Volume 7 — Board of Tax Appeals

1. A contribution of $500 held not to be deductible as an ordinary and necessary expense. 2. Claim for a deduction by reason of obsolescence or loss of useful value denied for want of evidence. 3. The petitioner purchased and used within the year, certain car wheels, axles and bumpers, and cast iron blocks, for use on mine cars. Held that the amounts so expended are deductible as ordinary and necessary business expenses. 4.

1. Upon the organization of the petitioner, it issued twenty-year 6 per cent debentures and common stock for the assets of an existing partnership. Held: upon the evidence, that the debentures represent evidences of indebtedness and may not be included in invested capital. 2. The selling price of certain shares of stock for cash immediately after organization of a corporation is not sufficient of itself to establish the value of good will.

1. Costs subject to amortization determined. 2. Spread of amortization for a fiscal year determined in accordance with income.

BOND DIVIDEND. - On April 24, 1918, the petitioner was the sole stockholder of a corporation, and on that day the corporation declared, and he received, a bond dividend chargeable against corporate surplus and undivided profits in the amount of $600,000. He immediately sold the entire bond issue for $468,000. Held, that he realized taxable gain in the amount of the surplus and undivided profits accumulated after February 28, 1913, less the loss on the sale of the bonds.

1. In January, 1919, a contract of employment which petitioner had held with a corporation since 1910 was renewed for a period ending January 22, 1924, under the terms of which he was to receive a… Held: that the entire amount of $75,000 constitutes income to the petitioner for the year 1920 notwithstanding he kept his books and rendered his returns upon an accrual basis. 2.

1. The determination by a Commissioner of Internal Revenue of the March 1, 1913, value of timber for the purpose of determining the depletion allowance for any given year, does not preclude a Commissioner of Internal Revenue from determining a different value for the same timber to be used in the same way in the computation of the tax for another year. 2. The March 1, 1913, valuations of land and timber used by the Commissioner in the computation of tax herein involved, approved. 3. The petitioner consistently took its inventories on the basis of market. The Commissioner recomputed the closing inventory on the basis of cost or market, whichever is lower, without making the corresponding change in the opening inventory for the same year. Held, that such method distorted income and that the petitioner's method, since it more nearly reflects the true income, should be used.

Losses sustained in farming, when engaged in as a business, are deductible.

The petitioner, under the facts stated, is entitled to a deduction on account of a debt ascertained to be worthless and charged off during the taxable year.

1. On the facts, held that alleged agencies of petitioner in Mexico were not, in fact, its agents, and that income received by such agencies was not thereby constructively received by petitioner. 2. Debts tentatively ascertained in one year by an officer of petitioner to be worthless, such action being finally approved by the board of directors and the debts charged off pursuant thereto in the following year, held to be a proper deduction from income for the latter year under section 234(a)(5) of the Revenue Act of 1918.

Amounts paid out to petitioner's mother and aunt as part consideration for stock held to be capital expenditures and not deductible from gross income.

1. LICENSE FOR USE OF PATENT. - Value of a certain license for the use of patents, paid in for stock of a corporation, for the purposes of invested capital and exhaustion deduction determined. 2. BUILDINGS AND EQUIPMENT. - The value of certain buildings and operating equipment for a part of which stock was issued determined for the purposes of invested capital and exhaustion deduction. 3.

INCOME. - Fees and commissions earned by officers of a national bank, acting as agents for insurance companies in the placing of insurance, are not income of the bank.

1. AMENDMENT OF PETITION. - The petition in Docket No. 10597 stated that it was an appeal from the determination of deficiencies for the years 1917 and 1918. Held: that the motion to amended the petition was properly granted as a matter of course and that the Board acquired jurisdiction of the deficiency for the year 1919. 2. INVESTED CAPITAL. - The cost of petitioner's plant and equipment as shown by the evidence determined for the purposes of invested capital. 3.

Assessments on stock paid by individual stockholders under the facts of this case represent additional cost of the stock and are not deductible as losses until the stock is sold or becomes worthless.

It appearing from the evidence that capital was a material income-producing factor in petitioner's business, it is not entitled to classification as a personal service corporation under section 200 of the Revenue Act of 1918.

INVENTORIES. - A merchandise inventory taken as of December 31, 1920, and priced according to manufacturers' printed price list of June and July, 1920, is not an inventory at cost or market whichever is lower as of December 31, 1920. The petitioner's revision of such inventory based upon actual knowledge of market prices as of December 31, 1920, was properly used as a basis for computing gross merchandise gain for the year 1920.

PRIVATE BANKERS. - Additions to capital and reserves required by state statutes governing private bankers, although set aside from current earnings, can not be deducted from the income of a banking partnership distributable to the partners.

Amounts credited to the officers of the petitioner corporation and not withdrawn by them held to be liabilities of the corporation and not a part of its invested capital.

The petitioner and his wife were not partners during the years involved and the income-tax returns of the petitioner for those years in which he claimed that his wife was a partner were false and fraudulent.

1. Petitioner sold an interest in a dairy property to an employee more than a year prior to March 1, 1913, and another certain interest to a second employee more than a year subsequent thereto, and… Held: that the sale and purchase prices so received and paid did not constitute a true measure of the fair market value of such property. 2.

1. At the time of the entry of the United States into the World War, taxpayer was engaged in the manufacture of automobile bodies. Held: that the amount so written off was not deductible from gross income under the provisions of section 234(a) of the Revenue Act of 1918. 2. Where a taxpayer has erroneously written off one of its liabilities, and reported an equal amount as income, the amount so reported is not taxable.

The decedent during his lifetime and on or about August 9, 1917, transferred practically all of his property, consisting principally of stocks and other securities, to a New York bank as trustee,… Held: that under the provisions of section 403(a)(1) of the Revenue Act of 1921, these amounts were proper deductions from the value of the gross estate in determining the value of the net estate for the purpose of the tax.

The amount of the Federal tax upon the income of the petitioner paid by its lessee constitutes income to the petitioner for the year in which such tax became due and was paid.

1. Where two persons own a parcel of real estate, each owning an undivided half interest therein and said property is encumbered by a mortgage given to secure and indebtedness, on which said persons are jointly and severally liable, and one of the persons dies and thereafter a claim for the entire amount of the unpaid indebtedness filed against the estate of the deceased is approved and allowed by the court, the executors may in the estate-tax return claim deduction for the entire amount of the said indebtedness, but the value of the claim of the estate against the other joint mortgagor is to be included in the value of the gross estate. 2. Where one person dies and his estate pays the estate tax and the said estate or property is bequeathed or devised to another, who afterwards dies and whose estate is exampt from the estate tax, and the person who then receives or inherits said property or estate, later dies, all deaths being within five years, the latter's estate can not legally exclude the amount of the value of such estate inherited, by reason of the fact that the estate of the first decedent (who was the father of the second and the husband of the last decedent) paid the estate tax on said property, the first decedent not being the prior decedent contemplated by section 403(a)(2) of the Revenue Act of 1921, nor the person from whom the last decedent's estate was inherited.

March 1, 1913, value of certain coal rights determined.

1. Rate of depreciation as determined by the Commissioner affirmed. 2. Traveling expenses and loss allowed as deductions from gross income. 3. Valuation of cotton inventory determined.

Salary credited to the petitioner upon the books of a corporation of which he was an officer and a stockholder during the taxable years was income to him on the cash receipts and disbursements basis only to the extent received within the year.

March 1, 1913, value of a one-half interest in certain real estate acquired in 1909, and the purchase price of the other one-half interest in the same property purchased March 1, 1915, determined.

