Volume 81 — Tax Court Reports

Petitioner-wife was an active participant in her employer's tax-qualified, noncontributory, defined benefit pension plan during 1978. Held: an alleged failure to meet the minimum funding requirements of sec. 412, I.R.C. 1954, does not result in the disqualification of a qualified plan. Held, further, petitioner-wife's active participation in a qualified plan precludes an IRA deduction and requires the imposition of the 6-percent excise tax under sec. 4973(a) for 1978.

At all relevant times, petitioners in these 112 consolidated cases were employed as dealers at Caesar's Palace, a gambling casino in Las Vegas, Nev. Dealers at the casino engaged in a pooling arrangement whereby all tokes were divided equally between the dealers on the basis of length of shifts during each 24-hour period. Pursuant to an elaborate surveillance program conducted at Caesar's Palace on 48 days during the period Feb. 9, 1976, through Jan. 26, 1977, respondent determined petitioners underreported their toke income during the relevant years. Respondent also asserted additions to tax for negligence. Held, respondent's determinations of petitioners' toke income made on the basis of information collected during an elaborate surveillance program are sustained. Held, further, petitioners are also liable for additions to tax under sec. 6653(a), I.R.C. 1954, for unjustifiably failing to maintain adequate records of their toke income during each year at issue.

P owned a one-third interest in a coal mining joint venture which had made a valid election under sec. 761(a), I.R.C. 1954. Held: (a) Sec. 1.612-3(b)(3), Income Tax Regs. (the regulation), is a substantive rule for purposes of the Administrative Procedure Act (APA), 5 U.S.C. sec. 551 et seq., 60 Stat. 237. (b) The amendment to the regulation in T.D. 7523, 1978-1 C.B. 192 (the amendment) was not in violation of the notice requirements of 5 U.S.C. sec. 553(d).

Petitioners' 1976 tax return listed an address for petitioners in Allentown, Pa. Held: petitioners' oral notification of their change of address was adequate here and the notice of deficiency was not mailed to petitioners at their last known address under sec. 6212(b)(1), I.R.C. 1954.

On Sept. 16, 1981, the Commissioner mailed a notice of deficiency to P at an address which may not have been his last known address. On Oct. 2, 1981, P received the notice of deficiency. Held: regardless of whether the notice of deficiency was mailed to P at his last known address, the notice is valid because of his actual receipt of it early enough to file a timely petition, and the Commissioner's motion to dismiss will be granted.

P qualified as an electing small business corporation for its fiscal year ending July 31, 1977. P's small business election was revoked for its fiscal year 1978. The 15th day of the 3d month following the close of P's fiscal year 1977 (i.e., Oct. 15, 1977) fell on a Saturday, and P was closed for business on that date. On Monday, Oct. 17, 1977, P made two distributions to its shareholders (petitioners herein) in respect of their stock, and these distributions did not exceed the shareholders' respective shares of P's undistributed accumulated income at July 31, 1977. Held, when the last day of the grace period provided in sec. 1375(f)(1), I.R.C. 1954, falls on a Saturday, Sunday, or legal holiday, the last day for performance under that statute shall extend to the next succeeding day which is not a Saturday, Sunday, or legal holiday, under either the provisions of sec. 7503, I.R.C. 1954, or the common law doctrine of Campbell Chain Co. v. Commissioner, 16 T.C. 1402 (1951). Held, further, distributions made by P to its shareholders on Oct. 17, 1977, were timely under sec. 1375(f)(1), I.R.C. 1954, and are therefore to be treated as distributions of previously taxed income under sec. 1375(d), I.R.C. 1954.

Zappo and Murphy formed Company to construct and sell townhouses. Held: the guarantee agreement was inseparable from the settlement agreement. Held, further. The guarantee agreement did not create a true debt for Zappo. CRC Corp. v. Commissioner, 693 F.2d 281 (3d Cir. 1982), and Brountas v. Commissioner, 692 F.2d 152 (1st Cir. 1982), revg. on other grounds 73 T.C. 491 (1980), followed.

