Volume 77 — Tax Court Reports

Petitioner is an organization whose membership is limited to salaried and retired employees of Armour, a manufacturer of various consumer products. Held: petitioner is a membership organization described in sec. 277, I.R.C. 1954, and its deductions for membership activities are limited to the amount of its membership income (initiation fees and dues).

Guest contributed real properties subject to nonrecourse indebtednesses in excess of Guest's adjusted bases in the properties to the temple. Held: Guest made a charitable gift of the properties to the temple. Held, further, the gift was complete in the year Guest conveyed deeds to the properties to the temple's purchasers.

Trenton Trust Co., prior to 1958, had outstanding preferred stock A, preferred stock B, and common stock. Held: the redemption of petitioner's preferred stock B during the years involved was not essentially equivalent to a dividend within the meaning of sec. 302(b)(1), I.R.C. 1954, so the proceeds from the redemptions were taxable as capital gains.

Petitioners are an affiliated group of corporations which filed a consolidated return in 1965. A. Foreign Tax Credit Issues 1. Held, members of the group which had foreign source gross income but incurred foreign source operating losses must be included in calculating petitioners' consolidated foreign source taxable income for purposes of the foreign tax credit limitation. 2. Held, deductions resulting from service fee and interest payments by members of the group to other members should be apportioned to foreign source gross income in determining the consolidated foreign source taxable income of the group for purposes of the foreign tax credit limitations without regard to the treatment of the income as domestic or foreign source by the payee. B. Convertible Debenture Issue S and S', wholly owned subsidiaries of P, acquired substantially all of the assets of T and T', respectively, in sec. 368(a)(1)(C), I.R.C. 1954, reorganizations, using P stock. Both T and T' had convertible debentures outstanding. As part of the reorganizations, S and S', respectively, assumed liability on the principal of T and T' debentures, respectively, and P agreed to convert the debentures into its stock on the same terms the debenture holders would have been entitled to had they converted into T or T' stock immediately prior to the reorganization. P acquired T and T' debentures from the holders in exchange for P stock. S retired the T debentures by paying P the principal amount of the debentures. P contributed the T' debentures to the capital of S'. Held, the conversions into P stock after the reorganization by the debenture holders and the subsequent retirement of the debentures by S and the contribution by P of the debentures to the capital of S' were not part of the plans of reorganization. Held, further: The basis of the debentures to P is deemed the purchase price paid by S to P and the deemed purchase price by S' to P. Sec. 1.1502-41A(b), Income Tax Regs. Thus, P realized no gain or loss on the retirement of the debentures. Held, further, petitioners failed to meet their burden of proof that any loss on the retirement of the debentures was realized by either S or S'.

P agreed to sell undivided one-fourth interests in real property to each of three individuals with whom he intended to form a partnership for the operation of the property. Held: the transaction was not within the purview of secs. 721 and 731, I.R.C. 1954, but was a sale by P of 75 percent of his interest in the property.

Petitioners elected to compute their tax liability for 1977 by use of the income averaging provisions under secs. 1301- 1305, I.R.C. 1954. Held in computing their base period income for 1973 and 1974 for income averaging purposes, petitioners are required to adjust their negative taxable income figures to zero in accordance with sec. 1302(b)(2), and sec. 1.1302-2(b)(1), Income Tax Regs., before adding the zero bracket amount as required by sec. 1302(b)(3).

Petitioner executed over 450 separate trades of securities, was provided office space and a desk at a stock brokerage firm, devoted his entire work day (always spent at the stock brokerage firm) and much of his spare time to investment activities and research and analysis, and considered himself a trader in securities. Held, since petitioner's only income was from dividends, interest, and capital gains, he derived no "compensation" within the meaning of sec. 219, I.R.C. 1954, and accordingly is not entitled to a deduction for a $ 1,500 contribution to an individual retirement account (IRA). Held, further, petitioner is liable for the 6-percent excise tax imposed by sec. 4973, I.R.C. 1954, on contributions to an IRA which are "excess contributions" within the meaning of sec. 4973(b).

Petitioners in 1976 owned a vacation home which was rented for 91 days, used for personal purposes for 30 days, and left vacant for the remainder… Held: in applying the limitation on deductions of rental expenses in sec. 280A(c)(5)(B), I.R.C. 1954, petitioners correctly allocated 25 percent of the interest and property taxes paid with respect to the vacation home to its rental use, corresponding to the approximate percentage of the days of the year the property was rented.

Petitioner was a member of a partnership or joint venture which acquired real estate by giving nonrecourse notes. Held: under the provisions of secs. 752(b), 731(a)(2), and 741, I.R.C. 1954, petitioner's loss on the abandonment of his partnership interest was deductible as a capital loss and not as an ordinary loss.

Held, the homestead rights created under Texas law are to be considered in determining the value of homestead property included in the gross estate, and the value of such property is less than the… Held: the homestead rights created under Texas law are to be considered in determining the value of homestead property included in the gross estate, and the value of such property is less than the value of the same property unencumbered by homestead rights.

At death, D had substantial stock holdings in five corporations. Held: the tax apportionment agreement executed between the estate and the trusts and sanctioned by the New York Surrogate's Court irrevocably and permanently determined the trusts' liability to the estate for their share of the death taxes, and they were not beneficiaries of the estate at the time the various stock interests were sold.

