engaged in renting apartments. Sec. 1031, I.R.C. 1954.

1. Brooks, Boyer, and B Investments were the sole and equal shareholders of B Developers, Inc. Brooks and Boyer sold two tracts of land to B… Held: the gain realized by Brooks and Boyer on the sale of tract II of Country Club Meadows to B Developers is taxable as ordinary income rather than capital gain. 2. Additionally, a partnership comprised of Brooks, Boyer, and B Investments leased the Fluhrer office building to B Developers in 1966 for $ 15,000 annual rental.

In 1952 the petitioner, a partnership, purchased 5 patents from the Curtiss-Wright Corp., contemporaneously granting back to the latter an irrevocable, royalty-free, nonexclusive license under such… Held: that petitioner assigned its ownership interest in the 5 patents to Statham Instruments, Inc., pursuant to the aforementioned agreement of Nov. 4, 1953. Waterman v. Mackenzie, 138 U.S. 252.

Decedent bequeathed to his wife the unrestricted right to use any part of the whole of the residuary estate during her lifetime and upon… Held: applying New Jersey law to the language of the will, the surviving widow did not receive a fee simple interest in the residue but she did, however, receive a life estate together with a power of appointment exercisable by her in all events within the meaning of sec. 2056(b)(5) so that the interest passing to her is not a terminable…

John's will provided that most of his estate was to be placed in trust with the income paid to his widow for her life. Held: Cargill's purported disclaimer was a gift by him to his children of one-half of the assets of the trust that is taxable under sec. 2511(a).

On Apr. 30, 1964, Rolfs and Arnold exercised statutory restricted stock options by giving their interest-bearing promissory notes for the purchase of a specified number of shares of stock of their… Held: each sale was a disqualifying disposition within the meaning of sec. 421(b), I.R.C. 1954, because it occurred within 6 months after the transfer of substantially all the rights of ownership of the stock to the employee. Sec. 1.421-1(f), Income Tax Regs.

In its 1968 fiscal period petitioner constructed a plant for the processing of citrus fruit. Held: the sweet rooms qualify as storage facilities and therefore are section 38 property subject to the investment credit.

Petitioner operated gas properties under leases calling for it to pay its lessors one-eighth of the proceeds from the actual sale of the gas and its products, reduced by an… Held: petitioner must compute its percentage depletion allowance under sec. 613, I.R.C. 1954, on the basis of the amount remaining after the gross income from the property, calculated under the representative market or field price method, has been reduced by the royalties actually paid the lessors.

Held, an integrated transaction whereby the stock interest of a majority shareholder in a closely held corporation was terminated did not result in a distribution essentially equivalent to a dividend… Held: an integrated transaction whereby the stock interest of a majority shareholder in a closely held corporation was terminated did not result in a distribution essentially equivalent to a dividend to the minority shareholder within the meaning of sec. 302(b)(1), I.R.C. 1954.

Petitioner sold a patent and his receipts were not entitled to capital gain treatment under sec. 1235, I.R.C. 1954, but were taxable as capital gains under other provisions of the Code. Held: since the transfer was described in sec. 1235(a), I.R.C. 1954, the payments fall within the exception prescribed by sec. 483(f)(4), I.R.C. 1954, to the unstated-interest provisions of sec. 483, I.R.C. 1954. Floyd G. Paxton, 53 T.C. 202 (1969), followed.

Petitioner was a nonexempt cooperative in its taxable year 1963 and an exempt cooperative in its taxable year 1964. Held: In its taxable year 1963 petitioner could not charge the dividend on capital stock solely to nonmember earnings, but had to charge such dividend to net earnings realized from member business and to net earnings realized from nonmember business in proportion to the business transacted with members and nonmembers respectively.

Held, where the basis of indebtedness of loans made by petitioners to a subch. Held: where the basis of indebtedness of loans made by petitioners to a subch. S corporation had been reduced under sec. 1376(b), the repayment of such loans in a subsequent year resulted in the realization of taxable income.

