Volume 8 — Board of Tax Appeals

1. The amortization provision must be construed to preserve its national significance, whatever may be the result of such construction locally for a single year upon a single taxpayer. 2. Held: the amortization deduction was properly confined to that year, although the amortizable cost was greater than the income against which it was applied.

The right to lease certain haulage ways held to have been of no value on March 1, 1913.

1. In the circumstances, held that Huyler's, the Gramercy Investing Co. of New York, and the Gramercy Investing Co. of Pennsylvania were affiliated corporations, within the purview of section 240(b) of the Revenue Act of 1918, during the calendar year 1918 and the nine-month period January 1 to September 30, 1919. 2.

Invested capital may not be reduced, in determining the extent to which a dividend is paid from current earnings of the year, by an estimated tax theoretically set aside out of such earnings.

A corporation, 99.86 per cent of the stock of which is owned by another corporation, held not entitled to classification as a personal service corporation.

1. Merchandise shipped on approval or with knowledge that it was not in accordance with contract, should not be included in gross sales before acceptance by the consignee, but remains a part of the petitioner's inventory. 2. The amount of an allowance made in 1919 because of a falling market, on merchandise shipped in 1918, is not an allowable deduction from gross income of 1918.

Amounts withdrawn by an officer of a corporation held to represent a bona fide account receivable and a part of invested capital of the corporation.

Under section 1207 of the Revenue Act of 1926, invested capital at the beginning of the taxable year was properly reduced by the prorated amount of income and profits taxes for the preceding year and by the entire amount of additional income and profits taxes for years prior to that immediately preceding the taxable year.

Evidence held insufficient to establish value of stock at March 1, 1913, in excess of value determined by respondent.

1. An amount erroneously reported as income in 1919 is not allowable as a loss in 1920 when it is determined that it was not properly reported as income in 1920. 2. The unpaid balance of a promissory note for money borrowed was properly determined to be worthless and charged off within the taxable year, and was a proper deduction from gross income.

1. On the evidence, held that the actual cash value of patent at the date paid in for stock has not been established. 2. On the evidence, held that the March 1, 1913, value of the patent has not been established. 3. Adjustment of invested capital on account of additional income and profits taxes for prior years approved.

1. Fair market value of accounts receivable at the time of the dissolution of a corporation determined. 2. Revenue agents' reports not shown to have been used by the Commissioner in the determination of the deficiency held to be irrelevant and immaterial to the issue.

Held, that the amount of $7,500 was erroneously added to the income of the petitioner for the year 1923. Held: that the amount of $7,500 was erroneously added to the income of the petitioner for the year 1923.

1. Sale of property held not to be within the provisions of section 234(a)(14) of the Revenue Act of 1921. 2. March 1, 1913, value of land for purpose of computing gain or loss determined.

The expense of repair of a frozen water pipe in a house no longer used as taxpayer's residence held not deductible as a loss under section 214(a)(6), Revenue Act of 1921.

A liability to respond in damages for breach of contract occurring in 1920, which petitioner does not admit but upon which liability is denied even up to settlement of case in open court in 1923, is not a proper deduction for the taxable year in which the breach occurred.

In the absence of an agreement among affiliated corporations as to the proportion in which any tax found to be due shall be assessed upon them, such tax as may be determined shall be assessed upon the members of the affiliated group upon the basis of the net income properly assignable to each.

A person is taxable on income of a trust which she received as legatee of an original beneficiary of the trust.

1. Deduction for obsolescence of intangibles denied upon authority of Red Wing Malting Co. v. Willcuts, 15 Fed.(2d) 626, and Appeal of Manhattan Brewing Co.,6 B.T.A. 952. 2. Held: that petitioner's intangibles were not destroyed on January 16, 1919, when ratification of the Eighteenth Amendment was completed; and that it suffered no deductible loss in any of the years on appeal, by virtue of destruction of intangibles by prohibition legislation. 3.

1. Profit on sale of stock held to have been realized in 1919. 2. Claimed deduction for bad debt disallowed.

Value of plantation at March 1, 1913, determined.

1. Percentages of certain debts held properly deductible as worthless in the year 1922. 2. Massachusetts state and town taxes which become a liability and accrued within a fiscal year are allowable deductions from gross income in such year.

A member of a partnership is not individually taxable on so much of the partnership income as is attributable to an interest in his interest in the partnership which, at the date of the formation of the partnership, he had sold to a third person, although such purchaser was not a member of the partnership.

1. When in 1920 one partnership is succeeded by another partnership and the interests of the members continue substantially as before with the exception of a gift by one of the partners of his partnership interest to a new partner and a change in the distributive shares of the partnership income, no new basis for computing the allowance for exhaustion, wear and tear to the partnership arises. 2.

1. Evidence held not to establish that a contract with the Government to manufacture 3-inch artillery guns on the basis of cost plus a fixed sum per gun, which contract could be canceled by the Government at any time, had a fair market value. 2. Profit from such contract held to have been derived on a cost-plus basis, within the provisions of subdivision (d) of section 327 of the Revenue Act of 1918. 3.

1. In determining whether current dividends, for the purpose of computing invested capital, are paid from current earnings or from surplus existing at the beginning of the year, current earnings should not be reduced by a tentative income and profits tax for the current year. 2. Claim for assessment under sections 327 and 328 of the Revenue Act of 1918 denied.

Payments made to a public utility corporation by a citizens' committee to induce it to erect a cotton compress and warehouse, such citizens receiving no direct benefit from the corporation for such… Held: not to be income.

1. A trustee's commissions which are attributable solely to receipt and disbursement of income are deductible from the gross income of the trust. 2. Neither capital losses incurred by a trust nor depreciation on capital assets of the trust may be deducted by a beneficiary of the trust from her gross income. 3. A life tenant is not taxable on gain made in a sale of the fee simple.

Value to be used in computing depreciation of property acquired by gift determined.

Proof insufficient to establish claim for deductions from gross income for the taxable year of bad debts and exhaustion of investment in a leasehold.

1. Under section 219 of the Revenue Acts of 1918 and 1921, income of the trust for the taxable year which becomes distributable during the taxable year is taxable to the beneficiary, although the… Held: that such income is taxable to the fiduciary except to the extent to which the power was exercised by the petitioner to request such income be paid to her, and that to such extent the income was distributable and taxable to the petitioner. 3.

Loss sustained in 1920 on sale of property acquired prior to March 1, 1913, for residence purposes, but abandoned for such use in 1911 and thereafter rented and held for sale, held deductible. Tindle v. Heiner, 18 Fed.(2d) 452.

