Volume 76 — Tax Court Reports

Where virtually all of the income of petitioner, a religious organization, was contributed by two of its ministers, virtually all of such income was paid as housing allowances for the benefit of… Held: respondent's determination that petitioner is not an organization described in sec. 501(c)(3), I.R.C. 1954, sustained.

H and W transferred their entire title and interest in real property used in H's medical practice to an irrevocable trust for the benefit of their children. Held: the payments by H were ordinary and necessary business expenses under sec. 162(a), I.R.C. 1954. Mathews v. Commissioner, 61 T.C. 12 (1973), revd. 520 F.2d 323 (5th Cir. 1975), cert. denied 424 U.S. 967 (1976), followed.

A brother and two sisters were shareholders in MDI and remaindermen in a trust which also held stock in MDI. Held: Family hositility does not nullify the attribution rules of sec. 318. The redemption was essentially equivalent to a dividend undersec. 302(b)(1). There was no complete termination of the trust's interest in MDI under sec. 302(b)(3). Thus, under sec. 302(d), the distribution is governed by sec. 301. 2.

Held, on the facts, prepaid intangible drilling expenses pursuant to a binding contract allowed despite failure of contractor to perform services in subsequent tax year. Held: on the facts, prepaid intangible drilling expenses pursuant to a binding contract allowed despite failure of contractor to perform services in subsequent tax year.

Before 1976, Ps operated an unincorporated farming and cattle-feeding business and received investment credits under sec. 38, I.R.C. 1954, on equipment purchased for the business. In 1976, they transferred their sec. 38 property and the other assets of the business to a newly formed corporation in exchange for all the stock in such corporation. They did not transfer the real property and fixtures used in their business, but they leased such assets to the corporation on a year-to-year basis. After the transaction, the corporation continued to operate the same business as had Ps. Held, the transfer of assets to the corporation constituted a mere change in the form of operating the business under sec. 47(b), I.R.C. 1954, since substantially all the assets necessary to operate the business were transferred to the corporation, and therefore, the investment credits were exempt from recapture. Sec. 1.47-3(f)(1)(ii)(c), Income Tax Regs.

Respondent issued a notice of deficiency for gift tax for the tax year which ended Dec. 31, 1976. The proper taxable period was the calendar quarter which ended Dec. 31, 1976. Held: the notice of deficiency is not invalid because of a typographical error where the deficiency notice sent fully encompassed the proper taxable period, and the petitioner is not misled as to the period covered.

Petitioner Thomas E. Wynecoop and several of his relatives, enrolled members of the Spokane Indian Tribe, obtained a mineral lease of certain tribal lands and exchanged it for the stock of… Held: even if petitioner is regarded as a noncompetent Indian, the dividends he received from Midnite are not exempt from Federal income taxes.

On Mar. 31, 1975, petitioner exchanged Swiss francs for 175 U.S. Double Eagle gold coins. Held: the U.S. Double Eagle gold coins constitute property (other than money) within the meaning of sec. 1001(b), I.R.C. 1954, and therefore are valued at their fair market value on the transaction date.

Petitioner, the Superintendent of Schools of Foxborough, Mass., was requested to resign by the school committee since the committee did not agree with the way… Held: the lump-sum payment is not excludable from gross income under sec. 104(a)(2), I.R.C. 1954, since it did not represent damages received (whether by suit or agreement) on account of personal injuries or sickness; nor was it in payment for damages to petitioner's personal vis-a-vis professional reputation.

In the course of a criminal investigation of a lottery operation, the FBI obtained judicial authorization to intercept communications received by various participants in the lottery, including Best. Held: As a result of the decision in Fleming v. United States, petitioner is estopped from challenging the legality of the FBI's disclosure of the wiretap information to revenue agents investigating Best's income tax liability. 2.

Wife of decedent applied for an employer pay all split-dollar life insurance policy on decedent's life, specifying herself as owner and beneficiary. Held: under Missouri law the policy amendment was ineffective to transfer ownership of the policy to CFI.

Edson S. Outwin created four irrevocable trusts under which he was to be the sole potential beneficiary during his lifetime. Held: Under Massachusetts law the creditors of the grantor of each trust could reach the trust assets for satisfaction of claims, notwithstanding the veto power over discretionary distributions vested in the grantor's spouse.

Held: Decedent's will is construed as granting to his surviving spouse a life estate in his property with no power over its ultimate disposition. Thus, the interest passing to his wife does not qualify for the marital deduction. Sec. 2056(b)(1), I.R.C. 1954.

Held, unreimbursed expenses incurred in rendering services to qualified charitable organizations qualify for the unlimited charitable contribution deduction allowed under secs. 170(b)(1)(C) and… Held: unreimbursed expenses incurred in rendering services to qualified charitable organizations qualify for the unlimited charitable contribution deduction allowed under secs. 170(b)(1)(C) and 170(g), I.R.C. 1954, in effect for the years 1969, 1970, and 1971.

