Volume 78 — Tax Court Reports

Petitioners O'Connor entered into an agreement with petitioner Bush which purports to be a lease to Bush of a portion of land for the… Held: petitioners O'Connor retained an economic interest in the clay deposits so that payments made by Bush to the O'Connors represent ordinary income subject to depletion. Held, further, Bush acquired an economic interest in minerals in place under the lease agreement and is entitled to percentage depletion on the O'Connor clay deposits.

P delinquently filed an estate tax return. Accordingly, respondent summarily assessed additions to tax for late filing and late payment. Held: this Court has jurisdiction to redetermine the disputed addition for late filing because it is attributable to a deficiency in tax. Sec. 6659(b)(1), I.R.C. 1954.

Decedent was insured under a group life insurance policy provided by his employer. Held: the conversion privilege, which is contingent upon termination of employment, is not an incident of ownership within the meaning of sec. 2042(2), I.R.C. 1954, so the proceeds of the life insurance policy are not includable in his gross estate.

P, a minister of the Calvary Bible Church, regularly performed some of his ministerial duties in an office in his home. Held: in these circumstances, such transportation costs constitute commuting expenses which are personal and nondeductible.

Husband and wife each owned stock in a publicly held corporation. Held: The interspousal sale was not a sham. The wife parted with direct and indirect control over the stock and the economic benefits therefrom. Rushing v. Commissioner, 441 F.2d 593 (5th Cir. 1971), affg. 52 T.C. 888 (1969). Additionally, the spouses each had independent nontax reasons for entering into the installment transaction.

Held, petitioners are not entitled to a deduction for a contribution made by petitioner Virginia R. Horvath to an IRA, under sec. 219, I.R.C. 1954. Held: petitioners are not entitled to a deduction for a contribution made by petitioner Virginia R. Horvath to an IRA, under sec. 219, I.R.C. 1954. Held, further, interest income earned on the IRA is not includable in petitioners' gross income.

P, a yachting association, provided design and measurement tools in connection with its enforcement of amateur racing competition. Held: such provision does not constitute the provision of athletic facilities or equipment within the meaning of sec. 501(c)(3), I.R.C. 1954.

B sustained an NOL for 1972 and filed an application for a quick refund for 1971 under sec. 6411, I.R.C. 1954. Held: respondent may recover the quick refund through the deficiency procedures; his remedy is not limited to a suit to recover an erroneous refund. Secs. 6211(a) and (b)(2), 6411(a) and (b), I.R.C. 1954. In 1969, P and B had net long-term capital gain of $ 2,002,486, taxable income of $ 991,472, and an ordinary income loss of $ 9,771.

Petitioner William H. Hoptowit, a noncompetent Indian, received income from the operation of a smokeshop on the Yakima Indian Reservation during 1975 and 1976. Held: no treaty or statute exempts petitioner from taxation on the income that he received from the operation of the smokeshop or in return for services, and he is, therefore, taxable on such income.

Under a written separation agreement, petitioner-wife was given the right to occupy, free of charge, a cooperative apartment owned by petitioner-husband by virtue of his… Held: those payments are income to petitioner-wife under sec. 71(a)(2), I.R.C. 1954, and deductible by petitioner-husband under sec. 215. Marinello v. Commissioner, 54 T.C. 577 (1970), followed. Isaacson v. Commissioner, 58 T.C. 659 (1972), and Bradley v. Commissioner, 30 T.C. 701 (1958), distinguished.

Held: Amounts specifically designated in a separation agreement as payable for child support were "fixed" within the meaning of sec. 71(b), I.R.C. 1954, even though the designation was prefaced by the phrase "for tax purposes." Accordingly, amounts paid pursuant to the agreement were neither deductible by H nor includable in W's gross income.

To determine whether the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954, was satisfied, respondent included in his calculations the stock of a shareholder who did not own stock in all of the… Held: consideration of stock of one who does not own stock in each of the members of a group of corporations is improper for purposes of applying the 80-percent test of sec. 1563(a)(2)(A), I.R.C. 1954. United States v. Vogel Fertilizer Co., 455 U.S. (1982), followed.

Evidence obtained by State police officers in violation of petitioner's Fourth Amendment rights is admissible in Federal civil tax proceedings. Petitioner's motion to suppress evidence is denied. United States v. Janis, 428 U.S. 433 (1976), followed. To the extent that it is inconsistent with United States v. Janis, supra, our decision in Suarez v. Commissioner, 58 T.C. 792 (1972), will no longer be followed.