Petitioner owned and operated an ornamental iron business as a sole proprietor. Held: capital was a material income-producing factor in such business within the meaning of sec. 1348, I.R.C. 1954.

Decedent died in 1973 owning, inter alia, as a closely held business, a shopping center. In 1974, petitioner elected, pursuant to sec. 6166, I.R.C. 1954, to pay its outstanding estate tax liability on the installment method. In 1975, Congress changed the interest rate from 4 percent to a higher variable rate, effective July 1, 1975. Held, the higher variable rate applies to the installments due from petitioner from and after that day. Held, further, the rate change did not violate any of petitioner's constitutional rights.

Husband and wife negotiated and executed an agreement under which husband agreed to pay specified sums to wife for her support and maintenance over a 20-year period. Prior to the time when any payments were required or made, the parties were divorced and the agreement was incorporated by reference in their divorce decree. Also prior to any payments, wife married another man, as contemplated by the parties throughout their negotiations, execution of agreement, and subsequent divorce. Thereafter, husband made payments as required by the agreement and the decree of approximately $ 55,000 annually during each of the taxable years in issue. Held: All payments made by husband to wife under these circumstances constitute gross income received by wife under sec. 71(a), I.R.C. 1954. Correspondingly, all payments are deductible by husband under sec. 215, I.R.C. 1954; Held, further, no portion of these payments constitutes nontaxable payments for the support of minor children of husband under sec. 71(b), I.R.C. 1954, where they were not specifically designated as such; Held, further: Applicable State law did not effect a merger of the agreement into the divorce decree where the parties' intent was clearly to the contrary. A presumption of merger upon incorporation arose under Illinois law prior to the abolition of the doctrine of merger in 1980 by the enactment of sec. 502 of the Illinois Marriage and Dissolution of Marriage Act, Ill. Ann. Stat. 1980, ch. 40, par. 502(e) (Smith-Hurd 1980). However, where this presumption is rebutted, a prior agreement incorporated into a divorce decree does not merge into the decree, but instead retains its independent legal significance. Hoffman v. Commissioner, 54 T.C. 1607 (1970), affd. 455 F.2d 161 (7th Cir. 1972), is distinguished; Held, further: The automatic termination of alimony and maintenance upon remarriage, as required by Ill. Rev. Stat. 1973, ch. 40, par. 19 (repealed 1977), does not relieve a legal obligation to pay contractual support. Therefore, payments which qualify under secs. 71(a) and 215(a), I.R.C. 1954, for Federal income tax purposes may legally continue as such under an agreement despite a State law prohibition against them under a decree of divorce; and Held, further: Nothing in sec. 71(a), I.R.C. 1954, prevents the simultaneous qualification of payments under both secs. 71(a)(1) and 71(a)(2). Dual qualification results from the dual remedies available under the divorce decree and the agreement where the agreement is incorporated, but does not merge, into the decree.

P was a limited partner in a partnership formed to acquire and distribute a motion picture film. Held: Under the income forecast method as authorized by the Commissioner, such depreciation must be based on net income. Because the partnership elected to use such method and because it had no net income for 1975, the partnership is not entitled to any depreciation deduction for that year.

A, A Jr., and J held contingent interests in a testamentary trust created in 1941 by the will of their grandfather, Alanson B. Houghton. Held: The transfer within the meaning of sec. 25.2511-1(c), Gift Tax Regs., occurred in 1941, when A, A Jr., and J each received a contingent remainder from their deceased grandfather's estate; 2.

L, an exempt civic league, collected certain unpaid taxes for member municipalities in exchange for 50 percent of the amounts collected. L engaged G to assist in the collection of such taxes. Held, the amount of taxes retained by L does not constitute unrelated business taxable income within the meaning of sec. 512(a)(1), I.R.C. 1954.

In 1974, petitioners' partnership purchased three apartment buildings pursuant to a land sales contract. Held: Since the sellers had the right to enforce the contract in 1976, the partnership was unable to discard the property either irrevocably or permanently so as to qualify for the recognition of loss from physical abandonment.

