Volume 72 — Tax Court Reports

Petitioner purchased Ranch with extensive irrigation system. Held: Useful life of system indeterminable and hence nondepreciable. Held: Useful life of system indeterminable and hence nondepreciable. Rather than adopting a program of annual maintenance, petitioner elected to permit the irrigation system to deteriorate over a period of years until it became dysfunctional.

On Apr. 12, 1978, respondent mailed a notice of deficiency for 1974 to petitioners at an incorrect address, and the notice was returned to the Internal Revenue Service. On Apr. 26, 1978, more than 3 years after petitioners' income tax return for 1974 was filed, respondent mailed the notice to petitioners at another address. Petitioners filed their petition in this Court on July 11, 1978. Held, assessment of a deficiency in petitioners' income tax for 1974 is barred by the 3-year statute of limitations prescribed by sec. 6501(a), I.R.C. 1954.

Ps owned a Vermont lodge which they rented to others. Over a number of years, they incurred substantial losses in the operation of such lodge, but they never used it for personal purposes. Held: based on all the facts and circumstances of this case, the operation of the lodge was an activity engaged in for profit under sec. 183, I.R.C. 1954.

A separation agreement merely provided that the child support to be furnished by the husband shall exceed one-half of the total support of each child. Held: such provision does not satisfy the requirement of sec. 152(e)(2)(A)(i), I.R.C. 1954.

Petitioner was organized under the General Nonprofit Corporation Law of the State of California. Its articles of incorporation list as specific and primary purposes increasing international understanding, making available information about world opinion and events by translating information from foreign news media, and providing resources for students and the community. It publishes and sells below cost a biweekly bulletin of translations from the foreign press, maintains a library of translated and untranslated materials which is open to the public, and provides free translations to scholars. Held, respondent erred in denying petitioner's application for exemption under sec. 501(c)(3), I.R.C. 1954.

Held: 1. Under sec. 1251(c)(2), I.R.C. 1954, gain realized on the disposition of farm recapture property is treated as ordinary income to the extent of the amount in the taxpayer's excess deductions… Held: Under sec. 1251(c)(2), I.R.C. 1954, gain realized on the disposition of farm recapture property is treated as ordinary income to the extent of the amount in the taxpayer's excess deductions account (EDA) as computed under sec. 1251(b) at the close of the taxable year; 2.

Decedent created an inter vivos trust into which he transferred a substantial portion of his assets. He retained the right to income for life and to invade the corpus for his own benefit. Held: decedent's estate properly deducted the value of marital portion under sec. 2056(a), I.R.C. 1954; the interest passing under the marital trust qualifies for deduction under sec. 2056(b)(5) and is not otherwise disqualified under sec. 2056(b)(1).

On May 30, 1978, our findings of fact and an opinion were filed in this case (70 T.C. 373 (1978)), which, in part, sustained respondent's determination that… Held: Petitioner is not liable for the deficiencies in tax asserted by respondent under sec. 4941(b)(1). 2. Upon reconsideration of the matter, the transitional rule is not applicable to any acts of self-dealing in which petitioner or Automatic Accounting Co. engaged. Adams v. Commissioner, 70 T.C. 373 (1978), modified.

Held, petitioners are precluded by applying the doctrine of equitable estoppel from asserting that the taxable income or losses of… Held: petitioners are precluded by applying the doctrine of equitable estoppel from asserting that the taxable income or losses of Sangers Home for Chronic Patients, Inc., from the operation of a nursing home business for the years 1966 through 1971 should have been reported by an individual proprietorship from 1966 to May 4, 1967, and by…

A qualified profit-sharing plan provided that seasonal employees were not eligible to participate in the plan and defined seasonal employees to include all individuals working… Held: compensation paid to individuals employed less than 5 months was not includable in compensation paid to employees under the * * * plan for purposes of determining the 15-percent-of-compensation limitation on deduction of contributions to a profit-sharing plan. Sec. 404(a)(3)(A), I.R.C. 1954.

Petitioner, a tax protester, filed a Form 1040 for 1976, in which he listed no gross or taxable income despite $ 10,836.44 in W-2 wages. Held: judgment is granted to respondent by default for the deficiency set forth in the statutory notice. Held, further, respondent has sustained his burden of proof as to the negligence penalty determined by amended answer.

P was the president of F, a private foundation. Held: F has the burden of proof with respect to sec. 4945(a)(1), and it failed to establish that its expenditures were not taxable expenditures subject to such section. 2. No deficiencies in tax exist under sec. 4945(b)(1) and (2). Adams v. Commissioner, 72 T.C. 81 (1979), followed.

Rocco, Inc., the parent corporation, operated primarily as a poultry feed mill and contract grower of poultry, principally broilers. Held: The principal purpose for acquiring Broiler Farms and Turkey Farms was not evasion or avoidance of tax by securing the benefit of deductions, credits, or other allowances which Rocco, Inc., and Turkeys, Inc., would not otherwise have enjoyed.