At the time of his death, decedent and his wife owned all of the stock in two corporations to which decedent was indebted in the amounts of $ 30,000 and $ 3,000. Held: under sec. 61(a)(12), I.R.C. 1954, the estate realized income from the discharge of indebtedness on Feb. 21, 1973.

An affiliated group of corporations incurred consolidated net operating losses, which were attributable solely to petitioner's wholly owned subsidiary. Held: inasmuch as that subsidiary was not a member of the group immediately after its organization, the consolidated net operating loss may not be carried back to the separate return year of petitioner.

Respondent issued a deficiency notice in contravention of an assumed oral agreement between petitioner and respondent's Director of… Held: the assumed oral agreement is not binding upon respondent, because (a) respondent's Director of International Operations did not have authority to enter into such agreement under sec. 7122, I.R.C. 1954, and the applicable regulations, revenue procedure, and delegation orders, and (b) respondent is not estopped from issuing the…

A decision of the Tax Court for the Commissioner was reversed on appeal, and P sought to recover certain costs of the proceeding. Held: P's purchase of the trial transcript immediately after the trial was not necessary for the determination of the appeal within the meaning of rule 39(e) of the Federal Rules of Appellate Procedure, therefore, the cost of such transcript is not taxable against the Commissioner.

Held, petitioners are collaterally estopped from contending that sec. 1402(h), I.R.C. 1954, violates the establishment clause of the First Amendment. Held: petitioners are collaterally estopped from contending that sec. 1402(h), I.R.C. 1954, violates the establishment clause of the First Amendment. Held, further, petitioners are not similarly situated to members of Amish sects entitled to exempt status under sec. 1402(h).

Petitioners left their home in Chicago for a vacation in Jamaica on the same day that the statutory notice of deficiency was mailed to them. Petitioners returned home 5 days later. Held: Respondent's motion is denied. Petitioners' trip to Jamaica only lasted 5 days, but they were outside of the United States when the deficiency notice was mailed. They therefore had 150 days in which to file a petition with this Court.

Petitioner purchased stock from her father in exchange for her promise to pay her father and his wife an annuity of $ 15,000 per year for as long as either of them lived. Held: petitioner's promise to pay an annuity did not constitute an indebtedness within the meaning of sec. 163, I.R.C. 1954. Held, further, the full amount of each annuity payment represents part of the purchase price of the stock.

Buyer purchased the stock of T from seller. Held: the Seventh Circuit's substance over form analysis, which concentrates on the intention of the parties and economic reality, is not inconsistent with the strong proof standard preferred by this Court. Wilson Athletic G. Mfg.

Petitioners are nonresident alien professional hockey players employed under 12-month contracts. Held: under sec. 1.861-4(b), Income Tax Regs., the entire stated salaries are paid only for the regular season of play, and only the payment for days spent outside the United States while playing hockey during the regular season of play is excludable from income as being from sources outside the United States.

Petitioner proposed to transfer its historically unprofitable Canadian branch to a Canadian corporation in an exchange designed to fall within sec. 351, I.R.C. 1954. Held: respondent's determination is unreasonable.

Kaiser, Comalco, and CRA after extensive negotiations agreed that KAAC (Kaiser's subsidiary) would transfer a 4-percent interest in QAL, an Australian corporation, to Comalco, along with cash; CRA… Held: On the particular facts presented, the transfer was not in pursuance of a principal tax-avoidance purpose within the meaning of sec. 367, I.R.C. 1954.

Petitioners were limited partners in partnerships which acquired apartment complexes. Held: Petitioners' interpretation of economic useful life, which purported to give independent effect to external (to the asset) factors such as income tax considerations of the partners, is without merit. Useful life determined.

In litigation between the petitioner and the decedent's widow (who was a beneficiary under decedent's will) relating to the ownership of… Held: petitioner may deduct these fees as (1) administration expenses, under sec. 2053(a)(2), I.R.C. 1954, either as attorneys' fees of a beneficiary pursuant to sec. 20.2053-3(c)(3), Estate Tax Regs., or as a cost of administration or (2) as a payment made in settlement of a claim against the estate, pursuant to sec. 2053(a)(3), I.R.C.…

P is a not-for-profit corporation that owns and operates a mountain lodge that it characterizes as a religious retreat facility. Held: P has not met its burden to establish that it was operated exclusively for religious or other exempt purposes within the meaning of sec. 501(c)(3), I.R.C. 1954.

Held, envelope containing petition, properly addressed to this Court in all respects, except that it contained an erroneous Washington, D.C., zip code number, is properly addressed for the purposes… Held: envelope containing petition, properly addressed to this Court in all respects, except that it contained an erroneous Washington, D.C., zip code number, is properly addressed for the purposes of sec. 301.7502-1(c)(1)(i), Proced. & Admin. Regs.

