Volume 69 — Tax Court Reports

Claire Construction Co., a personal holding company, was liquidated and all of its assets were transferred to its shareholders. Held: the mere distribution of assets in liquidation, coupled with the assumption by the distributee-shareholders of the distributor's liabilities, does not meet the requirement of sec. 545(c)(1) that the qualified indebtedness be paid.

Decedent's husband died in 1960 and under his will after making specific bequests totaling $ 40,000, he bequeathed to his wife the income the use and benefits with full rights to sell or transfer all… Held: decedent's power was not limited by an ascertainable standard within the meaning of sec. 2041(b)(1)(A), nor was it exercisable by decedent only in conjunction with a person having a substantially adverse interest under sec. 2041(b)(1)(C)(ii).

On Apr. 26, 1976, petitioner filed a voluntary bankruptcy petition in the District Court. The next day he was adjudicated a bankrupt and a receiver was appointed. Held: The Tax Court lacks jurisdiction to redetermine the income tax deficiencies. Prather v. Commissioner, 50 T.C. 445 (1968), followed on this issue. 2. The Tax Court lacks jurisdiction to redetermine the addition to tax under sec. 6651 (a), I.R.C. 1954. King v. Commissioner, 51 T.C. 851 (1969), not followed.

Within a very short time period, Bruno and Bertha Bischoff each created identical trusts for their joint grandchildren, naming each other as trustee. Held: the corpora of such trusts are includable in their estates. Held, further: On the facts, the estate tax valuation of decedents' interests in certain partnerships is limited by the restrictive buy-sell provisions to which the interests were subject at death.

Held: 1. During the years in issue petitioner did not qualify as a tax-exempt trade association or business league within the provisions of sec. 501(c)(6), I.R.C. 1954, and sec. 1.501(c)(6)-1, Income… Held: During the years in issue petitioner did not qualify as a tax-exempt trade association or business league within the provisions of sec. 501(c)(6), I.R.C. 1954, and sec. 1.501(c)(6)-1, Income Tax Regs.

Petitioner, who had been engaged in the trade or business of trafficking marijuana, was arrested for transporting marijuana. Held: forfeitures and confiscation resulted in losses, not expenses. Also held, losses inflicted on petitioners because of petitioner-husband's illegal activities are disallowed under sec. 165; it is against a sharply defined national policy to allow those losses.

Held, under sec. 6871(b), I.R.C. 1954, this Court is without jurisdiction over deficiencies in income tax claimed in a proceeding under ch.… Held: under sec. 6871(b), I.R.C. 1954, this Court is without jurisdiction over deficiencies in income tax claimed in a proceeding under ch. XI, of the Bankruptcy Act, where the notice of deficiency was sent prior to the filing of a petition under ch. XI of the Bankruptcy Act but the petition in this Court was filed after filing of the…

Feroleto Steel corp. established a qualified employee pension plan and trust. The corpus of the trust consisted of insurance policies on the life of each plan participant. Held: These transactions constitute a diversion of trust assets for a purpose other than the exclusive benefit of employees in violation of sec. 401(a)(2), I.R.C. 1954. As a result thereof, the pension plan is not qualified undersec. 401(a) and the trust is not exempt from tax under sec. 501(a).

Petitioner is a corporation whose sole shareholder and president was arrested for transporting marijuana in petitioner's automobile. The automobile was seized and forfeited. Held: forfeiture resulted in loss which was disallowed for public policy reasons. Also held, depreciation and operating expenses allowed for business use of automobile prior to seizure.

Petitioner was the only general partner of Sonoma and, as such, it provided all the services necessary for the conduct of the partnership business, contributed $ 556 to capital, assumed substantially… Held: Sonoma was not a partnership in which capital was a material income-producing factor so that sec. 704(e)(1), I.R.C. 1954, is inapplicable. Held, further: The parties did not in good faith and acting with a business purpose intend to join together as partners.

Petitioner, a management consultant, purchased an interest in Millworth, a limited partnership, to secure a new source of potential consulting business. Held: sec. 741, I.R.C. 1954, is dispositive of the character of petitioner's loss; petitioner therefore sustained a capital loss on the disposition of his partnership interest.

On Apr. 26, 1976, respondent sent a notice of deficiency to the Condo Corp., a corporation organized under the laws of California. Held: the Condo Corp. lacks the capacity to litigate in this Court under Rule 60(c), Tax Court Rules of Practice and Procedure.

