Volume 62 — Tax Court Reports

Pursuant to sec. 6851, I.R.C. 1954, the district director of internal revenue terminated the petitioner's taxable period as of Mar. 29, 1973, and assessed income taxes in the amount of $ 3,597.50. Held: since no statutory notice of deficiency has been sent to petitioner, this Court lacks jurisdiction.

Petitioner refused to file the estate's Federal estate tax return until after respondent had withdrawn his opposition to a charitable deduction and consequently that return was not timely filed. Held: Respondent's conduct did not amount to any misrepresentation, nor was it misleading. It follows that the elements of an estoppel are lacking and respondent may invoke sec. 2032(c), I.R.C. 1954, to deny petitioner alternate valuation date treatment.

Petitioner transferred all the assets and liabilities of a sole proprietorship to a corporation in which he owned 100 percent of the issued and outstanding stock. Held: Petitioner nevertheless realized gain under sec. 357(c) to the extent that the liabilities assumed exceeded his adjusted basis in the assets transferred. The entire amount of such gain determined to be ordinary under sec. 1245.

Upon petitioner's divorce, the Oklahoma divorce decree awarded legal title of the family home to petitioner and use of the premises to his wife… Held: The lodging furnished the children as measured by the fair rental value of the unfurnished home, is included as an item of support provided to the children by petitioner. Under Oklahoma law, the use of the premises was provided for the benefit of the children and not as a division of property between petitioner and his wife.

Pursuant to contracts negotiated with New York Life as insurer, Montana Bankers Association was named policyholder of group creditor life and health insurance policies obtained for its member banks. Held: because petitioner controlled the enterprise and capacity to produce the income, it earned the income and is taxable thereon under sec. 61, I.R.C. 1954.

Held, expenses incurred by a testamentary trust for maintaining an elaborate estate on which the decedent's widow resided as a lessee under an arrangement to pay rent of $ 1 a year were not… Held: expenses incurred by a testamentary trust for maintaining an elaborate estate on which the decedent's widow resided as a lessee under an arrangement to pay rent of $ 1 a year were not deductible under sec. 212, I.R.C. 1954.

The estate's Federal estate tax return was due Jan. 21, 1968. Held: the deed was not a disclaimer for purposes of the marital deduction (sec. 2056 (a) and (d)( 2), I.R.C. 1954); held, further, for purposes of such provisions, renunciations actually filed on Aug. 8, 1968, are considered filed on such date and consequently were filed too late to constitute effective disclaimers, notwithstanding a nunc…

Plaza Inn and its predecessors wanted to erect a hotel. They hired a firm of architects to design the entire building. Held: the petitioners are not entitled to an abandonment loss under the provisions of sec. 165(a) for the plans which were rejected, since the original architects' plans for the foundation and superstructure were an integral and inseparable part of a continuous project to build a hotel.

Petitioner agreed to exchange all the stock of F corporation for 168,800 shares of voting preferred stock in A corporation. Held: the transfer of the additional 1,614 shares was severable from the B reorganization, and such shares represent a dividend taxable as such.

Decedent and her husband, while residents of France, entered into a valid antenuptial agreement electing, in accordance with French law, the marital system of community property and providing that in… Held: one-half of the value of the community property of decedent and her husband at the date of decedent's death is includable in decedent's gross estate since she had ownership of one-half of the community property which was transferred at her death.

Rule 90, Tax Court Rules of Practice and Procedure. -- Petitioners filed a request for admissions. Held: The proper procedure in this case is for respondent to respond to the request for admissions pursuant to Rule 90(c). Motion for protective order will be denied.

In the fall preceding each year in controversy, petitioners gathered their cotton and had it ginned and placed in a marketing pool operated by Calcot, Ltd., a cooperative of which they were members. Held: At the time petitioners invoiced the cotton to the church, they did not own specific bales of cotton but possessed only the right to collect a proportionate amount of the proceeds received by Calcot from marketing its members' cotton.