Petitioner has been delegated the responsibility of seed certification by Purdue University in accordance with Indiana and Federal law. Held: petitioner is organized for charitable, educational, and scientific purposes within the meaning of sec. 501(c)(3), I.R.C. 1954.

On the 90th day after respondent mailed the notice of deficiency to petitioners, their petition to this Court was placed into the hands of a private delivery service, which hand-delivered it to the… Held: the timely mailing as timely filing provisions of sec. 7502, I.R.C. 1954, are inapplicable, and the petition was not timely filed as required by sec. 6213(a).

Petitioners sent two of their children to Whitby School, Greenwich, Conn., in 1975. Both had learning disabilities. Held: Whitby School is not a special school within the meaning of sec. 1.213-1(e)(1)(v)(a), Income Tax Regs., and the regular tuition paid by petitioners is not deductible as a medical expense.

Decedent's will contained a provision that in circumstances where it is difficult, impossible or impractical to determine who died first, * * * it shall be presumed that my wife predeceased me. Held: As to one-half the value of the jointly held property, the local law of New York supplies a presumption that decedent was survived by his spouse notwithstanding the provision in decedent's will.

Sec. 993(b)(7), I.R.C. 1954, pertaining to Domestic International Sales Corporations (DISCs), defines qualified assets to include obligations issued by the Export-Import Bank of the United States. Held: Sec. 1.993-2(h)(2), Income Tax Regs., is invalid. International and Sales qualify as DISCs for the taxable years here in issue.

Petitioner adopted a stock bonus plan which provided, inter alia, for the distribution of benefits to nonlicensed beneficiaries in the form of property other than petitioner's stock. Held: petitioner's stock bonus plan fails to qualify under sec. 401(a), I.R.C. 1954, as interpreted by sec. 1.401-1(b)(1)(iii), Income Tax Regs., which requires the entire distribution, other than for fractional shares, to be in the employer's stock.

During 1975, petitioners received business interruption proceeds under two insurance policies. Held: the business interruption proceeds are not derived from a trade or business carried on, and thus do not constitute earnings from self-employment within the meaning of sec. 1402(a), I.R.C. 1954.

In 1975, petitioner, an engineer, paid $ 2,000 to Educational Scientific Publishers (ESP) for certain undescribed materials and services dealing with establishment of family trusts. Held: The $ 2,000 paid to ESP for family trust materials is not deductible under sec. 212 (1), 212 (2), or 212 (3), I.R.C. 1954, or as an educational expense under sec. 162. The expense is a nondeductible personal expenditure under sec. 262.

Petitioner, pursuant to a divorce decree, made payments totaling $ 5,200 in each of the years 1976 and 1977 to his former wife. Held: because petitioner's former wife was legally required to spend the funds for her children's benefit, acting essentially as a conduit, receiving only the incidental benefit that might necessarily flow from certain types of expenditures (heat, etc.), she did not receive sufficient economic benefit to label said payments as alimony…

Held: 1. Urban renewal agency's payment of precasualty value for property destroyed by flood, acquired after the flood pursuant to the Relocation Act of 1970, Pub. Held: Urban renewal agency's payment of precasualty value for property destroyed by flood, acquired after the flood pursuant to the Relocation Act of 1970, Pub. L. 91-646, constitutes compensation by insurance or otherwise within the meaning of section 165(a), I.R.C. 1954. 2.

Held: 1. Decrease in value of property caused by flood determined. 2. Urban renewal agency's payment in excess of its value for flood-damaged property acquired pursuant to subch. Held: Decrease in value of property caused by flood determined. 2. Urban renewal agency's payment in excess of its value for flood-damaged property acquired pursuant to subch. III of the Relocation Act of 1970, Pub.

Petitioner was ordained a minister and chartered as a church personally, Chapter 7807, by the Basic Bible Church of America. Held: Petitioner earned his salary in his individual capacity and not as an agent of a religious order, and therefore he must include his salary in his gross income. 2. Petitioner is not entitled to a charitable contribution deduction under sec. 170(c), I.R.C. 1954. 3. Petitioner is liable for the addition to tax under sec. 6653(a).

Petitioners' house was burglarized in 1976 for the fourth time in an 8-year period, and various items of personal property were stolen. Held: petitioners' loss was not compensated for by insurance, and they are accordingly entitled to a theft loss deduction under sec. 165(a), I.R.C. 1954. Axelrod v. Commissioner, 56 T.C. 248(1971), distinguished.

Held, foreign law is subject to discovery under Rules 70(b) and 146, Tax Court Rules of Practice and Procedure. See also rule 44.1, Fed. R. Civ. P. Held: foreign law is subject to discovery under Rules 70(b) and 146, Tax Court Rules of Practice and Procedure. See also rule 44.1, Fed. R. Civ. P.