Rules 121 and 50, Tax Court Rules of Practice and Procedure. -- Held, petitioners' motion seeking summary judgment that no proper deficiency has been… Held: petitioners' motion seeking summary judgment that no proper deficiency has been determined against them where facts show that respondent disallowed their claimed partnership loss prior to completing his investigation of the return of income of the partnership with respect to which the loss was claimed is denied.

Decedent left one-half of his net estate in trust (marital trust) for his wife, who was given the income therefrom, a general testamentary power of appointment, and a power to withdraw any or all of… Held: the marital trust is not recognized for Federal tax purposes and the estate is deemed to have made distributions to the foundation with said trust acting as a mere conduit.

Held: Sec. 482, I.R.C. 1954, as amplified by secs. 1.482-1(d)(4) and 1.482-2(a)(1), Income Tax Regs., adopted in 1968, permits the… Held: Sec. 482, I.R.C. 1954, as amplified by secs. 1.482-1(d)(4) and 1.482-2(a)(1), Income Tax Regs., adopted in 1968, permits the allocation of interest income to two subsidiary corporations in respect of interest-free loans they made to their parent corporation, even though the parent corporation did not use the loan proceeds to produce…

Held, the value of an installment obligation includable in decedent's gross estate may not be discounted for estimated income taxes payable by the estate (or the beneficiaries) on the gain included… Held: the value of an installment obligation includable in decedent's gross estate may not be discounted for estimated income taxes payable by the estate (or the beneficiaries) on the gain included in installments collectible after decedent's death.

Decedent and his wife, Texas residents, transferred community property into a trust pursuant to which the income was to go to the wife for her life, with remainder to grandchildren. Held: the decedent's one-half share of the transferred community property was fully includable in his gross estate. United States v. Estate of Grace, 395 U.S. 316 (1969); Estate of Castleberry v. Commissioner, 68 T.C. 682 (1977).

Petitioner held 5,000 shares of GRT stock issued to him for services to that corporation and pursuant to a permit of the California Commissioner… Held: petitioner's stock is stock subject to restrictions significantly affecting its value, rather than a second class of unrestricted stock, for purposes of secs. 1.61-2(d)(5) and 1.421-6(d)(2)(i), Income Tax Regs.Held, further, restrictions imposed by the Commissioner of Corporations pursuant to California securities laws, are…

Decedent purchased nonregistered bearer bonds through brokerage accounts maintained in his name alone, in his wife's name, and in their joint names. Held: the bonds purchased through the wife's brokerage account were not shown to be owned by her and were properly included in decedent's gross estate.

Held, respondent correctly recomputed the amount of the reserves for unpaid losses carried by petitioner's predecessor, a casualty insurance company, at the end of… Held: respondent correctly recomputed the amount of the reserves for unpaid losses carried by petitioner's predecessor, a casualty insurance company, at the end of 1959, 1960, and the period ending June 30, 1961 (which losses are included in the computation of losses incurred under sec. 832(b)(5), I.R.C. 1954).

Petitioner organized a wholly owned subsidiary (H) on Oct. 6, 1972, and another wholly owned subsidiary (D) on Feb. 15, 1973. Held: under sec. 1.1502-79(a)(2), Income Tax Regs., that portion of the consolidated net operating loss for the taxable year ended Oct. 31, 1973, attributable to H cannot be offset against the income of petitioner for the taxable year ended Oct. 31, 1972, because H filed a separate return for that short taxable year Oct. 6, 1972, to Oct.…

Held, that petitioner-husband, an Air Force officer who retired on disability prior to reaching mandatory retirement age, is not entitled to a retirement income credit under sec. 37,… Held: that petitioner-husband, an Air Force officer who retired on disability prior to reaching mandatory retirement age, is not entitled to a retirement income credit under sec. 37, I.R.C. 1954, in the year 1972 for income received in excess of the sick pay exclusion provided by sec. 105(d).

Decedent Louis E. Pfeifer provided in his will for the creation of a trust in which his surviving spouse, Ella Pfeifer, was entitled to income for life… Held: Louis' estate is entitled to an estate tax charitable deduction under sec. 2055(b)(2), I.R.C. 1954, with respect to the remainder interest in his testamentary trust, even though it is also entitled to an estate tax marital deduction under sec. 2056(b)(5), I.R.C. 1954, for the entire amount transferred to such trust.

