Volume 6 — Tax Court Reports

Petitioner, on its income tax returns for 1934-1937, took depreciation of $ 4,504.77 per year on a building. Held: that settlement had not been made as to 1934-1937, and in computing depreciation for the years 1940, 1941, and 1942, the basis of the property was properly adjusted by allowing $ 4,504.77 for each of the years 1934-1937.

1. Gift Tax. -- Grantor-petitioner was not subject to gift tax in 1942 where a part of the property which he and his wife had transferred in trust in 1934, subject to gift taxes at that time, was, pursuant to the terms of the 1934 trust, transferred in 1942 by the trustees of the 1934 trust to a new trust for the benefit of the petitioner's wife. 2.

Held, on the facts, that the notes involved were not in registered form within the language of section 117 (f) of the Internal Revenue… Held: on the facts, that the notes involved were not in registered form within the language of section 117 (f) of the Internal Revenue Code, and that amounts collected thereon were taxable in full, and not subject to limitations as capital gains; held, further, that the petitioner had not recovered his entire base in the notes in a former…

Petitioner is a life beneficiary and a cotrustee of a trust created by his father. He also has a power of appointment over the remainder. Held: petitioner is taxable under section 22 (a), I. R. C., on the income of the trust that was used to pay the premium on the policy in question. Edgar R. Stix, 4 T. C. 1140; affd., C. C. A., 2d Cir., Dec. 21, 1945, followed.

1. Under the facts, the transaction whereby petitioner shipped typewriters to a dealer in Mexico was a sale giving rise to a debt which became worthless in the taxable year. 2. Respondent erred in his determination that petitioner's closing inventory for 1941 was the sum of $ 100,113.83.

Trust -- One Trust or Two Created by Will. -- Held, will created only one trust for two beneficiaries and Commissioner did not err in taxing it as such, despite fact that the trustees had… Held: will created only one trust for two beneficiaries and Commissioner did not err in taxing it as such, despite fact that the trustees had administered fund as if there were two trusts.

Held, that petitioner's failure to file a personal holding company return was not due to reasonable cause, and the delinquency penalty was properly imposed. Held: that petitioner's failure to file a personal holding company return was not due to reasonable cause, and the delinquency penalty was properly imposed.

Voluntary disbursements by petitioner in the purchase of annuities for certain employees in 1940 and additional payments for a similar… Held: not deductible either as compensation for services actually rendered or as ordinary and necessary business expenses, under section 23 (a), I. R. C.; (2) not a part of the cost of goods sold to be reflected as such in the computation of gross income, but rather they enter into the computation of net income, in which computation their…

1. Petitioner acquired a contingent interest in certain property by bequest, devise, or inheritance from his father, who died in 1918. Held: under section 113 (a) (5), Internal Revenue Code, petitioner's basis was the fair market value of the property at the date of the death of his decedent, even though his interest at that time was a contingent one. 2. Fair market value of land and building determined as of the date of petitioner's decedent's death in 1918. 3.

Taxable Period, Calendar Year or Fiscal Year. -- The Commissioner did not err in determining the petitioner's subchapter E excess… Held: further, that if section 722 (d), as it existed prior to December 17, 1943, was intended to give the Court jurisdiction in addition to that conferred in section 732, and if such jurisdiction survived the amendment of December 17, 1943, nevertheless, the petition in this case does not come within the provisions of that section 722(d).

Petitioner was the settlor-trustee of a trust created for the benefit of her son. Held: no part of the income of the trust is taxable to petitioner under section 22 (a), Internal Revenue Code. J. M. Leonard, 4 T. C. 1271, and cases cited therein.

Decedent in 1924 conveyed certain property in trust, reserving to himself a life interest. Held: that under section 811 (c), I. R. C., the value of the trust corpus as of the date of decedent's death is includible in his gross estate for estate tax purposes.

In 1938 three individuals acquired an equal interest in all of petitioner's capital stock and became its three officers. Held: under all the circumstances, that $ 11,000 is the reasonable salary for each for the taxable year.

Income -- Trusts. -- Petitioners, beneficiaries under trusts created by their father, are not taxable under section 22 (a) or section 162 on income of the trusts which they did not receive and which, under the terms of the trusts, they had no right to receive during the taxable years.

1. Income -- Bad Debt Reserve -- Restoring Unneeded Balance to Income. -- A balance in a reserve for bad debts, built up by additions which offset taxable income, is properly to be restored to income… Held: that no part of it was attributable to other years. Sec. 721 (b).

A corporation in which petitioners owned 50 percent of the 3,000 shares of outstanding stock made distributions in 1940 of $ 50 per share on stock having $ 50 par value. Held: that the 1940 distributions were not in partial liquidation of the corporation under code sections 115 (c) and (i).

In 1934 petitioner filed a petition in bankruptcy under section 77B. It later filed a plan of reorganization, which was confirmed by the court… Held: the order of the court entered in June 1936 was the final judgment or decree within the meaning of section 113 (b) (4), I. R. C., and section 270 of the Bankruptcy Act, as amended, is not applicable to this proceeding; held, further, that even though there was no final decree entered prior to September 22, 1938, there was no…

Attorney's fee paid in 1940 for services in connection with a will construction contest which determined the amount of annual income payable to petitioner as a life tenant thereunder, held,… Held: deductible under section 23 (a) (2), as amended, of the Internal Revenue Code, as an ordinary and necessary expense paid for the collection of income.

Respondent's inclusion in petitioner's income of the entire rental value of an apartment furnished by his employer, held erroneous where evidence shows it was in part for convenience of the employer in connection with petitioner's duties as night manager. Ralph Kitchen, 11 B. T. A. 855, overruled.

1. Held, on the facts, that compensation received by petitioner in 1941 was for services rendered over a period from November 1935 through 1940, and that tax liability for 1941 is to be computed… Held: on the facts, that compensation received by petitioner in 1941 was for services rendered over a period from November 1935 through 1940, and that tax liability for 1941 is to be computed under the provisions of section 107 (a), Internal Revenue Code. 2.