Petitioner, a domestic subsidiary of a foreign parent corporation, is a member of a controlled group as defined in sec. 1563(a), I.R.C. 1954. Held: all employees of all members of the controlled group must be treated as employed by a single employer for purposes of the coverage requirements of sec. 410(b)(1)(A) and (B), since the applicability of sec. 414(b) is not constrained by a manipulative purpose limitation.

During 1974, 1975, and 1976, petitioners were partners in three partnerships that owned and operated apartment projects. Held: Sec. 706(c)(2)(B), I.R.C. 1954, applies to prohibit a retroactive reallocation of losses upon the admission of new partners. The original partners must report their distributive shares of partnership items in accordance with their varying interests in the partnerships during the year.

In March 1973, petitioners, before they planted their 1973 cotton crop, sold that crop to cotton buyers through a cotton gin which contacted them seeking to purchase their cotton. Held: petitioners did not constructively receive the proceeds from the sale of cotton in 1973. Held, further: The gin was the agent of the purchasers, not petitioners, especially in connection with payment for the cotton.

During the years in issue, petitioner, an automobile dealership, borrowed funds from banks to be used for the acquisition of certain motor vehicles. Held: The Lease Agreements are not conditional sales contracts. Rather, these documents, and the transactions represented thereby, in form and substance are leases.

P was transferred by her employer from Honolulu to Washington, D.C., and she claimed a deduction for her moving expenses. Held: since the transfer to attend Baylor was at her request, such transfer from Washington was not a transfer for the benefit of her employer within the meaning of sec. 217(d)(1), I.R.C. 1954.

Ps claimed a casualty loss for the loss of an elm tree from Dutch elm disease. Held, loss caused by a disease does not constitute a casualty loss under sec. 165(c)(3), I.R.C. 1954. Held: loss caused by a disease does not constitute a casualty loss under sec. 165(c)(3), I.R.C. 1954. Burns v. United States, 174 F. Supp. 203 (N.D. Ohio 1959), affd.

Held, casualty loss deduction under sec. 165(c)(3), I.R.C. 1954, disallowed for destruction of petitioners' coconut palms caused by a disease, lethal yellowing. Held: casualty loss deduction under sec. 165(c)(3), I.R.C. 1954, disallowed for destruction of petitioners' coconut palms caused by a disease, lethal yellowing. Burns v. United States, 174 F. Supp. 203 (N.D. Ohio 1959), affd.

Petitioner acquired assets, later destroyed by fire, from its sole stockholder in exchange for stock. Held: since the assets had a zero basis in the hands of the transferor, petitioner's basis in the assets was zero, and petitioner had no deductible loss under sec. 165(a) when the assets were destroyed by fire.

Petitioners are partners in a limited partnership which owns a total energy plant. Held: The concrete block structure is a building in both function and appearance and therefore is not tangible personal property or other tangible property qualifying for the investment credit.

Petitioner-husband suffered from encephalitis during 1972 and 1973 which periodically affected his mental capabilities. Held: The mental condition on the date which a taxpayer files an income tax return must be examined to determine whether he had the mental capacity to file a fraudulent return. Respondent failed to prove when petitioner filed his return for 1971 and, therefore, failed to establish fraud.

Held, for the purpose of computing the alternative tax under sec. 1201(a), I.R.C. 1954, as amended, petitioner, a cooperative which produces and markets plywood and plywood… Held: for the purpose of computing the alternative tax under sec. 1201(a), I.R.C. 1954, as amended, petitioner, a cooperative which produces and markets plywood and plywood byproducts, may reduce its sec. 631(a) gains by the amounts distributed to its stockholder employees as patronage dividends.

In 1974, Boyd subscribed for units in a limited partnership the purpose of which was to purchase and operate producing oil and gas properties. The subscriptions were closed and the partnership was formed on Dec. 31, 1974. The general partner was Patrick Oil & Gas Corp. An interest in a producing oil and gas property was sold to the partnership by the parent of Patrick Oil sometime in 1975.

Petitioner, a retired U.S. Army officer, was employed by a Texas school district as a Junior ROTC instructor. Held: petitioner received no quarters and subsistence allowances, and is therefore not entitled to exclude any such allowances from income under sec. 1.61-2(b), Income Tax Regs.Held, further, petitioner is entitled to a deduction for certain portions of his claimed moving expenses in his move to commence employment as a Junior ROTC…

Held, where an estate and an unrelated creditor of the decedent are in litigation over the enforceability of a debt which was valid at… Held: where an estate and an unrelated creditor of the decedent are in litigation over the enforceability of a debt which was valid at the time of the decedent's death and where a settlement is reached to which all beneficiaries with adverse interests and the Probate Court agree and where the claim is paid and allowed for State inheritance…

After completing more than 6 years of military service, petitioner was discharged on Sept. 10, 1973, from the U.S. Army pursuant to a reduction-in-force program. Held: Petitioner must include in his 1973 gross income the entire $ 14,511 readjustment pay. Petitioner is not entitled to reclassify the readjustment pay as disability compensation excludable from gross income under sec. 104(a)(4), I.R.C. 1954, and 38 U.S.C. sec. 3101(a).