Petitioners purchased working interests in oil and gas leases and entered into turnkey drilling and completion contracts and other agreements with the sellers-promoters. Held: in economic substance, the parties created 50-percent net profits interests in the promoters and the petitioners, in effect, paid only 50 percent of the intangible drilling and development costs.

During the course of an examination, petitioners requested respondent to direct all future correspondence to them to an APO address in New York. Held: this Court's jurisdiction can be questioned by either party, or by the Court sua sponte, at any time. Held, further, the notice was addressed to petitioners at their last known address. Sec. 6212(b)(1), I.R.C. 1954.

On July 9, 1974, petitioner exchanged her farm for two residential properties, cash, and a note. On the same day, her two children and their families each moved into the residences. Held: the July 9, 1974, exchange does not qualify for nonrecognition treatment under sec. 1031(a), I.R.C. 1954, because petitioner did not intend to hold the property received for productive use in a trade or business or for investment.

Petitioner, which had been in the business of acquiring improved real estate and either leasing it or operating it, entered into an agreement with Griffin to build a warehouse according to Griffin's… Held: the transaction was a sale of property in the ordinary course of petitioner's trade or business and the gain thereon is taxable as ordinary income rather than capital gain.

Petitioner is a professional association of Michigan independent insurance agents and is exempt from tax as a business league under sec. 501(c)(6), I.R.C. 1954. During the taxable years in issue, petitioner performed various promotional and administrative services in connection with certain malpractice, health, disability, and life insurance programs underwritten by private insurance companies and made available to petitioner's members. For its efforts, petitioner received fees based on varying percentages of the premiums paid by participating members. In March 1975, petitioner received an experience rating reserve refund from Time Insurance Co. in connection with a group health and life policy which petitioner had terminated on Jan. 1, 1974. It deposited the refund check in its general checking account and enjoyed unfettered dominion and control over the funds thereafter. Under an agreement with the insurance company, petitioner assumed a contingent liability, not to exceed the amount of the refund, for any claims which had not yet been filed under the canceled policy. No such claims were filed, however, and no portion of the refund was distributed to petitioner's members. Held, the promotional and administrative fees were unrelated business income under sec. 512, I.R.C. 1954. Held, further. The experience rating reserve refund was not received by petitioner in trust for its members, but rather, was received under claim of right without restriction as to its use or disposition. Therefore, the refund constitutes unrelated business income under sec. 512 even though petitioner was under a contingent obligation to restore all or a part of the refund in the event additional claims were filed with Time Insurance.

Petitioners entered into a cost-plus-fixed-fee contract with a building contractor to construct an addition to their home. Michigan sales tax (imposed on retail sellers) was imposed on the contractor's purchases from his suppliers and generally separately listed on the suppliers' invoices to the contractor. The contractor paid the amounts of these taxes to his suppliers. Petitioners' contract payments of "The net cost of all labor & material" included amounts on account of these taxes. Held, petitioners did not pay Michigan sales taxes to the sellers in the retail sales Michigan chose to tax and so petitioners are not treated as the persons on whom the Michigan sales taxes were imposed. Sec. 164(b)(5), I.R.C. 1954.

Petitioner is organized to protect the financial stability of the New York City Teachers' Retirement System and the contributions and pensions of retiree members of that system and is… Held: denying tax-exempt status to petitioner does not violate petitioner's First Amendment rights. Held, further, various parts of sec. 1.501(c)(3)-1(d), Income Tax Regs., are constitutionally valid. Held, further, sec. 1.501(c)-1(c)(1), Income Tax Regs., is not unconstitutionally vague.

In 1976, petitioners exchanged guaranty stock in a State-chartered savings and loan association for savings accounts in a federally chartered mutual… Held: the savings accounts constitute proprietary interests which satisfy the continuity of interest required in a reorganization under sec. 368(a)(1)(A), I.R.C. 1954, and, therefore, petitioners are entitled to treat the exchange of guaranty stock for savings accounts as a tax-free exchange under sec. 354(a)(1), I.R.C. 1954.

Petitioner claims exemption from Federal income tax on the ground that she is a "Moorish American." Petitioner submitted to her employer a Form W-4 on which she claimed 13 exemptions even though she knew she was entitled to no more than 3 exemptions. She filed the false Form W-4 in order to stop withholding of Federal income taxes from her wages. She did not file Federal income tax returns for the years in issue, and did not pay tax. Held: 1. Petitioner's constitutional arguments are rejected; she is subject to Federal income taxation. 2. Additions to tax are imposed under sec. 6653(b) (fraud), I.R.C. 1954. 3. Petitioner is entitled to personal exemption deductions and credits for her two sons; she is entitled to head-of-household status even though she failed to file income tax returns. Sec. 143(b), I.R.C. 1954. 4. Additions to tax are imposed under sec. 6654(a) (estimated tax), I.R.C. 1954.