In 1941 petitioner, in contemplation of a divorce proceeding, transferred certain securities in trust for life to his wife, with remainder to his four children, and also transferred certain… Held: following Herbert Jones, 1 T. C. 1207, and Edmund C. Converse, 5 T. C. 1014, that such conveyance by petitioner to his wife was made without donative intent in an arm's length transaction settling her right to maintenance and support from petitioner and is not subject to gift tax.

In 1920 the petitioner purchased the assets of two corporations, issuing in payment therefor shares of its own capital stock which the recipient corporations distributed to their stockholders in… Held: that such earned surplus became a part of the earned surplus of petitioner.

1. Petitioner, prior to the taxable years, leased certain oil lands in Louisiana to the Texas Co. reserving to itself an oil and gas royalty of one-fourth of the oil and gas produced from the… Held: petitioner is entitled to percentage depletion on the amounts paid to it in each of the taxable years as its share of the net profits from the operation of the leases. Kirby Petroleum Co. v. Commissioner, 326 U.S. 599. 2.

On the facts, held, petitioner sustained a capital loss on December 29, 1941, when, in accordance with a plan of complete liquidation, he surrendered his stock for cancellation and received therefor… Held: petitioner sustained a capital loss on December 29, 1941, when, in accordance with a plan of complete liquidation, he surrendered his stock for cancellation and received therefor 65 cents per share.

1. In 1941 the petitioner sold property underlaid with coal upon which it had discontinued mining operations in 1930. Held: that the loss resulting from the sale was a long term capital loss. 2. During the years 1939 and 1940 the petitioner had outstanding a large amount of interest-bearing bonds and notes upon which no interest was paid during those years. The petitioner kept its books of account upon the accrual basis.

X Co. in 1930 transferred substantially all of its assets to petitioner, a newly organized corporation, in exchange for all of… Held: that the basis (unadjusted) to the petitioner of the property acquired from X Co. is petitioner's cost, i. e., the fair market value of petitioner's stock, since petitioner did not acquire the property in a transaction described in section 113 (a) (7) and ( 8) of the Internal Revenue Code; held, further, that, in determining property…

The petitioner, cograntor with his wife of an irrevocable trust for the equal benefit of their children, possessed broad powers of management and the discretion to use the income for their support… Held: the income of the trust is not taxable to the petitioner under section 22 (a) of the Internal Revenue Code. J. M. Leonard, 4 T. C. 1271, followed.

In the taxable year 1941 petitioners were employees of a corporation. Some of them were also officers and directors. Held: the amount of premiums paid for the first year constituted taxable income to petitioners in 1941 under section 22 (a), I. R. C.Robert P. Hackett, 5 T. C. 1325, followed; held, further, the amount of premiums tentatively advanced for the second and third years did not represent taxable income to petitioners in 1941, they being on the…

Income -- Year. -- A taxpayer on a cash basis was not in actual or constructive receipt of additional salary which the employer did not accrue or credit to his account in 1942 and did not pay until 1943 because of Government regulations on increased salaries.

Trust -- Income Taxable to Grantor -- Revocable Trust -- Control. -- A provision for the resignation of a corporate trustee held not intended as a termination of the trust. Held: lost to that beneficiary when he assigned all of his rights in the trust income to his wife. Trust held not revocable within meaning of section 166, I. R. C. Income of trust not taxable to grantor under section 22 (a).

Petitioners' transferor, a decedent's estate, was allowed a deduction by the Commissioner of Internal Revenue for amounts currently distributable to beneficiaries, and those amounts were included by… Held: section 3801 of the Internal Revenue Code is applicable as to the deduction erroneously allowed on account of amounts distributable to the beneficiary appealing to the Tax Court.

Estate Tax -- Property Within the United States -- Bank Deposits -- Section 863 (b). -- Money which belonged to a Czechoslovakian held in a German concentration camp and was deposited by a friend in a New York bank in the name of the friend and his son, was deposited for the owner within the meaning of section 863 (b), I. R. C.

Under section 172 of the Civil Code of California the husband has the management and control of the community personal property, with the power of disposition, but he can not… Held: that throughout 1940 the wife had the right to revoke the trusts and reinstate the trust property as part of the community property and that under section 166 of the Internal Revenue Code the income from the trust property during that year was taxable to the husband and wife as community income.

Under testamentary trust testator's widow was given income for life and the trustees were authorized to pay over to the widow so much of the principal as they, in their sole discretion, should deem… Held: the charitable bequests are deductible from gross estate under Ithaca Trust Co. v. United States, 279 U.S. 151, and Hartford-Connecticut Trust Co. v. Eaton, 36 Fed. (2d) 710.

The Tax Court has no jurisdiction of a proceeding filed pursuant to subsection (e) (2) of section 403 of the Renegotiation Act to contest a determination of excessive profits, where the petition was filed by a subcontractor described in subsection (a) (5) (B) of section 403.

In years prior to 1941 the petitioner purchased from some of its stockholders their shares of stock in the corporation which it thereafter carried as treasury stock. Held: that the corporation was dealing in its own shares as it might have dealt in the shares of another corporation and that the profit realized represented taxable income.

Petitioners, executors and residuary legatees of their father's estate, distributed to themselves as residuary legatees the assets of the estate on December 31, 1937, without settlement of certain… Held: that, under section 23 (b), I. R. C., the interest on the deficiencies which accrued subsequent to the distribution of the assets to petitioners is deductible by them in computing their income taxes.

Petitioner was the inventor of a rubber-covered flexible steel track, the conception of which invention and drawings he completed prior to January 1, 1930, but had… Held: the exclusive license to Goodrich amounted to a sale by petitioner of his invention; (2) it was the sale of property which petitioner had held for more than 24 months; and (3) the invention was not property held by petitioner primarily for sale to customers in the ordinary course of his trade or business.

Petitioners, husband and wife, each created a trust for the benefit of each of their three children, naming themselves as trustees. Held: the income of the trusts is taxable to the respective grantors under the principle announced in Helvering v. Clifford, 309 U.S. 331.

