Volume 87 — Tax Court Reports

P and his son were each 50 percent shareholders in C. Because of hostility between father and son, C redeemed all of P's stock therein. Held: family hostility does not nullify the family attribution rules of sec. 318(a)(1), I.R.C. 1954, in determining whether the redemption satisfies the dividend equivalency test of sec. 302(b)(1), I.R.C. 1954, or the complete redemption test of sec. 302(b)(3), I.R.C. 1954.

P is the general partner of a limited partnership engaged in oil and gas drilling. Held: the management fee P received is reimbursement for the organization and syndication expenses he paid on behalf of the partnership and he is not entitled to claim a deduction for those expenses. Sec. 709(a), I.R.C. 1954.

Ps seek summary judgment and R seeks partial summary judgment. The issue for determination is whether the language of a waiver of the statute of limitations encompasses an increase in the tax under sec. 47, I.R.C. 1954. Ps waived the statutory period of limitation for any adjustment to P husband's share of any item of credit of a partnership in which P husband was a partner. The language of the waiver is identical, in part, to sec. 702(a)(7). Held, the language of the waiver and sec. 702(a)(7) encompasses the investment credit authorized by sec. 38. Held, further, an adjustment to a credit includes a recomputation under sec. 47. Held, further, R has made the requisite showing that there is no genuine issue of material fact as to the efficacy of the waiver, and R's motion for partial summary judgment is granted.

P is claiming depreciation and investment tax credit in connection with a movie through his interest as a limited partner. Held: the partnership did not acquire a 100-percent ownership interest in the movie, but did become a joint venturer with the producer, and the partnership held a 25-percent interest in the movie for purposes of depreciation, investment tax credit, etc. Held, further, R's attempt to raise a new position or issue was untimely under the…

Petitioner deposited cash in a bank account and the trial record revealed no income-producing activity on his part. Held, under these circumstances, respondent does not have the burden of going forward with evidence linking petitioner to an income-producing activity as a precondition to requiring petitioner to satisfy his burden of proof. Held, further, petitioner has failed to carry his burden of proof.

In 1940, H entered into a land contract to purchase ranch land in Florida. Held: H did not make a gift to W of the J stock that she received upon the contribution of the ranch to the corporation because W was the beneficial owner of an undivided one-half interest in the ranch by virtue of a resulting trust. 2. The number of acres of land given to the sons and their wives is determined. 3.

Prior to 1975, Mayfran, a member of P's consolidated group, calculated the value of its closing inventory under the first-in, first-out (FIFO) method of inventory accounting. Held: with the change in regulations P's failure to file Form 970 does not of itself prevent a valid LIFO election; the stricter rule of Textile Apron Co. v. Commissioner, 21 T.C. 147 (1953), is no longer followed.

On their 1981 Federal income tax return Ps, high school science teachers, claimed, as education expenses under sec. 162(a), I.R.C. 1954, certain expenses which they incurred to attend a cultural seminar in Hawaii. Also, on their 1979, 1980, and 1981 returns, Ps claimed losses in connection with the operation of a farm. Held, a course providing general cultural enrichment is not sufficiently germane to the teaching of science to bring the course within the category of a "refresher," "current developments," or "academic or vocational" course as required by regulations to qualify the course for deductible education expenses. Sec. 1.162-5(c)(1), Income Tax Regs.Held, further, because Ps did not engage in the operation of the farm for profit within the meaning of sec. 183, I.R.C. 1954, they may not claim farm expenses in excess of farm income.

Petitioner acquired undivided interests in oil and gas leases located in the Gulf of Mexico before and during the taxable years at issue. Held: petitioner did not sustain a loss deductible under sec. 165, I.R.C. 1954, as it failed to evidence its intention to abandon the properties. CRC Corp. v. Commissioner, 693 F.2d 281 (3d Cir. 1982), affg. on this issue Brountas v. Commissioner, 73 T.C. 491 (1979).

In Vaughn v. Commissioner, 81 T.C. 893 (1983), we held that certain installment sales by petitioners to petitioner-wife's son were bona fide and should be given tax effect in accordance with the… Held: the son did not place in escrow the proceeds of his sale of the corporate assets; petitioner-husband did not constructively receive these proceeds. Vaughn v. Commissioner, supra, is modified.

Petitioner, a social club exempt from tax under sec. 501(c)(7), conducted beano games pursuant to a Massachusetts license. Held: petitioner's donations are fully deductible from its unrelated business taxable income as an expense under sec. 162, I.R.C. 1954, rather than as a charitable contribution under sec. 170 subject to the limitations imposed by sec. 512(b)(10).

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.… Held: petitioners did not have a depreciable interest in the equipment during the years in issue. Held, further, interest payments on petitioners' nonrecourse note, which does not constitute genuine indebtedness, are not deductible. Held, further, interest payments on a recourse note are deductible.

P seeks exemption from the withholding requirements of secs. 1441 and 1442, I.R.C. 1954, based upon treaty provisions between the United States and the Netherlands and R's applicable regulation, and… Held: that there are no material facts in dispute, and the case may be decided as a matter of law. Held, further: That the documents are valid to confer exemption under existing law. Summary judgment for P granted.

The majority of CEI's voting and nonvoting common stock was held by three trusts, the Atlanta Trust I, the Atlanta Trust II, and the Dayton Trust. Held: the transfers made in December 1975 by petitioners Anne Cox Chambers and Barbara Cox Anthony were completed as of the calendar year ended Dec. 31, 1975, for Federal gift tax purposes. United States v. Byrum, 408 U.S. 125 (1972), followed.

