Volume 6 — Board of Tax Appeals

Taxpayer leased its property, the lessee agreeing to return the plant in the same condition as then existed and with assets of as great book value and actual value as then existed. During the taxable year the lessee made repairs and installed new equipment and machinery of a value in excess of depreciation. Held, that no error was committed in refusing a depreciation deduction to the taxpayer.

Income taxes assessed against a corporation and paid by a stockholder after he has received his final liquidating dividend, should be charged against such dividend and his return made for the year in which such dividend was received should be adjusted to express the true amount of such dividend.

Petitioner agreed to sell coal to a railway company at 25 cents per ton less than the market price for a period of ten years, in consideration of the railway company constructing a branch line to its… Held: that the petitioner may not include in its invested capital the amount of $250,000, representing the difference between market and selling prices for the ten-year period.

1. PARTNERSHIPS. - When the heirs of John R. Thomas, under the terms of his will, acquired the property known as The Niles Fire Brick Co. and continued the operation of the same as a going business, they thereby became, in the view of the law, a partnership. 2.

1. The Board will not review the action of the Commissioner in excluding assets from invested capital for a taxable period in the absence of a determination by him of a deficiency for that period. 2. Where notes and accounts receivable comprising a part of partnership assets transferred to a corporation for stock are regarded by the incorporators as not being worth their face value, a reserve for anticipated losses thereon, set up at the time of the transfer to reflect their actual value on the books of the corporation, may not be included in surplus in computing invested capital. 3. In the absence of evidence as to the value or useful life of depreciable assets, the Commissioner's computation of an allowance for depreciation will not be disturbed.

By his will decedent devised his real estate to his executor in trust for the use of his widow during her life, and directed the executor, upon her death, to sell such… Held: that while the interest of the children vested at the death of decedent, their sole interest, in the absence of any election to take the real estate, was in the proceeds of sale and was personal property, and that the gain from the sale was taxable to the executor as income to the corpus of the estate.

Deduction of amounts as ordinary and necessary business expenses allowed.

1. Under section 234(a)(8) of the Revenue Act of 1918, a taxpayer is entitled to a deduction for amortization on facilities acquired on or after April 6, 1917, for the production of articles… Held: that the cost of supplies included in inventory account did not constitute income for the taxable year.

Certain income received by the estate of the decedent during administration and settlement was, pursuant to the terms of the will, permanently set aside for charitable, religious, and educational purposes and was a proper deduction in the return filed by the estate.

INVESTED CAPITAL. - The credit balances of officers' and stockholders' accounts for undrawn salaries, as appearing on the corporation books December 31, 1919, became paid-in capital on January 17, 1920, when the officers and stockholders formally agreed to cancel their claims for such credit balances and to return the same to the corporation in payment for stock to be thereafter issued. Additions to such accounts during the year 1920 were under the same agreement paid in to the corporation for stock on December 22, when stock was issued therefor.

- The accrual method of accounting, as applied by this petitioner to round-trip voyages of a sailing vessel, held clearly to reflect the income as required by section 212(b) of the Revenue Act of 1918.

A cash dividend declared on February 1, 1918, payable on April 1, 1918, creates a debt due from the corporation to the stockholders immediately from the date of declaration, and under section 201 (e) of the Revenue Act of 1918, the distribution must be deemed to have come out of prior years' earnings, having been made during the first sixty days of the taxable year.

On December 20, 1917, the petitioner declared a cash dividend of 200 per cent payable by or before December 27, 1917, from the company's… Held: that the dividend declared as a cash dividend on December 20, 1917, was not a stock dividend and that the petitioner was not entitled to include in invested capital from January 1 to March 9, 1918, the amount of cash dividend used by the stockholders entitled thereto for the purpose of acquiring additional shares of capital stock.

a $20,000 dividend of The American National Bank of Beaumont, Texas, in 1920 was a stock dividend and did not constitute taxable income to the petitioners.

1. During 1918 the petitioner abandoned the use of and scrapped certain material theretofore used in the manufacture of certain designs of Simplex jacks which became obsolete and their manufacture… Held: that the material scrapped was properly excluded from the closing inventory for 1918. 2. A salary of $30,000 paid by petitioner to its president in each of the years 1918 and 1919 was, in the circumstances, reasonable. 3.

1. A debt determined to be worthless and charged off during the year was a proper deduction from gross income. 2. That portion of the expense of operating and maintaining automobiles applicable to their use by petitioner in going from his home to his place of business and in returning to his home is not a proper deduction from gross income as an ordinary and necessary business expense.

The stock in a bank owned by the petitioner was worthless at the end of 1921 and the cost thereof was a proper deduction from gross income as a loss sustained in that year.

The Commissioner's determination of the petitioner's invested capital for the taxable years was erroneous for the reason that he incorrectly computed its depreciation reserve.

1. Certain expenditures held to be deductible as ordinary and necessary expenses. 2. Deduction of an alleged bad debt denied.

A corporation filing a separate return for 1922 may not subsequently file a consolidated return for that year.

An appraisal based on cost of reproduction as of March 1, 1913, does not establish actual value as of that date.

The evidence being inconclusive as to losses actually sustained within the taxable years on account of unsalable merchandise, the respondent's refusal to accept a recomputation of inventories for those years approved.

Cost of goods sold within the years in question, together with other amounts which were added to inflate financial statements, found to have been added to inventories and eliminated therefrom.

In the absence of evidence showing that additional compensation was paid or accrued during 1918, the respondent's disallowance of the deduction on account thereof is sustained. There being no evidence as to the reasonableness of such additional amounts as compensation for 1919, no deduction is allowable in the latter year.

A joint return of husband and wife having been filed for 1922, community property returns may not be subsequently filed for that year.

- Evidence produced in support of a claimed capital value of a logging contract held to be insufficient to support the values claimed and insufficient to warrant the Board in finding any definite capital value for such contract.

Where a husband had a contract of employment for three years, beginning in 1922, and in that year an interlocutory decree of divorce was entered in California, relating to his marriage, and thereafter he paid his wife $12,000 in consideration of which she relinquished all right and claims which she might have under the community property laws of California to the income which he would receive under his contract of employment, any expense incurred by him as a result of this…

Cost of intangible properties paid in for stock and tangible property paid in without consideration is not proved. Held: that failure to prove such cost is not evidence that invested capital can not be ascertained. Petitioner's request for recomputation of tax liability under section 328 of the Revenue Act of 1918 is denied.

1. On the evidence, corporations held to be affiliated. 2. Value of coal land as of March 1, 1913, determined for depletion purposes.

1. On the evidence, held, that the sale of real property made in 1920 was not on the installment plan; that sales made in 1921 were on the installment plan. 2. Reductions in depreciation and invested capital approved for lack of evidence.

Petitioner is entitled to a deduction for an amount paid to agents in the sale of real estate.

1. Deduction alleged to represent bad debts in the nature of uncollectible balances on merchandise accounts allowed. 2. Discounts to customers on account of defective merchandise allowed. 3. Loss on account of loan to a debtor who became insolvent in the taxable year allowed. 4. Loss on account of death of live stock purchased by petitioner allowed.

The evidence fails to show that the petitioner acquired good will for stock for invested capital purposes.

