Volume 7 — Tax Court Reports

Petitioner was a beneficiary of currently distributable income of a testamentary trust. Held: that the distribution so received is taxable to petitioner in 1940.

Family Partnership. -- Petitioner's wife and four minor children were not partners with him within the meaning of the Internal Revenue Code in conducting the business and earning the income of the Lang Co. during 1941.

In 1941 petitioner, a resident alien, was a creditor of a South African firm. Held: petitioner properly valued the gift in this country, taking into consideration the governmental restrictions imposed upon foreign exchange by the Union of South Africa.

Taxpayer corporation sustained a capital loss of $ 68,575.53 in 1937 as the result of the condemnation by the Mexican Government of the Mexican end of the international bridge at Laredo, Texas, built… Held: the loss should be disregarded by virtue of section 711 (b) (1) (J) in computing petitioner's excess profits net income for 1937, one of the base years involved in the computation of its 1941 excess profits tax liability.

Pursuant to a plan of reorganization, petitioner acquired from a bondholders' protective committee certain depreciable and other assets of an insolvent corporation in exchange for 49 per cent of its… Held: petitioner's basis for depreciation is cost, which is measured by the fair market value of the stock issued for assets and the amount of liabilities assumed.

In 1935 petitioner orally guaranteed the mortgage note of a corporation the stock of which was owned by him and members of his family. Held: the amount so paid is deductible in 1941 as a business loss.

Petitioner, doing business as a sole proprietor in Detroit under the name Equipment Co., furnished money to purchase a factory building and machinery in Indiana, title to which was taken in his… Held: Tri-State's profits for 1941 are taxable to petitioner, whose experience and organization created them, rather than to petitioner's wife, who merely held bare legal title to the tangible assets used.

In 1937 new interests took over the ownership and management of petitioner, which was at that time carrying on a small manufacturing business. Held: that, granting said expenditures carried in this account were capital in nature, they resulted in acquisition of good will, and are not, under the facts, subject to amortization or depreciation. Colonial Ice Cream Co., 7 B. T. A. 154, and F. E. Booth Co., 21 B. T. A. 148, distinguished.

Grantor of trusts of which the corpus was invested in stock of family corporations, of which children were beneficiaries, and of which he was trustee, with broad powers of management and with… Held: taxable on income of the trusts under section 22 (a), I. R. C.

The petitioner in 1941 paid $ 5,456.58 as his share of legal fees and expenses incurred in defending a suit instituted against him and associates… Held: that such expenditures were made both in defense of title to property and for the production or collection of income, and that the portion of such expenditures allocable to the defense of title to property is not deductible, but that the remaining portion thereof is deductible under section 23 (a) (2), Internal Revenue Code.

1. A father and son conducted a business in partnership, commencing in 1936. Held: the three sons were members of the partnership in 1940 and 1941, where they contributed substantial services to the business and the evidence showed a real intention to carry on the business in partnership; held, further, the mother was not a partner, where she performed no substantial services, did not participate in the management…

Attorneys' fees in litigation against petitioner and others to impress trust upon stock, held to have been expended in defense of title and a capital expenditure, rather than being deductible under section 23 (a), as a business or nonbusiness expense; except that a portion of such fees allocable to plaintiff's claim to interim dividends, held further deductible as expenditures connected with the collection of income.

1. Deductions -- Officers' Salaries. -- The amount paid to two officers held deductible under section 23 (a) (1) (A) as reasonable compensation for services rendered. 2.

Prior to the taxable years, petitioner created three irrevocable trusts for the benefit of each of his three minor children. He appointed his wife and a trust company as trustees. Held: that the trust income from the Wheelock Co. stock given to the trusts by petitioner is not taxable to him under section 22 (a) of the Internal Revenue Code.

Petitioners and their wives were not partners, within the meaning of the Internal Revenue Code, in conducting the business and earning the income of Simons-Michelson Co. during 1941.

Petitioner and H corporation were the operators of certain oil and gas properties under an agreement with A and C corporations. At one time the four corporations owned equal interests in the leases.

Where accounting partnership agreement provided for payment to estates of deceased partners of a share in partnership earnings for five years after death of partner, in addition to the payment of all undrawn earnings, and share of work in progress at the time of his death, the partnership being a personal service organization having no considerable capital or tangible property, held, income of partnership earned after deaths of deceased partners and paid to their estates pursuant to partnership agreement is not taxable to surviving partners.

1. Allocation of income between husband and wife determined, where both contributed capital and the husband contributed services to a business enterprise. 2. Held: imposition of negligence penalty not justified.

1. Petitioner and Johnson were partners in the Johnson & Greene construction company. Held: petitioner was taxable under section 22 (a) on the income of the Alliance Co. distributable to the wife in 1941. 2. In 1941 petitioner and his wife received rental income from property which they held in the State of Michigan as tenants by the entireties. Held, petitioner was taxable on only one-half of the rental income.

1. Held, that prior to his death the decedent did not dispose of ownership of certain bonds by valid parol trust, or otherwise, and the value thereof was… Held: that prior to his death the decedent did not dispose of ownership of certain bonds by valid parol trust, or otherwise, and the value thereof was properly included in his gross estate. 2. Real estate taxes, penalties, etc., had accrued and constituted a lien on certain of decedent's property prior to his death.

1. The amount received by petitioner in 1940 for the exclusive and perpetual right to use its trade names in a limited territory held not ordinary income, but proceeds from the… Held: deduction for loss in value of good will occasioned by the National Prohibition Amendment is not provided for by the words exhaustion or obsolescence as used in the income tax laws and is neither allowed nor allowable within the meaning of section 113 (b) (1) (B) of the Internal Revenue Code.

The income of a lumber business held taxable to husband in its entirety where the partnership relation between him and his wife, the latter acting individually and as trustee for their children, was shown to be lacking in reality because capital contributions of wife and trusts originated with the husband, the wife had no voice in control or management, and the services rendered by her were minor.

In 1937 in a nontaxable reorganization under section 77-B of the Bankruptcy Act, the trustees under the will of John Scullin, deceased, exchanged debentures which had a cost basis to them of $… Held: the Commissioner is sustained because the stock purchase warrants had no cost basis to the trustees of the testamentary trust or to petitioners.

Petitioners, husband and wife, acquired in 1923 and 1925 real estate in New Orleans as community property. Held: the property was not held by petitioners primarily for sale to customers in the ordinary course of their trade or business within the meaning of section 117 (a) (1) of the Internal Revenue Code; held, further, that the profit derived from the sales in question is taxable as long term capital gain and not as ordinary income.