1. In 1928 decedent created a trust under the terms of which the X trust company, as trustee, was empowered to pay over to decedent or his wife during their lifetimes such portion of the principal of… Held: the value of the trust is includible in decedent's gross estate under section 811 (c), Internal Revenue Code, as a transfer intended to take effect in possession or enjoyment at or after his death. Estate of Ida Rosenwasser, 5 T. C. 1043, followed. 2.

1. Deductions for travel to and meals and lodging in the place where petitioner conducted his only business, held not allowable, the expenditures not having been incurred in pursuit of his business. Commissioner v. Flowers, 326 U.S. 465. 2. Voluntary surrender to the debtor of a portion of the securities (bonds) held by petitioner, held not to result in a deductible loss, notwithstanding that the bonds were partially worthless. Sec. 23 (k), I. R. C.

The petitioners and other individuals each owned fractional interests in certain oil leaseholds which they assigned to the X corporation under an agreement which provided for the operation of the… Held: the petitioners retained an economic interest in and to the oil and are entitled to appropriate depletion allowances. Kirby Petroleum Co. v. Commissioner, 326 U.S. 599, affirming Commissioner v. Crawford, 148 Fed. (2d) 776.

In return for services rendered, petitioner's husband received notes executed by a corporation in receivership, as maker, and members of a bondholders' protective committee, as endorsers. Held: such payment is taxable to petitioner as ordinary income.

Husbands holding corporate common stock caused reissuance thereof in two classes equal in amount. Held: on all the facts, that the dividends belonged to the husbands and, as to one of the husbands, were the subject of gift by him to his wife.

W, an individual, acting as trustee for the holders of all claims and judgments against a mining corporation in receivership and for… Held: Immediately after the transfer of the property to petitioner an interest or control in such property of 50 percent or more did not remain in the same persons, as required by section 113 (a) (7) of the Revenue Act of 1938; and, (2) The prior lien notes did not give their holders any interest or control in petitioner within the meaning…

Cost of hiring a nursemaid to care for infant children of petitioner and her husband, both of whom were employed, and to assist petitioner in the discharge of her housekeeping duties, held, not… Held: not deductible as an ordinary and necessary expense of carrying on a trade or business or as a nontrade or nonbusiness expense incurred for the production or collection of income, under section 23 (a), I. R. C., as amended.

Petitioner had certain accounts on its books for money advanced to two individuals who were its stockholders at the time the advancements were made. Held: the debts were not canceled or forgiven by the 1938 agreement and continued to be debts within the meaning of the applicable statute and regulations, although the method of their payment was restricted, and became worthless in petitioner's fiscal year ended April 30, 1942, and are deductible as bad debts.

Interest paid by a corporation on debentures which it issued in payment for assets and on other debentures which it issued as a dividend out of earnings, held, deductible as interest. Held: deductible as interest.

Petitioners, husband and wife, separately created five family trusts, in each of which one or the other was the trustee and their minor daughter or the wife the primary or the secondary beneficiary. Held: each is taxable upon the income of the trusts controlled by him or her under section 22 (a), Revenue Acts of 1936 and 1938.

Dividends -- Source of a Distribution. -- If distributions for a year exceed the earnings of that year, then that proportion of each distribution which the total earnings of the year bear to the total distributions is regarded as out of earnings of the year, regardless of the earnings available at the date of any distribution.

1. Petitioner was liable as transferee for personal holding company surtax deficiencies and interest thereon of a liquidated and dissolved corporation. Held: the interest is deductible by petitioner under section 23 (b), Internal Revenue Code. Koppers Co., 3 T. C. 62; affd., 151 Fed. (2d) 267, and Robert L. Smith, 6 T. C. 255, followed. 2.

1. A sale of land held to be a sale made by the corporation petitioner and not by stockholders as individuals and as distributees of assets received in… Held: addition of interest to cost basis denied, for lack of proof, and in part because of inclusion thereof in deduction in determining net income. 3. Refund of social security taxes paid by taxpayer in 1936 held, for lack of proof, accruable as income of taxpayer for the year 1940, though refund was made in 1941. 4.

Decedent during his lifetime created a trust the income of which was to be paid to himself for life, then to his wife for life, and thereafter to certain named charities. Held: that the value of the remainder of the trust after the wife's life estate is deductible as a charitable bequest.

1. Taxpayer in 1935 set up a trust with broad powers of management and control in himself as trustee. Held: the trust income is includible in taxpayer's gross income for 1937, 1938, and 1939. 2. A trust was set up by a Mexican corporation, a holding company, holding all stock of the corporation employing petitioner.

Petitioner, owner of certain patented inventions, licensed a corporation, in which he owned 1,780 and his wife 200 of its 2,000 shares of outstanding capital… Held: The plea of res adjudicata is applicable only to the extent of royalties in the sum of $ 4,881.35 paid in the taxable year 1937, under the licensing agreement of January 10, 1928. (2) The remaining royalties paid in the taxable years are taxable income to petitioner. Estate of J. G. Dodson, 1 T. C. 416, followed.

1. Held, on the facts involved, that the Court's conclusion is not governed by that of a common pleas court in Ohio. 2. A trust instrument provided benefits for three children. Held: on the facts involved, that the Court's conclusion is not governed by that of a common pleas court in Ohio. 2. A trust instrument provided benefits for three children. Held, on the facts presented, that one trust, and not three, was created.

Gifts of shares of stock held to have been made in 1925 rather than in 1921, as petitioners contend, and cost basis thereof determined in accordance with stipulation.

Petitioner, who was on cash basis of accounting, borrowed, in 1941, $ 69,000 from a bank and executed his notes in that amount, payable in five years. Held: petitioner is not entitled to deduct in 1941 the amount of such interest as interest paid.

Corporation A in 1941 was engaged in three lines of business. In July of that year it sold two branches of its business outright for cash and marketable securities. Held: that there was a reorganization within the meaning of section 112 (g) (1) (D), I. R. C., and that the distribution to petitioners was made in pursuance of the plan of reorganization and had the effect of the distribution of a taxable dividend within the meaning of section 112 (c) (2).