Where it appeared that an extraordinary expenditure for advertising in a certain year resulted in benefit to a business in the year of expenditure as well as in subsequent years, and that, therefore,… Held: in the absence of evidence upon which a proper allocation could be made between capital and current expense, that the Commissioner's refusal to permit any part of the expenditure to be capitalized must be approved.

1. GOOD WILL, OBSOLESCENCE OF. - Good will is not property of the kind subject to a deduction for obsolescence under the provisions of section 234(a)(7) of the Revenue Act of 1918. 2. VALUE OF LEASEHOLD. - The March 1, 1913, value of taxpayer's leasehold determined on the basis of capitalizing the difference between the rent reserved in the lease and the rent which the lessee would pay, making such a lease on March 1, 1913, over the remaining period of the lease.

The evidence fails to show that earnings out of which a dividend was paid on July 10, 1922, were accumulated prior to March 1, 1913, and were therefore subject to tax under the provisions of the Revenue Act of 1921.

Section 214(a)(8) of the Revenue Act of 1918 does not authorize a deduction for obsolescence of good will.

Value of mortgage notes owned by decedent at the time of his death determined.

A decedent acquired certain property subsequent to March 1, 1913. Upon his death the property passed to his executrix and was thereafter sold by her. Held: that the basis for determining the gain or loss resulting from the sale is the value of the property at the date of the decedent's death and not the cost to the decedent.

1. The real estate involved herein was sold in the year 1919 and not in the year 1918 as claimed by the petitioner. Therefore, no part of the profit arising from such a sale may be included in the petitioner's invested capital for the year 1919. 2. Certain alleged worthless debts held to be proper deductions in computing the petitioner's net income for the year 1920.

1. Petitioner was not entitled to classification as a personal service corporation during the taxable year. 2. An amount authorized as a drawing account for the president of the petitioner was a proper deduction from gross income as an ordinary and necessary business expense incurred in the taxable year.

1. INVESTED CAPITAL. - The petitioner corporation conducted its internal affairs much in the nature of a partnership keeping no regular surplus and undivided profits accounts as commonly understood. Held: in view of the continuous practice of the several stockholders, the credit balances in these accounts must be taken to represent corporate earnings distributed and not surplus or undivided profits within the meaning of section 326 of the Revenue Act of 1918. 2.

The American School Citizenship League was during the year 1921 an association organized and operated exclusively for educational purposes and a contribution of $4,000 made thereto by petitioner in 1921 was a proper deduction from gross income.

Cost of goods sold for the year 1920 as computed by the Commissioner increased in the total amount of $16,958.73, representing purchases during that year.

AFFILIATIONS. - Of the eight corporations involved in these two actions seven of such corporations are held to be affiliated and one held not affiliated with any of the others.

1. The 25 per cent reduction provided by Title XII, Revenue Act of 1924, is applicable literally to the tax payable in 1924 shown on returns for 1923, and does not reduce the 1924 tax payable in 1925 of an individual partner whose 1924 taxable income is made up in part of a share of partnership income for a fiscal year beginning in 1923. 2. In arriving at the "earned income" of a partner there shall be included in the partner's share of the distributable profits of the partnership the salary received from the partnership, and not in excess of 20 per centum of such share of the profits may be considered as earned income.

A corporation which filed a return for the fiscal year ended August 31, 1921, and voluntarily changed its accounting period to a calendar year basis and filed a return for the four months intervening, may not deduct a loss for such period from the income of the next succeeding calendar year.

The terms of a trust agreement, together with a conveyance of property to the trustees named therein, held to have created such an association as is subject to corporation income and profits taxes under the Revenue Act of 1918.

Petitioner's purchases, gross sales, and expenses for 1919 and 1920 determined.

A corporation, 50 per cent of the stock of which petitioner owned, was not during the calendar year 1921 a personal service corporation and petitioner was not, therefore, entitled to deduct from his gross income any portion of an alleged operating loss sustained by the corporation for that year, and the evidence fails to show that petitioner was entitled to a deduction from gross income of any loss as a result of prior endorsements by him of the corporation's indebtedness…

A stockholder of a corporation who, to protect and conserve his own business interests, enters into an agreement with an employee of the corporation that such employee shall receive the dividends upon his shares of stock so long as the employee shall remain with the corporation, is entitled to deduct the amounts of the dividends paid to the employee as a business expense.

1. The petitioner acquired a one-fourth interest in an oil lease. Held: the oil lease rights were abandoned in the taxable year. 2. The tools and equipment were sold and delivery made within the year, although the price to be paid was not arrived at and payment not made until subsequently.

The petitioner held to be not entitled to personal service classification for the year 1918.

1. Reasonable attorneys' fees agreed upon between an executor and attorneys, are deductible items from the gross estate, although not paid or settled by the probate court. 2. In the absence of evidence as to whether or not the will provides for specific bequests, or as to other conditions of the will, the Board is unable to determine whether the Commissioner committed error in disallowing executors' commissions.

INCOME. - Petitioner's contracts for the construction of three apartment buildings provided as a part of the consideration that it should execute and deliver to the contractor three second mortgages… Held: the difference, $11,800, was not gain or income, but merely a reduction in the contract price or cost of the buildings to petitioner.

- The taxpayer breached a contract in 1917; settled its liability therefor in 1918; kept its books on the accrual basis; did not admit its liability to the injured party during 1917; did not accrue… Held: return was made in accordance with taxpayer's method of accounting as required by section 212(b) of the Revenue Act of 1918 and it can not now claim the loss as a deduction for 1917.

The unextinguished cost of buildings removed in order to obtain a 99-year lease upon the land represented the cost to the lessor of such lease and should be exhausted over the term of the lease.

- The value of patents and inventions protected by applications for patents determined for the purpose of invested capital.

Deduction of bad debts disallowed because not charged off within the taxable year.

VALUE OF LEASEHOLD. - Value of a tenant's leasehold acquired by inheritance on March 2, 1917, determined on the basis of the present value of the average annual difference between the amounts to be paid under the terms of the lease made in 1908 and the amounts which the beneficiary might have been required to pay had he made a new lease on March 2, 1917.

1. MARCH 1, 1913, VALUE OF REAL PROPERTY involved in this proceeding, determined. 2. DEDUCTIONS. - Three notes executed by this petitioner in December, 1921, payable five years from date and delivered to petitioner's children as compensation for services during 1921, held not deductible from gross income as a business expense paid during 1921, the petitioner having kept his books and made his income-tax return on the cash basis.

1. JURISDICTION. - The petitioners in this action filed their joint petition on August 28, 1925. Thereafter, on May 17, 1926, all of these petitioners except P. R. Hoffman, were adjudicated bankrupts and at the hearing were represented by trustees in bankruptcy. Held, that the Board acquired jurisdiction by virtue of the appeal under the provisions of the Revenue Act of 1924, and is not ousted from such jurisdiction by virtue of section 282(a) of the Revenue Act of 1926. Plains Buying & Selling Assn. v. Commissioner,5 B.T.A. 1147, followed. 2. INDIVIDUAL TAX LIABILITY OF PARTNERS. - Determination in accordance with stipulation of counsel respecting the accounts of the partnership.

PAID-IN SURPLUS. - Cash value of coal-land lease at the time acquired by the taxpayer corporation determined and allowed as paid-in surplus and subject to exhaustion in the proportion that the number of tons mined each year bears to total content of recoverable merchantable coal.

- The partnership of which petitioner was a member in 1914 acquired a corporate stock of the par value of $5,000. Held: that no deductible loss was sustained by the partners as a result of these transactions.