Petitioner sought to divest itself of voting control of a controlled foreign corporation as defined in sec. 957(a) by causing the corporation to issue so-called voting preferred stock for sale to… Held: In determining whether a foreign corporation is a controlled foreign corporation as defined in sec. 957(a), a mechanical determination of voting power through stock ownership is not sufficient. 2.

Petitioners granted Monsanto the right to mine phosphate from a deposit that promised to yield 116,000 tons in consideration of an advance royalty payment of $ 20,000 payable, whether or not any ore… Held: petitioners retained an economic interest in the phosphate, and the contract constitutes a mineral lease and not a sale of a capital asset.

The decedents were killed simultaneously in an airplane crash over Japan. Held: because decedents had no interest in the cause of action created on account of their deaths, sec. 2033 does not require inclusion of any part of the settlement proceeds in the gross estates of the decedents.

Petitioners owned a farm in Michigan, and on January 2, 1964, entered into an agreement with two individuals, Neyer and Andres, with respect to such property whereby the latter agreed to… Held: The $ 50,000 payment in dispute was an inducement in the form of a bonus or advance royalty for entering into an oil and gas lease under which the petitioners retained an economic interest in the oil and gas production and, therefore, was ordinary income to petitioners in 1964. 2.

Petitioner, relying on W's agreement to secure financing for improvements to be made on petitioner's land, demolished an existing building. Held: since petitioner, in the year of the sale, had recovered his adjusted basis in the property, he is not entitled to treat any part of the judgment recovery as a return of capital.

Petitioner was owed $ 221,839.43 by its wholly owned British subsidiary. Held: the British standard tax on interest was imposed on petitioner and paid by it within the meaning of sec. 901(b)(1), I.R.C. 1954, and sec. 1.901-2(a), Income Tax Regs.Biddle v. Commissioner, 302 U.S. 573 (1938), and Irving Air Chute Co., 1 T.C. 880 (1943), affd. 143 F. 2d 256 (C.A. 2, 1944), not controlling.

The petitioner made interest-free loans to its subsidiary. Some of these loans were outstanding in 1966 and 1967. Held: The respondent has the power under sec. 482, I.R.C. 1954, to allocate gross income to the parent with respect to loans, the proceeds of which produced gross income in the years in issue; (2) since the respondent determined to make an allocation of income under sec. 482, I.R.C. 1954, the petitioner has the burden of proving that the…

Petitioner, prior to and during the taxable years in question, advanced funds to its subsidiaries for working capital purposes. Held: the application of sec. 482 and the regulations thereunder to impute interest income to petitioner where the advances did not represent transactions out of which income was realized by petitioner or its subsidiaries reaches beyond the intent and purpose of the statute and constitutes an abuse of the Commissioner's discretion.

Decedent established a testamentary trust, which was to distribute income to charitable and noncharitable beneficiaries and the remainder to charity. Held: under the terms of the will and the applicable Illinois law, the trustees' discretionary powers were so restricted that the value of the charitable remainder was ascertainable.

Petitioners were divorced Feb. 24, 1964, pursuant to a decree which awarded Janice alimony from Randal in the amount of $ 25,200 payable in installments of $ 300 per month for a period of 7… Held: the letter agreement constituted a written instrument incident to such divorce under sec. 71(a)(1), I.R.C. 1954, which created a remarriage contingency, thus making $ 3,000 per year includable in Janice's gross income under sec. 71(a)(1) and deductible by Randal under sec. 215(a).

Petitioners were shareholders of a corporation active in the production and sale of certain processed foods. Held: in determining whether petitioners are entitled to installment sale treatment and more particularly whether they have satisfied the 30-percent limitation of sec. 453(b)(2)(A), I.R.C. 1954, the transactions with Hormel must be viewed as two separate sales -- (1) the sale of the corporation's stock (the purported redemption being a…

Petitioner made improvements to a building he had placed on leased land with a 10-year remaining term in order to sublease the property to the United States for use of an agency new to the… Held: the economic useful life of petitioner's leasehold improvements is the 10-year term of its lease of the land since petitioner has not shown that it was reasonably certain that it could not use the improvements in its business upon the expiration of the fixed term of its sublease.

