Volume 71 — Tax Court Reports

Petitioner, as the beneficiary of an estate, claimed certain unused capital loss carryovers of the estate upon its termination. The estate was a successor to the decedent's interest in a partnership. Held: certain claims against the estate are determined to be partnership liabilities. Held, further, contingent or contested liabilities are not liabilities for purposes of increasing partnership basis until they are fixed or liquidated.

Decedent's spouse applied for and owned an insurance policy on the life of the decedent, naming the trustee of a revocable trust created by the decedent as beneficiary. Held: decedent did not possess any incident of ownership with respect to such life insurance policy. Held, further, he did not possess a power of appointment over the policy or the proceeds thereof.

E applied for and received a determination by the Commissioner that its amended retirement plan met the requirements of sec. 401, I.R.C.… Held: we do not have jurisdiction of allegations relating to operational defects in the plan or of allegations relating to matters which were not raised by P in his comment letter; but since some allegations in the petition do relate to provisions of the plan and to matters which were raised in the comment letter, we have jurisdiction of…

Petitioner, a tax-exempt private foundation, received a contribution of stock on Nov. 14, 1973. Petitioner sold the stock in December 1973. Held: the gain from the sale of the stock is net capital gain which is subject to the 4-percent excise tax on investment income of tax-exempt private foundations -- sec. 4940(a), I.R.C. 1954; Treas. Reg. sec. 53.4940-1(f)(1) is valid as applied herein.

In 1973 and 1974, petitioners exchanged unencumbered parcels of real estate which they owned in fee simple for parcels of real estate which were subject to 99-year condominium leases. Held: the properties so exchanged are properties of a like kind within the meaning of sec. 1031(a), I.R.C. 1954, and no gain is recognized on the exchanges.

Held, on remand from the Sixth Circuit Court of Appeals, petitioner is not entitled to a hearing in respect of its alleged reliance on… Held: on remand from the Sixth Circuit Court of Appeals, petitioner is not entitled to a hearing in respect of its alleged reliance on that circuit's decision in H. Wetter Manufacturing Co. v. United States, 458 F.2d 1033 (6th Cir. 1972), since the subsequent decision of the Supreme Court in Fulman v. United States, 434 U.S. 528 (1978),…

Tennessee Natural Gas Lines, Inc.'s subsidiary, Nashville Gas Co., built a new liquefied natural gas facility, but transferred it to Tennessee Natural for operation in order to avoid… Held: on the facts, the transfer (which triggered Nashville Gas' restoration of deferred gain) under sec. 1.1502-13(d), Income Tax Regs., occurred for tax purposes in 1973, when the burdens and benefits of ownership passed to Tennessee Natural, and not in 1974, when legal title was conveyed.

Petitioner entered into leases and management contracts for certain lands pursuant to which petitioner was required to pay in advance a fixed rental and management fee for the first year. Held: Repayment to the petitioner of the advance rents and management fees did not constitute amounts received in exchange for such leases within the meaning of sec. 1241.

Petitioner was organized as a religious organization. It used substantial portions of its receipts for making grants of cash to individuals, including its officers, based upon no fixed criteria with no provision for repayment. Held, in a declaratory judgment action under sec. 7428(a), I.R.C. 1954, petitioner has not been operated exclusively for tax-exempt purposes and cannot qualify for exemption from taxation under secs. 501(a) and 501(c)(3), I.R.C. 1954.

Petitioner, an Oklahoma corporation, merged into another Oklahoma corporation on Sept. 25, 1972. Respondent mailed a notice of deficiency to petitioner on Sept. 10, 1975. On Dec. 10, 1975, petitioner filed its petition with this Court. The parties executed a stipulated decision which was entered by the Court on Dec. 22, 1976. On Nov. 28, 1977, petitioner filed a motion to vacate the decision on the ground that this Court lacked jurisdiction. Petitioner's motion for special leave to file a motion to vacate our decision was granted on Mar. 30, 1978. Held, the Tax Court had jurisdiction in this case, and therefore the decision entered was valid. Held, further, petitioner's motion to vacate the decision will be denied.

Petitioner was formed as a nonprofit corporation to promote better education for children through expanded private educational opportunities and to provide the public information on alternatives to… Held: petitioner satisfies the operational test of sec. 501(c)(3) because it is operated exclusively for educational purposes and, therefore, is entitled to tax-exempt status under sec. 501(a).