Petitioner, on the accrual basis, originates conventional, VA, and FHA loans for purchasers of single-family dwellings. Held: the 1-percent charge does not constitute a point or interest, but instead represents a loan origination fee in the nature of compensation for services rendered and is taxable as income to petitioner at the time the loan is consummated.

As a condition to his purchase of one-half the stock of Rayburn Land Co., the petitioner was required by the other shareholder to grant that shareholder a unilateral… Held: Rayburn Land Co. was not a collapsible corporation within the meaning of sec. 341 since the view proscribed by that section was not present where the petitioner's sale of stock did not occur with the freedom of choice contemplated in sec. 341 but rather was compelled by circumstances beyond his control.

T was a Roman Catholic priest and a member of the Dominican Order until his marriage in August of 1969. For the 2 years preceding his marriage T had been living outside of the order as a layman in order to make a final judgment as to whether he wished to continue living the life of a Dominican priest. During this period he received directly the amounts he earned as a salary for teaching and as commissions for selling securities, and he used these amounts to pay for his living expenses. After he left the order T retained all of the material possessions he had accumulated while living outside the order. Held, T was not acting as an "agent" of the Dominican Order with respect to the amounts he earned during 1969 prior to his marriage, and those amounts are not excludable from his gross income for that year.

The shareholders of a corporation wished to have the corporation elect under sec. 1372, I.R.C. 1954, to be treated as a small business corporation. Held: in accordance with sec. 1.1371-1(d)(2), Income Tax Regs., H and W are treated as a single shareholder.

After decision was entered in Robin Haft Trust, 61 T.C. 398 (1973), holding that distributions in redemption of the petitioners' shares were essentially equivalent to dividends under sec. 302(b)(1),… Held: such agreements were filed too late to constitute effective agreements under sec. 302(c)(2)(A) (iii), and petitioners' motions are denied.

Upon incorporation, petitioner adopted its predecessor partnership's trusteed pension plan, with certain amendments. Held: the fact that the former partners were permitted to count past service as partners for eligibility purposes and became participants in the plan does not disqualify the plan under sec. 401(a), I.R.C. 1954, and the pension trust is exempt under sec. 501(a).

Petitioner contributed to its profit-sharing plan for 3 taxable years by issuing its demand, interest-bearing, promissory notes secured by pledges of its principal shareholders. Held: the promissory notes do not constitute payment required by sec. 404(a), I.R.C. 1954, and petitioner's deductions for the contributions are denied. Logan Engineering Co., 12 T.C. 860 (1949), followed.

1. During the year 1929, petitioner had outstanding the same issues of 6-percent and 7-percent guaranteed stock as are involved in the instant case. Held: petitioner is collaterally estopped from relitigating that issue. 2. During the taxable years involved, petitioner purchased substantial amounts of its 6- and 7-percent guaranteed stock.

Petitioner, decedent's widow, was the beneficiary of a formula marital deduction bequest of an amount equal to one-half of her deceased husband's adjusted gross estate. Held: the decedent's estate is entitled to a marital deduction under sec. 2056(a), I.R.C. 1954, for the $ 62,473.68.

During 1966 petitioner was a partner in Empire, which in turn held a 22 1/2-percent limited partnership interest in Venture. Held: the transaction between Empire and Jupiter constituted a valid loan of $ 500,000 and did not result in Empire's receiving taxable income in 1966. Held, further, the $ 274, 275 cash distribution Empire received from Venture was not taxable as ordinary income.

Petitioner created an irrevocable trust. Held: petitioner's contribution to the trust did not qualify for the additional deduction under sec. 170 (b)(1)(A) because it was not made to the eligible class of charities, as required by that section. John I. Appleby, 48 T.C. 330 (1967), followed. Alice Tully, 48 T.C. 235 (1967), distinguished.

Friction occurred between petitioner's two equal stockholders which threatened disruption of its business. Held: The identified legal expenses incurred by petitioner in connection with the plan are deductible as ordinary and necessary business expenses under sec. 162(a), I.R.C. 1954. The balance of the fees not specifically identified are not deductible.