The Commissioner was not in error when he reduced the amount of a deduction claimed under section 403(a)(2) of the Revenue Act of 1921, for previously taxed property, by the amount allowed as a part of a deduction under section 403(a)(3) of the same Act for charitable bequests, where the petitioner has failed to show that the funds in the amount of the reduction derived from the sale by the decedent's executor of a part of the previously taxed property were not necessary to…

1. On the evidence held that husband and wife were domiciled in the State of Washington during the taxable year. 2. Under the statutes of Washington a wife has a vested interest in community property, and where the husband reported one-half of the income from community property as taxable to him the Commissioner is precluded by section 1212 of the Revenue Act of 1926 from taxing the whole of such income to the husband.

1. In the circumstances of this proceeding, income resulting from sales of real estate should be computed on the installment basis. 2. Overassessments in the circumstances pleaded herein are not subject to review by the Board.

The Commissioner's disallowance of deductions for alleged worthless debts approved.

1. COMMUNITY PROPERTY. - Petitioner and wife, residents of California, owned community property which they exchanged for stock of a corporation, the husband causing part of the stock to be issued to… Held: the issuance of stock to the wife did not of itself effect a dissolution of the community so as to render the stock issued to the husband his separate property. 2.

1. The original cost of stock is not necessarily the basis for determining profit or loss upon a sale. 2. Held: that petitioner has not established the computation to be incorrect by showing only the original cost of the stock. Miles v. Safe Deposit & Trust Co.,259 U.S. 247.

Transaction involved herein held to be a purchase by the petitioner of the assets of its predecessor for its capital stock.

Petitioner purchased bonds and securities of other corporations for resale and as investments. Held: that the amounts by which such bonds were written up or down in each year did not represent accrued income or a loss sustained within the year and it may not therefore be said that such method of accounting clearly reflected income.

Petitioner held not subject to tax on annuities received under a will where the courts in construing the will direct that such annuities shall be a charge against the corpus of the estate.

Amount deductible for compensation to salesmen employed upon a commission basis determined.

Invested capital held to have been properly reduced by an amount representing dividends paid to stockholders impairing the original invested capital.

1. The depreciated cost of certain looms discarded during the years 1917, 1918, and 1919 held to be a legal deduction from gross income. 2. Held: that the manufactured cloth not shipped should have been included in petitioner's inventory at December 31, 1918, at the cost thereof.

The evidence fails to show that the petitioner is entitled to have its profits taxes assessed under the provisions of section 328 of the Revenue Act of 1918.

1. Value of plant and equipment acquired by petitioner, and cost thereof for purpose of computing amortization allowance, determined. 2. Amortization allowance reduced by the amount awarded petitioner by the United States as loss in value of special facilities chargeable to canceled contract. 3. Petitioner held entitled to deduct from 1918 income the net loss sustained in 1919, if any, which is to be determined by a reaudit of its 1919 return. 4.

1. Depletion allowances corrected in accordance with admitted errors of the Commissioner. 2. Evidence held to establish creation of trust in mineral rights before execution of both the contract to lease and the oil and gas lease on the lands involved. 3.

1. A corporation in which the taxpayer was a stockholder was dissolved and the assets transferred to a partnership composed of the former stockholders. Held: that the taxpayer realized taxable gain to the extent the value of the property received in liquidation exceeded the cost of the stock. 2.

The petitioner was during the year 1922 a corporation organized and operated exclusively for charitable purposes, no part of the net earnings of which inured to the benefit of any private stockholder or individual; and it was therefore exempt from taxation under the provisions of section 231(6) of the Revenue Act of 1921.

Corporation conducting business as general agents for fire and hail insurance companies and performing a substantial portion of its functions through others than the principal stockholders, held, not… Held: not to be entitled to personal service classification.

1. Shares of stock authorized to be issued by a corporation on March 9, 1917, were not outstanding on March 3, 1917. 2. Held: that the $200,000 capital stock was issued at a nominal value within the meaning of section 325(b) of the Revenue Act of 1918.

Under Title IX of the Revenue Act of 1918, the tax imposed on sales by manufacturers of automobiles and accessories is not deductible by individual purchasers of such products.

1. Petitioner had a ten-year contract for cutting timber on a Federal forest reserve. Held: that in these conditions the petitioner was not entitled to depreciate its plant assets with a normal useful life in excess of ten years on the basis of the ten-year term of the timber sale agreement with the Government. 2. Basis of depreciation for plant assets determined from the evidence adduced at the hearing.

1. Evidence held insufficient to establish gifts by the taxpayer of interests in a joint venture. 2. Claimed loss on sale of stock disallowed in view of lack of evidence to show sales price. 3. Commissioner's application of provisions of section 211(b) of Revenue Act of 1918 approved. Appeal of M. Fowler,1 B.T.A. 1212; Fowler v. United States, 11 Fed. (2d) 895; 16 Fed. (2d) 925. 4.

Trust created by decedent prior to his death held not to have been made in contemplation of death.

Cash value of property paid in to petitioner in September, 1914, for stock determined for invested capital purposes.

1. The cash value of certain property paid in to petitioner in 1900 for stock and the cost of subsequent additions and improvements for the purpose of invested capital, and the fair market price or value of depreciable assets on March 1, 1913, for the purpose of the allowance for exhaustion, wear and tear for the years 1919, 1920, and 1921, determined. 2.

Where the assets of a corporation were distributed to the stockholders as partners, gain or loss resulted to the stockholders under the Revenue Act of 1918, though the liquidation was effected while article 1566(c), Regulations 45, construing such distribution not to result in gain or loss to stockholders, was in force. The fair market value of the corporate assets distributed determined.

1. The fair market value of purchase money second mortgage notes received on sale of Ford automobiles, determined. 2. Where additions to reserve, or $3,672.05, for losses, were not shown to be insufficient to cover anticipated losses on such notes, the respondent's inclusion of the notes in income at face value approved.

1. In 1918 and 1919 petitioner discontinued the use of certain machinery and equipment, consisting of engines, boilers, and pumps, because of the change from steam to electric power. Held: that petitioner may not take a deduction for 1918 and 1919 of the fair market value of the machinery and equipment at the time its use was discontinued, that being no evidence to show the cost or the fair market price or the value of such equipment on March 1, 1913. 2.

Gift held to have been made in contemplation of death.

1. Only losses sustained within the taxable year are deductible. 2. A sale made in compliance with an insistent request by a local chamber of commerce that a new industry might acquire the desired location, does not constitute an involuntary conversion under section 234(a)(14) of the Revenue Act of 1921.

1. Petitioner is engaged in the merchandise business on the installment sales plan. Held: that such method of accounting does not clearly reflect income. 2. Evidence of abnormalities in income or invested capital held insufficient to entitle petitioner to relief under the provisions of section 328 of the Revenue Act of 1918.

1. Certain expenditures held to be deductible as ordinary and necessary expenses. 2. Useful life of building determined. 3. Legal expenses paid in defending a suit arising out of a transaction directly connected with the petitioner's business are ordinary and necessary expenses and as such are deductible.

The entire capital stock of taxpayer corporation was issued to its organizers solely for tangible property paid in, and there was paid in, at the same time, the good will and patent rights of a… Held: that the value of the good will and patent rights may not be included in invested capital.

Held, that the petitioner is entitled to compute its income under the provisions of section 212(d) of the Revenue Act of 1926. Held: that the petitioner is entitled to compute its income under the provisions of section 212(d) of the Revenue Act of 1926.

During the years 1918 and 1919 petitioner was entitled to classification as a personal service corporation.

