Volume 66 — Tax Court Reports

On Feb. 27, 1975, duplicate original notices of deficiency were mailed to the estate of decedent, a United States citizen domiciled in Panama where over 75 percent of her assets were located. Held: under sec. 6213(a), I.R.C. 1954, decedent's estate had 150 days within which to file a petition, and the petition sent to this Court by certified mail on July 24, 1975 (147 days after the notice of deficiency was mailed), was timely filed.

Petitioner was the chief operating officer of Restaurant Corp. of America (RCA). Held: the value of lodging furnished to petitioner by his employer is excludable from gross income under sec. 119, I.R.C. 1954.

Petitioners, in connection with an apartment complex to be constructed and operated by them as partners, formed a corporation to obtain financing at a rate of interest in excess of the limit imposed… Held: the corporation was not merely a nominee whose existence could be ignored for tax purposes and the net operating losses during the years at issue were its losses and not those of the partnership.

Petitioners, husband and wife, elected to income-average for 1964 although the husband had been a nonresident alien for part of 1960. Held: petitioners' taxable year for 1960 was the entire calendar year and, because one spouse was a nonresident alien for part of such year, petitioners were not eligible to income-average for 1964.

Rule 90(a) and (d), Tax Court Rules of Practice and Procedure. -- Under Rule 90, the petitioner duly served on the Commissioner requests that he admit certain matters, including statements of the… Held: such matters may properly be the subject of requests for admissions under Rule 90, and the Commissioner will be ordered to furnish proper answers to such requests.

Decedent, a resident of the State of Washington, made his wife owner and beneficiary of a term life insurance policy and paid premiums thereon from community funds. Held: One-half of the proceeds are includable in decedent's gross estate as community property. Petitioner has not proved by the requisite clear and convincing evidence that it was decedent's intent to make the policy his wife's separate property. And Wash.

Held: Taxpayer may not deduct for 1973 moving expenses incurred and paid in 1971 although the 78 weeks of self-employment in the new place of employment was not satisfied until 1973. Held: Taxpayer may not deduct for 1973 moving expenses incurred and paid in 1971 although the 78 weeks of self-employment in the new place of employment was not satisfied until 1973. Taxpayer should have claimed the deduction on her original or an amended return for 1971.

Petitioners timely filed joint returns for the calendar years 1962 and 1963 each of which contained fraudulent understatements of taxable income and tax due. Held: the fraud penalty prescribed by sec. 6653(b) is to be applied to the difference between the correct tax due and the tax shown on petitioners' timely return for each of the years at issue. Papa v. Commissioner, 464 F. 2d 150 (2d Cir. 1972), revg.

Held: 1. Respondent, having discovered after a decision of this Court for petitioners' fiscal year 1964 had become final that… Held: Respondent, having discovered after a decision of this Court for petitioners' fiscal year 1964 had become final that petitioners' return for that year was fraudulent, is entitled to issue a second notice of deficiency determining an additional deficiency in tax and an addition to tax for fraud even though the decision of this Court…

A limited partnership, of which petitioner-husband was a limited partner, on the beginning and ending day of its initial taxable year (being a 1-day taxable year) prepaid interest for 4 years and 3… Held: The Commissioner did not abuse the authority granted to him in sec. 446(b) by disallowing the deduction for prepaid interest claimed by the partnership in order to clearly reflect income of the partnership. Andrew A. Sandor, 62 T.C. 469 (1974), followed.

Petitioner's employer sold the mill at which petitioner was employed and terminated the participation of all employees at the mill in its pension plan. Held: terms of the plan make clear distribution was not made on account of petitioner's separation from service within the meaning of sec. 402(a)(2) and must be treated as ordinary income.

The sponsors of a mutual insurance company (Mutual) decided to incorporate the business and formed Merit for that purpose. Held: even though the ceding commission was paid in connection with a transfer of the entire business of Mutual, such commission is deductible by Merit since it was separately identified and paid for the ceding of the insurance.

