Volume 70 — Tax Court Reports

Petitioner, a private foundation, incurred expenses attributable in part to its investment activities and in part to its making distributions to public charitable, educational, and scientific organizations. Held, only the investment-related expenses are deductible in calculating net investment income under sec. 4940, I.R.C. 1954.

Petitioner, a private foundation under sec. 509(a), I.R.C. 1954, maintained a house with historic attributes. Its sole income was from interest and it had no expenses connected with such income. Held: maintenance expenses and taxes in respect of such house are not deductible in computing petitioner's net investment income upon which the 4-percent excise tax under sec. 4940(a), I.R.C. 1954, is imposed.

Petitioners allege that various procedural irregularities invalidate the deficiency notice sent to the individual petitioners and a revocation of exemption letter sent to the corporate petitioner. Held: Except in rare and exceptional circumstances involving allegations of extraordinary misconduct, this Court will not go behind a deficiency notice or a revocation letter to examine allegations of procedural irregularity. Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974) followed. Despite allegations of numerous mechanical errors in procedure, this Court's inquiry is limited to determining, on the basis of stipulated delegation orders, that an appropriately authorized individual acted on respondent's behalf.

In 1973, petitioner, a common-law employee, received a lump-sum distribution from a qualified pension plan. Held: for the taxable year 1973, petitioners' election to income average pursuant to secs. 1301 through 1305 precluded their election, in the same taxable year, of the special averaging provisions of sec. 72(n)(4) relating to the income tax treatment of the ordinary income elements of lump-sum pension fund distributions paid to common-law…

Petitioner, a wholly owned subsidiary of B, was a shell corporation with no business activity. Held: the transaction does not qualify as a (B), (E), or (F) reorganization and, accordingly, pursuant to sec. 381(b)(3), petitioner is not entitled to carry back a post-reorganization net operating loss to a taxable year of T.

In 1972 decedent died of cancer at age 84 after an extended illness of more than 3 years. During the last 3 years of his life, he had made charitable contributions aggregating $ 203,500. Held: Decedent made the charitable contributions in contemplation of death and they are includable in his gross estate pursuant to sec. 2035, I.R.C. 1954, although they are at the same time deductible as charitable transfers under sec. 2055.

The stock of an orchard farm corporation was owned 85 percent by H's father, 5 percent by H, and 10 percent by his brothers. The mortgage on the orchard property was foreclosed by the bank. Held: Under the attribution rules of sec. 267(c)(2), I.R.C. 1954, as limited by sec. 179(d)(2)(A), H owns both his and his father's stock.

Petitioner, a cash basis taxpayer, contested the amount of sewer service charges, resulting from his trailer court business, which were… Held: Petitioner has satisfied the requirements of neither sec. 461(f)(2), since there has been no completed transfer of money or property in satisfaction of the sewer service charges, nor sec. 461(f)(4), since his failure to pay those charges would result in a denial of a deduction even apart from the contest over the amount of liability.

Mining process of the mineral "Seneca Standard" tripoli determined.

1. In 1970, P's husband sold an undivided life interest in real property and arranged to have the proceeds transferred to P. Held, P is liable as a transferee for her husband's income taxes for 1964… Held: P is liable as a transferee for her husband's income taxes for 1964 through 1966 to the extent of the proceeds transferred to her. 2. In 1973, P's husband, who owned 49.8 percent of the stock of Scott Roofing, arranged for Scott Roofing to redeem his stock.

Corporation A and corporation B were each wholly owned by S. Corporation A was the principal purchaser of corporation B's production. Held: the steps taken by the parties, including the liquidation of corporation B, were integral steps in a plan of reorganization described in sec. 368(a)(1)(D), I.R.C. 1954, and the distribution to S is taxed under sec. 356(a), I.R.C. 1954.

Petitioner was organized on June 21, 1960, for the purpose of becoming the owner of the real property and equipment used by D in his business. Held: The stock exchange and the asset acquisition were in substance parts of a single integrated transaction involving the formation and capitalization of the corporation. The demand notes were securities and the direct issuance of stock to D's wife and children did not deprive D of control immediately after the exchange.