Howard B. Quinn, chairman of the board of directors of a savings and loan association, in 1963 caused the association to pay him $ 553,166.66, purportedly as advance rent on a building which he had… Held: The facts in this case are distinguishable from those in Wilbur Buff, 58 T.C. 224 (1972), revd. 496 F. 2d 847 (C.A. 2, 1974); 2. Mrs. Quinn does not qualify for relief under sec. 6013(e), I.R.C. 1954, from liability for the tax on the $ 500,000; and 3.

Petitioner and its foreign affiliates are engaged worldwide in the manufacture and distribution of flavoring extracts. Held: the gain to petitioner on the transaction is taxable as ordinary income under the principles of Corn Products Co. v. Commissioner, 350 U.S. 46 (1955).

Rules 70 (a)(1) and 81, Tax Court Rules of Practice and Procedure. -- Held: An application for the pretrial deposition of an internal revenue agent will be denied because it would be in direct… Held: An application for the pretrial deposition of an internal revenue agent will be denied because it would be in direct violation of the Court's rules. Failure to provide for pretrial discovery depositions is not a denial of due process.

All of petitioners' corporate stock was redeemed pursuant to a contract providing for a cash downpayment, transfer of a one-half… Held: for purposes of installment reporting under sec. 453(b), I.R.C. 1954, the selling price does not include interest imputed to deferred payments under sec. 483, I.R.C. 1954, and because the cash downpayment plus the value of the one-half interest in the lease-option received in the year of sale exceeded 30 percent of the selling price,…

Rule 72, Tax Court Rules of Practice and Procedure. -- Petitioner sought certain documents which respondent denied having in his possession, custody, or control. Held: since respondent lacks possession, custody, or control of the documents and petitioner has access to them, the request for their production will be denied.

Upon petitioner's failure to reply, the Court granted respondent's motion under then Rule 18(c) (now Rule 37(c)), Tax Court Rules of Practice, that the affirmative allegations in… Held: Petitioner's return for 1969 was false and fraudulent with intent to evade tax. Decision entered for respondent in the amounts of the deficiency in tax and addition to tax determined in the notice of deficiency. Procedure under new rules of Tax Court in such circumstances discussed.

Held, petitioner was not engaged in the trade or business of promoting corporations for gain on their sale in the ordinary course of… Held: petitioner was not engaged in the trade or business of promoting corporations for gain on their sale in the ordinary course of such business and, therefore, his loss on a debt arising from advances to a wholly owned corporation was a nonbusiness bad debt deductible only as a short-term capital loss subject to the limitations of sec.…

Petitioner is a licensed public accountant in Tennessee. Held: that the review course constituted education within the meaning and purview of sec. 1.162-5, Income Tax Regs.Held, further, because there are significant differences between the potential practice of a public accountant and that of a C.P.A. in Tennessee, that the course was taken in connection with the attempt to qualify for a new…

Timely deficiency notices were mailed to petitioners and they filed their petitions before the expiration of the 90-day period specified in sec. 6213(a), I.R.C. 1954. Held: despite some confusion as to petitioners' last known address, the timely filing of the petitions was sufficient to confer jurisdiction on the Court and petitioners' motions to dismiss for lack of jurisdiction are denied.

Petitioners, husband and wife, owned 22.58 percent of the common stock of AT&T and 125 shares of its preferred stock. Held: the sale of the AT&T common stock constituted a redemption through the use of a related corporation under sec. 304(a)(1); (2) such redemption does not qualify for treatment as an exchange under either sec. 302(b)(1) or sec. 302(b)(3), thus the proceeds are to be treated as distributions of property to which sec. 301 applies.

Petitioner is a Pennsylvania corporation with its registered office in Philadelphia. Held: The deficiency notice, which was sent to petitioner's registered office in Philadelphia, was mailed to its last known address pursuant to sec. 6212(b), I.R.C. 1954. 2.

The Court entered a decision in this case on Mar. 28, 1974, showing a deficiency in income tax due from the petitioner for the taxable year 1965 in the amount of $ 3,660,205.49. Held: the surety on the bond is approved.