Pursuant to a plan of complete liquidation under sec. 337, I.R.C. 1954, O sold all of its assets, including receivables, to petitioner in exchange for cash and assumption… Held: O must include in its gross income the amount of the transferred accrued interest receivables. Held, further, the diminution in sales price paid to O on account of the transferred accrued business liabilities is equivalent to a payment by O, and therefore O may deduct the accrued liabilities as paid.

T Corp., an accrual basis corporation with a fiscal year ending Nov. 30, sells its products to a wholly owned domestic international sales corporation (DISC), with a fiscal year ending Jan. 31. The transfer price for T's sales to the DISC is determined at the end of the DISC's fiscal year under the intercompany pricing rules of sec. 994, I.R.C. 1954. T does not report the gross income from its sales to the DISC until the end of the DISC's fiscal year in which such sales occur. Accordingly, the gross income from T's sales to the DISC from Feb. 1 through Nov. 30 of T's fiscal year is not reported until T's succeeding fiscal year. Held, T must accrue the gross income from its sales to the DISC in T's fiscal year (ended Nov. 30) in which such sales actually occur and in which its right to receive payment has become fixed, notwithstanding that the amount of such payment is finally determined as of the following Jan. 31, where T has failed to establish that such amount could not be reasonably estimated as of Nov. 30.

On Mar. 9, 1972, petitioner-husband borrowed $ 2,250,000 from bank A. Bank A sold participations in the loan to other banks. Held: Petitioners have not proven they were on any other than the cash method of accounting; 2. Petitioner-husband did not pay interest to the other banks and owed neither principal nor interest to them; 3. Petitioners are not entitled to deduct $ 120,124.99 for 1973 as interest paid to bank A; 4.

P is a trust created under a collective bargaining agreement between the Teamsters Union (U) and the Contractors Association (A). Held: because its primary purpose is to provide a form of indirect compensation to employees covered by the collective bargaining agreement, P is not operated exclusively for any of the purposes described in sec. 501(c)(3), I.R.C. 1954, notwithstanding that P's proposed activities will to some extent further charitable purposes.

Petitioners filed fraudulent original income tax returns for 1970, 1971, 1972, and 1973. On Oct. 17, 1974, petitioners filed nonfraudulent amended returns for those years. Held: respondent's proposed assessment is barred by the statute of limitations provided in sec. 6501(a) I.R.C. 1954, which began running on the filing of the amended returns. Dowell v. Commissioner, 614 F.2d 1263 (10th Cir. 1980), revg. 68 T.C. 646 (1977), followed.

Petitioner Edward W. Boucher, an insurance agent, gave insurance premium "discounts" to his customers during 1974 and 1975 in violation of a State "rebate statute." Held, the rebate statute was "generally enforced" during those years within the meaning of sec. 162(c)(2), I.R.C. 1954, and, therefore, the premium "discounts" are not deductible as trade or business expenses under sec. 162(a), I.R.C. 1954.

Respondent by letter to petitioner proposed to revoke its nonprivate foundation status. Twenty-nine days later, petitioner submitted a written protest to respondent appealing the proposed revocation. Held: petitioner is an organization described in sec. 7428(a)(1) and entitled to bring an action under sec. 7428(a)(2) because respondent has failed to make a determination.

In 1964, petitioner Malcolm C. Todd purchased a parcel of land for the purpose of constructing an apartment building. Held: the abandonment loss was not attributable to a trade or business within the meaning of sec. 172(d)(4), I.R.C. 1954.

Stanley J. Trohimovich deliberately, knowingly, and intentionally refused to obey two summonses issued by this Court, one issued at the request of the Internal Revenue Service and one issued at the… Held: Stanley J. Trohimovich is guilty of criminal contempt of court and it was ordered that he be imprisoned for 30 days as punishment therefor.

Investors formed a partnership to develop an apartment complex. A corporation was formed in order to avoid State usury laws relating to individuals and partnerships. Held: The partnership and not the corporation was the owner of the apartment complex for Federal tax purposes. As was common knowledge, the corporation acted as an agent of the partnership.

Petitioner sold his 25-percent interest to other partners. Held: a part of the sales proceeds received by petitioner is attributable to unrealized receivables (sec. 751(a) and (c), I.R.C. 1954), and therefore must be characterized as ordinary income.

Petitioners were limited partners in Madison. Held: the losses were sustained by the partnership at the time of abandonment, even though the partnership was not then divested of title, and not when the mortgages were subsequently foreclosed.

Held, for purposes of determining when a Federal income tax return is filed, judicial notice is taken of Internal Revenue Manual provisions explaining the meaning of the document locator numbers… Held: for purposes of determining when a Federal income tax return is filed, judicial notice is taken of Internal Revenue Manual provisions explaining the meaning of the document locator numbers stamped by the Internal Revenue Service on Federal income tax returns.

Decedent's widow elected to take against decedent's will and, under Pennsylvania law, became entitled to receive one-third of the estate's net assets. Held: the widow is not entitled to intervene in the instant case.

Pursuant to Rule 37(c), Tax Court Rules of Practice and Procedure, respondent moved that affirmative allegations of specific facts and of fraud with intent to evade tax contained in his answer be… Held: the deemed admitted affirmative allegations were sufficient to carry respondent's burden of proof as to fraud (see Rule 142(b), Tax Court Rules of Practice and Procedure), and respondent's motion for summary judgment on that issue is granted.