Petitioner owned and operated a truck stop. During the years in issue, petitioner permitted its earnings and profits to accumulate. Held: in applying the Bardahl formula to determine petitioner's working capital needs, petitioner's estimated tax payments are an operating expense. Held, further, petitioner's cash sales, as well as its credit sales, are included in the determination of the duration of petitioner's accounts receivable cycle under the formula.

Petitioner received a distribution under the special reserve provision of a life insurance contract which provided, in addition, for a $ 5,000 life insurance benefit. Held: The special reserve provisions were inseparable from the life insurance provisions. The term aggregate premiums in sec. 72(e)(1)(B), I.R.C. 1954, as applied to the facts of this case, refers to all premiums paid under the policy.

T, a traveling salesman, resided in his family home in McLean, Va. Held: Philadelphia is T's tax home. T's decision to maintain his residence and to perform his office tasks outside of his sales territory was personal; accordingly, T may not deduct under sec. 162(a)(2), I.R.C. 1954, the costs of travel between his residence and Philadelphia, or the costs of food, lodging, and travel in the Philadelphia…

Decedent was sole shareholder of a corporation which owned a split dollar life insurance policy on decedent's life. Held: the corporation, and thus decedent, possessed sufficient incidents of ownership in the policy, within the meaning of sec. 20.2042-1(c)(6), Estate Tax Regs., to cause the proceeds of the policy to be included in decedent's gross estate.

Petitioner entered into 18 forward sale agreements to offset (1) a potential decline in the value of its investment in certain foreign… Held: The forward sale agreements do not constitute bona fide hedging transactions in commodity futures and the gains and losses realized from them are not ordinary gains and losses but capital gains and losses. 2. The Corn Products Refining Co. v. United States, 350 U.S. 46 (1955), doctrine is not applicable to these transactions.

Petitioner alleged that he mailed his petition on the 90th day after respondent had mailed the statutory notice of deficiency. Held: even assuming the facts as alleged by petitioner are correct, this Court lacks jurisdiction. Drake v. Commissioner, 554 F.2d 736 (5th Cir. 1977), affg. an unreported Tax Court order, followed.

After separation from a partnership, petitioner was to receive a sec. 736, I.R.C. 1954, payment over the course of 5 years. Held: the sec. 736(a) and (b) amounts determined. Held, further, sec. 1.736-1(b)(5), Income Tax Regs., applied to the sec. 736 payments. Held, further, petitioner failed to meet his burden of proof with respect to an alleged investment credit, an alleged loss, and infringement of his constitutional rights.

Held, depreciation is not an expense paid for purposes of sec. 213, I.R.C. 1954. Held: depreciation is not an expense paid for purposes of sec. 213, I.R.C. 1954.

The petitioner was set up to provide a fund for the purpose of giving scholarships to contestants in the Miss Georgia Pageant. Held: The only activity engaged in by the petitioner was the awarding of so-called scholarships to participants in the Miss Georgia Pageant. Such scholarships were awarded in consideration of certain contractual obligations assumed by the participants.

Petitioner, a corporation which was not a holder as defined in sec. 1235(b), I.R.C. 1954, received payments during the years in issue from the sale of its Japanese patents, patent and… Held: The payments do not come within the unstated interest exception provided in sec. 483(f)(4) because such transfer is not one which is described in section 1235(a). The provisions of sec. 483(a) are applicable. Busse v. United States, 211 Ct. Cl. 247, 543 F.2d 1321 (1976), followed.

Pursuant to Pennsylvania's Code of Professional Responsibility, petitioners' cash method calendar year law partnership transferred client advances to a special… Held: the law firm is in constructive receipt of the earned portion of the advances held in the account at the end of 1972. Held, further: Respondent's change in the firm's method of accounting under sec. 481, I.R.C. 1954, approved. Petitioner Fierro deducted a business bad debt in 1971 resulting from a stock sale.

P was a limited partner in five limited partnerships. In 1971 or 1972, each of such partnerships invested in real estate improved by unprofitable vineyards. The partnerships held the land for resale and rented the vineyards. In addition, each limited partnership made a quaranteed payment within the meaning of sec. 707(c), I.R.C. 1954, to the general partner for services performed by the general partner in connection with organizing and syndicating the partnership. 1. Held, to be deductible, a guaranteed payment under sec. 707(c) made by a partnership engaged in a trade or business must meet the requirements of secs. 162 and 263, I.R.C. 1954. Cagle v. Commissioner, 63 T.C. 86 (1974), affd. 539 F.2d 409 (5th Cir. 1976), followed. 2. Held, further, the costs of organizing and syndicating a limited partnership are capital expenditures under sec. 263 and, therefore, not deductible by the partnership under sec. 162(a). 3. Held, further, grapevines are not "tangible personal property" within the meaning of sec. 179(d), I.R.C. 1954. 4. Fair market value of the grape vines determined.