P, who then practiced law alone, established a qualified retirement plan to which he made contributions on his own behalf. Subsequently, he joined a partnership for the practice of law and received a premature distribution of his interest in such plan. A new qualified retirement plan was established by the partnership, and contributions were made on behalf of P. Held, under sec. 401(d)(5)(C), I.R.C. 1954, P was prohibited from participating as an owner-employee in a qualified retirement plan for 5 years succeeding the year of the premature distribution, and as a result, he was not entitled to deduct the contributions during such period.

Petitioner is a farm cooperative and determines its income taxes under subch. T. It conducts four activities: a broiler pool, a turkey pool, a regular pool, and a taxable activity. Held: petitioner's broiler pool incurred a net operating loss during the years in question. Associated Milk Producers, Inc. v. Commissioner, 68 T.C. 729 (1977), followed.

A major portion of the assets of petitioner corporation's profit-sharing trust were lent to an employee, a trustee, and the corporation. Held: the profit-sharing trust is not qualified. Held, further, petitioner corporation did not comply with the substantiation requirements of sec. 274 with respect to use of an apartment, meals, or the travel expenses in issue. Held, further, these amounts constitute dividends to the shareholders benefiting therefrom.

Petitioner acquired 100 percent of the stock of S from I and immediately liquidated S. Held, petitioner did not acquire the S stock by purchase within the meaning of sec. 334(b)(3), I.R.C. 1954, and is therefore not entitled to a stepped-up basis under sec. 334(b)(2) in the assets it received upon liquidation of S. Held, further, in a liquidation of a subsidiary which meets the requirements of sec. 332, the basis of the assets thus received is determined under sec. 334(b)(1) unless the exception provided by sec. 334(b)(2) applies.

Petitioner is an organization described in sec. 501(c)(3), I.R.C. 1954. Its trustee has authority to substitute new charitable beneficiaries for the named beneficiaries if the trustee determines that the original charitable uses have become "unnecessary, undesirable, impracticable, impossible or no longer adapted to the needs of the public." Held, petitioner is a private foundation, not an organization described in sec. 509(a)(3), I.R.C. 1954, because the trustee's power of substitution is not conditioned upon an event which is beyond its control as required by the organizational test, sec. 1.509(a)-4(d)(4), Income Tax Regs.

Petitioners lent corporate stocks to a corporation (Command) in which they owned a minority interest to be used as collateral by Command to borrow funds from… Held: sec. 212(2), I.R.C. 1954, as amended, and sec. 1.212-1(k), Income Tax Regs., permit deductibility of the attorney's fees relating to recovery of the stocks. Petitioner husband paid attorneys for advice as to a possible conflict of interest as a securities broker and his participation in lending stock to Command.

London's sec. 1244 plan failed to specifically state, in terms of dollars, the maximum amount to be received for stock issued under the plan. Held: petitioner's London stock is not sec. 1244 stock and therefore petitioners are not entitled to an ordinary loss under sec. 1244, I.R.C. 1954, for their worthless stock. Sec. 1.1244(c)-1(c), Income Tax Regs., followed.

Petitioner's pension plan does not provide for vesting of benefits for participants who have completed 1,000 hours of service during a 12-month period nor does it adopt the service spanning rules… Held: the Secretary of Labor was authorized to issue 29 C.F.R. sec. 2530.200b-1(b) (1977), and such section is valid and pursuant to the intent of Congress.

Petitioner established trusts for the benefit of members of his family, with a bank as trustee. Held: Petitioner is entitled to report the gain on the sale of the securities to the trusts on the installment method of accounting under sec. 453, I.R.C. 1954. In consideration of all the evidence, the transaction was a bona fide installment sale.

1. A portion of the 2-percent initial service charges or finance fees paid to mortgage bankers who loaned the construction money in FHA take-out loans was compensation for the use of money, or interest. The balance was payment for services. 2. The initial service charges or finance fees were paid in the year the borrowers delivered checks in amounts thereof to the lenders although most of the funds were obtained from advances on the mortgage loans.

Decedent (D) and his wife (W) entered into a separation agreement on January 7, 1960, under which D agreed that at death he would devise and… Held: W's claims against D's estate for life insurance proceeds and a life estate in a testamentary trust are founded on a promise or agreement so that their deductibility is limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. Sec. 2053 (c)(1)(A), I.R.C. 1954.

Petitioner sought child care deductions under sec. 214 for expenses which enabled her to be gainfully employed. Held: the children are not qualifying individuals within the meaning of sec. 214(b)(1) thereby precluding the deduction of any child care expenses under sec. 214.