Petitioner, a life insurance company, sustained losses from operations for taxable years 1959 through 1965; it realized gains from operations for taxable… Held: applying the reasoning of United States v. Foster Lumber Co., 429 U.S. 32 (1976), petitioner's cumulative operating loss deduction was absorbed in its entirety in 1970; consequently, no operations loss deduction amount remained for petitioner to carry forward to offset its 1971 life insurance company taxable income.

Petitioner entered into a purchase-and-leaseback arrangement with a computer equipment leasing corporation. Pursuant to this agreement, petitioner purchased a 6-year-old computer for $ 1,455,227. The purchase price was paid in the form of a 4-year promissory note in the amount of $ 250,000 and the balance in two nonrecourse notes payable over an 8-year period. Simultaneously, petitioner leased the equipment back to the equipment leasing corporation for 8 years. The equipment leasing corporation's monthly rental payments to petitioner purported to amortize petitioner's nonrecourse note obligations and generate a $ 10,000 yearly cash flow to petitioner. Held, petitioner had no business purpose for entering into the transaction other than tax avoidance. Held, further. Objective analysis of the transaction showed that petitioner could not have had a realistic hope of profit. The probable residual value of the equipment was not indicative of economic substance. Petitioner's purchase-leaseback was lacking in economic substance and must be disregarded for Federal income tax purposes.

Petitioners were limited partners in one of eight different limited partnerships formed in 1976 to lease and mine the coal in two tracts of land in Kentucky and Tennessee. The partnership interests were promoted and sold to petitioners by Finkel, who was the general partner in all of the partnerships, and his attorney, Beck. The petitioners paid cash for their partnership interests. The coal leases entered into by the partnerships required them to pay advanced royalties for most, if not all, of the coal thought to be recoverable from the properties, parts of which were payable in cash and much larger parts of which were payable with nonrecourse notes executed by the partnerships. The partnership agreements provided that most of the cash contributed by the partners would be paid up-front in commencement fees to the general partners, attorney fees to Beck, offeree-representative fees, and advanced royalties. Held: 1. The partnerships were not engaged in a business with the primary objective and intent of making a profit, so the advanced royalties are not deductible under sec. 162(a), I.R.C. 1954. 2. The fees paid to the general partner are not deductible by the partnerships. 3. Accounting fees paid on behalf of the limited partners for preparation of their tax returns are deductible by the partners under sec. 212(3), I.R.C. 1954. 4. Deductions for interest accrued on the nonrecourse notes are not allowable. 5. Fees paid to offeree-representatives are not deductible by the partnerships. Petitioners failed to prove that such fees are deductible under sec. 162(a) or 212(3), I.R.C. 1954. 6. Petitioners failed to prove that any part of the attorney fees paid to Beck are deductible under sec. 162(a) or 212(3), I.R.C. 1954.

Petitioner elected under sec. 6166, I.R.C. 1954, to defer payment of Federal and Florida estate tax. Held: Due to the considerable fluctuation in interest rates and the possibility that payment can be accelerated, or that portions of the payment can be prepaid, a reasonable estimate of unaccrued interest cannot be made. Bahr v. Commissioner, 68 T.C. 74 (1977), distinguished.

P was first employed by the Internal Revenue Service on Oct. 1, 1958. On Apr. 1, 1960, P resigned his job. Held: such interest payments are not deductible under sec. 163, I.R.C. 1954, because they do not represent interest on an enforceable indebtedness. Williams v. Commissioner, 47 T.C. 689 (1967), affd. per order 409 F.2d 1361 (6th Cir. 1968), followed:

Throughout 1975, D resided in France. From Jan. 1, 1975, to Nov. 23, 1975, D was an American citizen. On Nov. 24, 1975, D became a citizen of France and remained so through the end of 1975. Held: under sec. 652(a), I.R.C. 1954, in 1975, D is subject to Federal income tax on the net income realized by the trust in that part of the year during which D was an American citizen.

Petitioner wrote a book entitled The Soul of Anna Klane. Held: Petitioners' attempt to shift the incidence of taxation on the royalty income was ineffective. They retained the rights to, and exercised total control over, the royalty income. Moreover, the sole reason for establishing the church and transferring the royalty rights to it was to avoid taxes. This is not permitted.