On its income tax returns, petitioner capitalized the following costs of constructing offshore jacket-type drilling platforms: labor, fuel, repairs, hauling, supplies, and overhead. Held: claiming such costs as deductions does not constitute a change in the method of accounting under sec. 446(e), I.R.C. 1954, requiring the consent of the Commissioner. Held, further: The jacket-type drilling platforms involved here are not ordinarily considered as having salvage value.

Petitioner commenced development of a shopping center on land which it owned, incurred development costs exclusive of land costs in the amount of $ 351,575.11, and negotiated tentative agreements… Held: Petitioner's transfer of property to the partnership constituted a contribution of property in exchange for an interest in the partnership within the purview of sec. 721, I.R.C. 1954, and not a sale by petitioner of its development expenses.

Petitioners owned and operated mobile home parks. They rented the mobile home sites in these parks to tenants who owned their own mobile homes. Held: the concrete slabs do not constitute residential rental property within the meaning of sec. 167(j)(2), I.R.C. 1954, and therefore, petitioners may not use the 200-percent declining balance method of depreciation on the concrete slabs. Sec. 167(j)(1), I.R.C. 1954.

Petitioner-husband discussed with respondent's agents the availability of the foreign tax credit on account of Canadian taxes paid by a corporation of which petitioner-husband was majority shareholder. Held, the doctrine of equitable estoppel does not bar respondent from disallowing this credit ( Automobile Club of Michigan v. Commissioner, 353 U.S. 180 (1957)); this credit is not allowable. Petitioner-husband purchased and placed into service on his commercial fishing vessel a hydraulic fishing reel. He purchased the reel entirely with funds withdrawn from a capital construction fund ordinary income account which he established under the provisions of the Merchant Marine Act, 1936. Held, since the basis of the reel is zero (sec. 607(g)(2), Merchant Marine Act, 1936), petitioner-husband's "qualified investment" is zero ( sec. 46(c)(1), I.R.C. 1954), and so his investment credit is zero ( sec. 46(a)(1)(A), I.R.C. 1954).

Petitioners paid sales taxes in acquiring farm machinery qualifying for the investment credit, and, in some instances, used machines were traded in and additional cash paid in acquiring the new machines. Petitioners computed basis for purposes of the investment tax credit by adding sales taxes paid to the price of the machinery acquired. Held: Since taxpayers deducted the sales taxes currently rather than electing to capitalize them under sec. 266, I.R.C. 1954, the sales taxes are not included in basis. Additionally, where trade-ins are involved, petitioners' basis is not the list price of the machinery acquired, but is limited to the cash paid plus their basis in the properties traded in.

P, an employee of Blue Cross/Blue Shield of Massachusetts was covered by his employer's qualified pension plan. Participants in the plan received benefits keyed to their years of credited service. Held: the IRA contribution is not deductible under sec. 219(a) because P was an active participant in the qualified pension plan for the year 1976. Foulkes v. Commissioner, 638 F.2d 1105 (7th Cir. 1981), distinguished. Held, further, excise tax deficiency sustained.

Petitioners entered into a contract with a builder to construct their residence. Held: under North Carolina law, sales taxes were imposed on the material suppliers and were passed on to the builder by the suppliers, and accordingly, petitioners are not entitled to deduct such sales taxes under sec. 164, I.R.C. 1954.

Superior, a subsidiary corporation of petitioner, operates as a motor vehicle common carrier. Superior carries liability insurance for financial protection against the risk of bodily injury to employees and third parties, as well as the risk of damage to cargo and other property which would arise as a result of vehicular accidents occurring during the normal business operations. As of Sept. 1, 1976, the insurance policy provided for a $ 50,000 deductible. On that same date Superior, the insurer, and a bank executed a Loss Fund Agreement which specified that any funds placed on deposit into an Escrow Trust Fund would guarantee payment of those liabilities for which Superior was responsible as a result of the insurance deductible. On Dec. 31, 1976, Superior deposited $ 620,000, of which amount $ 326,574 was earmarked as contested liabilities. Held: The deposit in the bank-managed Escrow Trust Fund was not a transfer of "money or other property to provide for the satisfaction of the asserted liability" within the meaning of sec. 461(f)(2), I.R.C. 1954. Petitioner is not entitled to the benefit of sec. 461(f), and accordingly, the claimed $ 326,574 deduction is not allowable in 1976.

P was organized to publish and sell The Urantia Book, and the IRS determined that it was an exempt organization described in sec. 501(c)(3), I.R.C. 1954, and that it was not a private foundation… Held: the Court lacks jurisdiction to review such ruling since it was not a determination with respect to the exemption or classification of P.

1. On Nov. 13, 1973, a Form 870-AD was executed by P's counsel and her then husband. Held: assessment of the deficiencies in this case is not barred by the statute of limitations; in holding that P was entitled to receive a notice of deficiency, the U.S. District Court implicitly ruled that the period of limitations had not expired and that if the Commissioner issued a notice, the notice would be timely. 2.

Ts are shareholders of Contract Machining Corp. (CMC), an electing small business corporation. CMC produced a fuze bomb coupler for the Air Force under several defense procurement contracts. Held: the payments received pursuant to the value engineering incentive clause were payments for the sale of trade secrets, know-how, or unpatented technology qualifying as capital assets under sec. 1221, I.R.C. 1954.