Petitioner claimed a moving expense deduction for expenses of returning from military service to the school where he was to complete work on his Ph.D. Held, as a student, petitioner is not an… Held: as a student, petitioner is not an employee within the meaning of sec. 217(c)(2) and, therefore, any deduction claimed for the expenses of such a move must be disallowed.

Petitioner, an elected State court judge, retired effective Dec. 31, 1970, at age 70 from his job due to physical disability and began receiving payments under provisions of Arizona statutes. Held: Sec. 1.105-4(a)(3)(i)(b), Income Tax Regs., is valid as applied to petitioner. The sec. 105(d) exclusion from gross income does not apply to persons of petitioner's age who are beyond normal retirement age and cannot show that they would be at work if not disabled.

Decedent received a remainder interest in a trust established in 1937 by her father's will. On Apr. 14, 1970, the life tenant of the trust died. On Apr. 19, 1970, decedent disclaimed her interest. Held: decedent's delayed renunciation had the effect of a transfer for purposes of sec. 2035.

Under a three-part Cattle Management Agreement and Sublease, petitioner leased 40 brood cows. The purpose of the lease was to begin building a herd of Simmental cattle. Held: Those expenditures associated with the leased brood cows were nondeductible capital expenditures. The agreement was in effect for the purchase of weaned calves. Held, further: Petitioner was a farmer for the purposes of the Internal Revenue Code under Management Agreement Two.

Petitioner is a Health Maintenance Organization (HMO) organized as a nonprofit corporation under the laws of the State of Washington. Held: In an action brought under sec. 7428 for a declaratory judgment on petitioner's qualifications as an organization exempt from tax under sec. 501(a) and (c)(3), it is found that petitioner does serve a public interest and is not engaged in providing a form of insurance and is therefore organized and operated exclusively for charitable…

Petitioner sought to apply the maximum tax on earned income under sec. 1348 to the entire net profits from her bail bonding business. Held: such profits are subject to the maximum tax on earned income since capital is not a material income-producing factor in petitioner's business within the meaning of sec. 1348.

Petitioner was organized as a nonprofit Massachusetts corporation to promote, improve, and expand the handicraft output of disadvantaged… Held: petitioner's primary activities, such activities being the purchase, import, and sale of handicrafts, further exempt purposes; petitioner is operated exclusively for exempt purposes, such purposes being the alleviation of economic deficiencies in communities of disadvantaged artisans, the education of the American public in the…

Held, the value of lodging and utilities furnished petitioner, a policeman employed by the Canal Zone Government, is not excludable from petitioner's income under sec. 119, I.R.C. 1954. Held: the value of lodging and utilities furnished petitioner, a policeman employed by the Canal Zone Government, is not excludable from petitioner's income under sec. 119, I.R.C. 1954.

T made an unrestricted gift of property to charity A in 1972, and claimed a charitable contribution deduction in respect thereof on T's 1972… Held: A and B did not make gifts within the meaning of sec. 102(a), I.R.C. 1954, when they returned the donated property to T. Held, further, T must, under the tax benefit rule, include in gross income for 1973 and 1974 the fair market value of the returned property on the respective dates of its return, such fair market value in each…

Held, for purposes of the minimum tax provisions of secs. 56 and 57(a)(6), I.R.C. 1954, the fair market value of relatively small amounts… Held: for purposes of the minimum tax provisions of secs. 56 and 57(a)(6), I.R.C. 1954, the fair market value of relatively small amounts of stock acquired through the exercise of qualified stock options by a taxpayer subject to the insider trading provisions of sec. 16(b), Securities Exchange Act of 1934, is the mean price at which the…

Petitioners expended directly or contributed to campaign committees substantial amounts of money on behalf of candidates seeking public office during the years 1967, 1968, 1970, and 1971. Held: such expenditures do not constitute transfers taxable as gifts.

Petitioner was engaged in the business of examining land titles and offering title insurance service as an underwritten title company pursuant to California law. Held: since petitioner does not bear the economic risk of loss on the insurance contracts issued, it is not an insurance company taxable under sec. 831, I.R.C. 1954, and thus is not entitled to deductions for its reserves for losses.

Petitioner Hobart A. Lerner, an ophthalmologist, incorporated his practice into Hobart A. Lerner, M.D., P.C. He paid cash for all the issued stock of the corporation. Held: the rent paid by the corporation to the trust was an ordinary and necessary business expense deductible by the corporation. Held, further, the income of the trust was taxable to the beneficiaries thereof and not to the grantor, Dr. Lerner.