Decedent, shortly prior to her husband's death, entered an agreement with him at his insistence, promising, in return for his maintaining her as the sole heir in his will, to leave three-fourths of… Held: petitioner is not entitled to deduct the $ 150,000 as a claim against the estate within the meaning of sec. 2053(a)(3), I.R.C. 1954, since it was paid in settlement of claims to share in the estate and not claims against the estate.

Petitioner, a single person, computed her tax on the basis of sec. 1 (a)(2), I.R.C. 1954, as applicable to the year 1965. Held: the application of single return rates, without the income-splitting benefit of sec. 2(a), to petitioner's taxable income was not a violation of petitioner's constitutional rights under the 5th, 9th, 14th, and 16th amendments or art. 1, sec. 2, clause 3, and art. 1, sec. 9, clause 4 of the United States Constitution.

Three sheets of tickets in the Mexican National Lottery, all bearing the same number, were purchased in August 1966. The number turned out to be the one entitled to the grand prize of $ 3 million. Held: on the facts, all the tickets were owned by petitioner's uncle, a nonresident Mexican citizen, and not by petitioner, who was a United States citizen and resident, with the result that the winnings are not taxable to petitioner.

In 1966 petitioner purportedly transferred by deed of gift a 5.25-percent interest in certain property to each of four donees and in 1967 she purportedly transferred a 2.1-percent interest in such… Held: under Texas law, by virtue of petitioner's unilateral mistake, she transferred only bare legal title to one-half of the interests described in the deeds of gift and retained, during the taxable years in question, an unqualified right to revest such title in herself.

Petitioners, as partners in JBL&K, an insurance agency, purchased all of the stock of Schmeer Insurance Agency, Inc., a corporation engaged in the insurance brokerage business, primarily writing… Held: the determination whether the insurance expirations and the loss experience record are subject to depreciation is a question of fact.

Snow, an executive in a large corporation, invested money and gave advisory services in three limited partnerships formed in 1965 and 1966, each to carry on research and experimentation upon a… Held: the expenditures for research and experimentation were not paid in connection with the trade or business of the partnership or of Snow, and are not deductible under sec. 174. John F. Koons, 35 T.C. 1092 (1961).

Held, assignment of patent application was not productive of ordinary income within the provision of sec. 1239, I.R.C. 1954; such… Held: assignment of patent application was not productive of ordinary income within the provision of sec. 1239, I.R.C. 1954; such application was not property of a character subject to depreciation within the meaning of sec. 1239(b), whether considered in the light of Estate of William F. Stahl, 52 T.C. 591, or in the light of the reversal…

Petitioner's predecessor in interest acquired an insurance agency with all of its equipment, furniture, fixtures, insurance policy expirations, accounts receivable and all assets whatsoever under a… Held: on the facts the Commissioner's disallowance of such deduction is sustained.

Petitioner purchased a controlling interest in another corporation. Held: The basis of the assets received by petitioner on the liquidation is determined under sec. 334(b)(2). Amount of stock owned by petitioner immediately prior to the liquidation and the decrease in the adjusted basis of the stock for cash or its equivalent received in the distribution determined from the facts.

George and Glendora were divorced in June 1963. Held: payments made in 1966 and 1967, when both the decree and the agreement were operative, are installment payments not includable in the former wife's gross income under sec. 71, I.R.C. 1954, and are not deductible by the former husband under sec. 215, I.R.C. 1954.

Held, periodic payments made to a wife pursuant to a written separation agreement expressly surviving any subsequently obtained decree of divorce are includable in her gross income under sec. 71(a)… Held: periodic payments made to a wife pursuant to a written separation agreement expressly surviving any subsequently obtained decree of divorce are includable in her gross income under sec. 71(a) (2), I.R.C. 1954, whether or not such agreement is legally enforceable.

Stanley and Helen Grabowski owned an 80.2-percent interest in the common stock of Stanley Plating Co., Inc. The Grabowskis had established trusts for three of their children and the trusts invested… Held: the distributions to the trusts in redemption of the preferred stock held by the trusts were essentially equivalent to a dividend under the language of sec. 302(b)(1) of the Code.