Petitioner Mary D. Walsh reported on a calendar year basis. Held: the respondent erred in including in petitioner's income for the calendar year 1939 and in excluding from petitioner's income for the calendar year 1940, any part of the income of the partnership for the period beginning June 1, 1939, and ending July 7, 1939; held, further, the taxable year of the partnership as that phrase is used…

1. Prior to 1932 petitioner, a banking corporation, made mortgage loans on real estate located throughout the United States. Held: that R corporation was no mere sham whose separate corporate entity may be ignored under the rationale of Higgins v. Smith, 308 U.S. 473; that petitioner's basis for gain or loss on the R corporation stock was its original cost as adjusted for subsequent capital contributions and losses availed of in prior-year consolidated returns;…

Interests of donor-petitioner's wife in one trust, of which their son was life beneficiary, and of donor's son in another trust, of which his younger sister and her surviving issue were beneficiaries, held to be substantial and adverse for gift tax purposes, so that the gifts were complete in a prior year, notwithstanding that the respective interests of the wife and son were contingent upon outliving the grantor and respective primary beneficiaries.

Petitioners' decedent, who died May 26, 1941, acquired through the will of his wife, who died August 12, 1937, and named him the executor of her estate and sole legatee… Held: that under the provisions of section 812 (c), Internal Revenue Code, as amended by section 407 of the Revenue Act of 1942, decedent's estate is entitled to a deduction of $ 72,518.12 representing the value of items properly identified as having been received by the petitioners' decedent by inheritance.

Petitioner in 1925 purchased $ 5,000 bonds in corporation A at par. Held: that no loss on the bonds was in fact recognized in the final determination of petitioner's tax for 1936, and under section 112 (1) (2) (A) of the Internal Revenue Code, as added by section 121 of the Revenue Act of 1943, retroactively to include the taxable year, no loss is to be recognized on the 1936 exchange.

Excess Profits Credit. -- Upon the facts, held (1) that petitioner was an acquiring corporation under section 740 (a) (1) (D), I. R. C., read with section 740 (b), (f), and (h), and that it is entitled to an excess profits credit under section 713 and 742, based on income.

1. Burden of Proof. -- The petitioner does not sustain his burden of proof in regard to deductions disallowed or additional items included in his income merely by stating under oath that his returns as filed were correct. 2.

In Louis Stockstrom, 3 T. C. 255, it was held that the income of certain trusts was taxable to the grantor. On appeal this holding was affirmed, but the case was reversed on another point. Held: no change of law or fact justifies a conclusion as to the taxability of the trust income different from that reached in our original decision, which was affirmed by the Circuit Court of Appeals.

Petitioner was donee of a power of appointment under a trust created in 1932, of which she was not a trustee. Held: the amendments of section 1000, Internal Revenue Code, by section 452 (a) and (b), Revenue Act of 1942, do not apply prior to January 1, 1943, to cause such exercise of power of appointment to be deemed transfers of property, and the petitioner was not subject to gift tax either upon income paid to the other beneficiaries by the…

1. Petitioner created two trusts for the benefit of his wife and minor son, respectively. Held: the petitioner is taxable as an individual on the income of the trusts under section 22 (a), Revenue Acts of 1936 and 1938 and the Internal Revenue Code. Ellis H. Warren, 45 B. T. A. 379; affd., 133 Fed. (2d) 312, followed. 2.

Petitioner and his son executed an agreement of partnership under which his minor son agreed to devote his entire time to the business. Held: that petitioner is taxable on the entire income of the business.

1. X corporation owned all of the stock of Y corporation and Z corporation. Its cost as to the Z stock was $ 5,000,000. Held: A, the petitioner herein, formed by the merger of X and Y, is entitled to make such election. 2. An account receivable owing to Z by Y, a solvent corporation of the highest credit rating, is not to be considered as money distributed on the final liquidation of Z. 3.

In 1935 petitioner discovered that an employee had embezzled about $ 65,000 over 1932 to 1935 and an unknown period of prior years. Held: the $ 54,077.47 was properly deducted in 1935. Boston Consolidated Gas Co. v. Commissioner, 128 Fed. (2d) 473; Commissioner v. Wilcox, 327 U.S. 404; McKnight v. Commissioner, 127 Fed. (2d) 572, followed.

1. Petitioner is a corporation engaged in the business of selling, on its own account and as the factory representative of certain manufacturers, all types of rubber goods. Petitioner acquired "factory contract rights" from a partnership under such circumstances that the basis of the "factory contract rights" in the hands of petitioner was the same as their basis in the hands of the partnership. These "factory contract rights" represented contracts which had been entered into between the partnership and various manufacturers of rubber products giving the partnership the exclusive right to sell the manufacturers' products on a favorable commission basis in certain broad territorial areas. Many of the contracts were terminable at the will of the manufacturers. The partnership did not pay any money to the manufacturers for these exclusive sales contracts. A member of the partnership traveled from the partnership's principal place of business in California to the eastern part of the United States, where the manufacturers were situated, personally to secure the contracts. The partnership expended substantial sums for the expenses of these trips, which consisted solely of the partner's traveling, entertainment, food, and lodging expenses. The partnership treated these expenditures as business expenses in the years incurred and took proper deductions for them in the income tax returns which it was required to file. Petitioner has classified these traveling, entertainment, food, and lodging expenses as capital expenditures to the partnership, and has ascribed to the "factory contract rights" a cost basis, for purposes of determining its equity invested capital, equal to the amount of these expenses. Held, that no part of certain traveling expenses entered into the cost basis of "factory contract rights" for purposes of determining petitioner's equity invested capital under section 718 (a) (2) of the Internal Revenue Code. 2. Petitioner was on the reserve method of accounting for bad debts for Federal income tax purposes. During the taxable year petitioner received income attributable to the recovery of a bad debt. There is nothing in the record to show in which year the bad debt had been allowable as a deduction. Held, under section 711 (a) (2) (H), petitioner is not entitled to exclude from its excess profits net income the income attributable to the recovery of the bad debt, since petitioner has failed to show that the deduction with reference to such debt was allowable from gross income for any taxable year beginning prior to January 1, 1940.

An amount paid by the petitioner in the taxable year in part satisfaction of a guarantee given to his sister against loss of an investment in stock purchased from him, held deductible under section 23 (e) (2), I. R. C.

Petitioner, a corporation engaged in the sale of furniture at retail, computed its normal tax net income on the installment basis. It computed its excess profits income on the accrual basis, pursuant to section 736 (a) of the Internal Revenue Code. Held, that petitioner's reserve for unrealized profits on installment sales as of the beginning of the taxable year is not includible in equity invested capital as accumulated earnings and profits within section 718 (a) (4) of the Internal Revenue Code.

Partnership between petitioners and their children for carrying on a manufacturing business not recognized for Federal income tax purposes where the capital contributions of the children originated with the petitioners, the children took no part in the management or control of the business, and the services performed by them were not of vital importance.