Petitioners are transferees of the assets of an estate. The estate had timely filed its Federal estate tax return and, after certain adjustments, paid its estate tax together with all deficiencies. Held: the refund was not a rebate within the meaning of sec. 6211(b)(2), but was an underpayment of tax within the meaning of sec. 6901(b) over which this Court has jurisdiction. Also held, petitioners are liable as transferees of the estate under sec. 6324(a)(2).

Following the filing of our opinion in this case, T. C. Memo. 1977-23, the parties submitted conflicting computations of tax under Rule… Held: In applying the residual method of valuing intangibles, the known fair market values of the tangible assets are subtracted from the total consideration paid by petitioner for the Gilmour Co. stock, such total consideration to include the cost of the stock plus the liabilities assumed by petitioner plus the Gilmour Co. tax liability…

Petitioners sold their shares of Piper stock to BPC for a package of BPC securities and the right to additional consideration if certain conditions were satisfied. Held: in determining the value of the BPC securities which petitioners received, the market price should be discounted because such securities were subject to restrictions on transferability pursuant to the Securities Act of 1933.

In 1963 petitioner purchased an interest in conditional sales contracts and chattel mortgages guaranteed by corporations A, B, and C. During 1963, A, B, and C all filed petitions in bankruptcy under… Held: The substitution of A corporation stock and debentures for the original guarantees pursuant to the ch. XI proceedings closed the transaction. Any subsequent gain or loss must be accounted for as a separate transaction, and the tax benefit rule is therefore inapplicable.

Petitioner contracted with the State of Maryland to dredge up specified quantities of oyster shells owned by the State and to redeposit them in designated… Held: as to shells dredged and redeposited for Maryland, petitioner had no economic interest in the shells in place, hence no depletable interest. Parsons v. Smith, 359 U.S. 215 (1959), followed. Held, further: Petitioner was entitled to the higher (15 percent or 14 percent) depletion rate for shells sold to others.

The executor administrated his mother's estate managed and operated a corporation in which his mother was sole shareholder, and was a cobeneficiary of her estate. Held: the estate is not entitled to a sec. 2053 deduction for the money the deceased borrowed from the banks and transferred to the corporation, because the estate could have been reimbursed by the corporation. Held, further: The estate's return was false and fraudulent with the intent to evade taxes.

U.S. Treasury bonds issued in the name of decedent were of a type eligible for use in payment of Federal estate tax liabilities. Held: that this Court has jurisdiction to determine the extent to which the bonds are includable in decedent's estate and the issue of eligibility incident thereto.

Prior to their marriage decedent's wife received income from a trust established by her former husband which she forfeited if she remarried. Held: The commuted value of the wife's right to receive $ 12,000 per year for life is not deductible for estate tax purposes as a claim against the estate under sec. 2053, I.R.C. 1954.

Held: 1. Loan fees characterized as interest, which were paid by two accrual method partnerships in the nature of a loan discount from the principal amounts of 40-year loans, must be prorated over… Held: Loan fees characterized as interest, which were paid by two accrual method partnerships in the nature of a loan discount from the principal amounts of 40-year loans, must be prorated over the entire life of each loan regardless of when the fees were actually paid. 2.

In five separate transactions petitioners paid certain amounts which were designated as prepaid interest. Held: Rev. Rul. 68-643, 1968-2 C.B. 76, by its terms, applies retroactively to an interest prepayment sufficient to pay 3 2/3 years' interest where such amount may be, and is applied, at the sole discretion of the lender, to satisfy interest obligations arising during a period in excess of 5 years from the prepayment date.

Decedent held certain realty in a sec. 676 revocable trust. Prior to the grantor's death, the realty was condemned. The trust began replacing the condemned realty. Held: the grantor is the taxpayer for purposes of sec. 1033. Also held: The trustee was acting on behalf of the grantor when replacing the condemned property. Consequently, the replacements made before and after the grantor's death qualify for nonrecognition treatment under sec. 1033.

After entry of decision, the Commissioner moved to amend his answer to claim an increased deficiency on the ground that the claim therefor was made at or before the hearing or a rehearing within the… Held: such claim was not made at or before the hearing.