The excess of insurance received over the book value of machinery and equipment destroyed by fire was so invested in like property as to be exempt from tax under the provisions of section 234(a)(14), Revenue Act of 1921.

1. Terms of a trust instrument construed to require distribution of the income to those beneficiaries who had reached their majority. Held: that the income distributed was not taxable to the fiduciary and that, under the terms of the trust instrument, the balance was accumulated for future distribution and was taxable to the fiduciary. 3. Willcuts v. Ordway, 19 Fed.(2d) 917, distinguished.

The testator created a trust of his residuary estate, directing his trustees to distribute the principal thereof and income therefrom to, for, in and among such charitable, fraternal, benevolent and… Held: that the income is taxable to the fiduciary. Held, further, that since distribution may be made to other than exempt corporations, the income is not exempt. Previous court and Board decisions distinguished.

The Commissioner, in auditing the returns of two affiliated companies, determined a deficiency in the case of one and an overassessment as to the other. Held: that as to the company filing the petition the Board is without jurisdiction, in view of the determination of an overassessment, and the petition is dismissed. Cornelius Cotton Mills,4 B.T.A. 255.

- Upon the evidence, held, petitioner sustained a deductible loss on the sale of property. Held: petitioner sustained a deductible loss on the sale of property.

The petitioner was during the year 1923 county attorney of Duval County, Florida, and received as compensation for his services $200 per month. Held: upon the evidence, that he was during 1923 an employee of the Board of County Commissioners of Duval County, Florida, within the meaning of section 1211 of the Revenue Act of 1926.

1. Petitioner's income for the year 1919 arising from a sale and reacquisition of certain interests in a restaurant business, and the operations of that business determined. 2. The evidence shows that property owned in 1919 by petitioner's wife was her separate property and that the profit realized upon the sale was her separate income.

1. The proportionate part of the profits from the operation of a plantation set aside for the manager to be paid to him in case the profits over a 10-year period amount to a given figure are not deductible from the gross income of the owner of the plantation who kept his books of account upon a cash receipts and disbursements basis. 2. The profit realized by an individual from the sale of a half interest in real estate acquired subsequent to March 1, 1913, is to be computed on the basis of cost and not on the value at the date that the other half interest was sold to an individual who was taken in as a partner in the business conducted. 3. The correct amount of profit on the sale of personalty determined. 4. Pledges of contributions to charitable and religious institutions not paid within the year are not deductible from gross income in returns made on a cash receipts and disbursements basis

1. In its income-tax return for 1917 the petitioner deducted from gross income the entire expense of operating its transportation service trains, including $422,677.80 appearing… Held: on the evidence, that no part of the $422,677.80 is deductible from gross income. 2. In 1917 the petitioner paid $4,587.02 as penalties for violating Federal regulatory statutes. Held, that the penalties paid are not ordinary and necessary expenses incident to the conduct of its business. 3.

The term dividends as defined in section 201 of the Revenue Act of 1921, includes distributions in liquidation of a corporation to the extent of the earnings or profits accumulated since February 28, 1913, contained therein, and to the extent of those earnings such distributions are taxable as dividends, subject to the surtax and exempt from the normal tax.

1. A corporation receiving during the taxable year a part payment on a mortgage note acquired at a 20 per cent discount from its face value received income to the extent of 20 per cent of the amount of the payment. 2. The evidence is insufficient to show that the Commissioner was in error in failing to credit any part of an overpayment of tax for the fiscal year ending within the calendar year 1922 against a tax due upon the calendar year return for 1921.

1. Held, that the petitioner is entitled to deduct from gross income an amount incurred and paid as salary during the taxable year. 2. Held: that the petitioner is entitled to deduct from gross income an amount incurred and paid as salary during the taxable year. 2. The petitioner is not entitled to have its tax liability computed under section 328 of the Revenue Act of 1918.

1. Theatre leases determined to have no bonus value on date of acquisition by petitioner. 2. Petitioner's gross income determined for the eight-month period, January 1 to August 31, 1920.

Where a corporation, organized on March 1, 1921, filed its returns on a calendar year basis and the return included the income from organization to December 31, 1921, held that such return is a return for a full taxable year of 12 months and it is entitled as an excess-profits credit to the entire specific exemption of $3,000, plus an amount equal to 8 per cent of its invested capital, averaged over the full taxable year of 12 months.

1. Where a contract for the sale of a farm, executed by both the owners of the fee and the owner of a life estate therein, provided that the life owner should receive all interest and benefit from the principal purchase price during his life, and the fee owners were entitled to none of the proceeds nor the use thereof during his life, the initial payment under the contract made to the common agent of both grantors was a payment to, and a receipt thereof by, the owner of the…

1. Reduction of officer's salary approved. 2. Rates of depreciation, with respect to mine cars, mining machines, and miners' houses determined.

Item determined to be part of petitioner's gross income.

1. Under the evidence, held that no profit was realized by petitioner on sale of its good will in 1919. 2. Value of good will disallowed in computation of invested capital, under section 331, Revenue Act of 1918.

Where in 1911 one corporation issued its capital stock for the entire capital stock of another corporation, such stock acquired is tangible property under section 325 of the Revenue Act of 1918, and the subsequent liquidation of such acquired capital stock and the merger of such corporation into the taxpayer has no effect in computing invested capital nor does it change tangible assets into intangible assets for the purpose of such computation.

1. In view of the evidence in this proceeding it is held that Commissioner David H. Blair was not precluded from making a determination in respect of petitioner's tax liability for certain periods in 1917 and 1918 which his predecessor, Commissioner William M. Williams, had considered, and as a result assessed an additional tax. 2.

1. The basis for determining the amount of exhaustion deductible from gross income in income-tax returns of estates of deceased persons during the period of administration or settlement of the estate is the value of the exhaustible property at the date of death. 2. Rights to receive royalties over a given term held to be exhaustible property. 3.

Petitioner's closing inventory of lumber on hand determined.

Certain bonuses paid the president, vice president and secretary of the petitioner, plus the regular salaries and other bonuses thereafter after voted, constituted no more than a reasonable compensation for services rendered.

1. The evidence is insufficient to show that the method employed by the Commissioner in his determination of deficiencies for the years 1917 and 1919 did not correctly reflect income. 2. Held: the assessment of the deficiency found for the year 1917 is not barred by the statute of limitations.

The income involved herein for the period January 1, to May 17, 1920, held to be the income of the petitioner.

A deduction for obsolescence of good will resulting from national prohibition denied.

Amounts paid to the president of the petitioner corporation as additional compensation during the years 1919 and 1920 held to be deductible from gross income.