Petitioner, a licensed real estate salesperson, sells real estate through Walker & Lee, a licensed real estate broker. Held: in the circumstances of this case, petitioner's home office is not her principal place of business and is not regularly used as a place for meeting clients; she is therefore not entitled to deduct the expenses of maintaining an office in her home. Sec. 280A, I.R.C. 1954.

Held, since petitioner was not permanently or totally disabled when he retired from the U.S. Air Force in 1970 or as of Jan. 1, 1976, he is not entitled to an exclusion… Held: since petitioner was not permanently or totally disabled when he retired from the U.S. Air Force in 1970 or as of Jan. 1, 1976, he is not entitled to an exclusion for disability or sick pay for 1977 under the provisions of sec. 105(d), I.R.C. 1954, as applicable to years beginning after Dec. 31, 1976.

Respondent served on petitioner and, in due course, filed with this Court a request for admissions under Rule 90, Tax Court Rules of Practice and Procedure. Held: petitioner did not have the requisite reasonable basis for his Fifth Amendment objection, and therefore, he must answer respondent's request for admissions.

Petitioner, a retail automobile dealership, elected the dollar-value LIFO method of computing its inventory. One pool was kept for all its new vehicles. Held: two separate pools are required to be maintained, one for new automobiles and another for new trucks. Sec. 1.472-8(c), Income Tax Regs.Held, further: Respondent did not challenge petitioner's method of calculating a price index under the double-extension method until trial.

Petitioner, a Ford Motor Co. franchised dealer, maintained its inventory on the LIFO dollar-value, link-chain method utilizing one pool for new cars and new trucks. Held: sec. 1.472-8(c), Income Tax Regs., requires petitioner to utilize one pool for new cars and a separate pool for new trucks.

Respondent timely mailed a notice of deficiency to petitioner at petitioner's last known address but did not mail a copy of the deficiency notice to petitioner's counsel as requested in the power of attorney filed by petitioner with respondent. Held: Although respondent represented to petitioner that a copy of the notice was sent to counsel, his failure to do so does not invalidate an otherwise valid notice of deficiency. Respondent's motion to dismiss for lack of jurisdiction granted.

On Feb. 15, 1980, respondent mailed notices of deficiency to petitioners for the year 1977. Held: In these circumstances, the Tax Court lacks jurisdiction over the income tax deficiencies of the petitioner-husband, but has jurisdiction of the deficiencies with respect to the nonbankrupt petitioner-wife. Therefore, respondent's motion to dismiss for lack of jurisdiction as to the petitioner-husband will be granted.

In 1971, Ps became limited partners of X. At the same time, X purchased 107 head of imported cattle from Y, a related entity, for $ 1,614,000. Held: The purchase price paid by X for the cattle was at least 3 times their value, and the nonrecourse note did not represent genuine indebtedness or an actual investment in property.

The sole asset of N & V, a cash basis corporation, was a shopping center. It entered into a contract for the management of the property, which required N & V to pay $ 24,000 a year, at the rate of $ 2,000 per month. The entire $ 24,000 was paid during the first 5 months of the taxable year and deducted on its income tax return. Shortly before May 19, 1964, Branjon, Inc., purchased 100 percent of the stock of N & V. N & V was dissolved on May 19, 1964, and it distributed the shopping center in complete liquidation to Branjon, Inc. Held, the advance payment of management fees for services to be rendered over the remaining 7 months following its liquidation is not deductible as an ordinary and necessary business expense. Held, further, even if deductible, the tax benefit rule would require N & V to include in gross income the fair market value of 7 months' services. Held, further: Depreciation recapture under sec. 1250, I.R.C. 1954, applies to a corporation that distributes its assets in complete liquidation where the transferee is entitled to a step-up in basis under sec. 334(b)(2). Petitioner has failed to show error in recapture computation determined by respondent.

E and H transferred rental property to a trust which was to serve as a vehicle for their estate planning. The trust's organizing instrument vested the trustee with broad authority over the res and provided for transfer of the beneficiaries' interests. The beneficiaries had limited powers respecting amendment of the trust's organizing instrument, its termination and appointment of a successor trustee. E and H, the two original beneficiaries, transferred their beneficial interests to members of their families. Held, although the trust possessed a business objective, the beneficiaries were not associates within the meaning of sec. 301.7701-2, Proced. & Admin. Regs., and the trust is thus not classifiable as an association.