The petitioner received stock as part of an employment agreement. The stock was later redeemed. Held, the proceeds from the redemption constituted compensation. Held: the proceeds from the redemption constituted compensation. Held, further, the petitioners have failed to show that the use of a country club was primarily for business purposes within the meaning of sec. 274(a), I.R.C. 1954.

The residue of an estate was bequeathed to a surviving spouse, and the claims against the estate and administration expenses exceeded the value of the residue. Held: under Illinois law, the residue is primarily charged with the claims and expenses, and accordingly, no part of the residue is available for the marital deduction under sec. 2056(b)(4), I.R.C. 1954.

Decedent and his wife purchased a residence in 1964 and financed it with a note for $ 38,000, secured by a deed of trust, payable to the First National Bank of Fort Worth. Held: the estate is not entitled to a deduction for either a claim against the estate under sec. 2053(a)(3), I.R.C. 1954, or for a mortgage debt under sec. 2053(a)(4).

1. Petitioners allege that respondent discriminatorily selected their income tax returns for a second examination because of their supposed family or business connections with persons purportedly… Held: an impounding order under Rule 103(a)(10) may not be used to obtain access to documents which might be obtained by other available procedures. 2.

Petitioner and two other persons organized a corporation (D) to engage in land development and building of single-family houses. Held: The four liquidated corporations were shams, having no operations or business apart from that of D. In substance upon the liquidation of the four corporations, D distributed earnings and profits to petitioner.

Decedent created substantially identical trusts for each of his eight grandchildren and served as sole trustee of each until his death. The trust instruments provided that the trustee in his sole discretion could distribute part or all of the income to the beneficiary of each of the trusts as he deemed "necessary for the benefit" of each of them. Held, the power in each of the trusts did not create a judicially ascertainable standard and, therefore, the principal and accumulated income therefrom of each of the trusts is includable in the decedent's gross estate pursuant to sec. 2036(a)(2).

Rule 120, Tax Court Rules of Practice and Procedure. -- Respondent filed a motion for judgment on the pleadings on the ground that a prior default judgment declaring Federal income taxes and additions to the taxes to be due from the petitioner for the years 1966, 1967, and 1968 -- the same taxes and years presently before this Court -- was entered by the United States District Court for the Northern District of Illinois and was not appealed. Held, (1) the judgment of the United States District Court is res judicata of petitioner's tax liabilities for the taxable years in question; and (2) respondent's motion for judgment on the pleadings will be granted and a decision will be entered by this Court in accordance with the judgment of the United States District Court.

The Commissioner timely mailed deficiency notices to T corporation in respect of its two predecessor corporations at the post office box address used on T's income tax return for the taxable period immediately following its absorption of its predecessors. Although T received the deficiency notices 13 days later, it failed to file its petitions herein for an additional 123 days. Held, despite the confusion occasioned by T's use of several other addresses during its correspondence with the Commissioner, the address used by the Commissioner in the deficiency notices was the "last known address," sufficient to render the deficiency notices valid, and the Commissioner's motions to dismiss for lack of jurisdiction are granted.

In an oral agreement stipulated to at their divorce trial petitioner William C. Wright and his former wife, petitioner Jean W. Wright, agreed that all property owned by Jean would be granted to her and in addition she would be granted certain property of William's, that William would pay certain of her expenses, and that William would pay to Jean $ 228,000 over a period of 10 1/2 years, the payment to be secured by stocks placed in escrow, and that William would pay the premiums on a $ 200,000 term life insurance policy owned by Jean on his life and keep Jean as the beneficiary until she died or remarried or reached age 65. The judgment rendered on Oct. 4, 1967, adopted the stipulation of the parties and granted a divorce to Jean which prohibited either party from remarrying until 1 year thereafter. The stipulation was transcribed by the court reporter as was the judgment of the court. A written decree was entered by the court on Feb. 2, 1968, incorporating the stipulation of the parties. Held: 1. The $ 228,000 to be paid by William to Jean was a payment because of the marital relationship and in discharge of his duty of support to her and not a division of property of the parties. It was a periodic payment under sec. 71(c)(2) since the judgment entered on Oct. 4, 1967, approving William's agreement with Jean which was reduced to writing and reconfirmed in the written decree entered Feb. 2, 1968, required him to make these payments over a period of over 10 years from Oct. 4, 1967. Therefore, the payments made in 1968, 1969, and 1970 as installments on the $ 228,000 are includable in Jean's income and deductible by William. 2. The premiums paid by William on the term insurance policy did not bestow such a benefit on Jean as to result in her constructive receipt of income therefrom. Therefore, the amount of the premiums paid by William in 1968, 1969, and 1970 are not includable in Jean's income or deductible by William.

