Volume 79 — Tax Court Reports

Held: 1. Costs of converting electrical appliances and refitting carpets and drapes are not deductible as moving expenses incident to the acquisition of a lease. Held: Costs of converting electrical appliances and refitting carpets and drapes are not deductible as moving expenses incident to the acquisition of a lease. Secs. 217(b)(1)(E) and 217(b)(2)(D), I.R.C. 1954. 2.

In 1973, K acquired a $ 50,000 limited partnership interest in an oil and gas drilling program sponsored by Amarex, Inc. Issue 1: The drilling partnership participated in the drilling of 182 wells, approximately two-thirds of which were drilled pursuant to pay-as-you-go contracts, and the balance, pursuant to contracts prepaid in December 1973. The drilling partnership elected to expense certain items as intangible drilling costs (IDC) under sec. 263(c), I.R.C. 1954. Respondent accepted the IDC classification. He also allowed deductions in 1973 for amounts paid in 1973 on the pay-as-you-go contracts. But he disallowed deductions in 1973 for amounts paid in 1973 on the prepaid contracts; i.e., he challenged the timing of the deductions for prepaid IDC. The prepaid IDC included amounts paid on footage and daywork drilling contracts, turnkey drilling contracts, third-party well-servicing contracts, and the "well charges" which the drilling agreement required the drilling partnership to pay its operator, Amarex Funds. The amount of the prepayments made on the footage and daywork drilling contracts and on the third-party well-servicing contracts was the best estimate of the amount which would become due on completion of the well on the footage or daywork basis and on the per unit of materials or services required basis contained in the respective contracts. If the actual contract cost on completion on the footage or daywork basis or on the per unit basis differed from the prepaid amount, then excess costs were to be billed and overpayments were to be refunded or applied to a different well. The prepayments made on the turnkey drilling contracts and the Amarex Funds well charges constituted full payments under the contracts. No possibility of refund existed for these prepayments. Some of the wells for which prepayments were made in 1973 were subsequently canceled. Of the 65 prepaid wells actually drilled, 16 were spudded in 1973. The balance were spudded in 1974. Held: A two-part test must be applied to determine the current deductibility of prepaid IDC for cash basis taxpayers, namely (1) whether the expenditure was a payment or a deposit, (2) whether the prepayment resulted in a material distortion of income. The business purpose for prepayment, or lack thereof, is an important consideration in the material distortion analysis. Deductibility of the prepayments in issue in this case is determined with reference to this test. Issue 2: The drilling partnership sought to deduct a $ 137,200 payment to Amarex Funds in 1973 as a management fee. Held, the petitioners failed to prove the deductibility of the payment as an ordinary and necessary business expense under sec. 162(a), I.R.C. 1954. Cagle v. Commissioner, 63 T.C. 86 (1974), affd. 539 F.2d 409 (5th Cir. 1976), followed.

Petitioner made interest-free loans to corporations controlled by common interests. Held: interest allocated under sec. 482 constitutes interest for purposes of the personal holding company tax provisions and the lender corporation is liable for personal holding company tax.

Buyer purchased the stock of KI from sellers. The contract of sale provided that the purchase price was paid for all of the stock of KIand for covenants not to compete. It further provided that the covenants were "materially significant and essential to the closing" and that the "covenants are a material portion of the purchase price." Held, "strong proof" doctrine not applicable where neither party seeks to vary the terms of the contract, but only to construe obviously ambiguous terms in light most favorable to their respective causes. Held, further, covenants not to compete were intended to be part of the contract, had independent economic significance, and a portion of the purchase price is allocable to them. Held, further, amount allocable to the covenants determined.

F owned all the stock of I, which elected to be treated as a DISC. During the years in issue, I made loans to F, and such loans were evidenced by demand notes. On its books, I described such loans as "producer's loans." Held, such loans did not qualify as producer's loans under sec. 993(d)(1)(B), I.R.C. 1954, since they were evidenced by demand notes, and accordingly, I did not qualify as a DISC since 95 percent of its assets were not qualified export assets. Held, further, a dividends received deduction is not allowed for the accumulated DISC income of I deemed distributed as a dividend to F upon I's disqualification as a DISC. Secs. 1.246-4 and 1.995-1(a)(5), Income Tax Regs., are valid.