- The petitioner and his wife originally made a joint return for the calendar year 1922. Held: that having originally made a joint return for the year 1922, they may not thereafter, by filing amended separate returns, have their tax liability determined upon the basis of such separate returns. R. Downes, Jr.,5 B.T.A. 1029, followed.

1. Under the statutes of Pennsylvania a transfer by a member of a partnership of his interest in the partnership is not rendered invalid by reason of the fact that the other members were not consulted or informed in regard to such transfer. 2. A partner's interest in a partnership is personal property and a transfer thereof is not required to be in writing. 3.

Under the statutes of Pennsylvania, a transferee of the beneficial interests of a member of a partnership is legally the owner of the profits that, but for such transfer, would have belonged to the transferor.

1. DIVIDEND INCOME. - A corporation during the year 1920 was a going concern and had some income. It ordered and paid regular quarterly dividends upon preferred stock and quarterly dividends upon common stock. In the absence of proof to the contrary, held, that all of these dividends constitute taxable dividend income to the stockholders receiving the same. 2. LOSS ON SALE OF CORPORATE STOCKS. - Under the circumstances of this case the buying price of seven shares of corporate stock held to represent the market value of such shares rather than the selling price of one fractional share of the same stock. 3. LOSSES. - The amount of a deduction for losses sustained in respect of corporate funding notes determined.

Personal service classification denied upon the ground that the earnings of petitioner are not to be ascribed primarily to the activities of the principal stockholders.

1. There is no basis under section 207 of the Revenue Act of 1917 and section 326 of the Revenue Act of 1918 for a revaluation of petitioner's assets for invested capital purposes at the time of the financial reorganization in 1911, as a result of which other corporations were merged with it, though assets of other companies which were paid in at this time may be included in its invested capital at their cash value at the time paid in. 2.

Where the tax shown by a petitioner upon its return as filed exceeds the total tax liability as determined by the Commissioner, the Board is without jurisdiction to entertain the proceeding, even though assessment has not been made by the Commissioner of the entire amount shown due on petitioner's return as filed.

Petitioner having filed a joint return of income for himself and wife for the calendar year 1923, is not entitled to have his tax computed on the basis of his separate return.

Held that a transaction between a husband and his wife involving a going concern and all the assets thereof was a sale to the husband by the wife; that an annual payment made to the wife by the husband was a payment of purchase price and not a division of profits; and that the entire income of the business is taxable to the husband.

1. The aggregate of unit prices for stumpage or merchantable timber held not to represent the value of an entire tract of timber in computing depletion. 2. A valuation of exhaustible property such as timber based upon future income must recognize the discount applicable to such income. 3.

In computing gain or loss on the sale of real property, petitioner claimed as part of cost an amount spent in litigation involving tax liens and to remove cloud on title. Part of the taxes accrued after petitioner acquired the property. Held, expenditures on account of such taxes are not a part of cost. No segregation was made of these expenditures from the others, and the latter may not be included in the cost because of lack of evidence of the amount.

1. The evidence is insufficient to warrant deduction for obsolescence of tangible property. 2. Deduction for obsolescence of good will disallowed. Manhattan Brewing Co.,6 B.T.A. 952.

1. The cost of certain items of mining equipment should be capitalized and not deducted as ordinary and necessary business expenses. 2. A contribution made under the present facts is deductible as a business expense.

Personal service classification denied upon the grounds that the earnings are not to be ascribed primarily to the activities of the principal stockholders and that capital was a material incomeproducing factor.

Under the facts in this case, petitioner's income should be determined on the accrual basis.

Income and deductions are determined upon an annual basis and, in the circumstances of these proceedings, items of income received in 1920 may not be deferred to a subsequent year. The cost of land and amounts expended for other items of a major character are not proper deductions from gross income for the year in which such expenditures are made.

The petitioner corporation, which was the result of a consolidation on June 30, 1919, of two other Indiana corporations, pursuant to the provisions of the statutes of the State of Indiana, took over the assets and assumed the liabilities of such other corporations and issued its stock for the stock of such other corporations, and, among such liabilities of such corporations, were certain mortgage bonds which the petitioner purchased in 1923 for sinking-fund purposes at less…

The cost of permanent improvements voluntarily made to leased premises by a tenant at will, which continued to occupy the premises beyond the taxable year in which such expenditures were made, was not deductible in its entirety within the taxable year as an ordinary and necessary expense.

1. At organization, petitioner issued certain certificates designated Class A Preferred Stock and Class B Preferred Stock respectively. On the facts, held that the Class A certificates were in effect certificates of indebtedness, representing borrowed capital, and may not be included in invested capital for tax purposes. The Class B certificates were certificates of stock, and constituted a part of the capital structure of petitioner. 2.

In 1917, the petitioner, a commission salesman, was authorized to and did form the American Protective League, an unincorporated organization, which operated under the direction of and in conjunction… Held: that petitioner's activities were not such employment as made it his trade or business, and that the American Protective League does not fall within the definitions of associations, contributions to which are deductible under the statute.

Upon the evidence, held, that certain stock in a public utility electric railroad corporation became worthless in 1919, thereby entitling the petitioners to a deduction for losses under section… Held: that certain stock in a public utility electric railroad corporation became worthless in 1919, thereby entitling the petitioners to a deduction for losses under section 214(a)(5) of the Revenue Act of 1918.

In each of the taxable years the petitioner filed an income-tax return which showed his correct income-tax liability for that year.

1. Where the Commissioner in his 60-day letter has designated a certain transaction a sale but where upon the hearing it is shown that it was an exchange, and where petitioner has suffered no surprise it is the duty and province of the Board of Tax Appeals to disregard the terminology and determine the correct deficiency, if any. 2. The value of shares of stock in certain corporations determined. 3.

1. Cash value of tangible property paid in for capital stock determined. 2. No evidence adduced which would bring the petitioner within the terms of section 210 of the Revenue Act of 1917, or section 328 of the Revenue Act of 1918, so as to entitle it to special assessment.

- The actual cash value of a leasehold and theatre equipment, furniture, etc., paid in to a corporation for stock determined both for the purposes of invested capital and deduction for exhaustion.

A joint return of husband and wife having been filed for the calendar year 1922, separate returns may not be subsequently filed for that year.

A joint return for husband and wife having been filed for the calendar year 1923, separate returns may not be subsequently filed for that year.

An interest-bearing demand promissory note was bona fide paid in for stock on April 8, 1919, and was satisfied and discharged by the maker by the transfer of certain stock to the corporation.

The salaries paid to its principal officers by the petitioner in 1921 held to be reasonable in amount and deductible from gross income.

The March 1, 1913, fair market price or value of 6,500 acres of land sold in 1919 determined.

The evidence does not show that the petitioner sustained a deductible loss in 1921 in excess of that allowed by the respondent.

1. The fair market value of a second mortgage received as a part consideration for the sale in 1919 of an apartment house determined from the evidence. 2. Held: that inasmuch as services rendered by the president of the corporation during the taxable year were not worth to exceed the amount allowed by the Commissioner as a deduction therefor, the Commissioner's action in this regard should be affirmed.

Petitioner and his wife held a note and a mortgage securing the payment thereof as joint tenants. Held that only one-half the interest paid on the note is income to the petitioner.

1. Transaction held to have been a bona fide gift of stock and no gain realized on the sale of all but one share thereof on the day the gift was made. Held: the dividend was a stock dividend and did not constitute taxable income. Norvell v. Commissioner,6 B.T.A. 56.