Petitioner, a governmental authority described in sec. 103(a), I.R.C. 1954 (see sec. 1.103-1(b), Income Tax Regs.), is authorized to issue bonds which are payable solely from the revenues and receipts derived from the leasing or sale of its facilities. It proposes to issue its bonds and use the proceeds to purchase from Limited Partnership S a facility which S is building to lease to the U.S. Government Printing Office (GPO). S would then repurchase the facility from petitioner using an installment sales contract. Held: Although, in an economic sense the United States may be the "real obligor" of petitioner's bonds, the bonds are nevertheless covered by sec. 103(b). Congress preempted the "real obligor" theory in determining the tax-exempt status of industrial development bonds (IDBs) when it enacted that section, thereby encompassing IDBs whose proceeds are to be used to finance facilities for the Federal Government. Held, further, the U.S. Government and its agencies and instrumentalities are not "exempt persons" within the meaning of sec. 103(b)(3)(A). Sec. 1.103-7(b)(2), Income Tax Regs., upheld. Held, further , for purposes of the $ 10 million small issue exemption of sec. 103(b)(6)(D), the capital expenditures in Fairfax County of the entire U.S. Government should be aggregated with those of the GPO facility.

During 1970, petitioner-husband owned 50 percent of the stock of A Corp. which was engaged in the business of buying and selling antiques in San Francisco. In 1969, A Corp. sold $ 88,381.77 of merchandise to B Corp., receiving in exchange a trade receivable with the same face value. Later that year, substantially all of B Corp.'s assets were destroyed by fire. In 1970, A Corp. was liquidated pursuant to sec. 331, I.R.C. 1954. Among the assets received by petitioner-husband was a 50-percent share of the trade receivable from B Corp., which petitioners treated as a long-term capital gain at face value on their 1970 income tax return. Following the liquidation, petitioner-husband continued the antique business individually in Beverly Hills. In 1972, a court ruled that the companies which had insured B Corp. against fire losses were not obligated to pay any amount to B Corp. for the 1969 fire loss. As a result, the trade receivable became worthless. Held: The debt was not created or acquired in connection with a trade or business of petitioner-husband nor was the loss from its worthlessness incurred in petitioner-husband's trade or business. It therefore resulted in a nonbusiness bad debt loss.

Held, in computing their net operating loss deduction under sec. 172, petitioners may not reduce business capital gains by the excess of nonbusiness capital losses over nonbusiness… Held: in computing their net operating loss deduction under sec. 172, petitioners may not reduce business capital gains by the excess of nonbusiness capital losses over nonbusiness capital gains. Held, further, sec. 1.172-3(a)(2)(ii), Income Tax Regs., is a valid interpretation of the statute.

Under a decree of divorce entered by a Tennessee court, petitioner was to receive alimony in the amount of $ 2,000 per month. Held: petitioner received payments within the meaning of sec. 71(a)(1), I.R.C. 1954, of $ 2,000 per month which include the amounts offset by the credit and never actually exchanged. Held, further, those payments are taxable to petitioner under sec. 71(a)(1).

Petitioner was called upon in 1965 to satisfy his guaranty of certain indebtedness to bank 1. Held: petitioner made payment of his original note to bank 1 in 1966 sufficient to support a deduction. Held, further, the deduction for a bad debt under sec. 166, I.R.C. 1954, is nevertheless postponed until 1969 in which year the underlying claim became worthless.

Petitioner filed for divorce from his wife in April 1977. His wife filed a counterclaim for divorce and sought temporary support. Held: That petitioner is not entitled to a deduction under sec. 215(a), I.R.C. 1954, for the mortgage and utility payments. He and his wife were not separated within the meaning of sec. 71(a)(3) when the payments were made because they continued to live in the same house.

In his capacity as president and general manager of the company, petitioner made fraudulent misrepresentations concerning the company's financial status. Held: under sec. 162(a), I.R.C. 1954, petitioner may deduct $ 24,700 as an ordinary and necessary expense of his business of being an employee of the company.

As an integral part of petitioners' financial and estate plan, two foreign situs trusts were nominally created by a Canadian attorney (the Hylton Trust) and petitioner Vera Stern's father (the Florcken Trust). The trustee of both trusts was a foreign bank. Shortly thereafter, petitioners transferred substantial blocks of Teledyne stock to these trusts in exchange for lifetime annuities. The annuities were computed using the fair market value of the Teledyne stock and imputing an interest factor. The annuity payments were chargeable solely against the assets owned by the respective trusts. Due to the insubstantial assets owned by each trust prior to the stock transfers, the only real source of the annuity payments was the transferred stock and the income derived therefrom. Petitioners and their issue were the named beneficiaries of the Hylton Trust. The Hylton Trust instrument empowered the trustee to guarantee petitioners' loans, to lend them money on an unsecured, interest-free basis, to pay for premiums on insurance policies covering their lives, and to freely distribute corpus or income to them. In addition, the trust instrument vested petitioner Sidney Stern with a limited power of appointment over the trust properties and permitted him to replace the trustee without cause. With minor variations, the terms of the Florcken Trust instrument essentially mirrored those of the Hylton Trust. Although the foreign bank trustee administered both trusts, petitioners and their attorney played central and vocal roles in the trusts' affairs. Held, on the facts and circumstances presented, the transfers of Teledyne stock were not sales in exchange for annuities, but rather they were transfers in trust subject to retained annual payments. Held, further, petitioners are the real settlors of the Hylton and Florcken Trusts. Held, further, petitioners are taxed on the trusts' income pursuant to sec. 677(a) of the grantor trust provisions.