Petitioner, a citizen of Pakistan, entered the United States in 1973 under an F-1 visa as a nonimmigrant student. Held: petitioner is not entitled to exclude from U.S. taxation $ 5,000 of income earned in the United States during 1974 under the income tax treaty between the United States and Pakistan because (1) petitioner was not a resident of Pakistan for treaty purposes, and (2) he was not temporarily present in the United States solely as a…

Held, amounts expended by Greer's employer on behalf of Mrs. Greer for the purpose of transporting her in the corporate airplane are excluded from petitioners'… Held: amounts expended by Greer's employer on behalf of Mrs. Greer for the purpose of transporting her in the corporate airplane are excluded from petitioners' gross income by sec. 105. Held, further, for the purposes of sec. 1251Greer was engaged in the trade or business of farming during the taxable years in issue.

Puna expended certain sums in priming three fields for the cultivation of sugar cane. Held: such amounts are not deductible under sec. 175 as expenditures incurred for the purpose of soil or water conservation.

Petitioner formed a partnership with one Thurman to construct FHA-financed housing on property owned by petitioner. Held: petitioner's transfer to the partnership of his property constituted a contribution to capital, treated as a nonrecognizing transaction under sec. 721, and not as a taxable sale to the partnership under sec. 707.

Petitioner James Alex, an agent selling life insurance on a commission basis, paid rebates or gave discounts to purchasers of policies. Held: since petitioner was not the seller of the insurance, the rebates or discounts are not adjustments to the purchase price excludable from gross income but deductions from gross income precluded by sec. 162(c), I.R.C. 1954. Schiffman v. Commissioner, 47 T.C. 537 (1967), overruled.

In 1967, petitioners acquired most of the stock of Keystone which qualified as section 1244 stock under sec. 1244, I.R.C. 1954. Held: The KMS (N.Y.) stock received by petitioners pursuant to the merger of KBSI into Micro-Scan was not section 1244 stock since such stock was not received as a stock dividend or pursuant to a reorganization under either sec. 368(a)(1)(E) or sec. 368(a)(1)(F), I.R.C. 1954, as required by sec. 1244(d)(2), I.R.C. 1954.

T is a corporation which plans as its sole activity to offer consulting services for a fee to nonprofit, limited resource organizations engaged in various rural-related activities. Held: the Commissioner did not err in determining on the basis of facts contained in the administrative record that T does not operate exclusively for charitable, educational, or scientific purposes as required by sec. 501(c)(3).

Held, a temporary order by a Wisconsin court under sec. 247.23, Wisconsin Statutes Annotated, providing for temporary alimony, child support, and payment of debts does not cause the parties thereto… Held: a temporary order by a Wisconsin court under sec. 247.23, Wisconsin Statutes Annotated, providing for temporary alimony, child support, and payment of debts does not cause the parties thereto to be legally separated within the meaning of sec. 143(a)(2), I.R.C. 1954.

Held, interest expense cannot be netted against interest income to determine gross receipts from interest within the meaning of sec. 1372(e)(5)(B), I.R.C. 1954. Held: interest expense cannot be netted against interest income to determine gross receipts from interest within the meaning of sec. 1372(e)(5)(B), I.R.C. 1954.

In 1970, A, a corporation owned by petitioner, acquired title to Blackacre and subsequently conveyed it and Whiteacre (which it owned) to Y… Held: 1(a). A, which was a disqualified person with respect to S, engaged in an act of self-dealing within the meaning of sec. 4941, I.R.C. 1954, on the sale of Whiteacre to Y. 1(b). A held title to Blackacre as a nominee for Y and therefore the conveyance of such property to Y did not constitute an act of self-dealing. 2(a).

Held: 1. Amount of deduction determined for charitable contributions in excess of that allowed by respondent. 2. Held: Amount of deduction determined for charitable contributions in excess of that allowed by respondent. 2. Cost of repairs method for establishing the amount of a casualty loss under sec. 1.165-7(a)(2)(ii), Income Tax Regs., is satisfied by actual repairs and expenditures but not by an estimate.

