Volume 61 — Tax Court Reports

P was a director and shareholder of MGM, and in 1962, he made a payment to MGM of $ 53,870.81 when the SEC indicated that P might be liable to MGM for such amount as an insider's profit within the… Held: under the particular circumstances of this case, the payment is an ordinary and necessary business expense of P; Nathan Cummings, 60 T.C. 91 (1973), reaffirmed.

The petitioner, a corporation that reported income in accordance with the accrual method of accounting, made charitable contributions within 2 1/2 months after the close of the taxable year 1969. Held: the petitioner has substantially complied with the statute and regulations and is entitled to a deduction in the taxable year 1969.

1. Petitioners, husband and wife, created several 10-year trusts for the benefit of their minor children to which they transferred property… Held: on the facts, the rentals paid constitute ordinary and necessary business expenses, and petitioners' reversionary interest was not a disqualifying equity in the property within the meaning of sec. 162(a)(3) and did not preclude petitioners from deducting the reasonable rent paid to the trusts for the use and possession of the…

A partnership, using the cash receipts and disbursements method of accounting, transferred all of its assets and liabilities, including accounts receivable… Held: Under sec. 357(c), I.R.C. 1954, the excess of the liabilities assumed, including the accounts payable, by the corporation over the basis of the assets transferred is taxable. The basis of the stock acquired in the exchange is determined. Held, further, respondent's determination of reasonable compensation approved.

In 1966, S sold his partnership interest in an H & R Block franchise to B for $ 45,000 payable in four annual installments. Held: The noncompete covenant will not be assigned a value by this Court absent strong proof as to what its value might be. Therefore, S correctly reported the income he received as a long-term capital gain and B is not entitled to amortization deductions.

H, a United States citizen employed in Spain as a civilian by the United States Air Force, and a resident of Spain, was married to W, a… Held: Explicit provisions of art. 1325 of the Spanish Civil Code render the community property laws therein inapplicable to couples like H and W, and thus no portion of H's earnings belonged to W under Spanish law. H, who filed United States income tax returns without W, was therefore required to report his full earnings on such returns.

Petitioners' motions for the release of assets from the lien of jeopardy assessments in order to pay legal and accounting fees, to have the jeopardy assessments and deficiency notices declared null and void, and for other relief are denied.

In 1964 petitioner decided that it wanted to sell its baseball stadium which it had owned since 1938. Held: petitioner is not entitled to defer recognition of the gain from the sale of the stadium under sec. 1033 because the sale was not made under threat or imminence of condemnation.

In 1915 D made an inter vivos gift of certain securities to a trust which he established at the same time. Held: in computing gain upon disposition of the securities in 1969, T's basis must be determined with reference to their fair market value in 1915 rather than in 1953. Sec. 1015(c), I.R.C. 1954. Richard Archbold, 40 B.T.A. 1238, affirmed 115 F. 2d 1005 (C.A. 2), certiorari denied 313 U.S. 584, followed.

An employer sold warrants to the petitioners for nominal amounts in order to secure better services from them. The petitioners later sold the warrants at a substantial profit. Held: the petitioners realized compensation when they sold the warrants, which did not have a readily ascertainable fair market value at the time the petitioners acquired them from their employer.

Petitioner's motion for application of Rule 18(a), Tax Court Rules of Practice, and consequent entry of decision of no deficiency in the absence of an answer, denied. Clark Tank Lines Co., docket No. 721-71, distinguished.

A notice of deficiency was deposited by respondent on Mar. 29, 1973, with the United States Postal Service to be sent to petitioners by certified mail. Held: That the notice of deficiency was mailed on Mar. 31, 1973, within the intendment of sec. 6213(a), I.R.C. 1954, and therefore the petition was timely filed on the 89th day. Respondent's motion to dismiss for lack of jurisdiction denied.