An individual who kept his books and filed his returns on the calendar year basis and who was a member of a partnership which kept its books on the basis of a fiscal year ended in the calendar year 1924, is not entitled to the benefit of the 25 per cent reduction in tax provided in the Revenue Act of 1924, for the year 1923, with respect to his share of the partnership profits for the fiscal year ended in the calendar year 1924.

Loss from demolition of building allowed in year in which demolished, and not in year in which a business theretofore carried on in the building was abandoned, use of the building for other purposes having been continued.

A one-third interest in the Hinckley Beach Canning Co., a partnership, stood in petitioner's name. One-half of the amount required for the acquisition of that interest was the separate property of the petitioner's wife. She may report, therefore, in her separate return, one-half of the profit realized on the sale of the partnership's assets, all of the which was charged to the petitioner by the Commissioner.

Petitioner and Flint-Adaskin Co. were not affiliated during 1920.

Value at March 1, 1913, of good will, trade-marks, and trade brands of the liquor department of a wholesale business not established by the evidence as distinguishable or separable from the value of the combined intangible assets of the petitioner at such date. Loss of intangibles during the taxable years not proven.

INCOME. - These petitioners, during the year 1919, did not receive, nor was there set aside for their use or benefit out of the transactions described in the record, anything of such a definitely known and ascertainable value as to be classified as income in that year.

1. The petitioners were affiliated for the year 1919. 2. The Commissioner's action in eliminating $50,000 for alleged good will from invested capital affirmed.

1. Cost of architect's plans for a building, never used, allowed as a deduction where a different building was erected during the year from other plans. 2. Cost of temporary alterations and construction torn out and replaced during the year, allowed as a deduction. 3. Excessive cost of erecting a building, caused by necessity for prompt completion and by prevailing high costs of labor and material, may not be deducted as a business expense.

Value of an estate by the entirety excluded from the gross estate of decedent on authority of Estate of Charles I. Hudson,5 B.T.A. 711.

The forwarding of a notice of deficiency to an address which is not the address of the taxpayer does not constitute mailing within the meaning of the Revenue Act of 1926. In the instant case a notice was forwarded to an incorrect address, and thereafter, on its return undelivered, it was mailed to the taxpayer's correct address. The appeal lies from the letter which was properly mailed.

1. Carrying charges for a period prior to March 1, 1913, may not be added to cost of property acquired prior thereto in determining cost or other basis for computing gain or loss on sale of the property. 2. The depreciated March 1, 1913, value of property acquired prior thereto, determined, and, being in excess of cost, held, basis for determining gain on sale.

1. The action of the Commissioner in including in invested capital for the taxable year 1920 certain patents paid in to petitioner in 1908 and subsequent thereto for stock to the extent of 25 per cent of the par value of the capital stock outstanding on March 3, 1917, is approved. 2. In 1908 a mixed aggregate of assets, in which were included certain patents, were paid in to petitioner for $192,000 par value of stock.

1. Value of mineral lands acquired in 1905 in exchange for shares of stock determined. 2. Certain amounts paid to employees in addition to stated salaries held to be capital expenditures. 3. Claim for deduction on account of extraordinary repairs of manufacturing equipment disallowed as deduction from gross income.

1. Depreciation rates based on a physical examination of the assets and consideration of the various factors, such as the extent of operations, effect of repairs, etc., indicative of the amount of wear and tear during the period involved, more accurately represent depreciation sustained than do rates computed by a straightline method, for the purpose of determining allowable depreciation deductions as well as adjustments of invested capital on account of depreciation…

1. Where the usefulness of business property is lost to a taxpayer through the operation of the prohibition law, and the property is neither abandoned nor sold but is placed in storage, the cost thereof is not deductible as a loss. 2.

Return was made of estate tax and the tax paid; deficiency taxes were thereafter assessed and paid; a portion of the latter taxes was subsequently refunded by the Commissioner; the refunding of the tax reduced the sum of the taxes returned and the taxes paid to an amount less than that asserted by the Commissioner to be the true tax liability; the result was the determination of a deficiency and a notice of such determination constitutes a statutory notice from which an…

Return was made of estate tax and the tax paid; deficiency taxes were thereafter assessed and paid; a portion of the latter taxes was subsequently refunded by the Commissioner; the refunding of the tax reduced the sum of the taxes returned and the taxes paid to an amount less than that asserted by the Commissioner to be the true tax liability; the result was the determination of a deficiency and a notice of such determination constitutes a statutory notice from which an…

1. A liability incurred through a breach of contract is a deductible loss for the year in which the breach occurred, where liability was admitted, an offer in compromise was made, and an amount representing the estimated liability was accrued on the books, though the amount of the loss was undetermined until compromise settlement was effected during the succeeding year. 2.

1. By formal corporate action petitioner set apart 25 per cent of receipts from the sale of cemetery lots as a fund for the perpetual care of burial lots. Held: that the fund so set apart is not income and should not be included in invested capital.

Personal service classification denied upon the ground that the evidence does not establish that the earnings are to be ascribed primarily to the activities of the principal stockholders.

During the taxable year the petitioner became entitled to a certain amount of oil as his share of that produced under a lease. He disposed of only a portion thereof during the taxable year. Held: that a reasonable allowance for depletion is to be based upon the amount of oil sold, the proceeds of which are included in the return. Appeal of R. M. Waggoner,5 B.T.A. 1191, followed.

1. The deficiency determined by the Commissioner was based upon a revenue agent's report which was shown by the evidence to be incorrect in many respects. Held, that the computation of income must be determined upon the basis of more reliable evidence in the record. 2. The parties had introduced in evidence by consent a prior report made by an internal revenue agent, which report did not contain the errors made in the report relied upon by the Commissioner. While the Board was unable from the evidence to determine the amount of the income, it did appear that income was more nearly reflected in the first revenue agent's report and was not in excess of the amount shown in that report. Held, that in such circumstances the deficiency should be recomputed on the basis of income shown in such first report.

1. The taxpayer purchased merchandise in England, the purchase price to be paid in pounds sterling. Held: that the cost of such goods must be arrived at by reducing sterling to dollars at the rate of exchange prevailing on the date of purchase of the goods. 2.

1. The purchase of assets and the assumption of liabilities of a corporation by the owner of practically all of the stock held to be merely a step in, rather than a separate transaction from, the… Held: that the Commissioner's determination must be approved.

Interest on foreign bonds paid to a nonresident alien individual while the bonds are held within the United States as security for a loan, does not constitute gross income from sources within the United States, within the meaning of section 213(c) of the Revenue Act of 1918.

A nonresident alien receiving dividends upon shares of stock of the Canadian Pacific Railway Co. through her agent located in the United States, is not liable to income tax in respect of such dividends under the Revenue Act of 1918.

Where the evidence fails to show that the disposition of an interest in real estate by a corporation to its stockholders constituted a sale, as distinguished from a distribution in kind, a loss alleged to result from the so-called sale is not established.

The evidence sustains petitioner's claim for a deduction from gross income for 1921 of certain amounts of debts ascertained to be recoverable only in part and charged off in part within the year.

The petitioner is entitled to an annual deduction from gross income for the exhaustion of casing-head gas contracts owned by it.