Taxpayer's petition was received and filed by the Tax Court on Aug. 8, 1978, which was the 96th day after the notice of deficiency was mailed. The envelope enclosing the petition was addressed, in printing, to Internal Revenue Service, P.O. Box 1458, Central Station, St. Louis, Mo. 63188. The address was crossed out in ink and the correct address of the Tax Court in Washington, D.C., was written in ink, but the name of the addressee was not changed. The date of the postmark on the envelope was illegible to the naked eye. At the Court's request, the Postal Service Crime Laboratory determined the postmark date to be Aug. 2, 1978, the 90th day after the mailing of the notice of deficiency. Held: Respondent's motion to dismiss for lack of jurisdiction granted. While it was established that the envelope in which the petition was mailed was timely postmarked under sec. 7502, I.R.C. 1954, the envelope did not meet the further requirement of sec. 7502, I.R.C. 1954, that it be properly addressed to the office with which the petition was required to be filed. Sec. 7502, I.R.C. 1954, is not applicable, and the petition was not timely filed under sec. 6213(a), I.R.C. 1954; hence, the Court has no jurisdiction.

P commenced construction of a paper processing machine prior to Apr. 19, 1969. Held: property, the construction of which commenced by the taxpayer prior to Apr. 19, 1969, is not subject to sec. 49(a), I.R.C. 1954, which turned off the investment credit for property constructed or acquired after such date, and such property is eligible for the credit without regard to sec. 49(b), relating to pre-termination property.

Held: A property settlement agreement entered on May 2, 1972, between petitioner and his former wife, incorporated in their divorce decree of the same date, did not call for an approximately equal… Held: A property settlement agreement entered on May 2, 1972, between petitioner and his former wife, incorporated in their divorce decree of the same date, did not call for an approximately equal division of their community property but for a sale or exchange.

During 1973, petitioner's husband along with two other individuals was involved in a scheme to defraud the Federal Government by filing false income tax refund claims with the Internal Revenue Service. Held, under Texas law a portion of the income petitioner's husband derived from this illegal scheme is community property and, therefore, petitioner is taxable on one-half of such portion. Held, further, petitioner is entitled to deduct under sec. 212(1), I.R.C. 1954, a portion of the legal fees paid in connection with her husband's unsuccessful defense of the criminal charges brought against him as a result of his participation in the fraudulent refund scheme.

Petitioners constructed a new house intending to make it their home and moved most of their furniture into it in late 1976. They spent some weekends in the new house. Held: petitioners are not entitled to the credit provided for by sec. 44(a), I.R.C. 1954, for the construction of a new principal residence since they did not meet the requirement of sec. 44(e)(1)(B) that to be a new principal residence the newly constructed house must be occupied by them prior to Jan. 1, 1977.

Held: Petitioner not entitled to relief from liability under the innocent spouse provision of sec. 6013(e), I.R.C. 1954. A reasonably prudent taxpayer with her knowledge of the family finances had reason to know of the income omission.

Held: On these facts the initiation fee paid to become a member of the New York Stock Exchange is an amount paid in connection with the acquisition of a capital asset. Held: On these facts the initiation fee paid to become a member of the New York Stock Exchange is an amount paid in connection with the acquisition of a capital asset. As such it represents a capital expenditure to be included as part of the cost basis of the membership.

Motion to quash subpoena for church's membership lists and certain other records, denied.

Petitioner was incorporated under the laws of New Jersey on Oct. 6, 1976. Held: Respondent's ruling position as to proposed transactions does not constitute a determination under sec. 7428(a)(1), I.R.C. 1954, with respect to the continuing qualification of petitioner as a sec. 501(c)(3), I.R.C. 1954, organization since its tax-exempt status has not been revoked. Respondent's motion to dismiss is granted.

Petitioner husband formed a professional corporation which elected subchapter S status. Held: the pension plan contribution constituted, in part, an unreasonable compensation allowance for services rendered by petitioner during the corporation's first (14-day) taxable year and petitioners' net operating loss deduction is limited accordingly. Bianchi v. Commissioner, 66 T.C. 324 (1976), affd.

Held, a nonresident alien who becomes a limited partner in a New York partnership doing business in the United States is taxable on transactions consummated in the United States during the taxable year but prior to the time when such partnership commenced to do business in the United States. (Sec. 875.)

On Nov. 16, 1973, P, an Illinois corporation, was dissolved for failing to pay its State franchise taxes. Held: Under sec. 6212, I.R.C. 1954, in the absence of a notice of fiduciary relationship, the Commissioner is authorized to send a notice of deficiency to a dissolved corporation. 2.