1. In August 1933 petitioner entered into two agreements to purchase certain stock in a corporation and certain rights in a patent and trade name from the individual who owned them. Held: petitioner constructively received the royalties due him under the contract and these royalties are gross income to petitioner in the taxable year. 2.

During 1939 and 1940 petitioner was engaged in writing life insurance contracts. Held: petitioner is a life insurance company within the meaning of section 201 (a), I. R. C., as the reserve funds held for the purpose of fulfilling its life insurance contracts were in excess of 50 percent of its total reserve funds.

1. The petitioner and her husband received corporate assets, transferred in liquidation, agreeing to pay proportionately the corporate obligations. Held: petitioner is entitled to deduct the interest paid, as from the time of transfer to her. Koppers Co., 3 T. C. 62; affd., 151 Fed. (2d) 267. 2. Creditors notes were issued by a corporation in final settlement and discharge of a balance unpaid on bank deposits in a failed bank.

1. Deduction -- Loss -- Transfer Entered into for Profit -- Residence. -- A residence of the petitioner was damaged by a hurricane in 1938 and was never thereafter occupied. Held: the loss, if any, was not from a transaction entered into for profit within section 23 (e) (2). 2.

In 1932 petitioners, along with Sara C. Ford, formed a partnership. In 1938 petitioners, as individuals, purchased for cash the one-third interest of Sara C. Ford in the partnership. Held: The purchase of the one-third interest by the remaining partners furnished no ground for adjusting the cost basis of the partnership for the capital assets it sold. That basis is the original cost to the partnership.

Income -- Periods for Reporting -- Use of Fiscal Year Only Where Books Are Kept. -- The requirement in section 41, that if a taxpayer does not keep books he must use the calendar year basis, is not satisfied by the keeping of informal records on a file in combination with some summary sheets incorporated in a binder marked Ledger.

1. A distribution by a corporation out of earnings and profits made as an integral part of a merger amounting to a tax-free reorganization and in order to equalize its assets with those of the other merging corporation, held to have had the effect of a taxable dividend within the meaning of Internal Revenue Code, section 112 (c) (2). 2.

1. Petitioner is engaged in the manufacture of milling machines. It was incorporated in 1905 and produced its first machine in 1906. Held: The gross income received from such sources resulted from the development of the new machines, and within the provisions of subsection (a) (2) (C) of section 721, and petitioner is entitled to exclude from its excess profits net income the net abnormal income therefrom attributable to the years 1936 to 1939, inclusive, as provided in…

Held, that sums paid to citizens and residents of France in the taxable years 1941 and 1942 pursuant to decedent's will which were payable… Held: that sums paid to citizens and residents of France in the taxable years 1941 and 1942 pursuant to decedent's will which were payable only out of the net income of a testamentary trust, were not private pensions or life annuities within the meaning of article IX (c) of the Convention on Double Taxation Between the United States and…

1. Held, that in the taxable year petitioner was an association taxable as a corporation. 2. Held: that in the taxable year petitioner was an association taxable as a corporation. 2. A delinquent capital stock tax return filed by petitioner is effective in declaring a capital stock value to be used in computing its tax liabilities.

As consideration for certain of its stock, petitioner agreed to pay over a period of 20 years certain percentages of the oil and gas produced under its seven-eighths working interest in oil and gas… Held: on the facts, that the parties transferring the stock received economic interests in the oil and gas in place and that the amounts paid to them in the taxable years are not includible in petitioner's income.

Petitioner computed its normal tax net income on the installment basis. Held: that the credit to which petitioner is entitled by section 26 (e) for income subject to excess profits tax must be computed on its accrual basis net income, rather than its installment basis net income; held, further, that the credit provided by section 26 (e) is the amount equal to its adjusted excess profits net income, and not,…

Taxpayer in 1934 and 1935 created 8 trusts for the benefit of his 8 children, of whom 7 were minors. In each case a banking corporation was named as trustee. Held: Petitioner is taxable under section 22 (a) upon the income of the trusts for the minor children. (2) The powers retained by the petitioner over the trust for the benefit of his adult son were not sufficient to warrant taxing to him the income therefrom under section 22 (a).

In 1932 the X company acquired the assets of a Joint Stock Land Bank for the purpose of liquidating them and distributing the proceeds to its stockholders, who had been bondholders of the bank. Held: distributions made to petitioner by X during the taxable years were distributions in partial liquidation, includible in income in their full amounts under section 115 (c) of the appropriate revenue acts.

The commuted value of the liability of decedent's estate for payments to decedent's divorced wife until she should die or remarry, held deductible from decedent's gross estate in an amount determinable by reference to American experience tables reflecting life expectancy and the probability of the remarriage of widows.

In 1930 the husband of decedent created a trust under which decedent was to receive income for life and had the power to terminate the trust and take the corpus. In 1931 decedent created a trust, with identical terms, giving her husband the income for life and the right to terminate the trust and take the corpus. Shortly thereafter he terminated the trust and took the corpus.

Petitioner's husband, for money lent, gave her his note for $ 76,128 in 1932. No principal was ever paid. In 1932 he paid interest of $ 4,558.46; also, $ 2,500 on September 16, 1940. Held: that the petitioner was taxable in 1940 upon the interest paid on December 31, 1940, but not upon that paid in June 1941. Helvering v. Horst, 311 U.S. 112;Annie A. Colby, 45 B. T. A. 536.

Under a testamentary trust all income was to be distributed currently to the life beneficiary, with the remainder over to the trustees of Rutgers College, a corporation within the class defined in… Held: on the facts, that the net capital gains realized in the taxable year were not deductible from gross income of the trust as having been permanently set aside for charitable purposes under section 162 (a) of the code.

Decedent in 1941 created a trust in which his sister was named life beneficiary. The trust provided that if decedent survived his sister the trust income was to be paid to him during his life. Held: respondent erred in this determination. Estate of Charles Curie, 4 T. C. 1175, followed.

Petitioner and her former husband transferred property to a college in 1927, which issued to them an annuity contract providing certain… Held: the petitioner is not shown to have been taxable on only 3 percent of the cost of a commercial insurance company annuity, and the Commissioner is not shown to have erred in taxing her upon the full amount of annuity received, which was less than 3 percent of the original values transferred to the college. Sec. 22 (b) (2), I. R. C.