Petitioner sold stock to his son under an installment contract. At the same time, the son executed a note and an escrow agreement. Held: petitioner caused his son to act as his agent in selling the stock and in reinvesting the proceeds and hence is not entitled to make use of the installment method of reporting income from the sale to the son.

Held, petitioner properly used the installment method in reporting income from the sale of stock to a trust of which he was grantor. Held: petitioner properly used the installment method in reporting income from the sale of stock to a trust of which he was grantor.

Based upon her inquiries to the attorney for the estate, petitioner-executrix believed that ancillary litigation involving the estate justified the delay… Held: on the facts herein, petitioner-executrix was not negligent and there was reasonable cause for the untimely filing of the return, with the result that the addition to tax under sec. 6651(a), I.R.C. 1954, should not be imposed. Held, further, amount in a joint bank account includable in the gross estate is determined.

Petitioners resided in Puerto Rico from 1966 through 1969. Held: petitioners' expenses are properly allocable to or chargeable against income exempted by sec. 933(1), I.R.C. 1954, and, therefore, are not deductible.

T, a former United States Civil Service employee, was retired on disability. Held: in respect of the 1973 annuity payments to T, T is not entitled to the sick pay exclusion under sec. 105(d), I.R.C. 1954, in addition to the sec. 72(d) exclusion for recovery of his contribution to the retirement system. Sec. 1.72-15(b), (d), and (i), Income Tax Regs.

Petitioner is a family association formed as a nonprofit corporation to study immigration to and migration within the United States by focusing upon its own family history and genealogy. Held: Petitioner's family genealogical activities are not insubstantial, and are not in furtherance of an exempt purpose, but rather serve the private interests of petitioner's members. Petitioner is therefore not operated exclusively for exempt purposes.

Held, in deciding who is a shareholder of a subch. S corporation for purposes of sec. 1373, I.R.C. 1954, beneficial ownership of the corporate stock is the controlling test.

Held, under sec. 2041(a)(2), I.R.C. 1954, decedent at her death possessed a general power of appointment over certain property pursuant to her deceased husband's will even though she was incompetent… Held: under sec. 2041(a)(2), I.R.C. 1954, decedent at her death possessed a general power of appointment over certain property pursuant to her deceased husband's will even though she was incompetent at his death and so remained until her own death.

Held, in computing under sec. 994(a)(2) the combined taxable income of petitioner and its DISC subsidiary for the purpose of determining… Held: in computing under sec. 994(a)(2) the combined taxable income of petitioner and its DISC subsidiary for the purpose of determining the commission of the DISC, which exported logs derived from petitioner's growing and cutting of timber, sec. 631(a) and the regulations thereunder, and sec. 1.994-1(c)(6)(ii), Income Tax Regs., require…

Petitioner, who was in the trade or business of teaching, attended school during a period of unemployment. Held: expenses for daily travel between her residence and school were nondeductible commuting expenses.

Petitioner executed a promissory note against which she pledged corporate stock which she owned and she executed stock powers for the stock pledged. Held: under Massachusetts law, petitioner remained liable to the bank although her signature was forged to the renewal notes.

Decedent provided in his will executed on Nov. 7, 1972, for the creation of a marital trust in which his surviving spouse was entitled to receive the net income for… Held: the charitable deduction that would be allowable under sec. 2055(a) for the transfer of the remainder interest to the charity, deemed to exist by reason of sec. 2055(b)(2), cannot be deducted by the decedent's estate because the remainder interest does not comply with the provisions of sec. 2055(e)(2)(A).

Petitioner-husband was assessed a penalty under sec. 6672, I.R.C. 1954. Held: the amount paid by petitioner-husband is a penalty for purposes of sec. 162(f), I.R.C. 1954, and thus is nondeductible.

Petitioner is the transferee of the assets of a corporation. In its fiscal year 1970, the corporation realized a loss which it characterized as a net operating loss. Held: petitioner may carry back the fiscal year 1971 loss to prove that there is no deficiency in the corporation's taxes for fiscal year 1968.

Petitioner and an unrelated insurance company entered into an insurance agreement. Held: to the extent that petitioner's risk was reinsured with its wholly owned Bermudan subsidiary, its risk of loss had not shifted, its agreement with the unrelated insurance company was not insurance, and its payment to the unrelated insurance company was not deductible as an ordinary and necessary business expense for insurance.