Petitioner established that drawings and patterns were capital assets having a useful life of at least 20 years, and also proved the cost thereof. Held: that the depreciated cost of the drawings and patterns should be included in invested capital and depreciation allowed at 5 per cent per annum, regardless of the practice of the petitioner of treating such costs as operating expenses.

1. Prior to June 3, 1924, the Commissioner assessed additional taxes for the fiscal years ended November 30, 1917, and November 30, 1918. Held: That under section 283(f) the Board has jurisdiction. 2. Under the facts herein held that the earnings of the petitioner credited to the accounts of its stockholders constituted loans to the petitioner and may not be included in invested capital. 3.

1. Petitioner filed returns of income for the fiscal years ended June 30, 1919, 1920, 1921, 1922, and 1923, on the due dates for filing… Held: that the returns referred to were returns of the fiscal years 1919, 1920, 1921, 1922, and 1923; and that the Commissioner, in determining the deficiency in, or overassessment of, taxes for those years, properly credited the tax shown by the petitioner on each fiscal year return against the correct tax of the respective fiscal years.…

Amount claimed by petitioner as advances on behalf of a corporation held deductible from 1920 income as a debt ascertained to be worthless and charged off in that year.

Reasonable allowance for amortization of foundry determined.

1. Fair market value of real estate and bank stock, as of the date of the death of the testator, determined. 2. Where property is sold without any cash payment, but more than 25 per cent of the sales price is later paid during the taxable year in which the sale was made, the profit may not be reported on the installment sales basis.

A loss sustained by petitioner in the year 1922 as a result of the liquidation of a corporation, stock of which he had purchased as an investment, was not a net loss from operation of a trade or business regularly carried on by him and the excess of the loss sustained in year 1922 over his income for that year was not a proper deduction under the provisions of section 204 of the Revenue Act of 1921, from his income for the calendar year 1923.

Claimed deductions on account of additional salaries for the calendar year 1919 disallowed for failure of proof.

1. Under the laws of Pennsylvania as they existed prior to June 7, 1917, executors of a will had no right to the rents arising from the real estate of the decedent unless such right was conferred upon them by the will and such rents, although collected by the executors, did not become income of the estate but remained the income of the devisees. 2. Where the devisees under a will conferred upon the executors power to collect and make certain dispositions of the rents of real estate devised to them, the executors acted as the agents of the devisees and receipt of rent by such agents was receipt by the devisees.

Where petitioners filed without protest on Form 1040 an itemized return of their income and voluntarily paid over one-fourth of the tax due, and where later in the same taxable year they filed a second return showing a lesser amount of income and lesser amount of tax and also filed claim for credit and abatement, and where the Commissioner determined a tax which was less than that reported in the first return but greater than that reported in the later return, held the Board is without jurisdiction and the proceeding is dismissed.

The petitioner was affiliated with the Smith Estate Corporation during the year 1919.

After the period of limitations for assessing tax has expired, such tax may not be assessed upon the theory that a taxpayer, which made its return on a calendar year form, should have made it on a fiscal year form and that therefore the return required by statute had not been filed by the taxpayer.

1. Upon the evidence held that the petitioner is entitled to classification as a personal service corporation. 2. Salaries may not be deducted as expense unless paid or incurred or accrued. 3. Deduction claimed for an alleged bad debt disallowed in absence of proof of worthlessness. 4. Claim for special assessment not considered, the petitioner having been held entitled to classification as a personal service corporation.

1. Losses on account of worthless debts and investments determined. 2. The evidence fails to establish that the Fourth National Bank owned directly or controlled through closely affiliated interests, all or substantially all of the stock of the trust company during 1918 and 1919. 3. Value of intangible assets of a trust company purchased by a national bank determined for invested capital purposes. 4. Amount paid for acquisition of a going business held to be a capital expenditure, and allowed as a loss when the business was discontinued. 5. Architect's fee for building plans, which were never used and were abandoned within the taxable year, allowed as a deduction from gross income.

1. Loss on sale of stock determined from the evidence. 2. Petitioner admits increase in income representing his distributive share of partnership income.

Pursuant to an agreement of guaranty, the petitioner, in the year 1919, paid partly in cash and partly in notes, certain notes, the payment of which he had guaranteed. Held: in the absence of evidence as to the worthlessness of the notes so paid by cash and notes, no deduction may be taken as a worthless debt or as a loss on account thereof.

A joint return of husband and wife having been filed for the calendar year 1923, separate returns may not be subsequently filed for that year.

Certain instruments herein construed, as well as rights therein, and held to be oil and gas leases and not sales of capital assets within the meaning of section 206 of the Revenue Act of 1921.

1. Amount of current advertising expense paid or accrued determined and deduction therefor allowed. 2. Amounts paid or accrued for an asset having a useful life and value extending beyond the year in controversy not allowed as a current ordinary and necessary expense.

Petitioner in year 1917 purchased its own bonds for less than the amount for which they had been issued. Held, that it realized no taxable gain from the transaction. Held: that it realized no taxable gain from the transaction.

1. Deductions claimed not allowed due to lack of evidence. 2. Value of good will purchased not proven.

During the period from 1907 to 1910 petitioners were members of a partnership, which kept its books upon the accrual basis and which partnership sustained losses, for which losses petitioners in 1910… Held: that petitioners were not entitled to deduct the amounts paid on the notes in 1919 and 1920 as losses sustained in those years.

1. JURISDICTION. - Under the provisions of section 283(f) of the Revenue Act of 1926, the Board has jurisdiction in a case in which a jeopardy assessment was made in February, 1924, and a claim for… Held: that the 5-year period of limitation provided by section 250(d) of the Revenue Act of 1921, began to run at midnight, June 16, 1919, under authority of the Appeal of Dallas Brass & Copper Co.,3 B.T.A. 856. 3.

The petitioner transferred stock in one corporation, held for investment, in return for stock in another corporation of a like kind and use. Each lot of stock being held by petitioner as an investment, there was an exchange, resulting in no taxable income under section 202(c)(1), Revenue Act of 1921.

A document filed with the collector of internal revenue on May 31, 1919, in the caption of which appeared in typewriting The Pilliod Lumber Co., Swanton, Ohio, but neither signed nor sworn to by anyone, is not such a return as is required by section 239 of the Revenue Act of 1918, and the filing of such document did not start from that date the running of the statute of limitation of five years.

1. The sale by a corporation of all of the capital stock of an affiliated corporation results in neither a taxable gain nor a deductible loss. 2. On the sale by a corporation of all the capital stock of a subsidiary company whereby the affiliation is terminated separate returns must be filed for each corporation for the remainder of the taxable year. 3.

Where the testator bequeathed to petitioner an annuity and where his will contained no direction to pay the annuity out of the income of his estate, held, that the moneys received by petitioner as… Held: that the moneys received by petitioner as payments of his annuity is exempt from income tax, under the provisions of section 213(b)(3) of the Revenue Act of 1921.

Cost of stock to petitioner in 1916 for the purpose of the determination of gain or loss upon the subsequent sale thereof in 1919, determined.

Where a fire insurance company which is on the accrual basis reinsures the risk of an original insurer, another fire insurance company, and a fire occurs and is reported in one year, but the amount of the loss is not determined and paid until the following year, the loss accrues to the company reinsuring the risk in the year in which the fire occurred.

Salaries credited to petitioners upon the books of the corporation of which they were officers and stockholders, but not received within the taxable years nor available for their use, were not income to them upon the cash receipts and disbursements basis.