The petitioner, a manufacturing corporation, in 1933 paid approximately $ 300,000 on judgments in suits brought by the Superintendent of… Held: that Regulations 109, section 30.711 (b)-2, is not valid basis for the Commissioner's determination that the deductions in 1937 were normal; and that they were abnormal for the petitioner; held, further, that the petitioner has shown, under section 711 (b) (1) (K) (ii), that the abnormality was not a consequence of a change at any…

1. Petitioner created three irrevocable trusts for the benefit of his three minor children, naming his brother as trustee. Trusts were to continue until his two sons reached age of thirty, and until his daughter reached age of thirty-five. Income, after expenses, was to be paid to beneficiaries, and upon termination of trusts they were to receive the corpus. Petitioner reserved the power to direct the accumulation of trust income during minority of beneficiaries; to remove the trustee and appoint a successor; to control trust investments; and as parent of beneficiaries to receive, on their behalf, the net income from trusts. Income received by petitioner for use of beneficiaries during taxable years was deposited in separate bank accounts for each child, and was not used for their maintenance, care, or support. Held, income of the trusts is not taxable to petitioner under the provisions of either section 22 (a) or 167 of the Internal Revenue Code. 2. Amounts paid to two accounting firms for services in preparing income tax returns, keeping books, and taking care of petitioner's office during his absence from country held deductible under provisions of section 23 (a) (2), I. R. C. 3. That portion of income received by petitioner in 1939 for services rendered to corporation prior to becoming a resident of Californiaheld to be taxable as separate income, and the remainder to be taxable as community income.

Petitioner, an attorney at law, owned and occupied, as a residence, property in Kansas City, Missouri, which he abandoned as such and took up his residence in Pittsburgh, Pennsylvania. Held: such property was not a capital asset within the purview of section 117, I. R. C., as amended by the Revenue Act of 1942, and petitioner is entitled to deduct the total loss sustained on the sale, as an ordinary loss under section 23 (e), I. R. C.

Exempt Corporations -- Social Clubs. -- A social club loses its exempt status during years in which it makes large profits from the use of its facilities and services to nonmembers.

Net Loss Carry-over -- Limitation -- Deduction for Depletion -- Section 122 (d) (1). -- Section 122 (d) (1) does not grant a deduction for depletion, but is only intended to limit in certain cases a deduction granted by other provisions of the code.

Valuation -- Annuity Contract -- Life Expectancy Tables -- Physical Condition. -- Standard life expectancy tables are evidentiary only and the physical condition of an annuitant may be considered in valuing an annuity contract.

Upon the evidence, held, Peerless distributed a lease in liquidation to its sole stockholder, Cooper Foundation. Held: Peerless distributed a lease in liquidation to its sole stockholder, Cooper Foundation. Miller Amusement Co. purchased this lease from Cooper Foundation, and not from Peerless.

Petitioner concedes that a part of the income tax deficiency determined for the taxable years 1936 and 1940, in controversy, was due to fraud with intent to evade the tax. Held: the 50 per cent penalty prescribed by section 293 (b), I. R. C., is to be computed on the total deficiency, which is the difference between the amount of the tax liability and the amount disclosed on the return.

Held, on remand, that the respective amounts of petitioners' distributive shares of partnership income allocated by respondent to petitioners' separate… Held: on remand, that the respective amounts of petitioners' distributive shares of partnership income allocated by respondent to petitioners' separate invested capital, community invested capital, and managerial services were reasonable and were the proper amounts attributable to the three sources of partnership income.

Petitioner's basis for depreciation on water mains and curb connections, held, reduced to the extent that the costs therefor are defrayed by unrefunded consumers' deposits, notwithstanding that a portion of such deposits may still, to some unascertainable extent, be subject to refundment. Detroit Edison Co. v. Commissioner (C. C. A., 6th Cir.), 131 Fed. (2d) 619, affd., 319 U.S. 98, followed.

Held, under facts, separation agreement executed by petitioner and his wife, providing for alimony and support of minor child in… Held: under facts, separation agreement executed by petitioner and his wife, providing for alimony and support of minor child in contemplation of divorce and confirmed by state court in subsequent divorce action, fixed periodic payments in terms of an amount of $ 200 per month as a sum payable for support of petitioner's minor child, and…

Property acquired from petitioner's insolvent predecessor in exchange for issuance of all of petitioner's stock to predecessor's unsecured creditors, held, to retain transferor's basis for… Held: to retain transferor's basis for depreciation in petitioner's hands. Revenue Act of 1934, sec. 113 (a) (7).

Petitioner's single payment to bonus and profit sharing trust, for officer-stockholders and limited group of employees, under which employees' benefits are uncertain, held, not deductible under… Held: not deductible under either section 23 (a) or (p), Internal Revenue Code.

Where a physician accumulated charges for his services to a patient over a period in excess of 36 months, payments on account made during the period must be taken into account under section 107 (a), I. R. C., in determining whether compensation received or accrued in one taxable year was at least 80 per cent of the total compensation for services covering the period.

Petitioner was required, under heavy penalties, by an Illinois statute to collect a 3 per cent tax from vendors of oil to it, and remit… Held: the petitioner properly included the 2 per cent retained in its gross income for each of the taxable years; held, further, petitioner is not entitled to accrue an offsetting deduction of an equal amount to the amounts retained, for the reason that it was under no legal obligation in either of the taxable years to make refunds which…

In 1939 petitioner established four trusts and named his wife principal beneficiary in each. Held: the income of the four trusts is not taxable to petitioner, with the exception of that part of the income representing the dividends on the pledged stock.

1. The petitioner in 1929 repossessed real estate from a defaulting lessee who had constructed and paid for a building thereon. Held: that in computing her gain on the sale, no adjustment need be made to the cost basis to reflect the fair market value of the building when acquired in 1929. 2. Petitioner's cost basis of the real estate determined. 3. The petitioner paid taxes and assessments for local improvements on the property involved.

Cancellation of petitioner's indebtedness, representing money borrowed to purchase certain pledged securities, in return for transfer of the securities to pledgee, held not to result in taxable gain, notwithstanding that indebtedness exceeded adjusted basis of securities.

Decedent in 1921, 1924, and 1925 conveyed certain property to three irrevocable trusts, reserving to himself and his wife the income for life, with income payable upon his death and the death of his… Held: the facts show a survivorship case and the value of the corpora of the three trusts at decedent's death is includible in decedent's gross estate under section 811 (c), Internal Revenue Code. Estate of John C. Duncan, 6 T. C. 84, followed.

Substantially all of the properties of corporation A were sold under foreclosure and purchased by the mortgagee. Held: reorganization of the old corporation not shown, so that the basis of the old corporation may not be used by the new for purposes of depreciation on the property.

1. Held, petitioner is entitled to a deduction for depletion on its share of net profits from a lessee's drilling operations on oil and gas leases. Held: petitioner is entitled to a deduction for depletion on its share of net profits from a lessee's drilling operations on oil and gas leases. Kirby Petroleum Co. v. Commissioner, 326 U.S. 599. 2.