Held, in order to satisfy the "all events" test of sec. 1.451-1(a), Income Tax Regs., the proper year for P, an accrual method taxpayer, to include in income refunds of New York State franchise taxes and New York City corporation taxes is the year the right to those refunds is ultimately determined. Held, further: In applying sec. 862(b), I.R.C. 1954, as amended, to decide whether a deduction is allocable to foreign source income, the test is whether the expense, loss, or other deduction was incurred to derive income from such foreign source. Because the proceeds of the loan P, as guarantor, was obligated to pay for its West German subsidiary were to be used by the subsidiary as working capital, P's bad debt deduction resulting from payment of that obligation is allocable to foreign source income.

In 1976, petitioner and two other individuals jointly participated in a program whose objective was to acquire noncompetitive lottery leases on Federal… Held: Petitioner's share of the $ 40,300 fee is a nondeductible cost of acquiring his interest in the Wyoming lease and must be capitalized under sec. 263, I.R.C. 1954. Thus, no portion of the fee is deductible as a payment for investment advice or clerical and administrative services under sec. 212(1) or ( 2), I.R.C. 1954.

Rule 104(c)(3), Tax Court Rules of Practice and Procedure. -- Petitioner refused to comply with a Court order that he furnish documents requested by respondent under Rule 72. Held: the petition is dismissed, thereby granting judgment for respondent with respect to the deficiencies and sec. 6654 additions to the tax; a default judgment is granted in favor of respondent with respect to the sec. 6653(b) additions to the tax.

Petitioner's wife made complaint for separate support under Mass. Ann. Laws ch. 209, sec. 32, which provides a cause of action separate and distinct from the State's divorce statutes where a wife has justifiable cause for living apart from her husband. The wife's motion was granted on May 6, 1976. The Probate Court issued an order which prohibited petitioner from imposing any restraint on the personal liberty of his wife and restrained him from re-entering the marital home after removing his personal belongings. Under Massachusetts decisional law, an order of this nature modifies the marital status or creates a new status, so changing the incidents of marriage that the relationship which remains is substantially different from that ordinarily indicated by the term "marriage." Held, petitioner was legally separated under a decree of separate maintenance and was not married during his 1976 taxable year. Sec. 143(a)(2), I.R.C. 1954.

Petitioner-wife received payments for work done in assembling ribbons and rosettes. A large portion of that work was performed by petitioners' eight children living at home. Held, notwithstanding that part of the work was performed by the children, all such payments are included in petitioners' gross income under sec. 61, I.R.C. 1954, and that result is not changed by sec. 73, I.R.C. 1954. Held, further, petitioners are allowed an offsetting deduction for payments received by petitioner-husband as reimbursement for employee business expenses. Held, further, petitioners are entitled to a dependency exemption for their 18-year-old daughter.

Held: Petitioner's practical capacity determinations, which reflected productive capability instead of reflecting average actual production or anticipated sales, satisfy the requirements of the… Held: Petitioner's practical capacity determinations, which reflected productive capability instead of reflecting average actual production or anticipated sales, satisfy the requirements of the practical capacity regulation, sec. 1.471-11(d)(4), Income Tax Regs.

1. The Department of Justice's files relating to petitioner-husband were lost in 1973, but subsequently recovered. Held: the loss of such files does not constitute a violation of due process entitling petitioners to summary judgment or suppression of evidence. 2. Petitioner-husband was tried and acquitted of criminal tax fraud in May 1974.

Held, the tapes of interviews by one of petitioners with noted scientists, which he donated to the Bancroft Library of the University of California, are property of a type excluded from the definition of capital assets by sec. 1221(3), I.R.C. 1954, and for this reason, the deduction to which petitioners are entitled because of the donation of these tapes to a charity is limited to petitioners' cost or other basis in the tapes by sec. 170(e)(1)(A).