Each grantor created and each trustee maintained two trusts in each case. Respondent contends that two trusts were used instead of one trust in each case principally for tax-avoidance reasons. Held: Sec. 1.641(a)-0(c), Income Tax Regs., is invalid. Each trust will be recognized as a separate taxable entity. Estelle Morris Trusts v. Commissioner, 51 T.C. 20 (1968) (Court reviewed), affd.

Petitioner is a trade association of 49 employer-companies engaged in the business of maritime shipping and is exempt from tax as a business league under sec.… Held: The fees petitioner received from the administrative services performed with respect to the vacation pay and guaranteed annual income accounts were unrelated business income undersec. 512, I.R.C. 1954. Such fees were paid in proportion to services rendered and for services essentially commercial in nature.

Petitioners claimed a residential energy credit under sec. 44C, I.R.C. 1954, for certain expenditures incurred in connection with the installation… Held: A wood burning stove does not qualify as renewable energy source property. Sec. 1.44C-6(c)(2)(i), Income Tax Regs., interpreting other qualifying renewable energy sources as inexhaustible energy sources and expressly excluding wood and wood by-products, is a valid exercise of the Secretary's statutorily granted discretion.

Petitioner, an insurance company, issued guaranteed renewable health and accident insurance policies during the years in issue. Held: petitioner's guaranteed renewable health and accident policies qualified as guaranteed renewable within the meaning of sec. 1.801-3(d), Income Tax Regs.Held, further, petitioner qualified as a life insurance company under sec. 801, I.R.C. 1954, during the years in issue.

During the years in issue, petitioner, an insurance company, issued and reinsured accident and health insurance policies. Held: petitioner's level premium renewable accident and health policies, with respect to which petitioner valued mid-terminal reserves under the 2-year preliminary term method, qualified as noncancellable or guaranteed renewable accident and health policies within the meaning of secs. 1.801-3(c) and 1.801-3(d), Income Tax Regs., during…

On Dec. 25, 1979, P purported to assign or sell indefinitely accounts receivable representing his wages, to PTS, purportedly a trust. Held: P is taxable on the paychecks he endorsed to PTS. His arrangement with PTS, IDI, and C is simply an anticipatory assignment of income. Lucas v. Earl, 281 U.S. 111 (1930); United States v. Landsberger, 692 F.2d 501 (8th Cir. 1982); Wesenberg v. Commissioner, 69 T.C. 1005 (1978), followed.

In 1971, petitioner, a domestic corporation, received a dividend from Weldwood, its Canadian subsidiary, and claimed a foreign tax credit under the deemed paid provisions of secs. 901 and 902(a)(1),… Held: in making the sec. 902(a)(1), I.R.C. 1954, computation for 1969, Weldwood's accumulated profits are to be reduced by the amount of the loss carryback from 1970 for purposes of the denominator as well as the numerator of the fraction in the statutory formula.

During their fiscal years beginning May 1, 1973, IFTS and LFG each held 40 percent of the outstanding shares of Simarloo, an Australian corporation. Held: IFTS and LFG together held Simarloo stock worth more than 50 percent in value of Simarloo's outstanding shares.

T retired in 1971 from his position as president of C, a corporation controlled by T and his wife and wholly owned within T's family. Held: The $ 1 million term insurance coverage provided to T in 1974 and 1975 was not intended as compensation for T's past or present services; thus, the premiums are not deductible by C as such.

HCA was in the hospital management business in the United States. Held: HCA's Cayman Islands subsidiary is not a sham corporation and is recognized as a separate legal entity for Federal tax purposes. Held, further, HCA did not transfer the management contract or other property to its Cayman Islands subsidiary so as to require a ruling under sec. 367, I.R.C. 1954.

Petitioner's election of special use valuation for certain farm property included in decedent's estate is disallowed. Sec. 2032A(e)(6), I.R.C. 1954, requires material participation over a period of years prior to death by decedent or a member of decedent's family, and management activities of decedent's brother did not qualify under criteria set forth in sec. 20.2032A-3(e)(2), Estate Tax Regs.