In his will decedent's uncle, Joseph L. Friedman, who died in 1913, established a trust for the benefit of his mother and his three sisters and their heirs. Held: decedent's interest in both the corpus and income of the Friedman trust was contingent at the time of his death and the value thereof is not taxable in his estate.

Petitioner's egg-producing operations were contained within several sheet metal, quonset-type structures. Held: the structures were integrally related to the property housed within; they are not buildings but rather other tangible property within the meaning of sec. 48(a)(1)(B), and qualify for the investment credit as section 38 property.

In 1965 petitioners organized and became the sole stockholders of Nassau Plastic & Wire Corp. (Nassau) to manufacture wire to be used in Christmas decorations. Held: this transaction amounted merely to the payment of a fee to Cathedral in return for lending its tax exemption to Nassau's earnings rather than the actual transfer of the business to Cathedral, and it therefore did not constitute a bona fide sale of a capital asset within the meaning of sec. 1222(3).

Petitioners transferred by gift and sale stock in a corporation which operated a Chevrolet dealership. Held: the value of the shares is determined by the net fair market value of the tangible assets of the corporation and goodwill in this case has no value. Floyd D. Akers, 6 T.C. 693 (1946), followed.

Held, the cable-support and holddown towers located between the terminal towers of a chair-type ski lift are tangible personal property within the meaning of sec. 48(a)(1)(A), I.R.C. 1954, for which… Held: the cable-support and holddown towers located between the terminal towers of a chair-type ski lift are tangible personal property within the meaning of sec. 48(a)(1)(A), I.R.C. 1954, for which the investment credit provided by sec. 38, I.R.C. 1954, is allowable.

In addition to its regular vacation plan, petitioner adopted an extended vacation plan that entitled each qualifying employee to not more than 13 weeks of paid vacation once in each 5-year period. Held: The extended vacation plan was not a deferred compensation plan within the intendment of sec. 404(a). Amounts paid or accrued within the taxable year for such vacations are deductible under sec. 162.

Petitioners, cash basis taxpayers, borrowed $ 100,000 from a bank to purchase shares in two mutual funds. Held: respondent did not abuse his authority under sec. 446 by disallowing a deduction of the prepaid interest in order to clearly reflect petitioners' income for 1968. Rev. Rul. 68-643, 1968-2 C.B. 76, considered.

1. Decedent created an inter vivos trust, the income from which was payable to her for life. Held: trustees' commissions are either excludable from the gross estate or deductible from the gross estate under sec. 2053, I.R.C. 1954. 2. Decedent owned an undivided one-half interest in real property which she sold to two nephews for less than full and adequate consideration.

Two individuals transferred to petitioner, an educational institution managed and controlled by a State board of education, all the issued and outstanding stock of T, a corporation which held and… Held: neither sec. 115(a)(1), I.R.C. 1954, nor constitutional limitations on Federal taxing power exempt from tax the amount treated as gain by sec. 1245, I.R.C. 1954.

Community Bank made loans to customers secured by real property. Upon default under the loans, the bank foreclosed on the real property securing the loans. Held: for purposes of determining gain or loss under sec. 1.166-6, Income Tax Regs., fair market value of the properties is equal to the bid prices made by the bank at the foreclosure proceedings.