Petitioner, an individual, leased property to lessee. The property was ordered in a partly assembled condition from a third party by lessee and delivered directly to lessee's place of business. Assembly of the property was then completed by workmen selected by lessee's general manager. Such workmen received no instructions from petitioner, finished assembly of the property at lessee's place of business, and were paid directly by lessee. Petitioner's only involvement with the assembly process was reimbursing lessee for the costs and expenses associated with completing assembling of the property, and allegedly asking lessee's general manager to furnish him with the names of workmen who were competent at assembling the property and then instructing the general manager to arrange for those men to complete assembly of the property. Held: Since petitioner did not personally assemble the property or control the details of its assembly, it was not assembled by him. The property, consequently, is not considered to be manufactured by petitioner in the ordinary course of his business and he is, therefore, not entitled to an investment credit with respect to the property under sec. 46(e)(3)(A), I.R.C. 1954.

Petitioner was a partner in a public accounting firm that was well established and well known in the Muskegon, Mich., area. The firm was dissolved in 1971. Held: The partnership's name was a clearly identifiable and severable intangible asset for which petitioner is entitled to a loss deduction under sec. 165, I.R.C. 1954, on the name's abandonment in 1971. 2. Portion of goodwill embodied in the partnership's name determined.

In 1971, petitioner-husband retired on disability, permanently and totally disabled. On their joint return for 1977, petitioners claimed a disability income exclusion in the amount of $ 5,200. Held: pursuant to the phaseout provisions of sec. 105(d)(3), I.R.C. 1954, petitioners are not entitled to a disability income exclusion since their combined adjusted gross income exceeded $ 15,000 by at least $ 5,200.

Held, petitioner, an alien, was a resident of the United States for Federal income tax purposes, within the meaning of the regulations under sec. 871, I.R.C. 1954, during each of the years 1972, 1973, 1974, and 1975.

At the time of his death, decedent was domiciled in Greece and was a citizen of both Greece and the United States. Held: Decedent having been a U.S. citizen at the time of his death, his estate is subject to U.S. estate tax under sec. 2001, I.R.C. 1954. 2. The Estate Tax Treaty with Greece does not exempt decedent's estate from U.S. estate tax. 3.

Held, application and entrance fees paid for admission and lifetime residence of decedent's mother and father in a retirement community… Held: application and entrance fees paid for admission and lifetime residence of decedent's mother and father in a retirement community which did not provide nursing or other medical care is not deductible as medical expense, except -- held, further, that that portion of the fees which provided a limited number of free days of standard…

Sec. 57(a)(6), I.R.C. 1954, includes as a tax preference item the difference between the fair market value and the option price of stock issued upon the exercise of a qualified stock option. Held: Where the option shares are subject to the restrictions of the Securities Act of 1933 as amended and an investment letter, the fair market value is the discounted value which would be realized in a private placement.

Rule 121, Tax Court Rules of Practice and Procedure. -- Motions for summary judgment by petitioner W and respondent, seeking a decision that petitioner H's payments under the spouses' written separation agreement are not deductible as a matter of law. For purposes of her motion only, W concedes that she and H were separated and that they executed the separation agreement. Held: Where the written separation agreement is not wholly without some standard for W's support, it is not insufficient as a matter of law under sec. 71(a)(2), I.R.C. 1954, for failing to state a definite amount for her support. Motions will be denied, and the issue will be decided on the basis of all of the facts and circumstances of the case, including the terms of the agreement.

Petitioners were limited partners in TCR, a partnership that was formed in 1976 to engage in coal mining. Held: in amending sec. 1.612-3(b)(3), Income Tax Regs., respondent complied with the purposes behind the Administrative Procedure Act, 5 U.S.C. sec. 553(d) (1982 ed.), and retroactivity of the amended regulation was valid exercise of the authority granted under sec. 7805(b), I.R.C. 1954.

In its initial request for recognition as an organization exempt from Federal income tax under sec. 501(c)(3), I.R.C. 1954, petitioner proposed to engage in two types… Held: the Court does not have jurisdiction under sec. 7428(a)(1), I.R.C. 1954, to review whether the providing of the consulting and management services would cause petitioner to be not exempt from taxation, because petitioner never received a final adverse determination with respect to such proposed services.