Petitioner made monthly payments of alimony pursuant to a decree of divorce dated Dec. 18, 1970, which commenced Jan. 15, 1971, and which are to continue on the 15th day of each month thereafter… Held: the payments are deductible under sec. 215 because the payment period exceeds 10 years. Held, further, amounts paid by petitioner for the purpose of furnishing his ex-wife with a car are in the nature of a property settlement.

Decedents, husband and wife, died following a murder-suicide pact. Held: The estate of decedent-husband has shown, according to the language of sec. 20.2056(e)-2, Estate Tax Regs., that the order of decedents' deaths cannot be established by proof and, under the terms of decedent-husband's will, that it is doubtful as to which of them died first.

P received an item of income in 1954 but did not include such income in his 1954 or 1955 tax returns. The Commissioner determined that such item was income to P in 1955 and issued a deficiency notice for such year. At that time, the statute of limitations barred assessment and collection of a deficiency for 1954. P paid the deficiency and filed a suit for refund in the district court. In such suit, he successfully argued that the item of income should not be taxed in 1955 because it was income in 1954. Thereafter, under the provisions of secs. 1311- 1314, I.R.C. 1954, the Commissioner issued a deficiency notice for 1954. 1. Held, the Commissioner must prove that all of the conditions necessary to invoke secs. 1311-1314 have been met, including that P paid a tax on the item within the meaning of sec. 1312(3)(A), I.R.C. 1954, and that P maintained an inconsistent position within the meaning of sec. 1311(b)(1), I.R.C. 1954; and the Commissioner has carried his burden with respect to such conditions. 2. Held, once the Commissioner proves such conditions, P has the burden of disproving the deficiency determined by the Commissioner under sec. 1314(b), I.R.C. 1954, and P has not done so in this case. 3. Held, the deficiency for 1954 did not have to be asserted as a compulsory counterclaim in the district court proceeding under rule 13, Fed. R. Civ. P.

T held a 50-percent remainder interest in a testamentary trust established under the will of his grandmother, who died in 1939. T reached the age of majority in 1948. Held: the disclaimers were not made within a reasonable time as required by sec. 25.2511-1(c), Gift Tax Regs. Keinath v. Commissioner, 58 T.C. 352, reversed 480 F.2d 57 (8th Cir.), followed.

At the time a pension plan was being terminated, the base for calculating benefits to be distributed was changed to include bonuses in addition to salaries paid to covered employees. Held: such change caused such plan not to be qualified under sec. 401(a)(4), I.R.C. 1954. Held, further, the entire amount of benefits received by petitioner is taxable as ordinary income.

Subsequent to the filing of the opinion in the case of Adams v. Commissioner, 70 T.C. 373 (1978), and upon its own motion, this Court directs that the parties therein submit briefs addressing the issue as to whether this Court has the statutory authority to determine a deficiency in tax under sec. 4941(b)(1), I.R.C. 1954.

M, a partnership, borrowed money to purchase controlling interest in the stock of B, a bank. Held: The bank stock was purchased and held with a substantial investment intent. The stock therefore constitutes property held for investment and the interest on the loan obtained to purchase this stock is an investment interest expense as defined in sec. 57(b)(2)(D) for purposes of the minimum tax imposed by sec. 56.

Petitioner sought to exclude from gross income under sec. 112(b) payments received for accrued leave upon separation from the military. Held: payments received by petitioner for leave accrued during months of active combat service are fully includable in gross income to the extent that such amounts exceed the statutory exclusion provided by sec. 112(b).

1. Petitioners Magill realized taxable income in 1971 when their indebtedness to Malag was discharged and such income was not excludable under the relief provisions of secs. 108 and 1017, I.R.C. 1954, because they did not file a consent to the regulations prescribed under sec. 1017 (relating to adjustment of basis) at such time and in such manner as required. 2.

Interest charged by the construction lender during the construction period by simply debiting the borrower's loan accounts, thus reducing the amounts available to the borrower on the loans, was not interest paid by the borrower during the taxable year and, hence, is not fully deductible by the borrower in that year.

Petitioners sold their motel business. As part of the transaction, the purchaser paid petitioners' sales commission liability. Held: the assumption by the purchaser of the seller's sales commission liability is treated as a payment in the year of sale for purposes of the 30-percent limitation of sec. 453(b)(2)(A).