Petitioners were engaged in the sale and export of domestically produced goods to countries in the Western Hemisphere. Held: the statute of limitations is not a bar to the assessment and collection of a deficiency against petitioners.

Petitioners incurred and paid legal expenses in connection with the defense of a lawsuit for specific performance, breach of contract, promissory estoppel, and fraud, arising out of the purported… Held: the origin and character of these expenses are capital in nature and, therefore, these expenses are not deductible in the years paid, but serve to increase basis.

Petitioner was employed as an attorney in a law firm. In 1971, the law firm requested petitioner to transfer to its Paris office. As an inducement for petitioner to accept the transfer, the law firm agreed to pay for all expenses incurred in moving to Paris as well as for all moving expenses incurred in returning to this country. In 1973, the law firm requested petitioner to transfer to its London office, and reiterated its promise to pay for petitioner's expenses in returning to this country. In 1975, after 2 years in the Paris office and 2 years in the London office, petitioner moved back to the United States, and the law firm paid for the return moving expenses. Held, for the purposes of the foreign tax credit, the reimbursement for petitioner's move back to the United States is compensation for personal services performed without the United States.

During the taxable years 1972 through 1975, Vogt was a psychiatrist employed by Wisconsin Psychiatric Services, Ltd. He maintained an office at his home, which constituted his principal place of business. Held, Vogt is entitled to a deduction under sec. 162(a), I.R.C. 1954, for expenses incurred in maintaining his home office, and a deduction under sec. 167(a), I.R.C. 1954, for depreciation thereon. Held, further: Expenses paid by Wisconsin Psychiatric with respect to an automobile furnished to Vogt are deductible under sec. 162(a), I.R.C. 1954. However, Wisconsin Psychiatric failed to carry its burden of proof with respect to expenses incurred for an automobile furnished to another doctor. Held, further, proper amount of Vogt's interest income for 1973 determined. Held, further, proper useful life for calculating depreciation on Vogt's Florida condominium determined. Held, further, Vogt is entitled to a depreciation deduction on the Florida condominium for only 4 days in 1973.

In 1970, petitioner Robert M. Graham's former wife transferred a secret formula to a corporation controlled by them. Held: Respondent is estopped from relitigating in the instant case, relating to deficiencies for 1972, 1973, 1974, and 1975, the issues decided by the District Court in the prior suit brought by petitioner Robert M. Graham's former wife. A motion for summary judgment on those issues is, therefore, granted.

The decedent's employer purchased a life insurance and disability benefits contract for the decedent. Held: the value of the insurance proceeds is includable in the decedent's gross estate pursuant to sec. 2042(2), I.R.C. 1954, because the decedent possessed an incident of ownership.

1. Held, petitioner may not deduct those portions of his union dues allocated to the union's building fund and to the construction of recreational facilities. Held: petitioner may not deduct those portions of his union dues allocated to the union's building fund and to the construction of recreational facilities. Briggs v. Commissioner, 75 T.C. 465 (1980), appeal filed (9th Cir., Feb. 11, 1981), followed. 2. Petitioner was a truck driver.

T, a New York City police officer, is required to carry his revolver at all times while in New York City. Held: petitioner is entitled to no deduction for his commuting expenses because they were not directly connected with his employer's business, but were personal expenses incurred as a result of petitioner's choice of the location of his residence.

Petitioner, a Member of Congress in 1972, incurred traveling expenses in connection with his attendance at the Democratic National Convention and meetings of the National Black Political… Held: the expenses were not incurred by petitioner in connection with the performance of the functions of the public office of Congressman, his trade or business as defined in sec. 7701(a)(26), I.R.C. 1954, and are therefore not deductible as trade or business expenses under sec. 162(a)(2).

Petitioners made assignments in 1975 of two oil and gas leases held by them, retaining, however, overriding royalties of 4 percent from one lease and 5 percent from the other. As part of the consideration for the assignments, they received advance royalties totaling $ 7,600. There was no production of oil or gas from either of the leases during 1975. Held, under sec. 613A(c), I.R.C. 1954, petitioners are not entitled to deduct percentage depletion with respect to the advance royalties in 1975.

In 1975, petitioners received bonuses in the total amount of $ 139,940 upon the execution of several oil and gas leases. Held: petitioners are not entitled to percentage depletion under sec. 613A(c), I.R.C. 1954, with respect to the lease bonuses.