After the parties herein were at issue, but before trial, T, a third party to whom no statutory notice had been issued, moved to enter the case as a party petitioner. Held: that T, not having been issued a notice of deficiency, may not enter the instant case as a party petitioner. Held, further, that in appropriate circumstances, such a third party may be allowed to enter the case as an intervenor, in the proper exercise of the Court's discretion.

M Company was engaged in the business of developing real estate which it had acquired and upon which it constructed single-family, detached homes. Held: M Company improperly changed to a LIFO method of accounting for its home construction costs. The individual homes or lots which M Company sells are real estate and do not constitute merchandise within the meaning of sec. 1.471-1, Income Tax Regs.

Petitioner, under duress, surrendered W-2 forms covering her wages to her husband who prepared and filed what purported to be joint Federal income tax returns to which he attached petitioner's W-2… Held: petitioner did not consent to the filing of joint income tax returns, and the returns filed by petitioner's husband do not constitute joint returns.

Petitioner filed false W-4 forms, deliberately falsified his W-2's, and filed inadequate returns. Held, petitioner is liable for additions to tax under sec. 6653(b), I.R.C. 1954. Held: petitioner is liable for additions to tax under sec. 6653(b), I.R.C. 1954. Raley v. Commissioner, 676 F.2d 980 (3d Cir. 1982), revg. on this issue T.C. Memo. 1980-571, distinguished.

Held, petitioners' motion under Rule 90(c), Tax Court Rules of Practice and Procedure, to enlarge the time in which to answer respondent's request for admissions, will be denied as such and also as a… Held: petitioners' motion under Rule 90(c), Tax Court Rules of Practice and Procedure, to enlarge the time in which to answer respondent's request for admissions, will be denied as such and also as a motion under Rule 90(e) to withdraw or modify deemed admissions.

Petitioner is the former wife of Charles M. Schulz, the creator and author of the comic strip "Peanuts." At the time of his separation and divorce from petitioner, Mr. Schulz produced the "Peanuts" comic strip for United Feature Syndicate, Inc., pursuant to a syndicate agreement under which he received royalties equal to 50 percent of the net cash proceeds the syndicate realized from the distribution of daily and Sunday comic strips and the licensing of the "Peanuts" characters. In their marriage settlement agreement, Mr. Schulz and petitioner agreed that under California law, she possessed a community property interest in the future earnings he derived from the syndicate agreement to the extent such earnings were attributable to Mr. Schulz' services while he was married to petitioner. Accordingly, Mr. Schulz agreed to make lifetime payments to her which are calculated by multiplying the amounts he receives from the syndicate by specified percentages. Held, the income received by petitioner under the marriage settlement agreement constituted earned income, thereby entitling her to the benefits of sec. 1348, I.R.C. 1954, during the tax years in question.

Prior to Oct. 29, 1976, a limited partnership named Iaeger Partners (Iaeger) was formed and became obligated to pay coal royalties. Petitioner became a limited partner in Iaeger sometime between Oct. 29 and yearend. Iaeger accrued the royalties in its tax return for 1976, giving rise to a loss, part of which was passed through to petitioner. The partnership produced no coal in 1976. On Oct. 29, 1976, proposed amendments to sec. 1.612-3(b)(3), Income Tax Regs., were announced which generally prohibited the accrual of mineral royalties in advance of production. The announcement of the proposed regulation stated, however, that the new regulation would not apply to royalties under a mineral lease which was "binding" prior to Oct. 29, 1976, on the "party who in fact pays or accrues such royalties." When the new regulation was made final in Dec. 1977, the effective date provisions of the Treasury Decision stated that, in the case of royalties paid or accrued by a partnership, the "party" who was required to be bound in order for the old regulation to continue to apply was "the partner, not the partnership." Because petitioner did not acquire his interest in Iaeger until after the cutoff date, respondent moved for summary judgment that petitioner was not entitled to deduct a share of the loss generated by the accrual of the advanced royalties. That motion was denied. Respondent now moves the Court to reconsider its denial of his motion for summary judgment. Held: Respondent's motion for reconsideration is denied. The record does not establish that respondent's belated interpretation of the term "party" to mean the partner rather than the partnership was not an abuse of discretion under sec. 7805(b), I.R.C. 1954.