Petitioner's decedent made several gifts, each exceeding $ 3,000 in value in January 1978. The value of such gifts was included in the decedent's estate under sec. 2035(a), I.R.C. 1954. Held, petitioner is not entitled to exclude $ 3,000 for each gift under sec. 2035(b)(2), I.R.C. 1954.

J was one of the 25 highest paid participants in A's qualified retirement plan. Upon his retirement from A, J was entitled to receive a lump-sum distribution of his accrued benefits under such plan. Held: the agreement with A was not an impermissible assignment or alienation of plan benefits within the meaning of sec. 401(a)(13), I.R.C. 1954; therefore, the H.R. 10 plan is a qualified plan under sec. 401(a).

Held, petitioners' gain on the sale of a cruise ship in an in rem foreclosure proceeding in a Canadian court is taxable income in 1978, when… Held: petitioners' gain on the sale of a cruise ship in an in rem foreclosure proceeding in a Canadian court is taxable income in 1978, when the priorities of creditors were determined and the proceeds were distributed from the registry of the court for application on petitioners' liability, and not in 1977, when the foreclosure sale…

On Aug. 7, 1973, petitioners S and J each acquired long positions in 21 March 1974 silver futures contracts and 21 December 1974 silver futures contracts and short positions in 42 July 1974 silver… Held: petitioners' transactions were not shams. Held, further, each of petitioners' respective positions is accorded separate significance for purposes of measuring gain or loss.

Petitioner owns a retail lumber business which adopted an annuity plan and a money-purchase plan for its employees. Held: the employees of both A and B should not have been aggregated for purposes of determining whether petitioner's plans satisfy the coverage requirements of sec. 410(b)(1).

P filed original returns for 1971 through 1974 which were allegedly fraudulent. Held: P's motion for summary judgment that the notice of deficiency was barred by the statute of limitations is denied because there are questions as to whether the documents handed to the agent as amended returns were filed at that time and as to whether the time for assessing taxes for 1972 had been extended.

Held, petitioner-husband, an Army officer who participated in the Army's General Dentistry Residency Program (not part of the Armed Forces Health Professions Scholarship Program) in 1977,… Held: petitioner-husband, an Army officer who participated in the Army's General Dentistry Residency Program (not part of the Armed Forces Health Professions Scholarship Program) in 1977, did not qualify for the scholarship exclusion provided by sec. 117, I.R.C. 1954, as amplified by Pub.

Petitioner worked as an account executive managing seven condominiums for a real estate development corporation. His duties included supervising a resident manager and dealing with the board of directors of each condominium. He maintained an office in his home to handle frequent after-office-hours telephone calls. Held, under sec. 280A, I.R.C. 1954, petitioner is entitled to a deduction for the cost of maintaining his home office; the office was exclusively and regularly used, for the convenience of his employer, by his employer's clients.

Petitioner, a regulated electric utility, reported its income on an accrual calendar year basis and utilized the meter reading and billing cycle of accounting for sales of electricity. Held: under the particular circumstances herein, the uniformity requirement of Rev. Rul. 72-114 should not be applied, and petitioner's method of reporting income and expenses in respect of its post-meter reading but prebilling sales in December is sustained.

In 1974, petitioners constituted an affiliated group of corporations which filed a consolidated return for that year. Held: CIYC was not carrying on a trade or business in 1974 and, therefore, the preopening expenses were not deductible under sec. 162(a), I.R.C. 1954. Held, further, no deduction may be claimed with respect to P's profit sharing plan in excess of the amount allowed by respondent.

Petitioner purchased a 4.95-percent limited partnership interest in early 1974. Held: The partnership did not have any actual investment in the movie to the extent of the $ 1,400,000 nonrecourse note, as the stated purchase price of the property securing the note unreasonably exceeded its fair market value. Therefore, the partnership may not include the face amount of the note in the depreciable basis of the movie.

1. Decedent devised the residue of her estate to a charitable remainder trust. Held: A Federal estate tax deduction is allowed for the present value of the unitrust interest passing to charity. Insofar as sec. 20.2055-2(e)(2)(vi)(e), Estate Tax Regs., disallows the deduction, it is invalid. 2.