P, an insurance broker, received a jury award of $ 40,000 for compensatory damages and $ 250,000 for punitive damages arising out of a libel suit. Held: 1. Held: P has failed to prove that the compensatory damages were received on account of personal injuries and excludable from his gross income under section 104(a)(2), I.R.C. 1954, because the damages were primarily to his professional and business reputation. 2.

In 1974, P was divorced from her husband. Under the decree of divorce, P was awarded custody of the minor children, and the decree ordered the husband to pay "$ 500.00 per month toward the support of the family." After she filed her petition in this case, P commenced a proceeding in State court to amend the divorce decree, nunc pro tunc, to state that the monthly payments were for child support. Following hearings on such matter, the State court ordered the amendment of the decree to provide that the monthly payments were for child support and that such amendment was effective, nunc pro tunc, as of the date of the 1974 decree. Such order was not appealed and became binding on P and her former husband. Held: The nunc pro tunc amendment of the 1974 decree was contrary to the law of Kentucky as announced by that State's highest court; therefore, the order of the lower State court will not be given retroactive effect for Federal tax purposes. Accordingly, since the decree did not fix the portion of the monthly payments which was for the support of the minor children, the full amount of such payments was alimony, includable in P's gross income.

Held, sec. 1.267(b)-1(b)(1) and (2), Income Tax Regs., which, in part, provides that a transaction described in sec. 267(a), I.R.C. 1954, between a partnership and a… Held: sec. 1.267(b)-1(b)(1) and (2), Income Tax Regs., which, in part, provides that a transaction described in sec. 267(a), I.R.C. 1954, between a partnership and a person other than a partner shall be considered as occurring between the other person and the members of the partnership separately, is valid.

During 1976, the decedent made a gift in contemplation of death. Decedent died on Aug. 29, 1977. Held: The provisions of sec. 2035, I.R.C. 1954, as it read prior to amendment of the Tax Reform Act of 1976, are applicable herein. The transfer made in contemplation of death is includable in the decedent's gross estate.

In 1943, Joseph Bailey, Jr., died intestate leaving community property to which his and his widow's minor son, Joseph III, became entitled. Held: on the facts, decedent's estate is not entitled to a deduction (or exclusion) for the alleged 1976 value of Joseph III's share of his father's estate on the theory that decedent, at her death, held property for his benefit as a constructive trustee.

Petitioner was divorced from her husband in 1972. Under the final judgment dissolving the marriage, petitioner's ex-husband was obligated to pay petitioner $ 2,500 per month in alimony for life or until she remarried. During the mid-1970s, petitioner's ex-husband experienced severe financial difficulties and fell into substantial arrears in his alimony payments. On June 10, 1976, petitioner and her ex-husband executed a modification agreement wherein petitioner released him of all past, present, and future alimony obligations. Pursuant to the agreement, petitioner received a number of mortgages and a $ 25,000 promissory note from her ex-husband. Held, the consideration paid by petitioner's ex-husband was in satisfaction of his past, present, and future alimony obligations. Held, further, where there is a mixture of such obligations and no clear basis for allocating between them, the payments first are considered in satisfaction of unpaid and accrued alimony to the extent of such alimony. Held, further, the total alimony arrearages at the time the modification agreement was entered into were $ 44,800. Held, further : The fair market value of the property received by petitioner pursuant to the modification agreement was $ 36,183.24. Thus, this latter amount is includable in petitioner's income for the year in question.

A is the father of B and C. A, B, and C were equal partners in a general partnership which engaged in farming and the construction and leasing of nursing homes. Held: on the authority of Buehner v. Commissioner, 65 T.C. 723 (1976), the loan by the trust to the successor corporation was not a loan to the grantors within the meaning of sec. 675(3), I.R.C. 1954. Held, further: The loans by the trust to the partnership were direct or indirect loans to the grantors.

During 1977 and 1978, petitioner was employed as an accountant, a job that required her absence from home approximately 55 hours per week. Held: sending her son to camp enabled petitioner to work, and her primary concern was his protection and well-being, and, therefore, the entire $ 1,100 camp expense incurred by petitioner qualifies as an employment-related expense within the meaning of sec. 44A(c)(2)(A)(ii).