Upon consideration of the agreement between petitioner and Yawata Econ Steel Co., a Japanese corporation, it is: Held, that there was a sale by petitioner of certain patent rights entitling… Held: that there was a sale by petitioner of certain patent rights entitling petitioner to long-term capital gains treatment. Held, further: That petitioner retained a substantial right in its know-how transferred under the agreement. Allocation made.

Held: Petitioner's employment as an electrician in the construction of a power plant at Cheshire, Ohio, was not temporary in 1973. Held: Petitioner's employment as an electrician in the construction of a power plant at Cheshire, Ohio, was not temporary in 1973. Petitioner's daily transportation expenses incurred in traveling between his residence in Culloden, W. Va., and the jobsite in Ohio are not deductible.

Petitioner leased equipment with an option to purchase. The equipment was new when placed into operation. No election was made under sec. 48(d) to treat petitioner as having acquired the equipment. Held: the equipment does not qualify as new section 38 property under sec. 48(b); petitioner is not entitled to an investment credit on account of the equipment.

Petitioner is a testamentary trust. The decedent's will, which is petitioner's organizing document, specified that the income of the trust was to be used to provide scholarships at Yale College for… Held: in the particular circumstances of this case, petitioner is a supporting organization within the meaning of sec. 509(a)(3) and is therefore not a private foundation.

A State court consent decree modifying retroactively the terms of an earlier divorce decree in respect of alimony and child support, held, in the circumstances of this case, to be ineffective for… Held: in the circumstances of this case, to be ineffective for Federal income tax purposes, to recharacterize as alimony certain variable child support payments which had theretofore been made.

The corporation acquired land on which it intended to build a motel. Held: The rents did not constitute proceeds from demolition which, properly accounted for, would reduce the corporation's basis in the land.

On Sept. 5, 1969, decedents made inter vivos transfers to separate, identical trusts, reserving the right to receive specified monthly payments… Held: neither sec. 2055(e)(3), I.R.C. 1954, nor sec. 1.664-1(f)(3), Income Tax Regs., was intended to permit reformation, after the decedent-grantor's death, of a trust in order to conform it with the charitable remainder unitrust provisions of sec. 2055(e)(2)(A), I.R.C. 1954, if such trust at the decedent's death did not provide a…

Held, a citizen of Pakistan who came to the United States in June 1973 for the purpose of studying architecture, expecting to remain in… Held: a citizen of Pakistan who came to the United States in June 1973 for the purpose of studying architecture, expecting to remain in the United States for 4 1/2 to 5 years to accomplish that purpose, was not a resident of Pakistan in 1975 within the meaning of the United States-Pakistan income tax convention since he was a resident of…

Respondent examined petitioners' books and records for approximately 8 months before returning them pursuant to petitioners' request. Held: a notice of deficiency subsequently issued on some basis other than petitioners' books and records was not a violation of that statutory provision. United States Holding Co. v. Commissioner, 44 T.C. 323 (1965), followed.

Despite repeated orders of the Court, petitioners failed, over a period of several years, to answer respondent's interrogatories, to… Held: on respondent's motion for sanctions under Rule 104(c), Tax Court Rules of Practice and Procedure, the allegations of error and allegations of fact in petitioners' petitions for 1959, 1960, and 1961 are stricken, and respondent's affirmative allegations of fraud in his answer and amendment to answer to petitioner-husband's petition…

Decedent's will created a trust under which all the income therefrom was payable to her husband for his life. Held: the power to appoint is not exercisable * * * in all events to the extent it exceeds 5 percent of the trust principal; to that extent no marital deduction is allowable therefor. Sec. 2056(b)(5), I.R.C. 1954.

Petitioners, who are broker-dealers, took advantage of inside information to purchase stock for themselves, relatives, and a related entity. Held: The amounts in question were capital expenditures and not deductible business expenses. The origin-of-the-claim test rather than the primary-purpose test is applicable. The claims originated in investment transactions and not in the broker-dealer business.

1. Held, in an action brought under sec. 7428(a), I.R.C. 1954, for a declaratory judgment on petitioner's qualification as an exempt organization under sec.… Held: in an action brought under sec. 7428(a), I.R.C. 1954, for a declaratory judgment on petitioner's qualification as an exempt organization under sec. 501(a) and (c)( 3), I.R.C. 1954, submitted on the stipulated administrative record, a motion for summary judgment is pointless, and respondent's motion is denied. 2.