Rule 121, Tax Court Rules of Practice and Procedure. -- In 1972, the Commissioner issued a notice of deficiency determining that the petitioners realized taxable gain from the sale of stock in 1969. Held: the Commissioner did not, as a matter of law, abandon his original determination when he made a subsequent alternative determination, and the petitioners' motion for summary judgment will be denied.

Rules 40 and 41, Tax Court Rules of Practice and Procedure. -- The Commissioner determined deficiencies in P's tax for the years 1968-71 and sent P one notice of deficiency. Held: since P's timely petition did not clearly indicate that he was contesting the determination for 1971, the Commissioner's determination for that year is not at issue.

Petitioner, pursuant to eight separate agreements, received amounts in return for allowing the transferees to use his patented Catacarb Process. Held: for purposes of sec. 1235, in determining whether there has been a transfer of an undivided interest in all substantial rights to a patent, the proper focus should be on the substantiality of the rights transferred and retained and not on the size or extent of the undivided interest so transferred.

Held, the delivery by the pledgor to the pledgee of a demand promissory note does not constitute the payment of the pledge within the meaning of sec. 170(a)(1),… Held: the delivery by the pledgor to the pledgee of a demand promissory note does not constitute the payment of the pledge within the meaning of sec. 170(a)(1), notwithstanding the fact that the maker of the note had the resources to pay the note on demand and that the note might be enforceable under local law.

Petitioner, a substantial investor in certain corporate stocks, made a practice of visiting the factories and retail outlets of such corporations to study his investments. Held: On the facts, petitioner has failed to prove that the expenses of such trips were ordinary and necessary investor's expenses. Thus, no deduction is allowable under sec. 212.

In 1954 petitioner elected to have his sole proprietorship taxed as a corporation under sec. 1361. Such election terminated by operation of law on Jan. 1, 1969. Held: 1. Held: Petitioner is deemed to have received the assets of his business enterprise in a complete corporate liquidation on Jan. 1, 1969. 2. No portion of the gain realized on such liquidation is exempt from tax because of the character of the assets deemed distributed. 3.

During the calendar year 1971 the petitioners sold 3,900 shares of common stock of Levi Strauss & Co., which they had held for a period of more than 6 months. Held: petitioners are not entitled to utilize the income averaging provisions of secs. 1301 through 1305, in determining their liability for the minimum tax on tax-preference items imposed by sec. 56.

Petitioner as Sanders-Thoureen, Inc., filed its tax return for the fiscal year ended Nov. 30, 1969, on Feb. 15, 1970. Petitioner's corporate name was changed in April 1971. Held: These forms were intended by the parties to formalize their mutual understanding that petitioner (as Gator Oil Co.) would be liable for the deficiency, if any, and that the statute of limitations was to be extended only through Nov. 30, 1973.

Petitioners owned limited partnership interests in two real estate syndications organized under the California Uniform Limited Partnership Act. Held: The partnerships possessed the corporate characteristics of centralized management and free transferability of interests and lacked the corporate characteristics of continuity of life and limited liability, and had no other significant corporate or noncorporate characteristics.

In early 1968 petitioner completed the work which he had undertaken under a subcontract involving the construction of an overpass, and in March 1968 he submitted his final bill for payment. Held: under the completed contract method of accounting, employed by petitioner, the subcontract was accepted and completed in 1968, and petitioner's profit of $ 23,647.33 was taxable in that year. Secs. 1.451-3(b)(2) and 1.451-3(d)(2)(ii), (iii), and (iv), Income Tax Regs., applied.

Rules 72 and 90, Tax Court Rules of Practice and Procedure. -- A private ruling letter issued by the Internal Revenue Service to an applicant other than petitioner covers contractual arrangements… Held: the private ruling letter and related papers are not privileged and are relevant to the subject matter in this proceeding and are, therefore, discoverable under Rules 72(b) and 90.

Held, the value of lodgings in Tokyo, Japan, furnished petitioner at a discount by his employer, a subsidiary of Gulf Oil Corp., is not excludable from petitioner's income under sec. 119, I.R.C.… Held: the value of lodgings in Tokyo, Japan, furnished petitioner at a discount by his employer, a subsidiary of Gulf Oil Corp., is not excludable from petitioner's income under sec. 119, I.R.C. 1954, and is includable in petitioner's income under sec. 61, I.R.C. 1954.