P corporation's principal operating asset was a franchise. Held: These transactions do not constitute a reorganization within the meaning of sec. 368(a)(1)(D), I.R.C. 1954, because there was no transfer by P corporation of substantially all its operating assets, as the franchise was not transferred by P corporation.

Petitioner, a fireman with more than 20 years service, applied for retirement on disability. Held: petitioner is not entitled to a sick pay exclusion under sec. 105(d), I.R.C. 1954, and sec. 1.105-4(a)(3)(i)(A), Income Tax Regs.

Petitioners negotiated a tentative agreement for the sale of the nonliquid assets in their wholly owned company and planned to liquidate the company under sec. 337, I.R.C. 1954, after the sale. Held: Petitioners did not actually or constructively receive the liquidation proceeds in the year of the sale. The sales of the stock to the trusts were bona fide installment sales which qualify for the installment method of reporting income under sec. 453, I.R.C. 1954.

Petitioners' daughter-in-law had no income during the taxable year 1975. Held: petitioners are not entitled to a dependency exemption deduction for their son for 1975 since they have failed to show that they contributed over one-half of his support in that year; and (2) the joint return filed by petitioners' daughter-in-law with her husband for the year 1975 constituted a claim for refund and therefore, under…

In 1971, X corporation issued debentures to A, a shareholder of X, in exchange for A's stock in X. The debentures matured in 15 years, but X could, at its option, redeem them after 10 years for a… Held: X is not entitled to an interest deduction for original issue discount. Sec. 1.163-4(a), Income Tax Regs., sustained.

Petitioner, one of four interns in a 125-patient nonprofit osteopathic hospital having 100 staff physicians, during the first 6 months of 1973, received a stipend of $ 875 and a housing allowance of… Held: even though petitioner's work as an intern for the hospital provided him with valuable training in his profession, no part of the hospital's payments to him is excludable from his gross income for 1973 as a fellowship grant under sec. 117(a)(1)(B), I.R.C. 1954.

Petitioner's machine shop was damaged by fire on March 2, 1972. Petitioner, an accrual basis corporation, contracted with Conlon to reconstruct the shop. Held: petitioner realized and must recognize gain to the extent its gain on the involuntary conversion exceeded the $ 43,007 reinvested amount. Central Tablet Manufacturing Co. v. United States, 417 U.S. 673 (1974).

Petitioners discovered a sizeable shortage in their tobacco inventories near the end of 1970 which they believed to be from abnormal causes. Held: Petitioners proved that they suffered a loss of inventory in 1970 and were entitled to account for the loss by a downward adjustment of ending inventories and a consequent increase in cost of goods sold for 1970. 2.

Held, legal expenses incurred in seeking release from armed service commitment not deductible. Held: legal expenses incurred in seeking release from armed service commitment not deductible.

Held: For purposes of sec. 1348, I.R.C. 1954, capital was a material income-producing factor in petitioners' retail grocery business. Held: For purposes of sec. 1348, I.R.C. 1954, capital was a material income-producing factor in petitioners' retail grocery business. Consequently, only 30 percent of the net profits of their business qualify for the 50-percent maximum rate on earned income.

Held: Payments made by husband to wife under a written separation agreement are periodic payments includable in wife's gross income under sec. 71(a)(2), I.R.C. 1954, and deductible to husband under… Held: Payments made by husband to wife under a written separation agreement are periodic payments includable in wife's gross income under sec. 71(a)(2), I.R.C. 1954, and deductible to husband under sec. 215.

Petitioner, a teacher in the New York City public school system, was injured in the line of duty. Held: the regulation of the New York City Board of Education has the force and effect of law and constitutes a statute in the nature of a workmen's compensation act (see sec. 1.104-1(b), Income Tax Regs.), with the result that the amounts received by petitioner are excludable from gross income under sec. 104(a)(1), I.R.C. 1954.

Respondent mailed petitioners a notice of deficiency determining an excise tax deficiency under sec. 1491, I.R.C. 1954. Held: the Tax Court has no jurisdiction to redetermine an excise tax imposed by sec. 1491.

Held, petitioner-wife was not engaged in 1975 in the trade or business of being a licensed practical nurse having been unemployed since 1969. Held: petitioner-wife was not engaged in 1975 in the trade or business of being a licensed practical nurse having been unemployed since 1969.

