Volume 86 — Tax Court Reports

The Commissioner determined a deficiency in petitioner's liability for windfall profit tax for the calendar year 1980. Held: the proper taxable period for determination of a deficiency in windfall profit tax in a statutory notice of deficiency is a calendar year.

Ps were investors in the Price Coal leasing program. The program promised investors a royalty deduction of $ 4 for every $ 1 of cash invested. Ps entered into a mining lease with Price Coal which required the payment of one-quarter of the annual royalty in cash and the remaining three-quarters by means of a nonrecourse or a recourse note. Ps also entered into contracts with a related corporation, Price Ltd., for the mining and sale of coal, and, for program years 1979 and thereafter, that corporation agreed to make certain payments to an investor in the event that coal was not mined. Held: 1. Ps Capek and Reaume did not engage in the Price Coal leasing programs with the actual and honest objective of making a profit. 2. Advanced royalties "paid" by Ps Capek and Reaume were not paid pursuant to a valid minimum royalty provision as required by sec. 1.612-3(b)(3), Income Tax Regs. 3. Ps Croci and Spiller were not at risk for the amounts that they allegedly borrowed under recourse notes to pay the advanced royalties because no funds were actually borrowed within the meaning of sec. 465(b)(2), I.R.C. 1954, and because the alleged loans were protected against loss through a "stop loss agreement, or other similar arrangement" within the meaning of sec. 465(b)(4), I.R.C. 1954.

P is a testamentary trust. The decedent's will provided that the income of the trust was to be used to furnish scholarships for residents of Oregon who attend colleges and universities in Oregon,… Held: in view of the historic relationship between P and Northwest, P is a supporting organization within the meaning of sec. 509(a)(3).

Decedent donated certain land and improvements located in Davenport, Iowa, to the Palmer College Foundation. Held: reproduction cost of the improvements vastly exceeds fair market value; fair market value of the contributed property is determined. Sec. 170(a)(1), I.R.C. 1954.

P's husband fraudulently omitted income from their joint income tax returns in each year 1973-76. P is relieved of joint and several liability for the income tax due in respect of her husband's fraudulently omitted income for 1973-76. For 1977, P and her husband filed a joint income tax return from which there was no gross income omitted and on which there was no groundless deduction, credit, or basis. P seeks to use income averaging in calculating the 1977 income tax liability and to exclude her husband's fraudulently omitted income from the base period years. Held, P is not entitled to relief from joint and several liability for any part of the deficiency in income tax for 1977. Held, further, in calculating her Federal income tax liability for 1977 using the income averaging provisions, P may not exclude from the base period years the income fraudulently omitted from her joint income tax returns by her husband notwithstanding that, for each year 1973-76, P is relieved of liability for income tax on such omitted income as an "innocent spouse."

Petitioners and respondent executed a "Special Consent to Extend the Time to Assess Tax" (Form 872-A) for the taxable years 1975, 1976, 1977, 1978, and 1979. The agreement provided in part that the period of limitation for assessment of income taxes was extended to a date not more than 90 days after "(a) the Internal Revenue Service office considering the case receives Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, from the taxpayer(s); or (b) the Internal Revenue Service mails Form 872-T to the taxpayer(s); or (c) the Internal Revenue Service mails a notice of deficiency for such period(s)." Held, a letter sent by respondent's appeals officer giving petitioners a final opportunity to settle this case did not terminate the period of limitations within which respondent could assess any tax due.

Decedent transferred property in 1967 to a closely held corporation for a $ 480,000 note. Held, fair market value of the property was $ 726,122 on the date of transfer, and a gift was made to the extent the fair market value of the property exceeded the face amount of the note. Held, further, because the $ 30,000 lifetime exemption from taxable gifts was utilized by the decedent with respect to gifts made in 1972, no exemption is now available with respect to the gift made in 1967. Held, further: The gift does not qualify for the $ 3,000 per donee annual exclusion from taxable gifts because a transfer of property to a corporation is treated as a gift of a future interest to each of the shareholders of the corporation. Other miscellaneous issues determined.

In 1982, an action was instituted by the principal officer and two directors on behalf of P seeking a favorable declaratory judgment from R's final adverse determination retroactively revoking P's exempt status under sec. 501(c)(3), I.R.C. 1954. This action has not been pursued on P's behalf for the 3 years following the filing of the petition and no appearance was made on behalf of P at the scheduled date of trial. R moved to dismiss for failure of P to properly prosecute.