Petitioner, who suffered from premature baldness, underwent a hair transplantation operation. Held, the cost of the hair transplant qualifies as amounts paid for medical care under sec. 213(e), I.R.C. 1954.

Petitioner seeks a declaratory judgment that bonds it proposes to issue will be exempt from taxation under sec. 103(a), I.R.C. 1954, and not arbitrage bonds as defined in sec. 103(c). Held: petitioner's method of computing the yield on its proposed bonds is sustained. Held, further, certain portions of sec. 1.103-13(d), Income Tax Regs., are invalid. Held, further, petitioner's proposed bonds will not be arbitrage bonds within the meaning of sec. 103(c).

An agreement made in 1973 between petitioner and a closely held family corporation obligated the corporation annually to redeem 40 of petitioner's shares. Held: the 1976 redemption was not an integrated step in a firm and fixed plan to redeem petitioner's shares, and, consequently, the distribution in redemption of petitioner's shares was essentially equivalent to a dividend. Sec. 302(b)(1), I.R.C. 1954.

Held, petitioners failed to show error in respondent's determinations as to the allowability of itemized deductions and dependency exemption deductions (except to the extent conceded by respondent). Held, further, the Forms 1040 filed by petitioners for 1970 through 1973 were income tax returns for the purposes of income tax averaging computations under secs. 1301 through 1305, I.R.C. 1954. Held, further, the Forms 1040 filed by petitioners for 1974 through 1977 were income tax returns for the purposes of sec. 6651(a)(1), I.R.C. 1954; petitioners are liable for additions to tax under that section with respect to the returns that were delinquent. Held, further, the additions to tax under sec. 6653(a), I.R.C. 1954, are not applicable.

Held, points and other "prepaid finance charges" withheld by the lender may not be deducted by petitioners in the year of borrowing under sec. 461(g)(2), I.R.C. 1954, since they were not "paid" within the taxable year.

In early 1973, A decided to syndicate the X limited partnership which would purchase and operate a certain apartment complex. Held: Z's purchase and resale of the apartment complex to X was a sham. X was the real purchaser under the purchase agreement and did not acquire the benefits and burdens of ownership of the apartment complex thereunder until July 1, 1974.

Associates, petitioner Segura's wholly owned corporation, while insolvent, paid a dividend to Segura by canceling a debt owed by Segura to Associates. Held: such dividend is a transfer of property sufficient to make Segura liable as a transferee within the meaning of sec. 6901, I.R.C. 1954. Whitney v. Commissioner, 26 B.T.A. 212 (1932), and Steinle v. Commissioner, 19 B.T.A. 325 (1930), distinguished.

Held, in determining whether respondent has asserted a deficiency under sec. 6211, I.R.C. 1954, respondent's adjustments to petitioners' investment credit must be considered in conjunction with his… Held: in determining whether respondent has asserted a deficiency under sec. 6211, I.R.C. 1954, respondent's adjustments to petitioners' investment credit must be considered in conjunction with his adjustments to petitioners' taxable income.

Petitioner Frederick Paul is a Native within the meaning of the Alaska Native Claims Settlement Act, Pub. Held: amounts received by petitioner from the Alaska Native Fund in 1975 as compensation for legal services are not exempt from Federal income taxation.

Husband and wife claimed a dependency exemption for the husband's son by a previous marriage. Held: Premiums must be included in the sec. 152 support computation but proceeds must be excluded from the calculation. Consequently, petitioners were not entitled to the dependency exemption. Petitioners also claimed depreciation and expense deductions for an unfinished rental unit which they never rented and never held out for rent.

In 1966, petitioner's predecessor in interest entered into a fixed-price incentive-type subcontract (P.O. 181) with General Dynamics… Held: Even assuming the title provision of P.O. 181 did not bar petitioner from using an inventory method of accounting with respect to costs incurred under P.O. 181, the writedown nevertheless failed to meet the requirements of either sec. 1.471-2(c) or 1.471-4, Income Tax Regs., which specify the circumstances under which inventories may…

Petitioners and their children were the only shareholders of a "subchapter S corporation." The corporation distributed cash to the shareholders disproportionately to their stock ownership. Petitioners, on their income tax returns, allocated the dividends differently than they were actually distributed, relying upon sec. 1.1375-3(d), Income Tax Regs.Held: Sec. 1.1375-3(d), Income Tax Regs., is derived from sec. 1375(c), I.R.C. 1954, as amended. Sec. 1375(c), like sec. 482, I.R.C. 1954, may be invoked and applied only by the Internal Revenue Service and not by a taxpayer.

Held, a portion of the Ohio franchise tax paid by petitioner is properly deductible as an investment expense under sec. 804(c)(1), I.R.C. 1954. Held, further, unimproved land surrounding petitioner's home office building is includable in "assets" under sec. 805(b)(4), I.R.C. 1954.

Petitioners, husband and wife, filed separate returns as unmarried individuals. Held: The so-called marriage penalty is not unconstitutional and petitioners are subject to tax at the rates applicable to married individuals filing separately; 2. Petitioners are not entitled, under sec. 6013, I.R.C. 1954, to change their filing status to that of married persons filing jointly; 3.