1. The petitioner in the year 1918 purchased its own bonds for less than the amount for which they had been issued. Held, that it realized no taxable gain from the transaction. 2. Held: that it realized no taxable gain from the transaction. 2. That part of the 1918 income tax (2 per cent) paid for the petitioner by the Director General of Railroads in accordance with the provisions of the Federal Control Act of March 21, 1918, was not income to the petitioner. 3.

1. Salaries, disallowed by the Commissioner, allowed as a deduction. 2. The Commissioner decreased invested capital by the amount of additional tax claimed by him to be due, but not yet assessed and in dispute in another proceeding before the Board. In the absence of any evidence of the correct tax liability for such prior year, the action of the Commissioner is approved.

1. Where bonuses are authorized to be paid to the officers and employees of a corporation and the amount to be paid to each employee and officer is determined prior to the close of the year, they are deductible from gross income in income-tax returns, even though no entry is made upon the books of account until the succeeding year. 2.

Income on cash receipts and disbursements basis determined.

Losses resulting from worthlessness of corporate stock allowed.

Decedent transferred to a bank by endorsement a promissory note owned by him, in satisfaction pro tanto of his indebtedness to the bank. After decedent's death makers of the note defaulted and the bank recovered judgment and payment. The note was not an asset of the decedent's estate at the date of his death.

The fair market value of petitioner's land on March 1, 1913, was $18,500.

- A corporation organized under state building and loan association laws, which has so far departed from the practices of such associations that by far the larger portion of its business is transacted with nonmembers, held to have forfeited its exemption from income taxes under section 231(4) of the Revenue Acts of 1918 and 1921, and to be subject to taxes imposed by sections 230 and 301 of said Acts.

1. The profit from the exchange of a lease and interest in mining claims received for services, which lease and interest had no market value at the time acquired, for the stock of a corporation is the amount of the fair market value of the stock received in exchange. 2.

The letter appealed from was not a notice of a final determination of a deficiency by the Commissioner and does not form the basis for an appeal to the Board. The Board is without jurisdiction in the premises. Section 283(k) of the Revenue Act of 1926 continues the procedure outlined in the Revenue Act of 1924 with respect to appeals following jeopardy assessments made under the provisions of the Revenue Act of 1924.

Increased salaries paid to each of the two principal officers and stockholders, whose experience and efforts were responsible for the unusual profits earned, held reasonable and deductible, where the ratio of net profits, after the deduction, to average investment was greater than such ratio in other years when lesser salaries were paid.

The amount of traveling expenses determined and allowed as a deduction.

Under the Revenue Act of 1921, the March 1, 1913, value of property must be reduced by depreciation sustained in determining the gain from the sale of property.

Evidence held insufficient to establish market value of goods inventoried at cost.

1. Petitioner is engaged under contracts in constructing and maintaining streets and highways in the Commonwealth of Pennsylvania and political subdivisions thereof. Held: that profits from such contracts should be included in taxable income. 2. Petitioner is required by its contracts to maintain for a fixed period all roads and streets which it constructs. It set apart on its books in the taxable year an amount which it designated as Prepaid Maintenance.

Deductions claimed as compensation for services allowed.

If a debt is ascertained to be worthless and charged off within the taxable year, the right to deduct it from gross income is not affected by the fact that the amount of the debt is later recovered.

1. Expenditures made on an oil well which proved worthless and was abandoned, are deductible as a loss in the year in which the well was abandoned. 2. Deduction of pro rata share of expenses of operating oil wells allowed as business expense. 3. Expenses of operation and depreciation of an automobile used to transport petitioner between his residence and oil field where his business was, and in transporting him over the field to look after his several wells, were deductible as business expenses. 4. Evidence held insufficient to show Commissioner's determination of depreciation was incorrect.

1. Petitioners were the only stockholders of a corporation that was dissolved by surrender of charter. Held: that, in the circumstances disclosed by the evidence herein, the business was operated as a partnership during the taxable year. 2. Evidence held insufficient to prove that certain accounts receivable were ascertained to be worthless and charged off during the taxable year.

Upon the evidence, deductions of a loss sustained in 1919 allowed; deductions of alleged bad debts in 1920 disallowed.

1. Petitioner made its income-tax return for the fiscal year ended June 30, 1918. Held: where the tax is to be computed under the special assessment section, the tax for the entire year must be so computed. 2. A return for a fiscal year ending in 1918 is governed wholly by the provisions of the Revenue Act of 1918 and not by the Revenue Acts of 1916 and 1917.

A corporation operating a grain elevator received for storage grain which it sold instead of storing it, and when the owners of the grain authorized its sale the corporation paid them the market… Held: that gain or loss did not arise until an obligation to pay for the grain arose.

1. Where the books of a bank are kept on the cash receipts and disbursements basis, bank discount neither earned nor received within the taxable year does not constitute income for that year. 2. All amounts which constitute income within the year under the method of accounting employed, must be returned for taxation in that year, even though a part thereof was improperly reported as income and the tax paid thereon in a prior year.

1. No profit was realized by the petitioner from the conveyance by him to his daughter in the year 1920 of certain real estate involved herein. 2. An allowance for the exhaustion, wear and tear of a certain building owned by the petitioner, computed at the rate of 2 per cent, held to be reasonable. 3.

The debts involved herein were ascertained to be worthless and charged off within the taxable year 1920, and constitute proper deductions in computing the petitioner's net income for that year.

Loss on the sale of certain stock allowed.

Under the evidence herein, the petitioner is entitled to deduct a reasonable allowance for obsolescence of its power plant.

1. The imposition of a fraud or negligence penalty is not justified. 2.

1. DEDUCTIONS. - An annual payment made by the taxpayer to his sister, pursuant to the terms of an agreement, held not to be an allowable deduction from gross income. 2. COMPENSATION OF OFFICERS. - An officer of a corporation receiving compensation in an amount in excess of the reasonable compensation allowed as a deduction to the corporation may nevertheless be liable to income tax upon the amount so received. 3.

GROSS ESTATE. - Inclusion of properties acquired from a prior estate and taxed within five years.

Losses arising from the purchase of oil leases, proven to be worthless in the taxable year and disposed of for a nominal consideration, allowed as deductions.

1. The claim of the petitioner to the deduction from the gross income of 1920 of $8,000 for traveling expenses incurred prior to 1915, and for the deduction of $6,200 for 11 years' interest on an advance to the corporation of $10,000 in 1909, was properly disallowed by the commissioner. 2. Proper rates of depreciation upon depreciable assets for the years 1917 to 1921, inclusive, determined.

INCOME. - Gain upon liquidation of a corporation.

A corporation of which the petitioners were stockholders was legally dissolved in 1919 and the assets were received by the directors (who constituted the stockholders) as trustees in liquidation; in… Held: that the petitioners derived income measured by the difference between the cost of their shares and the book value at date of dissolution of the corporation.

1. Assets acquired by a corporation prior to March 3, 1917, in exchange for its capital stock are, under the Revenue Acts of 1918 and 1921, to be included in invested capital at their value on the… Held: that the transferor retained an interest and control in such property of more than 50 per centum, and that, under section 331 of the Revenue Acts of 1918 and 1921, the property can be included in invested capital only in the amount of its cost to the transferor.

In 1919 petitioner entered into a contract to sell a lease. The lease with an assignment thereof and payment therefor were deposited with a bank in escrow. Held: that profit from the sale was taxable income in 1919.

1. Book entry of appreciation in value of capital assets does not establish right to invested capital. La Belle Iron Works v. United States,256 U.S. 377. 2. The fact that property was bought because the seller wanted to make a quick sale does not prove that the value exceeded the price paid.