Held, legal expenses incurred by petitioner in trademark infringement litigation which resulted in an injunction against another corporation and an award of $… Held: legal expenses incurred by petitioner in trademark infringement litigation which resulted in an injunction against another corporation and an award of $ 1,000 compensation for all damages and costs were not deductible as ordinary and necessary expenses under sec. 162, I.R.C. 1954, but were capital expenditures.

Rule 70(c). Tax Court Rules of Practice and Procedure. -- Petitioners seek the production of memoranda prepared by agents of the Internal Revenue Service following interviews of petitioners during… Held: on the facts of record, the memoranda of interviews are statements of parties to this proceeding and must be produced.

Held, petitioners' motion to withdraw petition without prejudice, denied. Held: petitioners' motion to withdraw petition without prejudice, denied.

1. After disagreement between decedent, then president of American Maritime Association (AMA), and certain members of that organization representing trade unions, decedent agreed to resign his… Held: petitioners did not receive taxable income on deposit of the $ 50,000 in trust by AMA since such payments were forfeitable.

Electronics, a limited partnership, acquired at face value a $ 200,000 note of Gibraltar, in addition to stock and warrants. Held: the debt of Gibraltar was not created or acquired in connection with a trade or business of Electronics. Held, further, the guaranty of Acme does not give rise to a loss deductible under sec. 165, I.R.C. 1954.

Held, a notice of deficiency mailed to petitioner, who was incarcerated in prison, in care of an attorney who did not represent… Held: a notice of deficiency mailed to petitioner, who was incarcerated in prison, in care of an attorney who did not represent petitioner and a bondsman, and which notice of deficiency was not received by petitioner for more than a year after it was mailed, was insufficient and invalid and did not serve to give this Court jurisdiction in…

Held, amounts paid in 1968 by petitioner for Scientology processing for himself and his wife and for Scientology auditing for his wife at Hubbard College of… Held: amounts paid in 1968 by petitioner for Scientology processing for himself and his wife and for Scientology auditing for his wife at Hubbard College of Scientology and Hubbard Academy of Personal Independence and related travel expenses are not properly deductible as medical expenses under sec. 213, I.R.C. 1954.

Petitioner was engaged in the business of dredging clamshells from the bed of a lake. Held: Clamshells are customarily sold in the form of a crude mineral. The dredge-to-shore transportation, stockpiling, and loading for shipment to customers at the yards are not mining processes under sec. 613(c)(4)(C), as amended by the Public Debt and Tax Rate Extension Act of 1960.

W, who was a citizen of the United States, and H, her husband, who was a nonresident alien, resided in Spain, a community property jurisdiction. Held: sec. 911, I.R.C. 1954, is not applicable to the income earned by H and attributed to W under the community property law; held, further, sec. 872, I.R.C. 1954, is not applicable to W so as to allow her to exclude the portion of H's income attributed to her by reason of the community property law.

Petitioner was in the business of hauling petroleum products. Held: Petitioner's position in the District Court was adopted by the District Court and it is inconsistent with the allowance in the year 1964 which results in a double deduction. The Commissioner's statutory notice of deficiency was timely by reason of the mitigation provisions, secs. 1311- 1314, I.R.C. 1954.

Held: Amounts received by the petitioner in a residency program in general psychiatry did not constitute income from a fellowship grant within… Held: Amounts received by the petitioner in a residency program in general psychiatry did not constitute income from a fellowship grant within the meaning of sec. 117, I.R.C. 1954, notwithstanding the fact that such programs were funded by the National Institute of Mental Health in order to encourage the pursuit of that specialty.

Held, petitioner is not entitled to deduct as a charitable contribution an amount paid as litigation expenses in a suit he brought against the… Held: petitioner is not entitled to deduct as a charitable contribution an amount paid as litigation expenses in a suit he brought against the Montana State Democratic Central Committee to compel compliance with the one-man, one-vote principle in selection of the party candidates for office and delegates to the Democratic National…

Petitioners paid United Kingdom rates tax imposed upon them by virtue of occupying personal living quarters in London, England. Held: the rates tax imposed by the United Kingdom General Rate Act, 1967, c.9, is not a deductible foreign real property tax within the meaning of sec. 164(a)(1), I.R.C. 1954.