Petitioner Janet H. Davis was a cousin of Howard R. Hughes, Jr. After Mr. Hughes' death, petitioner was adjudged a legal heir of Mr. Hughes by a Texas Probate… Held: legal fees paid by petitioner to establish, prosecute, or defend her right to a share of Mr. Hughes' estate and for advice on whether she and her husband should put their existing estate in a revocable trust pending resolution of the Hughes estate litigation are not deductible under sec. 212(2), I.R.C. 1954.

Petitioner was in the business of making loans for the purchase or construction of commercial and residential real estate. Held, "loan origination fees," which were variable percentages of the face amount of loans, constituted interest and not compensation for services rendered.

Petitioner owned 45 percent of S and 100 percent of W. Gary, petitioner's nephew, controlled 7AL and GW. W and GW each owned 50 percent of W & W. These corporations were all in cattle-related businesses. The stockholders of S, W, 7AL, and W & W decided to transfer their stock in these corporations to E in exchange for E stock in a sec. 351, I.R.C. 1954, 1All section references are to the Internal Revenue Code of 1954 as amended. transaction. Beginning with book value as a basis for comparing their corporations, petitioner and Gary negotiated to determine the relative value of their contributions and decided that petitioner's contribution should be increased $ 220,000 in value, and Gary's contribution should be decreased $ 220,000 in value. The agreement of the parties was set forth in a plan. Respondent contends that this adjustment created a taxable disproportionate distribution. Petitioner maintains that the adjustment was negotiated at arm's length to determine fair market value. Held, parol evidence rule not applied to exclude evidence of agreement. Held, the Court does not reform the plan by considering evidence of the agreement of the parties. Held, petitioner did not receive stock in E greater in value than his contribution because the value of his W stock was sufficiently greater than its book value. Petitioner's sister, Tillie, owned 10 percent of S. Petitioner and Tillie negotiated an adjustment whereby the value of petitioner's contribution would be reduced $ 103,000, and the value of Tillie's contribution would be increased $ 103,000, purportedly as a control premium. Respondent argues that this was a gift. Held, a notice of deficiency for income taxes does not give this Court jurisdiction to determine a deficiency in gift taxes.

Petitioners (H & W) sustained capital losses in 1970 upon sales of stock in Bankers National and Lomas & Nettleton. Held: the Bankers National loss was a nonbusiness capital loss since it has been found herein not to be directly related to or attributable to H's real estate business, and was therefore subject to the limitations of sec. 172(d)(2) and ( 4), I.R.C. 1954, and the foregoing regulations.

Corporation A acquired all the stock of corporation B. Corporation A was then merged into corporation B. Held, neither sec. 334(b)(2), I.R.C. 1954, nor the integrated transaction doctrine applies to… Held: neither sec. 334(b)(2), I.R.C. 1954, nor the integrated transaction doctrine applies to permit a step-up in basis of the assets of corporation B.

Petitioner Marion O. Houchins entered into a cattle-breeding program marketed by two corporations, Y and Z, which were under the common control of X, an individual. Held: Petitioner did not incur a bona fide recourse liability for the purchase price. The provision for petitioner's liability was included in the transaction to insure that petitioner would pay the amounts denominated as interest and maintenance and management fees during the term of such liability.

Petitioner was employed as a concert musician with the Metropolitan Opera. The Opera did not provide its concert musicians with an area to use for individual practice but expected them to practice on an individual basis off the premises. Held, under sec. 280A, I.R.C. 1954, a room in petitioner's residence where he spent a part of his workday practicing is not his principal place of business, and he is not entitled to a deduction for the cost of maintaining the room.

During the years in issue, petitioner, a life insurance company, entered one assumption reinsurance transaction and seven indemnity reinsurance transactions. Held: With respect to the assumption reinsurance transaction, petitioner must include in income an amount equal to the reserve liability actually assumed. Such amount is not affected by any revaluation of reserves made pursuant to petitioner's election under sec. 818(c), I.R.C. 1954.

Petitioner, a cash basis taxpayer, purchased a building in October of 1977 for $ 1,150,000. He made no downpayment on the building but as part of the agreement prepaid a full year's interest. Held: an interest payment by a cash basis taxpayer must, under sec. 461(g), I.R.C. 1954, be ratably allocated without regard to whether the payment in question is nonrefundable.

