Volume 85 — Tax Court Reports

During 1977 and 1978, petitioner sold methamphetamine, a controlled substance. In his statutory notice of deficiency, respondent determined that petitioner had unreported income for 1977 and 1978 totaling $ 4,028,036 attributable to such sales. Respondent's calculation of the amount of unreported income was based upon information supplied by a Government informant to the Drug Enforcement Administration. Held, since there is substantive evidence linking petitioner to a tax-generating activity, we will not look behind the statutory notice and decide whether respondent's determination was arbitrary and erroneous. Held, further, certain Drug Enforcement Administration reports are inadmissible into evidence because they are hearsay declarations and are not admissible under any of the hearsay exceptions. Held, further, the evidence established that petitioner earned $ 254,240 from the sale of methamphetamine during the years in issue.

Petitioner, an Indiana not-for-profit corporation, is exempt from tax as a member of the U.S. Catholic Conference, which has been granted a group exemption under sec. 501(c)(3), I.R.C. 1954. Petitioner is part of the Congregation of the Holy Cross, an apostolic religious order. Prior to 1955, the Holy Cross Brothers had but one province in the United States. In 1955, that province was divided into three separate provinces (Southwest, Midwest, and Eastern), and petitioner was given to the Southwest Province to provide that province with a source of income. Petitioner operates a 1600 acre farm in St. Joseph County, Indiana, on which it produces cattle and crops that it markets commercially. Ninety-one percent of the farm labor force and ninety-four percent of the total hours worked on the farm are provided by the Holy Cross Brothers. All of the Brothers are under a vow of poverty and the Brothers who operate the farm only receive support from the order. Held, petitioner's farming activity is a trade or business that is not substantially related to its exempt purposes; however, because substantially all of the farm work is performed without compensation, the activity falls within the exception to the definition of a trade or business set forth in section 513(a)(1).

W's husband (H) included in his will a formula maximum marital deduction bequest. After the death of H in 1975, W received certain payments which constitute income in respect of a decedent (IRD) as part of her marital share. The IRD is includable in W's income tax return. Sec. 691(c), I.R.C. 1954, provides for an income tax deduction for estate tax attributable to IRD. A necessary step in computing the amount of this deduction is the recomputation of H's estate tax without including the IRD. Held, the full maximum marital deduction subject only to the 50-percent limitation pursuant to sec. 2056 is allowable in the recomputation of H's estate tax.

Petitioner and his former wife, Jean, were divorced in Montana in 1978. Petitioner transferred appreciated ranch land to his former wife pursuant to a property settlement agreement incident to the divorce. Held, the transfer was in the nature of a division of property and was not a taxable transfer.

Petitioner was formed as a nonprofit corporation, in part, to conduct religious services, to promote the doctrine of Triune of Life, to perform the sacrament of spinology, to train spinologists to… Held: petitioner failed to carry its burden of proving that it is operated exclusively for exempt purposes and that no part of its net earnings inures to the benefit of any private individual.

Ps each purchased a substantial number of unframed lithographs. Held: Ps were the ultimate consumers of the lithographs, and the market in which they purchased the lithographs is the appropriate market in which to value them for purposes of the charitable contribution deduction.

T purchased at a purported price of $ 384,000 a tax shelter from U.S. Distributor structured as an exclusive territorial franchise or distributorship to sell gemstones and items of jewelry to be… Held: On this record, the purported exclusive territorial franchise acquired by T was a sham, and he is not entitled to any deductions as distributor's fees under sec. 1253(d)(2)(B)(ii) or otherwise in respect of annual installments purportedly paid by him for his distributorship.

P rented films to the general public. P acquired a film for rental in the United States that was or may have been shown in Mexico. Held, the film is not new sec. 38 property. Fife v. Commissioner, 82 T.C. 1, 15 (1984), followed. P also compiled for rental, reels of film composed of individual film segments previously exhibited publicly, although in a different format. The segments (cartoons and short subjects, musical variety entertainment, and other footage) were spliced together and compiled and distributed as packages. Held, these modifications, without more, do not create "reconstructed films." P acquired footage of Spanish bullfights which it edited into a 30-minute film entitled, "Bullfights from Spain." P also acquired, edited, and distributed under various titles several films of live Beatles concerts. None of these films had been previously distributed. Held, these films are not "primarily topical" or "essentially transitory" and are qualified films. Cf. Goodson-Todman Enterprises, Ltd. v. Commissioner, 84 T.C. 255 (1985), on appeal (2d Cir., May 31, 1985), and Cosby v. United States, 8 Cl. Ct. 428 (1985).