In the taxable year petitioner was one of the surviving partners of a law partnership. Held: that the deceased partner's estate was not a partner in the continuing or successor firm and had no right to a share of partnership income, as such; held, further, that the petitioner is taxable upon his distributive share of partnership income, without any deduction for payment to the estate, in the absence of a showing as to what…

Renegotiation Act of 1943, Sec. 403 (e) (2) -- Lack of Jurisdiction. -- Petitioner contends that its 90-day period for filing petition in this Court for a redetermination of excessive… Held: that the determination was made at the meeting of the RFC Price Adjustment Board, within the meaning of section 403 (e) (2) of the Renegotiation Act of 1943; that petitioner's petition was not filed within 90 days thereafter; and that this Court has no jurisdiction over the proceeding.

Petitioner's receipt of gross income from the manufacture and sale of plastic buttons, developed by its own research, held, to entitle petitioner… Held: to entitle petitioner to relief under Internal Revenue Code, section 721 (a) (2) (C), to the extent of the excess over 125 per cent of the average amount of the gross income from all of the same class for four prior years, after deducting direct costs and expenses of deriving such abnormal income, including selling expense.

Section 112 (b) (9), Internal Revenue Code. -- The section does not apply to deny a deduction for a balance due on bonds of a railroad which became uncollectible in 1940.

Deduction -- Depreciation -- Exhaustion of Cost of Canceling a Lease. -- An amount paid by lessor for cancellation of a lease is in the nature of a capital expenditure to obtain possession during the unexpired term of the lease and is to be recovered through annual deductions for depreciation spread over the unexpired term of the canceled lease.

1. Excess Profits -- Abnormal Income -- Attributable to Prior Year -- Sections 721 (a) (2) (C), (a) (1), and (a) (3). -- Income tax net income or loss is not a class under section 721 (a) (2) (C). A part of net abnormal income, if proven, can not be allocated to other years in the absence of proof of some factual justification therefor. 2.

A separation agreement in New York provided for monthly payments by the wife to her husband for life, but was silent as to the… Held: that, under section 51 of the Domestic Relations Law of New York, which provides in part a husband and wife cannot contract * * * to relieve the husband from his liability to support his wife, this separation agreement was not void, and that the payments by the trustee to the former husband relieved the wife of a legal obligation and…

Where trustees paid or permanently set aside 45 per cent of the income of the trust for a charitable corporation in accordance with the instrument creating… Held: the entire amount so paid or set aside is deductible under section 162 (a), Internal Revenue Code, in computing the net taxable income of the trust, even though a large part of the trust income consisted of long term capital gains. Old Colony Trust Co., 301 U.S. 379; Charles F. Grey, 41 B. T. A. 234, distinguished.

1. Upon the evidence, held, petitioner has established under section 722 (b) (4), I. R. C., as amended, that its excess profits tax for the… Held: petitioner has established under section 722 (b) (4), I. R. C., as amended, that its excess profits tax for the three fiscal years ended June 30, 1941, 1942, and 1943, was excessive and discriminatory where its average base period net income was an inadequate standard of normal earnings because during the base period petitioner…

Pursuant to a plan of reorganization adopted under a section 77-B Bankruptcy Act proceeding, the insolvent debtor corporation's property was transferred to two new corporations. Held: that the transaction was a nontaxable reorganization under section 112 (b) (4) and (g) (1) (B) of the 1934 Act, as amended, and that petitioner is entitled to the same basis as its properties would have in the hands of the transferor under section 113 (a) (7) of the 1934 Act.

Under date of March 14, 1944, the respondent requested petitioner to furnish data and information to be used as a basis for renegotiating the amount, if any, of excessive profits… Held: all within the remainder of the year 1944. On March 30, 1945, the Secretary of War made a unilateral determination that $ 100,000 of profits realized by petitioner on its renegotiable business for the said year constituted excessive profits, within the meaning of the Renegotiation Act.

Petitioner separated himself from his wife and failed to provide for her support. Held: that petitioner is not entitled to a deduction under section 23 (u) of the Internal Revenue Code because the payments to his wife were not includible in her gross income under section 22 (k).

1. Income -- Gain from Sale -- Who Was Seller. -- A sale of assets distributed in partial liquidation to trustees for stockholders was made for the stockholders and not for the corporation. 2. Inventories -- Addition to Income Based Upon a Reduction in Opening Inventory. -- No addition to income is proper where wines giving rise to a reduction in opening inventory were distributed in kind to stockholders during the year as a partial liquidation. 3.

Petitioner received alimony from her former husband for her own care and support as well as for the care and support of their minor children. Held: the amount received is includible in the petitioner's gross income. Sec. 22 (k), Internal Revenue Code.

Petitioner, having established its eligibility, elected under section 736 (a) of the Internal Revenue Code to compute, for excess profits… Held: respondent's regulation, in so far as it denies to installment basis taxpayers electing under section 736 (a) any deductions (including deductions for bad debts) on account of pre-1940 sales, is invalid; held, further, petitioner is entitled to a bad debt deduction in the amount of its unrecovered cost of goods represented in the…

Petitioner, a regular dealer in personal property on the installment plan, became qualified at the close of 1942 to elect, and did elect,… Held: respondent's regulation, to the effect that, in adjusting the income of excess profits tax taxable years to conform to the accrual basis, no * * * deductions (including deductions for bad debts) shall be included in the computation of excess profits net income * * * on account of installment sales made in taxable years beginning…

1. Upon the evidence, held, petitioner Worth Steamship Corporation merely managed and operated a certain steamship for the account of three individual joint venturers and was not,… Held: petitioner Worth Steamship Corporation merely managed and operated a certain steamship for the account of three individual joint venturers and was not, therefore, taxable on the net income realized from such operation except for the monthly fee it received as such manager and operator. 2.

Loss of French property located in German-controlled territory when United States entered war and previously expropriated by Vichy Government, also in 1941, held deductible in that year by petitioner, then a resident alien of the United States, either pursuant to I. R. C., section 127 (war losses), or United States v. White Dental Mfg. Co., 274 U.S. 398.

Petitioner, a corporation which kept its books and filed its income and excess profits tax returns on the accrual basis, elected to compute and report the profit on installment sales of… Held: petitioner's anticipated and unreported income from installment sales as of the beginning of the years 1941, 1942, and 1943 is not includible as part of its accumulated earnings and profits in arriving at its equity invested capital within the meaning of section 718 (a) (4), I. R. C.

1. In 1927 petitioners purchased land on which they erected an apartment building. To finance the project they executed their coupon bonds, secured by a first mortgage of $ 350,000 on the property. Held: that gain on disposition of the bonds came within the exceptions of section 117, Internal Revenue Code, and was taxable to petitioners as ordinary income and not as capital gain. 2.