Held: Attorney General John N. Mitchell authorized the Perillo wiretap application as required by 18 U.S.C. sec. 2516(1) (1970). Petitioners' motion for dismissal and preclusion of evidence is denied. Held: Attorney General John N. Mitchell authorized the Perillo wiretap application as required by 18 U.S.C. sec. 2516(1) (1970). Petitioners' motion for dismissal and preclusion of evidence is denied.

P's annuity plan provides, in part, that an employee is to accrue benefits for any period for which he is paid or entitled to payment for the performance of service, any… Held: the plan's method of determining an employee's service for purposes of benefit accrual is a permissible alternative computation method under 29 C.F.R. sec. 2530.204-3(a); therefore, the plan satisfies the requirements of sec. 411(b), I.R.C. 1954, and is a qualified plan under sec. 401(a), I.R.C. 1954.

Held, petitioner, a licensed practical nurse, may not deduct the costs of acquiring a 4-year degree from a school of nursing when such degree leads to her qualification as a registered nurse. Held: petitioner, a licensed practical nurse, may not deduct the costs of acquiring a 4-year degree from a school of nursing when such degree leads to her qualification as a registered nurse. Sec. 1.162-5(b)(3), Income Tax Regs.

Petitioners filed a Form 1040 for 1976 and Forms 1040A for 1977 and 1978. Held: The forms filed by petitioners do not constitute returns. Petitioners are not entitled to elect to file joint returns for 1976, 1977, and 1978 after having received the notices of deficiency based on rates for married individuals filing separately and having filed timely petitions with the Tax Court for those years.

T was the owner of 120 shares of class B stock of Missouri Pacific Railroad Co. (MoPac). Held: The restructuring of MoPac was a recapitalization within the purview of sec. 368(a)(1)(E), I.R.C. 1954, and therefore a reorganization under sec. 368(a)(1). 2. Since T had no obligation to sell any of his new common to MRC, his sale of the 1,376 shares of new common was a transaction wholly separate from the recapitalization.

As of Apr. 3, 1973, petitioner's husband was liable to the Federal Government for substantial amounts of income taxes, additions to tax, and interest. Held: petitioner is liable as a transferee of the assets of her husband within the meaning of sec. 6901, I.R.C. 1954, to the extent that the creation of the tenancies was for less than fair and adequate consideration.

Petitioner was a medical fellow enrolled in the University of Minnesota Graduate School Surgery Program in health sciences from July 1971 until his completion of the program in June 1978. Held: the Surgery Program must be considered as a whole in determining whether the stipend payments received by petitioner during any portion of that program are includable in gross income.

Prior to 1971, P operated two separate sole proprietorships: a private psychiatric hospital and a clinical psychiatric practice. Held: respondent's reallocations are arbitrary and capricious. Keller v. Commissioner, 77 T.C. 1014 (1981), followed.

Ps, who operated a proprietorship engaged in the sale of real estate to customers in the ordinary course of their business, purchased in 1968 for $ 11,000 certain acres of unimproved waterfront land… Held: Ps held the Janes Island property for sale to customers in the ordinary course of their business immediately prior to receiving notice by Maryland of its intent to condemn it. Held, further.

Held, an examination of all the surrounding facts and circumstances of this case fails to convince us that P had an actual and honest objective to make a profit from… Held: an examination of all the surrounding facts and circumstances of this case fails to convince us that P had an actual and honest objective to make a profit from his activities as a writer and a lecturer; therefore, such activities were not engaged in for profit within the meaning of sec. 183, I.R.C. 1954.

Petitioner submitted a Form 1040 for 1976 to the Internal Revenue Service. Held: affidavits of counsel representing a party to the case are permitted to be submitted where made on personal knowledge and based on facts that would be admissible in evidence. Held, further, the 1976 Form 1040 submitted did not constitute a return; the statute of limitations does not bar assessment of deficiencies for 1976.

Petitioners purchased a 4.95- and 9.9-percent limited interest, respectively, in a partnership in the fall of 1974. Held: The partnership did not have any actual investment in the movie to the extent of the $ 752,500 nonrecourse note, as the note unreasonably exceeded the fair market value of the property securing the note.

Petitioner was a manufacturer of men's pants, whose inventory was purportedly valued at the lower of cost or market. For tax purposes, finished pants were consistently valued at a percentage of selling price. Materials and work in process were valued at a percentage of cost. Petitioner did not allocate any amount for direct labor and factory overhead in valuing its manufactured inventory. Held, petitioner's method of valuing inventory did not clearly reflect income, and respondent properly revalued the inventory to clearly reflect income under sec. 446(b) and sec. 471, I.R.C. 1954. Held, further, respondent's revaluation of petitioner's inventory constituted a change in petitioner's method of accounting and required an adjustment under sec. 481, I.R.C. 1954, to prevent amounts of taxable income from being omitted solely by reason of the change.