Petitioner created on the same date an unfunded insurance trust, to which he transferred policies of insurance on his own life, and five so-called family trusts, one for his wife and one for each of… Held: that such net income is taxable to petitioner under section 167 (a) (3), Internal Revenue Code.

Petitioners, restricted Indians residing on the Quinaielt Reservation in Washington and operating a commercial fishing business on the Quinaielt River on that reservation, where the unrestricted right of fishing by such Indians is guaranteed by treaty with the United States, are liable for tax upon income they received for their free and untrammeled use from the exercise of such right.

1. Cash payments and certain costs of drilling and equipping a test well on an oil and gas lease were consideration for the acquisition of an… Held: that petitioner acquired such ownership in the lease and an in-oil payment interest in the remaining undivided two-thirds of the lease at the date of the agreement last made; that each such interest is a separate capital assset; and that the cost of each such interest is a capital investment recoverable only through depletion…

Petitioners, executors of the estate of Andrew J. Igoe, deceased, credited current income on the books of the estate to beneficiaries who were residuary legatees under the decedent's will. Held: under the provisions of section 162 (c), Internal Revenue Code, petitioners are entitled to deduct the amounts distributed.

Petitioner mailed its capital stock tax return, containing election declaring value for its capital stock, at Tulsa, Oklahoma, in time for it to be received… Held: the Post Office Department was not the agent of the Commissioner of Internal Revenue for delivery of the return, and the presumption of receipt arising from mailing is insufficient to overcome the presumption of correctness of the Commissioner's determination that no election had been filed by the necessary date.

Basis -- Property Transferred Under a Prenuptial Agreement. -- A transfer of property by a prospective husband to a prospective wife pursuant to a prenuptial agreement is not a sale or exchange giving the wife a new basis for the property, but is a gift, so that the property in the hands of the wife retains the same basis as it had in the hands of the transferor.

Income of personal service business to which petitioner's wife and son made no appreciable contribution of services or new capital, held taxable in full to petitioner, notwithstanding purported family partnership arrangement. Commissioner v. Tower, 327 U.S. 280, and Lusthaus v. Commissioner, 327 U.S. 293, followed.

The petitioner was married in 1918. His wife turned over all her property to him to be used in a jewelry business conducted by him, and over a period of many years labored with him in the store… Held: that the partnership is an ordinary business partnership within the provisions of the Internal Revenue Code.

Payment of accrual-basis petititoner's rent claim in debtor's assets, held, taxable as ordinary income in year of receipt and approval by bankruptcy court, notwithstanding that… Held: taxable as ordinary income in year of receipt and approval by bankruptcy court, notwithstanding that simultaneously therewith, in what may have been a tax-free reorganization, petitioner acquired debtor's remaining assets in exchange for its stock and assumption of the debtor's liabilities.

Petitioner owned and/or operated several moving picture theatres. Held: that the Commissioner did not err in including in petitioner's gross income the shares of the income of the business which were credited to the petitioner's wife, son, and daughter.

1. Petitioner, engaged in the automobile agency business, conveyed to his wife a one-half interest in sundry corporate assets distributed to him upon dissolution, upon the understanding that the… Held: that the Commissioner did not err in including the entire partnership income in petitioner's gross income. 2. Held, on the facts, that the Commissioner erred in including in corporate assets received by petitioner upon distribution an amount for good will.

Held, that petitioner is not entitled to deduct, under section 23 (o) (2) of the Internal Revenue Code, sums of money contributed by him… Held: that petitioner is not entitled to deduct, under section 23 (o) (2) of the Internal Revenue Code, sums of money contributed by him in 1940 to the trust estate of Percival Lowell for use in carrying on scientific work at the Lowell Observatory, because the observatory is not a separate entity, but rather a part of the trust estate,…

1. Petitioners in 1930 purchased as partners a going business in part with money furnished by their wives, one of whom was not repaid. Held: that the Commissioner did not err in including all partnership income in gross income of petitioners. 2. With a part of the income from the partnership, the wives purchased, as cotenants, a building, which they rented to the partnership. The petitioners never received any of the rental money.

1. A decree of the Missouri Circuit Court, entered in a proceeding to construe decedent's will, directed the trustees of the testamentary trust created by the will to first satisfy a judgment against… Held: the payments on this judgment did not constitute distributions to a beneficiary, as such, but were payments on account of a debt of the decedent and consequently were not deductible in computing the net taxable income of the trust estate under section 162 (b), I. R. C. 2.

Taxpayer corporation, keeping books on the accrual basis, voted additional compensation to officers who agreed to contribute the sums voted to surplus. Held: Since liability for the compensation voted was contingent on the officers contributing it to corporation surplus, it was not an expense incurred in the taxable year. Dixie Pine Products Co. v. Commissioner, 320 U.S. 516; Ames Reliable Products Co., 44 B. T. A. 176.

1. During the taxable years the petitioner paid interest upon its debenture bonds which had been issued by it in connection with a reorganization of corporations effected in 1938. Held: that the interest paid is a legal deduction from gross income. 2. Prior to 1940 depreciation on the building owned by the petitioner was taken at the rate of 3 percent per annum, except that no depreciation was claimed or allowed for a period of 3 1/2 years.

1. In each of the taxable years the petitioner made a contribution to a county fair association which was required by its lease from the county to… Held: that the contributions are legal deductions from gross income under section 23 (o), I. R. C. 2. In 1941 the petitioner paid attorneys' fees in connection with litigation involving a deficiency in income tax for 1934. Held, that the amount is a legal deduction from gross income. Howard E. Cammack, 5. T. C. 467, followed.

Prior to the taxable years petitioner assigned a 48 percent interest in an automobile parts agency and warehouse business, which he had established with his own capital, to his wife as trustee for… Held: that all of the profits of the business are taxable to petitioner as his individual earnings.