The envelope in which the petition in this case was mailed bore a private postage meter mark dated within the 90-day period and also bore a U.S. Postal Service postmark dated beyond the 90-day period. Held: The U.S. Postal Service postmark is controlling and the petition was not timely filed within the 90-day period under secs. 6213(a) and 7502, I.R.C. 1954. Petitioners contend that they were entitled to a 150-day period to file their petition because they were outside the United States the day the statutory notice was received at their home. Held, that where petitioners were in the United States on the date the statutory notice was mailed to their last known address and where they left for Mexico on the date the notice was received at their home but returned to their home the following day, and received the notice at that time, petitioners were not entitled to the 150-day period allowed for persons outside the United States. Cowan v. Commissioner, 54 T.C. 647 (1970), followed; Lewy v. Commissioner, 68 T.C. 779 (1977), and Levy v. Commissioner, 76 T.C. 228 (1981), distinguished.

McDonald's Corp. (McDonald's) wanted to acquire several franchised restaurants owned primarily by three individuals, Garb, Stern, and Imerman (the Garb-Stern group). McDonald's refused to offer any consideration other than its common stock because of financial accounting reasons. Although the Garb-Stern group wanted a cash transaction, they eventually agreed to accept 361,235 shares of unregistered common stock. The merger took place as of Apr. 1, 1973, whereupon McDonald's dropped down the acquired restaurants into wholly owned, operating subsidiaries (the petitioners herein). As part of the merger agreement, the Garb-Stern group received "piggyback" registration rights plus a demand registration right. From the beginning, the Garb-Stern group intended to sell virtually all of the McDonald's stock they received pursuant to the merger agreement. No member of the group, however, promised or obligated himself to sell any of the shares received. McDonald's was totally indifferent as to whether the Garb-Stern group retained or sold their stock. The Garb-Stern group sold all but 100 shares of their McDonald's stock on Oct. 3, 1973, by exercising their "piggyback" registration rights. This date was the group's earliest opportunity to sell the stock received pursuant to the Apr. 1 merger. Held: The acquisition by McDonald's of the franchised restaurants constitutes a valid "A" reorganization. The Garb-Stern group's intent to sell the McDonald's stock acquired pursuant to the statutory merger, coupled with their subsequent sale of such stock at the earliest opportunity, does not violate the continuity-of-interest principle.

Petitioner, a farmers' cooperative, amended its bylaws in 1967 so as to comply with sec. 1388(c)(2)(B)(i), I.R.C. 1954. Petitioner's membership was notified of this change in 1967. The membership agreement signed by petitioner's post-1967 members provides that each member agrees "to abide by all rules and regulations." Petitioner did not distribute copies of its bylaws as amended to its post-1967 members. In accordance with its bylaws, petitioner allocates its net annual earnings to its members by means of patronage dividends. During the years in issue, petitioner paid 20 percent of its patronage dividends by check. Petitioner retained the remaining 80 percent and issued certificates of equity to each member for his allocable portion of the retained amounts. Petitioner mailed each member's dividend check in a packet containing a certificate of equity, a certificate of retains, and a Form 1099-PATR. Held: Petitioner is not entitled to a deduction for those patronage dividends reflected in the certificates of equity issued to its post-1967 members. Neither the signed membership agreements nor the endorsed dividend checks constitute written consents within the purview of sec. 1388(c)(2)(A), I.R.C. 1954.

In 1974 petitioners sold real property but were forced to repossess it in 1976. Held: under sec. 1038(b)(1), I.R.C. 1954, petitioners are not entitled to reduce the long-term capital gain reportable upon repossession by the sum of commissions and other selling expenses incurred at the time of the original sale. Held, further, petitioners are liable for payment of the minimum tax imposed by secs. 56(a) and 57(a)(9).

Petitioners' persistent refusal to answer interrogatories or produce documents held, in the circumstances of this case, not only to constitute a default under Rule 123(a), but also to justify… Held: in the circumstances of this case, not only to constitute a default under Rule 123(a), but also to justify dismissal of the case and entry of judgment against them pursuant to Rules 104(c)(3) and (d), and 123(a) and (b).

Petitioner entered into an arrangement with Prudential Insurance Co. of America whereby petitioner sold a store that it was constructing to Prudential at the store's fair market value and then leased… Held: the transaction was a bona fide sale rather than a like-kind exchange under sec. 1031, I.R.C. 1954, and petitioner's loss on the sale is recognizable. Leslie Co. v. Commissioner, 539 F.2d 943 (3d Cir. 1976), affg. 64 T.C. 247 (1975), followed.

Petitioner-husband was grantor of a trust from which he received unsecured loans. The loans were not repaid by the beginning of 1974 or by the beginning of 1975. Held: under sec. 675(3), I.R.C. 1954, petitioner-husband is treated as owner of the entire trust during 1974 and 1975.

In 1973, petitioner purchased a 5-percent interest in a Florida land trust which held as its only asset undeveloped real property subject to a nonrecourse mortgage. Held: petitioner's loss was from the sale or exchange of a capital asset. During 1974 and 1975, petitioner was a partner in a law partnership which normally reported its income on a fiscal year ended Mar. 31. On Dec. 31, 1975, the partnership was terminated.