Held, sod is a natural deposit, the proceeds from the sale of which are subject to an allowance for depletion under sec. 611(a), I.R.C. 1954. Held: sod is a natural deposit, the proceeds from the sale of which are subject to an allowance for depletion under sec. 611(a), I.R.C. 1954.

In 1970 petitioner was paid a salary in U.S. dollars by the Agency for International Development. Held: petitioner is not entitled to an exclusion from gross income or a deduction under sec. 162(a), 165, or 212(1) for the value difference between the rupees obtained at the official rate and the rupees he could have obtained at the unofficial rate for the portion of his salary so converted.

Held, a $ 1,600 Invention Achievement Award received by petitioner from his employer was additional compensation taxable as ordinary income under sec. 61(a)(1), I.R.C. 1954, and… Held: a $ 1,600 Invention Achievement Award received by petitioner from his employer was additional compensation taxable as ordinary income under sec. 61(a)(1), I.R.C. 1954, and not a payment in consideration of the transfer of invention rights taxable as capital gain under sec. 1235, I.R.C. 1954.

In 1959 decedent created five separate savings accounts in his name as trustee for his niece and each of her four children. Held: decedent intended to and did make valid inter vivos gifts of the trust accounts at the time he delivered the passbooks and they are, therefore, not includable in decedent's gross estate under either sec. 2038 or sec. 2036. Estate of Michael A. Doyle, 32 T.C. 1209 (1959), distinguished.

Each of the corporate grantors built a rental apartment project under a loan guarantee program administered by FHA. Held: the stockholders did not acquire a present interest in the property and could not deduct the losses resulting therefrom. David F. Bolger, 59 T.C. 760 (1973), distinguished.

Industrial Valley Bank & Trust Co. (IVB) entered into merger agreements with other banks (Lehigh and Doylestown). Held: Lehigh's and Doylestown's interests in loans acquired from IVB just prior to the end of Lehigh's and Doylestown's final taxable years were not representative. Held, further, a $ 200,000 premerger loan by Doylestown to an IVB subsidiary was, on the facts, representative.

F corp. (the taxpayer) and B corp. owned 100 percent of the outstanding securities in X corp., which they sold in 1961 to M corp. under a… Held: the foregoing arrangement did not constitute a joint venture and F's losses could not be taken as deductions from ordinary income; rather, such losses represented in substance an adjustment to the 1961 sales price and must be treated as capital losses, subject to the statutory limitations in respect of capital losses, within the…

Petitioner entered into a Consulting Contract, upon retirement from an accounting partnership, with the major remaining partner which provided that petitioner, or his wife if she survived him, would… Held: the payments were for sale of petitioner's partnership interest to the remaining major partner individually and thus constituted capital gains under sec. 741, I.R.C. 1954.

Prior to petitioner's divorce, he made payments to his wife for her support and the support of their children pursuant to an oral agreement. Held: petitioner is not entitled to deduct charitable contributions made by his former wife. Held, further, petitioner is not entitled to deduct payments for support made pursuant to an oral agreement. Petitioner claimed the benefit of the income tax rate applicable to a head of household.

In accordance with Rule 91, Tax Court Rules of Practice and Procedure, petitioners and respondent stipulated that petitioners had received a certain… Held: where facts presented at trial are clearly contrary to those stipulated to by the parties, we have discretion not to be bound by the stipulation. William Ernest Seatree, 25 B.T.A. 396 (1932), followed. Held, further: Petitioners did not lease the house with a bona fide expectation and anticipation of making a profit.

Petitioner-husband organized a corporation for his dental practice, which elected subch. S status. Held: the contribution, together with compensation paid to petitioner during its first (7-day) taxable year was unreasonable and properly disallowed in part by the Commissioner.