T submitted with his 1978 Federal income tax return an Application for Exemption From Tax on Self-Employment Income and Waiver of Benefits (Form 4029). Held: T is not entitled to exemption from self-employment taxes for 1978 under sec. 1402, I.R.C. 1954, because he did not meet the statutory requirement of membership in a religious sect or division with the tenets or teachings described above.

Marc Equity Partners I, a limited partnership, was organized in 1972 for the purpose of acquiring and operating apartment buildings. Held: The reallocation of losses accrued by the partnership before October 1975, to the class B limited partners is not permitted by sec. 706(c)(2)(B), I.R.C. 1954, because it was made as a result of the additional capital contributions.

Following request for production of documents, petitioner made records available to respondent's agent in Miami. Held: unintentional loss of documents does not warrant default or dismissal, shift of burden of going forward, summary judgment against respondent, or striking the answer.

1. P was a U.S. shareholder of wholly owned controlled foreign corporations I, IF, and UK. Held: P effectively elected to receive minimum distributions from I and IF for 1974 pursuant to sec. 963. 2. P also did not file for 1974 the required statement to elect the 180-day distribution period ( sec. 1.963-3(g)(2), Income Tax Regs.) but, in other ways, indicated an intention to make such election.

Petitioner, a nonprofit corporation, was organized by the trustees of several employee benefit welfare funds and pension funds solely for the purpose of administering their funds. Held: Sec. 1.501(c)(9)-3(f), Income Tax Regs., is valid to the extent it provides that an association providing for the payment of pension benefits cannot qualify for tax-exempt status under sec. 501(c)(9). Furthermore, petitioner is not an association of employees as required under sec. 501(c)(9).

Decedents gave one separate tract of land to each of their two children, but retained life estates in both parcels. Both children mortgaged the properties. Held: Neither estate is entitled to a deduction for a claim against the estate under sec. 2053(a)(3). Estate of Courtney v. Commissioner, 62 T.C. 317 (1974), followed. 2. Under the described circumstances of this case, no deduction is allowed for a mortgage debt under sec. 2053(a)(4). 3.

T created a trust in 1943, naming himself as trustee and his daughter, L, then 9 months of age, as the sole beneficiary. Held: although T did not have the right to decide who would receive the trust assets if L predeceased the termination of the trust, T's right as trustee to accumulate trust income restricted L's present enjoyment of that income, and this constituted the right * * * to designate the persons who shall possess or enjoy the property or the…

Petitioners exchanged their fee simple interest in I real property for an undivided 10-percent interest in P real property which they immediately contributed to a partnership for a general… Held: the exchange of I for P qualifies for nonrecognition of gain under sec. 1031(a), I.R.C. 1954, because petitioners held P for productive use in trade or business or for investment.

Petitioner and his wife were equal shareholders of a corporation owning undeveloped land. In May 1969, after the corporation granted an option to a bank to purchase the land, the bank decided to exercise the option, but failed to execute the sale. From April 1970 until September 1970, petitioner and the bank exchanged various offers and counteroffers regarding the sale and exchange of the corporate property. After petitioner's divorce in September 1970, he became sole shareholder in the corporation and, upon the advice of his attorneys, he decided to remove the property from the corporation via a liquidation under sec. 333, I.R.C. 1954. Petitioner initially intended to develop the property but could not obtain proper financing and, therefore, in December 1971, he resumed negotiations with the bank and agreed to an exchange of the corporate property. On Mar. 8, 1972, the corporation adopted a plan for complete liquidation under sec. 333. On Mar. 13, 1972, the corporation deeded the property to petitioner, and petitioner and the bank agreed upon the terms of the exchange. On June 6, 1972, the exchange took place as scheduled. Held , the exchange was made by petitioner, not the corporation. Held, further, the exchange qualifies for nonrecognition treatment under sec. 1031(a), because the property exchanged was held by petitioner for investment purposes. Magneson v. Commissioner, 81 T.C. 767 (1983), followed.