1. At her death, decedent was obligated to pay a monthly sum to her former husband for the remainder of his life. Decedent's ex-husband properly filed his claim against decedent's estate, and the claim was approved by the State court with jurisdiction over the estate. Decedent's ex-husband died 7 months after decedent, thus extinguishing the estate's obligation after only seven payments. His early death was unexpected at the time of her death. Held, the obligation was fully enforceable as of the date of decedent's death and the estate is therefore entitled to a deduction for the actuarial value of the debt computed without regard to events occurring subsequent to the date of death. Ithaca Trust Co. v. United States, 279 U.S. 151 (1929), and Estate of Lester v. Commissioner, 57 T.C. 503 (1972), followed; Estate of Hagmann v. Commissioner, 60 T.C. 465 (1973), affd. 492 F.2d 796 (5th Cir. 1974), and related cases, distinguished. 2. Decedent held 56,454 shares of a publicly traded stock at her death. Between the date of death and the alternate valuation date, which was elected by the executors for purposes of valuing the gross estate, 42,416 shares were sold in several blocks, all at a court-approved discount of $ 2 per share. Held, for purposes of determining whether a "blockage" discount is appropriate in valuing the 14,038 shares remaining in the estate on the alternate valuation date, the relevant block of stock is 14,038 shares. Held, further, in view of the fact that the alternate valuation date marked the beginning of a strong and rising market, the record fails to show that the estate could not dispose of the 14,038 shares within a reasonable period of time without depressing the market price of the stock; the Commissioner therefore did not err in refusing to allow a discount for blockage in respect of the 14,038 shares as of the alternate valuation date.

In Concord Control, Inc. v. Commissioner, T.C. Memo. 1976-301, this Court held that no goodwill was acquired by petitioner in its 1964 purchase of K-D. However, we held that part of the purchase… Held: using the capitalization of earnings method, the amount of going-concern value acquired by petitioner was $ 334,985. Held, further, depreciable basis determined by allocating going-concern value to depreciable assets.

P was duly ordained a minister in 1969. From 1973 through 1975, he received net earnings from self-employment of $ 400 or more derived from his performance of… Held: P filed an untimely application for exemption and it was properly denied by R; 2. P is liable for self-employment taxes for 1976, 1977, and 1978; and 3. The provisions of sec. 1402(e) are religiously neutral and do not violate the free exercise of religion clause of the First Amendment to the U.S. Constitution.

Petitioner filed a timely income tax return for the 1974 prebankruptcy year. On Feb. 2, 1976, petitioner filed a petition in bankruptcy. Held: the Tax Court has jurisdiction to redetermine the deficiency and addition to tax. Orenduff v. Commissioner, 49 T.C. 329 (1968), and Graham v. Commissioner, 75 T.C. 389 (1980), followed.

Petitioner, a political subdivision of the State of Arizona, proposes to issue bonds in the amount of $ 1 million to provide for certain public improvements. Held: sec. 1.103-13(g)(1) and (2), Income Tax Regs., which, in part, provides that amounts held in a sinking fund for a bond issue are treated as proceeds of the issue, is valid.

Held, in computing their minimum tax, petitioners may not offset tax carryovers generated by one corporation in preaffiliation years against tax preference items generated by another corporation in… Held: in computing their minimum tax, petitioners may not offset tax carryovers generated by one corporation in preaffiliation years against tax preference items generated by another corporation in consolidated return years.

In 1975, the corporation employing petitioner as president purchased a $ 500,000 individual term life insurance policy on his life and named his wife… Held: the individual term life insurance policy is not part of a plan of group insurance under sec. 1.79-1(b)(1), Income Tax Regs., as in effect in 1975. Held, further, the requirement in the regulations that the amount of insurance protection must be computed under a formula that precludes individual selection is not invalid.

P paid $ 2,000 to the Institute of Individual Religious Studies for information, guidance, and written materials to be used to establish a family estate trust. Subsequently, P established and transferred assets to such a trust. Held, P failed to prove that any part of such payment was an ordinary and necessary expenditure paid for the management, conservation, or maintenance of property held for the production of income or for tax advice. Sec. 212(2) and ( 3), I.R.C. 1954.