The plea here of estoppel by judgment or res adjudicata is not supported by proof of judgments or decrees rendered in prior proceedings in which the issue here was neither litigated nor decided.

1. In 1931 and 1932 petitioner advanced money to X under an agreement whereby he was to obtain a certain interest in stock to be received by X through a stock purchase arrangement. Held: the gain realized by petitioner was a long term capital gain. 2. In 1932 petitioner converted a residence in which he had formerly lived to rental property. In 1941 he sold the property at a loss.

1. In September 1934 petitioner started a wholesale linen business with approximately $ 2,500, about $ 1,000 of which was contributed by his… Held: the entire income derived from the hotel business for 1941 was not the income of the wife growing out of the ownership of property by reason of title thereto being in her name, but was income derived from petitioner's business and growing out of the use of property and, as such, was taxable to him under section 22 (a), Internal…

Petitioner filed a suit charging damage to his business and earnings by reason of conspiracy, and settled the matter, giving a release, providing that the defendants were released and… Held: that because of inability to allocate on the record the amount recovered between capital replacement, damages for profits lost, or other elements, no error is shown in the Commissioner's determination that the money received was taxable under section 22 (a), Internal Revenue Code.

Petitioner was the owner of certain real estate against which there was an outstanding second mortgage of $ 1,717,500. Held: Thurlim and the trusts were in substance petitioner's agents or nominees and were used by petitioner for the purpose of acquiring the mortgage at a substantial discount; held, further, petitioner is not, therefore, entitled to an interest deduction for the taxable year on the mortgage, but is only entitled to deduct interest on the…

Pursuant to provisions in a lease executed in 1870, Federal income and excess profits taxes assessed against petitioner lessor were paid by its lessee. A portion of the income tax paid was included each year as additional rent in petitioner's gross income for 1936 to 1942, inclusive.

1. Deduction -- Loss -- Demolition of Buildings. -- The loss from the demolition of buildings is the unexhausted basis of the buildings. 2. Deduction -- Nonbusiness Expenses. -- Expenses of tax controversies held deductible under section 23 (a) (2), following Herbert Marshall, 5 T. C. 1032.

1. The petitioner, the owner of a three-fourths interest in a partnership engaged in the baking business, declared himself trustee for his wife for a one-fourth interest. Held: that the petitioner is taxable on the income of the one-fourth interest placed in trust. 2.

The decedent created an irrevocable trust, naming himself as one of the two initial trustees. Held: the value of the trust estate at the optional valuation date is includible in decedent's gross estate under section 811 (d) (2) of the Internal Revenue Code.

Petitioner's only asset, apartment house property, was mortgaged to secure bonds. Held: that the expenses of the reorganization were offset by the satisfaction of part of petitioner's indebtedness and could not, therefore, be amortized over the 10-year period of the extension of the bonds, as petitioner contends. Horn & Hardart Baking Co., 19 B. T. A. 704; S. & L. Building Corporation, 19 B. T. A. 788, distinguished.

Decedent established a trust which provided that one-third of the income should be payable to his estranged wife and the remaining income, after the payment of small annual sums to his… Held: The corpus of the trust is includible in the gross estate of decedent, following Blunt v. Kelly, 131 Fed. (2d) 632. (2) Under the facts, the amount paid to a charitable organization pursuant to compromise of a will contest proceeding is deductible from the gross estate of decedent.

Household expenses paid by petitioner while in Harrisburg, where she holds the position of Secretary of the Commonwealth of Pennsylvania at a salary of $ 10,000 per annum, are not deductible as traveling expenses even though petitioner retains a residence and association with a law firm at Wilkes-Barre, Pennsylvania, from which, in the taxable years, she received income in the respective sums of $ 1,825.45 and $ 247.55.

The petitioner is a resident of Pittsburgh, Pennsylvania. Held: that the disallowed items are not legal deductions from gross income.

Where under the terms of a contract the taxpayer, by the exercise of an option, acquired the exclusive and perpetual right to manufacture… Held: the right to use the trade name in connection with the manufacture and sale of alcoholic malt beverages is property which the owner thereof could license or assign to another; (2) the grant of an exclusive and permanent right in a limited territory was an assignment of such right; (3) the taxpayer acquired a capital asset and the…

The decedent was the devisee of real estate under a will of her mother which, upon being offered for probate, was contested by… Held: the decree admitting the later will to probate, being a consent decree, does not conclusively establish ownership in fee by the decedent of the property transferred in trust; and (2) the decedent did not become the fee owner of such property, but merely acquired a life estate therein, and, consequently, she did not own an interest in…

Corporate transferee of property held not to have inherited earnings and profits of transferor corporation under doctrine of Commissioner v. Sansome, 60 Fed. (2d) 931, where, on reorganization, receipt of transferee's stock by transferor's sole stockholder (petitioner) had been taxed as ordinary dividend.

Held, on the facts, petitioner is not an association taxable as a corporation. Held: on the facts, petitioner is not an association taxable as a corporation.

Petitioner developed a business of showing films to the public at Arcade Theatre, Detroit, in rented premises, over a period of ten years. Held: that petitioner is taxable on the income of Arcade under section 22 (a) of the Internal Revenue Code.

Petitioner and his wife, domiciled in Texas, entered into an agreement pending divorce proceedings whereby petitioner acquired for $ 60,000 the wife's interest in community property having a value of… Held: the basis to petitioner of the property so acquired is $ 60,000 and not the original cost to the community.

Petitioner was living with her husband on the last day of 1942. He died intestate on February 12, 1943. Held: petitioner is estopped from attacking the validity here of the return filed by her for herself and her deceased husband as the valid joint return of both which thus constituted a binding election to file on such basis and could not be revoked after the expiration of the time for filing returns for 1942.

1. Petitioner, a corporation, owed $ 26,830.76 to the widow of a deceased creditor of petitioner. Held: no part of the weekly payments is deductible by petitioner as interest under section 23 (b), Internal Revenue Code. 2. On August 1, 1940, petitioner was obligated to pay M $ 50 per month on a total indebtedness of $ 6,700.