Rule 52, Tax Court Rules of Practice and Procedure. -- Held, petitioner's motion to strike the fraud allegations in respondent's answer on constitutional and related grounds is denied. Held: petitioner's motion to strike the fraud allegations in respondent's answer on constitutional and related grounds is denied.

Petitioner purchased and held a $ 50,000 convertible subordinated corporate note which became worthless in 1974. Held: petitioners are confined to capital loss treatment in 1974 under sec. 165(g)(1), I.R.C. 1954, since petitioner had a substantial investment motive in purchasing and holding the note. W. W. Windle Co. v. Commissioner, 65 T.C. 694 (1976), appeal dismissed 550 F.2d 43 (1st Cir. 1977), cert. denied 431 U.S. 966 (1977), followed.

Gulfstream's wholly owned subsidiary, Gulfstream Republic, owned a 50-percent interest in one joint venture; Gulfstream's wholly owned… Held: although this exchange of joint venture interests meets the requirements of sec. 1031(a), petitioners' motion is denied because a question of material fact, namely whether the underlying assets of the joint ventures are stock in trade or other property held primarily for sale, must be resolved in order to decide whether the exchange…

Petitioners were stockholders in Water Co. On Jan. 7, 1971, they received from Water Co. stock subscription rights, evidenced by transferable… Held: Viewing the transaction as a whole, Water Co. distributed solely stock or securities of a controlled corporation to petitioners-shareholders with respect to its stock as part of a transaction in which it distributed over 80-percent control of Shorewood within the meaning of subparas. (A) and (D) of sec. 355(a)(1), I.R.C. 1954.

Petitioner Pledger acquired 30,000 shares of stock in 1971 pursuant to the exercise of a nonstatutory employment stock option governed… Held: restrictions imposed by law, i.e., Federal securities law, are within the meaning of sec. 83(a)(1), and the measure of compensation is determined by the difference between the amount paid for the stock and the fair market value of the stock on the date of acquisition, determined without regard to the restrictions imposed by law under…

Petitioner claimed various deductions, but consistently refused to substantiate them, relying on various frivolous alleged constitutional defenses which, as petitioner was informed, have been… Held: respondent's disallowance of the deductions for lack of substantiation is upheld. Held, further, on respondent's motion, damages of $ 500 under sec. 6673, I.R.C. 1954, are awarded against petitioner for instituting these proceedings merely for delay.

P's leg was seriously broken. He constructed a swimming pool at his home and exercised the leg in the pool to rebuild its strength. Held: P failed to establish that his expenses for constructing the pool were incurred for the primary purpose of, and related directly to, his medical care. Therefore, P is not entitled to deduct any portion of such expenses under sec. 213, I.R.C. 1954, relating to medical expenses.

Held, petitioners realized taxable gain on the granting of four easements in respect of their ranch property, and the gain is to be computed by applying the consideration they… Held: petitioners realized taxable gain on the granting of four easements in respect of their ranch property, and the gain is to be computed by applying the consideration they received against the portion of their adjusted basis for the ranch which is allocable to the acreage covered by the easements.

Petitioner was organized pursuant to the Nonprofit Corporation Act of Texas. Held: respondent did not err in denying petitioner's application for exemption under section 501(c)(3), I.R.C. 1954.

The decedent was the donee of a special power of appointment over certain property. Held: Under Wisconsin's rule against perpetuities, the perpetuities period for an interest appointed under a special power is computed from the date of the power's creation rather than from its exercise. Thus, under these facts, sec. 2041(a)(3), I.R.C. 1954, does not apply to the decedent's exercise of her special power.

Petitioner husband was a Member of Congress for 24 years. Held: The collection of items contributed by petitioners are fairly described in sec. 1221(3), I.R.C. 1954, and sec. 1.1221-1(c)(2), Income Tax Regs. Therefore, sec. 170(e)(1)(A), I.R.C. 1954, applies to the property contributed. Held, further: Petitioners failed to establish a basis in the property donated.

Petitioners sought to treat amounts distributed in redemption of their stock in related corporations as distributions in full payment in exchange for their stock under sec. 302(a), I.R.C. 1954. Held: the redemption of such stock from petitioners was essentially equivalent to a dividend within the provisions of sec. 302(b)(1) and was properly treated as distributions of property to which sec. 301 applied. United States v. Davis, 397 U.S. 301 (1970).