Exhaustion, wear and tear, and obsolescence of laundry machinery determined at a rate of 10 per cent.

The deduction for exhaustion, wear and tear, and obsolescence of modern moving picture theatres in Chicago determined to be a rate of 3 per cent.

Forgiveness of indebtedness for salary from a corporation to its officers, who were also its principal stockholders, not sufficiently established to justify its inclusion in corporate surplus as invested capital.

In April, 1913, taxpayers by contract relinquished property rights in exchange for an annuity during their mother's life, the value of which in April, 1913, was stipulated. Held: that when actually received in each year the annual payment consists of the principal value of 1913 of such payment plus the discount, the latter being the gain taxable as income. The allocation would vary from year to year, the capital steadily getting smaller and the gain larger.

1. The debt herein was properly ascertained to be worthless and charged off in the taxable year, and constituted a deduction from gross income. 2. A taxpayer on the cash receipts and disbursements basis may not deduct from gross income the amount of a note given for an antecedent obligation, where it is not shown that the note was accepted as payment.

1. Upon the organization of a corporation, it issued stock for the tangible property of a preceding business to its owner. The intangible property was expressly transferred separately. Held: that the intangible property may not be included in invested capital and no apportionment may be made as in St. Louis Screw Co.,2 B.T.A. 649. 2.

1. The amount approved by the local probate court in Illinois as a sum of money reasonable for the support of the widow for the period of one year after the death of the testator, is not ipso facto the amount deductible under section 403(a)(1), Revenue Act of 1921; and the correct amount is determinable from the evidence. 2.

1. Where the evidence discloses that at the time of organization a corporation received a mixed aggregate of tangibles and intangibles in exchange for its capital stock, the stock may be apportioned ratably with the value of each such class, and under St. Louis Screw Co.,2 B.T.A. 649, to include in invested capital so much of intangibles as does not exceed 25 per cent of the capital stock outstanding March 3, 1917, and all the tangibles so paid in.

The taking of possession by the Bank Commissioner of the State of Missouri of a state bank therein for the purpose of liquidation on account of insolvency of the bank is such a receivership as will deprive the Board of jurisdiction of a proceeding brought before it subsequent to the said action of the Bank Commissioner. Section 282(a) of the Revenue Act of 1926.

Petitioner in the conduct of its business occupied real estate owned by its sole stockholder. Held: petitioner is not entitled to a deduction for claimed rental value of the land occupied.

- The proceeds of insurance polices in which a beneficiary other than the insured or his estate has been named prior to the effective date of the Revenue Act of 1921 and not again changed, should not be included in the valuation of the gross estate of the insured.

Amounts paid by an individual for legal services in the collection of a debt arising out of an ordinary business transaction are deductible from gross income in income-tax returns as ordinary and necessary expenses in computing net income under the Revenue Act of 1918.

1. Commissioner's reduction of invested capital on account of expired patents approved. 2. Good will which petitioner claims attached to patents and remained with their owner even after the expiration of the patents may not be included in invested capital.

1. On the evidence, held that transfers of stock on December 31, 1920, were not bona fide sales and will not support a claim for loss on account of sales of stock. 2. Evidence held insufficient to prove worthlessness of a debt secured by corporate stock. 3. Evidence held insufficient to establish worthlessness of corporate stock.

The disallowance by the Commissioner of the deduction of a part of the amount claimed on the taxpayer's income-tax return affirmed for lack of evidence.

In determining whether the net income for 1923 is in excess of $25,000 and the credit of $2,000 provided for by section 236(b) of the Revenue Act of 1921 is to be allowed, the net loss provided for by section 204(b) may not be deducted.

Adjustments in petitioner's income and deductions for the years involved herein determined.

The amount of certain county warrants held not deductible as worthless.

Petitioner, having filed a joint return of income for himself and his wife for the calendar year 1922, is not entitled to have his tax computed on the basis of his separate income. R. Downes, Jr., v. Commissioner,5 B.T.A. 1029.

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

Petitioner held to be entitled to classification as a personal service corporation.

1. The 50 per cent fraud penalty asserted for filing a false and fraudulent return with intent to evade tax approved, where the returns filed were admittedly false, grossly understated the income, were filed without reference to readily accessible means of determining income received, and were allowed to stand without amendment until errors were discovered by revenue agents, though petitioner knew he was under obligation to amend, and where the taxpayer's explanations for…

1. Amounts paid by a national bank on behalf of its stockholders for taxes assessed against them constitute income to the stockholder, and the amount paid as taxes is deductible from gross income. 2. Allowance for exhaustion, wear and tear of oil well equipment as determined by the respondent approved.

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

1. Under the provisions of section 240(a) of the Revenue Act of 1918, the tax shall, in the absence of an agreement of affiliated corporations, be assessed on the basis of the net income properly assignable to each corporation. 2. The Board has no jurisdiction to determine whether an overpayment of tax should be credited or refunded or whether the credit or refund is barred by the period of limitation provided by statute.

No part of the sales price of articles sold on the deferred payment basis constituted interest or expense which could be excluded from gross income.

1. JURISDICTION. - The Board has no jurisdiction to redetermine the tax of a year for which a deficiency has not been determined by the Commissioner. Revenue Act of 1926, sec. 274(g); Appeal of Cornelius Cotton Mills,4 B.T.A. 255. 2. AFFILIATION. - Ownership in 1917 of 72.2 per cent of stock of Advance Button Co. by petitioner held not sufficient for affiliation. In 1919, petitioner owned all of the outstanding stock of said company; held to be affiliated.

The petitioner and the Richmond Holding Corporation were affiliated during the taxable period and the taxable years involved.

Where the evidence shows that the assets of a branch store, separately operated to conform to the foreign corporation laws of a State, are owned by the taxpayer corporation, a book entry crediting such assets to the principal stockholder is not sufficient to support a finding that such stockholder received a taxable dividend thereof.

The amount of gross income from commissions determined on the basis of cash receipts and disbursements.

1. In determining gain or loss upon the sale of property the base should be reduced by the amount of depreciation sustained in prior years. 2. It is immaterial in the year of a sale of property whether a deduction for depreciation is taken and the base reduced by that amount, or that the deduction be disallowed and the base left undisturbed. The result is the same in either event.

Value of real estate junior mortgages determined.

Useful life and cost of auto trucks used in petitioner's business determined for the purpose of computing the depreciation allowance.

1. An organization held, in view of the agreement of its creation, to be an association taxable as a corporation. 2. Patent value not proven held properly excluded from invested capital.

Under a contract a taxpayer becomes a partner in a business and agrees to pay for his interest out of his share of partnership earnings and gives his note therefor to the other partners: Held, the… Held: the amounts credited by the partnership to him and applied directly on the note are taxable income for the years in which they are so credited and applied.

The cost of stock which by the evidence is clearly shown to be worthless within the taxable year may be deducted as a loss sustained.

Executors' fees, paid out of income of the estate and allowed by the probate court having jurisdiction, for services in maintaining and protecting the property of the estate over a long period of years, rendering other services in connection therewith in selling the property, collecting deferred payments and making investments, are deductible as expenses by the estate in determining its net income.

Debts ascertained to be worthless and charged off allowed as deductions.

Profits determined on a series of real estate transactions in the years 1920, 1921, and 1922.