Rule 121, Tax Court Rules of Practice and Procedure. -- Respondent filed a motion for partial summary judgment as to an item of additional income determined for the year 1969. Held: respondent's motion for partial summary judgment will be granted and the amount of $ 32,461.38 is taxable as ordinary income to petitioner.

Rule 121, Tax Court Rules of Practice and Procedure. -- Respondent moved for summary judgment on the ground that petitioners were collaterally estopped from litigating respondent's… Held: Respondent's motions will be granted because petitioners are collaterally estopped by a prior judgment from litigating the same issues decided for prior taxable years. There has been no change in legal climate and no change in the controlling facts subsequent to the prior judgment.

Petitioner's hourly union employees were covered by a union-negotiated pension plan. Held: the profit-sharing plan, standing alone, does not qualify under sec. 401(a), I.R.C. 1954, because it does not satisfy the coverage requirements of that section.

Held, election made at the trial to compute tax by income averaging is proper, and such computation is to be used in computing deficiency even though… Held: election made at the trial to compute tax by income averaging is proper, and such computation is to be used in computing deficiency even though overpayment is barred because no return was filed, no tax paid after issuance of notice of deficiency or 2 years before its issuance, and no proper claim for refund filed.

Petitioner was engaged in leasing business properties which were old and rundown. Held: petitioner permitted its earnings and profits to accumulate beyond the reasonable needs of its business to avoid the income tax with respect to its shareholders and is subject to accumulated earnings tax imposed by sec. 531, I.R.C. 1954.

1. Held: Deferred and uncollected premiums, including loading, are includable in assets under sec. 805(b)(4), I.R.C. 1954, for purposes… Held: Deferred and uncollected premiums, including loading, are includable in assets under sec. 805(b)(4), I.R.C. 1954, for purposes of computing the tax on petitioner's investment income (phase I), and in gross amount of premiums under sec. 809(c), I.R.C. 1954, for purposes of computing the tax on petitioner's gain from operations (phase…

1. Palmer College was owned and operated by a profit-making corporation. The assets of the college comprised approximately 80 percent of the assets of the corporation. Held: in substance and form, the contribution was of stock and not the proceeds of the redemption. 2.

Held, the expenses incurred by a substitute teacher to obtain a bachelor of arts degree are not deductible as ordinary and necessary business expenses under sec. 162, I.R.C. 1954. Held: the expenses incurred by a substitute teacher to obtain a bachelor of arts degree are not deductible as ordinary and necessary business expenses under sec. 162, I.R.C. 1954.

Petitioner sold two powerplants in December 1965 for $ 4 million. Held: If the various sec. 1245 properties placed in the multiple-asset account were sold individually, although in a single transaction, the sec. 1245 gain (recapturable depreciation) should be computed on each individual property sold, where possible, and the sec. 1245 gain is limited to the undepreciated basis of the individual property…

As compensation for services rendered, the McDougals gave McClanahan a 50-percent interest in the capital and profits of a joint venture to which the McDougals contributed appreciated property. Held: that the McDougals recognized gain to the extent that the value of a half interest in the contributed property exceeded the McDougal's adjusted basis in the aforesaid half interest.

In 1965 T Corp., a domestic corporation engaged exclusively in the production of oil and gas in Canada, sold in a single transaction substantially all of its oil- and gas-producing property, all of… Held: T failed to qualify as a Western Hemisphere trade corporation in 1965 under sec. 921(2) which required that 90 percent or more of its gross income during that 3-year period be derived from the active conduct of a trade or business.