The Commissioner determined that $ 3,000 of a $ 5,000 bonus payment made by a father to a son who was in his employ was not deductible by the father as a business expense on the ground that it… Held: in the absence of evidence establishing that the father intended to make a gift of some part of the $ 5,000, the entire amount is includible in the gross income of the son.

In 1929 and 1930 decedent turned over to his two children certain securities for the purpose of having the children create two trusts. In all particulars here material the trusts were identical. Held: the decedent was in substance the grantor of the two trusts; held, further, no part of the corpora of the trusts is includible in the decedent's gross estate under section 811 (c) or(d) ( 2) of the Internal Revenue Code.

Decedent left his residuary estate in trust, one-half the income therefrom to be paid to his widow for her life and one-half to his sister for her life,… Held: at decedent's death there was no likelihood that the corpus would ever have to be invaded for the widow's support and maintenance, the value of the charitable remainder was definitely ascertainable, and the estate is entitled to a deduction under section 812 (d), I. R. C.Estate of Edwin E. Jack, 6 T. C. 241, followed.

In 1928, petitioner leased buildings and land from the Ford Motor Co. On September 10, 1936, petitioner executed a written lease first expiring on… Held: that by reason of petitioner's tenancy for an indefinite period and of the fact that the expenditures were related and thus attached to the machines themselves, the allowance for the exhaustion of the cost of such expenditures should be based on the useful life of such machinery to which the expenditures were related.

Held, husband and wife were equal partners in a business in 1941 and entitled to divide its income equally between them, where both contributed capital to the business and both performed services in… Held: husband and wife were equal partners in a business in 1941 and entitled to divide its income equally between them, where both contributed capital to the business and both performed services in its operation.

Petitioner in November 1929 made a contract with Dollar Bank, which was in financial difficulty but apparently solvent, whereby Dollar Bank transferred to petitioner all of its assets and petitioner… Held: petitioner is not entitled to the partial bad debt deduction claimed in 1940 and 1941 in the absence of evidence showing the existence of an enforceable obligation or debt owing to it.

1. Petitioner and his wife were carrying on a business together as a partnership in the State of Massachusetts during each of the taxable years. Held: petitioner and his wife were partners as that term is defined by Federal statute and petitioner is not taxable on the wife's share of the profits. Commissioner v. Tower, 327 U.S. 280, and Lusthaus v. Commissioner, 327 U.S. 293, distinguished. 2.

The profits from a jewelry store which petitioner and his wife operated in 1941 as equal partners under a partnership agreement entered into at the close of 1940, and to which the wife contributed… Held: taxable one-half to petitioner and one-half to his wife.

1. Petitioner is the income beneficiary of a testamentary trust created under the will of his deceased wife. Held: that petitioner is not entitled to any credit for foreign tax paid or accrued under section 131, I. R. C., with respect to a deficiency in tax which was paid by the administrator of her estate, because the tax was on income of the deceased wife received by her during her lifetime, none of which was ever includible in the income of…

Under the facts, held, amounts withdrawn by petitioner's stockholder-employees in the taxable years and falsely charged to merchandise… Held: amounts withdrawn by petitioner's stockholder-employees in the taxable years and falsely charged to merchandise purchases, and checks issued to them in 1938 and 1939 charged to salaries which were not paid but were redeposited to petitioner's account, are not deductible as salaries paid; respondent did not err in disallowing…

The petitioner, a foreign corporation, had no office or place of business, no employees, factory, or officers in the United States. Held: on all the facts that the petitioner was not engaged in trade or business within the United States under sections 231 (b) or 14 (c) of the Internal Revenue Code.

Where, pursuant to an employment contract and trust agreement suggested by petitioner-employee, 5 percent of the net earnings of the employer over and above $ 450,000 for the fiscal year ended… Held: the amount of $ 43,934.62 is income to petitioner under section 22 (a) of the Internal Revenue Code.

1. A syndicate was formed in September 1929, composed of the petitioner and two business associates, for the purpose of buying and selling the shares of stock of a certain corporation. Held: that the deduction was properly disallowed by the respondent, except as to the aliquot part of the interest included in the $ 13,492.70 payment. 2. In October 1929 petitioner's associate in business, L. B. Foster, purchased 5,000 shares of stock of a corporation at a cost of $ 30,000.

1. Standish and Lotta Backus created a single trust in 1924, naming their 5 children as beneficiaries. Held: that because of this power to shift distribution of income, the trust income is taxable to the grantors under section 22 (a) during the taxable years up to April 5, 1940, under the Stockstrom case. 2.

1. Petitioner is the owner in Chicago, Illinois, of a leasehold and buildings thereon. Held: further, that petitioner is taxable on the gain realized in the purchases from bondholders through the secretary of the bondholders' committee and the security dealers, under the doctrine of the Supreme Court in United States v. Kirby Lumber Co., 284 U.S. 1, he being at all times solvent. 2.

Pursuant to a five-year employment contract and a trust agreement, the first of five annual payments of $ 12,500 was made in 1941 by the employing corporations to a trustee to be invested in… Held: the amount of $ 12,500 paid to the trustee was not income taxable to petitioner in 1941 under section 22 (a), Internal Revenue Code.

1. The petitioner, a common carrier of freight by motor carrier, was engaged in business from 1934 to 1940, inclusive. Held: on the facts, that petitioner did not show such abnormality was not a consequence of a change in the size of the petitioner's business. 2. Petitioner, because of a hurricane in September 1938, had unusually heavy expenses for carriage and delivery of freight, due to blocked roads and streets.

1. Decedent created a trust in 1928, with the income payable to his wife for life and after her death to their daughter. Held: that only the value of the remainder interests of the trust corpus is includible in the gross estate. 2. In 1935 petitioner created a trust the income of which was to be paid to his daughter, then 22 years of age, for life. The trust corpus was to revert to the grantor if the daughter predeceased him, leaving no issue surviving.

In 1930 the decedent created a trust providing that the income should be paid to herself for life, then to her daughter for life, with remainders over to the daughter's children; but that, if no… Held: that the value of the trust assets at the date of decedent's death formed a part of her gross estate.