1. Loss on demolition of portion of building can not be allowed where the cost of the building or the demolished parts is not shown. 2. Deduction for repairs in connection with capital alterations determined.

A consolidated income and profits-tax return for 1918 was filed on behalf of the petitioner and associated companies on or before June 15, 1919. The Commissioner was barred by the statute of limitations, section 277(a)(2) of the Revenue Act of 1924, from further assessment of taxes after the expiration of five years from such date.

1. Under the evidence in these cases, held, petitioner corporations were entitled to affiliation. 2. Rates of depreciation determined. Held: petitioner corporations were entitled to affiliation. 2. Rates of depreciation determined.

Loss on sale of corporate stock allowed.

A beneficiary under a will is not entitled to deduct from his personal income-tax return a proportionate part of an alleged operating loss of the estate.

A loss sustained by reason of securities becoming wortheless in 1920, and then known to be worthless, is not deductible in 1921, although sold in 1921 for a nominal consideration.

The petitioner entered into a contract to sell certain real property. Held: that the transferee acquired a one-half interest in the property and in the contract for its sale, that the petitioner divested himself of such one-half interest and, when the sale was later consummated, petitioner was taxable only upon the profit from the sale of his one-half interest.

Section 402(c), Revenue Act of 1921, requires that a transfer made within two years before decedent's death be taxed as made in contemplation of death unless shown to the contrary. Held, the evidence does not show the contrary.

The evidence is held insufficient to establish that a business was not carried on by the petitioner corporation, as determined by the respondent.

1. During the taxable years petitioner owned substantial amounts of stocks and bonds of other corporations and received material portions of its income therefrom. Held: that it is not entitled to personal service classification. 2. Held, that respondent correctly excluded certain amounts representing investments in domestic stocks from the computation of the petitioner's invested capital.

Single consolidated income and profits-tax returns, Forms 1031 and 1103, filed for the calendar year 1917 by a corporation claiming to be affiliated with certain other corporations among which were the petitioners, which returns were signed and sworn to by the president and the secretary and treasurer of the alleged parent corporation, who were also similar officers of the alleged subsidiary corporations, and in which returns the consolidated income and invested capital of the several corporations were stated and to the excess-profits-tax return a consolidated balance sheet at the beginning and the end of the year was attached, were not the income and profits-tax returns required to be filed by the petitioners within the meaning of the statute and rulings of the Commissioner made pursuant thereto. The assessment and collection of the deficiencies determined by the Commissioner to be due from petitioners for the calendar year 1917 may therefore be assessed and collected at any time.

1. The evidence does not establish the right of the petitioner to deduct the entire amount of the operating loss of a platation which was operated during a part of the year by a partnership of which the petitioner was a member. 2. The evidence fails to establish right to deduction for claimed lessening in value of mules acquired for use on the plantation.

The petitioner corporation took out insurance policies on the lives of certain of its officers and employees, naming itself as beneficiary in each policy, but by a separate contract with each officer… Held: the premiums were not deductible by the petitioner.

DEPLETION. - March 1, 1913, value of gravel deposits determined for purpose of.

The evidence herein establishes that the petitioner wilfully filed false and fraudulent returns for the years 1917 and 1918, with intent to evade the tax.

Amounts distributed to stockholders and carried on the books as accounts payable may not be included in invested capital.

1. Deduction for repairs allowed. 2. Deduction for obsolescence disallowed.

1. Petitioner, a civil engineer, performed services for political subdivisions of the State of California under contracts fixing his compensation at a percentage of the cost of construction and… Held: the petitioner was not an officer or employee of the State or its political subdivisions within the meaning of section 1211 of the Revenue Act of 1926. 2.

1. Cost and sale price for determination of gain or loss found. 2. Deduction for bad debts denied.

1. In determining whether a net loss, as defined in section 204 of the Revenue Act of 1918 has been sustained, losses of a personal nature and not sustained in the trade or business regularly carried on by the taxpayer may not be considered. 2.

Deductibility of certain debts determined.

Amounts paid to the executor of and the attorneys for the estate of the decedent during the fiscal year ended January 31, 1923, under the circumstances set forth herein, are deductible in computing the net income of the estate for that year.

Under the evidence, held, petitioner was a partnership and not an association. A mining partnership is a partnership within the meaning of the term as used in the Revenue Act of 1918.

An insurance company claiming deductions under the Revenue Act of 1918, in addition to reserves required by law, must show the amounts so claimed are in fact required for the protection of policyholders.

Where under the will of a decedent the income of a trust fund is payable to a designated beneficiafy for a period of years, or in the event of the death of such beneficiary is payable to his estate,… Held: that the annual income from the trust fund is taxable as income to the estate of such deceased beneficiary.

1. Where the Commissioner computed the gain under the Act of 1918 from a sale of property acquired prior to March 1, 1913, by using March 1, 1913, value as a basis, and the petitioner establishes a greater value as of that date, the value proven should be substituted for that determined by the Commissioner as the basis, though cost is undisclosed, as the latter element is not essential to the computation, it being presumed that the March 1, 1913, value determined by the…

A net loss sustained during the taxable year 1921 may be deducted from the income of a portion of the taxable year 1922, due to dissolution, under section 204, Revenue Act of 1921.

A net loss sustained during a fractional part of a year, due to a change of accounting period, may not be deducted from the net income of other years under section 204(b), Revenue Act of 1918.

In determining gain or loss upon the sale of depreciable property due allowance must be made for depreciation sustained in prior years, whether or not such depreciation has been recovered by deductions therefor.

Reasonable salaries paid to officers of a close corporation found to have been informally authorized within the year and held to be deductible expense.

1. An open account carried on the corporate books with the principal stockholder and his estate, held to be an account receivable and an allowable inclusion in invested capital. 2. In the absence of evidence showing ownership of stock, its cost, or selling price, the disallowance of an alleged loss upon the sale thereof is approved. 3. The Board has no jurisdiction respecting years for which deficiencies are not asserted.

1. Loss upon a bona fide sale of stock allowed, the March 1, 1913, value being determined to be cost as the stock was acquired just prior and subsequent to that date. 2. A country club membership acquired by a corporate officer that he might have uninterrupted privacy for consultations on occasional business trips to that locality held acquired for personal convenience, and a loss sustained upon its sale is not deductible. 3.

In the absence of evidence showing whether a predecessor partnership earned any income, or whether the return filed by the successor corporation constituted a valid election under section 330, Revenue Act of 1918, it can not be determined that partnership income was erroneously included by the Commissioner.

The statute of limitations contained in the Revenue Act of 1924 bars deficiencies for the year 1916 after the expiration of five years from the date the return was filed.

Under section 207(b), Revenue Act of 1924, the normal taxes and surtaxes on income received by a partner during his calendar year 1924 from a partnership reporting on a fiscal year basis, are computed by treating the whole of such income as income for a single year, 1924, by applying the lower 1924 rates to that fraction of such income (plus income from other sources, less deductions and credits) apportionable to 1924, and by applying to the remainder of such income the…

1. Distributions made to petitioners as beneficiaries under trusts, the income of which consisted of royalties from mining properties, held to be income and taxable to the life beneficiaries. 2. Beneficiaries under the trusts held not entitled to depletion on account of removal of ore from properties forming a part of the corpus of the trusts.

Commissions, payable to a trustee of a trust fund, which has been administered by the executor, are not deductible under section 403(a)(1) of the Revenue Act of 1918, as administrative expenses allowable under the laws of New York.