- Upon the evidence, held, that certain stock became worthless during the year 1920 and that petitioner sustained a deductible loss in that year. Held: that certain stock became worthless during the year 1920 and that petitioner sustained a deductible loss in that year.

From January 1, 1921, to May 11, 1923, inclusive, two stores were conducted at Daytona Beach, Fla., in the name of the petitioner. Held: that the evidence does not warrant a finding that the petitioner and his father were in partnership during the period in question.

Deduction for loss resulting from sale of residence disallowed.

1. The provisions of section 278(d) of the Revenue Act of 1924, providing that a tax assessed within the statutory period may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax, have no application to an assessment made before the enactment of that Act. 2. Collection of the deficiency asserted in the instant appeal held to be barred by the period of limitation prescribed by law.

1. Where the Commissioner and the taxpayer, pursuant to the statute, have entered into a consent in writing to the determination, assessment and collection of a tax after the time otherwise… Held: that collection of such tax is barred.

1. The cash value of promissory notes paid in to a Pennsylvania corporation for stock held to constitute invested capital. 2. Invested capital should not be reduced by the amount of an alleged tax for a prior year which tax the Board held did not exist. 3. Affiliation status granted for certain periods. 4.

The amount of State and Federal income tax paid by a corporation upon the income of its president, was income to him in the year in which paid.

1. Section 1100(b) of the Revenue Act of 1924 continues the Revenue Act of 1921 in force for the assessment and collection of all taxes imposed by such Act or prior Acts. Held: that such consent is not void for indefiniteness. Held, further, that such consent grants a reasonable time in which such act may be performed. 3. In the circumstances of the present appeal, held, that the determination and assessment were made within a reasonable time. 4.

Net income determined from the evidence.

1. In taking inventory in 1919 petitioner determined that it had a surplus of merchandise, which, however, was in marketable condition, and thereupon it inaugurated a sales… Held: petitioner is entitled to reduce its inventory for the year 1920 on account of the scrapped merchandise. 2. Overassessment, not arising from claim in abatement, determined by respondent for the year 1919. Held, the Board has no jurisdiction of the appeal for that year and motion to dismiss granted.

1. In the circumstances, held, that a certain contract between petitioner and preferred stockholders does not constitute the latter creditors of the petitioner. 2. Held: that a certain contract between petitioner and preferred stockholders does not constitute the latter creditors of the petitioner. 2. Amounts paid to holders of preferred stock during the taxable year represented the payment of a dividend and not interest on an indebtedness. 3.

1. Evidence insufficient to prove that debts charged off during the taxable year 1919 as worthless were in fact ascertained to have become worthless in that year. 2. Under the Revenue Act of 1918 no deduction may be taken for a part of a debt charged off as worthless.

In the circumstances, held, that the corporations involved were not affiliated in the years 1919 and 1920. Held: that the corporations involved were not affiliated in the years 1919 and 1920.

Where the Commissioner determined a deficiency for the year 1919 and an overassessment for the year 1920, such overassessment not arising from the denial of a claim for abatement of a deficiency, and the petition alleges error as to the year 1919, for which a deficiency was determined, held, that the Board has no jurisdiction to determine the deductibility of an alleged loss with respect to the year 1920 for which an overassessment was determined.

1. The value, if any, of intangible assets acquired for stock held not established by the evidence. 2. Petitioner would not be entitled to any allowance for obsolescence of good will on account of prohibition legislation, even if the existence of good will and its cost or March 1, 1913, value had been established. Appeal of Manhattan Brewing Co.,6 B.T.A. 952; Appeal of Olt Bros. Brewing Co.,6 B.T.A. 974.

1. Depreciation of a tractor computed at the rate of 33 1/3 per cent annually, approved. 2. Held: that the unextinguished cost was not deductible in 1920.

1. A license to sell liquor in the City of Boston, which, under a long continued custom, entitled the holder to a renewal from year to year and which renewal privilege was valuable, is property. 2. Held: that petitioner sustained a loss in 1919 measured by the cost of the property to him. 3. No deduction may be allowed for loss of good will value in the absence of any evidence of cost.

The owner of a building in poor condition entered into an agreement with a contractor to place the same in a tenantable condition. Held: that the petitioner is not entitled to deduct, as an ordinary and necessary expense, the amount representing the cost of the work done by the contractor.

1. Claim for deduction for obsolescence of mill property, based on loss of value due to discontinuance of petitioners' business, disallowed. 2. Claim for loss of good will, due to discontinuance of petitioners' business, disallowed, no cost having been shown. 3. Petitioners suffered losses in 1919 from the operation of their business. Held, that such business losses must be reduced by income from other sources in determining the net loss which is to be used in determining taxable income for 1918.

1. Excise taxes upon articles sold, levied upon the manufacturer, are not deductible by the purchaser as taxes paid by him, although specifically added by the manufacturer in fixing the sales price… Held: that the building is to be depreciated over its expected useful life.

Upon the evidence held that the petitioner and the Brazilian Rubber Plantation & Development Co. were affiliated during the calendar year 1920.

1. JURISDICTION. - The Board has not jurisdiction to redetermine the tax of a year for which no deficiency has been determined by the Commissioner. Held: that the evidence is insufficient to show that the petitioner erred in determining the debts to be worthless and charging them off in the fiscal year ending June 30, 1919. 3. OFFICERS' SALARIES. - Evidence held insufficient to show that amount of alleged additional salaries was paid or incurred during the taxable year.

1. PARTNERSHIP OR JOINT VENTURE. - Upon the evidence, held that respondent erred in treating Ed Sheegog & Co., as a partnership rather than as a joint venture. The petitioner, being one of the joint adventurers rather than a partner, is therefore taxable on actual receipts rather than on an undistributed share of profits. 2. DIVIDENDS. - Upon the evidence, held that petitioner was not a stockholder in the Fisher-Whaley Oil Co. 3.

Evidence held insufficient to establish the reasonableness of salaries claimed as a deduction for business expenses in 1919.

The petitioner has failed to prove that certain payments received by decedent were gifts rather than taxable income.

1. Traveling and other necessary expenses incurred by officers of a corporation in carrying on its business are deductible in computing the corporation's taxable income, when such expenses are duly authorized and are shown to have been ordinary and necessary business expenses. 2.

The petitioner was a trustee in connection with the reorganization of a corporation. Held: that the petitioner derived no income from the $10,000 in 1923.

1. A person who regularly sells or otherwise disposes of personal property on the installment plan is entitled, under the provisions of section 1208 of the Revenue Act of 1926, in computing income… Held: that petitioner may deduct as bad debts, in 1918, 1919, and 1920, only such portion of the 1917 accounts ascertained to be worthless and charged off in those years as represents the unrecovered cost of the merchandise. 7.

1. Held: That the evidence sustains petitioner's valuation of real estate as made on estate-tax returns. 2. The decedent, a resident of Nebraska, owned real estate in South Dakota. Held: That the evidence sustains petitioner's valuation of real estate as made on estate-tax returns. 2. The decedent, a resident of Nebraska, owned real estate in South Dakota. Held: That his wife had no dower interest therein.

- During 1919 and 1920 petitioner was engaged in making small loans in the States of Minnesota and Texas at usurious rates of interest. Held: that the amount of the interest received in excess of the losses is taxable and should be reported as gross income. Appeal of James P. McKenna,1 B.T.A. 326; Appeal of Mitchell M. Frey, Jr.,1 B.T.A. 338.

1. The petitioner was engaged in the general contracting business. He erected under contracts buildings, power plants, and other structural work for the State of Oklahoma and private citizens. Held: that the petitioner was not an officer or employee of the State of Oklahoma and the compensation paid to him by the State was subject to Federal income tax. 2.