Held, on an accrual basis of accounting petitioner's gain resulting from an award for condemnation of its property is taxable in its fiscal year ended May 31, 1970, the year in which all appeals were… Held: on an accrual basis of accounting petitioner's gain resulting from an award for condemnation of its property is taxable in its fiscal year ended May 31, 1970, the year in which all appeals were exhausted and the award became final.

Yarg, a foreign personal holding company fully owned by petitioners in the years in issue, held preferred stock in Omark 1960, also a foreign corporation. Petitioners owned 90.4 percent of Omark 1960. Held: on remand, petitioners are taxable in their taxable year 1963 on so much of Yarg's undistributed foreign personal holding company income for its taxable year ended June 30, 1963, as is includable in their income under the provisions of sec. 551(b), I. R. C. 1954.

Petitioner filed a motion for reconsideration of findings and opinion. Held, petitioners failed to meet their burden of proof. Held: petitioners failed to meet their burden of proof.

In 1968 and 1969, X corporation acquired approximately 8 percent of the stock of Y corporation from the latter's shareholders for cash. Held: as a matter of law, X corporation's prior cash purchases of Y corporation stock are irrelevant and the 1970 exchange satisfies the solely for * * * voting stock requirement of sec. 368(a)(1)(B), I.R.C. 1954.

Decedent's daughter died 2 years and 2 months before decedent. Her estate was distributed, in equal shares, to decedent and his wife. Decedent's wife died 2 months and 20 days before decedent. Her entire estate was left to decedent. Held, sec. 2013(d), I.R.C. 1954, provides no basis for excluding from a decedent's gross estate the value of property received from his deceased spouse which was the subject of the marital deduction. Held, further, in respect of property passing on the death of decedent's daughter to decedent's spouse and, on the death of decedent's spouse, to decedent, decedent's daughter was not a transferor to decedent within the meaning of sec. 2013(a), I.R.C. 1954. Held, further, the marital deduction under sec. 2056, I.R.C. 1954, to which the estate of decedent's spouse was entitled could not be waived in order to increase petitioner's credit for the estate tax on prior transfers.

Petitioner is the trustee of a qualified profit sharing plan. Pursuant to his authority as trustee, petitioner purchased securities on margin for the trust account. Held: the securities are debt-financed property within the meaning of sec. 514(b), and the debt-financed portion of the income and gain from those securities is subject to tax under sec. 511.

P was a teacher in a Catholic elementary school in 1973. Held: P's educational expenses are not deductible because the education enabled her to satisfy the minimum educational requirement generally applicable in the teaching profession, another trade or business for her.

Petitioner constructed, equipped, and furnished a motel property which he rented equipped and furnished to a corporation the stock of which was owned 76 percent by petitioner and 24 percent by his… Held: respondent properly allocated rental income to petitioner under sec. 482, I.R.C. 1954, computed in accordance with sec. 1.482-2(c), Income Tax Regs., which we hold to be valid.

Decedent established an inter vivos irrevocable trust in 1955 and transferred property to the Mercantile National Bank of Dallas as trustee to be held by the trustee for the benefit of specified… Held: neither decedent nor her guardian, Mr. Reid, possessed the right to appoint a successor trustee at the time of decedent's death under applicable Texas law, and, therefore, none of the trust property is includable under sec. 2036(a)(2), I.R.C. 1954, in decedent's gross estate.

Action for declaratory judgment under sec. 7476(a), I.R.C. 1954. Held: Sec. 414(b) expressly requires consideration of the parent's employees in the instant case. Deductions are a matter of legislative grace and we can find no statutory or interpretative exceptions to the express requirement of the section.

1. The individual taxpayer, Lucas, leased a coal mine from the Franklins at arm's length for a 25-cent-per-ton royalty. Held: on the facts, petitioners have failed to rebut the presumption of correctness attached to respondent's determination that the 25-cent-per-ton step-up in the sublessees' royalty payments to Lucas constituted an indirect dividend to Lucas from Shawnee, taxable to Lucas as dividend income and not capital gains, and not includable in…

1. P and S, a subsidiary of P, maintained a profit-sharing plan for their employees under which T was the trustee. Held: under the facts of this case, the investment of 96 percent of the assets of T in securities of P and S does not justify the conclusion that the trust was not operated for the exclusive benefit of the employees within the meaning of sec. 401(a). 2.

Held, interest received on a purchase money mortgage is interest for personal holding company income purposes. Held: interest received on a purchase money mortgage is interest for personal holding company income purposes.