1. Prior to the taxable year, certain land owners entered into oil and gas leases with various oil companies, reserving to themselves a one-eighth royalty interest in the oil produced. Held: such royalties constitute taxable income to the petitioner. 2. Held, attorneys' fees and legal expenses paid in connection with the litigation in the Michigan courts are capital expenditures and not deductible from gross income as ordinary and necessary business expenses.

Petitioner, a resident of Pennsylvania, received an absolute divorce from the bonds of matrimony in Pennsylvania in 1936. Held: that the payments received after the divorce, in 1942 and 1943, pursuant to the agreement, are includible in petitioner's income under section 22 (k) of the Internal Revenue Code.

1. Decedent established a trust for the benefit of his wife as life tenant and his children as remaindermen. Held: the value of the trust corpus at decedent's death is includible in his gross estate under section 811 (d) (2) of the Internal Revenue Code; held, further, that the wife's estate can not be excluded, since no basis was offered for evaluating the possibility of divestment on the remarriage. 2.

Maintenance payments made by petitioner to his wife under a separation agreement not entered into incident to a judicial separation, held, not deductible under Internal Revenue Code, section 23(u). Held: not deductible under Internal Revenue Code, section 23(u).

Annual payments made out of current income from property, in lieu of defaulted annuity payable for purchased life estate therein, held to measure amount and time of deduction for exhaustion of acquired interest, notwithstanding that payments were required to and did continue to be made to vendor's estate after her death.

1. On the facts, held that payments to wife for her support prior to issuance of an order to pay alimony pendente lite are not within section 22 (k), and are not deductible under section 23 (u), I.… Held: that payments of alimony pendente lite are not within section 22(k), and are not deductible under section 23(u).

1. Petitioner, on January 1, 1941, delivered demand promissory notes to its president as compensation for services rendered during 1940. Held: such compensation was not paid within the meaning of section 24 (c) (1) of the Internal Revenue Code and is not deductible as a business expense by petitioner for 1940. 2. Determined that stock of X Co. did not become worthless in 1940. 3. Value of the stock of certain corporations paid petitioner for construction work determined.

In 1929 decedent created, by a single instrument, separate trusts for the primary benefit of his daughter and two sons, and another for… Held: that as to the 1929 trusts for the children, the power to invade corpus in case of sickness or other emergency, even if it was one retained by decedent and not intended solely for a successor trustee, does not amount to a power to alter, amend, or revoke within the meaning of section 811 (d) (2) of the Internal Revenue Code; held,…

Employer corporation created a trust, making itself the trustee, for the declared purpose of creating a fund out of which to pay retired employees a pension. Held: such an arrangement is too indefinite in terms to constitute a pension plan required by the applicable provisions of section 165, I. R. C., as a prerequisite to the exemption of the trust from tax, and no part of the payments made by petitioner to trust during taxable years is deductible under section 23 (p).

1. Where a certificate of overassessment was issued by the Commissioner, but no final statutory closing agreement was entered into between the Treasury Department and taxpayer, the Commissioner was… Held: the proceeds of insurance in excess of $ 40,000 are includible in decedent's gross estate under section 811 (g) of the Internal Revenue Code. Helvering v. Hallock, 309 U.S. 106; Goldstone v. United States (1945), 325 U.S. 687.

1. Petitioner's predecessor operated a retail department store whose assets and liabilities petitioner acquired through a statutory… Held: that petitioner, in the issuance of these merchandise purchase certificates, incurred ordinary and necessary business expenses in the two fiscal years in which such certificates were issued to depositors of the bank; held, further, that, inasmuch as such certificates were not obligations to pay money, but were payable in goods,…

1. In 1940 petitioner purchased a considerable amount of its own bonds at less than their face value. Held: amendment of section 22 (b) (9) of Revenue Act of 1939 made by Revenue Act of 1942 is not retroactive; held, further, the evidence does not establish that petitioner was in an unsound financial condition in 1940, and therefore gain resulting from the discharge of an indebtedness by purchase of its bonds is taxable to petitioner.

Under the authority of Security Flour Mills Co. v. Commissioner, 321 U.S. 281, it is held that petitioner can not deduct in 1935 amounts refunded to customers after January 6, 1936, when the A. A. A.… Held: inapplicable in view of Supreme Court's holding in Security Flour Mills Co. v. Commissioner, supra, and Sanford Cotton Mills will not be followed hereafter.

Petitioner was one of two managing partners in a partnership in California in which his wife and five others were members. Held: the partnership arrangement did not transmute into separate property that part of petitioner's investment which was previously community property; held, further, the amount drawn by petitioner for services and his profits attributable to his community investment acquired after July 29, 1927, are divisible community income, and…

Petitioner's husband died testate in 1941 and left all his estate, consisting of his one-half interest in their community property, to petitioner for her uses… Held: that no trust was created; that all the income from the property left by decedent belonged to petitioner, and in addition she had the right to consume as much of the property itself as might be needed for her comfort and support; and that petitioner is taxable on the income from the property in 1942 and 1943.

Intrafamily partnership transaction held to result in taxable gift under I. R. C., section 1002.

Intrafamily partnership transaction held not to result in taxable gift under Internal Revenue Code, section 1002, upon showing that new partners contributed adequate services and business lacked valuable assets.

The decedent, who died domiciled in Pennsylvania, made bequests to charitable organizations. Held: the bequests are deductible from the gross estate under section 812 (d) of the Internal Revenue Code.

1. Renegotiation -- Limitation Period -- Section 403 (c) (5). -- Section 403 (c) (5) does not require the Secretary to send a written notice fixing a date and place for an initial conference where renegotiation had actually begun and the initial conference had been held before the contractor, after request, filed statistical data for the period involved in the renegotiation. 2.

Petitioner was the sole trustee of trusts set up by her husband. Held: petitioner is taxable under section 22 (a) on all of the trust income, whether or not she distributed all of the income to herself. Mallinckrodt v. Nunan, 146 Fed. (2d) 1, and Stix v. Commissioner, 152 Fed. (2d) 562, followed.

Petitioner issued contracts of insurance under which railroad employees were insured against loss of their jobs through retirement or discharge. Held: the amounts in the reserves constituted unearned premiums within the meaning of section 204 (b) (5) of the Revenue Act of 1938 and the Internal Revenue Code, and the increases therein during the taxable years are not to be included in gross income.

Where a trust created in 1918 by the decedent contained a power in decedent to terminate the trust, cutting off the remainder interest, upon the request of the life beneficiaries, held: (1) The value… Held: The value of the remainder interests transferred were includible in decedent's gross estate under section 811 (d) (2), I. R. C. (2) The application of said section does not infringe the due process clause of the Fifth Amendment.

Fees paid by a partnership to attorneys for services rendered in connection with securing the release of a partner from the armed forces to enable such partner to resume active management of the… Held: not deductible business expense.