In 1973, P and Iran executed an agreement for the exploration, production, refining, and sale of Iranian oil and gas. Held: P held an economic interest in the oil and gas in place for taxable years 1974 and 1975. Sec. 1.611-1(b)(1), Income Tax Regs. P is, therefore, entitled to the percentage depletion deduction claimed for the taxable year 1974 and to the foreign tax credit claimed for income taxes paid to Iran in the taxable year 1975.

BASIN was merged into NL, a publicly held company, under a plan of reorganization which satisfied the requirements of sec. 368(a)(1)(A) and (a)( 2)(D), I.R.C. 1954. Petitioner husband as sole shareholder of BASIN received stock and cash in exchange for his stock in BASIN. The cash constituted "boot" under sec. 356(a)(1), I.R.C. 1954. Held: The distribution of the "boot" did not have the effect of a dividend under sec. 356(a)(2), I.R.C. 1954. The test of Wright v. United States, 482 F.2d 600 (8th Cir. 1973), rather than the test of Shimberg v. United States, 577 F.2d 283 (5th Cir. 1978), applied.

P at all times relevant herein maintained and closed its books on the basis of a calendar year annual accounting period. P timely filed a separate return on a calendar basis for 1968 and 1969. Held: P is not equitably estopped from asserting the statute of limitations defense. Atlas Oil & Refining Corp. v. Commissioner, 22 T.C. 552 (1954), followed.

Petitioner was organized in 1973 to provide personal services such as radio and television appearances, sportscasting, college campus… Held: the burden of proof rests with petitioner regardless of whether the Commissioner's agents examined all of petitioner's personal service contracts before the notice of deficiency was issued. Held, further, the stock ownership test prescribed by sec. 542(a)(2), I.R.C. 1954, is met even though petitioner never issued stock certificates.

Petitioners incurred legal fees in connection with an inverse condemnation suit against the United States arising out of a dispute over mineral rights reserved in a deed. Held, the origin of the claim test, not the primary purpose test, is applied. Held, further, such expenditures are capital in nature and, therefore, are not currently deductible.

Petitioners, regulated public utility companies, reported income on an accrual calendar year basis. Petitioners employed the cycle meter reading method of accounting for tax purposes. Consequently, revenue generated for utility services furnished after the last cycle meter reading date in December was not accrued until after the close of the taxable year. Expenses related to such utility services were deducted in the taxable year such service was furnished to the customers. For financial statement purposes, petitioners accrued so-called unbilled revenue relating to utility services furnished between the last cycle meter reading date in December and the end of the calendar year. Because of the foregoing disparity between income recognition of unbilled revenue for Federal income tax and financial accounting purposes, respondent determined that unbilled revenue was accruable for tax purposes due to the conformity requirement within Rev. Rul. 72-114, 1972-1 C.B. 124. Held, the cycle meter reading method of accounting clearly reflects income under sec. 446(b), I.R.C. 1954, even though petitioners record unbilled revenue for financial accounting purposes. Public Service Co. of New Hampshire v. Commissioner, 78 T.C. 445 (1982), followed. Held, further, the cycle meter reading method of accounting is a permissible method of accrual accounting under sec. 446(c)(2), I.R.C. 1954.

Petitioners were the general partners of DNA, which was a wholesale distributor of magazines and paperback books of various publishers. Held: the interest expense deducted by DNA for interest paid to DPI and the Drown Trust was nondeductible interest paid on an indebtedness incurred or continued to purchase or carry tax-exempt securities within the meaning of sec. 265(2), I.R.C. 1954.

Held: On the facts of record, petitioner is entitled to relief under sec. 6013(e), I.R.C. 1954, with respect to certain items of omitted income and is not entitled to such relief with respect to… Held: On the facts of record, petitioner is entitled to relief under sec. 6013(e), I.R.C. 1954, with respect to certain items of omitted income and is not entitled to such relief with respect to another item of omitted income.

P donated certain real property to the U.S. Forest Service and sold certain real property for less than its value to an unrelated third party for simultaneous exchange with… Held: on the facts of this case, the mineral interest retained by P was so insubstantial that sec. 170(f)(3), I.R.C. 1954, does not prohibit a charitable contribution deduction with respect to the conveyances. Held, further, amount of deductible contribution with respect to the bargain sale determined.