Petitioners filed an application for the award of costs and attorneys' fees incurred by them as a result of Tax Court litigation. Held, the Tax Court is not empowered to award costs or attorneys' fees under either the Civil Rights Act, the Equal Access to Justice Act, or any other authority.

Ps, profit-sharing trusts qualified under secs. 401(a) and 501(a), I.R.C. 1954, held limited partnership interests in several partnerships engaging in the wholesale fastener distribution business. Held: Ps realized unrelated business taxable income within the meaning of sec. 512, I.R.C. 1954, from their distributive shares of income from such partnerships. Held, further, additions to tax under sec. 6651(a)(1), I.R.C. 1954, imposed.

Petitioners entered into an auto-leasing tax shelter plan promoted by Henry Kersting in the first part of 1975. Held: The stock purchase loans did not create real indebtedness and the interest paid thereon was in reality a part of the rent paid for the use of the automobile. Petitioners may not deduct the interest paid with respect to the stock purchase loans. 2.

Decedent was the trustee of a trust established by his father in 1946 for the benefit of decedent's children. The trust agreement vested the trustee with the same rights and powers over insurance policies held by the trust "as he would have as the absolute owner thereof." As trustee, decedent caused the trust to purchase three insurance policies on his life. Subsequently, decedent as trustee executed assignments of those insurance policies as collateral security for personal obligations and obligations of a corporation in which decedent was an officer, director, and 50-percent shareholder. The assignments were not made for the benefit of decedent's children as beneficiaries of the 1946 trust. Held, decedent did not possess any "incidents of ownership" in the insurance policies within the meaning of sec. 2042(2), I.R.C. 1954, and, therefore, the proceeds of those policies are not includable in decedent's gross estate; the assignment of the insurance policies for decedent's personal benefit and for the benefit of the corporation violated decedent's fiduciary obligations as trustee of the 1946 trust but does not permit inclusion of the policies in his gross estate.

Held, payments to petitioner from the Civil Service Retirement and Disability Fund cannot be excluded from income under either sec. 104(a)(1), 104(a)(4), or 105(d), I.R.C. 1954. Held: payments to petitioner from the Civil Service Retirement and Disability Fund cannot be excluded from income under either sec. 104(a)(1), 104(a)(4), or 105(d), I.R.C. 1954.

Petitioner, an accrual basis taxpayer, was a mortgage banker who received commitment fees from borrowers for securing commitments from institutional investors for permanent financing of commercial projects. After petitioner obtained a commitment from an investor, it issued its own commitment to the borrower. The commitment fee from the borrower was due and payable when the borrower accepted petitioner's commitment and was received by petitioner either at that time or shortly thereafter. Petitioner deferred recognition of these fees until the permanent loan was funded. Held: Petitioner must include these fees in income in the taxable year when the borrower accepts its commitment since at that time all events had occurred which fixed petitioner's right to receive such amounts. Sec. 1.446-1(c)(1)(ii), Income Tax Regs. Deferral of these fees does not clearly reflect income under sec. 446(b), I.R.C. 1954.

Petitioner, a professional basketball player, executed a contract with an unrelated corporation whereby he granted the corporation the right to his services in professional sports for a limited time, and the corporation agreed to pay petitioner a monthly sum. Petitioner played for a professional basketball club with which he signed player contracts. The club remitted the compensation for petitioner's services to the corporation pursuant to assignments of contract rights executed by petitioner. However, there existed no contract between the club and the corporation. Held, petitioner, rather than the corporation, actually controlled the earning of the amounts paid by the basketball club, and those amounts are income to him. Laughton v. Commissioner, 40 B.T.A. 101 (1939), and Fox v. Commissioner, 37 B.T.A. 271 (1938), distinguished.

1. Petitioner, an exempt farmers' cooperative, sold in taxable year 1974 equipment on which it had deducted depreciation in prior years. Held: under sec. 1382(b), I.R.C. 1954, petitioner was entitled to exclude in computing taxable income the entire amount of the gain from the sale of the equipment; it was not inequitable to allocate this gain in proportion to 1974 patronage only. 2.

In 1972, petitioner sold certain stock for $ 2,400,000, payable $ 700,000 down with the balance to be paid in 12 quarterly installments. Held: the origin-of-the-claim test is applicable to determine whether the litigation expenses were capital expenditures or sec. 212 expenses. Held, further, the litigation originated with respect to a capital transaction, and the litigation expenses incurred were capital expenditures.