S Corp. made a pro rata distribution of $ 800,000 to the holders of the $ 4 million issue of its 6 percent Subordinated Notes in… Held: T realized capital gain measured by the difference between the amount received and his basis in the notes, notwithstanding that under the agreement pursuant to which the distribution was made, it was recognized that a claim or claims could possibly be asserted by others (possibly other creditors of S Corp. whose rights were senior to…

After the petitions were filed in these cases contesting respondent's adjustments to petitioners' 1971 and 1973 income tax returns, amended petitions were filed claiming net operating loss deductions… Held: respondent's concession of petitioners' entitlement to net operating loss carryback deductions sufficient to eliminate the deficiencies determined for 1971 and 1973 does not deprive the Court of jurisdiction over these years.

In 1973, Etoll collected the accounts receivable of his dissolved partnership. Relying on a 1960 partnership agreement, he claimed entitlement to 100 percent of the receivables. Held: in accordance with the claim of right doctrine, Etoll must include in his 1973 gross income 100 percent of the amounts collected, notwithstanding the fact that the collected receivables may have constituted partnership income.

Petitioners, developers of the Magic Pan restaurant concept and owners of equipment and recipes, sold their restaurant business to Quaker in 1969 in consideration of approximately $ 277,000 in cash and employment and royalty agreements. Dissatisfied with the operation of the 1969 agreements, petitioners in 1972 negotiated a settlement under which the employment and bonus agreements were terminated, and petitioners received $ 425,000, none of which was allocated to claimed mental distress or other personal injuries. Again dissatisfied, petitioners in 1975 sued Quaker and in 1980 settled the suit in consideration of a $ 175,000 payment for personal injuries and an agreement to reform the 1972 agreement to allocate retroactively $ 258,334 of the 1972 payment to damages for physical and emotional distress. Held, in computing their 1972 income tax, petitioners are not entitled to exclude from gross income any part of the 1972 payment as damages for personal injuries within the meaning of sec. 104(a)(2), I.R.C. 1954.

Petitioner's transferor was purportedly engaged in a joint venture with Company involving shipment of steel to Brazil. Held: when the Uniform Commercial Code art. 2 applies, both passage of title and risk of loss determine where a sale occurs for purposes of sec. 922, I.R.C. 1954. See sec. 1.861-7(c), Income Tax Regs.Held, further, shipment agreement was on C. & F. terms under U.C.C. sec. 2-320. Held, further.

1. Petitioners, residents of Olympia, Wash., in 1977 caused to be created in the British West Indies three purported common law business trusts, S, M, and B. Petitioners used preprinted forms… Held: The three trusts had no economic substance and were nullities for tax purposes. Petitioners retained complete control of the properties transferred to B and were taxable on the income purportedly received by B thereon. 2.

Petitioner began doing business in 1976. During 1976 and 1977, it purchased from Company V and Company W equipment, machinery, and inventory. Held: for purposes of determining the amount of the new jobs tax credit, the limitations of sec. 52(c) apply when employers acquire the major portion of more than one business.

Noble and Rutland, shopping center developers, maintained checking accounts for each shopping center under development with their construction lender. Held: commitment fees representing interest were not paid, within the meaning of sec. 163, I.R.C. 1954, when Noble and Rutland drew checks payable to the construction lender. Franklin v. Commissioner, 77 T.C. 173, 184 (1981), revd. on other grounds 683 F.2d 125 (5th Cir. 1982), followed.

1. Petitioners engaged their son to perform accounting and data processing services. Held: the amount paid by petitioners to their son does not constitute wages qualifying for the new jobs credit allowed under sec. 44B, I.R.C. 1954. 2. Petitioners paid $ 3,050 for labor relating to the construction of a fence. Petitioners claimed a new jobs credit under sec. 44B for this amount.