P, a wholly owned subsidiary of a closely held corporation, remanufactured automobile parts. Held: P is subject to the accumulated earnings tax for its 1979 and 1980 fiscal years. P lacked a specific, definite, and feasible plan for expansion. Computation of the credit cycle in connection with the Bardahl working capital analysis discussed and explained.

The Caporellas reported losses from a horse breeding activity. Held: Form 5214 constitutes a general consent to extend the period of limitations for 1976; therefore the adjustments made by respondent to the Caporellas' 1976 return are not time-barred. Accordingly, the notice of deficiency was timely issued.

Held, computations of reserves for medical insurance claims in accordance with NAIC rules not inconsistent with accrual method of accounting because such… Held: computations of reserves for medical insurance claims in accordance with NAIC rules not inconsistent with accrual method of accounting because such computations not recognized in accrual accounting. Held, further, NAIC rules are applicable to such computations since Code and Regulations are silent on matter.

A settlement agreement was reached between the executor of decedent's estate and decedent's surviving spouse. Subsequent to the settlement, the statute which prescribed a surviving spouse's rights when electing to take against a decedent's will was held unconstitutional. Held, the settlement agreement was a bona fide recognition of the surviving spouse's rights under the law. Held, the settlement amount is deductible by decedent's estate as a marital deduction pursuant to section 2056. Estate of Barrett v. Commissioner, 22 T.C. 606 (1954), followed.

Petitioners, as owners of fractions of the working interests in an oil and gas lease, were subject to contracts for the sale of natural gas to OG & E for 20 years. The contracts obligated OG & E to take or pay for a minimum of 80 percent of the deliverable gas from the leases. If the amounts paid exceeded the value of the gas actually delivered, OG & E was entitled to gas actually produced in the later years equal to the excess without additional payment. In 1979, the payments by OG & E exceeded the value of gas actually delivered. The projected reserves were adequate to supply OG & E with gas which was paid for but not received in 1979. Held, the amounts received by petitioners in 1979 pursuant to the "take or pay" contracts are not taxable in 1979 because they are production payments within the meaning of sec. 636(a), I.R.C. 1954, and sec. 1.636-3(a), Income Tax Regs.

Held, partnership's purchase and distribution of film was an activity engaged in for profit where the purchase price was determined through arm's-length negotiations and distribution efforts resulted… Held: partnership's purchase and distribution of film was an activity engaged in for profit where the purchase price was determined through arm's-length negotiations and distribution efforts resulted in the expenditure of substantial sums of money.

Petitioners moved for summary judgment on the grounds that the notice of deficiency was untimely. Held: there is no genuine issue as to any material fact; therefore a decision may be rendered as a matter of law. Held, further, petitioners filed a completed tax return on or before June 15, 1981, despite the omission of Form W-2; therefore, the statutory notice of deficiency mailed on July 5, 1984, was untimely.

Ps, professional commodity dealers or persons regularly engaged in investing in regulated futures contracts, entered four commodity straddle transactions. Held, the transactions were not shams, devoid of the requisite economic substance. Held, further, the transactions satisfied the "entered into for profit" requirement of sec. 108 of the Tax Reform Act of 1984.

P, a U.S. citizen resident abroad, filed untimely Federal income tax returns for 1979, 1980, and 1981 claiming joint return status with his nonresident alien wife. Held: the Commissioner's dummy returns were not returns within the meaning of sec. 6020(b), I.R.C. 1954.

A photocopy of Ps' original petition was received and filed by the Court as an imperfect petition 454 days after the notice of deficiency was mailed. Held: Ps failed to prove they met the requirements of sec. 301.7502-1(d)(1), Proced. & Admin. Regs. Accordingly, Ps are unable to rely on sec. 7502(c)(2), I.R.C. 1954, as amended, to establish that the original petition was timely mailed and thus timely filed. R's motion to dismiss for lack of jurisdiction is granted.

Petitioners sought investment credits for portions of a warehouse they leased to their controlled corporation. Held: property required to have been manufactured or produced by lessors to qualify them as noncorporate lessors eligible for the credit is sec. 38, I.R.C. 1954, property subject to the lease, not entire property subject to the lease. Held, further, petitioners did not manufacture or produce the sec. 38 property subject to the lease.