Petitioners H and W were divorced and pursuant to the decree H, inter alia, did the following: He conveyed his house in trust to their two children, he allowed W and the children free use of the… Held: the principal payments and maintenance payments were neither alimony income to W nor deductible by H. Held, further, the vacation payments and the medical insurance premiums were alimony income to W and deductible by H.

In 1966, P, which was in the mortgage loan business, foreclosed the mortgages which it held on two uncompleted apartment projects, and the properties were sold at sheriff's sales. Held: P was entitled to deduct both of its losses in 1966, even though the redemption rights in connection with one of the properties did not expire until the succeeding year; 2.

A reserve to fund the additional cost of providing annuities to the beneficiaries under its life insurance policies, expressly authorized by State statute, which became subject to the regulatory authority of the State commission, qualified as a life insurance reserve within the meaning of sec. 801(b).

Held, petitioner is not entitled to deduct the losses incurred by Eppler Institute for Cat Research, Inc., an electing small business… Held: petitioner is not entitled to deduct the losses incurred by Eppler Institute for Cat Research, Inc., an electing small business corporation, even though he owned all of its stock, because the expenses of the corporation were not paid or incurred in carrying on a trade or business within the meaning of sec. 162(a), I.R.C. 1954.

1. Held, the amount of an unclaimed bequest, includable in decedent's gross estate under sec. 2033, I.R.C. 1954, determined. 2. Decedent was predeceased by her husband. Held: the amount of an unclaimed bequest, includable in decedent's gross estate under sec. 2033, I.R.C. 1954, determined. 2. Decedent was predeceased by her husband. The husband's will divided his estate into two portions. The first portion, Share A, was bequeathed to decedent outright, unreduced by expenses.

During the school year 1966-67 petitioner held a postdoctoral fellowship at the University of Oregon Center for the Advanced Study of Educational Administration in a research program funded primarily… Held: $ 1,200 of the stipend received by petitioner in 1966 and $ 1,500 of the stipend he received in 1967 are excludable from petitioner's income as a fellowship grant within the meaning of sec. 117 of the 1954 Code.

Held, petitioners established a prima facie case that their stock in Chappell Securities Corp. became worthless in 1967. Held: petitioners established a prima facie case that their stock in Chappell Securities Corp. became worthless in 1967. They are entitled, under sec. 165, I.R.C. 1954, to a capital loss deduction for 1967 and a carryover of such deduction for 1968.

Held: (1) The current market value of petitioner's liquid unrelated business assets was properly taken into account in determining that its earnings and profits for 1966 were accumulated beyond the… Held: The current market value of petitioner's liquid unrelated business assets was properly taken into account in determining that its earnings and profits for 1966 were accumulated beyond the reasonable needs of its business.

Decedent's will provided that his executor could distribute assets in kind at their values as finally determined for Federal estate tax purposes in satisfaction of the marital bequest. Held: in accordance with Rev. Proc. 64-19, sec. 2.02, the marital deduction does not fail under the terminable interest provisions of sec. 2056(b)(1), I.R.C. 1954.

Beatrice M. Labombarde died June 1, 1968. Held: The transfers of funds to or for the benefit of deceased were a series of gifts and not the creation of a valid debt under New Hampshire law. No deduction therefore is allowable under sec. 2053, I.R.C. 1954.

1. Petitioner Converse Rubber Corp. caused certain Bermuda trusts to be interposed in a transaction between itself and a seller of the assets of another corporation, Tyer. Held: the three-party purchase transaction was a sham. In substance, petitioner purchased the assets from the seller for x dollars. Held, further, petitioner's cost basis for the acquired assets does not include the amount paid to the Bermuda trusts.

The petitioners filed several pretrial motions in which they alleged the respondent based his determination in the statutory notice upon evidence which was obtained from the petitioner, Efrain T.… Held: The protections encompossed in the fourth amendment to the United States Constitution are applicable in a civil tax proceeding. 2.