1. Compensation of president of petitioner corporation for the years 1919 and 1920 determined. 2. Loss on shares of stock of Northern Hotel Co. disallowed. 3. Loss on shares of stock of Prudential Tire & Rubber Co. which became worthless in 1920 allowed. 4. Correct rate of depreciation on farm buildings determined.

The petitioners held not to be affiliated with Rock Island Butter Co. and Fairmont Creamery Co. for the fiscal year ending March 31, 1920.

As of January 2, 1917, the surplus of a corporation was placed to the credit of its two stockholders and a third stockholder acquired one-third of the capital stock. Portions of the amounts credited to the two stockholders were paid to them in 1917 and 1918. In 1919 the private ledger was discontinued and the balances standing to the credit of the stockholders in March, 1919, were transferred to the accounts of the stockholders on the general ledger and the amounts were paid to the stockholders in 1920, 1921, and 1922, with accrued interest payable upon the balances. Held, that the petitioners derived no taxable income from the transfer of the balances from the confidential ledger to the general ledger in 1919.

On the evidence, held, the petitioner was not a personal service corporation during the years 1919, 1920, and 1921. Held: the petitioner was not a personal service corporation during the years 1919, 1920, and 1921.

1. Amount of deductions on account of expenditures for labor determined. 2. Depreciation of vineyard and peach orchard determined.

The petitioner held to be entitled to deduct from gross income in his income-tax return for 1921, $3,900, representing the difference between the amount paid for a second mortgage note and the value of the equity represented by said note.

Debts ascertained to be worthless in 1920 but charged off only in part in 1920 are not legal deductions from gross income of 1920.

Petitioner entered into a contract of sale of land in 1920 under which the vendee paid 25 per cent of the purchase price and during 1920 made additional payments on the purchase price as required by… Held: the petitioner is not entitled to report income from the transaction on an installment basis.

At December 31, 1921, the petitioner had on hand certain obsolete parts, and reduced its inventory by the cost thereof. Held, the reduction was proper. Held: the reduction was proper.

1. Good will acquired by petitioner in exchange for $50,000 par value of capital stock had a cash value of $25,000. 2. Held: the transaction was an exchange of property for property of a like kind and use from which no gain or loss was derived.

Partners agreed with their sister that she should be paid 20 per cent of the partnership profits as withdrawn by them for services rendered to the partnership. The partnership kept its books on the accrual basis. Held that the sister was not a partner, and that the compensation payable to her was a legal deduction from gross income in partnership returns.

The petitioner was a member of a syndicate which sold certain assets to a corporation in exchange for shares of stock. Held: the evidence is insufficient to show that the Commissioner erred in finding that the fair market value of the shares received by the petitioner was $20 per share and in computing the profit on the transaction.

Petitioner's invoices to customers within the United States all contain as a statement of terms of sale the phrase 7% - 10 days - 60 extra. Held: that a deduction of 7 per cent from the total of such invoice amounts is proper in the computation of gross sales for the taxable year.

Additional compensation in the amount of $48,000 voted and accrued by the petitioner in May, 1920, to its president and treasurer was in excess of reasonable compensation for personal services actually rendered in that year.

On the evidence held that certain noninterest-bearing demand promissory notes were not bona fide paid in for stock of the petitioner and may not be included in its invested capital for the years 1920 and 1921 under section 326(a)(2) of the Revenue Acts of 1918 and 1921.

ESTATE TAX. - Value of buildings included in decedent's gross estate determined. Evidence insufficient to determine value of stock.

Value of properties at date of inheritance, for purpose of computing loss on subsequent sales, determined.

Cost of repairing trellis on hop ranch held deductible as a necessary expense.

- On April 1, 1918, a return was filed for the above estate on Form 1041 (revised January, 1918) for the calendar year 1917. The return showed gross income of $71,030.19 and deductions of $77,177.21. Held: the proposed deficiency is barred by section 277(a)(2) of the Revenue Act of 1924.

- Upon the evidence, held, that certain transfers of moneys and properties by the president and minority stockholder of the petitioner to… Held: that certain transfers of moneys and properties by the president and minority stockholder of the petitioner to another corporation in which the said president and minority stockholder was the principal stockholder, the latter corporation being at all times insolvent, amounted to a fraudulent appropriation of the petitioner's goods…

The petitioner was affiliated with the Interstate Music Corporation from January 1, to November 30, 1920.

An anticipated loss on a contract to purchase flour to be delivered in 1921 was properly disallowed by the Commissioner as a loss in the year 1920.

Taxpayer acquired assets at a cost of $105,000 which on the same day he transferred to a newly organized corporation in exchange for shares of preferred and common stock; later, on the same day, the corporation acquired other assets in exchange for shares of its common stock. Held, that the two transactions were separate. Held, further, that the evidence does not warrant a finding that the shares of stock received by the taxpayer had a fair market value in excess of the value of the assets transferred to it by the taxpayer, or that the taxpayer derived taxable income from the transaction.

1. A corporation the business of which is acquired through the reputation of its principal stockholders as photo-engravers of exceptional skill and ability, who devote their entire time to the affairs of the corporation, and the capital of which is invested in tools and equipment and materials used by the stockholders in the rendition of services, is entitled to personal service classification, even though a staff of assistants is employed. 2.

The beneficiary of an estate is not liable to income tax in respect of income of the estate not received by him but held by the estate pursuant to the provisions of the will of the decedent until such time as the principal of certain advancements has been wiped out.

Petitioners' inventories approved.

The decedent and her two brothers and a sister each owning one-fourth of the common stock of a coal-mining company, transferred their respective shares of stock to trustees to hold under the terms of a declaration of trust whereby the trustees were to pay the income to the creators of the trust with rights over to the survivors upon the death of any beneficiary.

In January, 1920, petitioner's directors determined to pay to its employees a bonus as additional compensation for the fiscal year ending June 30, 1920, of $25,000 to be distributed to its employees. The amount of $25,000 was credited on the books of petitioner as an accrued liability, in an account styled "Bonus Account," monthly from January to June, both inclusive, 1920. Held, that the $25,000 constituted an accrued expense for the fiscal year ending June 30, 1920, and was a proper deduction from gross income for that year.

Motion of respondent to dismiss for want of jurisdiction on the ground that the notice upon which the petition is based is not a notice of deficiency, granted. Fort Pitt Spring & Manufacturing Co. v. Commissioner,5 B.T.A. 1106.

1. Many years prior to the taxable year the Boston & Lowell Railroad Corporation leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid. 2. No portion of premiums at which bonds were issued, when bonds were outstanding at the close of the taxable year, represented income within the taxable year.

1. Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid. 2. No portion of premiums at which bonds were issued, which bonds were outstanding at the close of the taxable year, represented income within the taxable year.

1. Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid. 2. No portion of premiums at which bonds were issued, which bonds were outstanding at the close of the taxable year, represented income within the taxable year.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Many years prior to the taxable year petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

Assessment and collection of an alleged deficiency for the fiscal year ending August 31, 1920, is barred by the statute of limitation.

Held that the petitioner incurred a certain salary for the services of its president during the taxable period.

1. Payment of attorney's fees made by a husband for services on behalf of his wife in her suit for separation and alimony and to his own attorney for services in securing a settlement of the proceedings held not deductible in the ascertainment of the husband's taxable income. 2. An alleged loss on account of a guaranteed payment of the indebtedness of a corporation in which petitioner is the principal stockholder held not to have been proven.

The amount of petitioner's income for the calendar year 1919, from a partnership having a fiscal year ended January 31, 1919, which is subject to tax at 1918 rates determined.

1. Cost of a warehouse roof as ordinary and necessary expense paid or incurred in the taxable year disallowed. 2. Held: that the amount due the petitioner from the dormitory management was a worthless debt at December 31, 1920, and that, for Federal tax purposes, it was a proper deduction from gross income for that year.

Evidence does not establish a value of water rights paid in for stock at March 5, 1841, in excess of that allowed by the Commissioner as a factor of invested capital.

Petitioner, in 1923, invented at no cost a certain secret process or formula applicable to hair dyes. Held: that under section 202(c)(3) of the Revenue Act of 1921 the petitioner received no income in 1923 as he had no proprietary right in the check and was in control of the Delaware corporation immediately after the transfer to it of his secret formula.

Where no facts were ascertained in 1921 relating to the worthlesseness of a debt, they being known in prior years, the petitioner is not entitled to a deduction in that year on account of a debt ascertained to be worthless although it was charged off in that year.

A taxpayer is not permitted to revise its depletion deduction for previous years as the result of factors determined in subsequent years. If subsequent developments show that a material error has been made in the original estimates of ore reserves a new estimate may be made and the capital remaining to be recovered distributed accordingly.

1. The amount of $31,539.38, representing interest on notes of political subdivisions of Rhode Island and Massachusetts, was erroneously reported by the petitioner as taxable income for the fiscal period ended October 31, 1921. 2. The petitioner set up a reserve for bad debts during its fiscal year 1919 in the amount of $600,000 and made additions thereto in the amounts of $400,000 and $200,000 for the fiscal years 1920 and 1921, respectively. In its income-tax return for the fiscal year 1921 it deducted from gross income $100,000 on account of bad debts ascertained to be worthless and changed off during the year, and in addition the $200,000 increase to its reserve for the fiscal year 1921. Held, that the petitioner was entitled to the deduction of debts ascertained to be worthless and charged off during the year, but not to the deduction of $200,000 representing the addition to its reserve for bad debts. 3. The evidence fails to establish that the petitioner is entitled to a deduction for the fiscal year ended October 31, 1921, of $87,500 alleged to represent bad debts recoverable only in part.

1. Evidence held insufficient to establish an invested capital in excess of the amount allowed by the Commissioner. 2. Corporation held to be affiliated.

1. Petitioner reduced its gross sales by 50 per centum of the sales price of goods which it had been notified, prior to the close of the taxable year, would be returned. Held: that such inventories may properly be used in computing taxable income, the effect being to allow cash discount as a deduction when the goods were sold and not when payment is made. 3. Weight is to be given to consistency of method in taking inventories. 4.

Taxes paid by executors to the States of New York Connecticut, Michigan, New Jersey, and West Virginia under their respective transfer and inheritance-tax statutes are legal deductions from gross income in income-tax returns of the estate in process of administration or settlement.

Where husband and wife in California erroneously file separate returns reporting their income on the community property basis and each make payments of the tax liability shown, and the Commissioner determines that the entire income should be taxed to the husband and tenders to the wife a refund of the amount paid by her, the husband is not entitled to have the amount due the wife credited against his tax liability.

Where a corporation, keeping its books on the accrual basis, entered into an agreement with certain employees whereby it agreed to pay each employee as contingent compensation, a percentage of the net profits for the year 1919, subject, however, to the condition that no employee should be entitled to withdraw any amount credited to him pursuant to the agreement, except upon consent of the president of the corporation, unless he should remain in the employ of the corporation…

1. A reserve of $5,000 entered upon the petitioner's books in the year 1920 represents the amount which it believed would be necessary for… Held: that the cost of this work was not incurred in the year 1920 and the reserve was not a proper deduction from gross income in that year. 2. The evidence in this proceeding shows that the petitioner determined a debt of $44,443.40 to have been wholly worthless in December, 1920. It charged off within the year 1920 $15,608.52 thereof.

The petitioner regularly reported his income on the basis of cash received and disbursed. Various companies of which he was an ordinary stockholder declared dividends payable either on December 30 or 31, 1922, and mailed dividend checks to him on those days.

The business of the petitioner was to secure and finance contracts with cities for garbage disposal. Such contracts were assigned to and financed through corporations. Held: that losses were sustained in petitioner's business which may be included in computing a net loss under section 204 of the Revenue Act of 1921.

1. The evidence in this proceeding is insufficient to enable the Board to determine what amount, if any, constitutes a reasonable deduction for amortization. 2.

Notes given by decedent to his sons for no consideration other than his desire to equalize gifts to his children held to be not enforceable claims against the estate and not deductible in determining the value of the net estate.

1. The record in this proceeding shows that the Commissioner determined a deficiency within the meaning of the statute and his motion to dismiss the proceeding is denied. 2. The Commissioner is not prohibited by the statute from assessing a tax which has been erroneously refunded.

1. The value of patents for the purpose of depreciation determined. 2. A commission paid for the sale of a corporation's own stock can never serve to increase invested capital, but may reduce invested capital where the previous invested capital included earned surplus or undivided profits. 3. The Revenue Act of 1918 makes no provision for the deduction from income of the amount of the commission paid by a corporation for the sale of its own capital stock.

1. The conduct of racing and breeding stables in the circumstances held a business and the expenses and losses are deductible. 2. Losses and depreciation of trust estate are not pro rata deductions of the distributees of trust income. 3.

1. Petitioners held to have been affiliated during the taxable years. 2. Additions to a business building, made in the process of remodeling, held to have a useful life equal to the remaining useful life of the building of which they constituted an inseparable part.

1. When a corporation liquidates and its assets are taken over by its stockholders, who conduct the business as a partnership, the transaction is controlled by section 201(c) of the Revenue Act of 1918. 2. The dissolution of a corporation, and the transferring of its assets to a partnership, composed of the stockholders, who have the same proportionate interest in the partnership as they had in the corporation, may result in gain to the stockholders notwithstanding the fact that they took nothing out of the business. 3. Fair market value of certain assets at date of dissolution of a corporation determined.