Ron Waller Enterprises, Inc., a small business corporation, filed its election under sec. 1372(a), I.R.C. 1954, more than 1 month after it borrowed $ 20,000, received an assignment of a lease on… Held: The election was not timely within the meaning of sec. 1372(c)(1), I.R.C. 1954. Sec. 1.1372-2(b)(1), Income Tax Regs., applied.

During their fiscal year ended Jan. 31, 1965, petitioners, who are brothers, had 7,000 and 4,500 shares of Acme stock redeemed concurrent with a redemption of Acme stock from a troublesome minority… Held: Partial redemption of petitioners' stock by Acme did not meaningfully reduce their proportionate interests in the corporation. 2. The cash distributions from Acme to petitioners were essentially equivalent to a dividend and, therefore, taxable as ordinary income. 3.

Petitioners on their 1964 Federal income tax return claimed and were allowed a casualty loss deduction because of damage to their home in the Good… Held: a payment in 1968 by the Alaska Mortgage Adjustment Agency made because of the damage to petitioners' home in the earthquake in partial reduction of petitioners' home mortgage constituted income to petitioners to the extent of the amount of the casualty loss deduction in 1964 which resulted in a tax benefit to petitioners.

The Commissioner disallowed certain deductions claimed by petitioner and her husband and determined that they omitted certain amounts from gross income for the years 1960, 1961, and 1962. Held: For the years 1961 and 1962 sec. 6013 relieves petitioner from liability for tax to the extent such liability relates to omissions from gross income attributable to petitioner's spouse.

Pursuant to a divorce decree, H made monthly payments of $ 600 to W in the year 1969. The decree provided that the payments were to be made for a period of 54 months. Held: The payments are nondeductible installment payments under sec. 71(c)(1), I.R.C. 1954. Mere mathematics will ascertain a principal sum specified in the decree. Held, further, under the facts herein, our decision in Jack E. Golsen, 54 T.C. 742 (1970), is not applicable.

1. Payments received by petitioner under an agreement terminating a contract under which petitioner had the right to perform personal services on a commission basis is taxable to petitioners as ordinary income rather than capital gain. 2. Business expenses paid by petitioner under an agreement which provided that petitioner would be reimbursed for the expenses upon termination of the agreement are not deductible as ordinary and necessary expenses of petitioner's business.

In order to purchase a home W obtained an advancement of $ 29,500 against any inheritance she might have received on her mother's death. Held: the additional payments constitute compensation for W's property rights and are not includable in W's gross income under sec. 71(a)(1) nor deductible to H under sec. 215.

Petitioner husband suffered permanent injuries as the result of an accident. Held: no part of the payments received was excludable from gross income under sec. 105(c), 105(d), or 106, I.R.C. 1954.

R corporation sought to purchase the assets of O corporation and transfer them to a newly organized subsidiary of R. O refused to sell its assets. Held: N is entitled to a stepped-up basis in the assets it acquired from O. Held, further, N is not required to carry back a net operating loss it incurred after it acquired O's assets to prior taxable years of O before it may carry over such loss to its own subsequent taxable years.

The petitioner filed its Federal income tax return for the year 1968 on Sept. 12, 1969. Held: under sec. 6503(a)(1), I.R.C. 1954, the statute of limitations for assessment of income taxes for 1968 was suspended by the mailing of the notice of deficiency.

On Oct. 31, 1960, W acquired O's farm equipment business in exchange for, inter alia, 655,000 shares of W common stock. Held: such fair market value of the stock under the facts of this case is the value assigned to it by the parties, O having failed to adduce strong proof to overcome such value.

T, as buyer, entered into two contracts for the purchase of two orange groves. The groves were newly planted, and required 4 years of maintenance and care in order to become mature or established. Held: the payments made by T under the contracts represented his nondeductible cost of the established groves, no part of which may properly be allocated to deductible expenses for maintenance and care of the groves.

Held, the extension of credit between two corporations did not result in a constructive dividend to the individual taxpayer owning the stock of both corporations where such credit was not granted… Held: the extension of credit between two corporations did not result in a constructive dividend to the individual taxpayer owning the stock of both corporations where such credit was not granted primarily for the benefit of the taxpayer and he received no direct benefit therefrom.