On Mar. 10, 1966, GD paid a dividend on its common stock, without paying or setting aside for payment a dividend on its preferred stock… Held: Under the terms of GD's certificate of incorporation, the dividends on the preferred stock must be declared and paid, or set apart for payment, before common stock dividends are declared or paid; (2) as a result of the payment of the dividends on the common stock, the preferred shareholders had a legally enforceable right to compel…

Petitioner, a sales finance company, purchased contracts from heavy-equipment dealers under which the equipment was placed in the possession of the… Held: the contracts purchased by petitioner designated as leases were actually leases, instead of sales contracts, and petitioner is entitled to depreciation deductions and investment credits with respect to the equipment covered by the contracts. Lockhart Leasing Co., 54 T.C. 301, affd. 446 F. 2d 269 (C.A. 10, 1971), followed.

Held: Petitioners' petition in the Tax Court for redetermination of a proposed deficiency for calendar year 1968 was not timely filed and respondent's motion to dismiss for lack of jurisdiction will… Held: Petitioners' petition in the Tax Court for redetermination of a proposed deficiency for calendar year 1968 was not timely filed and respondent's motion to dismiss for lack of jurisdiction will be granted.

Pursuant to a comprehensive plan developed for them by their attorneys, petitioners, on Apr. 30, 1963, established a foreign situs trust for the benefit of members of their family, and on Dec. 18,… Held: In substance, the transaction was a transfer of the stock to the trust with a reservation of the right to have $ 75,000 of the annual income thereof distributed to petitioners.

Petitioners acquired improved realty of which they were the purchase-money mortgagees at the trustee's sale held after the buyers' default. Held: The holding period of the previously unimproved land in petitioners' hands may not be tacked to the holding period of the after-acquired apartment buildings erected on the land by the buyers.

Decedent established a trust prior to 1931, reserving to himself the discretionary power to distribute trust income to beneficiaries or to accumulate such income and add it to principal. Held: Each item of income thus added to principal constituted a separate transfer, United States v. O'Malley, 383 U.S. 627, and all such post-1931 additions are subject to inclusion in decedent's gross estate under sec. 2036(a)(2), 1954 Code.

In 1950, the petitioner purchased all the stock of Packing, paying approximately $ 200,000 in excess of the fair market value of the underlying assets. Held: in 1950, the petitioner purchased stock; it did not purchase goodwill and stock.

The respondent determined that F, who is now deceased, received income from a partnership of which he was a member as supervisory fees includable in his gross income… Held: The petitioners have shown that the fees were not received; (2) the respondent's position at trial constituted a new matter, and he had the burden of proving that the fees were includable in income as a portion of F's distributive share of partnership income; and (3) the respondent has not met his burden.

Held, petitioner, a Florida title insurance company, is entitled to deduct at the end of 1965, as unearned premiums on outstanding… Held: petitioner, a Florida title insurance company, is entitled to deduct at the end of 1965, as unearned premiums on outstanding business within the meaning of sec. 832(b)(4), I.R.C. 1954, the amount of an unearned-premium reserve required by Florida law to be established in prior years but first required by Florida law to be returned to…

Petitioner elected, under art. XIII of the United States-United Kingdom Income Tax Convention, to treat the British standard tax appropriate to the dividends received by it from two wholly owned… Held: petitioner's computation is sustained.

Held: Stock owned by the minority shareholder-employees of three corporations constituted excluded stock under sec. 1563(c)(2)(B)(ii), I.R.C.… Held: Stock owned by the minority shareholder-employees of three corporations constituted excluded stock under sec. 1563(c)(2)(B)(ii), I.R.C. 1954, because identical provisions contained in the bylaws of each corporation which, in substance, prohibited the sale of any outstanding stock without first offering it to the company and…

Petitioner made payment to the estate of a former shareholder in settlement of a cause of action wherein the estate asserted that it received less than fair market value on petitioner's redemption of… Held: through application of the origin-of-the-claim test, as originally stated in United States v. Gilmore, 372 U.S. 39 (1963), the settlement payment is not an ordinary and necessary business expense, but rather, a nondeductible capital expenditure.