P's were introduced to a company in London, LMEI, by an American corporation known as InterAct Trading Corp., to which they made certain payments. In late 1980, and in one instance, in late 1981, P's opened accounts with LMEI or its successor, LMEC, transmitting margin deposits and authorizing the companies to conduct discretionary trading in forward contracts in gold and platinum for such accounts. In 1980 and 1981, P's claimed either ordinary or capital losses relative to straddle transactions reflected in their accounts. In 1980, certain P's also claimed advisory fee deductions for their payments to InterAct. Held, since the transactions in issue were factual shams, inspired, designed, and executed by LMEI and its successor LMEC, with the participation of InterAct, for the sole purpose of achieving the foregoing losses, neither such losses nor the advisory fee deductions claimed by P's are allowable. Held, further, this result is not changed by sec. 108 of the Tax Reform Act of 1984, since that section is inapplicable to alleged straddles which are in fact fake or fictitious. Miller v. Commissioner, 84 T.C. 827 (1985). Held, further, R's determinations of additions to tax for negligence against four P's are upheld.

Petitioner participated in his employer's qualified retirement plan during 3 months of employment in 1981. Held: that the IRA contribution is not deductible under sec. 219(a) because petitioner was an active participant in a qualified plan for the year 1981. Hildebrand v. Commissioner, 683 F.2d 57 (3d Cir. 1982), followed. Held, further, excise tax imposed.

G, a Swiss corporation, granted to P, its wholly-owned U.S. subsidiary, an exclusive license to manufacture, formulate, and sell certain triazine… Held: R abused his discretion under sec. 482, I.R.C. 1954, when he determined that a 10-percent royalty rate did not constitute an arm's-length consideration for the license agreements in issue, subject, however, to a reasonable allocation for certain services performed by petitioner. Sec. 1.482-2(d), Income Tax Regs., applied.

Petitioner executed the required paperwork to acquire a TireSaver (a tire pressure monitoring system) distributorship. Petitioner also elected to distribute the combination TireSaver and radar detector system. Petitioner delivered: (1) A check, in the amount of $ 36,834.99, as payment of the acquisition fee ($ 35,233.47), and the promotional expense for 1978 ($ 1,601.52); (2) a $ 147,339.97 nonrecourse promissory note as payment of the annual use fee for 1978; (3) a $ 36,834.99 nonrecourse promissory note as partial payment (two-thirds) of the annual use fee for 1979; (4) a $ 17,616.74 recourse promissory note as partial payment (one-third) of the annual use fee for 1979, to LSI, as promoter. Petitioners claimed a $ 150,863.77 loss, ($ 3,523.80 of depreciation, and $ 147,339.97 as annual use fee) from the distributorship activity on their 1978 income tax return, and a $ 33,316 loss ($ 3,524 of depreciation, $ 16,496 interest deduction, and $ 13,296 of annual use fee) for 1979. Held: Petitioners have failed to carry their burden of proving that they entered into the TireSaver activity with the primary and predominant objective of realizing an economic profit. Therefore, petitioners are not entitled to deduct under secs. 162(a) and 1253(d)(1), I.R.C. 1954, any part of the nonrecourse and recourse notes delivered as payment of annual use fees for 1978 and 1979. Held, further, petitioners are not entitled to deduct interest expense for 1979, as the use of the exclusive right to distribute the combination TireSaver and radar detector system was impracticable; no gross profits were ever generated as no TireSaver products were manufactured; the underlying liabilities were not binding and enforceable, were contingent, and petitioner did not reasonably believe that the liabilities would be paid, therefore the interest was improperly accrued; and petitioners failed to prove that the purchase price and the principal amount of the nonrecourse note do not unreasonably exceed the value of the distributorship. Held, further, petitioners are not entitled to depreciation or amortization deductions for 1978 and 1979 with respect to the distributorship acquisition fee under sec. 1253(d)(2)(A), as a trade or business is required in order for such deductions to be allowed. Held, further, sec. 183(b)(2) is of no benefit to petitioners as no gross income was generated by the activity.

Held, allegations deemed admitted under Rule 90(c) were sufficient to sustain respondent's deficiency determination, and respondent's motion for summary judgment on that issue is granted. Held: allegations deemed admitted under Rule 90(c) were sufficient to sustain respondent's deficiency determination, and respondent's motion for summary judgment on that issue is granted.

