Volume 59 — Tax Court Reports

Glen Raven acquired substantially all of the stock of Asheville on May 12, 1964. Held: Asheville was not barred by sec. 382(a)(1) from utilizing net operating loss carry-forward deductions attributable to losses sustained in years prior to the takeover because both before and after the takeover Asheville engaged in substantially the same business.

1. A corporation acquiring property from a bankrupt subject to an indebtedness secured by a first lien on the property may include such indebtedness in its basis for depreciation notwithstanding that the transaction was arranged by its principal stockholder who, as a part of the same plan, acquired the indebtedness from a third party.

Held, that determined amounts paid by petitioner corporation, R. J. Nicoll Co., in 1965, 1966, and 1967, as compensation to petitioner… Held: that determined amounts paid by petitioner corporation, R. J. Nicoll Co., in 1965, 1966, and 1967, as compensation to petitioner Raymond Nicoll in excess of amounts allowed by respondent are deductible as reasonable compensation for services rendered by Raymond in prior years to corporate petitioner's predecessors, for which services…

1. T, a U.S. corporation, in anticipation of liquidating a wholly owned foreign corporation (R.H.), sought and obtained a ruling from the Commissioner under sec. 367 of… Held: pursuant to the explicit provisions of sec. 312(a)(3), R.H.'s earnings and profits were reduced by the amount of the basis of such shares rather than by the amount of their fair market value, and the taxable dividend received by T at the time of liquidation of R.H. was in the amount of $ 2,920,453. 2.

The fact that a corporation which joined in the filing of a consolidated return was found not to be a proper party to that return did not deprive this Court of jurisdiction in respect of a petition filed by such corporation in response to a notice from respondent asserting a deficiency against it.

After marital difficulties, petitioners decided to live apart and executed a written agreement providing support for Bridget. Held: the written instrument constituted a written separation agreement within the meaning of sec. 71(a)(2), I.R.C. 1954, thereby making the periodic payment received by Bridget includable in her gross income, and deductible by Howard under sec. 215(a).

Burden of Federal Estate Tax -- Ohio Law of Equitable Apportionment. -- During his life Penney established a revocable trust with directions to establish a marital deduction trust of one-half the… Held: for Federal estate tax purposes, the revocable trust assets, assets of the marital trust included, and the charitable and marital requests are chargeable with a prorata share of the tax liability.

On June 23, 1964, a portion of petitioners' land was condemned by the Commonwealth of Pennsylvania. Appraisal values were obtained. Held: that $ 5,804.35 was received by petitioners as detention damages, which is in the nature of interest, and therefore taxable as ordinary income under sec. 61(a)(4), I.R.C. 1954.

Held: Certain structures, commonly known as greenhouses, were buildings within the meaning of sec. 48(a)(1)(B), I.R.C. 1954. Held: Certain structures, commonly known as greenhouses, were buildings within the meaning of sec. 48(a)(1)(B), I.R.C. 1954. The greenhouses therefore did not constitute section 38 property, and investments in such structures were ineligible for tax credits under sec. 38 of the Code.

Held: No tax credit was allowable under sec. 38, I.R.C. 1954, for an investment in certain structures, commonly known as greenhouses, because such structures were buildings within the meaning of sec.… Held: No tax credit was allowable under sec. 38, I.R.C. 1954, for an investment in certain structures, commonly known as greenhouses, because such structures were buildings within the meaning of sec. 48(a)(1)(B) of the Code and therefore did not constitute section 38 property.

At the time of her death, decedent, as the owner of the surface, held certain so-called agency rights in the mineral estate in Texas lands, pursuant to the provisions of the Texas Relinquishment Act. Held: such rights are not a separate interest in property includable in decedent's gross estate under sec. 2033, I.R.C. 1954. Held, further, the amount by which decedent's rights in the surface were enhanced by such so-called agency rights is determined.

Under the will of her husband, Tilman H. Campbell, who died a resident of Kentucky in July 1964, Martha Campbell was devised and bequeathed all of his property and estate, including a one-half… Held: under the law of Kentucky, Martha acquired all the rights of an absolute owner in the property and estate of her husband, with power to consume, sell, or dispose of it as she pleased, except the power to make a testamentary disposition.