1. License agreements for the use of patents are intangible property. Held: that the amount so received constituted income. 4. Under the facts herein the petitioner is entitled to special assessment.

In the absence of evidence of the cost of the petitioner's interest in property, or the value thereof on March 1, 1913, the Board is unable to determine what amount, if any, the petitioner is entitled to deduct from gross income in its income-tax return for 1921 for exhaustion or depletion.

The amount paid by a mine owner for the cancellation of a lease to enable it to sell the mine is a part of the mine's cost basis to be used in determining the loss resulting from subsequent sale, and not a deductible business expense.

The loss resulting to a creditor, where the debtor, a corporation, assigns all its assets to the creditor and then dissolves, is measured by the excess of the debt over the value of the assets and is sustained at the time of the assignment, and where the creditor in a subsequent year sells the last of the assets assigned, he is not entitled to a deduction in that year for a bad debt measured by the difference between the debt and the amount realized from the sale of the…

Jeopardy assessment was made in 1925 pursuant to the Revenue Act of 1924. Petitioner filed a claim in abatement which was accepted without bond. Held: the Board has jurisdiction in the premises.

Expeditures on buildings distinguished as between capital expenditures and expenditures for ordinary and necessary expenses.

1. Debts ascertained to have been worthless after careful consideration of data respecting the debtors, held deductible in the amounts claimed, as small recoveries subsequently made thereon and the inability to give minute factual details as to every debtor does not justify the disallowance of the deductions taken. 2.

1. A brewing corporation lost much of the value of its tangibles and all the value of intangibles as a result of national prohibition legislation. Held: that the obsolescence of tangibles so sustained is deductible from gross income when proved as to amounts and properly allocated as to time, and that obsolescence of its intangibles is not so deductible. 2.

Obsolescence of intangible assets disallowed.

1. Obsolescence of stipulated value of certain tangible property allowed. 2. Obsolescence of intangible property as a result of war-time and national prohibition legislation is not deductible from taxpayer's income for years in question.

1. The petitioner is not entitled, under the Revenue Act of 1918, to any deduction from gross income on account of obsolescence of trade-marks and good will. 2. Held: that the petitioner sustained no loss on the surrender of the policy and that the deduction claimed was properly disallowed.

1. The evidence fails to show that the good will, formulas, trade-marks, and trade brands paid in to the petitioner for shares of capital stock on September 1, 1911, had any fair market value on March 1, 1913. 2. The amount included in invested capital for intangible property paid in for stock before March 3, 1917, should not have exceeded 25 per cent of the par value of the stock outstanding on that date.

DEPRECIATION. - March 1, 1913, value of two patents determined for the purpose of computing depreciation.

No entry was made on the books of account charging off an amount due from a citizen and resident of an enemy country due to the belief of the petitioner that to make such an entry would be to extend… Held: that under a reasonable construction of the Revenue Act such debt had been charged off.

Computation of the wastage allowance allocable to cemetery lots sold after March 1, 1913, out of a tract owned and partly improved prior thereto, held erroneous.

Where income is earned from sources without the United States by a nonresident alien, such income does not become taxable although such alien, prior to the close of the taxable year, changes his status to that of a resident alien.

1. The petitioners held not to be affiliated for 1918 and 1919. 2. Held: that such corporation sustained no loss from the assignment of its claim in 1918 or 1919.

1. An amount of $15,000, representing salaries and traveling expenses of subscription solicitors during the years 1884 to 1891, disallowed in invested capital for 1919, 1920, and 1921 for lack of evidence. 2. Certain amounts expended for library and archives and originally charged to expense disallowed in invested capital for lack of proof. 3.

1. General or compensatory damages received by way of settlement for injury to personal reputation and health caused by defamatory statements constituting libel or slander are not income. 2. Query as to special or exemplary damages.

Bonds were issued at a premium prior to the taxable year and were outstanding at its close. Held: that no part of such premium is income for the taxable year.

A tunnel brick kiln constructed for the burning of common brick, although it had never before been used for that purpose, held to be a capital asset, and no part of its cost is deductible as expense.

Amounts credited by a close corporation to its principal stockholder as a distribution of earnings in the same account with other substantial credits consistently over a period of years, from which account the stockholder withdrew varying amounts at his pleasure, while another stockholder was regularly paid his distributive share of earnings in cash, and there being no evidence as to whether the return and accounts of the stockholder were on the receipts or the accrual…

The amount of damages for breach of contract awarded by judgment of a lower court is not deductible in determining net income when the judgment is appealed from until the decision of the appellate court. Until affirmed the liability is contingent.

An action for breach of contract was brought against petitioner and others in 1919. An adverse judgment was entered by the trial court on September 20, 1920. Held: petitioner is not entitled to the deduction claimed for 1920.

An inventory on basis of the lower of cost or market is not sufficiently proved by evidence that, in the judgment of certain witnesses in the business based on their experience the valuation represents market value.

The petitioner filed its income and profits-tax return for 1917 on May 1, 1918, and the amount of tax shown thereby was duly assessed and collected. Held: under section 283(f) of the Revenue Act of 1926, the Board of Tax Appeals has jurisdiction thereof. Held, further, that the collection of any additional tax for the year 1917 is barred by the statute of limitations.

1. Value of certain bonds received by the petitioner in the taxable year determined. 2. Prior to March 1, 1913, petitioners rendered services to a corporation as its officers. Held: that the amounts so received, which represented salaries earned prior to March 1, 1913, were income in 1920.

At the time of a fire petitioner had on hand certain merchandise belonging to itself and certain other merchandise as bailee or warehouseman for customers. Held: that the amount was income in the year in which received and not in the subsequent year.

1. A loss deduction on account of abandonment, due to a change in business conditions, of a building in the use for which it was specially designed, and its devotion to a radically different use requiring costly alterations, allowed, in the year it was abandoned, the loss being measured by the difference between the depreciated value and the residual value. 2.

In the condition and circumstances under which the sale of the mill property in question was made in October, 1912, the selling price does not establish the March 1, 1913, market value thereof, since there was not the open market and freedom from compulsion in that sale that is contemplated by the Board's prior rulings.

Gain derived from the sale of stock determined.

Interest due decedent during his lifetime is not income to his estate when received by it.

We are not convinced that stockholders contributed a paid-in surplus to the petitioner, the amount of which should be included in invested capital as defined in section 326 of the Revenue Act of 1918.

The Commissioner correctly held that the petitioner and his wife were not entitled to file separate returns, reporting each one-half of the income received during the year on the community property basis.

Amounts paid out for the replacement of machinery and equipment destroyed, damaged and replaced as the result of an accident, are not deductible in determining net income.

1. On December 31, 1919, the decedent and her two brothers and a sister each owning one-fourth of the common stock of a coalmining company transferred their respective shares of stock to trustees to… Held: that the value at the date of death of the interest of the decedent in the trust estate was properly included in the gross estate under section 402(c) of the Revenue Act of 1921. 2.

Taxable gain from the sale of property determined.

1. Evidence held insufficient to establish the value of a coal lease for the purpose of invested capital or depletion. 2. Claim for depletion on basis of discovery value disallowed. 3. Rates of depreciation as determined by the Commissioner approved for want of evidence.