Payments by qualified employer's pension and profit-sharing plans which are allocable to the cost of current life insurance protection are includable in petitioners' gross income under sec. 72(m)(3), I.R.C. 1954, and are not excluded by reason of certain forfeiture provisions in the plans which are applicable only to the cash surrender value of the policies.

Petitioner was a nonexempt cooperative which sold fishing gear, marine fuel, and insurance primarily to its members. Held: the documents distributed within the proper payment periods did not constitute written notices of allocation and petitioner is not entitled to any deduction pursuant to sec. 1382(b).

Held: 1. The motive or purpose of a corporation making payments in settlement of litigation between it and a former officer and stockholder does not control whether those payments constitute a… Held: The motive or purpose of a corporation making payments in settlement of litigation between it and a former officer and stockholder does not control whether those payments constitute a deductible expense of the corporation. 2.

Petitioner and decedent, during decedent's lifetime, entered into an agreement whereby petitioner undertook to perform legal services for decedent without charge and decedent undertook to leave him… Held: petitioner received the benefits under the will as compensation for services, taxable under sec. 61, and not as a bequest, excludable from gross income under sec. 102(a), I.R.C. 1954.

Stockholders of petitioners settled a lawsuit involving ownership of 5 shares of stock of petitioner by providing for the transfer back to the former owner of the disputed shares, by granting an… Held: the stockholder agreement and proxy do not create a second class of stock.

Petitioners, shareholders in Nova Corp., guaranteed notes of Nova to Citizens National Bank, Mercantile National Bank, and Tex-Tool Manufacturing Corp. Nova was adjudged a… Held: petitioners are not entitled to a deduction under sec. 163, I.R.C. 1954, for interest paid in connection with their guarantee on Nova's debt. Held, further, petitioners are entitled to deduct under sec. 165(c)(2) legal expenses incurred in connection with their guarantee of Nova's note to Tex-Tool.

On Feb. 15, 1968, petitioner's shareholders adopted a plan of complete liquidation. Held: petitioner did not distribute all of its assets, less amounts retained to meet claims, within the 12-month period following the date of the adoption of a plan of complete liquidation; therefore, the nonrecognition-of-gain provisions of sec. 337(a), I.R.C. 1954, do not apply.

Petitioners owned 289.26 acres of land which they thought could be profitably subdivided and sold in small tracts. Held: the gifts in 1967 to the 18 family members were future interests in property within the meaning of sec. 2503(b), I.R.C. 1954; therefore, such gifts do not qualify for the annual exclusion from taxable gifts allowed by that section.

T purchased an accounting practice from X at a stated purchase price of $ 40,000. Held: In the circumstances of this case, T has failed to show under the required standard of strong proof that a covenant against competition should be implied. He is therefore not entitled to any deduction in respect of any portion of the purchase price allegedly allocable to such a covenant.

In 1962, P sold his insurance agency. The contract of sale included a covenant not to compete and provided for the transfer of the agency's insurance expirations. Held: Under the circumstances, the covenant not to compete had substantial value, and a portion of the purchase price is allocable to it; (2) the amount to be allocated to the covenant has been determined.

The petitioner-husband purchased trailers during 1965 and 1966 which he located on his trailer park. He rented these trailers to tenants who stayed at the trailer park for varying periods of time. Held: The petitioners are not entitled to the credit against tax (investment credit) allowed by sec. 38 of the 1954 Code.

1. P had its status as a subch. S corporation involuntarily terminated for the years 1965 and 1966. Held: because no amounts were paid out as compensation, P is not entitled to claim a deduction for compensation under sec. 162, I.R.C. 1954. 2.

In 1962 petitioners entered into stipulated decisions as to certain tax liabilities which amounts, together with accrued interest, they compromised and discharged by payments of lesser amounts in… Held: petitioners have failed to prove that claimed contributions to capital were in fact debt obligations owing by them and consequently respondent's determinations that petitioners were solvent at the time of such discharges and therefore income was realized is approved.