Petitioner-husband is the rabbi of a congregation. Petitioners' son's bar mitzvah service and reception were held in the congregation's synagogue. Petitioners invited the entire membership of the congregation (about 725 families), and also about 100 relatives and personal friends, to the bar mitzvah service and reception. About 700 people (including the 100 or so relatives and personal friends) attended the reception after the service. Held, petitioners are not entitled to deduct their expenses for the reception as a business expense. Secs. 162 and 262, I.R.C. 1954.

Petitioner, a domestic corporation in the insurance business, reinsured 20 percent of certain risks insured by a Swiss corporation. Held: difficulties encountered by petitioner in obtaining sufficient information from Switzerland did not relieve petitioner from responding adequately to respondent's discovery efforts; appropriate sanctions will be ordered.

Decedent held a remainder interest in a testamentary trust created in 1937 by the will of her father. Held: the disclaimer was not made within a reasonable time as required by sec. 25.2511-1(c), Gift Tax Regs., and thus constituted a taxable transfer under sec. 2511, I.R.C., 1954. Jewett v. Commissioner, 455 U.S. 305 (1982).

1. Petitioners and their partnership acquired territorial sublicenses to distribute specially designed tape recorders from petitioners' wholly owned corporate licensee. Held: the tax treatment of the territorial sublicenses is governed by sec. 1253(d)(2), I.R.C. 1954. Held, further, satisfaction of the trade or business requirement of sec. 162, I.R.C. 1954, is a prerequisite to any deduction under sec. 1253(d)(2), I.R.C. 1954.

Petitioner was employed as a 21 card dealer. During the course of his employment he received tokes (tips) from players at the 21 game tables. Held: tokes received by petitioner constitute income. Held, further, sec. 7609, I.R.C. 1954 (Special Procedures for Third-Party Summonses), is inapplicable to the summons served by respondent on petitioner's employer for payroll records with respect to petitioner's employment.

Petitioners paid $ 7,500 to Einar Erickson, a geologist, and deducted that payment as exploration expense under sec. 617, I.R.C. 1954. Held: Petitioners failed to prove that the payment made to Erickson was for deductible exploration expenses. 2. Petitioners are not entitled to a charitable contribution deduction for donation of the mining claim. 3. Petitioners are liable for additions to tax under sec. 6653(a) and additional interest under sec. 6621(d).

Petitioner paid $ 25,000 to Einar Erickson, a geologist, and deducted that payment as exploration expense under sec. 617, I.R.C. 1954. Held: The payment made to Erickson was primarily for anticipated tax benefits and is not deductible. 2. Petitioner is not entitled to a charitable contribution deduction. 3. Petitioner is liable for additions to tax under sec. 6653(a) and additional interest under sec. 6621(d).

Held, Horton's employment as a professional hockey player determined to be temporary, and related travel expenses and other deductions allowed in the amounts determined. Held: Horton's employment as a professional hockey player determined to be temporary, and related travel expenses and other deductions allowed in the amounts determined.

Petitioners invested in a partnership that acquired a license to enhance and sell a computer program for the preparation of income tax returns. Held: A $ 1,200,000 nonrecourse promissory note issued by the partnership in connection with the license of the computer program was illusory on the day it was signed, Dec. 31, 1976.

Upon the facts, held, that -- 1. Amounts paid by P, a nonexempt cooperative, resulting from purchases by SNS, SFA, and MFC, constituted patronage dividends deductible from its gross income pursuant… Held: that -- 1. Amounts paid by P, a nonexempt cooperative, resulting from purchases by SNS, SFA, and MFC, constituted patronage dividends deductible from its gross income pursuant to sec. 1382, I.R.C. 1954. 2.

Petitioners incorporated their farm operation in 1974. At that time, they transferred some property to the corporation but retained ownership of certain farm equipment. Held: the transfer of the farm equipment to the corporation constituted a mere change in form of conducting a trade or business under sec. 47(b), I.R.C. 1954, and the investment credits were not subject to recapture.

In 1971, a partnership purchased residential property subject to a mortgage insured by the Department of Housing and Urban Development (HUD). Held: the entire amount of the outstanding debt to HUD including the original mortgage principal and the advances made for interest and taxes is included in the amount realized. Sec. 1001(b), I.R.C. 1954, as amended.

The organization to which petitioners made a charitable contribution, a local post of the Veterans of Foreign Wars, met the financial support requirements of sec. 509(a)(2), I.R.C. 1954. Held: the deduction to which petitioners are entitled with respect to that charitable contribution is governed by the 20-percent limitation of sec. 170(b)(1)(B), I.R.C. 1954, not by the 50-percent limitation of sec. 170(b)(1)(A), I.R.C. 1954.