Held, rule 36 of the Federal Rules of Civil Procedure has not been incorporated into the Rules of Practice of this Court, and the… Held: rule 36 of the Federal Rules of Civil Procedure has not been incorporated into the Rules of Practice of this Court, and the failure by respondent, in accordance with that rule, to serve denials of the truthfulness of statements contained in two requests for admissions does not establish that such statements are true for the purposes…

Petitioner deducted as ordinary and necessary business expenses legal fees incurred in the sale of all of its assets. Held: petitioner is entitled to deduct the legal fees because, even though we disagree with Pridemark, we are obliged to follow its holding. Followed, Jack E. Golsen, 54 T.C. 742 (1970), affd. 445 F. 2d 985 (C.A. 10, 1971), certiorari denied 404 U.S. 940 (1971).

The factual and legal issues in this case are virtually identical to those in Luckman v. Commissioner, 418 F.2d 381 (C.A. 7, 1969) reversing 50 T.C. 619 (1968). Held: the very tenuous and strictly fortuitous relationship between shareholders in a large public corporation does not warrant giving Luckman collateral estoppel effect herein.

Petitioner, the executrix and sole beneficiary of H's estate, created a subch. S corporation. Held: Petitioner is not entitled to net operating loss deductions in excess of her adjusted basis in the corporation's stock; and (2) petitioner is not entitled for the purposes of sec. 1374(c)(2), I.R.C. 1954, to claim the indebtedness of the corporation to the estate as her own because she and the estate are two separate and distinct…

Petitioner acquired 50 shares of the corporation's stock on May 20, 1964, for $ 1,000 in cash. Held: that the written plan allegedly pertaining to the issuance of the 50 shares of the corporation's stock to petitioner on May 20, 1964, did not satisfy the 2-year requirement of sec. 1244(c)(1)(A), I.R.C. 1954, and, therefore, that petitioner's loss sustained with respect to such stock did not qualify for ordinary-loss treatment under…

The decedent owned the surface estate in 20,480 acres of land in West Texas. Held: Under the circumstances of this case, the petitioner cannot subpoena a file of the respondent which contains information concerning an agreement between the respondent and an unrelated taxpayer as to the valuation of property adjacent to the subject property; and (2) the value of the surface estate is $ 40 per acre.

Held: (1) P has failed to show that a debt owed to it by the holders of all of its certificates of beneficial interest was totally worthless when canceled; and (2) a taxpayer using the… Held: P has failed to show that a debt owed to it by the holders of all of its certificates of beneficial interest was totally worthless when canceled; and (2) a taxpayer using the unit-livestock-price method for valuing inventory must include unweaned calves.

Petitioner devised a plan to compel the conversion of its outstanding preferred stock to common stock. Held: the amount paid to insure the risk-free conversion of preferred stock to common stock is a capital expenditure and not an ordinary and necessary business expense. Held, further, the expense is not deductible as a premium paid for the retirement of a convertible debenture. Held, further, the expense is not amortizable.

Petitioners and the Grants were equal partners in a partnership formed to build and operate a motel. The venture was unsuccessful and the motel and furnishings were sold. Held: the loss recognized to petitioners was a capital loss.

In 1957, P purchased all of the tangible and intangible assets of MI, including trade names, a product line, the general line distributorship system, and the going-concern value of the MI operation. Held: in 1961, P abandoned a certain trade name, the general line distributorship system, and the going-concern value of the MI operation; and (2) the amount of the abandonment loss has been determined.

1. The salary of a corporate officer, who held 79 1/2 percent of the outstanding stock, was continued after he suffered a stroke. Held: the continued salary did not qualify for exclusion from the officer-shareholder's gross income under sec. 104(a)(1), 105(c), or 105(d). Held, further, the continued salary did not constitute compensation for the past services of the officer-shareholder or compensation for the past or present services of his wife.

Held: On the facts (1) the Commissioner's notice of deficiency was mailed to petitioner on Oct. 27, 1971; (2) the petition was received more than 90 days after Oct. 27, 1971. Held: On the facts (1) the Commissioner's notice of deficiency was mailed to petitioner on Oct. 27, 1971; (2) the petition was received more than 90 days after Oct. 27, 1971. Accordingly, the Court lacks jurisdiction.

A and B, owners of a majority of the stock in a corporation, negotiated a plan for the merger of their corporation with a larger one. Held: A received the stock option covering the additional 75 shares as consideration for his promised services and the covenant not to compete; he is taxable on its fair market value under sec. 61(a)(1), I.R.C. 1954; Held, further, the fair market value of the option received by A is determined.