1. The evidence in these proceedings does not show that the Commissioner erred in his determination of the reasonable allowance for exhaustion, wear and tear of machinery and equipment, and… Held: that the Commissioner did not err in this regard.

Additional compensation which the decedent did not receive during the taxable year, and which the corporation owing the same had not sufficient funds at the end of the taxable year to pay, was not income to the decedent.

The evidence shows that a bonus of $3,000 was an accrued liability of the petitioner for the year 1920, and was, therefore, a proper deduction from gross income.

The evidence shows that the Commissioner erred in excluding $55,000 from petitioner's invested capital in connection with property acquired for stock.

The evidence is insufficient to show that the Commissioner erred in his determination of the deficiency involved in this proceeding.

Rents and royalties received under leases of coal lands constitute gross income, and not proceeds from the sale of a capital asset.

1. The evidence shows that $4,200 paid by petitioner to one of its employees was additional compensation for services rendered. The amount was therefore a proper deduction from gross income. 2. The evidence in this proceeding is not sufficient to show that the Commissioner's disallowance of a certain portion of the cost of remodeling a building as an ordinary and necessary expense was erroneous.

1. Petitioner having failed to produce sufficient evidence as to the incorrectness of the amount of salaries determined by the respondent, the determination of the respondent is approved. 2. Deduction claimed as business expense disallowed.

1. Salaries paid held to be reasonable. 2. Partial loss due to fire denied where evidence failed to show that the amount received as insurrance was inadequate to compensate for the damages sustained. 3. Expenses for entertaining and operation of automobile disallowed.

Reasonableness of compensation determined.

During the years on appeal, petitioner was regularly engaged in selling personal property on the installment plan. Held: that petitioner is entitled to have its income from installment sales determined under the installment sales method. L. S. Weeks Co. v. Commissioner,6 B.T.A. 300.

1. A yacht purchased by the petitioner held to be a business asset, and the costs of operation to be deductible as ordinary and necessary business expenses. 2. Rates of depreciation on a yacht determined.

1. In determining the March 1, 1913, value of a coal mine for depletion purposes, the future expected profits from a commissary operated in conjunction with said mine can not be included in the future expected profits from the sale of coal. 2.

Petitioner owned the Grant Theatre and he later purchased the Parkway for the purpose of eliminating competition in the immediate neighborhood, which… Held: there is not sufficient evidence that the business and good will of the Parkway Theatre were transferred to the Grant and subsequently sold as a part of the assets of the Grant. Accordingly respondent's inclusion of the original cost of the Parkway in determining petitioner's net worth at December 31, 1923, approved.

1. In the absence of books of account, or satisfactory evidence that the petitioner's method of accounting clearly reflects his income, the determination of the respondent that the cash receipts and disbursements method should be used is approved. 2. The Board is authorized by law to prescribe its own rules of procedure and practice, and the rules prescribed by equity courts of the District of Columbia as to procedure and practice before such courts are inapplicable.

1. A partnership did not exist between the petitioner and his wife during the taxable years in question. 2. Certain payments to the wife allowed as deductions in determining petitioner's net income.

On the evidence, held that the administrator of decedent's estate properly omitted certain land from gross estate in the estate-tax return.

The March 1, 1913, value of a lease of coal mining property determined.

Petitioner, during the year 1921, was not affiliated, within the purview of section 240 of the Revenue Act of 1921, with the Maryland Shoe Co. and the Newton Shoe Co.

1. Petitioner's net sales, expenses, and amount of taxes paid, determined for the taxable year. 2. Respondent's determination of the amounts of the allowances for depletion and depreciation, approved. 3. The petitioner's distributive share of partnership net incomh determined in accordance with the findings of fact and conclusions of law made in the appeals of the remaining members of the partnership. 4.

1. OBSOLESCENCE OF TANGIBLE PROPERTIES DUE TO FEDERAL PROHIBITION. - Between October 24, 1919, and January 16, 1920, petitioner discontinued the use of certain tangible assets having a depreciated… Held: in the absence of such evidence petitioner is not entitled to an allowance for obsolescence. 2. INVESTED CAPITAL. - Petitioner claimed the Commissioner erred in reducing invested capital on account of alleged insufficient depreciation sustained in prior years.

1. Where a father on January 1, 1918, executed a trust agreement in favor of his minor child, making the mother trustee and clothing her with the power to invest the funds constituting the corpus of the trust as in her judgment may seem wise and proper, whether or not such investments are now or may hereafter be authorized by law for trust investments, and where thereafter the father executed a partnership agreement with his adult children and the trustee of the minor; and…

1. After the petitioner had closed its books for the calendar year 1918 it arbitrarily reduced its perpetual inventory as of December 31, 1918, by $9,234.07. Held: that the evidence does not show that the Commissioner was in error in making such addition to net income. 2.

Petitioner consistently took its inventory at the close of each year from 1914 to 1921, inclusive, on the basis of cost or market, whichever is lower. Held: that the action of the Commissioner in charging the petitioner's inventory at December 31, 1920, from a cost or market, whichever is lower, to a cost basis was in error.

1. During the taxable years the petitioner corporation under an arrangement with a bank paid certain amounts to a trustee for the bank in liquidation of certain indebtedness of the president of the… Held: that the amount paid constituted additional compensation for the services of the president and is deductible from gross income. 2. The petitioner corporation paid a pension to its retired president. Held, that the amount is legally deductible from gross income. 3.

In the development of a coal mine acquired subsequent to March 1, 1913, the petitioner found after carrying on mining operations that the coal deposit was more valuable than was known to exist at the… Held: that the petitioner is not entitled to revalue the estimated coal content and to base a depletion deduction upon such enhanced value rather than on the cost.

Petitioner realized no taxable gain from the receipt of certain notes by him as consideration for debts due him by a liquidating corporation in which he was the principal stockholder.

1. The Board has no jurisdiction to redetermine tax liability where the Commissioner has made no final determination of a deficiency. 2. The accounts of the petitioners held to have been kept on the accrual basis. Income held to have been properly returned on such basis.

Certain promissory notes received in payment of goods sold were debts ascertained to be worthless and charged off within the taxable year.

The evidence is insufficient to show that the Commissioner was in error in determining the tax upon the basis of cash receipts and disbursements.

That part of the income received by the executors during the administration and settlement of the estate, which, pursuant to the terms of the will, had been permanently set aside during the taxable period as belonging to charitable and educational corporations, held to be a proper deduction from the gross income of the estate, under section 219(b) of the Revenue Act of 1921.