Held: Sec. 6867, I.R.C. 1954, authorizes respondent to make an assessment under sec. 6851 or 6861 against a possessor of cash, and to hold one-half as the presumed tax liability of the owner, when… Held: Sec. 6867, I.R.C. 1954, authorizes respondent to make an assessment under sec. 6851 or 6861 against a possessor of cash, and to hold one-half as the presumed tax liability of the owner, when the possessor disclaims ownership. A statutory notice must thereafter be issued.

Decedent purchased Series E United States savings bonds and had them issued in her name and that of her son, T, as co-owners. She held the bonds until her death, when T became the owner. Held: all of the interest accrued on the bonds up to the date of decedent's death is chargeable to T as income in respect of a decedent under sec. 691.

Petitioner-husband was a limited partner in a limited partnership formed in 1976 for the purpose of acquiring and exploiting a community antenna television (CATV) system located in Brooksville City… Held: Petitioners have failed to prove that the activities of the partnership were engaged in for profit within the meaning of sec. 183, I.R.C. 1954. 2. Deductions for interest on various nonrecourse notes and for taxes are not allowable under secs. 163, 164, and 183(b)(1). 3.

In 1982, AT&T acquired additional stock of Pacific, a subsidiary corporation, in a taxable transaction. Pursuant to a plan of reorganization and divestiture, AT&T transferred all of its Pacific stock, along with other assets, to PacTel Group, a holding company, in a nontaxable exchange for PacTel Group stock, by virtue of which AT&T acquired control of PacTel Group within the meaning of sec. 368(c), I.R.C., 1954. On Jan. 1, 1984, AT&T distributed its PacTel Group stock to its shareholders. Held, no portion of the PacTel Group stock distributed to AT&T's shareholders constitutes "other property" under sec. 355(a)(3)(B), I.R.C., 1954.

Petitioner filed a joint return with her husband for 1979 and 1980. Held: petitioner is not entitled to relief as an innocent spouse under sec. 6013(e), I.R.C. 1954, because she did not show that the disallowed deductions had no basis in fact or law within the meaning of sec. 6013(e)(2)(B), I.R.C. 1954.

During the taxable year in issue, petitioner was in the trade or business of being an author and incurred expenses in writing a book. Held: expenses incurred by an author in writing a book are subject to the provisions of sec. 280. Held, further, the effective date provision of sec. 280 does not exclude petitioner from the statute's coverage. Held, further, respondent is not precluded from applying sec. 280 by virtue of sec. 2119.

P carried back NOLs from the short year in which decedent died to 6 previous years. Held: this Court has jurisdiction to determine decedent's correct estate tax liability when the determination involves examination of respondent's offset of decedent's income tax liabilities against his income tax overpayments.

During the taxable year 1979, the amount of petitioner's interest income exceeded the amount of its interest expense. Held: petitioner's adjusted itemized deductions in determining its alternative minimum taxable income for purposes of the alternative minimum tax include the amount of interest expense deducted without offset for interest income.

During his lifetime, decedent created two trusts to which he and his spouse transferred, in exchange for certificates of beneficial interest in the trusts, their residence, stock in several corporations, patents, and virtually all other property they owned except a patent royalty agreement with one of their corporations. They later transferred some of their certificates to other family members. Decedent's son, his accountant, his attorney, and other close associates served as trustees. Under the terms of the trust instruments, the trustees were given full discretionary power to distribute the income and corpus of the trusts to the holders of certificates of interest, and the distributions were not required to be proportionate among the holders of such certificates. Held, on consideration of all the facts, decedent retained "enjoyment of, or the right to the income from" the transferred property within the meaning of sec. 2036(a)(1), I.R.C. 1954, because (1) there was an understanding, express or implied, that decedent would receive distributions of corpus or income from the trusts if, as, and when he requested them; and (2) decedent could incur indebtedness and relegate his creditors to the trusts for repayment. Held, further, even though decedent's estate did not file an estate tax return, it is not liable for an addition to tax under sec. 6651(a), I.R.C. 1954, because, in failing to file such a return, the executor of the estate relied upon the advice of tax counsel. United States v. Boyle, 469 U.S. 241, 105 S. Ct. 687 (1985), followed.