On the evidence, held: (1) Respondent is affirmed in taxing the net income for 1939, 1940, and 1941 of Packard Berk, an alleged partnership consisting of decedent… Held: Respondent is affirmed in taxing the net income for 1939, 1940, and 1941 of Packard Berk, an alleged partnership consisting of decedent and his wife, to decedent. (2) Respondent is affirmed in his similar action as to the net income of Berk Finance Co., an alleged sole proprietorship of the wife of decedent.

1. Allocation of income between husband and wife determined, where both contributed capital and the husband contributed services to a business enterprise. 2. Held: imposition of negligence penalty not justified.

Res Judicata. -- The Commissioner, having won income tax cases upon a finding that there were no completed gifts made by the petitioners to their wives by a transaction of October 1, 1940, can not be heard to say in a gift tax proceeding involving the same parties that there were valid completed gifts made in those transactions.

Petitioner and Lee, the owner of a mining concession in Mexico, entered into an agreement whereby the latter assigned to petitioner the privilege of developing the property for a period of nine… Held: payments made to Lee during the taxable years are excludible from petitioner's gross income.

Petitioner, a woman without business training or experience, owned an office building and other real estate rented to tenants and, in addition thereto, a 25 1/2 per cent interest in a partnership… Held: these payments for such services constituted ordinary and necessary business expenses, deductible by petitioner under section 23 (a) (1) (A), I. R. C.

Issue 1. -- Held, that advance payments by the Government to petitioner under contracts for the manufacture and delivery of machinery were not outstanding indebtedness evidenced by a bond within section 719 (a) (1) of the Internal Revenue Code and were properly excluded from borrowed capital for purposes of computing the excess profits credit under section 712 (a). Issue 2. -- Held, that a reasonable salary allowance for petitioner's president was the entire sum deducted.

Advance payments made to petitioner by War Department, pursuant to terms of construction contracts and not evidenced by formal bond, note, mortgage, etc., held, not borrowed invested capital for excess profits tax computation under Internal Revenue Code, section 719.

Petitioner, devisee of an interest in income-producing building erected prior to decedent's death by lessee, held, entitled to deduct her… Held: entitled to deduct her share of total depreciation on building, based upon value of building at date of decedent's death, notwithstanding that building may have cost decedent nothing and was occupied under lease which extended beyond useful life of building, and lessee was under obligation, upon expiration of lease, to yield up…

Gift Tax -- Gift of Trust Income Taxable To Grantor. -- Where income of a trust is realized by the trust so that it is impressed with the trust as it arises, it does not represent a gift from the grantor, even though it is taxable to him.

Separate agreements under which each of her four children agreed to make future payments to the petitioner during her lifetime were made… Held: on the evidence, petitioner realized no taxable gain for the taxable year, whether the transaction be treated as the purchase of an annuity by petitioner and so taxable under section 22 (b) (2), I. R. C., or as a sale or exchange of securities and so taxable under section 111 (a) and (b), since the fair market value of the annuity…

1. Petitioner had a net operating loss in 1940. For 1941 petitioner took a deduction for percentage depletion. Held: in converting the net operating loss carry-over from 1940 into a net operating loss deduction for 1941, under section 122 (c) of the Internal Revenue Code, the carry-over from 1940 must be reduced by an amount equivalent to the deduction taken by petitioner in 1941 for percentage depletion. 2.

Deficiency -- Computation Under Section 271 (a) -- Credit or Refund. -- The amount of tax shown on the return should be decreased, pursuant to section 271 (a), by the amount actually credited under section 3806 (b), I. R. C., in a closed renegotiation of excessive profits, even though, through fault of the taxing authorities, the amount credited was erroneously computed.

Petitioner's excessive profits for 1942 held, on record, to be the amount originally determined by respondent, petitioner not having sustained its burden of proving that respondent erred in his original determination, and respondent not having sustained his burden of proving, as alleged in his answer, that petitioner had additional excessive profits for the year in question.

Reorganization -- Section 112(g)(1)(B) -- Solely for Stock. -- Where a corporation issues all of its stock for assets of another corporation, it meets the test of "in exchange solely for all or a part of its voting stock" even though a part of the cash of the transferor company has been used to give a nonassenting equity holder his interest in the assets of the transferor.

1. Petitioner and its 250 or more subsidiaries elected under section 730 of the Internal Revenue Code to file a consolidated excess profits tax return for the calendar year 1940. Held: the Commissioner also properly equalized the premium deductions with premium income in the base period years, thereby eliminating the effect of intercompany credit insurance transactions upon consolidated net income for the base period. 2.

In 1941 the petitioners were members of a partnership which was engaged in the manufacturing business and which occupied, under a term lease, premises owned by the mother of three of the petitioners. Held: that the entire rental paid for 1941 is deductible.

The petitioner, a citizen of the United States, went to Greenland in March 1942 to work as a mechanic under a contract for not more than a year, but intending to stay until the job was completed and… Held: on the facts, that he was not during 1943 a bona fide resident of Greenland, within the purview of section 116 (a) of the Internal Revenue Code, as amended by section 148 (a) of the Revenue Act of 1942.

1. Petitioner Michael Downs, a citizen of the United States, went to the British Isles in 1942 as an employee of Lockheed Overseas Corporation, to do mechanical work… Held: on the facts, that petitioner was not during 1943 a bona fide resident of a foreign country or countries within the meaning of section 116 of the Internal Revenue Code as amended by section 148 (a) of the Revenue Act of 1942, and the salary which he received from Lockheed is not exempt from taxation.

Petitioner, as lessor, executed a ground lease upon certain property, under the terms of which the lessee was obligated to erect a building to cost not less than $ 3,000,000, the lessor being… Held: the lessor had a capital investment in the building in the amount of its contribution to its cost, upon which it was entitled to depreciation over the useful life of the building.

The petitioner, in calculation of excess profits tax for 1942, because of a strike in 1937 reconstructed income for that year under section 722, Internal Revenue Code; and, under section 713 (e) (1),… Held: no error by the Commissioner shown in not allowing additional relief.

Prior to August 1940 petitioner purchased tobacco for H. Duys & Co., in Holland and the Dutch East Indies, on a commission of 3 per cent of purchases, plus an annual salary of $ 10,000. In August 1940 petitioner and Duys entered into a new contract providing for the payment of the sum of 3 per cent commission and $ 10,000 salary, plus a bonus of 25 per cent of the net profit on the sales of tobacco bought by the petitioner and sold by Duys; Duys, however, to have a credit thereon of the amount of the 3 per cent commission on purchases. The amount of net profit -- and hence the amount of petitioner's bonus -- was to be established after the closing of Duys' books on March 31, 1941. Petitioner was a nonresident alien until March 8, 1941, when he became a resident alien, subject to tax under Regulations 103, section 19.212-1. Held, that the amount of the bonus finally determined to be due to petitioner did not become his income until March 31, 1941, and hence, as a resident alien he was subject to tax thereon.