Petitioner, who was engaged in protracted litigation over the validity of his wife's will, incurred certain expenses in order to acquire… Held: the United Pocahontas Coal Co. stock was owned by petitioner when it was sold and the gain thereon is taxable to him in 1968; (2) additions to basis must be allocated proportionately among the stocks; (3) petitioner is not entitled to an addition to the basis of the United Pocahontas Coal Co. stock for the settlement payment made to…

Petitioner filed a separate Federal income tax return in 1969 omitting community property income attributable to her husband. She desired to file a joint return but her husband refused. Held: sec. 6013(e) is inapplicable unless a joint return is filed and does not unconstitutionally discriminate against taxpayers in community property States.

The assets of two partnerships engaged in selling petroleum and related products were transferred to petitioner in a transaction meeting the requirements of sec. 351, I.R.C. 1954. Held: under sec. 362(a)(1), I.R.C. 1954, petitioner is entitled to use as its basis for its opening inventory the actual amounts of inventory on hand, unadjusted for the errors in the partnerships' final returns.

Property taxes were assessed against the petitioner, and petitioner's property was sold to the State of California pursuant to California law. Held: the sale of the property to the State pursuant to California law did not effect a payment of a contested tax liability within the meaning of sec. 461(f), I.R.C. 1954.

Upon termination of a trust on June 16, 1969, petitioner paid an annual income commission, an annual principal commission, and paying and receiving commissions to the trustee. Held: respondent's disallowances are reasonable under the facts of this case. Sec. 1.265-1(c), Income Tax Regs.

1. Petitioner, an accountant, attended law school at night. In 1970, he received his law degree and was admitted to the bar. Held: the school expenses are nondeductible because they were incurred in pursuit of a program which will lead to qualifying him in a new trade or business, i.e., a lawyer.

1. Petitioner World Airways, Inc., a supplemental air carrier authorized to provide charter air transportation service, was required to overhaul its aircraft at… Held: the estimated costs of the overhauls to be performed in future years were not fixed liabilities within the requirements of the all events test prescribed by sec. 1.461-1(a)(2) of the Income Tax Regs., and approved by the Supreme Court. United States v. Consolidated Edison Co., 366 U.S. 380, 384 (1961). 2.

Petitioner began to exhibit symptoms of mental illness shortly after his marriage. His psychiatrist determined that the cause of his illness was the marital relationship and recommended a divorce. Held: none of the payments made by petitioner to his attorney, his ex-wife's attorney, and his ex-wife pursuant to a settlement agreement incorporated in the decree of divorce are deductible as expenses for medical care under sec. 213, I.R.C. 1954.

Simi Valley Investment Co. (SVIC) was a limited partnership formed to acquire, develop, and sell land. Held: Petitioner is entitled to deductions for amortization of his adjusted basis in the prepaid interest over the remainder of the prepaid interest period. Amount of petitioner's adjusted basis determined.

1. The petitioner refused to offer proof to establish his right to deductions for a casualty loss and employee business expenses. The Commissioner disallowed both deductions. Held: the Commissioner's determination not arbitrary or unreasonable where the petitioner refused to provide the Commissioner with any proof to support the deductions. Held, further, the petitioner has no right to have his return presumed correct.

Petitioner ran for reelection to the St. Louis Board of Aldermen during 1971 as the incumbent Democratic candidate. Held: petitioner is not entitled to deduct these expenses either under secs. 162 and 212, I.R.C. 1954, or under sec. 183.

1. T corporation and its newly formed or acquired subsidiaries filed a consolidated income tax return for 1964, reporting substantial consolidated taxable income, 6 days after the due date as… Held: in the circumstances of this case, the 1964 return was a valid consolidated return such that consolidated losses of later years may be carried back to the consolidated income of 1964. 2.

Decedent transferred a 655-acre farm on which he was conducting a citrus and cattle business to his wife in 1948. Decedent and his wife moved onto the property as their residence in 1954. Held: the value of the property is includable in decedent's estate under sec. 2036(a)(1), I.R.C. 1954.

During 1963, Brenner, an account executive in a stock brokerage firm, Ira Haupt, borrowed funds (about $ 180,000) from certain customers to enable him to acquire a 1-percent partnership interest in… Held: the repayments on the loans are not deductible as ordinary and necessary expenses under sec. 162(a), I.R.C. 1954.