Petitioner was a wholesale liquor dealer. Held: the cost of such additional liquors is deductible from gross income as part of the cost of goods sold and is not, therefore, a deduction which may be disallowed under sec. 162(c)(2). Pittsburgh Milk Co. v. Commissioner, 26 T.C. 707 (1956), followed.

Petitioner was formed as a nonprofit corporation to take over the educational functions of Hancock Schools, Inc. Petitioner assumed a liability for goodwill in an excessive amount and agreed to… Held: petitioner failed to meet the requirements of sec. 501(c)(3) because (1) it was not organized and operated exclusively for exempt purposes and (2) part of its net earnings may inure to private individuals.

By their terms, trust A terminated on Mar. 17, 1974, and trust B on Mar. 4, 1976. Trust A distributed all its assets on Dec. 31, 1974. Held: the deficiency notices were valid under sec. 6212.

Held: Sec. 214, I.R.C. 1954, as amended and in effect in 1972 and 1973, does not constitute unconstitutional discrimination on the basis of… Held: Sec. 214, I.R.C. 1954, as amended and in effect in 1972 and 1973, does not constitute unconstitutional discrimination on the basis of marital status, sex, or interference with family relationships in violation of the due process clause of the Fifth Amendment to the Constitution. Nammack v. Commissioner, 56 T.C. 1379 (1971), affd.

Held, petitioners did not constructively receive income in 1973 from the sale of their cotton in that year but realized income in 1974 when they were… Held: petitioners did not constructively receive income in 1973 from the sale of their cotton in that year but realized income in 1974 when they were actually paid for it. Held, further, the gin with which petitioner dealt in selling the cotton was the purchaser's agent, not petitioner's agent, in handling the transaction.

Petitioner, an ordained minister, secured for personal, nonchurch-related reasons, secular employment teaching business data processing at a State college, and subsequently was assigned to that task… Held: no portion of petitioner's salary is excludable under sec. 107 as a ministerial rental allowance, despite a general church policy purporting to authorize such an exclusion to all ordained assignees.

Pursuant to a deferred payment agreement, petitioner sold 147 bales of cotton on Nov. 29, 1973, and as consideration for the sale, received from a local bank an irrevocable banker's letter of credit… Held: petitioner received taxable income in 1973 when the banker's letter of credit was delivered to him.

Petitioner, a health and welfare fund recognized as exempt from Federal income tax as a voluntary employees' beneficiary association under sec. 501 (c)(9), I.R.C. 1954, applied to respondent for… Held: petitioner failed to meet the requirements of sec. 501(c)(3) because it is not operated exclusively for charitable purposes.

Petitioner, a cash basis taxpayer, elected to report the gain from the redemption of his corporate stock on the installment method. Petitioner received 25 percent of the redemption price in cash. Held: Petitioner did not constructively receive the trust funds or receive the economic benefit thereof in the year of sale. Therefore, petitioner properly elected the installment method of accounting.

Petitioner's representatives are alleged to have orally furnished additional information to Internal Revenue Service representatives at… Held: in an action for declaratory judgment under sec. 7428, I.R.C. 1954, petitioner's failure to submit the additional information in writing does not constitute good cause, within the meaning of Rule 217(a) of the Rules of Practice and Procedure of this Court, for permitting such information to be introduced in evidence by stipulation or…

T, a United States corporation, owned all of the stock of S, a Swiss corporation. Held: the Swiss withholding tax withheld and paid to Switzerland by S is a creditable income tax of T within the meaning of sec. 901.

On Dec. 20, 1973, petitioners paid rent for the use of property for the period Dec. 1, 1973, through Nov. 30, 1974. Held: only the amount allocable to use of the land in 1973 is deductible in that year.

Petitioner formerly was employed as the chief executive officer of a bank. Upon retirement, he entered into an agreement to provide consulting services to the bank for $ 1,000 per month. Held: based on the entire record, petitioner was engaged in a trade or business for which he received self-employment income, taxable under sec. 1401(a).

Petitioner was incorporated as a nonprofit organization to carry on stamp trading with the children of Israel in furtherance of religious purposes. Held: petitioner has failed to meet the operational test of sec. 501(c)(3) and, therefore, is not entitled to tax exempt status.

Petitioner was a party to a transaction involving the revamping of the capital structure of X corporation, in which petitioner held a 55-percent stock interest. Held: petitioner's loss in respect of its shares is a capital loss under secs. 1221 and 1222, I.R.C. 1954, and not an ordinary loss under sec. 165, I.R.C. 1954.