Petitioners conditioned their preincorporation subscriptions for stock on the prospective corporation's adoption of a plan meeting the requirements of sec. 1244. Held: The stock subscribed for did not issue until the plan was adopted. Accordingly, petitioners are entitled to ordinary loss treatment under sec. 1244 when the stock became worthless during the year in issue.

Petitioners, the owners of all the issued and outstanding shares of TCC, donated 77 percent of their shares to a charitable organization. Held: the transfers constituted an anticipatory assignment of liquidation proceeds by petitioners, who are taxable on the gain attributable to the transferred shares.

On its Federal income tax return for fiscal 1967, petitioner claimed a foreign tax credit for its accrued United Kingdom tax liability by… Held: sec. 905(c) requires a redetermination of petitioner's foreign tax credit for fiscal 1967 to reflect the dollar cost of the foreign taxes at the time of payment. Petitioner established an interim foreign situs pension trust for its United Kingdom employees in 1966, pending the creation of a definitive trust at a future date.

Held, an involuntary foreclosure sale of sec. 38 property held by a subch. Held: an involuntary foreclosure sale of sec. 38 property held by a subch. S corporation constitutes a disposition of that property such that the shareholders of the corporation are liable for the investment credit recapture tax.

Respondent moved for a judgment on the pleadings under Rule 120, Tax Court Rules of Practice and Procedure, on the grounds that petitioner… Held: this Court is established under art. I, U.S. Constitution, and therefore not generally subject to art. III restrictions, yet the doctrine of standing is applicable to all our proceedings because the exercise of judicial power (which is our sole function) entails the existence of a case or controversy and because our decisions are…

Two brothers, Robert and Juan (together with their immediate families), each owned a 37-percent interest in D, a Texas corporation. Held: D and C were not owned or controlled by the same interests within the meaning of sec. 482, I.R.C. 1954; (2) D paid an arm's-length price for the tile purchased from C; (3) no part of the payments by D for such tile was dividend income to Juan or Robert; (4) no fraud penalty applicable; (5) Juan received a constructive dividend as a…

Decedent created an inter vivos trust comprised of most of his estate, reserving the income to himself for life. Held: the value of the interest in property which passed to the surviving spouse under the provisions of the trust qualifies for the marital deduction under secs. 2056 (a) and 2056 (b)(5), I.R.C. 1954.

A State municipality issued $ 2 million of industrial development bonds to finance construction of a manufacturing facility. Held: Conso Fastener Corp., an accrual basis taxpayer for whom petitioner is liable as transferee, was entitled to deduct the full rental payments due, notwithstanding crediting of the surplus bond proceeds against such payments. Held, further, petitioner must also take such credits into income under the tax benefit rule.

Petitioner acquired the operating assets of an existing oil field products business. Held: the Tascosa loan is a debt between petitioner and Tascosa, the release of which represents income to petitioner in 1969.

Petitioner belonged to a local union in Washington, D.C., and lived near Washington. Held: on the facts of this case, petitioner's employment was temporary during his first job and indefinite thereafter. Held, further, due to respondent's concession, William B. Turner, 56 T.C. 27 (1971), vacated and remanded on respondent's motion by unpublished order (2d Cir., Mar. 21, 1972), not applicable.

Held, a legacy to which the decedent was entitled at the time of his death was not includable in his gross estate for purposes of sec. 2001, I.R.C. 1954,… Held: a legacy to which the decedent was entitled at the time of his death was not includable in his gross estate for purposes of sec. 2001, I.R.C. 1954, as amended, where, within a reasonable time of the death of the testatrix, the legacy was disclaimed by the decedent's executors in compliance with applicable State law.

Petitioners undertook to obtain mineral leases from all or most of the landowners in two large areas. They obtained leases from some landowners but not from others. Held: the costs allocable to unsuccessful negotiations are deductible as losses incurred in transactions entered into for profit.

Petitioner Mary E. Vernon placed stock in trust. Her mother was the sole net income beneficiary. Held: value of gift determined under method contained in sec. 25.2512-9(a)(1)(i), Gift Tax Regs., which provides that the value of the gift is the value of the property transferred less the value of the donor's retained interest.