1. Under the facts of this proceeding, held that during the year 1917, petitioner was engaged in a trade or business having an invested capital which was more than a nominal capital, and is therefore not entitled to have its profits tax for that year computed under the provisions of section 209 of the Revenue Act of 1917. 2. Certain notes held not to have been bona fide paid in for stock or shares, under section 326(a) of the Revenue Act of 1918.

Depreciation and obsolescence of certain assets determined. Evidence not sufficient to establish value of good will and patents.

March 1, 1913, value of land determined.

Actual cash values placed by respondent on land, plantation improvements and sugar factory at the time of acquisition in 1903 by petitioner in exchange for its capital stock approved.

Personal service classification allowed.

The taxpayer filed a return for its fiscal year ended January 31, 1921, on June 10, 1921. Held: that the statute of limitations started to operate from the date of the filing of the second return and not from June 10, 1921, the date of the filing of the first return.

1. EXPENSES. - Petitioner paid one of its salesmen $5,000, who in turn paid the money over to certain contractors for their use in obtaining certain municipal contracts for which the petitioner hoped… Held: that the evidence is insufficient to allow the deduction claimed. 2. INCOME AND DEDUCTIONS - OVERLAPPING ITEMS. - Petitioner for a period of more than 30 years consistently carried on its books an account captioned Current Surplus.

- Petitioner acquired for its stock certain land which had been sold approximately two months prior thereto for $100,000. Held: that for purposes of invested capital the value of the land was $100,000 and that the evidence does not establish a greater value.

An inventory taken upon the basis of cost or market, whichever is lower, may not later be revised to accord with the market price established subsequent to the inventory date.

1. A corporation issued its stock under a contract in part payment for services to be rendered. Held: under the contract the stock was not income during the year in which the final court decision was rendered. 2.

Petitioner kept its books on the basis of a fiscal year ending April 30. Held: that on February 2, 1926, the assessment of additional tax for the portion of the fiscal year 1919, falling in the year 1918 was not barred by the statute of limitations as extended by the waivers.

Patronage dividends allowed as part of cost of goods sold.

1. INVESTED CAPITAL. - Petitioner at date of incorporation in 1915 acquired for stock an exclusive sales agency contract with the Allen-Bradley Co. Held, that no part of the… Held: that no part of the value of this contract at date of acquisition could be included in invested capital for 1920. Evidence with respect to certain contracts alleged to have been acquired at date of incorporation held insufficient to disturb the Commissioner's determination with respect thereto. 2.

Salaries paid to petitioners by a partnership of which they were members were, in the circumstances of this proceeding, distributions of anticipated net distributive income and were income to the recipient at the close of the partnership accounting period.

1. The amount allowable as a deduction under section 403(a)(2) of the Revenue Act of 1921 should not be reduced by the amount allowable as deductions under section 403(a)(1) and (3) or any part… Held: to subscribe for additional stock at a price which is less than the prevailing market price at the time, the value of the additional stock received is not to be considered as prior-taxed property in determining the deduction allowable.

Federal Estate tax paid by a devisee to prevent sale of real estate is not deductible from the income of such devisee.

Petitioner claims as a deduction an amount representing the fair rental value of space in a building owned by it and occupied in connection with its investment department. Held: that the deduction claimed is not allowable under section 245(a)(5) of the Revenue Act of 1921 even though the rental value of the entire space occupied by it was returned by the petitioner as income.

Deduction from gross income of cost of stock that became worthless in taxable year allowed.

In October, 1920, through a court decision, the petitioner lost title to a certain timber tract purchased in 1917, upon which entry had not been made. Held: that petitioner did not sustain an actual loss in 1920, and, therefore, no deduction may be taken on account thereof.

The value of property transferred by the decedent prior to the passage of the Revenue Act of 1918, may not be included in the gross estate under the provisions of section 402(c) of that Act merely because the conveyance was intended to take effect in possession or enjoyment at or after his death.

The Board does not have jurisdiction to determine whether a credit is barred by the statute. Appeal of Dickerman & Englis, Inc.,5 B.T.A. 633.

The sum of $60,000 taken as a deduction in the petitioner's return for the fiscal year ended June 30, 1920, and disallowed by respondent, held to be a reasonable salary, in addition to the amount allowed by the respondent, for the services performed by the three officers to whom paid, and therefore deductible.

1. Value of assets for invested capital and depreciation purposes determined. 2. Where petitioner fails to adduce proper evidence in support of its contention that items capitalized within the taxable year should be charged to expense the deduction must be disallowed.

1. Evidence held to establish that at the date of his death the decedent was the owner of a one-half interest in the business and assets of the partnership carried on under his name. 2. The value of certain items of the assets of said partnership determined.

MOVING EXPENSE. - The expense of physically moving petitioner's machinery from one location to a new location held not to constitute an improvement or capital expenditure, but rather an ordinary and necessary business expense.

- Petitioner, during 1921, was engaged in the real estate business and is entitled to a deduction for the ordinary and necessary expenses of that business.

- An amount contributed by the petitioner toward the maintenance of the village baseball team during the year 1920 held not to have been an allowable deduction as an ordinary and necessary expense or otherwise.

Petitioner was a member of a partnership which is entitled to its income from installment sales by the use of the installment method as prescribed by subdivision (d) of section 212 of the Revenue Act of 1926.

Petitioners filed tax returns for the year 1917 on March 30, 1918, and thereafter, on December 1 and 31, 1922, respectively, entered into agreements in writing with the Commissioner whereby they… Held: that collection of the taxes involved herein is barred by the statute of limitations.

The deficiency asserted for 1916 is under the facts barred by the statute of limitations.

- Petitioner and his wife in 1921 were residents of California. Held: that the Commissioner erred in including the salary of the wife in the income of the petitioner.

1. The fair market price or value of certain shares of stock at March 1, 1913, determined. 2. Liquidating dividends properly credited with prorated amounts of Federal taxes due by a dissolved corporation in the years in which such tax was paid.

The statutory period within which the amount of the petitioner's income and profits taxes for the calendar year 1918 could be determined and assessed expired on June 15, 1924. Held: further, that no assessment of the tax having been made prior to the enactment of the Revenue Act of 1924 and the period within which assessment might be made not then having expired, neither assessment nor collection of the tax is now barred by limitation.

1. Additional compensation paid to employees in the form of bonuses held to be deductible as business expense for the year in which authorized and paid. 2. Petitioner received the net sum of $4,370.37 in 1918 as compensation for loss of profits in prior years. On the facts, held that this amount represents taxable income for the year in which received.