During all relevant years (1966-78), petitioner was the parent of four wholly owned subsidiaries with which it filed consolidated Federal income tax returns. Held: petitioner's basis adjustments are sustained.

Held, art. XVI of the Agreement in Implementation of Art. IV of the Panama Canal Treaty of 1977, T.I.A.S. Nos. 10030 and 10032, does not exempt U.S. Forces personnel living in the Canal Zone from U.S. income taxation.

On remand from the Court of Appeals for the Third Circuit (751 F.2d 146 (1984)): Held, the distinction created by the Commissioner in Rev. Rul. 80-173, 1980-2 C.B. 60, between educational expenses for flight training and certain other educational expenses of veterans is not devoid of a rational basis. Manocchio v. Commissioner, 78 T.C. 989 (1982), affd. 710 F.2d 1400 (9th Cir. 1983), followed.

Decedent, a U.S. citizen and domiciliary, died owning real property in Canada. Petitioner-estate paid tax to Canada pursuant to the Canadian Income Tax Act of 1971, ch. 63, Can. Stat. Held: the tax paid to Canada is not an estate tax for which a credit is allowable under sec. 2014(a), I.R.C. 1954.

Petitioner husband and petitioner wife, the latter as trustee of a trust established by petitioner husband for the benefit of petitioners' children, entered into joint purchase agreements whereby, in… Held: because, in substance, petitioner husband purchased the bonds in their entirety, petitioners' amortization deductions for the cost of the income interests purportedly purchased by petitioner husband were properly disallowed.

Ps were limited partners in M, a California limited partnership. M purportedly purchased an apartment complex (the property) from W, a Cayman Islands corporation, which purportedly purchased the property from H. M purportedly made interest payments to W. Ps were subsequently "cashed out" by H for the amount of their capital contributions plus 10 percent per annum simple interest. Held, the totality of the facts and circumstances surrounding the alleged sale transactions demonstrates that the purported sales were shams in substance, as defined for purposes of this case, and therefore M was not engaged in a bona fide business activity sufficient to pass through any deductions to Ps. Held, further, since the purported interest payments by M were in reality the mere shifting by H of funds under his dominion and control, and were not paid to W, M is not liable for the 30-percent withholding tax under sec. 1442, I.R.C. 1954, or the addition to tax under sec. 6651(a), I.R.C. 1954, for failure to file a return. Fs owned all of the stock of C. C paid certain amounts relating to auto, boat, travel, insurance, and other unidentified expenses for the benefit of Fs. Held, amount of constructive dividends from C to Fs determined.

Former counsel for petitioners agreed on their behalf that they would be bound by the result in other cases involving an issue in this case. Held: Petitioners' motion is denied. No cognizable prejudice was shown.

P's motion for summary judgment that capital gain realized after expatriation is exempt from U.S. tax under the 1942 income tax treaty between United States and Canada. Held: petitioner is not taxable under sec. 877, I.R.C. 1954, notwithstanding the saving clause contained in the treaty. Held, further, the treaty does not preclude the United States from taxing imputed interest income under sec. 483, I.R.C. 1954.

Petitioners, then husband and wife, cash basis taxpayers, invested in a cattle-feeding program in late December 1971 through a subch. Held: the program in which petitioners invested was not a sham, but the form in which the transactions were cast was inconsistent with their true nature, and the step-transaction doctrine applies so as to disregard the corporation. Held, further, the cattle-feed expenditure was fully deductible in the year in which it was paid.

Under the facts, it is held: 1. Petitioners were not entitled to certain claimed charitable contributions. 2. Allowable business expenses were determined. 3. Held: Petitioners were not entitled to certain claimed charitable contributions. 2. Allowable business expenses were determined. 3. Additions under sec. 6653(a), I.R.C. 1954, determined. 4. Award of damages to the United States under sec. 6673 was appropriate.

P paid estate tax and interest thereon in installments, pursuant to sec. 6166A, I.R.C. 1954. The Commissioner determined a deficiency and P filed a petition with the Tax Court. Held: under sec. 6512(b), I.R.C. 1954, the Tax Court has jurisdiction to determine an overpayment of interest as part of its jurisdiction to determine an overpayment of tax on which the interest was paid.