Petitioner, a nonprofit organization, was operated to accumulate funds for the purpose of acquiring land for and contributing to the cost of constructing the proposed Kentucky Bar… Held: Any benefit accruing to the legal profession through the activities to be conducted at the Kentucky Bar Center Headquarters is incidental to the broad charitable purposes served by those activities. Thus, petitioner is an exempt organization within the meaning of sec. 501(c)(3), I.R.C. 1954.

From Jan. 1, 1975, to Dec. 27, 1976, petitioner was employed by a company which maintained a pension plan for some of its employees. Held: petitioner was not an active participant in the plan for any part of 1976 under the 1975 rules because he was ineligible to receive plan benefits under those rules.

Petitioner was a limited partner in a partnership formed to acquire and distribute a movie. Held: even though amounts were due in 1975 to the partnership from the movie's exhibition, no depreciation deduction is allowable in 1975 under the income forecast method since the partnership, a cash basis taxpayer, had received no income in 1975. Siegel v. Commissioner, 78 T.C. 659 (1982), followed.

Ps entered into a written agreement incident to divorce requiring the husband to make monthly payments for the care, support and maintenance of the minor children of the parties and the support, care… Held: All of the payments received by the wife under the agreement are includable in her income under sec. 71(a)(1), I.R.C. 1954, and deductible by the husband under sec. 215, I.R.C. 1954. 2.

Respondent determined that petitioners were taxable on the receipt of certain disability annuity payments received after petitioner-husband reached mandatory retirement age, under secs. 72 and 105(d), I.R.C. 1954, and that such payments were not excludable from income as a pension or annuity received for personal injuries resulting from active service in the armed forces, under sec. 104(a)(4), I.R.C. 1954. Petitioners concede the correctness of respondent's statutory analysis, but contend that secs. 105(d) and 104(a)(4) unconstitutionally violate due process. Held, secs. 105(d) and 104(a)(4) are constitutional. Held, further, petitioners' Sixth Amendment right to counsel was not violated by the Court's refusal to allow them to be represented by an individual not admitted to practice before the Court.

During 1977, petitioner, an airline pilot and an Air Force veteran, attended a flight-training course which maintained and improved skills required in his trade or business. Pursuant to 38 U.S.C. sec. 1677 (1976), he received checks from the Veterans' Administration (VA) totaling 90 percent of the cost of the classes and endorsed them over to the flight-training school. Because the payments received were exempt from taxation under 38 U.S.C. sec. 3101(a) (1976), petitioner did not report them on his 1977 Federal income tax return. He did, however, deduct the entire cost of the flight-training course, including the portion which had been reimbursed by the VA. Held, the reimbursed flight-training expenses are allocable to a class of tax-exempt income -- the reimbursement -- and, therefore, are nondeductible under sec. 265(1), I.R.C. 1954. Held, further, respondent is not estopped from disallowing a deduction for such amounts.

Local law enforcement officials were aware that the IRS was interested in information concerning Ps, but there was no agreement between such officials and the IRS to exchange such information. Subsequently, a search warrant was issued by a State court, and a search was conducted by such officials in good-faith reliance on such warrant. Ps contend that such search violated their rights under the Fourth Amendment. IRS was unaware that the search was to be conducted and did not participate in it. After the search, evidence seized was voluntarily made available to the IRS, and based in part on such evidence, the Commissioner determined deficiencies in Ps' income taxes and additions to tax for fraud under sec. 6653(b), I.R.C. 1954. Held, the evidence seized during the search is admissible in this case since there did not exist an intrasovereign violation of Ps' Fourth Amendment rights. Held, further, the determination by the Commissioner of additions to tax for fraud does not cause these proceedings to be other than civil in nature.

Held, income received by a Puyallup Indian in the form of a share of the proceeds from the sale of a fishing vessel's catch of fish is not exempt from Federal income taxation, even though the… Held: income received by a Puyallup Indian in the form of a share of the proceeds from the sale of a fishing vessel's catch of fish is not exempt from Federal income taxation, even though the fish were harvested in waters covered by the Treaty of Medicine Creek of 1854, 10 Stat. 1132.

Petitioners owned 100 percent of the stock of RCI and New Roanoke. Held: sec. 304(a)(1), I.R.C. 1954, recast the stock sale as a contribution to capital followed by a redemption distribution to which sec. 301 applies and thus no sale took place under sec. 453.