Deductions -- Bad Debts -- 'Certificate of Indebtedness Issued by a Corporation in Registered Form -- Section 23 (k) (3). -- Installment investment certificate in a California building and loan association held to be a certificate of indebtedness issued by a corporation in registered form within the meaning of section 23 (k) of the Internal Revenue Code.

Petitioner became a member of a partnership in 1908. Held: that the holding period of the capital asset, for the purpose of applying the percentage rate specified in section 117 (a) of the Revenue Act of 1936, is to be measured from the date of the acquisition of the partnership interest and not from the date or dates of acquisition by the partnership of the specific partnership assets;…

1. Corporation A was the wholly owned subsidiary of corporation B. B owned a half interest in a mining claim upon which a mine was located, also a… Held: the dump was not a mine to either corporation, under section 23 (m) or section 114 (b) (4), Internal Revenue Code, and they were separate entities, and A is not entitled to deduction of depletion on its net income from operating the dump, and B is not entitled to deduction of depletion on the royalties received from A. 2.

A so-called contract completion discount which petitioner agreed to allow to its customers upon acceptance of delivery of the tonnage of potash contracted for, held, accruable as an incurred expense and allowable as a deduction only to the extent applicable to contracts completed in the taxable year by acceptance of delivery of the entire tonnage contracted for.

1. Where a certificate of overassessment was issued by the Commissioner, but no final statutory closing agreement was entered into between the Treasury Department and taxpayer, the Commissioner was… Held: the proceeds of insurance in excess of $ 40,000 are includible in decedent's gross estate under section 811 (g) of the Internal Revenue Code. Helvering v. Hallock, 309 U.S. 106; Goldstone v. United States (1945), 325 U.S. 687.

Where the Commissioner has disallowed a deduction from income for a portion of payments made by a corporation which were designated rent, this Court may inquire as to what… Held: that the effect of the community property law may be taken into account in considering the parties in interest in the corporation dividends and the real property rentals; held, further, that $ 9,600 of said rent was in reality a distribution of dividends to the principal stockholder and his wife.

Petitioner, a citizen of the United States, went to the British Isles in 1942 as an employee of Lockheed Overseas Corporation to do work… Held: that petitioner was not a bona fide nonresident of the United States for more than six months in the year 1942 within the meaning of section 116, I. R. C., and the compensation which he received for his overseas service in 1942 is not exempt from taxation; held, further, that petitioner was not during 1943 a bona fide resident of a…

1. Excess Profits -- Base Period -- Abnormal Deductions in Base Period -- Consequence of an Increase in Gross Income -- 711 (b) (1) (K) (ii), I. R. C. -- The respondent's argument, that a deduction… Held: that the abnormality in bad debt deductions due to the worthlessness of those loans was not a consequence of an increase in the gross income of a base year.

In 1938 the petitioner created a trust under the terms of which the net income was payable to her husband for a period of six years. Held: following James A. Hogle, 7 T. C. 986, that the transfers in 1938 and 1939 were completed taxable gifts when made, notwithstanding the trust income was taxed to the settlor from 1938 to 1941 under the Clifford rule; (2) that the value of the 1941 gift is the value of the right to receive, during the donee's life, $ 3,000 per year…

In the determination of the deficiencies involved in this proceeding the Commissioner added to petitioner's gross income certain payments which… Held: that, in a computation of the deficiencies under the mandate of the Court, not only the payments in question should be excluded from petitioner's gross income, but the percentage depletion hitherto allowed petitioner in the computation of its tax liability for the respective taxable years should be revised so as to omit any…

1. Petitioner, in 1940, agreed to exchange his stock in M corporation, and a cash payment in an amount to be determined by accountants according to an agreed formula, for all the capital stock of two… Held: petitioner is taxable in 1941 on account of the receipt of the $ 8,000 payment in that year to the extent that he benefited tax-wise in 1940 from the erroneous use in that year of the higher basis. 2.

In 1934 and 1935 petitioner created trusts in which a bank was named trustee and petitioner's only daughter was the beneficiary. Held: that the trust income is not taxable to petitioner under either section 167 or section 22 (a) of the Internal Revenue Code.

1. Interest payments owing by accrual basis taxpayer which were not likely to be paid because of petitioner's financial condition, held, on the facts, not… Held: on the facts, not allowable deductions, Zimmerman Steel Co., 45 B. T. A. 1041, notwithstanding that a different ground for the disallowance was specified by respondent in the statement attached to the notice of deficiency. Edgar M. Carnrick, 21 B. T. A. 12, and Raoul H. Fleischmann, 40 B. T. A. 672, followed. 2.

Family Partnership. -- Petitioner's unmarried sister was not a partner with him, within the meaning of the Internal Revenue Code, in conducting the business and earning the income of the Fletcher Oil Co.

1. Petitioner transferred property in trust. The trustee was to pay certain annuities to her children and the balance of the income was to be paid her for life. Held: that for the purpose of determining gift tax liability the value of the property transferred can not be reduced by the amount of the gift tax so paid. 2.

1. In September 1940 petitioner made a bid to E. I. du Pont de Nemours Co. for excavating certain kinds of dirt on a United States… Held: that the withdrawal of petitioner's associates from the venture constituted a closed transaction; held, further, that $ 313,195.98 carried on its books as deferred income and realized from the venture by the petitioner constituted income of petitioner in the taxable period; held, further, that, the petitioner having performed the…

Deductions. -- (1) Remaining useful life of construction equipment determined for purposes of depreciation. (2) Cost of cattle sold and profits and losses on sale thereof determined. (3) Amount irrevocably contributed by a certain partnership to a pension trust for selected employees and constituting, together with regular compensation paid, reasonable compensation for services actually rendered, held deductible business expense under section 23 (a), I. R. C.

Petitioners had conducted a business of manufacturing tools and gages in partnership since 1935, beginning with small capital. Held: that the wives did not contribute any capital originating with themselves to the business; that since no capital or services were contributed by the wives, they can not be recognized as partners of petitioners for income tax purposes; and that no real change was effected in the composition of the original partnership of which only…

Decedent in 1936, 1937, and 1938 made outright gifts to his son of shares of stock in a corporation of which he was president, for the… Held: further, the transfer of stock to the trusts for decedent's wife and daughter were made in contemplation of death, and the corpora of the trusts are also includible in the gross estate under section 811 (c) and (d), I. R. C., since until his death decedent might, by his will, have altered or varied the enjoyment of both the income…

Held, on the facts, that gifts of cash and securities to three minors by their grandfathers were outright and not in trust, and the income from the gift properties is the individual income of the… Held: on the facts, that gifts of cash and securities to three minors by their grandfathers were outright and not in trust, and the income from the gift properties is the individual income of the minors, to whom it is properly taxable.