1. Capital stock of a corporation received by an individual as compensation for services rendered is taxable as income only to the extent of its fair market value at the time received. 2. Held: that the petitioner was not estopped from setting up the market value as distinguished from the par value in connection with his own income-tax liability.

Commissioner's valuation of inventories approved for lack of evidence.

The March 1, 1913, fair market value of real estate determined.

On the evidence held that the income-tax return filed for the year 1919 was not fraudulent and that the petitioner is not liable to the assessment of the penalty provided by the statute for the filing of a fraudulent return. Held further, that the petitioner is liable to the assessment of the penalty for negligence provided for by section 250(b) of the Revenue Act of 1918.

The petitioner's president was paid a salary of $14,400 for the calendar year 1920. Held, that the total amount was a legal deduction from gross income as ordinary and necessary expenses. Held: that the total amount was a legal deduction from gross income as ordinary and necessary expenses.

1. A deduction claimed on account of alleged ordinary and usual repairs to certain buildings disallowed since the evidence fails to establish the items classed as repairs and the cost thereof. 2. Petitioner's invested capital may not be reduced by assuming and deducting from available earnings for 1920, an obligation to pay a tentative tax for that year, thereby reducing the amount of earnings available for the payment of dividends. Appeal of L. S. Ayers & Co.,1 B.T.A. 1135.

1. A transaction in regard to stock of Standard Oil Co. of New York, held to have resulted in no profit to the petitioner. 2. The Commissioner's determination that certain transactions in regard to stock of New England Co. resulted in profitable sales by the petitioner approved for lack of evidence to the contrary. 3.

Amount expended by petitioner in an unsuccessful effort to secure a secret formula for the corporation of which he was president, under an agreement whereby he was to be reimbursed if the venture was successful, held deductible as a loss.

1. The petitioners were entitled to make a consolidated income and profits-tax return for each of the fiscal years and for the fiscal period involved. 2. Payments made to certain employees who were owners of record of shares of stock of the petitioners in the circumstances of this proceeding, were dividends and should not be deducted from income as compensation of employees. 3. Insufficient evidence upon which to disturb respondent's computation of prewar invested capital.

Petitioner purchased contracts for the services of certain professional baseball players during the year 1922, each contract being renewable from year to year at the option of the petitioner or… Held: that the amounts paid for such contracts represent capital expenditures, and that, since the rights acquired by the petitioner thereunder are not shown by the evidence to have been exhausted or lessened by the passage of time, it is not entitled to any deduction for exhaustion.

Deduction for obsolescence or loss of good will disallowed. Appeal of Manhattan Brewing Co.,6 B.T.A. 952; Red Wing Malting Co. v. Willcuts, 15 Fed.(2d) 626.

1. Where the respondent in determination of a deficiency allowed a deduction representing a commission incurred and paid by a corporation to its president for the negotiation and sale of the corporation's business and certain of its assets and the respondent in his answer alleges that he erroneously allowed such deduction, held that the burden of proof is on respondent to show that the deduction is not allowable. 2.

Commissioner's determination approved for lack of evidence.

A taxpayer may not take as a deduction on his individual tax return a proportionate part of a bad debt due to a partnership of which he was a member.

1. As to the year 1919, the Commissioner sent a deficiency notice dated August 6, 1924, to a wrong address from which it was returned… Held: that the Commissioner has not determined a deficiency and that the Board has no jurisdiction for the year 1919. 2. As to the year 1918, return was filed June 19, 1919, and jeopardy assessment made in March, 1924. Claims for abatement and refund were filed and appeal was taken from letter of October 28, 1925, rejecting said claims.

Where necessity did not exist for an administration upon an estate, attorney's fees paid by one of the heirs for legal assistance and amounts retained as commissions for his services in connection with the distribution of the assets, are not allowable deductions from the gross estate in determining the net estate under the provisions of section 403(a)(1) of the Revenue Act of 1921.

Under the Revenue Act of 1921, section 201(e), a dividend payable within the taxable year is not for that reason alone "unqualifiedly subject to demand" of the stockholder, and where as in this case check therefor was mailed on the last day of the taxable year and received the following year, held, not included within gross income of the distributee for the earlier year.

1. Assessment and collection of the deficiency in income tax for the period January 1, to November 8, 1919, is barred by the statute of limitation. 2. The evidence is insufficient to show that the Commissioner's determination of deficiencies in income tax for the period November 9 to December 31, 1919, and for the calendar year 1920 was erroneous.

An agreement between father and mother on the one hand and their son on the other that the son should have a one-third interest in the profits and losses of a partnership of which they were the sole members does not constitute the son a member of an ordinary partnership.

1. Debts due the petitioner, a stock broker, arising from over-extended margin accounts, not having been satisfactorily proved to be… Held: when petitioner paid his partner's share of the firm's obligations a debtor-creditor relationship arose between the petitioner and his partner. The ascertainment of the worthlessness of this debt and its charge-off within the year 1919 not having been satisfactorily proved, the debt can not be allowed as a deduction in that year.

Inventory values fixed by going prices at taxpayer's own market rather than one at a distance.

1. Computation of the petitioner's excess-profits tax for the year 1920 under section 302 of the Revenue Act of 1918, approved. 2. Deductions for exhaustion, wear and tear of property used in the trade or business allowed.

The pay of an officer on the retired list of the Regular Army of the United States is not exempt from taxation under section 213(b)(9) of the Revenue Act of 1921, as a pension for services in the military or naval forces of the United States in time of war.

1. Good will paid in to a corporation for capital stock can not be included in invested capital in the absence of proof of its actual cash value at the time paid in. 2. No deduction from gross income for the obsolescene of good will can be allowed.

Sections 1200 and 1201 of the Revenue Act of 1924 do not authorize a 25 per cent reduction of tax on 1924 income reported in 1925 but taxable at 1923 rates. Appeal of Charles Colip,5 B.T.A. 123.

Discovery value for gravel deposit disallowed.

Where petitioner was granted permission to change the basis of valuing its inventories beginning with the closing inventory for 1921, but did not make such change, the use of the new method beginning in 1922 is unauthorized.

Value of assets determined for purposes of invested capital and depreciation.

1. Year in which loss was sustained determined. 2. The action of the respondent in not determining petitioner's tax liability on the community-property basis is approved.

1. On the evidence, held that stock acquired by petitioner was not received in an exchange of property but was earned under a contract and is income to the extent of its fair market value when received. 2. Deductions for alleged traveling expenses disallowed because of insufficient evidence. 3. A loss for stock alleged to have become worthless in 1919 disallowed in absence of evidence that the loss was sustained.