Lilley obtained a decree of separate maintenance based on extreme cruelty under which the Supreme Court of New Jersey ordered Capodanno to pay her $ 400 per month from the date on which she commenced… Held: the $ 400 monthly payments (including those awarded retroactively) are periodic payments under sec. 71(a)(3), I.R.C. 1954.

On Aug. 28, 1970, Ozark declared dividends to shareholders of record on Sept. 30, 1970, payable Oct. 1, 1970. Held: the property distributions occurred on Oct. 1, 1970; there were no earlier constructive distributions. Held, further: The purchase and liquidation of Benton did not qualify as one of the transactions described in sec. 381(a), I.R.C. 1954. Ozark may not deduct Benton's pre-merger net operating loss.

Petitioner made gifts of securities to trusts established for the benefit of her grandchildren. The trusts were required to pay all gift taxes resulting from the transfers. Held: petitioner did not realize a taxable gain in the amount of the difference between the gift taxes paid and her basis in the securities transferred.

P is a teacher who engaged in a strike that is illegal under the Taylor Act in New York State. Held: the penalty withheld from P's salary extinguished an obligation owed to the State and therefore resulted in income to P. Held, further, deduction of the penalty is prohibited by sec. 162(f), I.R.C. 1954.

In constructing its shopping center, petitioner installed equipment to generate electricity for sale to its tenants. Held: the electrical generating equipment qualified as sec. 38 property as defined in sec. 48(a)(1)(B).

In 1968 petitioners changed the overall method of accounting for their sole proprietorship from the cash method to the accrual method utilizing the procedure set forth in Rev.… Held: petitioners, by incorporating their sole proprietorship, ceased their trade or business within the meaning of the revenue procedures and as a result must bring the remaining amount of the adjustment into income in the year of incorporation and not over the remainder of the 10-year spread period.

Rule 121, Tax Court Rules of Practice and Procedure. -- Petitioners moved for summary judgment on the ground that petitioners and respondent had agreed to be bound in this case by the outcome of Abraham v. Commissioner, 33 TCM 81, 43 P-H Memo T.C. par. 74,019 (1974). Respondent alleges a fraud was committed upon the Court in Abraham and therefore he should not be bound by that case. However, respondent has made no motion to reopen Abraham, although appeal from our disposition of such a motion would lie to the United States Court of Appeals for the Ninth Circuit which has held that a final judgment of the Tax Court may be reopened if fraud on the Court has been committed. Held: Respondent is bound by his agreement that the result in Abraham governs this case. Respondent may not collaterally attack the decision in Abraham in this case but must attack Abraham directly.

Held: Petitioner is entitled to a deduction for his pro rata share of two subch. S corporations' net operating losses. Held: Petitioner is entitled to a deduction for his pro rata share of two subch. S corporations' net operating losses. Because petitioner's stock basis and basis of indebtedness became worthless as of Oct. 26, 1966, his share of such losses is computed for that part of the corporations' taxable year ending Oct. 25, 1966.

Rules 70 and 72, Tax Court Rules of Practice and Procedure. -- The substantive issues to be decided in this case are whether the value of books received by the petitioner-husband from West Publishing… Held: the private letter rulings sought by petitioner are not sufficiently pertinent to the substantive issues in this case to be considered relevant and, therefore, are not subject to discovery under Rule 70.

Petitioner Roger used petitioners' automobile and home telephone for business. Held: amount of business expense deductions for automobile and home telephone expenses determined. Held, further: Petitioners are entitled to business expense deductions for Margaret's education expenses. The courses which Margaret took in 1973 did not help her to qualify for a new trade or business as a certified New Jersey teacher.

Petitioner was convicted of pimping by the Municipal Court of Boston. Under Massachusetts law, a conviction may be appealed to the Superior Court, in which case the Municipal Court judgment is automatically vacated and a trial de novo held. Petitioner appealed his conviction to the Superior Court, in which court the action was dismissed. Respondent offered the vacated judgment as evidence that petitioner had unreported pimping income (rule 803(22), Federal Rules of Evidence) and also for impeachment purposes (rule 609). Held, the vacated judgment is inadmissible as evidence against petitioner for either such purpose. Held, further, on the facts, respondent's determination that petitioner earned unreported income during the taxable years in issue is not sustained.