Ps, H & W, claimed deductions for charitable contributions to the Universal Life Church. Held: Ps' motion to quash subpoenas compelling them to testify, based on Fifth Amendment privilege against self-incrimination, was properly denied. Ps did not demonstrate a real and appreciable danger of self-incrimination.

Petitioners were limited partners in various limited partnerships (the partnerships) which were engaged together in a joint farming venture with another limited partnership. Held: petitioners were not at risk under sec. 465(b), I.R.C. 1954, for the amount of partnerships' loans they guaranteed; thus, they may not deduct losses of the partnership in excess of their cash contributions.

In 1977, 1978, and 1979, P received $ 40,000 under a contract (the "consulting contract") entered into between Guilford Mills, Inc., and P pursuant to the terms of which P promised to perform consulting services to Guilford Mills, Inc., whenever that company requested. P did not at any time offer consulting services to any individual or entity other than Guilford Mills, Inc. Held, under all of the facts and circumstances of this case, P was engaged in the trade or business of consulting during the years in issue and the fact that P offered consulting services to only Guilford Mills, Inc., is not determinative of this issue. Ditunno v. Commissioner, 80 T.C. 362 (1983), appeal dismissed (6th Cir., Sept. 13, 1983); Steffens v. Commissioner, 707 F.2d 478 (11th Cir. 1983); Grosswald v. Schweiker, 653 F.2d 58 (2d Cir. 1981), followed. Held, further, the amounts received by P under the consulting contract were self-employment income subject to tax under sec. 1401, I.R.C. 1954.

Petitioners listed their old residence with a real estate broker in July 1977 and began construction of a new residence. When the old residence was not sold within 90 days, they rented it on a month-to-month basis and continued their efforts to sell. The property was rented from October 1977 until May 1978 and was ultimately sold in August 1978. Respondent disallowed claimed deductions for depreciation and expenses in excess of rental income, concluding that, since the old residence had not been converted to property held for the production of income, sec. 183, I.R.C. 1954, limited the amount of such deductions. Held, the rentals in the instant case were temporary in nature; therefore, petitioners are entitled to defer recognition of the gain realized on the sale pursuant to sec. 1034. Held, further, petitioners did not rent the old residence with the primary objective of making a profit. Accordingly, they are not entitled to the claimed deductions for depreciation, insurance, and miscellaneous expenses in excess of rental income.

Respondent issued to petitioners a purported deficiency notice for the taxable year 1978. Held: petitioners' motion to dismiss for lack of jurisdiction is denied because the purported deficiency notice was a valid notice of deficiency. Held, further, respondent's motion for leave to file an amendment to answer is granted. Held, further, petitioners' motion for summary judgment is denied.

After examining the decedent's estate tax return, respondent determined a deficiency in estate tax and additions to tax for late filing and late payment under secs. 6651(a)(1) and 6651(a)(2), I.R.C.… Held: under the facts herein, this Court does not have jurisdiction to redetermine the addition to tax for late payment because it is not attributable to a deficiency. Secs. 6651(a)(2) and 6662(b) (formerly sec. 6659(b)), I.R.C. 1954.

Petitioner-husband's corporation owned a large portion of an apartment complex, as well as some other assets. Held: The sales by petitioners to petitioner-wife's son were bona fide transactions that are recognizable for Federal income tax purposes. 2. Petitioners are entitled to use the installment method ( sec. 453, I.R.C. 1954) to report their gains from the sales of their interests in the partnership. 3.

In 1979, petitioner was employed in the Panama Canal Zone by the Panama Canal Co. until Sept. 30 and thereafter by the Panama Canal Commission. Held: petitioner is not entitled to either (1) deductions under sec. 913, I.R.C. 1954, for certain foreign living expenses or (2) a foreign earned income exclusion under sec. 911, I.R.C. 1954, because his only income consisted of wages received from an agency of the United States.