Held: Real estate agents may not deduct expenses incurred in taking educational courses in real estate that were required under California law to obtain real estate broker licenses. Held: Real estate agents may not deduct expenses incurred in taking educational courses in real estate that were required under California law to obtain real estate broker licenses.

Achiro and Rossi each owned 50 percent of the stock of Tahoe City Disposal, and each owned 25 percent of the stock of Kings Beach Disposal. In 1974, Achiro and Rossi incorporated A & R for the purpose of rendering management services to Tahoe City Disposal and Kings Beach Disposal. Achiro and Rossi each owned 24 percent of A & R's stock, and Renato Achiro (Achiro's brother and Rossi's brother-in-law) owned the remaining 52 percent. A & R entered into management service agreements with Tahoe City Disposal and Kings Beach Disposal pursuant to which A & R provided those corporations with management services and, in exchange, received management fees. Achiro and Rossi entered into exclusive employment contracts with A & R, and, acting in their capacities as A & R's employees, rendered management services to Tahoe City Disposal and Kings Beach Disposal. Held: 1. A & R's income and deductions are not allocated pursuant to sec. 482, I.R.C. 1954, to Tahoe City Disposal and Kings Beach Disposal; 2. A & R's income and deductions are not allocated pursuant to sec. 269 to Tahoe City Disposal and Kings Beach Disposal; 3. A & R is not a sham and should not be disregarded for tax purposes; 4. A & R's income and deductions are not assigned pursuant to the assignment of income doctrine to Tahoe City Disposal and Kings Beach Disposal; 5. The management fees paid by Tahoe City Disposal and Kings Beach Disposal were expended for the purpose designated and were ordinary and necessary expenses; and 6. The employees of A & R are aggregated pursuant to sec. 414(b) with the employees of Tahoe City Disposal for purposes of applying the antidiscrimination provisions of sec. 401 to A & R's pension and profit-sharing plans.

Held, amount received as reimbursement of moving expenses by employee of U.S. Government, under Pub. L. 89-516, 80 Stat. 323, is includable in gross income, under sec. 82, I.R.C. 1954. Held: amount received as reimbursement of moving expenses by employee of U.S. Government, under Pub. L. 89-516, 80 Stat. 323, is includable in gross income, under sec. 82, I.R.C. 1954.

Petitioner, a fireman, was required to eat his meals at the station house while on 24-hour duty. Held, amounts contributed for the purchase of groceries and utensils are not deductible business expenses under sec. 162(a). Sibla v. Commissioner, 68 T.C. 422 (1977), and Cooper v. Commissioner, 67 T.C. 870 (1977), both affd. Sibla v. Commissioner, 611 F.2d 1260 (9th Cir. 1980), distinguished.

On May 14, 1980, respondent mailed a notice of deficiency to petitioner in which he determined first tier and second tier excise taxes under secs. 4941(a)(1) and 4941(b)(1), I.R.C. 1954, as amended,… Held: the amendments made to the Internal Revenue Code by Pub. L. 96-596, supra, are applicable to this docketed and untried case where the second tier taxes imposed by sec. 4941(b)(1) have not been assessed.

One of the corporate petitioners derived income from the operation of a commercial shopping center and a mobile home park. Held: this income constitutes personal holding company income (rents) within the meaning of sec. 543(a)(2), I.R.C. 1954. Webster Corp. v. Commissioner, 25 T.C. 55 (1955), affd.

In 1972, C, a limited partnership, contracted to produce two motion pictures for W. For its services, C was to receive a fee, which was, in part, contingent on the… Held: W, and not C, was the actual producer of such motion pictures and was the actual borrower of such bank loans. C's sole function with respect to the production of the motion pictures was to provide additional financing, and C's partners, in substance, purchased a net-profits interest in such motion pictures.

In 1971, P became a partner in C, and C became a partner in B. Previously, B had contracted with G to produce a motion picture for G. B's right to payment under such contract was not contingent upon… Held: P is not entitled to either a business loss or a bad debt deduction in 1972 because he failed to prove that the right to receive payments from G became worthless in that year.

On May 14, 1980, respondent mailed two notices of deficiency to petitioner in which he determined first tier and second tier excise taxes under sec.… Held: The amendments made to the Internal Revenue Code by Pub. L. 96-596, supra, are applicable to these docketed and untried cases where the second tier taxes imposed by sec. 4942(b) have not been assessed. Petitioner's motions to dismiss for lack of jurisdiction as to additional excise taxes under sec. 4942(b) are denied.

Petitioner, a pathologist, organized and operated a so-called one-man professional service corporation under the Oklahoma Professional… Held: Applying sec. 482, I.R.C. 1954, to the facts of this case, petitioner's total compensation (salary, pension plan contributions, and medical benefits) from the corporation was essentially equivalent to that which he would have continued to receive absent the organization of the corporation, and, therefore, essentially equivalent to…

Petitioners Long and Center were 50-percent owners in a Texas partnership, L, and a Georgia joint venture, V, with essentially the same group of taxpayers owning the remaining 50 percent. Held: the exchange of partnership interests qualifies as a like-kind exchange under sec. 1031(a), I.R.C. 1954. Held, further, the entire amount of gain realized was recognized under sec. 1031(b) due to an excess of liabilities relieved which constitutes money received under sec. 1031(d).

Petitioner was organized to conduct a skydiving competition based upon a novel form of team skydiving in which its creators were interested. Held: petitioner was not operated exclusively for exempt purposes within the meaning of sec. 501(c)(3), I.R.C. 1954.