Petitioner was an owner-operator who drove tractor trailers in interstate commerce for a single carrier. When he was not on the road, he resided at his parent's house. Held: Petitioner did not have a tax home and is, therefore, not entitled to deduct any travel expenses, nor is he entitled to deduct the cost of tennis shoes. Petitioner may deduct the sheets and mattress expenses under sec. 162, I.R.C. 1954.

P's purchased a substantial number of Indian artifacts and etchings. Held: respondent's valuation of the donated items reflects fair market value as of the dates of donation. Held, further, we find, sua sponte, an addition to interest under sec. 6621(d), I.R.C. 1954, to be appropriate due to substantial underpayments attributable to tax motivated transactions.

M, a cotton merchant, employs the accrual method of accounting and reports its income on a calendar year basis. Held: M's method of accounting for such purchases clearly reflects its income; the Commissioner abused his discretion under sec. 446(b), I.R.C. 1954, in determining that M may include only the provisional prices paid for the cotton during the year and that M may not bring the on-call contracts to market. 2.

P was a physician and a shareholder-employee of C, a professional corporation that renders medical care and treatment through duly licensed physicians. Held: P's change in employment status from that of an employee to that of an independent contractor did not constitute a separation from the service within the meaning of sec. 402(e)(4)(A)(iii), I.R.C. 1954.

In his pleadings, P alleged that refund checks issued by R and due to P were misappropriated by P's attorney. R's deficiency computation takes into account the refunds issued to P. P argues that the deficiency should be reduced to the extent that refund checks were issued to him but never received by him. R filed a motion for partial summary judgment on the premise that the Court does not have jurisdiction to consider the question of whether the amount of the deficiency should reflect refunds issued by R and not received by P. Held: It is within the Court's jurisdiction to consider the question of whether P should be credited with refunds issued by R in determination of a deficiency or overpayment. Accordingly, R's Motion for Partial Summary Judgment is denied.

Upon the facts, held: 1. The errors in Ps' return did not constitute mathematical or clerical errors appearing on the return within the meaning of sec. 6213(f)(2), I.R.C. 1954, of the Code. 2. Held: The errors in Ps' return did not constitute mathematical or clerical errors appearing on the return within the meaning of sec. 6213(f)(2), I.R.C. 1954, of the Code. 2.

P and R each seek judgment as a matter of law in their favor. Held: R has made the requisite showing that there is no genuine issue of material fact as to P's liability as a transferee under sec. 6901(a)(1)(A)(ii), I.R.C. 1954, and R's motion for summary judgment is granted.

Petitioners timely filed their 1978 Federal income tax return on or before Apr. 15, 1979. Held: application of sec. 6621(d) to interest which accrued after the effective date of that section on petitioners' underpayment of their 1978 tax liability does not constitute retroactive application of sec. 6621(d). Held, further, petitioners are not liable for damages under sec. 6673.

Petitioner purchased the rights to a book and arranged for independent parties to publish and distribute the book. Held: based on the entire record, petitioner's activity with respect to the book did not constitute an activity engaged in for profit.

Petitioners were limited partners in similar oil and gas drilling partnerships. Held: For purposes of sec. 465, I.R.C. (1954), each petitioner is at risk only to the extent of actual cash contribution to his partnership and not for his proportionate share of the partnership's note.

Petitioners were tax-exempt farmers' cooperatives that had been granted exempt status in 1929 and 1956. Each petitioner was audited for 2 years during the period 1977 through 1980. Held: the 8th circuit's approval of respondent's 85-percent test in West Central Cooperative v. United States, 758 F.2d 1269 (8th Cir. 1985), affg.

Petitioners purchased an interest in certain computer equipment from C, which had purchased such interest from E, which had purchased an interest in the equipment from A. Petitioners then leased… Held: petitioners did not own a depreciable present interest in the equipment in the years in issue. Held further, petitioners' acquisition constitutes an activity not engaged in for profit, within the meaning of sec. 183, I.R.C. 1954.

On Oct. 31, and Nov. 1, 1979, petitioners acquired and placed in service four railroad boxcars. Held: Petitioners are not entitled under sec. 167(a) and (m), I.R.C. 1954, to use, in computing their depreciation deduction for the boxcars, either a half-year convention under the Class Life Asset Depreciation Range System (CLADR), sec. 1.167(a)-11, Income Tax Regs., or an averaging convention applied to a multiple asset account, sec.…

In 1975, petitioner Hughes A. Bagley was granted an option to purchase 10,000 shares of his employer's common stock. Held: the $ 70,000 received by petitioner in exchange for the termination of the option is treated as compensation under sec. 83, I.R.C. 1954, and is thus taxable as ordinary income. Held, further, the $ 50,000 consulting fee received by petitioner is taxable to him and not to his wholly owned corporation.