During 1975, petitioner was a licensed physician and a second-year resident in a hospital based residency program in psychiatry. Held: none of petitioner's compensation qualifies as a fellowship grant. Held, further, the psychoanalysis improved petitioner's skills as a physician providing psychiatric services to psychiatric patients. Cf. Voigt v. Commissioner, 74 T.C. 82 (1980).

Issue I. Carland Rentals: Petitioner claims that amounts paid or accrued pursuant to written agreements for the lease of equipment are deductible as rentals under sec. 162(a)(3), I.R.C. 1954. Held: The payments were for the "continued use or possession" of equipment used in the lessees' business, to which the lessees took no title and in which the lessees had no equity. As such, the payments are properly deductible under sec. 162(a)(3), I.R.C. 1954. Held, further, the amounts paid or accrued during the years at issue pursuant to the lease agreements constituted reasonable rentals. Issue II. Darby Freight Cars: Petitioner claims that the total costs for certain freight cars qualify for the investment credit under sec. 38, I.R.C. 1954, and for accelerated depreciation under sec. 167(b), I.R.C. 1954, by meeting the requirements of secs. 48(b) and 167(c), I.R.C. 1954. Held: 1. 3,137 Freight Cars: Of this group, 2,665 cars were not "acquired" by Railway and L & A after the dates set forth in secs. 48(b)(2) and 167(c)(2), I.R.C. 1954. (Respondent concedes petitioner's claim as to 472 cars.) The 2,665 cars were "reconstructed" (rebuilt) by Railway and L & A after the statutory dates and fall within the purview of secs. 48(b)(1) and 167(c)(1), I.R.C. 1954, and the regulations thereunder. The investment credit and accelerated depreciation for these 2,665 cars is limited to the amounts properly attributable to the reconstruction. 2. 522 Freight Cars and 66 Freight Cars: The cars in these two groups of "reconstructed" (rebuilt) freight cars were leased prior to being purchased. As a consequence, the "original use" requirement of secs. 48(b) and 167(c), I.R.C. 1954, and the regulations thereunder, has not been satisfied. Moreover, the lessors, with whom "original use" commenced, did not elect to pass through the investment credit pursuant to sec. 48(d), I.R.C. 1954. Petitioner is not entitled to the investment credit and accelerated depreciation for these two groups of cars. 3. 259 Freight Cars: The cars in this group of "reconstructed" (rebuilt) freight cars were leased, only, and petitioner's claim is limited to the investment credit. Although the lessors elected to pass through the investment credit in an attempt to comply with the provisions of sec. 48(d), I.R.C. 1954, and the regulations thereunder, the "rebuilt" cars cannot properly be the subject of an election because the "original use" requirement has not been satisfied. Petitioner is not entitled to the investment credit for these 259 cars. Issue III. Relay Rail: Petitioner claims that, under the retirement-replacement-betterment method of accounting, the proper amount (i.e., salvage value) to be assigned to rail released from the track system and relaid as additions and betterments (i.e., relay rail) is determined by reference to the cost of the released rail. Held, the salvage value of the relay rail is its fair market value at the time of its release from the track system and not the cost of such rail. Held, further, a formula for determining the fair market value of the relay rail at issue is provided herein. Issue IV. Grading Useful Life: Petitioner claims that it is entitled to ratable depreciation deductions under sec. 167, I.R.C. 1954, and to investment credits under sec. 38, I.R.C. 1954, for certain railroad grading. Petitioner bases this claim on its assertion that it has shown, by statistical means, a reasonably determinable useful life over which the cost of the grading can be allocated. Held, petitioner has established that the useful life of the grading was reasonably ascertainable during the years at issue and that it is entitled to ratable deductions pursuant to sec. 167, I.R.C. 1954, and, further, to investment credits pursuant to secs. 38 and 48, I.R.C. 1954. Held, further, in commencing the ratable depreciation of the grading, petitioner does not require the consent of the Commissioner because it is not changing its method of accounting under sec. 446(e), I.R.C. 1954.

Petitioners received lump-sum distributions from pension and profit-sharing plans during 1976 which they treated as long-term capital gains pursuant to sec. 402(a)(2), I.R.C. 1954. Held: one-half of the lump-sum distributions is an item of tax preference within the meaning of sec. 57(a)(9)(A) and is subject to the minimum tax under sec. 56(a).

Respondent notified petitioner that he intended to issue a notice of deficiency for the tax that sec. 531, I.R.C. 1954, imposes upon accumulated earnings. Held: the burden of proof will be upon a petitioner unless it complies with the requirements of sec. 534(c), I.R.C. 1954, so long as it is apprised of the notice of deficiency any time before the notice of deficiency issues.