Held, although T had a master of education degree and not only taught dyslexic (learning-disabled) children but also counseled their… Held: although T had a master of education degree and not only taught dyslexic (learning-disabled) children but also counseled their parents on how to deal with them at home, her educational expenses incurred in obtaining a degree of master of social work (M.S.W.) were nondeductible because such education went beyond merely improving her…

Held: Respondent has established that there was a circumstance of adjustment as described in sec. 1312(3)(A), I.R.C. 1954, and that petitioners maintained an inconsistent position within the ambit of… Held: Respondent has established that there was a circumstance of adjustment as described in sec. 1312(3)(A), I.R.C. 1954, and that petitioners maintained an inconsistent position within the ambit of sec. 1311(b)(1)(B).

When P learned that some of his unimproved land would be condemned, he caused TPT to be formed and transferred to it other unimproved land owned jointly with his children. Held: P did not acquire TPT stock for the purpose of replacing condemned property within the meaning of sec. 1033(a)(3)(A), I.R.C. 1954.

1. P was an attorney employed by the IRS. During 1969 and 1970, he occasionally used one room in his apartment as a place for doing office work. Held: P is not entitled to deductions under sec. 162 or sec. 212, I.R.C. 1954, for one-sixth of the rental and other costs of the apartment. Stephen A. Bodzin, 60 T.C. 820 (1973), revd. 509 F.2d 679 (4th Cir. 1975), cert. denied 423 U.S. 825 (1975), will no longer be followed. 2.

Petitioner was a member of a partnership, known as the Raven Club, which conducted a casino-type gambling operation, including dice tables, a roulette wheel, blackjack tables, and slot machines, in… Held: the records maintained by the partnership are substantially accurate both as to net wins and net losses, and clearly reflect petitioner's distributive share of partnership income under sec. 165(d), I.R.C. 1954.

Under the Life Insurance Company Income Tax Act of 1959, it is held: 1. 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 (phases I and II). 2.

Petitioner purchased farmland and buildings which it held primarily for sale to customers in the ordinary course of its business. Held: The collapsible corporation provisions of sec. 341, I.R.C. 1954, apply to real property not subject to depreciation. Petitioner realized only 9.3 percent of its total taxable income from the property prior to forming the intent to liquidate which is not a substantial part of the taxable income to be derived from the property.

Petitioner, an accrual basis taxpayer, maintained some of its expense accounts on an estimated basis for monthly reporting purposes. Held: sec. 481 does not permit respondent to include in petitioner's taxable income for the taxable year ended June 30, 1968, the balance of the reserve account as of June 30, 1967, because respondent's adjustments did not constitute a change in method of accounting.

Petitioners, domestic building and loan associations, elected the reserve method for bad debts, and computed their annual additions to reserves under the percentage of taxable… Held: To the extent the amounts credited to the reserve account were less than the maximum deduction otherwise available on the percentage of taxable income method, the deduction is limited by the amount so credited. Reconciling entries on Schedule M do not substitute for book adjustment entries.

A petition mailed in an envelope addressed Clerk of the Court, United States Tax Court, 400 Second Street, N.W., Box 70, Washington, D.C. 20044 which envelope had an illegible postmark that was established by evidence to be Dec. 29, 1975, the 90th day after the mailing of the notice of deficiency, was properly addressed in accordance with Rule 22 of the Rules of Practice and Procedure of this Court and therefore the petition was timely filed under the provisions of sec.…

Held: (1) On the basis of the facts of record, the transfer by two of petitioners of stock to a corporation of which they were the major but not… Held: On the basis of the facts of record, the transfer by two of petitioners of stock to a corporation of which they were the major but not sole shareholders is determined to be without consideration except the improvement of the financial condition of the corporation, but is not a contribution to capital since the transfer was…

Individual petitioners Hunt and Purselley each owned 50 percent of the stock of petitioner corporations Putoma and Pro-Mac. Held: petitioner corporations' obligation for accrued but unpaid compensation was conditional and not properly accruable during the years in question. Held, further, cancellation of the interest indebtedness in 1970 did not result in income either to petitioner corporations or to individual petitioners.