Ps were limited partners in S, which acquired a building located in the historic French Quarter of New Orleans. Held: fair market value of the facade donation determined by applying the before and after valuation approach.

Petitioner (P) is a Hong Kong corporation primarily engaged in the banking business, worldwide. Held: R's motion is granted, upon terms. The criteria for the scope of a sec. 7456(b) order are: that the investigation is to be conducted pursuant to a legitimate purpose, that the inquiry must be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the procedural steps…

Upon the facts, held: 1. P's transfer to four trusts, involving six beneficiaries, constituted six separate gifts. 2. A blockage discount should be applied to each gift separately in valuing P's gifts, based on the actual annual sales figure for each of the gifts. 3. P's gifts did not create present interests which qualified for exclusion from the gift tax under sec. 2503(b), I.R.C. 1954.

During the years in issue, Ps were employed as resident watchmen by the Forest Preserve District of Cook County, Illinois, to safeguard certain areas of land owned by the district. Held: Ps are entitled to exclude the value of the lodgings from income under sec. 119, I.R.C. 1954. Benninghoff v. Commissioner, 71 T.C. 216 (1978), affd.

P seeks declaratory judgment under sec. 7428, I.R.C. 1954, as amended. P solicits funds for distribution to certain private schools. In 1961, R issued P a ruling that P was exempt from Federal income tax under sec. 501(c)(3), I.R.C. 1954, as amended. In 1972 R proposed in writing to P the revocation of P's exempt status. In 1978, R issued P a determination letter revoking such status retroactively to 1974. Held, burden of proving nondiscriminatory character of schools remained on P. Held, further, revocation is effective retroactively to 1974.

Held: Transfers of surplus and obsolete inventory by petitioner to an unrelated warehouse facility did not constitute a sale due to petitioner's retention of dominion and control over the transferred material. Absent a sale, deductions for inventory losses based on scrap value of the material are impermissible. Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979). Held, further: Respondent was not arbitrary is adjusting sales prices on truck units sold by petitioner to its wholly owned subsidiary. The proper amount of adjustment is determined from the facts in the record. The sales price on parts needs no adjustment as it is comparable to an arm's-length price.

Petitioner Frank A. Leamy was an airline pilot based in San Francisco and Dallas. Charlotte T. Leamy was a school teacher in San Diego, where she lived with petitioners' children. Held: Petitioners were not in the business of being independent commissioned travel agents. The expenses they incurred were for the benefit of the travel agency and are not deductible by petitioners.

Held, Ps' motion under Rule 90(c), Tax Court Rules of Practice and Procedure, to enlarge the time in which to answer R's requests for admission, Ps' motion under Rule 90(e) to withdraw or modify… Held: Ps' motion under Rule 90(c), Tax Court Rules of Practice and Procedure, to enlarge the time in which to answer R's requests for admission, Ps' motion under Rule 90(e) to withdraw or modify deemed admissions and Ps' motion for a protective order will be denied.

Petitioner husband transferred the assets and related business liabilities of his sole proprietorship to his pre-existing wholly owned corporation. Held: The exchange requirements of sec. 351, I.R.C. 1954, are met. To the extent that Abegg v. Commissioner, 50 T.C. 145 (1968), affd. on different grounds 429 F.2d 1209 (2d Cir. 1970), is inconsistent in this regard, it is overruled.

Upon the facts, held: 1. Payments received by a corporation which merged into P constituted royalties and are includable in personal holding company income under sec. 543(a)(3) I.R.C. 1954, rather than being rents excludable under sec. 543(a)(6). 2. Waivers executed by P, as successor in interest to a corporation which merged into P, validly extended the period of limitation on assessment and collection of deficiencies owed by the merged corporation.

P, a savings and loan association, was entitled to receive penalties from depositors because of premature withdrawals from their accounts. Held: the penalty for premature withdrawal does not give rise to income from discharge of indebtedness within the meaning of secs. 108 and 1017, I.R.C. 1954.