Petitioner, a commercial bank, held mortgages on certain properties. Petitioner purchased these properties at nonjudicial foreclosure sales conducted in accordance with State law. Petitioner determined the fair market value of each of the properties to be the bid price. Held, for purposes of determining gain or loss under sec. 1.166-6, Income Tax Regs., the presumption in the regulation that fair market value is equal to the bid price is rebuttable by clear and convincing evidence, regardless of any contrary provisions of State law.

P is a corporation organized to provide a service through which public and private libraries, commercial organizations, and others may centrally pay license fees for copying of certain copyrighted publications. P does not provide copies of documents, but rather operates as a clearinghouse for licensing of copying and as a conduit for the transfer of license fees to copyright holders. P was organized by a publishers' trade association, and its initial expenses were financed primarily by contributions solicited from publishers in accordance with the expected financial benefit to each publisher from P's operations. Held: P was organized and operated for the "substantial" nonqualifying purpose of profitable exploitation of copyrights, and this purpose was not merely "incidental" to one or more exempt purposes served by P. Thus, P was not organized and operated "exclusively" for exempt purposes, as required by sec. 1.501(c)(3)-1(a)(1), Income Tax Regs., and it is therefore not qualified as an organization described in sec. 501(c)(3), I.R.C. 1954.

During its taxable year ended June 30, 1975, petitioner was entitled to deductions both for dividends received under sec. 243(a)(1), I.R.C. 1954, and percentage depletion under sec. 613A(c). Held: the deductions should be ranked, with subtraction of the sec. 613A(c) deduction placed before subtraction of the sec. 243(a)(1) deduction.

One of petitioners owned 381 shares of the 450 outstanding shares of a corporation engaged in the trucking business. The 69 outstanding shares not owned by petitioner were owned by his children. Held: the redemption of petitioner's shares was either not essentially equivalent to a dividend under sec. 302(b)(1), I.R.C. 1954, or a complete termination of petitioner's interest in the corporation under sec. 302(b)(3).

P and her husband paid $ 20,000 to Educational Scientific Publishers for materials and advice to establish a family trust. Subsequently, P and her husband transferred most of their assets, including their ranch business, to the trust. The trust was created in an attempt to retain the ranch in their family. Held: 1. The income from the assets of the trust is taxable to P individually under secs. 671- 677, I.R.C. 1954 (the grantor trust provisions). 2. The cost of creating the trust was a personal expense ( sec. 262, I.R.C. 1954), not deductible under sec. 212, I.R.C. 1954. P failed to prove that any part of the $ 20,000 payment is deductible under sec. 212(2) as an expenditure for the management, conservation, or maintenance of income-producing property. 3. P is liable for additions to tax under sec. 6653(a), I.R.C. 1954, relating to negligence.

In 1970, Lawrence J. Alves purchased 40,000 shares of stock of a new corporation by which he became employed for the fair market value of the stock at the date of purchase. Held: the stock was issued to Lawrence J. Alves in connection with the performance of services by him for the corporation.

1. In 1976 Eugene Morton, pursuant to a prearranged plan, borrowed $ 47,400 from Greenwich Trust, signed a promissory note for this amount, and transferred the $ 47,400 to International Tax &… Held: Eugene Morton's transfer of $ 47,400 to International Tax & Business Consultants was a payment merely in form and not in substance and will therefore not support a deduction under either sec. 162 or sec. 212, I.R.C. 1954.

Petitioners submitted a Rule 155 computation which sought to raise issues covered neither in the pleadings nor at the trial, most significantly the right to income average. In connection therewith, petitioners filed an application for Rule 155 hearing, a "Supplemental Statement in Support of Previously Submitted Rule 155 Computation," and a "Motion for Leave to Amend Petition." Held: Petitioners' motions for a Rule 155 hearing and to amend their petition will be denied. The issues raised by petitioners, particularly the claim in respect of income averaging, constitute new issues which may not be raised in a Rule 155 proceeding.

Held, values are determined for stock held by decedent in closely held family corporations. Held, further, in arriving at these values, discounts are applied for lack of control and marketability even though decedent and his siblings held all the stock in the corporations.