Petitioner Joseph Porreca purchased all rights to the distribution and sale of six episodes of two television programs. Held: Although the promissory notes nominally reflected recourse liabilities of petitioner, petitioner was not at risk with regard to the principal amounts due under the promissory notes.

Pursuant to Comp-U-Med's offering circular, Ps applied for four medical equipment franchises. Comp-U-Med approved Ps' application on Dec. 30, 1980. Held: Ps' computerized ECG terminal franchise venture was an activity engaged in for profit. Held, further, the first year royalty fee Ps paid was a nondeductible capital expenditure, representing part of their franchise acquisition costs.

P claims to be a church exempt from Federal income taxation under sec. 501(a), I.R.C. 1954, and which is not required to file a Form 1023, Application for Recognition… Held: P is not a church within the meaning of sec. 508(c)(1)(A) because P served no associational role in the accomplishment of any religious purpose, and therefore, must comply with the notice requirements of sec. 508(a). Held, further, P satisfied the notice requirements of sec. 508(a) as of April 26, 1981.

Ps were qualified to, and elected to, use the income averaging provisions (secs. 1301- 1305, I.R.C. 1954) to reduce their tax under sec. 1 for the year 1980. Held: Ps' regular tax for purposes of determining their liability for the alternative minimum tax under sec. 55 is their sec. 1 tax computed under the income averaging provisions.

Petitioner obtained one-half of the rights to the Kuwait Concession in 1951 entitling it to engage in exploration, development, production, transportation, and marketing of Kuwaiti crude oil. Held: the discount was granted to petitioner as part of a total package of commercial agreements with respect to the ongoing relationship between petitioner and Kuwait post-nationalization and was not additional compensation for the nationalization of the Kuwait Concession.

P, a foundation manager, was issued a statutory notice wherein respondent determined excise taxes under sec. 4941(a)(2) and (b)( 2), I.R.C. 1954, for participation in an act of self-dealing. P had refused to extend the statute of limitations on assessment. Respondent did not issue a statutory notice to M, the self-dealer. Legislation which retroactively obviated respondent's determination was enacted shortly after the issuance of the statutory notice to P and before P's petition was filed. Respondent conceded the excise tax issues in his answer and P seeks costs and fees under sec. 7430, I.R.C. 1954, as amended. P contends that the Court should consider pre-petition or pre-litigation conduct of respondent in determining reasonableness of respondent's position. Further, P contends that respondent was statutorily without authority (and therefore unreasonable) to issue a statutory notice to a foundation manager under sec. 4941(a)(2) and (b)( 2), I.R.C. 1954, without first issuing a statutory notice to the "self-dealer" under sec. 4941(a)(1) and (b)( 1), I.R.C. 1954. Held, Baker v. Commissioner, 83 T.C. 822 (1984), vacated and remanded 787 F.2d 637 ( D.C. Cir. 1986, 57 AFTR2d 86-1106, 86-1 USTC par. 9311), followed to extent that fees or costs awarded under sec. 7430, I.R.C. 1954, are to be measured by looking at the reasonableness of respondent's position from the time of the filing of a petition. Held, further, determination of excise taxes under sec. 4941(a)(1) and (b)( 1), I.R.C. 1954, against a "self-dealer" are not a prerequisite to a determination or the issuance of a statutory notice of deficiency to a foundation manager under sec. 4941(a)(2) and (b)(2).

During the taxable year at issue, petitioner was both a U.S. citizen and a resident of Canada. He was an ordained minister and performed services as such in a church in Canada. Held: petitioner is subject to self-employment tax under sec. 1401, I.R.C. 1954.

Petitioner, a municipal corporation of Wisconsin, issued General Obligation Storm Sewer Bonds to finance the construction of proposed storm sewers and related drainage… Held: petitioner's bonds are not prospective obligations within the meaning of sec. 7478, I.R.C. 1954. Held, further, neither petitioner's request for an extension of the temporary period nor its submission of a nonarbitrage certificate constituted a request for determination under sec. 7478, I.R.C. 1954.

1. Decedent participated in a retirement plan of his employer pursuant to which he had an option, among others, to provide for a combination of retirement income for himself and death benefits for… Held: the $ 25,000 lump sum is includable in the decedent's gross estate under sec. 2039(a).