Sec. 1402(a) of the 1954 Code defines net earnings from self-employment as including an individual's distributive share of income from a trade or business carried on by a partnership of which he is a… Held: these provisions were intended to apply to a limited partner, and such distributive share therefore constitutes self-employment income subject to tax under sec. 1401.

Petitioner was port engineer for Gulf Oil Corp. in Port Arthur, Tex., during the years 1957-63 and as such was responsible for maintenance and repairs of Gulf's ships and other marine vessels. Held: the amounts petitioner received from the contractor both before and after the decision in James v. United States, 366 U.S. 213 (1961), were taxable income.

Petitioner's employer unconditionally paid certain amounts to a trustee as compensation for services previously rendered to it by the petitioner. Held: the petitioner realized income when his employer placed funds in trust for petitioner's benefit.

In 1960 petitioner formed Kelly Supply and gave 90 percent of the stock of Kelly Supply to his children. Kelly Supply at all times has been a subch. Held: petitioner is not collaterally estopped by our prior decision from showing that during the years 1965 through 1967 the gifts to his children were bona fide. Held, further, petitioner continued to hold complete control over the stock of his children during the years in issue and the gifts to them lacked economic substance.

In October 1966, X, a corporation, sold its assets to Z for cash and other consideration, including an agreement by Z to pay all of X's income tax liabilities. Held: A did not receive a liquidating distribution from X in 1966, within the meaning of sec. 331, I.R.C. 1954, in the form of the cancellation of indebtedness on an open account in the amount of $ 149,602; 2.

Held: Deduction for depreciation not allowed petitioners on main house, guesthouse, and pool house located on cattle ranch petitioners acquired and used for business purposes. Held: Deduction for depreciation not allowed petitioners on main house, guesthouse, and pool house located on cattle ranch petitioners acquired and used for business purposes. These buildings were not used in a trade or business.

A West Virginia joint will, executed by decedent and his wife, contained language purporting to limit the wife's disposition of certain stock and real estate… Held: Under the law of West Virginia, the wife is contractually bound to retain the stock and real estate during her life and to give them to her son at her death. It follows that her interests in the stock and real estate are terminable and do not qualify for the marital deduction under sec. 2056(b)(1), I.R.C. 1954.

For more than 5 years preceding Mar. 31, 1964, Oak Park operated a hospital in Stockton, Calif. Held: the distribution of the stock of Germ to petitioners failed to meet the 5-year active business requirement of sec. 355(b), I.R.C. 1954, because at the date of the distribution Oak Park was engaged in two businesses of which only one had been actively conducted for 5 years preceding the distribution as required by sec. 355(b)(2).

1. Held, the $ 5,000 loss that petitioner sustained in 1968 when a debt owed him became worthless was a nonbusiness bad debt within the meaning of sec. 166(d), I.R.C. 1954. 2. Held: the $ 5,000 loss that petitioner sustained in 1968 when a debt owed him became worthless was a nonbusiness bad debt within the meaning of sec. 166(d), I.R.C. 1954. 2.

Petitioners installed a sewage disposal system to treat the sewage generated by their shopping center. Held: the system was not tangible personal property within sec. 48(a)(1)(A), and therefore did not qualify as section 38 property eligible for the investment credit.

Held, a 1960 Exclusive License Agreement which was limited geographically granted all substantial rights to a patent so as to qualify the proceeds for capital gains treatment under sec. 1235, I.R.C.… Held: a 1960 Exclusive License Agreement which was limited geographically granted all substantial rights to a patent so as to qualify the proceeds for capital gains treatment under sec. 1235, I.R.C. 1954. Vincent B. Rodgers, 51 T.C. 927 (1969), followed.