During the year in issue, petitioner-husband was the owner of an annuity contract issued by JH, an insurance company. Held: Petitioner-husband's borrowing from JH was a borrowing under or by use of an individual retirement annuity. Under sec. 408(e)(3), the annuity ceased to qualify as an individual retirement annuity as of Jan. 1, 1980, and petitioners must include in gross income for such year the fair market value of the annuity as of that date.

Ps claimed investment tax credits with respect to their dog and cat kennel and horse barn. Held: the kennel is not a single purpose agricultural or horticultural structure within the meaning of sec. 48(a)(1)(D) and sec. 48(p), I.R.C. 1954.

Held, Tax Court has jurisdiction where tax matters partner, which also satisfied all requirements as notice partner, timely filed petition as notice partner within 60 days after 90-day period given… Held: Tax Court has jurisdiction where tax matters partner, which also satisfied all requirements as notice partner, timely filed petition as notice partner within 60 days after 90-day period given to tax matters partner, pursuant to sec. 6226(b), I.R.C. of 1954, as amended.

Ps seek to seal records up to the time of trial to prevent annoyance, embarrassment, and oppression. Held, requisite good cause not shown, therefore, Ps' motions to seal denied. Held: requisite good cause not shown, therefore, Ps' motions to seal denied. Rule 103, Tax Court Rules of Practice and Procedure.

Held: Respondent's litigating position was not unreasonable where the existence of a cash hoard was explained through the testimony of witnesses who were made known to respondent 2 weeks prior to the calendar call. Therefore, petitioners' motion for recovery of litigation costs is due to be denied.

Petitioners made deductible charitable contributions of African art objects to qualified organizations. Held: respondent's determinations of fair market value for the donated art are sustained. Held, further, petitioners are liable for additions to tax under sec. 6653(a) I.R.C. 1954. Held, further, fees paid by petitioners to their art consultant are deductible in part under sec. 212(3).

Petitioners claimed deductions for fees and losses allegedly incurred with respect to forward contracts for purchase and sale of Ginnie Maes and Freddie Macs. Held: the forward contracts and related transactions were factual shams and the deductions for fees and losses are disallowed. Held, further, the addition to tax under sec. 6653(a) I.R.C. of 1954 as determined by respondent against one petitioner is sustained, but damages under sec. 6673 are declined.

The availability of loss carryforwards and loss carrybacks of members of an affiliated group to offset separate income of other members of the affiliated group determined. Respondent's adjustment under sec. 482, I.R.C. 1954, for imputed interest income rejected.

P surrendered an annuity policy with company A, and used the proceeds to purchase an equivalent policy with company B. There were no restrictions placed on the use of the funds which P received from… Held: the transaction was a nontaxable exchange within the meaning of sec. 1035, I.R.C. 1954.

ASMG, a medical professional corporation, established trust to provide protection for malpractice claims resulting from acts of ASMG's employees. Held, ASMG may not deduct contributions to trust. Held, further, trust was not a Voluntary Employees' Beneficiary Association. Held, further, trust is not taxable as an insurance company. Held, further, trust constituted a trust and not an association for tax purposes. Held, further, trust was a grantor trust whose income is taxable to ASMG.

Decedent's gross estate consisted of probate and nonprobate assets. The nonprobate assets included life insurance proceeds on decedent's life, payable to decedent's son. Decedent's will directed the estate's representatives to pay all Federal estate and State inheritance taxes imposed upon the gross estate, including tax imposed upon nonprobate property. Decedent's son, the sole beneficiary under the will, disclaimed his testate and intestate interests. The net probate estate passed by intestacy to decedent's surviving spouse and qualified for a marital deduction. Held: Decedent's son, the life insurance beneficiary, is not liable to the executor for payment of the Federal estate tax attributable to the life insurance proceeds under sec. 2206, I.R.C. 1954. The net probate estate that passed to decedent's surviving spouse is reduced by the amount of this estate tax liability, and the allowable marital deduction is decreased accordingly under sec. 2056. Held, further, the net probate estate and marital deduction are also reduced by the amount of the State inheritance tax imposed upon property that passed to the surviving spouse.

Petitioners, as general partners, obtained recourse financing from an unrelated creditor and purchased a crane. Held: petitioners are entitled to investment tax credits with respect to the crane pursuant to sec. 46(e)(3)(B), I.R.C. 1954.

Petitioner purchased a limited partnership interest in a German partnership, effective Jan. 1, 1973. Held: the required election was not made which would permit petitioner to have the benefit of the adjustments to basis pursuant to the provisions of secs. 754 and 753, I.R.C. 1954.