Willowbrook, petitioners' subch. S corporation, entered into negotiations with a manufacturer in October of 1968 to construct a dragline meeting Willowbrook's special specifications for use in its… Held: the dragline equipment was not acquired pursuant to a contract which was, on Apr. 18, 1969, and at all times thereafter, binding on Willowbrook, so as to qualify it as pre-termination property under sec. 49(b)(1), I.R.C. 1954, for purpose of the investment credit.

Petitioners claimed the theft of their stamp collection as a casualty loss. Respondent disallowed the deduction. Held: the 280,000 Hungarian forints petitioners paid in 1949 for the stamp collection are to be converted into U.S. dollars at the black market rate. Held, further, petitioners' insurance recovery was in excess of their basis; therefore, they did not incur a deductible theft loss.

Petitioners sold property under threat of condemnation to State M. Replacement property was purchased by petitioners' wholly owned corporation D. Prior to… Held: D, although involuntarily dissolved, continued as a viable entity for Federal income tax purposes. Therefore D, not petitioners, must be viewed as the owner of the replacement property. Since petitioners failed to replace the condemned property, sec. 1033, I.R.C. 1954, does not apply, and gain must be recognized.

Petitioner guaranteed the obligations of a corporation organized to operate a retail discount store. Shortly after the store opened, the business failed and the store closed. Held: the payments made in settlement of the lawsuits filed against petitioner are deductible only as nonbusiness bad debts under sec. 166(d).

1. In 1968, petitioner sold a 15.987-acre tract located in Dallas County, Tex. Petitioner's basis in the tract depended on its value in March 1944 when he inherited his interest in the property. Held: the value of the 15.987-acre tract as of March 1944 determined. 2. Petitioner also had an interest in an 85-acre tract which he and his partner subdivided into 68 homesite lots and an adjoining airport runway with two main taxiways.

Decedent transferred a United States Treasury note and cash to a trust of which she was one of the cotrustees who had power to distribute all or part of the corpus to the beneficiary for the purpose… Held: the power exercisable by decedent in conjunction with her cotrustees was not subject to an objective standard with the result that the value of the property which decedent transferred to the trust is includable in decedent's gross estate under sec. 2038(a)(1), I.R.C. 1954.

The final day for filing an election to be treated as a small business corporation for the corporation's taxable year beginning Dec. 1, 1969, was Dec. 31, 1969. Held: under sec. 7502(a)(1), the election is deemed filed on Dec. 31, 1969. Fred Sylvan, 65 T.C. 548 (1975).

Respondent issued a notice of deficiency to petitioner covering petitioner's taxable year ended Feb. 28, 1969. Held: this Court has jurisdiction to redetermine the asserted deficiency notwithstanding that the statutory notice was issued for petitioner's incorrect taxable year.

Held, upon remand by the Fifth Circuit Court of Appeals to consider an issue not previously presented to this Court, petitioner… Held: upon remand by the Fifth Circuit Court of Appeals to consider an issue not previously presented to this Court, petitioner testamentary trust is not entitled to deductions under section 651 or 661, I.R.C. 1954, in respect of certain expenditures made by it in 1966 or 1967 in connection with the maintenance of property occupied by the…

Petitioner, a nonprofit organization for the promotion of the mobile home industry, sponsored a trade show for the display of camper and travel trailer vehicles in 1971 and 1972. Held: that petitioner failed to qualify as a tax-exempt organization under sec. 501(c)(6) for 1971 and 1972 since a part of its net earnings inured to the benefit of member-exhibitors who received space rental rebates.

Held, the phrase beneficiaries succeeding to the property of the estate or trust, as used in sec. 642(h), I.R.C. 1954, does not include a purchaser of an interest in a testamentary trust. Held: the phrase beneficiaries succeeding to the property of the estate or trust, as used in sec. 642(h), I.R.C. 1954, does not include a purchaser of an interest in a testamentary trust.