Payments made to petitioner by her former husband Robert under compulsion of a support order of a Pennsylvania Quarter Sessions Court are includable in her 1967 gross income under sec. 71(a)(3), I.R.C. 1954.

T, an American citizen employed by an American corporation and residing in the United States, was notified that he would be transferred to Australia, and was placed on the payroll of his employer's… Held: although T became a bona fide resident of Australia his 1966 earnings were not exempt from taxation under sec. 911(a)(1) of the 1954 Code because his Australian residence did not span an uninterrupted period which includes an entire taxable year.

Petitioner, engaged in the sale of furniture, makes its sales through company-owned stores and through dealer associate stores. Petitioner consigned furniture to the dealers under oral and written contracts under which the dealer who sold petitioner's furniture was entitled to receive a commission (percentage of the sales price) when payment from a customer was "collected" by the dealer and "remitted" to petitioner. Dealers had the primary responsibility both for the sale of the furniture as well as the collection of the sales price. During the taxable years ended June 30, 1967 and 1968, and for numerous years prior thereto, petitioner had been deducting in the year of sale an estimated amount for commissions which it anticipated would be paid to its dealers. Respondent disallowed the amount of unpaid commissions for the taxable years ended June 30, 1967 and 1968, as unaccruable expenses under secs. 446 and 461, I.R.C. 1954. Respondent also changed petitioner's method of accounting under sec. 481, I.R.C. 1954, and made net adjustments for the unpaid commissions based on a cutoff as of the taxable year ended June 30, 1955, resulting in an increase in taxable income for the taxable year ended June 30, 1967, of $ 916,384.67. Held: 1. Petitioner's legal liability for the commissions in question was not fixed and definite until the sales price of the merchandise was collected, and hence petitioner is not entitled to accrue and deduct the amounts thereof during the taxable years 1967 and 1968. 2. There is no necessary conflict between sec. 481 and the statute of limitations, sec. 6501(a), I.R.C. 1954, and respondent's adjustments under sec. 481 are sustained. Graff Chevrolet Co. v. Campbell, 343 F.2d 568 (C.A. 5, 1965), followed.

P, a physician, and his wife owned two medical office buildings, one of which P used as his office. Held: Under the circumstances of this case, payments made by P to the trust are not deductible as ordinary and necessary business expenses; and (2) the payments made on the first mortgage constituted income to P, who remained primarily liable on such mortgage.

Petitioner Seth Keener, employed by the Insurance Company of North America (INA) in Harrisburg, Pa., owned his home in that city. Held: this amount represents additional compensation includable in petitioners' gross income for the taxable year 1967 under sec. 61(a), I.R.C. 1954.

Petitioner purchased a 65-foot yacht in 1958. Over the next few years he made extensive repairs and improvement. Held: Petitioner was in the trade or business of chartering his yacht. The fact he may have enjoyed sailing does not change result since suffering has never been made a prerequisite to deductibility.

Petitioner (husband) was a partner in a three-man firm. Held: On the facts, petitioner's promise to indemnify the bonding company was not part of the purchase price of the CO stock. Estate of McGlothin v. Commissioner, 370 F. 2d 729 (C.A. 5, 1967), affirming 44 T.C. 611 (1965), distinguished. Nor was petitioner compensated for his losses.

1. Held, that the salaries paid by petitioner-corporations to Dave Fischbein, the chairman of the board of each corporation, during the years in question herein, were reasonable in amount and a… Held: that the salaries paid by petitioner-corporations to Dave Fischbein, the chairman of the board of each corporation, during the years in question herein, were reasonable in amount and a proper reflection of the value of the chairman's services rendered to each corporation. 2.

Decedent's will created a trust and directed the trustee to apply the net income and "so much of the principal as in the judgment" of the trustee "shall be necessary for the comfort of my sister, Mother M. Camilla of the Sisters of Mercy, Rochester, New York." The balance remaining upon the death of decedent's sister was to be paid to the Sisters of Mercy. Held, the trustee's power of invasion of the corpus of the trust was limited by a definite and ascertainable standard, and the estate is entitled to a deduction under sec. 2055 (a), I.R.C. 1954, computed in the manner prescribed by sec. 20.2031-7, Estate Tax Regs.