Transfer taxes assessed under the laws of Pennsylvania against the estate of a decedent, which were paid by the executor and by him deducted from the shares of certain beneficiaries of the estate, are not deductible by the beneficiaries under the provisions of section 214(a)(3) of the Revenue Act of 1921.

1. An oral contract of partnership between a husband and wife is valid under the laws of Mississippi. 2. Determination of March 1, 1913, value of certain real estate. 3. Determination of date of repossession of real estate previously sold.

The value of land at the time it was acquired as a gift determined from opinion testimony and evidence of actual sales, for the purpose of establishing the basis thereof upon subsequent sale.

1. The March 1, 1913, value of a dam and its probable useful life from that date determined to find the depreciated value basis upon which the allowable deduction on account of the destruction of a part thereof in 1920, is computed. 2. The March 1, 1913, value and probable useful life of a dam, as well as the probable useful life of a portion thereof reconstructed in 1920, determined for depreciation purposes.

1. A donation by a husband to his wife of his interest in an oil and gas lease which was community property under the laws of Louisiana, vests in the wife the husband's then interest in the lease as her separate property and gain resulting from a subsequent sale by the wife should be taxed as her gain. 2.

Where a corporation acquired without cost in 1919 a contract for the hire of convict labor, held, that the value, if any, of such contract may not be included in invested capital. Held: that the value, if any, of such contract may not be included in invested capital.

The Board is not warranted from the evidence in this proceeding in holding that the Commissioner erred in his determination of a reasonable allowance for exhaustion, wear and tear, and obsolescence of the property used in the petitioner's business.

Amounts expended for ordinary and necessary repairs to property were proper deductions from gross income.

1. Where a bank keeps its books of account on the cash receipts and disbursements basis, except as to interest on securities owned, it will not be allowed to report interest on securities owned on the accrual basis, even though its books have been so kept over a long period of years. 2. Value of good will determined.

Petitioner's method of valuing raw cotton inventories on a cost basis by the use of perpetual inventories maintained by petitioner accepted in lieu of inventories submitted by the Commissioner or revised inventories on an average cost basis submitted by the petitioner.

The Board will not pass on whether one feature which might enter into petitioner's computation of depreciation has been incorrectly determined by the Commissioner when full information is not available to show whether the depreciation as allowed or claimed is reasonable.

BAD DEBTS. - Certain accounts receivable ascertained to be worthless and charged off within the taxable year allowed as a deduction from gross income; certain other accounts claimed by the petitioner disallowed.

The value for invested capital purposes of a clay deposit paid in for stock in 1903 determined.

The petitioner is exempt from taxation, under section 231(4) of the Revenue Acts of 1918 and 1921 for the years 1918 to 1922, inclusive.

1. The Board has no jurisdiction over 1918 as the Commissioner asserted no deficiency for that year. Cornelius Cotton Mills, 4 B.T.A., 255. 2. The petitioner and the Starrett Manufacturing Co. were not affiliated during 1919.

Personal service classification denied.

1. Value of a leasehold of coal lands determined for purposes of invested capital and exhaustion. 2. Deductions for exhaustion of the value of a leasehold, acquired by way of paid-in surplus, should be allowed at reasonable rates and considered in the computation of the tax liability.

In the absence of evidence upon which to determine whether a loss contended for by the petitioners was sustained, the action of the respondent in disallowing the loss is approved.

A corporation in which the use of capital is a material incomeproducing factor held not to be a personal service corporation.

The petitioner and his wife, prior to their marriage on April 9, 1919, formed a business partnership in Michigan, each contributing property and services, and in the profits of which partnership they… Held: that one-half of the income was the property and income of the wife and should not have been included in petitioner's income.

The findings of fact made by the Board in an earlier proceeding as to liability for earlier years are prima facie evidence of the facts therein stated when offered in a subsequent proceeding involving the same question of fact as related to liability for a later year.

Amounts paid stockholding officers and employees determined to be distributions of profits and not compensation for services.

1. The Board is unable from the evidence in this proceeding to determine what portion, if any, of amounts expended for advertising should be regarded as capital expenditures. 2.

Commissioner's determination as to capital expenditures approved.

1. Where a corporation secures an amendment to its charter by means of which its authorized capital stock is increased, issues this stock for stock of a like par value of a corporation which held its… Held: there is not thereby anything paid in to the corporation. 2. Under the foregoing conditions, stock of another corporation not affiliated, which was taken over by the corporation should be valued at the cash value at date of liquidation. 3.

A decline in the value of stock does not give rise to a deductible loss.

1. The usefulness of wrapping paper was changed by reason of a change in the size of petitioner's loaves so that two wrappers were needed for a loaf instead of one. Held: no deductible loss or reduction of inventory. 2. Loss through demolition of buildings held not determinable from the evidence.

Fixed dividends paid by a cooperative corporation are not deductible by the corporation.

1. A salary was duly authorized by corporation action in 1912. The services were performed pursuant to said authorization in 1921, in which year the corporation was without funds to pay the salary. The salary was paid in 1922. The corporation accounted on the basis of cash receipts and disbursements. The salary is allowed as a deductible expense in 1922. 2.

Certain instruments herein construed and held to be oil and gas leases and not sales of capital assets within the meaning of section 206 of the Revenue Act of 1921.

The cost of 46,033 shares of stock determined.

BAD DEBTS. - A certain partnership account claimed as a bad debt allowed.

1. Additional deduction disallowed for want of proof. 2. Imposition of penalty by Commissioner for failure to file a return approved.

1. Value of lands acquired for stock and other considerations determined as of date of acquisition and at March 1, 1913. 2. Held: that the petitioner realized no taxable gain from the transactions. 4. Amount of deductible loss resulting from exchange of properties determined.

1. The Board will disregard a question discussed orally at the hearing or on brief, when not pleaded in the original petition or raised by proper amendment thereto. 2. Personal service classification denied.

Amounts expended by petitioner, a professor of chemistry and a member of the faculty of the University of Pittsburgh, in connection with the carrying on of his profession, in attending scientific meetings and conventions, constitute an ordinary and necessary business expense.

Deductions claimed for losses in business and for debts, represented by notes charged off, will not be allowed unless by satisfactory evidence it is shown that an actual loss in the one case has occurred, or, in the other, that satisfactory evidence shows there has been failure after proper efforts to collect or that investigation shows notes charged off to be worthless; the mere fact of charging off notes not being sufficient evidence of their worthlessness.

No allowance can be made for the exhaustion of the cost of a contract granting a perpetual privilege to bottle Coca-Cola.

Value of property on March 1, 1913, determined.

Claim for paid-in surplus, based on an alleged gift of a contract by the stockholders to the corporation, denied, it appearing that the contract was acquired by the corporation from nonstockholders.

1. Where a stock insurance company was organized to take over the business of a mutual insurance company and where only a fraction of one share of stock out of a total issue of $2,000 shares was… Held: that these facts did not constitute a reorganization. 2.

1. Assets determined, on the evidence, to have been set up on the books in 1914 at cost and should be included in invested capital. 2. Claim for depreciation of current inventories denied where there is no evidence of cost.

1. The discount on bonds of the petitioner purchased below par and retired during the year is not taxable income. 2. Sinking fund payments made to a trustee are to be considered as earned, rather than paid-in, surplus. 3. Advances by stockholders are not invested capital. 4. Current earnings may not be allowed in invested capital. 5.

Acquisition of certain shares of stock in a corporation held to be a gift and not compensation for services rendered.