Petitioner was domiciled in Louisiana, but was employed overseas as a teacher by the Department of Defense. Held: Petitioner has failed to show that Louisiana law would operate in such a manner that its community property laws would apply to her husband. Therefore, petitioner is taxable on her entire income.

The petition in this case upon which the Court's order of dismissal and decision was entered on Feb. 6, 1975, was filed and signed in the names of petitioners by their tax consultant. Held: On this record petitioners failed to establish by clear and convincing evidence that their agent's acts were unauthorized. Therefore, the motion to modify the order of dismissal and decision for lack of jurisdiction will be denied.

U.S. Treasury bonds, otherwise qualified for use at par in payment of Federal estate taxes, were purchased for decedent at a time when she was in a comatose state. Held: since the bonds were eligible for redemption at par in payment of Federal estate taxes under sec. 6312, I.R.C. 1954, they are includable in the gross estate at their par value.

P operated an accounting practice as a sole proprietorship. During December 1968, P established eight trusts for the benefit of his six children and college alma mater. Held: capital was not a material income-producing factor, in the partnership formed by the eight trusts P established. Sec. 704(e)(1). Held, further, the trusts lacked sufficient dominion and control over the partnership interests to be recognized as partners. Sec. 704(e)(1).

Under a stock purchase agreement Arthur Smith was unconditionally obligated to purchase the stock held by his father's estate. Held: corporate redemptions of stock held by his father's estate were in satisfaction of Arthur Smith's unconditional personal obligation to purchase the stock and, consequently, resulted in constructive dividends to him.

In 1962, petitioners entered into an arrangement whereby cash and securities owned by them (approximately $ 100,000 in value for each) would be held by HS, would be subordinated to the claims of HS'… Held: petitioners are not entitled to any ordinary loss under sec. 165(c)(2), I.R.C. 1954. Held, further, petitioners sustained capital losses upon the sale of their securities equal to the excess of their bases over the sales prices.

In 1971, petitioner's husband, Maynard, was assessed with a 100-percent penalty for failure to collect and pay over certain employment taxes, and the assessment was not paid. Held: in order to recover the credit resulting from the tentative allowance of the carryback adjustment applied against Maynard's employment tax penalty assessment, respondent was authorized to follow the deficiency procedures prescribed by sec. 6212, I.R.C. 1954.

Held: A survivors income benefit, payable by decedent's employer to decedent's eligible survivors pursuant to a so-called Life Insurance Plan, was includable in his gross estate under sec. 2039,… Held: A survivors income benefit, payable by decedent's employer to decedent's eligible survivors pursuant to a so-called Life Insurance Plan, was includable in his gross estate under sec. 2039, I.R.C. 1954.

Held, net rental income from petitioners' mobile home park not subject to self-employment tax under sec. 1401, I.R.C. 1954. Held: net rental income from petitioners' mobile home park not subject to self-employment tax under sec. 1401, I.R.C. 1954.

The envelope containing the petition bore a legible private postage meter postmark on the 91st day after the mailing of the notice of deficiency. Held: Petitioner may not present any evidence to contradict the postmark date. Respondent's motion to dismiss is granted.

1. Petitioner-husband engaged in harness horse racing and breeding activities. Held: on the facts, he did not carry on a trade or business or engage in an activity for profit during the taxable years at issue. Sec. 183, I.R.C. 1954. 2.

Petitioners claimed deductions from gross income as defined in the 1954 Code for their personal, living, and family expenditures. Held: The entire amount received from the sale of one's services constitutes income within the meaning of the Sixteenth Amendment. Sec. 262 is not unconstitutional. Held, further, petitioners have failed to advance any reason evidencing constitutional infirmity with secs. 1401 and 1402.

Petitioner and her former husband entered into a settlement agreement incident to their divorce which purported to reflect a division of community property. Held: The transaction emanating from the settlement agreement wherein petitioner received certain stocks and other assets as her separate property was a division of community property and not an exchange of the husband's separate property for petitioner's marital or other rights.

1. Ps, partners in a general partnership which owned an apartment complex, sold their partnership interests to a third party. Held: Ps must include in the amount realized upon the sale of their partnership interests the full amount of the nonrecourse liability. 2. Held, further, Ps are not entitled to an award of attorney's fees under the Civil Rights Attorney's Fees Awards Act of 1976.