Petitioner Irving Snyder owned certain real property. In 1957 he deeded the property to two creditors as collateral for his indebtedness. Held: the assignment of the installment note from Rose Baird to Irving Snyder had no tax consequences since in substance Irving Snyder was at all times the real and beneficial owner of the note and Rose Baird was merely a nominee or straw party.

Petitioner was candidate for a doctor of education degree in industrial arts education with a specialty in teacher education at Pennsylvania State University. Held: the stipend received by petitioner was compensation for services rendered and is not excludable from petitioner's income under sec. 117, I.R.C. 1954, as a scholarship. Held, further, petitioner is not entitled to a deduction for home office expense.

Petitioners were expelled from their law partnership and, for their interest in accounts receivable and charges for unbilled services, were paid installments plus interest over an 18-month period. Held: the payments to petitioners for their interests in accounts receivable and charges for unbilled services are taxable as ordinary income rather than capital gains, secs. 736(a) and 751, I.R.C. 1954.

During the years in issue, H and W were married residents of Louisiana, but they lived together only part of such period. Held: Throughout their marriage, W owned a vested interest in one-half of H's income and must report such income. The modification in Louisiana law made by Creech v. Capitol Mack, Inc., 287 So. 2d 497 (La. 1973), does not affect the holding of United States v. Mitchell, 403 U.S. 190 (1971).

In connection with the purchase of realty, petitioner prepaid interest which he deducted when paid. Held: The price for which the property was sold included reimbursement for the prepaid interest. Under the tax benefit rule, the reimbursement must be returned to income when received.

Petitioner's divorce decree awarded a specific sum of money, payable in monthly installments, to petitioner's wife. Such payments were to last over a period of less than 10 years. Held: the payments are not periodic payments within the meaning of sec. 71(a)(1) and are not deductible under sec. 215.

Petitioner, a devotee of Sai Baba, is opposed to life, retirement, and medical insurance on religious grounds. Held: Petitioner is not exempt from the tax on self-employment income under sec. 1402(h), I.R.C. 1954. The exemption provisions of sec. 1402(h) are not unconstitutionally narrow in scope.

Pursuant to a New Jersey court order, petitioner Martha Pierce was required to pay $ 20,000 to petitioner John Pierce because of her conversion of certain shares of their jointly owned stock. Held: under the facts, petitioner John Pierce, by offsetting the $ 20,000 amounts against each other, is considered to have paid $ 20,000 to petitioner Martha Pierce.

Petitioner, whose principal purpose is the operation of a hospital, was organized as a nonprofit organization under Tennessee law. Held: under the facts involved herein, some of the net earnings inured to the benefit of the physician and petitioner therefore did not qualify as a tax-exempt organization under sec. 501(c)(3). Held, further, respondent did not abuse his discretion in making a retroactive revocation of petitioner's tax-exempt ruling.

Steel and Supply each owned life insurance policies on the life of D, their president and sole shareholder. Held: In determining the value of the stock of Steel and Supply includable in the estate of D, the proceeds of such life insurance are taken into consideration as assets of the corporations, but such proceeds are not added to the value of the stocks otherwise determined. See sec. 20.2031-2(f), Estate Tax Regs.

Petitioner kept receipts and monthly summaries of expenses for gifts, entertainment, meals, and boat operations and depreciation, but the business purpose of the expenditures and the business… Held: the claimed deductions were not substantiated as required by sec. 274(d), I.R.C. 1954, and were properly disallowed.

1. Held, no part of the proceeds of an insurance policy on the life of T's wife, applied for by T and in respect of which T had all of… Held: no part of the proceeds of an insurance policy on the life of T's wife, applied for by T and in respect of which T had all of the incidents of ownership, was includable in her gross estate under sec. 2042, I.R.C. 1954, notwithstanding that premiums had been paid with community property funds, in circumstances where it is found that…

J and C formed a partnership, and J purchased insurance on the life of C to protect his investment. Held: any loss subsequently arising in connection with such partnership assets was not sustained by the partnership and J's loss was of his investment in the partnership. Held, further, the life insurance proceeds compensated J for his loss within the meaning of sec. 165(a), I.R.C. 1954.