1. Advances made to a company which was furnishing material to the petitioner, held, in this case, to represent loans and not a part of the cost of goods purchased. 2. Where the debtor corporation is yet in existence as an operating company with substantial assets and the creditor is continuing to make advances, held that the worthlessness of prior advances has not been established. 3. Loss denied for lack of proof as to when the transaction in question occurred.

The excess of deductions for depletion based on minimum royalties, over the actual depletion sustained, does not constitute income to a lessor in the year in which the lease is abandoned.

Embezzlement by an employee of moneys entrusted to him by his employer, occurring and continuing over a period of five or six years, and causing loss to his employer, does not warrant the allowance of the amount as a deductible loss to the employer in computing his taxable income in a subsequent year when the defalcation was first discovered.

The excess of deductions for depletion based on minimum royalties, over the actual depletion sustained, does not constitute income to a lessor in the year in which the lease is abandoned.

1. The expiration of the statutory time within which taxes may be determined, assessed and collected bars the remedy but, in the absence of statutory provision to the contrary, does not bar the liability. 2. In 1924, the Commissioner and the petitioner executed a consent in writing to extend for one year the period within which taxes for the fiscal year ended July 31, 1919, might be determined. At the time such consent was executed, the statute had run on any assessment of tax. Held, that the tax might be assessed within the period provided for in such consent. Held, further, that such consent is not void for want of consideration. 3. Section 1106 of the Revenue Act of 1926 is not retrospective. 4. The Government is not barred in the enforcement of its claims by any period of limitations unless the claim clearly falls within the limitation. 5. Where no assessment of the tax was made before the enactment of the Revenue Act of 1924 and the period within which assessment might be made had not then expired, the tax may be collected within six years after assessment. 6. Premiums paid by a corporation upon insurance on the lives of its officers, such insurance being assigned as security for a loan, are not deductible in computing net income under the Revenue Acts of 1918 and 1921. Section 215 of such acts followed.

1. Special assessment allowed under section 328, as petitioner acquired a mixture of tangibles and intangibles, the respective values for which can not be determined, and as development costs over a long period of time were charged to expense and the accounting method used precludes the restoration of such costs to invested capital. 2. Where a petitioner, entitled to relief under section 328, introduces uncontroverted evidence showing the average tax of all corporations engaged in the same business, the excess-profits tax should be computed at the rate fixed by the comparatives of record. 3. The March 1, 1913, value of patents determined for depreciation purposes and the average life of several patents determined and used as the period for depreciation purposes.

Depreciation of oil-well equipment, on the unit-of-production basis, allowed on the facts herein.

1. It does not necessarily follow from a mere showing that a corporation purports to be one of the members of a partnership that there was no legal partnership. 2. A restoration to invested capital of assets previously charged to expense can not be made in the absence of satisfactory evidence as to the cost of these assets. 3.

1. The purchase price paid by petitioner's incorporators for limestone lands, shortly before petitioner was organized, and the land exchanged for stock, establishes the value of such lands for invested capital purposes. 2.

A shrinkage in the value of 60,000 kronen deposited in a bank in Budapest, Hungary, between the date deposited in 1916 and October, 1920, when withdrawn, is not a deductible loss in the latter year.

Where a person in 1912, created a trust, the income of which was payable to him during his life and at his death the corpus vested in his sons, and where, in 1917, he created a second trust, the… Held: that since both trusts were created prior to the enactment of the Revenue Act of 1921, the corpus of neither trust is subject to the estate tax imposed by that Act as part of the grantor's gross estate.

1. Where the trustees create an unauthorized reserve out of trust income to replace depreciated assets of the corpus, the depreciation withheld was distributable. 2. The construction placed on a State taxing statute is not authoritative in the construction of a Federal Taxing statute.

1. The amount received by the petitioner in 1915 as consideration for the cancellation of an existing lease is income to the petitioner for that year. 2. The petitioner and Walter Goerke Co. were affiliated during the fiscal year ended February 28, 1921.

1. Additional allowance for wear, tear and exhaustion of machinery disallowed. 2. The evidence is insufficient to show that certain county warrants were ascertained to be worthless within the taxable year.

The petitioners were not personal service corporations during the year 1919.

Additional compensation voted to the officers of petitioner in 1920 held not deductible from 1919 income.

1. The petitioner is entitled to deduct from gross income losses sustained in the operation of the farm herein. 2. The respondent did not err in taxing the entire income from the community to the petitioner.

Amounts deposited with a bank by an officer and stockholder and credited to his personal account, are not part of the bank's invested capital.

Under the facts herein the petitioner is entitled to include in its invested capital for the year 1920 the value of the good will acquired from its predecessor.

1. The value of an exclusive right to bottle and sell Coca-Cola within certain territory ascertained for the purpose of determining gain or loss upon the sale of the business to which it appertained. 2. Under the circumstances herein, certain debts ascertained to be worthless within the taxable year, allowed as deductions from gross income.

Evidence held insufficient to show that the petitioners sustained a loss through the transaction involved herein.

Bonuses were credited upon the books of a corporation to its principal stockholders, the petitioners, but were not actually paid to them during the taxable year. Held: that the petitioners did not receive the bonuses during the taxable year and they are not liable to income tax upon them.

1. Petitioner failed to furnish sufficient evidence to support his right to the deductions claimed for bad debts and business expenses. 2. Held: that no deductible loss is sustained until there has been a sale or other disposition.

Transfers made, while decedent was in good health and active in business affairs, for the purpose of carrying out a prenuptial promise, held not to have been made in contemplation of death.

Under the evidence, held, that the petitioner kept its books and reported its income on the cash receipts and disbursements basis, and minor deviations therefrom do not thereby cause books to be… Held: that the petitioner kept its books and reported its income on the cash receipts and disbursements basis, and minor deviations therefrom do not thereby cause books to be placed on the accrual basis to reflect true income.

The petitioner was accommodation endorser on four notes given by a corporation of which the petitioner was the principal stockholder. Held: upon the record that the amount of the notes is not a legal deduction from the petitioner's gross income of 1921.

Inaccuracies in return filed due to loss of records and physical condition of petitioner held insufficient to justify penalty for filing false and fraudulent return.

On the evidence held that the amount of $25,000, being the amount accepted by the petitioner in settlement of certain claims against his brother, was not received in the year 1923.

A demand note to cover petitioners' proportion of a loss was given to a bank on December 18, 1920, with instructions to charge it against petitioners' checking account as soon as that account was… Held: that payment of the note was made in December, 1920, and the loss was deductible in 1920.

1. Reasonable allowance for depreciation of oil-well drilling tools and equipment determined. 2. The evidence is insufficient to show that Commissioner's determination that petitioner received a dividend from the Liquefied Petroleum Gas Co. is erroneous.

1. On the evidence, held, that the husband, in good faith gave to his wife his interest in a coal mine, which under the statutes of Pennsylvania,… Held: that the husband, in good faith gave to his wife his interest in a coal mine, which under the statutes of Pennsylvania, rendered the profits from the operation of such mine her, and not his, income. 2. Noncompliance with the Fictitious Names Act of Pennsylvania, does not render void the partnership or organization, as such.

1. Petitioner purchased stock of another corporation in 1918 for $4,000 and in 1919 charged off that stock as worthless. Held: that in the absence of evidence as to the worthlessness of the stock, or as to the financial condition of the company, the stock of which is alleged to have become worthless, the cost thereof is not a proper deduction from gross income. 2.