On Nov. 11, 1972, and during its taxable year ended June 30, 1973, petitioner-husband's wholly owned subchapter S corporation made a cash distribution to him. Held: the distribution was not a distribution of previously taxed income and was includable in petitioners' gross income. Sec. 1.1375-4(a), Income Tax Regs., is valid.

Petitioner, a resident of Louisiana, and her husband began living separately and apart sometime in 1967. Held: Petitioner has no ownership rights under Louisiana law to the income of her husband for the period between the filing of the petition for divorce and the final decree of divorce. Consequently, petitioner has no Federal income tax liability with respect to the income of her husband during such period.

On Mar. 12, 1975, petitioner-wife established a qualified individual retirement account with Fidelity Savings & Loan Association and deposited $ 500 to the account. Held: The contribution of $ 209.35 made to petitioner's IRA on Jan. 2, 1976, was not deductible under sec. 219(a)(1) in determining her taxable income for 1975. Thus, the income tax deficiency of $ 52.35 is sustained.

1. H and W transferred appreciated real property to a corporation in exchange for an annuity. Held: the recoverable investment in the contract, as defined in sec. 72(c), I.R.C. 1954, is the fair market value of the property transferred; the fair market value of such property determined. 2. Held, the gain resulting from the transfer of such properties is taxable to the transferors in the year of the exchange.

U.S. Treasury Bonds, qualified for use at par in payment of Federal estate taxes were included in decedent's gross estate in an amount exceeding the amounts required for… Held: such bonds having an aggregate par value sufficient to pay the total estate tax liability and any interest on the deficiency are includable in the gross estate at their par value. Held, further, petitioner is entitled to deduct, as an administration expense, the interest accrued on the deficiency.

In January 1967, NBA board of governors granted petitioner an expansion franchise to operate a professional basketball team in Seattle for $ 1,750,000, $ 150,000 of which was allocated to rights,… Held: mass asset theory is inapplicable as rights to participate in veteran expansion draft and share in the proceeds from the 1968-69 NBA expansion program are separately identifiable as to life and value.

Petitioner owned 80.4 percent of the issued and outstanding voting stock of Levy Bros. and all of its issued and outstanding nonvoting stock. Held: sec. 20.2042-1(c)(6), Estate Tax Regs., is valid in requiring inclusion of insurance proceeds in a decedent's gross estate if the decedent is a controlling shareholder but not the sole shareholder.

Pursuant to a will and a trust instrument executed on the same day, the decedent provided for the establishment of a marital deduction… Held: Decedent's will and related trust instrument, interpreted in accordance with standards of Massachusetts law as expounded by the Supreme Judicial Court of Massachusetts, require Massachusetts inheritance taxes in respect of the remainder interests in the marital deduction trust to be charged against assets in decedent's gross estate…

P leased certain property to X, which operated a quarry thereon and paid P 5 cents for each ton of rock sold by it from stone quarried on the premises. Held: the payments by X were mineral royalties within the meaning of sec. 543, I.R.C. 1954, and as a result, P was a personal holding company subject to tax under sec. 541, I.R.C. 1954. Held, further, the amount of P's deduction for qualified indebtedness determined.

Prior to the sale of farmland to the taxpayer, the seller had summer fallowed the land, incurring expenses of $ 1,800. Held: neither the expenses attributable to the summer fallow nor the increase in the land's fair market value due to the summer fallow are deductible by the purchaser.

A partnership had income in 1970 from the proceeds of a condemnation award. Held: The deficiency was proposed against petitioners with respect to the partnership sec. 1033 obligation. Since the statute had been extended with respect to that obligation, the petitioners could not claim protection of the statute.

Petitioner's businesses were located in Brentwood, Tenn. Held: The tap fee was a special assessment for an improvement benefiting petitioner's property. It was a capital expenditure. It was not deductible as a tax or business expense.

Greenbelt derived more than 50 percent of its gross receipts from interest. Held: Greenbelt was not largely an operating company. Held: Greenbelt was not largely an operating company. Its stock is therefore not sec. 1244, I.R.C. 1954, stock, and losses thereon are not sec. 1244, I.R.C. 1954, losses. Sec. 1.1244(c)-1(g)(2), Income Tax Regs., followed. Petitioner's purchases of Greenbelt stock and loans to Greenbelt were motivated by investment reasons.