In 1975, P, who was a full-time, salaried employee of O covered by O's qualified pension plan, contributed $ 1,500 to an individual retirement account. Held: such contribution was not deductible under sec. 219, I.R.C. 1954, because P was an active participant in O's qualified pension plan.

Petitioner acquired the business of a competitor. The tax consequences of payments made by petitioner for that business in 1962 were decided by the Court of Claims in Davee v. United States, 195 Ct. Held: petitioner is estopped by the prior judgment from relitigating the deductibility of payments in the later years.

Petitioners formed a religious organization and took deductions for contributions made to it. Held: Petitioners have not carried their burden of proof to show the organization was operated exclusively for religious purposes no part of the net earnings of which would inure to the benefit of any private shareholder or individual. As a result, any deductions taken for contributions made to such organization must be disallowed.

Petitioner Lansons, Inc., established a profit-sharing trust for the benefit of its employees in 1968. Held: Lansons, Inc., Profit-Sharing Trust was a qualified trust under sec. 401(a)(3)(B), I.R.C. 1954, for the years 1969, 1970, and 1971, and Lansons, Inc.'s contributions thereto in those years were deductible. Held, further, respondent abused his discretion in retroactively revoking his ruling under the circumstances.

Held: Where petitioner paid with his own funds over one-half of the support of his parents, the fact that petitioner's name was on joint… Held: Where petitioner paid with his own funds over one-half of the support of his parents, the fact that petitioner's name was on joint savings accounts with his parents to which funds of his parents in excess of one-half of the cost of their support were deposited during the year here involved, does not preclude petitioner's being…

At decedent's death she held a general power of appointment over the corpus of a trust. Decedent received the power under the provisions of her husband's will. Held: the value of the corpus of the trust included in decedent's gross estate under sec. 2041(a) as a general power of appointment held at her death should not be reduced by reason of sec. 2043(a).

Deficiency notices were sent to each petitioner as a fiduciary of the estate of the decedent for which no executor or administrator was ever appointed and no notice of fiduciary relationship was… Held: the deficiency notices are valid since each petitioner is a person in actual or constructive possession of * * * property of the decedent and therefore an executor within the meaning of sec. 2203, I.R.C. 1954.

Petitioners, accrual basis taxpayers, sustained a net operating loss of $ 1,961,225.47 for their taxable year beginning Oct. 1, 1961, to May 27, 1962, when Mr. Davis filed a petition for an… Held: petitioners are entitled to carry forward to taxable years following the discharge in bankruptcy a net operating loss sustained prior to filing a petition for an arrangement and net operating losses sustained while a debtor in possession.

1. In 1968, Union and Continental entered into an agreement to form a new corporation, Phoenix. Continental contributed cash and received 50 percent of Phoenix's stock. Held: the 1968 agreement did not constitute a sale with a deferred payment of Union's entire interest in Old Phoenix, with the result that Continental is not entitled to a deduction for imputed interest for its fiscal year ended Jan. 1, 1972, under sec. 483, I.R.C. 1954, as amended. 2.

During 1973 petitioner was married to a nonresident alien of the United States and was thus unable to file a joint return under sec. 6013(a)(1). Held, petitioner was not entitled to utilize the maximum tax rate on earned income provisions of sec. 1348 because of his failure to file a joint return for that year as required by sec. 1348(c).

Petitioners owned, in whole or part, several parcels of real property each incumbered with a mortgage and/or trust deed. Held: The substitution through escrows of new mortgages for existing ones was not tantamount to an assumption of the existing mortgages by the purchasers. Cancellation and payment, in the year of sale, of a seller's liability conclusively extinguishes his debt and constitutes a payment to the seller under sec. 453.

At the time of her death, decedent and her husband held as community property under Washington State law 80 percent of the outstanding shares of common stock and 100 percent… Held: the fair market value of decedent's interest in the corporation determined as a minority interest of 40 percent of the outstanding common shares and 50 percent of the outstanding preferred shares. Held, further, the fair market value of decedent's preferred stock bequeathed to charity determined.

Six corporations controlled by S filed separate petitions for an arrangement under ch. XI of the Bankruptcy Act, and shortly thereafter the proceedings were consolidated. Held: the intercorporate transfers made incidental to the consolidated bankruptcy proceedings were motivated by business objectives and were not constructive dividends to S. Held, further, educational expenses not shown to be ordinary and necessary business expenses.