1. Deductions. -- (1) Cost of cattle sold, and profits and losses on sale thereof. (2) Remaining useful life of construction equipment, determined for purposes of depreciation. Held: further, that amounts contributed by one partnership to the pension trust for benefit of nonemployees are not deductible. 2.

Petitioner was employed from 1924 to 1929 as a superintendent of construction, receiving a fixed salary, and, on each project he bid and supervised, 10 per cent of the net profits thereof. Held: petitioner may not apply section 107, I. R. C., in computing his tax for 1941 with respect to the $ 30,000 payment.

Income -- Final Unused Balance in a Reserve for Bad Debts. -- Part of a final unused balance in a reserve for bad debts which was built up by deductions which did not offset income is not taxable as income.

1. In 1920 decedent joined with her three children in the creation of a trust, contributing one-half of the corpus. Held: that one-half of the value of the corpus at the time of the decedent's death is includible in her gross estate, under section 811 (c) of the Internal Revenue Code, as a transfer intended to take effect in possession or enjoyment at or after her death. 2.

The petitioner was organized as a corporation in 1925. Held: that the fair market value of these shares of stock is not includible in petitioner's equity invested capital under the provisions of section 718 of the Internal Revenue Code.

The decedent, in a declaration of trust, reserved power at any time by instrument, or instruments, in writing to change beneficiaries entitled to receive corpus. Held: the exercise of the power did not exhaust it, so that decedent at death had power to alter, amend, or revoke the trust, under section 811 (d) (2), Internal Revenue Code.

In 1928 petitioner and 3 other corporations organized a new corporation (Export) for the principal purpose of engaging in export trade. Held: petitioner had a right under an implied agreement on the part of Export to reimbursement from Export for the amount paid by petitioner under its guaranty and, Export being solvent, petitioner was not entitled to deduct in the taxable year any part of the amount so paid as either an ordinary and necessary business expense or as a loss.

In the petitioner's claim for relief under section 722, Internal Revenue Code, the constructive average base period net income was computed by the use of the formula or rule set forth in section 713 (f). Held, that the petitioner failed to establish that the tax computed without benefit of section 722 resulted in an excessive and discriminatory tax, or to establish what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income, and claim for refund was properly denied.

1. A coal mining company, having elected the percentage method of computing its depletion allowance, in 1940 received income from the sale proceeds of discarded mine equipment and discounts because… Held: not to be gross income from the property within the meaning of section 114 (b) (4) (B), Internal Revenue Code, as amended by section 124 (c), Revenue Act of 1943. 2.

Petitioner was the owner of a tract of land, and a six-story building thereon, in Denver. Held: that petitioner's stipulated depreciated cost basis in the building and certain costs of obtaining the lease are amortizable over the term of the lease. Amortization of other expenses denied.

The decedent in 1930 transferred certain property in trust, retaining the income for life, with remainder to his five children and their issue per stirpes. Held: that the value of the trust corpus, as of his death, is not to be included in the gross estate of decedent for estate tax purposes under section 811 (c) of the Internal Revenue Code.

1. On March 15, 1940, petitioner received from its Canadian subsidiary a dividend, the entire amount of which constituted net abnormal income. Held: the amount of the dividend in excess of $ 10,350.94 represented net abnormal income attributable to prior taxable years excludible from gross income for excess profits tax purposes under the provisions of section 721 (c), I. R. C. 2.

A corporation, of which the petitioner was the sole stockholder, redeemed shares of its preferred stock during each of the years 1938 to 1941, inclusive. Held: that the stock redemptions in the taxable years were essentially equivalent to the distribution of taxable dividends.

Whether distributions made to petitioner in 1940 were in partial or in complete liquidation of a corporation is a question of fact. Held: that the distribution made in 1940 to petitioner as a stockholder of Corporation C was in complete liquidation and taxable as a long term capital gain under section 115 (c), Internal Revenue Code.

In the taxable years petitioner was one of two managing partners in a Washington partnership, of which his mother, his two brothers, and… Held: that there has been no such commingling of separate property with community property as to make petitioner's entire capital interest in the partnership the community property of himself and wife; that petitioner's capital investment in the partnership is part separate and part community; that petitioner's salary is community income;…

1. Decedent, who died in 1940, irrevocably assigned and transferred to his wife in 1935 insurance policies taken out by him on his own life. Held: under the facts, that the policies were transferred in contemplation of death within the meaning of section 811 (c) of the Internal Revenue Code and are includible in decedent's estate. 2. The value of a certain apartment building determined. 3.

1. The father of petitioners died in 1929, leaving a will in which he named petitioner William C. Chick as executor and also trustee of… Held: decedent's estate was not in process of administration in the taxable year and the net income was taxable to petitioners, as the Commissioner has determined. 2. Liquidating distributions were made pursuant to a plan of liquidation which was to be completed at a time specified within three years from the date of the first distribution.

Petitioner's decedent died leaving a will which, after providing for the payment of certain legacies and all his debts, devised and… Held: that the amount of the income received by the executor during the taxable year which would go to the remaining beneficiaries of the trust was not deductible from the income of the estate as income to be distributed currently under section 162 (b), I. R. C.; held, further, that the income derived during the taxable year from the…

In determining, for purposes of applying the nonrecognition provisions, whether interests of petitioner's transferors in stock and securities received were substantially in proportion to their… Held: further, on the facts, the interests were substantially proportionate, and, no gain or loss being recognizable, petitioner's basis is that of its transferors, under Internal Revenue Code, section 113(a) (8).

Petitioner is an association of employers. Its primary purpose was to advance and maintain the open shop principle in industry. Held: under the facts, petitioner is a business league and, as such, is exempt from paying income taxes by virtue of section 101 (7) of the Internal Revenue Code.

Petitioner paid income tax in the Dominion of Canada on $ 20,000 received under a testamentary trust whose terms constituted such annual payment a legacy, as construed by the United States courts ( Burnet v. Whitehouse, 283 U.S. 148). However, such payment was held to be income by the Canadian taxing authorities. Petitioner is not entitled to a credit for such tax so paid under the provisions of section 131 (a) (3), Internal Revenue Code.

Held, under applicable sections of the Trust Estates Act of Louisiana, identical with provisions of The Uniform Principal and Income Act,… Held: under applicable sections of the Trust Estates Act of Louisiana, identical with provisions of The Uniform Principal and Income Act, trustees of a testamentary trust properly charged to income interest paid by them on an estate tax deficiency, and currently distributable income taxable to trust beneficiaries is reduced accordingly.

Taxpayers, husband and wife, filed their separate returns on the calendar year basis. Held: that, the partnership having been completely terminated on May 31, 1941, the period from April 1 to May 31, 1941, is a taxable year and, since the right to his distributive share of the partnership net income earned during such period accrued to the husband on May 31, 1941, one-half of such distributive share is includible in the…