Petitioner, a charitable private foundation, had income in 1970, 1971, 1972, 1973, and 1974. Held: Petitioner's application of income to restoration of its own previously depleted corpus did not constitute repayment of pre-1970 borrowing within the meaning of sec. 53.4942(a)-3(a)(4)(ii)(a), Foundation Excise Tax Regs. Hence, petitioner is liable for the initial 15-percent tax under sec. 4942(a) on failure to distribute income.

Ps operated an Arabian horse-breeding venture. Over a number of years, they incurred substantial losses in such operation, and in no year did the operation make a profit. Held: based on all the facts and circumstances, including the tax benefit expected from the deduction of the losses, the horse-breeding activity was not conducted for profit within the meaning of sec. 183, I.R.C. 1954.

Petitioner, a bank officer responsible for marketing loans, participated in vacation tours attended primarily by builders because social relationships with… Held: expenditures for petitioner's vacation tours were ordinary and necessary business expenses. Sec. 162(a)(2), I.R.C. 1954. Held, further, vacation tours constituted an entertainment, amusement, or recreation activity for purposes of sec. 274(a), I.R.C. 1954, and were subject to the requirements of that section.

When this case was commenced, Ps elected to have it heard as a small tax case under sec. 7463, I.R.C. 1954. Held: since the case is no longer subject to sec. 7463, the Commissioner is not barred from raising a new issue that results in a claim of a deficiency in excess of the limits under such section.

For its taxable year ending Dec. 31, 1974, petitioner, an automobile dealer, properly elected to change its inventory valuation with respect to its new car and new truck inventory from… Held: the addition of a catalytic converter and a solid-state ignition system did not make the 1975 Ford vehicle a different item than the 1974 Ford vehicle within the meaning of sec. 1.472-8(e)(2)(iii), Income Tax Regs., and, thus, no adjustment need be made to petitioner's base-year costs.

Citrus, a corporation wholly owned by M and S, received virtually all of its income from medical service fees earned by M and S. Citrus set up an educational plan and trust to provide funds for the college education expenses of the children of M and S. Held, in view of the control retained by Citrus over the amounts of funds purportedly transferred to the trust in the taxable years 1974 and 1975, those amounts were not "paid or incurred" within the meaning of sec. 162(a)(1), I.R.C. 1954, as compensation to M and S in those taxable years. Held, alternatively, if such amounts were paid or incurred, sec. 404(a)(5), I.R.C. 1954, and related regulations forbid their deduction in those taxable years.

Post-death interest accrued on debts incurred by decedent not renewed by the executors is deductible as administration expense under sec. 2053(a)(2), I.R.C. 1954. Executors were unable to liquidate debts without selling illiquid assets of the estate at sacrifice prices.

Held, upon the facts of this case, a landowner's costs of negotiating a prospective long-term lease of an unimproved tract of land and… Held: upon the facts of this case, a landowner's costs of negotiating a prospective long-term lease of an unimproved tract of land and the costs (except for one item) of an unsuccessful attempt to have the land rezoned are deductible as an abandonment loss, upon termination of the lease transaction, which was contingent upon obtaining the…

Petitioner held a 50-percent remainder interest in a testamentary trust created in 1937 by the will of her father. In 1970, when the life tenant of the trust expired, petitioner executed a disclaimer of her remainder interest which was unequivocal and effective under New Jersey law. Held, the disclaimer was not made within a reasonable time as required by sec. 25.2511-1(c), Gift Tax Regs. Keinath v. Commissioner, 480 F.2d 57 (8th Cir. 1973), distinguished. Held, further, petitioner is not liable for any additions to tax under sec. 6653(a), I.R.C. 1954.

Allocation of purchase price between goodwill and covenant not to compete determined. Strong-proof doctrine applied. Harvey Radio Laboratories, Inc. v. Commissioner, 470 F.2d 118 (1st Cir. 1972). Word order for purposes of sec. 50(a)(2)(B), I.R.C. 1954, and the investment credit defined. Sec. 50(a)(2)(B) applied.

Petitioner is the successor in interest to National General Co., which in turn was the successor in interest to Great American Holding Co. In various years prior to 1960, Great American Insurance… Held: that petitioner is entitled to exclude from its gross income that portion of its 1966 salvage and subrogation recoveries which are related to its pre-1960 losses incurred which were deducted without tax benefit.

Individual A owned 100 percent of the stock of corporate petitioner X and corporation Y. X's principal business was the leasing of real estate and trucks to Y. Held, individual A, through his… Held: individual A, through his ownership of Y's stock, will not be treated as an individual entitled to the use of X's property under sec. 543(a)(6), I.R.C. 1954.