Petitioner, a tenured professor at Southern Methodist University, resigned his position and gave up his tenure in return for negotiated compensation. Held: Tenure is not a capital asset and petitioner's release of his tenure was not a sale or exchange. The amount received by petitioner on termination of his contract was taxable as ordinary income rather than capital gain.

1. P, a corporation, moved for a pretrial ruling that its statement submitted in accordance with sec. 534(c), I.R.C. 1954, relating to the grounds for the accumulation of its earnings and profits, was sufficient to shift the burden of proof to the Commissioner. Held: (a) The opportunity for or the occurrence of discovery in accordance with the Rules of the Tax Court does not affect the scope of the facts that must be included in such statement to support the grounds alleged. (b) As to the first five grounds asserted, P's sec. 534(c) statement fails to set forth facts sufficient to show the basis of such grounds. As to the last two grounds asserted, P's sec. 534(c) statement does set forth facts sufficient to show the basis thereof. 2. P moved to compel production of two documents. Held: (a) As to the first document, since P's officers have supplied affidavits to the Commissioner regarding their recollection of the events which are the subject of such document, possible impeachment use is no longer an adequate ground to resist production of this document. (b) As to the second document, the Commissioner's assertion of executive privilege is sustained.

In Estate of Bailly v. Commissioner, 81 T.C. 246 (1983), we held that when payment of estate tax liability has been deferred under sec. 6166, I.R.C. 1954, the amount of interest to be incurred on the Federal and State estate tax liabilities may be deducted under sec. 2053(a)(2) only as that interest accrues. Petitioner timely filed a motion for reconsideration claiming that, contrary to language in our original opinion, because of the operation of sec. 6512(a), petitioner will not be able to legitimately claim deductions for that portion of the interest accruing after our decision becomes final. Hence, petitioner requests that we either (1) find and order that he shall be entitled to deduct the after-accruing interest, or (2) defer entry of our decision until expiration of the installment payment period prescribed under sec. 6166. Held: Sec. 7459(c) and Rule 155, Tax Court Rules of Practice and Procedure, require that our decision specify a dollar amount. Therefore, entry of a decision that would, by its terms, be an indefinite amount changing over time is precluded. Held, further, entry of our decision in this case will be postponed until the final installment of tax is due or paid, whichever occurs earlier.

WFC seeks a declaratory judgment that it is entitled to tax-exempt status as an organization described in sec. 501(c)(3), I.R.C. 1954. Held: WFC is operated exclusively for religious and charitable purposes; its proposed scientific research funding constitutes an insubstantial activity; its commissions program does not result in private inurement notwithstanding that its president and incorporator is credited with a 10-percent commission.

Held, that sec. 912(2), I.R.C. 1954, granting Federal employees stationed in Alaska exemption from Federal income taxes on their cost-of-living allowances, does not deprive individuals employed in… Held: that sec. 912(2), I.R.C. 1954, granting Federal employees stationed in Alaska exemption from Federal income taxes on their cost-of-living allowances, does not deprive individuals employed in the private sector of their constitutional right to equal protection of the laws.

Respondent on Mar. 9, 1982, simultaneously issued to petitioner a statutory notice of deficiency and a final revocation letter as to the… Held: the petition satisfies the jurisdictional requirements for a declaratory judgment action under sec. 7476, I.R.C. 1954, as amended, as to the qualified status of the retirement pension plan, and failure to satisfy the nonjurisdictional requirements contained in Rule 211, Tax Court Rules of Practice and Procedure, is insufficient to…

Petitioners purchased a cattle ranch which consisted of a small amount of lands in fee simple, various physical improvements, and a grazing lease and license with finite durations covering adjacent… Held: purchase price of ranch allocated to its various components. Held, further, useful life of Federal grazing license is indefinite due to preferential renewal privileges; hence, no deductions amortizing its cost are permitted. Sec. 167, I.R.C. 1954.

P moved under Rule 52, Tax Court Rules of Practice and Procedure, for an order striking a portion of the Commissioner's answer. Held: P's motion is denied because the matter that is the subject of the motion to strike presents a disputed and substantial question of law which should properly be determined on the merits.