Petitioner purchased certain assets for $ 200,000 in cash, a promissory note of $ 28,000, 500 shares of its series A preferred stock, and 500 shares of its… Held: under the facts of the instant case, it cannot be presumed that the fair market value of the assets petitioner purchased is equal to the value of the consideration it paid therefor. Held, further, respondent's determination of the value of petitioner's preferred stock and its cost basis in the assets is sustained.

Petitioner is a college exempt from tax under sec. 501(c)(3), I.R.C. 1954. Held: an allocation of overhead expenses between the two uses which is based on time of actual use is reasonable within the meaning of sec. 1.512(a)-1(c), Income Tax Regs.

Held, surviving spouse's interest qualifies as a life estate with power of appointment under sec. 2056(b)(5), I.R.C. 1954. Held, further, surviving spouse's power was exercisable alone and in all events as required by sec. 2056(b)(5), I.R.C. 1954. Accordingly, decedent's bequest qualifies for the marital deduction under sec. 2056(a), I.R.C. 1954.

Petitioner Floyd H. Eades was self-employed as a fisherman during 1977. He deposited the entire net profit from his fishing business for 1977 into a capital construction fund established pursuant to sec. 607 of the Merchant Marine Act, 1936. Held, petitioner was not entitled to reduce his net earnings from self-employment by the amount deposited into the capital construction fund.

Held, P could not exclude wages and other amounts received on the theory that he was an agent of either a church he purportedly created or the parent church (the Life Science Church), which allegedly… Held: P could not exclude wages and other amounts received on the theory that he was an agent of either a church he purportedly created or the parent church (the Life Science Church), which allegedly ordained him as a minister.

Petitioner, a noted aerodynamicist, received a $ 15,000 award from his employer, the National Aeronautics and Space Administration (NASA), for the totality of his scientific contribution to the… Held: petitioner's award is not excluded from his gross income pursuant to sec. 74(b), I.R.C. 1954, because it is an award from his employer in recognition of some achievement in connection with his employment.

Over a period of about 28 months ending some 4 years prior to his death, the decedent transferred all of his common shares and 7,350 of his 7,500 preferred shares in a Massachusetts real estate… Held: The discretion accorded the trustees in the trust agreement in respect of the declaration and payment of annual dividends on the common and preferred shares was not unlimited under State law; it was conditioned at least upon a good-faith exercise of bona fide business judgment.

In 1967, Tribune acquired 100 of 250 shares of News, and all of News' shareholders entered into an agreement that Tribune would have a… Held: Tribune's right of first refusal was a condition running in its favor which substantially restricted or limited the News employees' right to dispose of their stock with the result that their stock was excluded stock within the meaning of sec. 1563(c)(2)(A)(iii), I.R.C. 1954, and Tribune and News are a parent-subsidiary controlled…

Decedent and his wife owned certain real property as tenants by the entirety. Held: Under State law the tenancies by the entirety were converted into tenancies in common upon the execution of the mutual will because it provided for a disposition of the real property in a manner which was inconsistent with the tenants' rights of survivorship.

In CWT Farms, Inc. v. Commissioner, 79 T.C. 86 (1982), we held that I did not qualify as a DISC because its loans to F were not "producer's loans" within the meaning of sec. 993(d), I.R.C. 1954, and were not, therefore, qualified export assets within the meaning of sec. 993(b). I has indicated that it wishes to make a deficiency distribution in accordance with sec. 992(c), I.R.C. 1954, and asks us to decide whether its commissions receivable constitute qualified export assets. Secs. 1.993-2(d)(2) and 1.994-1(e)(3), Income Tax Regs., provide that commissions receivable owed by a related person are not qualified export assets unless they are paid within 60 days after the taxable year, and the commissions receivable of I were not paid within such period. Held, such provisions of the regulations are valid, and accordingly, the commissions receivable of I do not constitute qualified export assets within the meaning of sec. 993(b).

Petitioner, a publisher of religious materials, was granted tax-exempt status in 1939 under sec. 101(6), I.R.C. 1939. Held: petitioner was not operated exclusively for an exempt purpose under sec. 501(c)(3), I.R.C. 1954, and was not entitled to continued tax-exempt status; Held, further, respondent abused his discretion in making the revocation retroactive to 1969; respondent's alternative position advocating retroactive revocation of the exemption to…