Held: 1. Since petitioner's computation of cost of coal consumed in generating electric power on the basis of average monthly cost per ton of coal purchased clearly reflected its income because, except on rare occasions, petitioner used each month the same amount of coal purchased that month, respondent abused his discretion in changing petitioner's method of computing cost of coal consumed to in effect an inventory method on a first-in, first-out basis. 2. Petitioner's agreement with two other electric utility companies for construction and operation of a nuclear power plant created a partnership for Federal income tax purposes and startup costs of the partnership are capital expenditures and not deductible ordinary and necessary business expenses under sec. 162(a), I.R.C. 1954. 3. Fair market value of two parcels of real estate contributed by petitioner to a charitable organization determined on basis of the evidence.

Petitioner formed a joint venture with Babcock Co. to complete development of an apartment complex. Babcock Co. previously had obtained the land and begun construction. Held: the allocation of 100 percent of the losses to petitioner is not a bona fide allocation for Federal tax purposes since the allocation does not correspond to the actual basis upon which the parties agreed to share the economic profits and bear the economic losses of the joint venture.

Petitioner executed three agreements with owners of rock, sand, and gravel deposits. Held: on the facts, production under the Munroe and Newson agreements and the Coe agreement through May 1972 was depletable. Held, further, production under the Coe agreement after May 1972 was not depletable since the agreement could be canceled without notice.

T, an accrual basis taxpayer, is a former member of an affiliated group of corporations that filed consolidated returns. Held: T is precluded by sec. 275, I.R.C. 1954, from deducting the portion of its liability under the sharing agreement found to represent Federal income taxes.

In 1971 petitioner, an accrual basis taxpayer, acquired the printing and publishing assets of Miracle Pet Products, Inc., under a written agreement and amendment thereto. Held: The evidence was insufficient to prove that the parties intended that unascertained obligations from Miracle to Axelrod were to be offset against the credit for future advertising given to Miracle by petitioner as part of the purchase price or to permit varying the terms of the written agreement. 2.

Petitioner donated land to A Nation In One Foundation, Inc., to be used for the establishment of a cultural, educational, and medical center for the benefit of all native Americans. Held: the agreement and deed granting the property to A Nation In One Foundation, Inc., must be read together, under California law, as one instrument.

Petitioners operated an American saddle-bred horse-breeding venture. Petitioners did most of the work on their horse ranch themselves, and did not use the horses or the ranch for personal pleasure. Held: on the facts, the horse-breeding operation was an activity engaged in for profit under sec. 183, I.R.C. 1954.

Petitioners, who collectively owned 50 percent of the shares of a subch. Held: petitioners' continued use of the investment credit property in a ranching activity after liquidation did not qualify as a mere change in the form of conducting a trade or business under sec. 47(b), and petitioners are liable for the recapture tax imposed by sec. 47(a) on the premature disposition of investment credit property.

The Tax Reform Act of 1976, enacted on Oct. 4, 1976, amended the minimum tax provisions, effective for all taxable years beginning after December 31, 1975. Held: the provision of the Tax Reform Act of 1976, making the new base and rate for the application of the minimum tax provisions retroactive to taxable years beginning after Dec. 31, 1975, is not unconstitutional.

Petitioner is the nonprofit incorporation of the department of anesthesiology of a sec. 501(c)(3), I.R.C. 1954, teaching hospital. Held: respondent erred in failing to rule favorably on petitioner's application for exemption under sec. 501(c)(3).

Petitioner is a nonprofit corporation that operates a pharmacy, selling drugs at cost to elderly and handicapped persons. Held: Petitioner operates a pharmacy primarily for commercial purposes as it sells drugs at a discount determined by its cost, with no provision for sales below cost to the elderly and handicapped, in competition with profitmaking drug stores.

Held, under the facts and circumstances, contracts for deed received by the developer of a red flag subdivision on the sale of lots had no ascertainable fair market value and petitioner is entitled… Held: under the facts and circumstances, contracts for deed received by the developer of a red flag subdivision on the sale of lots had no ascertainable fair market value and petitioner is entitled to report the transactions on the cost recovery method.

Petitioner, a pilot for a commercial airline, suffered a heart attack from which he eventually made a full recovery. Because of a regulation of the Federal Aviation Administration (FAA), however, petitioner was permanently disqualified from holding the FAA medical certificate necessary to retain his pilot's license. As a result, petitioner was eligible for benefits under the commercial airline's Loss of License Plan for Pilots. Held, petitioners were not entitled under sec. 105(c), I.R.C. 1954, to exclude payments received under the plan from their gross income because (1) the damage to petitioner's heart did not constitute the permanent loss of or loss of use of a member or function of the body, and (2) the payments were not computed with reference to the nature of the injury.