The decedent assigned a life insurance policy on his life to his son, approximately 6 months prior to his death. After the transfer, the son paid the insurance premiums. Held: the transfer of the life insurance policy was made in contemplation of death within the meaning of sec. 2035, I.R.C. 1954. Held, further, the quantum of inclusion is that portion of the face value equal to the ratio of premiums paid by the decedent to total premiums paid.

Petitioners were shareholders in a subch. Held: the deduction under sec. 1374 (c)(2)(B), I.R.C. 1954, is limited to the shareholder's adjusted basis in the stock of the corporation and in the indebtedness of the corporation to the shareholder.

Pursuant to settlement of a will contest, the estate transferred property to certain heirs who challenged the will. Held: such property is not includable in the property transferred to the beneficiary under the will for purposes of the credit under sec. 2013, I.R.C. 1954; held, further, property transferred by the beneficiary to another heir who did not challenge the will was a gift not excludable from the property transferred by the estate for purposes…

Petitioners, residents of California, invested $ 52,000 in stock of a Las Vegas casino. Held: petitioners did not sustain a theft loss in 1968.

Petitioner's transferor, Chapman, an accrual basis corporate taxpayer, sold its shopping center following adoption of a plan of complete liquidation under sec. 337, I.R.C. 1954, and received in… Held: Chapman received taxable ordinary interest income in the full amount of the interest payment received.

P corporation entered into an agreement with unrelated T corporation (an established financially successful business), whereby P, or a wholly owned subsidiary, would acquire all of the assets of T in… Held: under these circumstances the advance account represented a bona fide indebtedness, and S is entitled to deductions for interest expense thereon.

Petitioners and another individual, Leonard Schmock (in docket No. 8233-71), formed Westshore, Inc., a real estate corporation which executed a 99-year lease… Held: Since the exercise of the option on May 15, 1967, constituted a purchase of legal title to the fee and did not result in a qualifying sec. 1031 exchange of a leasehold for the fee, petitioners are not entitled to tack the holding period of their Westshore, Inc., stock onto their holding period of the fee.

Held, that the provisions of sec. 1(b)(2) 1All section references are to the Internal Revenue Code of 1954, as in effect during the years in issue. Held: that the provisions of sec. 1(b)(2) 1All section references are to the Internal Revenue Code of 1954, as in effect during the years in issue.

Pursuant to the arrangements leading to a divorce and a property settlement, the stock held by the petitioners was redeemed. Held: the attribution rules of sec. 318, I.R.C. 1954, are applicable, notwithstanding the family fight, and the payments the petitioners received from the redemption were essentially equivalent to dividends under sec. 302(b)(1), I.R.C. 1954; held, further, since the agreement referred to in sec. 302(c)(2)(A)(iii), I.R.C. 1954 was not…

Petitioner was engaged in the business of extracting and selling sand and gravel from the Kansas River, on a tract of land owned by it. Held: petitioner had an economic interest in the deposit of sand and gravel in its permit area sufficient to entitle it to percentage depletion deductions produced by its operations. Held, further, the mineral deposit in which petitioner had an economic interest is a wasting asset within the meaning of the depletion statutes.

Petitioner husband, one of two 50-percent shareholders of a California corporation, received numerous advances from the corporation throughout the years 1962 through 1967. Held: on the facts, the advances were bona fide loans and not constructive dividends.

On its income tax return for 1967, petitioner reported and paid the alternative tax under sec. 1201, I.R.C. 1954, because it was less than the regular tax under sec. 11. Held: All of petitioner's unused net operating losses must be carried to 1967 and deducted in that year, leaving none available for deduction in 1969. Sec. 172. Sec. 6214(b) and Chartier Real Estate Co., 52 T.C. 346 (1969), affirmed

Petitioners gave all the stock of a corporation to a local governmental agency immediately after the corporation had declared and paid a dividend of all cash and accounts for services rendered prior… Held: the distribution was a dividend in substance as well as in form and cannot be treated as the proceeds of a sale, redemption, or partial liquidation.