1. Fair market value of plant and leases as of March 1, 1913, determined. 2. Due to lack of evidence, the unexhausted value of plant can not be determined for invested capital. 3. Capital additions made subsequent to March 1, 1913, determined for invested capital purposes. Arbitrary and erroneous write-off of asset value of plant and lease restored for invested capital purposes.

1. In the absence of evidence it is impossible to determine whether a reorganization of a railway corporation resulted in gain or loss. 2. A determination by the Commissioner of gain or loss arising from the sale of stock acquired in the reorganization of a corporation is sustained in the absence of evidence that error was committed. 3.

Commissioner's determination approved for lack of evidence.

1. Certain transfers made by decedent held not made in contemplation of death. 2. Value of certain real estate determined.

1. Action of respondent in disallowing for 1921 and 1923 deductions taken for interest paid, his action in increasing petitioner's distributive share of partnership profits for 1921 and in reducing… Held: not allowable as deductions as loss because of lack of evidence of uncollectibility of the amounts from contractor. 4.

Where petitioner, on the cash receipts and disbursements basis, in December, 1922, assigned an interest in an oil and gas lease, receiving therefor $7,500, the purchaser to pay an additional $7,500… Held: that petitioner should return for 1922 the amount of $7,500 as the sale price of his interest in the lease.

A notice of deficiency in tax was sent to a person other than the taxpayer and without street address. Held: that the collection of the deficiency is barred by the statute of limitations.

The cost of moving and resetting machinery in a new location held to be an ordinary and necessary business expense and deductible from gross income.

1. The evidence in this proceeding shows that the assets of the Stromberg Electric Co., a predecessor corporation organized under the laws of the State of Illinois, were acquired by the petitioner in exchange for petitioner's stock. 2. The amount that petitioner may include in its invested capital on account of intangibles acquired in exchange for stock determined.

- Petitioner engaged in sale of caskets at wholesale prices and in the general undertaking business, using the same valuable fixed assets in both departments without any practicable segregation, and which assets, representing invested and borrowed capital, were material income-producing factors. Held that the undertaking department was not a distinctly separate branch of the business and that said department was not personal service in character.

1. BAD DEBTS. - Where petitioner ascertained a debt to be worthless to the extent of $15,000 and charged off same to that extent during 1921, held to be a proper deduction from gross income for that year. 2. INVESTED CAPITAL. - Adjustment of invested capital made by the Commissioner on account of income and profits taxes for prior years, held to be correct under section 1207 of the Revenue Act of 1926.

EXEMPT INCOME. - During the years under consideration the petitioner held by appointment a position as attorney and counsel for the Des Moines board of waterworks trustees at a fixed annual salary. Held: that his compensation was that of an officer or employee of a State or municipal subdivision thereof and was so exempt from income taxes.

1. A taxpayer possessing the sole and exclusive right and license to practice certain inventions and make and use certain machines covered by certain United States letters patent and any and all patents which may result from the application for patents recited in the license agreement for and during the respective terms for which said patents are, or may be granted, in and throughout the United States * * * and use and sell the products of such processes and machines,…

1. In 1919 petitioner conveyed certain oil and gas rights which had cost her nothing to a philanthropic society which sold such property and… Held: that petitioner is taxable in 1920 upon the proceeds of such sale. 2. In such circumstances a judgment entered pursuant to an agreement between petitioner and the society compromising their differences, is not a determination that the society held the property purchased by it in 1919 as a constructive trustee for petitioner.

The amounts involved herein distributed by the petitioner to its stockholders during the years 1918 to 1922, inclusive, held to be part of the purchase price of ice delivered to the petitioner by the stockholders, and not dividends.

The loss sustained by the petitioner in 1921 as the result of the liquidation of a corporation carrying on business formerly operated by petitioner and another as a partnership, and after dissolution, operated by him as an individual, was not a "net loss" as defined in section 204(a) of the Revenue Act of 1921.

Evidence held to show error in respondent's inventory adjustments.

More than 5 years having expired since the filing of income and excess-profits-tax returns for the fiscal years 1917 and 1920 and no valid consent to an extension of the period of limitation having… Held: the assessment of tax for the fiscal years 1917 and 1920 is barred by the statute of limitations.

1. Where an American citizen residing in the Argentine Republic purchased a draft drawn in American dollars by the payment of pesos, and where under the terms of the purchase he was entitled to be… Held: the purchaser of the draft suffered a deductible loss. 2.

1. A stipulation by counsel that an item "is an allowable loss for tax purposes in the event the Board decides" a general question, must be disregarded as of no effect because it stipulates a conclusion of law and thus attempts to limit the function of the Board and because it is conditioned upon the decision by the Board of an abstract question not within the issues. 2. Petitioner was in contractual possession of certain depreciable assets and claimed the right to deduct depreciation and losses in respect thereof, setting forth the terms of its contract, held upon the evidence that such depreciation and losses have not been established.

1. Husband and wife were domiciled in Texas. Held: such earnings of the husband are not earned income of the wife. 2. Under the laws of Texas, the wife's interest in community income arises from the marital relationship, irrespective of the performance of any services by her. 3.

Value of leasehold on coal lands at the date of acquisition for depletion purposes determined.

1. Obsolescence of intangible assets disallowed. 2. The deduction of an alleged loss of intangibles under section 234(a)(4) of the Revenue Act of 1918, due to prohibition legislation, disallowed.

1. Disallowance of a salary deduction, for the reason that it was not reasonable compensation for services rendered, approved. 2. Commissioner's determination that bonuses paid were in reality a distribution of profits approved. 3. The fair market value on March 1, 1913, of the petitioner's buildings determined. 4. Rate for purpose of a deduction under section 234(a)(7), Revenue Act of 1918, determined.

The value at March 1, 1913, of certain patents, for the purpose of determining the exhaustion allowance, determined.

1. Held, that a note had no value at the time of decedent's death. 2. Held: that a note had no value at the time of decedent's death. 2. Evidence held insufficient to support the contention that the net estate had a lower value than the specific exemption provided for in the statute.

1. Value of buildings and machinery on March 1, 1913, determined. 2. Paid-in surplus at the time of incorporation in 1907 determined. 3. The profits of the petitioner credited to the accounts of the stockholders in proportion to their holdings without the formal declaration of dividends held not to constitute part of petitioner's surplus for invested capital purposes.

1. The fair market value of stock on March 1, 1913, determined. 2. Value of assets transferred by corporation on dissolution to a partnership determined.

1. Under the Revenue Act of 1918, liquidating dividends of a corporation received by an individual are subject to both normal and surtax. 2. Cost of assets and exhaustion thereof determined.

A dividend payable on December 31, 1923, but not received until January 2, 1924, is 1924 income to stockholder making an incometax return upon a cash receipts and disbursements basis.