Pursuant to a prenuptial agreement W released her dower and other marital rights, including a year's support under Georgia law during the administration of H's estate, in return for which H agreed to… Held: the amount of $ 34,581.71 claimed as a personal debt owed to W is not allowable as a deductible claim against H's estate because it was not contracted bona fide and for an adequate and full consideration in money or money's worth under secs. 2053 and 2043(b), I.R.C. 1954.

1. Petitioner was sole shareholder and president of American and Shaw Ford, was individually licensed as an insurance agent, and individually entered into agency contracts with insurance companies… Held: the commission income is gross income taxable to petitioner under sec. 61, I.R.C. 1954. 2. Petitioner made payments to American and Shaw Ford in amounts equal to commission income received by him.

Petitioner owned a number of patents which were earning royalties. Held: petitioner was not taxable under either sec. 61 or sec. 482 on the royalty income earned by NSP on the patents acquired from petitioner.

Petitioner acquired 98 percent of the stock of Snellstrom in April 1964. Held: Petitioner acquired the Snellstrom stock and timber-cutting contracts under circumstances provided in sec. 334(b)(2), I.R.C. 1954, and is entitled to use as its basis in the assets received on liquidation of Snellstrom its adjusted basis in the stock of Snellstrom.

Held, a transaction pursuant to which petitioners purported to sell a ladies' sportswear business to the Temple Beth Ami, a religious organization as defined… Held: a transaction pursuant to which petitioners purported to sell a ladies' sportswear business to the Temple Beth Ami, a religious organization as defined in sec. 501(c)(3) and exempt from the tax imposed by sec. 511(a), did not constitute the sale or exchange of a capital asset within the meaning of sec. 1222(3).

Petitioner created six trusts and directed the trustees to distribute the net income of each trust to a designated beneficiary and, upon termination of each trust, to pay over the principal,… Held: under the provisions of secs. 451(a), 671, and 677(a)(2), I.R.C. 1954, the capital gains are taxable to petitioner in 1968.

The allowable portion of a net operating loss properly deductible by a shareholder in an electing small business corporation does not include corporate debts to third parties which have been guaranteed by the shareholder. The guaranteed debt was not indebtedness of the corporation to the shareholder and was not in substance a loan from the third-party lender to the shareholder followed by the shareholder's equity contribution to the corporation.

Protective, a Nebraska corporation, was dissolved and during the 2-year period following its dissolution, its vice president executed consents which purported to extend the period for assessment of… Held: under Nebraska law, the execution of the consents during the post-dissolution period was authorized.

In a reorganization under sec. 368(a)(1)(C), I.R.C. 1954, P acquired the business and substantially all of the assets of C & G, including the right of C & G to any tax refunds. Held: P is a transferee in equity of C & G as to the recovery of the portion of the refund that is erroneous.

An employee, who maintained a den in his Long Island residence where he chose for reasons of personal convenience to do work for his employer in the evenings, deducted automobile expenses incurred in… Held: petitioner's transportation expenses between his Long Island home and his Manhattan clients' offices and return were nondeductible commuting expenses.

At the time of his death (1964) D owned two mortgage notes upon the collection of which he would have realized long-term capital gains of $ 632,402.84 and $ 150,506.49, respectively. Held: since the gains reflected in the two notes were included in the bequest to T, the recomputation must be made on the assumption that they were excluded from that bequest and it is not proper in addition to redetermine the amount of the residuary charitable bequest in respect of these items.

P corporation was formed in the course of the consolidation of several existing corporations. Held: the costs incurred in connection with the appraisal proceeding do not qualify as organizational expenditures under sec. 248, I.R.C. 1954.

Petitioner, a veterinarian, during the taxable years 1965 and 1966 was in the business of breeding horses, trading in property rights in horses, and rendering advice in connection with the promotion of syndications of thoroughbred racehorses. During this period he assisted in three separate syndications for which he received nominations (breeding rights) in the stallions which had been syndicated. Held, (1) that petitioner received the nominations in question on the date of the effective syndications of the stallions involved; fair market value of such stallions determined; and (2) addition to tax for the taxable years 1965 and 1966 due to negligence or intentional disregard of the rules and regulations under sec. 6653(a). I.R.C. 1954, imposed.

For 1963 Oil Services was a controlled foreign corporation and for 1964, 1965, and 1967, it was both a controlled foreign corporation and a foreign personal holding company. Held: For 1964, 1965, and 1967, petitioners were not required to include in their gross income any part of Oil Services' increase in earnings invested in U.S. property for those years. Sec. 951(d). Sec. 1.951-3, Income Tax Regs., insofar as it runs contrary to this conclusion, is invalid.