The petitioner James D. Colbert, an ordained minister, excluded from gross income rental allowances received from a nonreligious organization for the taxable years 1967, 1968, and 1969 as part of his… Held: the petitioner is not entitled to an exclusion as a parsonage allowance under sec. 107 for said allowances because he was not performing the duties, in this case the conduct of religious worship, ordinarily required of a minister in the exercise of his ministry.

On counterclaim to his wife's action for separation, petitioner husband obtained from the Supreme Court of New York an annulment decree based on the invalidity of an ex parte decree of divorce… Held: periodic payments made by the husband to his former wife during each of the taxable years 1965 through 1968 pursuant to the annulment decree were alimony to her within sec. 71(a) (1) and hence deductible by him under sec. 215. George F. Reisman, 49 T.C. 570 (1968).

T Corp. purchased an insurance agency and brokerage business from the estate of its deceased owner and thereafter, in accordance with a prior agreement, entered into a contract with the decedent's… Held: in the circumstances of this case, the covenant not to compete had independent economic significance, and the payments in respect thereof furnished the basis for deductions by T under sec. 167(a)(1), I.R.C. 1954.

1. The petitioners' limited partnership purchased an office building and made a prepayment of interest in the amount of $ 250,000 which the partnership claimed as an interest deduction in the year of… Held: The petitioners' partnership is not entitled to an interest deduction under sec. 163(a) for this $ 250,000 payment. This payment was in effect a deposit or downpayment on the principal due.

Petitioner received a cash bonus to sign a professional baseball contract and sought to utilize the income-averaging provisions of sec. 1301 et seq. Held: Petitioner cannot utilize such provisions… Held: Petitioner cannot utilize such provisions since he is not an eligible individual under sec. 1303. Sec. 1303(c)(2)(B) is not applicable since petitioner's training in college during the base period years is not work within the meaning of that provision.

The taxpayer entered into a conspiracy to produce counterfeit U.S. currency. However, the real intent of two of his coconspirators was to defraud the taxpayer. Held: While the taxpayer may have sustained a theft loss, it was the direct result of the criminal conspiracy on his part. Therefore, the loss was not an allowable deduction under sec. 165(c)(2) or sec. 165(c)(3), I.R.C. 1954. Luther M. Richey, Jr., 33 T.C. 272 (1959).

Petitioner claimed an investment credit under sec. 38, I.R.C. 1954, for the taxable year ended Mar. 31, 1969, and had been allowed similar credits for prior years. Held: sec. 1.47-4(b)(2), Income Tax Regs., is valid and petitioner is liable for the recapture tax provided by sec. 47(a)(1), I.R.C. 1954.

Petitioner husband was the owner-beneficiary of two life insurance policies on the life of his wife. The premiums of the policies were paid from community property funds. Held: the insurance policies in question were the separate property of the husband and not community property; and (2) upon the death of the insured wife, no portion of the insurance proceeds was includable in her estate. Catalano v. United States, 429 F. 2d 1058 (C.A. 5, 1969), followed.

1. P, the parent of an affiliated group of corporations, initially negotiated to exchange some of its stock for a yacht which was… Held: the value of P's stock exchanged for N's stock was $ 177,500; P's principal purpose in acquiring N's stock was tax avoidance within the meaning of sec. 269(a), I.R.C. 1954; the depreciation deductions and the loss on the sale of the yacht must be computed in the consolidated return by using $ 177,500 as the cost basis of the yacht. 2.

Petitioner, as a partner, received investment credits in 1965 and 1966 arising from the purchase of sec. 38 property by the partnership. Held: petitioner's disposition of 53.33 percent of his interest in the corporation triggered a recapture of 53.33 percent of the investment credits taken in 1965 and 1966.

All of decedent's one-third stock interest in a corporation was redeemed prior to his death. Held: The decedent's interest in the corporation was completely terminated upon the redemption of all of his stock under sec. 302(b)(3), I.R.C. 1954. The son's ensuing stock interest in the corporation is not attributed to decedent since he retained no interest in the corporation other than an interest as a creditor.