1. Held, respondent erred in determination of good will as a factor in liquidation of a corporation. 2. Held: respondent erred in determination of good will as a factor in liquidation of a corporation. 2. Respondent's determination that petitioner did not make bona fide gifts of stock sustained for lack of proof. 3.

1. The ownership of certain stock in three separate corporations and the basis thereof to petitioner under the statutes which are applicable for purposes of computing a net long term capital loss… Held: petitioner has failed to prove any error in the disallowance by the respondent of a certain expense item.

The decedent, who died in 1942, was a cash legatee of $ 50,000 under the will of his father-in-law, who died in 1939. Held: that the value of the shares in question is a legal deduction from decedent's gross estate.

1. Excess Profits Tax -- Net Abnormal Income Attributable to Prior Years. -- In determining the amount of net abnormal income of the petitioner attributable to prior years under section 721 (b), Internal Revenue Code, all of it which resulted from sales of crude oil at higher prices in the taxable year than in prior years should be allocated to the taxable year. 2.

On March 6, 1940, the petitioner purchased 625 shares of Campbell Transportation Co. stock. Held: that the date of the sale was September 10, 1941, and that, since the petitioner had held the stock for more than 18 months, he is liable for tax upon only two-thirds of the gain realized.

1. Petitioner, a nonresident alien individual, invented a process for refining sugar which involved the use of a chemical called Sucro-Blanc. Held: the amounts received by petitioner from the corporation which were measured by the sales made by that corporation for use in foreign countries were not, as to him, income from sources without the United States, and he is taxable thereon. 2.

1. Amounts equivalent to dividends paid by petitioner on account of stock borrowed for short sale transactions, held, deductible business expenses under section 23 (a) of the Internal Revenue Code. Held: deductible business expenses under section 23 (a) of the Internal Revenue Code. Dart v. Commissioner, 74 Fed. (2d) 845, and W. Hinckle Smith, 44 B. T. A. 104, followed. 2.

On the record it is held that the sale and conveyance of certain properties of the corporate petitioner by a liquidating agent immediately after its dissolution became effective was a sale by or for account of such petitioner and the latter is liable for income tax on the gain realized.

In 1941 petitioner sold shares of stock of Campbell Transportation Co. at a profit. Held: that the shares were sold on September 10, 1941, but they were not acquired prior to March 28, 1940, at the earliest, and that the gains are short term capital gains, taxable on 100 percent of the amount thereof.

Where a husband and wife set up four trusts with community property, the income of which during the taxable years was payable monthly to the wife, who had accepted the establishment of the trusts as… Held: husband taxable on one-half of the income of the trusts despite the absence of proof that the income was actually used for the wife's support and maintenance. Section 167 (c) of the Internal Revenue Code is not applicable.

Petitioner contributed in 1931 $ 17,000 to a fund of $ 126,325 with which three apartment buildings, each subject to a mortgage, were purchased and conveyed to a trustee to be operated for the… Held: petitioner sustained a deductible loss on his investment in the trust in 1940.

Petitioner's husband willed to her all of his estate, but directed that she sell his entire 2,544 shares of common stock of a corporation to 3 other major stockholders… Held: petitioner's basis for computing gain or loss on disposition of the 3,409 shares of stock is $ 100 per share; held, further, the amount realized by petitioner on the transaction is the consideration in cash and preferred stock minus the amounts of Federal and state estate and inheritance taxes assumed.

Petitioner, a citizen of Switzerland, came to the United States with his family in 1940 and established a residence in New York City. In July 1941 he and his family departed for Zurich, Switzerland. Held: the facts sustain the Commissioner and petitioner is to be taxed as a resident alien, whose residence was in the United States for the entire 12-month period of 1941. L. E. L. Thomas, 33 B. T. A. 725, followed.

1. Excess Profits -- Base Period -- Abnormal Deductions in Base Period -- 711 (b) (1) (J), (i), (ii) -- Consequence of Change in Manner of Operation of Business Under (K) (ii). -- Abnormalities resulting from employing inspectors and measurers in dress manufacturing business were due to a change in the manner of operation of the business within 711 (b) (1) (K) (ii). 2. Pleadings. -- Affirmative defenses not pleaded by respondent not considered.

1. Petitioner's predecessor, for a cash consideration of $ 7,600,000, acquired all of the capital stock of 6 West Virginia coal mining… Held: that the several transactions beginning with the purchase of the stock for a cash consideration of $ 7,600,000 and ending with the conveyance of the assets to an operating subsidiary were one transaction for tax purposes, i. e., the purchase of the assets for a cash consideration of $ 7,600,000, and that this amount, plus the cost of…

Petitioner and X were cotrustees of a trust for C. X withdrew the funds of the trust, agreeing to make repayment, but he became insolvent… Held: that X was obligated to repay petitioner the entire sum which he paid to the guardian of C, so that an indebtedness from X to petitioner came into existence in 1941, when petitioner made payment; held, further, that the debt became worthless in 1941 and petitioner is entitled to a deduction for a worthless debt under section 23 (k)…

1. Renegotiation -- Statute of Limitations. -- The period of limitation provided in section 403 (c) (6) of the 1942 amendment applies in the case of overall or fiscal year renegotiation. 2. Id. -- Commence, as Used Therein. -- A letter requesting estimates of the gross amounts of contracts solely for the purpose of assignment of the petitioner to a renegotiating agency did not commence the renegotiation within the meaning of that word as used in section 403 (c) (6).

Parent corporation owning 600 of 1,000 shares of common voting stock of a subsidiary desired to obtain the 95 percent ownership required for consolidated return purposes. Held: the exchange of common stock for new stock effected a change in form but not in substance, and the new stock was not nonvoting stock limited and preferred as to dividends, and (2) the parent corporation did not have the 95 percent ownership of voting stock required for consolidated return purposes.

The will of Robert S. Frazer, father of decedent, created two trusts, terminating upon the death of the life beneficiaries. The trust remainders were to fall into the testator's residuary estate. Held: the value of a one-third interest in the trust remainders was taxable as part of the decedent's gross estate under section 811 (a), I. R. C.