On Oct. 1, 1961, Joseph G. Gokey created irrevocable trusts for his children and a trust granting his wife a life estate with remainder over equally to the children's trusts. Held: children's trusts were support trusts and, therefore, decedent's gross estate includes value of the trusts' assets under sec. 2036, I.R.C. 1954. Held, further, value of children's trusts' remainder interests determined.

Held: 1. Under sec. 1.165-3(b)(1), Income Tax Regs., the demolition cost of a roof to a building used in petitioner's business so that a second floor could be added to that building is a deductible… Held: Under sec. 1.165-3(b)(1), Income Tax Regs., the demolition cost of a roof to a building used in petitioner's business so that a second floor could be added to that building is a deductible loss; 2.

Petitioner owned 30 percent of M corporation. Held: although petitioner was not contractually obligated to sell its shares to M, there was a fixed plan to terminate its interest and the redemptions meet the requirements of sec. 302(b)(3), I.R.C. 1954.

Held: Sec. 214(e)(4), I.R.C. 1954, which disallows a deduction for payments made to relatives described in paragraphs (1) through (8) of sec. 152(a), does not violate the due process clause of the… Held: Sec. 214(e)(4), I.R.C. 1954, which disallows a deduction for payments made to relatives described in paragraphs (1) through (8) of sec. 152(a), does not violate the due process clause of the Fifth Amendment to the Constitution.

Held: Sec. 219(b)(2), I.R.C. 1954, which disallows a deduction for a contribution to an individual retirement account (IRA) by an active participant in a qualified retirement plan, does not violate… Held: Sec. 219(b)(2), I.R.C. 1954, which disallows a deduction for a contribution to an individual retirement account (IRA) by an active participant in a qualified retirement plan, does not violate the due process clause of the Fifth Amendment to the Constitution.

Decedent exchanged like kind property on July 1, 1968, which he held as a tenant in common with his son. Held: the amount received as boot was properly includable in decedent's taxable income since the exchange of properties occurred during the taxable year of decedent's partnership which ended on Dec. 31, 1968, within decedent's taxable year ended on July 31, 1969.

Cherokee, a closely held warehousing corporation, had paid its general manager, James, under an incentive compensation arrangement since its incorporation in 1951. Held: a reasonable allowance for compensation is determined. Held, further, the amounts paid in excess of the reasonable allowance for compensation are not earned income for purposes of the maximum tax provisions of section 1348, I.R.C. 1954.

In his income tax return for 1969, petitioner deducted $ 54,500 as interest paid on indebtedness incurred to purchase real property. In 1972, the interest payment was refunded. Held: in the light of all the facts, petitioner had a duty to treat the transaction consistently in both 1969 and 1972, and the interest refund is taxable in the latter year under the tax benefit rule.

Petitioner refused to file Federal income tax returns or pay income taxes on the grounds that the Treasury Department allegedly violates the regular Statement and Account clause of the Constitution,… Held: petitioner lacks standing under Flast v. Cohen, 392 U.S. 83 (1968), because the Statement and Account clause is a limitation on the power of the Executive Branch and not a restriction on Congress in exercising its taxing and spending power.

In 1973, petitioner-husband, a partner in a business in which both capital and services are material income-producing factors, received from the partnership both distributions which are treated for the purposes of this case as guaranteed payments, within the meaning of sec. 707(c), I.R.C. 1954, and a distributive share of the partnership's income, gains, losses, and deductions. Held, for the purposes of the maximum tax under sec. 1348, I.R.C. 1954, petitioners' earned income is limited to an amount which does not exceed 30 percent of the sum of the guaranteed payments plus petitioner-husband's share of net profits.

In June 1973, a State court ordered temporary custody of petitioner's daughter be placed with his estranged wife. The daughter remained in the custody of the wife throughout 1973 and 1974. Held: the daughter's principal place of abode for calendar year 1974 was with her mother and therefore petitioner was not entitled to file his tax return as head of household.

Taxpayer, a foreign service officer, incurred expenses while on required home leave. Held: After carefully considering Hitchcock v. Commissioner, 578 F.2d 972 (4th Cir. 1978), and Stratton v. Commissioner, 448 F.2d 1030 (9th Cir. 1971), we respectfully decline to follow the reasoning therein and hold that such expenditures are not deductible under sec. 162, I.R.C. 1954.

This case is before us on petitioner's motion for reconsideration of our decision in Lane-Burslem v. Commissioner, 70 T.C. 613 (1978). Held: Petitioner's constitutional challenge to Louisiana law is self-defeating. If it were assumed that the statute was unconstitutional, the result would nonetheless be the same: the taxpayer's husband would not have a one-half interest in the taxpayer's earnings. Therefore, it is unnecessary to reach the constitutionality of the law.