Sole executive officer of a corporation had been compensated for the years in issue under a corporate resolution which had remained unchanged for 12, 13, and 14 years, respectively, and which was no longer realistic because of related changing factors and circumstances. On consideration of all revelant facts of record, reasonable compensation for personal services actually rendered is found under sec. 162, I.R.C. 1954.

Petitioner's corporate transferor, Newton, entered into an agreement in 1961 with City of Hope, a California nonprofit corporation, whereby… Held: the 1961 license agreement with City of Hope effected a sale of the underlying patents to Newton; (2) annual payments made under both the 1961 and 1966 agreements which were deducted each year by Newton were allowable depreciation of the patents acquired by Newton under the license agreements, and therefore upon a disposition of…

The petitioners purchased certain buildings in an industrial park subject to existing leases. Held: petitioners are not entitled to claim accelerated depreciation or amortization on account of the higher rentals provided for in the initial term of some of these leases except as provided for in sec. 167(b); (2) petitioners have failed to establish that consideration should be given to any extraordinary obsolescence in determining…

The petitioners, who were shareholders in a corporation, entered into an agreement establishing an alleged joint venture to provide additional funds to the corporation equal to its accumulated net… Held: under the circumstances, the alleged joint venture served no business purpose and shall be disregarded for tax purposes; the transaction is in reality a contribution of capital to the corporation.

Decedent was a participant in his corporate employer's employees' pension plan, which plan qualified under sec. 401(a), I.R.C. 1954. Held: the proceeds of the two annuity contracts paid to decedent's widow upon his death, were not amounts received under contracts which conformed to the requirements of the pension plan and therefore the amounts paid to the widow were not paid under that plan and are not excludable from decedent's gross estate under sec. 2039 (c), I.R.C.…

Three brothers, A, B, and C, owned most of the stock of corporation X and all of the stock of corporation Y. A, B, and C transferred all… Held: A, B, and C's attempted contribution of their Y stock to X and X's subsequent purported redemption of C's interest in X were merely tortured attempts to disguise what was essentially a taxable exchange of stock between A, B, and C. Held, further, X's transfer of cash to Y was motivated by a valid corporate business purpose and did…

Petitioners sought approval of a minor subdivision of their real estate from the municipal planning board in connection with personal estate planning. Local ordinances required increased right-of-way dedications along adjoining streets in conformity with the master plan of the municipality as a prerequisite to subdivision approval. In order to obtain such approval of their proposed subdivision, petitioners dedicated to the municipality 2.75 acres for roadway purposes. Subsequent to the conveyance of the rights-of-way, the applicable ordinance was declared unconstitutional by a New Jersey appellate court. Held: Petitioners are not entitled to a charitable deduction under sec. 170, I.R.C. 1954, for the dedication of the right-of-way easements. The requisite donative intent for a charitable gift was lacking, and petitioners received the benefit of subdivision approval as a result of their conveyance. The New Jersey appellate court's subsequent declaration that the pertinent ordinance was unconstitutional did not affect the prevailing state of mind of petitioners on the date of the conveyance so as to produce the necessary donative intent.

Petitioner, a foreign corporation, paid taxes to the Commonwealth of Puerto Rico on gross income from all sources whatever. Held: Petitioner was entitled to deduct a portion of the taxes it paid to Puerto Rico as foreign taxes connected with income from sources within the United States under secs. 164(a)(3) and 882(c)(2), except in 1963 when petitioner sustained a net loss from sources within the United States.

Petitioner Martin A. Scott purchased certain real property for purchase-money notes and deeds of trust, the principal amounts of which included a bonus discount for early payment. Held: the petitioners are not entitled to a charitable contribution deduction for the transfer of real property because the amount of the encumbrances, which included the bonus discount for early payment, exceeded the fair market value of the property at the time of the transfer.