In 1975, P claimed to have made a contribution to an IRA, although he had not adopted a written instrument governing such account. Held: For a contribution to an IRA to be deductible, there must be in existence by the time prescribed for making such contribution a written instrument governing such account. Sec. 408(a), I.R.C. 1954; sec. 1.408-2(b), Income Tax Regs.

P is the controlling shareholder and sole income-generating employee of a personal service corporation, C. P organized C for the purposes of splitting his… Held: sec. 482 may be employed to allocate income between a corporation and its controlling shareholder/employee where financial relations between them fail to reflect arm'slength dealings between uncontrolled parties. Keller v. Commissioner, 77 T.C. 1014 (1981), and Achiro v. Commissioner, 77 T.C. 881 (1981), followed.

Petitioner filed a valid subch. S election in its taxable year immediately preceding the taxable year in which it realized a long-term capital gain by reason of an involuntary conversion resulting… Held: petitioner's long-term capital gain is taxable to it pursuant to sec. 1378, I.R.C. 1954, notwithstanding the fact that the gain was realized through an involuntary conversion.

Held, the interest received on warrants obtained as part of the consideration for land sold to the Trinity River Authority under a threat of condemnation is not excludable from gross income… Held: the interest received on warrants obtained as part of the consideration for land sold to the Trinity River Authority under a threat of condemnation is not excludable from gross income under sec. 103(a)(1), I.R.C. 1954. Drew v. United States, 551 F.2d 85 (5th Cir. 1977), followed.

H was employed as a second officer with UAL. Held: H is allowed to deduct the expenses of operating an aircraft to the extent that such operations were needed to maintain his employment skills, but the remaining expenses are personal and not deductible.

P acquired all the assets and liabilities of X, including the express assumption of the liability to pay an unfunded pension to G, the widow of a former employee. Held: P's payment of X's obligation to G was not an ordinary and necessary business expense. Rather, such payments, in the year paid, became part of P's cost basis in the assets it purchased from X.

Held: Before computing the amount of gain which P, a qualified electing shareholder, must recognize under sec. 333, I.R.C. 1954, as amended, the amount of gain or loss which P realizes from… Held: Before computing the amount of gain which P, a qualified electing shareholder, must recognize under sec. 333, I.R.C. 1954, as amended, the amount of gain or loss which P realizes from the liquidation and distribution of property to him is to be determined as provided by sec. 1001.

Petitioners recognized capital gain from the sale of property located in the Republic of Ireland. Ireland imposed a tax on such capital gain at a flat rate of 26 percent. Held: such foreign-source capital gain was accorded preferential treatment within the meaning of sec. 58(g)(2)(B), I.R.C. 1954, and thus gave rise to an item of tax preference subject to the minimum tax under sec. 56.

Petitioner is the parent corporation in a group of affiliated corporations which filed consolidated returns for the years in issue. Held: The 1966 consolidated return regulations fail to provide affiliated corporations making consolidated returns with sufficient guidance as to how accumulated taxable income is to be computed for purposes of applying the accumulated earnings tax.

During 1976 and 1977, petitioners' partnership was engaged in farming as defined in sec. 464(e), I.R.C. 1954. Held: the borrowed funds were not amounts at risk and the losses attributable to the partnership's farming activity are not available as deductions for the years in issue. Sec. 465(b)(3), I.R.C. 1954.

Petitioners filed a 32-page preprinted document with respondent. The Form 1040 portion of this document was signed under penalties of perjury. Held: Petitioners are liable for an income tax deficiency in the increased amount asserted in respondent's answer. 2. The 32-page document does not constitute a return; addition to tax imposed under sec. 6651(a)(1) (failure to file return), I.R.C. 1954. 3. Addition to tax imposed under sec. 6653(a) (negligence), I.R.C. 1954.

P was employed by the U.S. Customs Service in Nassau, Bahamas, from Sept. 7, 1974, to Sept. 11, 1976. Held: P was paid by the United States or an agency thereof with respect to compensation for overtime services while working in the Bahamas, and therefore, his overtime compensation may not be excluded from his gross income pursuant to sec. 911(a)(2), I.R.C. 1954.

The issuance of a notice of deficiency to a corporation within 3 years after its dissolution is an action or other proceeding under Fla. Stat. Ann. sec. 607.297 which preserved the right of its officers and directors to file a petition in this Court. Respondent's motions to dismiss for lack of jurisdiction denied. Bahen & Wright, Inc. v. Commissioner, 176 F. 2d 538 (4th Cir. 1949), revg. an unpublished order of this Court, followed.

Petitioner filed a request for determination with respondent on its status as a qualified retirement plan on Jan. 31, 1974. Held: the notice of deficiency does not constitute a notice of determination as required to obtain jurisdiction under sec. 7476(a)(1).

H and W filed a joint Federal income tax return for 1974, reporting a loss on Schedule E attributable to X, a subch. Held: amounts disclosed on the subch. S return cannot be considered as an amount omitted from gross income within the meaning of secs. 6013(e)(2)(B) and 6501(e)(1)(A)(ii), I.R.C. 1954. Held, further, W fails to come within the coverage of sec. 6013(e) since there was no omission from gross income on the facts presented.