Petitioner is the successor by merger to ACL, an interstate railroad which used the retirement-replacement-betterment method of accounting for its track structure during the years at issue. Held, during the years at issue: 1. In applying the retirement-replacement-betterment method of accounting, the deductions claimed by ACL for rail replaced or retired along its lines must be reduced by the fair market value of the rail which is recovered for reuse, i.e., relay rail. Louisville & Nashville Railroad Co. v. Commissioner, 66 T.C. 962 (1976), on appeal (6th Cir., June 2, 1978), followed. 2. The fair market value of such relay rail is determined. 3. Respondent's computation of the adjustments to ACL's taxable income resulting from the implementation of the fair market value standard for valuing relay rail is approved, with one exception: the adjustment in any year is limited to the deduction claimed by the railroad for rail replacements and retirements. 4. ACL is not entitled to a deduction under sec. 165 or sec. 167, I.R.C. 1954, in connection with the purported abandonment or retirement of certain railroad grading. Such grading was neither permanently withdrawn nor abandoned within the meaning of sec. 1.165-2(a) or sec. 1.167(a)-8(a), Income Tax Regs.

Action for declaratory judgment as to reasonableness of respondent's determination under sec. 7477(a), I.R.C. 1954. Held: on the facts established by the administrative record and assumed to be true, respondent's determination was not reasonable.

In late 1966, Howard R. Hughes (Hughes) moved to Las Vegas, Nev., where he resided until sometime in 1970. Held: the granting of the loan at a preferential rate of interest represented consideration given by Hughes in exchange for a quid pro quo from petitioner. 2. Held, further, under the facts of this case, petitioner realized no taxable income from receipt of the loan proceeds. Dean v. Commissioner, 35 T.C. 1083 (1961), followed.

Petitioners excluded from income reimbursements they received for moving expenses incurred when they retired in 1973 from employment with… Held: the reimbursements were properly excluded from income under sec. 911, I.R.C. 1954, pursuant to the grandfather clause thereto, sec. 1.911-1(c)(2), Income Tax Regs., because they were amounts to which petitioners had a right as of Mar. 12, 1962, based on the Aramco employment contract in force at that time, and they constitute…

1. In 1960, decedent established an inter vivos irrevocable pour-over family trust to pay fixed annuities to certain beneficiaries. Held: decedent did not intend to and did not in fact reserve the power to amend the family trust, his attempt to amend the trust was ineffective under local law and, therefore, the value of the portion of the principal of the family trust attributable to decedent's contributions thereto is not includable in his gross estate under either…

The husband-petitioner, an Associate Justice of the Court of Appeal of the State of California, is an active participant in the State's pension plan for judges and is required by law to make… Held: the contributions are includable in petitioners' gross income. Held, further, this inclusion does not violate the due process clause of the Fifth Amendment to the Constitution. Held, further, the contributions are not deductible under sec. 162 or 212, sec. 164, or sec. 170.

Held: The dominant stockholders (who were also officers and employees) of a corporation did not realize taxable income by reason of interest-free loans to… Held: The dominant stockholders (who were also officers and employees) of a corporation did not realize taxable income by reason of interest-free loans to them by the corporation. Dean v. Commissioner, 35 T.C. 1083 (1961), followed. The principle of stare decisis is applicable in the light of the history of this issue.

Decedent's wholly owned corporation, engaged in the international insurance business, sought to treat a payment received in settlement of a lawsuit as gain from the sale or exchange of a capital… Held: such amount was paid for the corporation's right to receive present and future commission income as lost profits and is fully includable in gross income pursuant to sec. 61, I.R.C. 1954.

Certain individuals initially guaranteed a minimum rate of return on petitioner's investment in a joint venture. Held: the accrued payment is interest for personal holding company income purposes.

Held: Receivables arising from the extension of credit for gambling purposes do not represent taxable income until collected. Held: Receivables arising from the extension of credit for gambling purposes do not represent taxable income until collected. Petitioner's right to collect upon them is subject to the defense of the obligor that the receivables were incurred for gambling purposes.

Held, petitioner's 1973 franchise tax deduction determined within the guidelines of sec. 461(d), I.R.C. 1954. Held: petitioner's 1973 franchise tax deduction determined within the guidelines of sec. 461(d), I.R.C. 1954.

Venue for appeal of Tax Court cases lies in the judicial district in which the taxpayer resides. Sec. 7482, I.R.C. 1954. Held, for purposes of sec. 7482 the term residence means domicile. Held: for purposes of sec. 7482 the term residence means domicile. Held, further, expenditures incurred while taxpayer is on home leave are not deductible under sec. 162.

Donor made a gift of all the issued and outstanding stock of two investment corporations. Held: based on all the circumstances, for gift tax purposes: 1.

Under petitioner's noncontributory pension plan, a retirement benefit is not payable to an employee upon retirement unless he has at least 10 years of credited service at that time. Held: the plan fails to meet the requirements of sec. 411(a), I.R.C. 1954, and, therefore the trusts established thereunder are not qualified trusts under sec. 401(a).