Petitioners received $ 225,000 in settlement of a lawsuit for defendants' failure to grant options pursuant to an oral agreement. Held: the sum received in settlement represented consideration for MSC stock surrendered by petitioners in addition to GD stock received in the merger, taxable as gain realized from the sale or exchange of capital assets. Petitioners' GD preference shares were redeemed on Apr. 15, 1966.

Petitioner, a civilian airline pilot, flew support missions to South Vietnam from the United States during 1969. Held: petitioner may not exclude under sec. 112(b), I.R.C. 1954, any of the salary he received directly from his employer, Braniff Airways, because he was not a member of the Armed Forces of the United States. During 1969 petitioner and his wife were divorced.

Petitioner, the mother of two minor children, received aid to families with dependent children (ADC) and medical assistance grants from the State of Illinois. Held: ADC and medical assistance welfare payments do not constitute support provided by petitioner to her children for purposes of the dependency exemption under sec. 151(e), I.R.C. 1954.

Rule 70(a)(1), Tax Court Rules of Practice and Procedure. -- More than 30 days after joinder of issue, but prior to any informal consultation or communication between the parties, petitioners served… Held: a protective order will be granted for a reasonable period of time with direction that the parties attempt to attain the objectives of discovery through informal consultation or communication before utilizing the procedures provided by the rules.

In 1968 T, a physician, established a charitable foundation to which he, the sole contributor, donated some cash and the building in which… Held: the foundation did not receive a substantial part of its support * * * from direct or indirect contributions from the general public as required by sec. 170(b)(1) (A)(vi), I.R.C. 1954, as a condition for T's additional charitable deduction to the extent of 10 percent of adjusted gross income; held, further, that the Commissioner's…

Fox, in 1966 and 1967, embezzled funds totaling $ 124,250 from the Bank of Springfield and in 1967 repaid those embezzlements with funds he embezzled… Held: The judgment convicting Fox of having embezzled $ 10,000 in 1966 does not estop respondent from determining that Fox embezzled other amounts in that year; 2. Petitioners did not carry their burden of proving that Fox's income from embezzlements in 1966 was less than the amount of $ 30,500 determined by respondent; 3.

Held, petitioners' motion to withdraw conditionally their election to have the provisions of sec. 962, I.R.C. 1954, apply with respect to their taxable year 1963 is denied. Held: petitioners' motion to withdraw conditionally their election to have the provisions of sec. 962, I.R.C. 1954, apply with respect to their taxable year 1963 is denied.

The petitioner leased its property for use as a theater or broadcast studio pursuant to a lease whereby the lessee was obligated to restore the property to its original condition, reasonable wear and… Held: the payment in question did not constitute an amount received on account of a sale or exchange or a compulsory or involuntary conversion of property within the meaning of sec. 1231, I.R.C. 1954.

Contributions were made by an electing subch. Held: The contribution for the shareholder-employees was based, in part, upon the shareholders' respective shares of the subch. S corporation's undistributed taxable income, which amounts did not constitute compensation for purposes of sec. 401(a).

Petitioner exchanged 4,000 shares of Lorillard stock for like amounts of Loew's debentures and warrants in a taxable transaction occurring on Nov. 29, 1968. Held: the value of the warrants received by petitioner in the transaction exceeded 30 percent of the selling price and petitioner may not report his gain using the installment method under sec. 453.

Decedent owned a commercial riding stable facility which was sold under threat of condemnation. In 1966, decedent elected to defer the gain realized under sec. 1033. Held: the acquisitions of property by petitioner did not effectuate a replacement of property for purposes of deferring gain under sec. 1033, I.R.C. 1954.

Petitioner claimed a credit against its income taxes under sec. 901, I.R.C. 1954, for certain Thailand, Philippines, Republic of China (Taiwan), and City of Buenos Aires taxes imposed in respect… Held: since such taxes were imposed on gross income without deduction for any related costs and expenses, they did not constitute income * * * taxes within the meaning of sec. 901(b)(1). Bank of America National T. & S. Assn. v. United States, 459 F.2d 513 (Ct. Cl. 1972), followed.