In 1972, P bought stock in X which was designed to qualify as sec. 1244, I.R.C. 1954, stock. Held: P's payment pursuant to the guaranty gives rise to a nonbusiness bad debt, deductible as a short-term capital loss in the year of payment. Held, further: The note received by P from X does not constitute sec. 1244 stock. The loss on the worthlessness of such note is deductible only as a short-term capital loss.

Petitioners entered into sales agreements, promissory notes, security agreements, and management agreements with Cattle Co. Pursuant to these… Held: Petitioners' transactions with Cattle Co. were not sales for Federal tax purposes. Petitioners' only real expectation of profit from the transactions with Cattle Co. rested on hoped-for tax benefits. Held, further, the transactions do not have sufficient substance, apart from tax manipulation, to be recognized for tax purposes.

By testamentary disposition, decedent granted a life estate in her personal residence to her surviving husband. Held: the disposition in favor of the charities is equivalent to the contribution of a remainder interest in a personal residence within the meaning of sec. 170(f)(3)(B)(i), I.R.C. 1954, and, therefore, under sec. 2055(a), I.R.C. 1954, decedent's estate is entitled to a charitable deduction equal to the present value of the remainder…

Held, the 100-percent penalty tax imposed by sec. 6672(a), I.R.C. 1954, assessed against petitioner and paid by him, is not deductible under either… Held: the 100-percent penalty tax imposed by sec. 6672(a), I.R.C. 1954, assessed against petitioner and paid by him, is not deductible under either sec. 162(a) or sec. 165(c)(1). Sec. 162(f). Held, further, the Tax Court does not have jurisdiction to determine petitioner's liability for the penalty tax imposed by sec. 6672(a).

Petitioner seeks a declaratory judgment under sec. 7428 that it is an organization described in sec. 115, I.R.C. 1954, as amended, and thus its income is exempt from Federal income taxation. Held: petitioner is not entitled to a declaratory judgment under sec. 7428 that its income is exempt under sec. 115.

Petitioners are husband and wife residing in California, a community property State. Held: the amount over which petitioners' items of tax preference are subject to tax pursuant to sec. 56(a), I.R.C. 1954, is $ 10,000 and not $ 20,000.

Husband and wife were divorced pursuant to a decree which provided, among other things, for a nearly equal split of the property which had been accumulated by the… Held: Taking into account the wife's property rights under Michigan law, the manner in which the divorce court divided the marital property, and the other surrounding facts and circumstances, the lump-sum and installment payments were in the nature of a division of capital, rather than an allowance for support.

Held, a timely signed consent extending the statute of limitations for assessment and collection of income tax for a year for which a… Held: a timely signed consent extending the statute of limitations for assessment and collection of income tax for a year for which a joint return was filed is valid to extend the statute with respect to the husband who signed the consent, even though the statute of limitations barred the determination of a deficiency for that year against…

Held, decedent-transferee's discretionary life interest in a trust created by prior decedent did not constitute a fixed right to all or… Held: decedent-transferee's discretionary life interest in a trust created by prior decedent did not constitute a fixed right to all or even a determinable portion of the distributable income for the remainder of her life, and was therefore not susceptible of valuation so as to qualify for an estate tax credit under sec. 2013(a), I.R.C.…

In 1975, P owned and operated, as a sole proprietorship, a business of selling bowling supplies, both at wholesale and at retail, and sought to apply the maximum tax on earned income under sec. 1348,… Held: capital was a material income-producing factor in such business, and accordingly, only 30 percent of the net profits of such business constituted earned income under sec. 1348 in 1975.

Petitioner is an exempt organization under sec. 501(c)(4), I.R.C. 1954. Held: under sec. 1.513-1(c)(2), Income Tax Regs., the annual vaudeville shows (and accompanying program guides) were intermittent activities which did not constitute an unrelated trade or business which was regularly carried on, thus, the income therefrom is not subject to tax as unrelated business taxable income under secs. 511 through…

Petitioner Gerrit B. Lemmen purchased a herd of cattle in 1973 for a stated price of $ 40,000 and a second herd of cattle in 1974 for a stated price of $ 20,000. Held: petitioner's cattle-breeding ventures were activities engaged in for profit during 1973, 1974, and 1975; therefore, he is entitled to investment credits and deductions for depreciation with respect to the cattle without regard to the limitations of sec. 183, I.R.C. 1954.

During 1965, G entered into a written pension plan and pension trust agreement. Held: G's pension plan is not qualified because it fails to provide that forfeitures must not be applied to increase the benefits any employee would otherwise receive under the plan. Sec. 401(a)(8), I.R.C. 1954.

Held: Gain which is attributable solely to inflation is income within the meaning of the 16th Amendment, and thus is taxable without apportionment. Held: Gain which is attributable solely to inflation is income within the meaning of the 16th Amendment, and thus is taxable without apportionment.

In our original opinion in this proceeding, we held that petitioners had not met their burden of proof as to the measure of any loss realized by ITT Avis or ITT Aetna on the retirement of convertible… Held: on the retirement of the debentures in 1965, ITT Avis and ITT Aetna sustained ordinary losses of $ 1,204,538 and $ 45,276.50, respectively.

Petitioner, a taxpayer using the accrual method of accounting, is engaged in strip-mining coal in Ohio. Held: Petitioner may deduct its accrued reclamation costs for the taxable year in question since as of the close of the year all the events had occurred which determined the fact of liability and the amount thereof could be and was determined with reasonable accuracy. Sec. 1.461-1(a)(2), Income Tax Regs., applied.