Decedent transferred her interest in community property into a trust established under her husband's will in exchange for a life interest in that trust. The transferred interest is taxable in decedent's estate under sec. 2036(a), I.R.C. 1954, and the value of the life estate comprised, in part, consideration received by decedent under sec. 2043 for the transfer of her interest. Held, the life estate is valued using the table in the Estate Tax Regs. in effect at the date of exchange rather than at the date of decedent's death. Petitioner used "flower bonds" to pay the estate tax reflected on decedent's estate tax return. Those bonds not used to pay the tax were included in decedent's estate at their fair market value and later sold. After the sale, a deficiency was determined and the bonds sold could have been used at their higher par value to pay the estate tax. Held, bonds valued for estate tax purposes based on the estate as ultimately determined, not on the estate as valued in the estate tax return, thus, they are includable at the par value. Estate of Fried v. Commissioner, 54 T.C. 805 (1970), affd. 445 F.2d 979 (2d Cir. 1971), cert. denied 404 U.S. 1016 (1972).

The envelope containing the petition in this case was mailed from Philadelphia, Pa., and was postmarked by a private postage meter. The postmark was dated June 27, 1977, which was 90 days after the deficiency notice was mailed to the petitioners. On July 1, 1977, 4 days later, the petition was received and filed at the U.S. Tax Court. Held, in accordance with sec. 301.7502-1(c)(1)(iii)(b), Proced. & Admin. Regs., the petition was received in the ordinary course of the mail and therefore was filed timely.

Petitioners contributed corporate stocks to a qualified charity having bases for gain or loss exceeding fair market values. Held: the charitable contribution deduction under sec. 170, I.R.C. 1954, is limited to the fair market values of the shares contributed.

T orally agreed to sell his Maryland farm to P for $ 900,000; as part of the consideration, T was to receive like kind property. Subsequently, T located a Virginia farm which he wished to receive in exchange, arranged for title to the Virginia farm to be transferred to C, and advanced the necessary funds. Later, P contracted to buy the Virginia farm from C. On the following day, by written contract, T agreed to transfer the Maryland farm to P, and P assigned his right to purchase the Virginia farm to T. At the closing of these transactions, T conveyed his Maryland farm to P's assigns and received $ 100,000 in cash and an $ 800,000 promissory note. At the same time, C conveyed title to the Virginia farm, subject to mortgages, to T, and T assumed such mortgages. Held, the transaction constituted an exchange within the meaning of sec. 1031, I.R.C. 1954; T's gain is recognized only to the extent that the money he received exceeded the funds he advanced and the mortgages assumed with respect to the Virginia farm.

T owned a vacation-type house in Montana, which he had at one time used with his family for recreation purposes. Upon his divorce in 1957 he began to use that house as his principal residence, from which he commuted to various jobs from 1957 through 1962. In 1961, T was hired by E Corp. and worked at a Montana jobsite to which he commuted from his house. In 1962, E Corp. assigned T to a temporary job outside Montana, and thereafter (for a number of years, including the tax years 1971 and 1972) T worked for E Corp. at a series of temporary jobs outside Montana. T continued to maintain his house in Montana and returned to it whenever his duties with E Corp. permitted; he voted in Montana and paid Montana State income taxes. Held, on the basis of this record, T's house in Montana constituted his "tax home" such that expenses for meals and lodging incurred in respect of his employment with E Corp. at temporary jobs outside the State of Montana were deductible under sec. 162(a)(2), I.R.C. 1954.

Petitioners sold securities acquired in different lots and at different prices. Held: petitioners did not adequately identify the securities sold in compliance with sec. 1.1012-1(c)(2), Income Tax Regs., with the result that their bases in the securities sold are to be determined using the first-in, first-out method.

The decedent made gifts in contemplation of his death and paid Federal and California gift taxes with respect to those gifts prior to his death. Held: the decedent had no interest in property at the time of his death such that under sec. 2033, I.R.C. 1954, the value of his Federal gross estate includes the amount he paid as State gift taxes prior to his death.

Held, legal fees incurred in negotiating and drafting specific long-term contracts which are later entered into by a corporation using the completed contract method of… Held: legal fees incurred in negotiating and drafting specific long-term contracts which are later entered into by a corporation using the completed contract method of accounting are not currently deductible but are deductible in the taxable year of the corporation in which the contracts are completed.