Petitioners made gifts in trust for the benefit of their minor grandchildren. Held: the term heirs at law is not equivalent to the term estate for purposes of sec. 2503(c)(2)(B), I.R.C. 1954, and, therefore, gifts in issue not eligible for annual exclusion.

At the time of his death, decedent owned an interest in a salt royalty relating to subsurface deposits in certain land; he and the other owners of the… Held: decedent's estate is not entitled to an estate tax charitable deduction under sec. 2055, I.R.C. 1954, for the gift of the remainder interest to the church because it failed to establish that the gift was a remainder interest in a personal residence or farm within the intendment of sec. 2055(e)(2) of the Code and sec.…

Petitioner, a cash basis taxpayer, had consistently deducted bonuses paid to its president and sole stockholder on the accrual basis. Held: respondent did not err in requiring petitioner to deduct these bonuses in the year actually paid under sec. 446, I.R.C. 1954.

Action for declaratory judgment under sec. 7428(a), I.R.C. 1954. Held: on the facts established by the administrative record and assumed to be true, petitioner was not organized and operated exclusively for religious purposes and thus is not qualified for exemption from taxation pursuant to sec. 501(a) as an organization described in sec. 501(c)(3).

In transfers governed by sec. 83(a), I.R.C. 1954, petitioners received Mattel stock. Held: the trading prices of Mattel common stock on the New York Stock Exchange established the fair market value of the shares received by petitioners in spite of the concealments and misstatements of Mattel's financial condition. Estate of Wright v. Commissioner, 43 B.T.A. 551 (1941), followed.

In 1973 C corporation redeemed all of its stock held by the petitioning trust. Held: because of the waiver agreement filed on behalf of petitioner by the trustees, the stock of the mother of the beneficiary of petitioner cannot be attributed to petitioner, and the distribution in redemption of petitioner's stock in C corporation should be treated under sec. 302(a) as a distribution in exchange for the stock in a…

Held, petitioner's 12-year useful life on depreciable equipment approved. Held: petitioner's 12-year useful life on depreciable equipment approved. Held, further, loan expenses have indeterminable useful life and therefore are not subject to amortization. Held, further, petitioner's expenses incurred in reimbursing a foreign subsidiary for foreign taxes it paid are not deductible under sec. 162, I.R.C. 1954.

Petitioner and her ex-husband timely filed joint income tax returns for 1969 and 1970; they were divorced in 1971. Held: Petitioner's motion denied; even if the notice of deficiency was not mailed to petitioner's last known address, the notice was nevertheless valid because petitioner received the notice in sufficient time to file a timely petition, and did so file. Sec. 6212, I.R.C. 1954.

Held, a noncompetent Indian is taxable on compensation received as chairman of the tribal council from funds which had their source in receipts and revenues that the tribe as a whole derived directly… Held: a noncompetent Indian is taxable on compensation received as chairman of the tribal council from funds which had their source in receipts and revenues that the tribe as a whole derived directly from tribal lands.

Petitioner, a former United States Civil Service employee, was retired on disability as of Nov. 24, 1974, prior to his reaching the mandatory retirement age. Held: petitioner is not entitled in 1975 under sec. 72(d), I.R.C. 1954, to exclude from his gross income the $ 5,679 in excess of the sick pay exclusion as a recovery of his contributions to the retirement system.

Held, under the facts and circumstances of this case, a second leasehold mortgage note had no ascertainable fair market value in 1970 for purposes of determining whether there was a gain on a sale… Held: under the facts and circumstances of this case, a second leasehold mortgage note had no ascertainable fair market value in 1970 for purposes of determining whether there was a gain on a sale within the meaning of sec. 1001, I.R.C. 1954.

Petitioner had both a qualified profit-sharing plan and a qualified money purchase pension plan. Held: No sec. 404(a)(7) carryover deduction was created by petitioner's contributions to its pension plan in excess of the limits set in sec. 404(a)(1).

Held, although written agreements provided for quaranteed payments to petitioner in liquidation of his purported interest in a partnership, petitioner had… Held: although written agreements provided for quaranteed payments to petitioner in liquidation of his purported interest in a partnership, petitioner had offered strong proof that the payments were actually for the sale of his interest in another partnership to unrelated third parties, and thus constituted capital gains.