During its taxable year ended Sept. 30, 1965, petitioner corporation discovered that an employee-bookkeeper, through a series of fictitious fruit purchases had embezzled $ 872,212.50 from it over an… Held: That petitioner is entitled to an embezzlement loss deduction under sec. 165, I.R.C. 1954, in its taxable year ended Sept. 30, 1965, for the full amount claimed.

In computing taxable income for a current year under the income-averaging provisions of secs. 1301 through 1305, I.R.C. 1954, a taxpayer is required to use the correct amount of taxable income in each base period year whether or not that amount is the amount reported for such base period year, even though assessment of a deficiency or refund of an overpayment is barred by the statute of limitations for such base period.

In 1968 petitioner was sued by his former wife (W) in Montana for modification of a California divorce decree. Held: That the statements contained in the transcript of the Montana proceeding do not constitute a written agreement between the parents for the purposes of sec. 152(e)(2)(A)(i), I.R.C. 1954. Therefore, petitioner is not entitled to the dependency exemptions claimed for the three children.

Decedent in his will, established a trust, income payable to his son for life, remainder to a named charity. The trustees were given discretionary powers over the income and principal of the trust. Held: the discretionary powers did not constitute a power of indirect invasion of corpus and therefore the charitable remainder is deductible under sec. 2055, I.R.C. 1954.

Held, petitioner is not entitled to deduct as a charitable contribution under sec. 170, I.R.C. 1954, the expenses which she incurred in 1967… Held: petitioner is not entitled to deduct as a charitable contribution under sec. 170, I.R.C. 1954, the expenses which she incurred in 1967 in sending her minor son to Europe; such expenses were not incident to the rendition of services to an organization contributions to which are deductible within the meaning of sec. 1.170-2(a)(2),…

Pursuant to sec. 2053(a)(3), petitioner deducted $ 422,958.91 from decedent's gross estate. Held: Respondent's new theory was not evident from the pleadings and required different proof. Petitioner was surprised and the presentation of her case was substantially prejudiced. Therefore, the underlying validity of the debt is not before this Court.

1. On Dec. 31, 1962, petitioner Mortimer L. Schultz sold his holdings in the stock of First Jersey Securities Corp. (FJS) to Office Buildings of America, Inc. (OBA), of which he was president; and as… Held: notwithstanding that petitioner was obliged to make restitution of part of the sales proceeds in a subsequent taxable period, he realized long-term capital gain during the taxable year 1962 in the amount of $ 213,000 from the sale consummated in that year. 2.

A partnership, in which two of the petitioners each had a one-half interest, owned 1.195 acres of unimproved land at a busy intersection in Indianapolis. Held: that the conveyance of the 0.428 acre of land to M.T.A. was not a charitable contribution under sec. 170, I.R.C. 1954, and (2) that the conveyance was not a bargain sale to the qualified charitable organization.

Petitioners, through their subch. S corporation, Twin Lakes, owned real estate in Colorado. Held: Twin Lakes received the insurance proceeds by reason of the death of the insured and not as income from the compromise and settlement of a lawsuit. Held, further, Twin Lakes did not receive any of the funds in its capacity as a creditor of Mason and there is no discount income by reason of collection of the $ 300,000 note.

1. Held, taxpayer is entitled to a deduction under sec. 170, I.R.C. 1954, for his donation of two essays of his own creation to a qualified charity; the donation of the essays… Held: taxpayer is entitled to a deduction under sec. 170, I.R.C. 1954, for his donation of two essays of his own creation to a qualified charity; the donation of the essays constituted a contribution of property, and not of services. Held, further, the essays had a fair market value of $ 500. 2.

Held: 1. Petitioner, an accrual basis taxpayer, which is a self-insurer under the CaliforniaWorkmen's Compensation law is not entitled to… Held: Petitioner, an accrual basis taxpayer, which is a self-insurer under the CaliforniaWorkmen's Compensation law is not entitled to deduct a reserve for estimated liability to injured employees, since all events fixing liability had not occurred and the amount of such liability is not reasonably ascertainable at the end of the taxable…

Decedent's will directed that all death taxes be paid out of that portion of his estate which was not included in the marital trust; however, the will also provided that if in the best business judgment and sole discretion of his executor, such taxes could be more prudently paid from assets of the estate without respect to what was or was not included in the marital trust, they should be so paid. Held, that the value of the interest of the surviving spouse in property passing to her from the decedent must be reduced in computing the amount of the marital deduction under sec. 2056, I.R.C. 1954, by the amount of death taxes which could potentially have been paid from the marital trust as of the decedent's date of death.