1. A purchase-money note, secured by a vendor's lien and a portion of the oil run, given by irresponsible parties as part payment of an interest in an oil and gas lease, valued, for purposes of determining profits from the sale, at the sum of the proceeds from the oil run to the date of the transfer of the note and all interest in the lease to third parties, following default on the note, plus the consideration received from such transfer. 2.

1. Expenses incurred and paid in prior years may not be deducted, though incidental to the earning of income received and reported within the year. 2. No deduction may be claimed under section 214, Revenue Act of 1918, for a loss of a gain which has never been included in income. 3.

Where a close corporation, desirous of acquiring additional capital, purports to purchase Liberty bonds from its stockholders at par for preferred stock, with the expectation of selling such bonds to obtain the needed capital, and the bonds are immediately sold, as contemplated, for less than par, the transaction amounts to a process of acquiring capital and does not constitute a purchase and sale of bonds by the corporation at a loss; and the invested capital allowable for…

1. Where petitioner delivered a deed to a farm in the payment of commissions, the transfer not being acceptable to nor accepted by the transferee as payment, deductions claimed for a loss upon the realty transferred and for the commissions paid, denied. 2. A loss sustained on the sale of an oil lease, allowed. 3. The inclusion of profits derived from the sale of an interest in a railroad, approved.

Depreciation on equipment of an oil well allowed on a unit-of-production basis, rather than a straight-line basis, as useful life and value depend upon the rate of extraction of oil content.

Where liquidating dividends are received over a period of years from a corporation in process of dissolution and liquidation, and a stockholder is subsequently required, by reason of a tax deficiency of the corporation, to repay a portion of the dividends so received, the amounts repaid are properly set off first against the dividend last received.

1. Amounts withdrawn by petitioner from a corporation held to have been the repayment of loans and not dividends. 2. Evidence does not establish that claimed losses were sustained in 1920.

On the evidence held that during the year 1920 the petitioner did not take over and operate the second-hand automobile business which prior to the incorporation of the petitioner was conducted under the trade name Central Auto Market.

Special assessment denied.

Classification as a personal service corporation granted.

Personal service classification denied.

1. Estate tax accrues at time of death and not when payable. 2. The word accrue has no definite meaning but must be interpreted in accordance with the statutory requirement that the accounts must clearly reflect income. 3. Estate tax and income tax are different in kind and incidence and are not mutually exclusive because imposed in respect of the same matter. Such double tax is not invalid.

The payment by the petitioner of one-half of its net profits in equal parts and in proportion to their stock holdings to its two principal stockholders, in return for the pledging by the stockholders of private securities for the petitioner's credit, constituted a distribution of profits and not an ordinary and necessary expense of carrying on the business.

1. The deduction for loss of timber acquired prior to March 1, 1913, destroy ed by storm in 1918, should be based on cost and not on the March 1, 1913, value where such value is in excess of… Held: that the deduction was properly disallowed. 3. The invested capital of a corporation may not be reduced in determining the extent to which a dividend is paid from current earnings of a year by a tentative tax theoretically set aside from such earnings pro rata over such year.

A debt charged off may not be allowed as a deduction from gross income in the absence of sufficient evidence of determination of worthlessness within the taxable year.

1. Petitioner took over the assets of a partnership, issuing to the partners stock for a part of the value thereof and agreeing to pay cash to the partners for… Held: the amount of $98,000 paid one of the partners in stock may not be included in invested capital prior to the date of issuance of the stock. Further held that the amount due the partners was borrowed capital until the cash was paid and may not be included in invested capital prior to the date of payment. 2.

1. Under the circumstances herein, certain payments made by petitioner held to constitute ordinary and necessary business expenses. 2. Where interest upon payments is payable upon a certain date, contingent upon a contract not being terminated before that date, it is not a proper deduction from gross income over the years when payments were made upon the contract, but becomes a liability when the obligation to pay interest is fixed.

The claim of the petitioners that, under the provisions of the decedent's will, all of the income of an estate was payable to two income-tax-exempt charitable corporations as residuary legatees held not proven by the evidence submitted.

Where pursuant to the terms of a lease it is canceled prior to the expiration of the term thereof and the lessee is paid an amount as a rebate, the unamortized cost of the lease less the amount received as a rebate should be spread over the unexpired term of the lease from the beginning of the taxable year to the date of cancellation and the portion of such amortized cost falling in the taxable year should be deducted from gross income.

Evidence not sufficient to establish claim for deduction from gross income on account of dismantling of buildings and equipment.

1. On the evidence, held, that certain expenditures made prior to April 1, 1916, alleged to have been for buildings and equipment, the nature of… Held: that certain expenditures made prior to April 1, 1916, alleged to have been for buildings and equipment, the nature of which is not disclosed, can not be classified as capital expenditures, and depreciation thereon is not allowable. 2. In the absence of evidence as to useful life of a well, depreciation can not be allowed. 3.

Gift of property by decedent to her children within two years of her death, held, on the evidence, not made in contemplation of death. Held: on the evidence, not made in contemplation of death.

The transfer of real estate, under circumstances disclosed by the evidence, two years, ten months and eight days prior to the donor's death, held not to have been made in contemplation of death.

Debts, not ascertained to be worthless and charged off as such on decedent's books during the taxable period, can not, when later ascertained to be worthless, be claimed as a deductible allowance in computing net income of the decedent for said taxable period.

The evidence in this proceeding is insufficient to enable the Board to determine whether or not the Commissioner erred in his determination of the gain or loss upon the sale in 1920 and 1921 of property acquired from 1909 to 1920.

In the absence of evidence indicating error on the part of the Commissioner in determining the value of decedent's interest in a partnership business, his action is affirmed.

Market price inventory prepared by petitioner and approved by the Commissioner accepted in lieu of fair value inventory contended for by petitioner.

Taxpayer held not affiliated with the Bittel-Leftwich Tire Service Co. of St. Louis from January 1, 1918, to November 30, 1920, inclusive.

Instruments construed and held to be oil and gas leases and not sales of capital assets within the meaning of section 206 of the Revenue Act of 1921. Berg v. Commissioner,6 B.T.A. 1287, followed.

The evidence does not establish that respondent erred in his computation of allowance for depreciation.

1. Where property is acquired prior to March 1, 1913, and sold in 1919 for an amount greater than cost, but less than the March 1, 1913, value, there is neither a gain nor a loss under the provisions of the Revenue Act of 1918. 2. Where property is purchased on a deferred payment plan and interest is not provided for in the contract, no part of the deferred payments are deductible from gross income as interest.

1. Deduction for obsolescence of shoe lasts and patterns disallowed. 2. The amount of a debt ascertained to be worthless and charged off within the taxable year held properly deductible from gross income of that year.

Actual cash value of mineral rights paid in for capital stock in 1911 determined for invested capital purposes.

1. Loss resulting from actual and bona fide sale of stock allowed. 2. Claimed loss on sale of stock disallowed for lack of evidence. 3. Interest paid for a corporation by an individual not allowed as a deduction to the individual.

Loss sustained on sale of a residence property allowed.

On the evidence of this case special assessment denied.

Value of property for estate-tax purposes determined.

The unextinguished cost of a building removed in order to obtain a ten-year lease upon the land, represented the cost to the lessor of such lease and should be exhausted over the term of the lease.

1. In ascertaining gain or loss upon the sale of capital assets, due allowance must be made for depreciation occurring during the period of ownership. 2. Amount of depreciation determined.

1. Evidence held not sufficient to show that the Commissioner erred in his determination of depletion based on discovery value. 2. Income from an exchange of property was received in 1920. 3. Amount of deduction allowable for taxes, determined.