The subch. S corporation of which one of petitioners was the sole stockholder and president adopted a policy of compensation for its stockholder-president which… Held: the petitioner (corporate president) constructively received the bonus within 2 1/2 months after the close of the corporation's taxable year and the fact that the corporation was a subch. S corporation does not cause such a constructive receipt not to be a payment within the meaning of sec. 267, I.R.C. 1954.

Petitioner, who owned an undivided 40-percent interest in shopping center real estate, and other persons, who owned the other 60 percent, formed a partnership to own and operate the shopping center. Held: both the 1967 and 1968 transactions were arm's-length sales.

Petitioner, Albert Cohn, for many years prior to his demise, and specifically from Jan. 1, 1964, until his death on July 18, 1968, owned and operated… Held: the method of evaluating inventory employed by petitioners for the taxable years 1966 and 1968 does not clearly reflect their income under sec. 471, I.R.C. 1954, 1Unless otherwise noted, all references are to the Internal Revenue Code of 1954, as amended. and the adjustments thereto by the respondent are sustained.

In September 1965, petitioners Ramsay Scarlett and Baltimore Stevedoring discovered that their bookkeeper had embezzled approximately $ 1.5 million of corporate funds. The majority of the embezzlements were accomplished by the use of four different types of corporate checks. As to each of three of such types, some checks were drawn and paid prior to the enactment of the Uniform Commercial Code in Maryland, and some afterwards. Insurance provided only $ 50,000 of recovery for petitioners in 1965. In 1969, petitioners received $ 475,000 as a settlement from the bank at which all the checks involved had been cashed, and $ 25,000 from the accounting firm which worked on the corporate books. On their respective 1965 returns, petitioners claimed theft losses for the full amounts of the embezzlements discovered in 1965 less insurance proceeds received that year. Held, that sec. 1.165-1(d) (3), Income Tax Regs., is a reasonable and valid interpretation of sec. 165(e), I.R.C. 1954. Held, further, that in 1965 Ramsay Scarlett had no reasonable prospect of recovering from either its accountants or from the embezzler, but did have a reasonable prospect of recovering approximately $ 1 million from the bank at which the checks had been cashed. Thus, this amount of Ramsay's claimed theft loss in 1965 is disallowed. Held, further, that Baltimore Stevedoring, in 1965, had a reasonable prospect of recovering the full amount it claimed as a loss in 1965, and thus is not entitled to any such deduction in that year.

Petitioner did paving contract work for municipalities and was paid interest-bearing warrants, the fair market value of which was 92 to 96 percent of face value. Held: the warrants petitioner received in payment for its paving work are properly considered as current assets in determining whether petitioner permitted its earnings and profits to accumulate beyond the reasonable needs of its business.

Held, where the burden of producing and going forward with proof has been shifted to the respondent and he has been ordered to present… Held: where the burden of producing and going forward with proof has been shifted to the respondent and he has been ordered to present independent, constitutionally untainted evidence to sustain asserted deficiencies, the respondent's determination cannot be sustained after he refuses to present any evidence and declines to go forward with…

Petitioners, at a time when they held substantial amounts of tax-exempt obligations, purchased shares of their stock. Held: under the particular circumstances, petitioners did not incur or continue the indebtedness represented by the installment notes in order to purchase or carry the tax-exempt obligations within the meaning of sec. 265 (2), I.R.C. 1954.

T, a citizen of Poland, left Warsaw in April 1966 to attend a 1-week conference at Princeton University. His nonimmigrant United States visa was valid for 2 years. Held: T was not away from home in 1968 and was therefore not entitled to deduct expenses during that year for meals, lodging, etc., under sec. 162(a)(2), I.R.C. 1954.

Rule 121(b), Tax Court Rules of Practice and Procedure. -- The respondent moved for summary judgment on the ground that the petitioner was collaterally estopped from litigating the respondent's… Held: as the respondent failed to show that there is an absence of a genuine dispute as to any material fact, the motion is denied.