Petitioner was formed as a nonprofit corporation to provide educational day care for children between the ages of 6 months and 3 years. Held: petitioner's custodial services were incidental to its educational purpose and it therefore qualified for exemption from taxation pursuant to sec. 501(a) as an organization described in sec. 501(c)(3).

Held, certain payments made from Jan. 1, 1963, through Apr. 25, 1969, by petitioner to its parent corporation in Iceland were interest within the meaning of secs. 1441 and 1442, I.R.C. 1954,… Held: certain payments made from Jan. 1, 1963, through Apr. 25, 1969, by petitioner to its parent corporation in Iceland were interest within the meaning of secs. 1441 and 1442, I.R.C. 1954, and petitioner is liable for the 30-percent tax which it failed to withhold on such payments.

Petitioners' subchapter S corporation was required to vacate its business premises to make room for the Federal Reserve Bank of Boston. Held: petitioners' corporation may not deduct moving costs, lease rentals or other expenses which were reimbursed by the Bank. Charles Baloian Co. v. Commissioner, 68 T.C. 620 (1977), followed.

T concededly failed to report as income funds which he embezzled from his employer in 1969, 1970, and 1971. Held: T's 1972 loss incurred as a result of the restitution does not qualify as a net operating loss eligible to be carried back and deducted in 1969, 1970, and 1971 under sec. 172, I.R.C. 1954. The 1972 loss was not a loss incurred in a trade or business, as required by sec. 172(d)(4).

Held, that expenses for transporting petitioner's son between her household and a child day care center are not deductible under sec. 214, I.R.C. 1954. Held: that expenses for transporting petitioner's son between her household and a child day care center are not deductible under sec. 214, I.R.C. 1954. Sec. 1.214A-1(c)(3)(i), Income Tax Regs., is valid.

Petitioner, an Oklahoma corporation, merged into another Oklahoma corporation on Sept. 25, 1972. Respondent issued a notice of deficiency to petitioner on Sept. 10, 1975. Held: petitioner's motion for special leave to file a motion to vacate our decision entered on Dec. 22, 1976, granted.

In 1972 petitioners, H and W, created a trust to which H purportedly conveyed his lifetime services and all remuneration earned therefrom. Held: 1. Held: The purported conveyance was merely an assignment of income ineffective to shift the incidence of taxation from petitioners to the trust on amounts paid as compensation for H's services. 2. H, as trustee, held powers sufficient to cause the entire trust to be governed by secs. 671- 677, I.R.C., 1954. 3.

Petitioner acquired all the stock of Magnolia Park in 1966 in a reorganization of Magnolia Park under ch. X of the Bankruptcy Act. Held: respondent failed to prove that either sec. 269, I.R.C. 1954, or the Willingham case would apply to disallow the net operating loss deductions.

On Mar. 1, 1973, Ps sold their old principal residence and moved to Fox Creek Ranch, which they had acquired in 1963 and had reconstructed between Mar. 1, 1972, and Mar. 1, 1974. Held: under sec. 1034, I.R.C. 1954, only the cost attributable to the actual reconstruction of the Fox Creek Ranch can be included in Ps' cost of purchasing the new residence.

Held, plan whereby the taxpayer would acquire all of the stock of a bank, partly with funds to be derived from the redemption of 217 of such shares, followed by the reissuance of 217 shares to… Held: plan whereby the taxpayer would acquire all of the stock of a bank, partly with funds to be derived from the redemption of 217 of such shares, followed by the reissuance of 217 shares to the taxpayer as a stock dividend, resulted in a taxable dividend as defined in sec. 316(a).

Dr. Steffen's employee and shareholder relationship with the Corporation was terminated pursuant to an agreement under which he received $ 40,000 cash and other property. Held: the portion of the $ 40,000 paid to Dr. Steffen which was attributable to the Corporation's accounts receivable did not constitute compensation to Dr. Steffen for which the Corporation is entitled to a salary expense deduction.

Petitioner, a professional medical corporation, provided a pathological unit for a hospital from Dec. 17, 1971, until Nov. 30, 1972. Held: the four persons working for petitioner and, subsequently, the partnership, were employees rather than independent contractors. Held, further, employment of these persons by the partnership may not be attributed to petitioner.