Petitioners owned land in Michigan under which oil and gas deposits were located. Oil and gas deposits also were located under land adjacent to petitioners' land. Held: The unitization order did not constitute an involuntary conversion of petitioners' rights to a portion of the oil and gas deposits. Royalty payments received by petitioners with respect to oil and gas extracted from the reservoir are taxable as ordinary income.

P was a limited partner in H, a partnership formed in 1978. In 1977 and 1978, EMI produced a major motion picture film in accordance with the terms of a production-financing-distribution agreement. Held: H did not acquire a depreciable interest in the film. H purchased, in substance, only a contractual right to payments contingent on the success of the film. 2. H is entitled to depreciate its basis in such contract right, and its depreciable basis is determined. 3.

P was a limited partner in D, a partnership formed in 1978. In 1977 and 1978, N produced a major motion picture film. Held: D did not acquire a depreciable interest in the film. D purchased, in substance, only a contractual right to payments contingent on the success of the film. 2. D is entitled to depreciate its basis in such contract right, and its depreciable basis is determined. 3.

P seeks a declaratory judgment that it is an organization described in sec. 501(c)(3), I.R.C. 1954, that is not a private foundation… Held: P's construction program is tailored for the needs and exempt purposes of Lake Junaluska Assembly, Inc.; P has instituted reasonable controls which if exercised properly and diligently will assure that no substantial nonexempt purpose will be accomplished by P's operations; P is not competing with commercial contractors; therefore, P…

On the 90th day after the notice of deficiency was mailed, P delivered her petition to a private delivery service and contracted for express delivery of the original petition and electronic transmission of a copy of the petition via satellite to be delivered that same day. Pursuant to the terms of delivery, a copy of the petition was electronically reprinted in Washington, D.C., and was tendered to the Court by the private delivery service that same day; however, the Court refused to receive the electronically transmitted copy. The original petition was hand-delivered to the Court and filed on the 91st day. Held, an electronically transmitted copy of a petition is a communication similar to a telegram, cablegram, petition. Rule 34(a)(1), Tax Court Rules of Practice and Procedure.Held, further, P's petition was not timely filed as required by sec. 6213(a), I.R.C. 1954, as amended. Blank v. Commissioner, 76 T.C. 400 (1981).

Held: Petitioner's general objection to receipt in evidence of 99 exhibits denied. Petitioner's hearsay objections to receipt of over 100 exhibits sustained, with limited exceptions.

Decedent was survived by a widow, two children by the widow, and one child by a previous marriage. Held: estate qualifies for special valuation under sec. 2032A with respect to farm property given to second trust because requirement in sec. 20.2032A-8(a)(2) of the Estate Tax Regulations that if successive interests are created by decedent in otherwise qualified property the special use valuation is not available unless all of the…

Decedent bequeathed her interest in farmland as follows: life income interest to each of 2 children; life income interest to each child's spouse if married to and living with decedent's child at date… Held: decedent's interest in the farmland passed to qualified heirs for purposes of electing sec. 2032A, I.R.C. 1954, special valuation.

P, producer of certain variety shows, claimed investment tax credits with respect to the shows. R denied the claimed credits, on the basis that the tapes of the shows were not "qualified film" under sec. 48(k)(1)(B), I.R.C. 1954, as amended. Held: The market for the tapes was not primarily topical or otherwise essentially transitory in nature. The tapes therefore constituted qualified film eligible for the investment tax credit. Held, further, the categorical exclusion of variety shows from "qualified film" contained in sec. 1.48-8(a)(3)(iii), Income Tax Regs., is invalid.

Held, the testamentary trust herein did not have "associates", and therefore could not be classified as an "association" taxable as a corporation. Sec. 7701(a)(3), I.R.C. 1954; sec. 301.7701-2(a)(2) and (3), Proced. & Admin. Regs.

In their amended petition for redetermination of an income tax deficiency, Ps claimed that R failed to allow credit for overpaid windfall profit tax. Held: The Tax Court has no jurisdiction to redetermine the credit for overpaid windfall profit tax in an income tax proceeding since no notice of deficiency relating to windfall profit tax has been issued.

Petitioner operates integrated mining-manufacturing plants for the production of elemental phosphorous. To reduce costs, petitioner uses carbon in both mining and nonmining activities. Held: The costs of carbon are to be allocated between petitioner's mining and nonmining activities. The allocation is to be based on the substituted fuel method, and the substitute fuel to be used in the allocation is coal.