Petitioner estimated its unpaid losses as of Dec. 31, 1962, when underwriting income first became taxable by an examination of each filed claim. Held: petitioner is entitled to an adjustment in each of its taxable years for the difference between the amount of the estimated claim pending on Dec. 31, 1962, and the amount for which the claim was subsequently settled.

Petitioners were granted options to purchase corporate stock of their employer pursuant to a written plan. Held: on the dates the options were granted, the fair market value of the stock was not in excess of the option price. Held, further, the options were granted on the date that the corporation received from the State of California Corporation Commission approval to issue shares pursuant to the plan.

In 1961, petitioner obtained a ruling from respondent that its profit-sharing plan, which did not cover its union employees, was a qualified plan under sec. 401(a), I.R.C. 1954. Held: during those years, petitioner's plan did not satisfy the coverage requirements of sec. 401(a)(3)(B), I.R.C. 1954. Held, further, respondent's retroactive determination was not an abuse of discretion and, therefore, petitioner's contributions under the plan are not deductible.

P was a limited partner in X limited partnership. A and B were general partners in Y general partnership. Held: the allocation of Y's loss to X to the extent such loss accrued prior to X's entry into the Y partnership is prohibited by the provisions of sec. 706(c)(2)(B), I.R.C. 1954. Held, further, the amount of the loss incurred after X's entry into Y determined.

Petitioner was formed as a nonprofit corporation to assist charitable organizations in their fundraising activities with individual contributors. Held: In an action brought under sec. 7428(a), I.R.C. 1954, for declaratory judgment on petitioner's qualifications as an exempt organization under sec. 501(a) and (c)( 3), I.R.C. 1954, petitioner's tax planning services are a nonexempt activity that is substantial in nature and not incidental to its charitable purpose.

Held, for purposes of computing the maximum tax on earned income under sec. 1348, I.R.C. 1954, the 30-percent limitation on the amount of… Held: for purposes of computing the maximum tax on earned income under sec. 1348, I.R.C. 1954, the 30-percent limitation on the amount of earned income from business in which capital is a material income-producing factor, as provided in sec. 911(b), to which sec. 1348(b)(1) refers for a definition of earned income, applies to net profits…

Petitioner expended amounts in 1971 for professional fees in connection with the condemnation of property and the rezoning of the remainder of the tract. Held: Such expenditures are capital in nature and, therefore, are not deductible in the year paid, but serve to increase basis. In so holding we overrule our opinion in Madden v. Commissioner, 57 T.C. 513 (1972). Held, further: Apportionment of cost basis is made as of the date of acquisition.

Respondent determined deficiencies in petitioners' tax liability based on records seized in a drug raid. Held: such evidence was legally seized and properly before the Court. Held, further, respondent proved unreported income of at least the amounts determined in the statutory notices. Held, further, a part of the deficiencies for each year was due to fraud. Held, further, petitioner wife fails to qualify as an innocent spouse.

Petitioner was employed by the New York City Board of Education in 1973 and 1974 as a paraprofessional in the capacity of an educational associate. Held: The courses helped to qualify the petitioner for a new trade or business; and (2) the courses constituted education required to meet the minimum educational requirements for qualification as a teacher.

In 1946 decedent Goldsborough transferred to her two daughters real property worth $ 25,000. In 1949, the daughters sold the real property for $ 32,500 and separately invested their respective shares of the proceeds in stock and securities to which title was taken in the names of the purchaser and decedent Goldsborough. At Goldsborough's death in 1972, the stock and securities had a value of $ 160,383.19. Held, under sec. 2040, the portion of the value of the stock and securities attributable to the gain realized by the two daughters in 1949 on the sale of the real property (7,500/32,500 of $ 160,383.19) is excluded from decedent's estate. Held, further, the Court will not consider an argument by respondent that the 1946 gift was incomplete because the argument has no foundation in the notice of deficiency or the pleadings. Held, further, the individual petitioners who received assets of decedent Goldsborough's estate are liable as transferees or transferees of a transferee.

Laure was sole stockholder of both W-L Molding Co. and Lakala Aviation, Inc. Both Laure and W-L Molding advanced funds to Lakala. Held: Salary paid to Laure by W-L Molding Co. was reasonable compensation for services rendered and is fully deductible by W-L Molding Co. 2.