Actual cash value of property paid in for capital stock determined.

Certain gifts made by decedent prior to his death held not to have been made in contemplation of death and certain other gifts made by decedent prior to his death held to have been made in contemplation of death.

For the purpose of computing gain or loss upon the sale of stock acquired by petitioner as a residuary legatee under a will, said stock held to have been acquired at date of distribution and not at date of death of decedent.

Under the Revenue Act of 1921, where the March 1, 1913, value of vacant land is established by expert opinion evidence as in excess of the selling price, no taxable gain results.

The value of property purchased by decedent through investments of proceeds of sale of securities acquired by decedent as a share in the estate of a prior decedent who died within five years and on whose estate an estate tax was paid, was acquired in exchange within the meaning of section 403(a)(2) of the Revenue Act of 1921 and such value is not properly to be included in the value of decedent's gross estate.

Facts insufficient to show error on the part of the Commissioner.

1. Architect's fees for drawing building plans which were completed in 1921, and discarded in that year are deductible from gross income of 1921 where books of account are kept upon the accrual basis, even though the plans were not actually paid for in full until 1922. 2. An amount reimbursed to the president and principal stockholder for miscellaneous business expenses paid by him in connection with the work of the corporation held to be a legal deduction from gross income.

The disallowance of a portion of the salaries paid to the officers of the petitioner corporation for the fiscal years ended June 30, 1920, and June 30, 1921, affirmed.

1. In determining a net loss under section 204(a) of the Revenue Act of 1921 an individual may not deduct from gross income a loss upon an investment in shares of stock in a corporation. 2. Held: that the loss sustained by each in 1922 on said notes was $8,982.60.

1. Upon organization petitioner issued to stockholders notes for excess of value of assets paid in over par value of stock. Held: that such excess may be included in invested capital. 2. On the evidence, held, petitioner may not include it invested capital the earnings credited to stockholders' accounts.

Sale of land held to be a sale on the installment basis.

1. Alleged errors in the books of account of petitioner and in its return (a) in differentiating between farm expenses of petitioner and personal expenses of president of petitioner, and (b) in understating the salary of the president of petitioner, are not susceptible of determination due to lack of evidence. 2.

The amount of an interest-bearing promissory note, bona fide paid in for capital stock, should be included as a part of petitioner's invested capital, under the circumstances herein.

The Board has no jurisdiction of a proceeding where a jeopardy assessment was made under the provisions of section 274(d) of the Revenue Act of 1924, and no claim for the abatement thereof was filed.

Amount of invested capital determined.

1. The deduction from gross income of a reserve for cash discounts and freight charges disallowed. 2. The record herein presents no evidence of any abnormality in capital or income which would entitle the petitioner to have its taxes computed under the provisions of section 328 of the Revenue Act of 1918.

1. The petitioner in 1916 granted an option to purchase its property and in that year received notice that the option would be exercised and that ahe purchaser approved the title. In 1916 there was no delivery or tender of a deed and no delivery of possession of the property. Before the close of 1916 the purchaser was ready, able and willing to perform the contract but had made no tender of the purchase price. In 1917 payment was made and deed delivered.

1. Where the assets of a partnership were transferred to a corporation in exchange for stock thereof, gain or loss resulted to the partners under the Revenue Act of 1918, though the transfer of the assets in exchange for the stock was effected while article 1566, Regulations 45, construing such transfer and exchange not to result in gain or loss to the partners, was in force. 2.

1. Taxpayer in 1914 acquired patent licenses in consideration for promises to pay royalties. Held: no deduction for exhaustion of said licenses since no cost was established. 2. Commissioner disallowed such deduction for 1919 and partially for 1920, and claimed by amended answer an increased deficiency for 1920. Held, under the Revenue Act of 1926, section 274(e), that the deficiency should be increased.

Evidence does not show that any part of the price paid by petitioner for stock is properly attributable to the common stock issued as a bonus with the preferred, and held that the Commissioner did not err in assigning the entire cost to the preferred stock in computing the gain on sales of units consisting of one share of preferred and two of common.

The petitioners held to have been affiliated for the period November 1, 1918, to November 30, 1921.

The 25 per cent reduction provided by sections 1200 and 1201 of the Revenue Act of 1924 is applicable to the tax payable in 1924 shown on returns for 1923 and does not apply to the 1924 tax payable in 1925, in the instance of an individual partner whose 1924 taxable income is made up in part of a share of partnership income for a fiscal year beginning in 1923.

In the absence of proof of cost or of accrued depreciation, claim for loss resulting from demolition and reconstruction of a rental property, is disallowed.

1. Petitioner denied classification as personal service corporation. 2. Officers' salary not authorized, accrued, or paid in taxable years held not deductible.

Petitioner held affiliated with A-B Stove Co.

Evidence held insufficient to show that petitioner is entitled to the deduction claimed for the year 1919.

The cost of stock which by the evidence is shown to be worthless within the taxable year may be deducted as a loss sustained.

Debts held to have been ascertained to have been worthless and charged off in the taxable year.

1. Petitioner, an attorney retained to prosecute an action on behalf of the State of Oklahoma, held not to be an officer or employee of the State to the extent that the amount paid him could not be… Held: such expenses are not deductible.

1. No deduction for the obsolescence of a trade name may be allowed. 2. It was claimed that a valuable trade name was built up over a period of years by advertising. Held: that in the absence of any evidence on which the cost of such advertising may be apportioned between annual expense and cost of building up a trade name, no cost has been established for the trade name and no loss is proven when its use is discontinued, due to prohibition. 3.

Gain upon the sale of stock transferred upon the books of the corporation from the name of the petitioner to that of his children, held to be taxable to petitioner.

1. Petitioner acquired certain properties for cash and capital stock subsequent to March 3, 1917. The determination of the respondent that section 331 of the Revenue Act of 1918 is applicable in the computation of invested capital is not disturbed due to lack of evidence. 2. Cost of properties destroyed by fire determined for the purpose of computing the loss resulting therefrom.

1. Where three members of a partnership composed of a larger number of members, without the knowledge of the other members filed articles of incorporation for the purpose of incorporating a part of… Held: that the partnership was not in receipt of a liquidating dividend. 2. Discovery value determined. 3. Rate of depreciation on tank cars and an oil refinery determined. 4.

1. Amounts received by petitioner in 1919 under agreements with the Navy Department canceling war-supply contracts are taxable under section 301(c) of the Revenue Act of 1918 as income from Government contracts. 2. Value of patents determined.

1. The cost of repairing a drive belt was a proper deduction from gross income under section 214(a)(1) Revenue Act of 1918. 2. Payments made to a hospital, upon condition that the employees of petitioner shall receive hospital service at less than the prevailing rates, are deductible as ordinary and necessary business expenses. 3.

Where a testator by his will created two trusts, one to raise funds to pay an annuity and a second for the benefit of a minor child, and where the only interest of the second trust in the first trust… Held: that the trust for the benefit of the minor child is not entitled to take as a deduction a capital loss incurred by the other trust.

A minor has the right to deduct from her gross income amounts used by her guardian to reimburse a third person who had paid claims of a former guardian, and an administratrix who, under the law of Texas, had the management of her estate.

1. The evidence in these proceedings is insufficient to show that control existed on the part of the petitioner sufficient to warrant affiliation during the period of liquidation of two other corporations the assets of which had been partially taken over by the petitioner. 2.

Petitioner is entitled to return its income from installment sales by the use of the installment method as prescribed by subdivision (d) of section 212 of the Revenue Act of 1926.