P, an individual and a tax protester, failed to file income tax returns for 1975 and 1976. P was thereafter convicted of willful failure to file returns for these years, under sec. 7203, I.R.C. 1954. Held: P's income for the years 1975 and 1976 redetermined. Held, P is not entitled to recompute his income under the completed contract method. Held, P is not liable for additions to tax under sec. 6653(b), I.R.C. 1954.

Wife purchased insurance on decedent husband's life, paying premiums with funds withdrawn from their joint checking account. Held: In absence of agency relationship, payment of insurance premiums by one joint tenant does not constitute payment by the nonwithdrawing tenant. Therefore, decedent does not have a transferable interest in the policy within the purview of sec. 2035, I.R.C. 1954.

H, an economics professor at the University of Pennsylvania, was appointed as a Fairchild Scholar and received a stipend from Cal Tech in 1979. Held: secs. 117 and 74(b), I.R.C. 1954, are mutually exclusive; the stipend is a fellowship governed by sec. 117, I.R.C. 1954. Held, further, deduction is permitted, and the amount determined for H's food while at Cal Tech.

P was a limited partner in W, a Texas limited partnership formed for the purpose of constructing and managing an apartment project. W contracted with J and its affiliates for the construction of the project and the provision of certain related services, guarantees, and covenants. The project was constructed in two phases, and W made downpayments to J of $ 375,000 and $ 190,000 and executed wraparound notes in favor of J for the remainder of the total purchase prices of $ 5,775,000 and $ 1,690,000 for the two phases. W allocated certain portions of the purchase prices to interest and to fees for the services, guarantees, and covenants furnished by J and its affiliates. Held: 1. W was engaged in the business of constructing and operating the apartment project with an actual and honest profit objective in 1977; and 2. W is not entitled to the deductions claimed by it for interest and fees disallowed by the Commissioner because W has failed to establish that its allocations are in accord with economic reality. Some portions of the amounts claimed by W for such purposes are properly allocable to the purchase prices for the apartment project.

Ps filed a bankruptcy petition on Mar. 1, 1982. On Dec. 21, 1982, R issued a notice of deficiency. On Jan. 27, 1984, the bankruptcy court issued an order dismissing the bankruptcy case pursuant to 11 U.S.C. sec. 1112(b)(1) (1979). On Jan. 31, 1984, the bankruptcy court entered the order of dismissal on its docket. On Feb. 7, 1984, Ps filed a motion for reconsideration of the order of dismissal, which was denied on Feb. 17, 1984. On Feb. 23, 1984, Ps filed an appeal to the District Court, and on Feb. 27, 1984, Ps filed for a stay pending appeal of the bankruptcy court's order of dismissal. On Mar. 13, 1984, the District Court denied the motion for stay, and on Aug. 21, 1984, the bankruptcy court's order of dismissal was affirmed. On Aug. 22, 1984, Ps filed a petition with this Court. Held, 11 U.S.C. sec. 362(a)(8) provides for an automatic stay of proceedings in the Tax Court until the earliest of the time that a bankruptcy case is closed or dismissed or a discharge is granted or denied. 11 U.S.C. sec. 362(c)(2). Held, further: Under these circumstances, the bankruptcy case was dismissed for purposes of 11 U.S.C. sec. 362(c)(2) on Jan. 31, 1984, the date on which the bankruptcy court entered its order of dismissal and, accordingly, the automatic stay was terminated. Thus, Ps had 150 days from that date to file a petition with this Court. 26 U.S.C. sec. 6213(f). Held, further, R's motion to dismiss for lack of jurisdiction is granted since the petition was filed more than 150 days after Jan. 31, 1984.

Ps were part of a group of taxpayers who agreed to be bound by the opinion of this Court in a lead case. Held: The decisions in the cases not appealed became final in accordance with sec. 7481, I.R.C. 1954. 2. There has been no showing of fraud on the court. 3. The reversal by the Court of Appeals of the appealed cases did not void the decisions in the cases not appealed.

Ps were investors in two research and development programs, a partnership and a joint venture. The programs promised the investors a deduction of $ 5 for every $ 1 of cash invested. Held: the claimed losses are not deductible because the programs' activities were not engaged in with the actual and honest objective of making a profit; and (2) the claiming of the deductions by petitioner Drobny constituted fraud within the meaning of sec. 6653(b), I.R.C. 1954.