Petitioner manufactures pollution control equipment under short-term and long-term purchase orders or contracts. Petitioner maintains raw materials and work-in-process inventory accounts. During the manufacturing process, costs of raw materials, labor, and overhead are accumulated in work-in-process inventory accounts. When performance is completed under a purchase order or contract, income is recognized and the associated costs are relieved from inventory and charged to cost of goods sold. A significant portion of the work performed by petitioner during the years in issue related to long-term contracts requiring advance payments during the course of manufacturing. During the years in issue, petitioner used LIFO to value inventories. Respondent asserted deficiencies on the ground that taxpayers who report on the completed contract method may not account for costs of long-term contracts using inventories and, in particular, using LIFO. Held: 1. Petitioner failed to prove that the completed contract method was not used to determine income from long-term contracts. 2. Petitioner's method of using inventories to compute costs of long-term contracts clearly reflects income and accordingly respondent may not require petitioner to change its method of accounting for long-term contracts. 3. Petitioner's method of valuing inventories using LIFO ( sec. 472, I.R.C. 1954) also clearly reflects income under the circumstances of the instant case.

During 1972, H organized and operated ST, a cash basis sole proprietorship which arranged vacation packages for individuals and organizations. On Feb. 22, 1973, ST was incorporated and the corporation (ST, Inc.) continued to carry on the travel business which had been carried on by ST. Held, except for certain real estate properties, H and his wife, W, transferred all the assets of their sole proprietorship to ST, Inc., in exchange for stock and the corporation's assumption of ST's liabilities. Held, further, H and W recognized ordinary gain pursuant to sec. 357(c), I.R.C. 1954, upon the incorporation of ST in the amount determined by respondent.

All the assets of H and W consisted of community property in which W had a one-half vested interest under California law. Held: Under applicableCalifornia law, all of the probate income belonged to W, whether paid to her directly by the estate or by the testamentary trust, and the record fails to show that she received anything more than one-half thereof.

Petitioner exchanged a general partnership interest in Parkview and then, together with those with whom he exchanged the interest, formed a limited partnership (Kenosha). Held: the substance of the transactions coincides with the form, and gain from the exchange of general partnership interests need not be recognized under sec. 1031(a), I.R.C. 1954, as amended.

In these consolidated cases, petitioners were the owners of various television and radio broadcasting stations, many of which had affiliation contracts with a national network. Held: petitioners have failed to establish the estimated useful lives of such contracts with reasonable accuracy, and, therefore, the claimed deductions are disallowed. Petitioners also claimed amortization deductions on their basis in each of five radio network affiliation contracts.

Petitioner Alton, an Air Force officer, was stationed in Hawaii in 1976 when he decided to retire. Held: petitioner is entitled to deduct his unreimbursed moving expenses from Hawaii to California but not those from California to New Mexico.

Decedent died in an airplane accident with her husband and three children. There was no sufficient evidence that the deaths were other than simultaneous. Held: decedent made a gift of the one-half of the proceeds of each policy payable to trust B at the instant of her husband's death. Goodman v. Commissioner, 156 F.2d 218 (2d Cir. 1946), affg. 4 T.C. 191 (1944).

Each petitioner in 1976 exercised his option to purchase stock of his employer, K Corp., such option having been granted to him pursuant to a qualified stock option plan adopted by the employer. Held: Each petitioner failed to hold the shares acquired under the option the requisite 3 years from the date of his exercise of the option. Sec. 422(a)(1).

Decedent's former wife, Ruth, brought an action and obtained a judgment against decedent's estate for his failure to name her the beneficiary of certain life insurance policies. Her claim was premised on a separation agreement executed by Ruth and decedent which was incorporated into a divorce decree. Petitioner claims a deduction of $ 66,675.48 under sec. 2053, I.R.C. 1954, for funds paid to Ruth pursuant to the judgment. Held, petitioner is not entitled to a deduction under sec. 2053 merely because State law may have provided that the separation agreement operated as an equitable assignment to Ruth of the insurance proceeds. Held, further: Ruth's claim was founded on the separation agreement, not on the divorce decree. Thus, the divorce decree exception to the consideration requirement, established by Harris v. Commissioner, 340 U.S. 106 (1950), is not available to petitioner. Held, further: Petitioner has not proved that the insurance provision was contracted in exchange for the support rights of Ruth and the couple's minor children, and sec. 2516 of the gift tax does not provide a substitute for such failure for purposes of the estate tax. Accordingly, Ruth's claim is not deductible.

P was incorporated on Sept. 15, 1974, and elected to report its income on a fiscal year basis ending Jan. 31. Held: the requirement that services actually be rendered concerns only the fact of rendition and not the amount of services performed. Held, further, the contributions having been paid within the taxable year, and services actually having been rendered by each participating employee, petitioner is allowed the full deduction claimed.