Petitioner entered into a stock-for-stock tax-free reorganization agreement with A in 1966. Held: petitioner's receipt of shares of common stock in a tax-free reorganization was a deferred payment subject to the imputed interest rules of sec. 483, I.R.C. 1954. Solomon v. Commissioner, 67 T.C. 379 (1976), affd. 570 F.2d 28 (2d Cir. 1977) and affd. sub nom. Katkin v. Commissioner, 570 F.2d 139 (6th Cir. 1978), followed.

Petitioner was administrator of an estate and employed an attorney to represent the estate in the probate proceedings and tax matters. Held: Under 31 U.S.C. sec. 192, petitioner is personally liable for the additional tax. He had knowledge or notice that the tax was due the United States at a time when he had possession of sufficient assets of the estate to pay the tax, and it was his nondelegable duty to see that the tax was paid.

Held, fair market value of corporate distribution determined. Held: fair market value of corporate distribution determined. Held, further, since petitioner acquired a prohibited interest within a 10-year period as defined in sec. 302(c)(2)(A), I.R.C. 1954, distribution taxable as ordinary dividend.

Petitioner, as a tax protestor, filed Forms 1040 for the respective taxable years of 1972 and 1973 which disclosed only the names, address, and social security numbers of… Held: the documents filed by petitioner were not returns and though she is entitled to a credit of the estimated tax against the deficiency for the taxable year 1972, she is barred from recovering any excess of the estimated tax paid as a refund or credit under secs. 6511 and 6512(b)(2)(B), I.R.C. 1954.

Petitioner was a wine and liquor importer. At various times between 1957 and 1962, it released liquors from its bonded warehouse to an official of the Turkish Embassy. Held: 19 U.S.C. sec. 1592, as it stood prior to amendment in 1978, had both penal and remedial aspects. Held, further, the payments in this case were compensatory in nature and were not in respect of a fine or similar penalty within the meaning of sec. 162(f), I.R.C. 1954.

T and P entered into an equal partnership agreement. Held: T is entitled to deduct only one-half of the partnership's 1974 losses. Kresser v. Commissioner, 54 T.C. 1621 (1970), and Holladay v. Commissioner, 72 T.C. 571 (1979), followed.

Petitioner, the wife of a physician, knew nothing of the family financial affairs. Held: Petitioner did not know and had no reason to know of the omission of income. Considering all the circumstances, it would be inequitable to hold petitioner liable for the tax resulting from the omission of income since the $ 155,000 would provide petitioner with no more than ordinary support for her life expectancy.

Petitioners had open-account, interest-free loans from their wholly owned corporations during their taxable years in issue. Held: no taxable income recognized by petitioners by virtue of interest-free loans. Held, further, to the extent one of petitioners' corporations borrowed money, and paid interest, on petitioners' behalf, petitioners had income and are deemed to have paid interest.

Decedent had a general power of appointment over assets left in trust by her husband's will which, absent her exercise, went into a trust with a remainder interest passing to a charity. Held: because of the provisions of sec. 2055(e), decedent's estate is not entitled to a charitable deduction of any portion of the value of the assets which were subject to her general power of appointment under her husband's will.

1. P graduated from law school in May 1972. In September 1972, he commenced a graduate law program and graduated with a masters degree in taxation in May 1973. Held: P's educational expenses are not deductible under sec. 162(a), I.R.C. 1954, as ordinary and necessary expenses incurred in a trade or business. Held, further, such expenses are not deductible under sec. 212(3), I.R.C. 1954, relating to the determination of tax liability. 2.

Petitioner transferred beneficial ownership of certain shares of stock he owned to a closed corporation to be used as collateral for that corporation's lease obligation. Held: the block of the closed corporation's stock was received in exchange for stock and therefore does not qualify as sec. 1244 stock. Sec. 1244(c)(1)(D), I.R.C. 1954, as it read for year at issue.

1. Petitioner's subsidiary, Expressway, sold a Holiday Inn to Holiday Inns of America, Inc., in a sale-leaseback agreement which contained an… Held: all of the rental payments made by Expressway to Holiday during the year 1973 were deductible by Expressway as rent. 2. Petitioner constructed three special purpose stores for Miller-Wohl Co., Inc., on property owned by petitioner in Memphis, Tenn., and leased the properties to Miller-Wohl, which guaranteed payment of the rent.

Petitioners received continuation pay from the Army because of a disease incurred by petitioner-husband while on 2 weeks' training in the Army Reserves. Held: petitioners cannot exclude this continuation pay under sec. 104(a)(4), I.R.C. 1954. Held, further, the amounts of two casualty losses incurred in 1974 determined. Held, further, petitioners are liable for an addition to tax under sec. 6651(a)(1) for having delinquently filed their 1974 return.