Under a property settlement agreement in the course of a marital dissolution, petitioner sold ranch property to her husband at a substantial gain. Held: the sale occurred on May 21, 1969, before the divorce decree had been entered. Held, further, at the time of the sale the parties were husband and wife so that under sec. 1239, the pending dissolution notwithstanding, petitioner's gain attributable to depreciable property was ordinary income.

Petitioner built a railroad tunnel and connecting tracks in downtown Spartanburg, S.C. Held: Petitioner failed to carry his burden to establish a useful life for its grading and tunnel bore. Held: Petitioner failed to carry his burden to establish a useful life for its grading and tunnel bore. Consequently, no depreciation deductions are allowed with respect to these assets. Also, no investment credit is allowed for these assets.

One of petitioners in 1967 acquired through his employment a nonstatutory stock option which he exercised on June 10, 1968, acquiring stock restricted as to sale. Held: Petitioners realized ordinary income from services on Mar. 14, 1969, when the restriction on sale of the stock ended in the amount of the difference between the fair market value of the stock without restrictions as to sale as of June 10, 1968, and the cost of the stock.

Petitioner, a Foreign Service information officer employed by the United States Information Agency, returned from his post in Japan to the United States on home leave… Held: expenses incurred by petitioner while on home leave are not deductible as traveling expenses incurred while away from home in the pursuit of a trade or business within the meaning of sec. 162(a), I.R.C. 1954. Stratton v. Commissioner, 448 F.2d 1030 (9th Cir. 1971), revg. 52 T.C. 378 (1969), not followed.

Petitioner is an interstate railroad which used the retirement-replacement-betterment method of accounting for its track structure during the years at… Held: during the years at issue: 1. Petitioner may not depreciate under sec. 167, I.R.C. 1954, roadway assets donated to it by or constructed with funds supplied to it by governmental bodies. These assets, acquired prior to June 22, 1954, were not contributions to capital within the meaning of sec. 113(a)(8), I.R.C. 1939. 2.

Petitioners operated an automobile wrecking yard in which vehicles were disassembled and useable parts were selected, cleaned, and held for sale. Held: Petitioners are entitled to the investment credit under sec. 38 for the fence. Their operation constitutes manufacturing or production and the fence was used as an integral part of the operation, within the meaning of sec. 48(a)(1)(B)(i).

1. Del Cerro Associates (DCA), a limited partnership, contracted to purchase certain land from Sunset International Petroleum Corp. (Sunset) for $ 1,456,000 in promissory notes. Held: the cash paid by DCA at the time of purchase of the property represented prepaid interest and was not in substance a disguised loan to Sunset which was to have been repaid through resale of the property by Lion. 2.

Petitioner and her former husband entered into an oral agreement obligating the husband to pay her a lump sum in lieu of alimony payable over 121 months. Held: The installment payments received by petitioner were in discharge of an obligation imposed on the husband by the oral agreement stipulated in court rather than the interlocutory judgment of divorce.

AFIC was primarily engaged in the business of acting as surety on bail bonds. It also wrote fidelity, other surety, and automobile insurance contracts. Held: AFIC is not an insurance company taxable under secs. 831 and 832, I.R.C. 1954. Held, further, AFIC's method of accounting for unearned premiums, unpaid net losses, unpaid loss adjustment expenses, and declared but unpaid dividends did not clearly reflect its income.

Decedent gave her residence to her daughter, who lived in an apartment. Held: the old residence is includable in decedent's estate since she retained the possession or enjoyment thereof for a period which in fact did not end before her death. Sec. 2036(a)(1), I.R.C. 1954.

Starmount, a North Carolina corporation, owned between 3,000 and 4,000 acres of land bordering on Greensboro, N.C. Prior to 1964, its outstanding stock consisted of 4,732 shares of… Held: The redemption of 2,000 shares of Starmount class A voting preferred stock in 1964 from the petitioner Blanche S. Benjamin was essentially equivalent to a dividend within the provisions of sec. 302(b)(1) of the Internal Revenue Code of 1954. United States v. Davis, 397 U.S. 301 (1970).