Prior to July 1, 1963, Lackey and his family owned all of the stock of petitioner. On that day petitioner's stock was sold to Bettis for $ 150,000, of which only $ 7,000 was paid in cash. Held: to the extent that deductions claimed by petitioner with respect to the property leased from Bettis exceeded $ 3,000 in each of the years in issue, they are not allowable as rental expenses under sec. 162(a)(3).

Held: An amount of $ 235,000 paid by T to a former employer in settlement of a lawsuit involving the employer's claim to reacquire certain of its stock from T was intended in addition to settle the… Held: An amount of $ 235,000 paid by T to a former employer in settlement of a lawsuit involving the employer's claim to reacquire certain of its stock from T was intended in addition to settle the employer's claim against T for negligent performance of his duties.

Petitioner produced a motion-picture film with funds supplied by another corporation pursuant to an agreement whereby upon completion of the motion picture all rights… Held: petitioner acquired no basis or interest in the motion picture on account of which petitioner could claim a deduction for amortization or depreciation. Held, further: Petitioner is not entitled to a deduction for interest. No liability for interest has accrued and no indebtedness has been established.

Decedent was survived by Charlene, her daughter and only child. When the executor of decedent's purported will declined to serve, Charlene was appointed administratrix. Held: fees incurred by Charlene to contest the probate of the will are not deductible by the estate as administrative expenses.

P acquired eight junior mortgages and underlying notes shortly after it was incorporated in November 1964. The junior mortgages required petitioner to discharge certain senior mortgages and liens out of collections. Held, the payments which petitioner made or caused to be made to the senior mortgagees and lienholders during 1967 were motivated primarily by petitioner's liability as holder of the junior mortgages rather than petitioner's fear of foreclosure, and such payments are hence nondeductible capital expenditures. Held, further, petitioner was subject to the personal holding company tax during 1967. Held, further, petitioner's "General Obligation Bonds" in fact represented an equity investment in petitioner, and payments made in respect of such bonds during 1967 are not deductible as interest.

P and S joined in filing consolidated income tax returns for 1964 and 1965. Held: for the purpose of computing P's loss on the worthlessness of the stock and debt of S, P's basis in such stock and debt must be reduced by the sum of S's net operating losses in 1964 and 1965. Sec. 1.1502-34A(b)(2)(i), Income Tax Regs.Henry C. Beck Builders, Inc., 41 T.C. 616, 629-633 (1964), distinguished.

One of petitioners owned land and buildings. The City of Baltimore leased a new building to be erected on the premises. The lease contained no provision for demolition of the existing buildings. Held: petitioners are not entitled to an ordinary-loss deduction in the year of demolition under sec. 165, I.R.C. 1954.

Petitioners owned 100 percent of KRL, a corporation organized under the laws of Liechtenstein. Held: In view of the restrictions on the preferred stock, such as board approval required for transfer, redeemable at par on 3 months' notice, and inability of new shareholders to break a deadlock, transfer of 50 percent of the voting power was a meaningless attempt to comply with the literal statutory requirements.

1. An electing small business corporation under subch. Held: The distribution did not constitute a distribution of the corporation's undistributed taxable income for the taxable year ended July 31, 1967, because the distribution of the checks did not constitute a distribution of money prescribed by sec. 1375(f), I.R.C. 1954.

Petitioner incurred expenses in two legal proceedings: (1) a declaratory judgment suit in which certain members of petitioner's family sought a determination that… Held: the portion of the legal expenses allocable to the declaratory judgment action is a nondeductible capital expenditure within the meaning of sec. 263(a), I.R.C. 1954, and the portion allocable to the concursus proceeding is deductible under sec. 212, I.R.C. 1954. Sec. 1.212-1(k), Income Tax Regs., applied.

Petitioner James G. Maxcy, his brother, Von, and sister, Elizabeth, were partners in certain businesses. The partnerships in question had taxable years ending July 31. Von died on Oct. 3, 1966. Held: the partnerships did not terminate until Feb. 26, 1968, and petitioners are entitled to deduct only James' pro rata share of the losses of the partnerships for the period Oct. 3, 1966, to Feb. 26, 1968.