Respondent issued a joint notice of deficiency to John H. Baron and Ruby A. Baron after an involuntary petition in bankruptcy had been filed against John but while the bankruptcy proceeding was still… Held: The Tax Court lacks jurisdiction as to John H. Baron but has jurisdiction with respect to Ruby A. Baron. Petitioners' motion to dismiss for lack of jurisdiction granted as to John H. Baron and denied with respect to Ruby A. Baron.

Petitioner's only activity was owning warehouses which it leased to an operating company wholly owned by petitioner's sole stockholder and two vacation properties leased to its sole stockholder. Held: Petitioner was a mere holding company within the meaning of sec. 533(b), I.R.C. 1954, during its fiscal years 1972 and 1973.

The premiums on an employee annuity contract were paid by an employer and qualified for exclusion from the gross income of the employee under sec. 403(b), I.R.C. 1954. Held: a policy loan under the employee annuity contract was not includable in the employee's gross income as an amount received under the annuity contract. Sec. 72(e)(1)(B), I.R.C. 1954.

Teofilo Evangelista (petitioner) in July 1972 borrowed $ 106,000 and used $ 102,670 of the proceeds to purchase 33 vehicles which were under lease to the Government. Petitioner was personally liable on the indebtedness which was secured by the 33 vehicles. Petitioner deducted depreciation totaling $ 68,466.66 on the vehicles on a double declining balance method for the period July 1972 to July 3, 1973, which left him a basis of $ 28,400.02 in the 33 vehicles on July 3, 1973. On that date, the balance due on petitioner's indebtedness which was secured by the 33 vehicles was $ 62,603.36. On July 3, 1973, petitioner transferred the 33 vehicles to a trust for his children, and the trustee of the trust, as trustee, assumed and paid petitioner's $ 62,603.36 indebtedness. Held: Petitioner realized a gain from the assumption of his indebtedness upon the transfer of the 33 vehicles to the trust of the difference between the amount of his indebtedness assumed and his basis in the 33 vehicles. This gain is ordinary income under sec. 1245, I.R.C. 1954. Turner v. Commissioner, 49 T.C. 356 (1968), affd. per curiam410 F.2d 752 (6th Cir. 1969); Hirst v. Commissioner, 63 T.C. 307 (1974), affd. 572 F.2d 427 (4th Cir. 1978); Estate of Henry v. Commissioner, 69 T.C. 665 (1978), on appeal (6th Cir., May 5, 1978), distinguished.

Petitioner engaged in activities relating to est programs involving training, seminars, lectures, etc., in areas of intrapersonal awareness and… Held: in an action for a declaratory judgment under sec. 7428(a), I.R.C. 1954, petitioner's activities, although educational in nature, served the commercial purposes of the for-profit corporations and petitioner was therefore not operated exclusively for exempt purposes within the meaning of sec. 501(c)(3), I.R.C. 1954.

Petitioners, cash basis taxpayers, invested as limited partners in a cash basis partnership cattle-feeding operation in mid-December 1972 whereupon the partnership in the last few days of the 1972… Held: petitioners proved an adequate business purpose in this case and no material distortion of income resulted. Sandor v. Commissioner, 62 T.C. 469 (1974), affd. 536 F.2d 874 (9th Cir. 1976), followed. Held, further, sec. 1.461-1(a)(1), Income Tax Regs., not applicable.

Ps were members of a partnership which held stock in BAC. In 1972, such stock became worthless, and Ps claimed an ordinary loss on the basis that such stock qualified as "section 1244 stock." Some of BAC's records were transferred to the IRS and now cannot be located. Held: 1. The loss of records does not cause the burden of proof to shift to the Commissioner to show that the stock did not qualify as sec. 1244, I.R.C. 1954, stock; based on the secondary evidence presented by Ps, they have failed to prove that the stock did qualify as sec. 1244 stock. 2. Ps have failed to prove that, in the alternative, they are entitled to deduct their loss as a business bad debt. 3. Ps, who argued the audit of one of the partners was allegedly closed on the basis of allowing him to treat his share of the loss as a nonbusiness bad debt, are not entitled to treat the loss as a nonbusiness bad debt.

The State of Washington contractually conveyed certain timber to taxpayer. The contract provided for a removal period which expired Dec. 31, 1971. Subsequent agreements extended the removal period. Held: for purposes of sec. 631(a), I.R.C. 1954, taxpayer owned or held the timber for the requisite period. Held, further, the fair market value of the sec. 631(a) timber was determined as of May 1, 1971, May 1, 1972, and May 1, 1973.