NAFCO purchased unimproved real estate in 1965. Thereafter it entered into a partnership with group A to the extent of 35 percent of the property. NAFCO held a 65-percent interest in the partnership. Held: The transactions were bona fide as to all participants. (2) Interest payments made during the years in issue are deductible by all three partnerships. (3) Taxes paid are deductible by group A. (4) Addiditions to tax under sec. 6653(a), I.R.C. 1954, are not sustained.

Held: The term lending or finance business as defined in sec. 542 (d)(1), I.R.C. 1954, does not include the business of chattel leasing by a taxpayer otherwise engaged in the lending or finance… Held: The term lending or finance business as defined in sec. 542 (d)(1), I.R.C. 1954, does not include the business of chattel leasing by a taxpayer otherwise engaged in the lending or finance business.

T corp. maintained a program of self-insurance in respect of its workmen's compensation liability to its employees under State and Federal law. Held: estimated amounts payable to employees in future years are not deductible as accrued expenses for the year in which employee injuries occur, since all the events fixing such liability, e.g., the rendition of medical services, have not occurred during the taxable year. Thriftimart, Inc., 59 T.C. 598, followed.

Corporations were organized to acquire title to properties, issue promissory notes secured by mortgages, and execute leases in order to provide maximum financing by avoiding State law… Held: the corporations were at all times viable entities for tax purposes and were not agents or nominees of the individuals in respect of the underlying transactions. Moline Properties v. Commissioner, 319 U.S. 436 (1943); National Carbide Corp. v. Commissioner, 336 U.S. 422 (1949).

Petitioners operated a ranching business as a sole proprietorship until Jan. 1, 1964. Held: first, pursuant to the provisions of secs. 351 and 357(c) petitioners incurred a recognizable gain of $ 61,222.25 on the transfer and, second, the petitioners are not entitled to deduct any of the corporate losses on their own tax returns since their basis in the stock became zero after the transfer, secs. 358 and 1374 (c)(2).

Held: The proceeds from a forced sale of collateral by a creditor made in circumstances of the debtor's insolvency were properly applied by the creditor to unpaid principal on the indebtedness. Held: The proceeds from a forced sale of collateral by a creditor made in circumstances of the debtor's insolvency were properly applied by the creditor to unpaid principal on the indebtedness.

1. Petitioners Joseph Johnson, David Johnson, and Clay Johnson borrowed $ 200,000, $ 200,000, and $ 175,000, respectively, from a bank, signing 30-day notes therefor. Held: The transactions resulted, in substance, in a part sale to the extent of the loan proceeds received by each petitioner and a part gift of the excess fair market value of the stock.

A notice of deficiency for the year 1968 was sent to the petitioners by certified mail at the business address given on their Federal income tax return for such year. Held: the notice of deficiency was valid and suspended the running of the statute of limitations.

The will provided that the trustee shall have the sole and exclusive right of management of the trust property. Held: under Texas law, Mary Joyce Cox did not hold a power of invasion or appointment with respect to the trust corpus.

Lillian and Walter owned one-third of the stock of two corporations as community property, and the remaining stock of each corporation was owned equally by their two sons. Held: by virtue of its waiver agreement filed under sec. 302(c)(2) the stock of the two sons cannot be attributed to petitioner, and the distributions in redemption of petitioner's stock in the two corporations should be treated as payment in exchange for such stock under sec. 302(b)(3).

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 Texas law, the trustee's discretionary powers were so restricted that the value of the charitable remainder was ascertainable; and 2. The value of the charitable remainder should be calculated without reduction for the value of the property interests which the wife received.

1. Held, petitioners' motion to suppress evidence upon a claim of an illegal search and seizure is denied because petitioners' decedent voluntarily permitted respondent's agents to obtain his records… Held: petitioners' motion to suppress evidence upon a claim of an illegal search and seizure is denied because petitioners' decedent voluntarily permitted respondent's agents to obtain his records from his bookkeeper and accountant. 2.

Pursuant to a decree of divorce petitioner husband was required to make monthly payments to his divorced wife for her support and maintenance. These payments were to terminate upon the death or remarriage of the divorced wife. The decree contained another provision which required petitioner to pay his divorced wife $ 5,000 if she should remarry in 1966. Held, pursuant to secs. 71 and 215 of the Internal Revenue Code the $ 5,000 payment is not deductible by petitioner since it is a principal sum and not a "periodic payment."