After petitioner, a teacher at a public high school, criticized the school administration, the local school board decided not to rehire him. Petitioner sued the school board in a State court, alleging contract violations and numerous violations of 42 U.S.C. sec. 1983. In deciding only the liability issue, the State court concluded that petitioner's right to freedom of speech had been abridged, in violation of 42 U.S.C. sec. 1983; the State court rejected the contract claim and the other 42 U.S.C. sec. 1983 claims. Thereafter, the parties reached a settlement and petitioner received a $ 24,000 settlement payment, of which $ 8,000 was paid for legal fees. Held: 1. The settlement payment was made on the basis of the State court's decision that petitioner's First Amendment right to freedom of speech had been abridged, and that petitioner was entitled to redress under 42 U.S.C. sec. 1983. Determining the "intent of the payor" in this situation is unnecessary. 2. Damages received on account of a claim under 42 U.S.C. sec. 1983 are received on account of personal injuries and so are excludable from income. Sec. 104(a)(2), I.R.C. 1954; sec. 1.104-1(c), Income Tax Regs. 3. The amount paid for legal fees to pursue such a claim is not deductible. Sec. 265(1), I.R.C. 1954.

P, a "sec. 509(a) private foundation," seeks a declaratory judgment from R's final ruling denying it "operating foundation" status, as defined in sec. 4942(j)(3), I.R.C. 1954. P is already a charitable trust exempt from Federal income taxation under sec. 501(c)(3), I.R.C. 1954, but would gain additional benefit from "operating foundation" status, including an exemption from excise tax under sec. 4942, I.R.C. 1954. See secs. 4942(a) and 4942(a)(1), I.R.C. 1954. P anticipated $ 6,600 annual interest income, $ 6,000 of which was to be applied to scholarships and $ 600 to administrative expenses. R contended that the moneys P expended as scholarships were not "qualifying distributions * * * directly for the active conduct of the activities constituting the purpose or function for which it [P] is organized and operated" under sec. 4942(j)(3)(A), I.R.C. 1954. Additionally, R contended that P failed all of the 3 tests (the assets, endowment, and public supports tests), one of which P must pass to obtain "operating foundation" status. Held: P maintains a "significant involvement in [an] * * * activity in connection with which * * * scholarships are awarded." See secs. 53.4942(b)-1(b)(2) and 53.4942(b)-1(b)(2)(ii)(A), Foundation Excise Tax Regs. Accordingly, amounts P expends for scholarships constitute "qualifying distributions * * * directly for the active conduct of the activities constituting the purpose or function for which it [P] is organized and operated" under sec. 4942(j)(3)(A), I.R.C. 1954. Held, further, P is entitled to utilize the "endowment test" of sec. 4942(j)(3)(B), I.R.C. 1954, and to "operating foundation" status.

Ps sold certain capital gain property to a charitable institution for less than fair market value and elected to apply the appreciation reduction rules of sec. 170(e)(1), I.R.C. 1954 as amended, to… Held: The amount of Ps' charitable contribution is reduced by 50 percent of the unrealized appreciation of only the contributed portion of the property. Sec. 1011(b), I.R.C. 1954, as amended, applies to the sold portion of the property.

Decedent owned all the stock of two investment companies on the date of her death. The assets of both companies consisted solely of cash and marketable securities. Held: the value of the stock of each investment company is its net asset value reduced by the cost of liquidation.

P disposed of coal by a contract entitled "Coal Lease" under which she will receive a tonnage royalty of $ 1 per ton of coal mined. However, P will not receive more than $ 4.3 million even if more than 4.3 million tons of coal are mined. Under the contract, P will receive an annual minimum royalty of $ 430,000 per year for 10 years. Any tonnage royalty P receives during a year is credited against the annual minimum royalty for the year. If the tonnage royalty due during a year exceeds the annual minimum royalty for the year, the excess is recouped against any annual minimum royalty paid in any prior year and any remaining excess is applied as a prepayment of any annual minimum royalty due in any future year. P will receive $ 4.3 million, no more and no less. No portion of the payments to be made under the contract is designated as interest. Petitioner has no reversionary interest in the coal so long as she receives the payments required by the contract. Held: Because P will receive tonnage and/or annual minimum royalties of $ 4.3 million, no more and no less, regardless of whether any coal is ever actually mined, P need not look to the extraction of the coal for the return of her capital, and, therefore, has not retained an economic interest in the coal. Thus, the payments she receives under the contract do not qualify for capital gain treatment under secs. 631(c) and 1231(b)(2), I.R.C. 1954. Held, further: Since sec. 631(c), I.R.C. 1954, does not apply, payments received under the contract are subject to the imputed interest rules of sec. 483, I.R.C. 1954. Thus, a portion of each such payment is ordinary interest income under secs. 483 and 61(a)(4), I.R.C. 1954, and only the balance is capital gain from P's sale of a capital asset.

Petitioner designed, constructed, transported, and installed self-contained drilling and production platforms on properties in the Gulf of Mexico and the North Sea. In the process of design and construction, costs were incurred that petitioner seeks to deduct as intangible drilling costs (IDC) under sec. 263, Internal Revenue Code of 1954. Each of the platforms was designed for a useful life of approximately 20 years at the conclusion of which period each platform would have no salvage value to petitioner. Held, the costs incurred are deductible as IDC as they were not incurred in the acquisition of tangible property ordinarily considered to have salvage value. Sec. 263(c), I.R.C. 1954; sec. 1.612-4, Income Tax Regs.; Standard Oil Co. (Indiana) v. Commissioner, 77 T.C. 349 (1981).

In furtherance of an estate tax freeze plan, after a corporate reorganization J, W, P, L, and C transferred shares of class A voting common stock and class B nonvoting… Held: The fair market value of the shares for Federal estate and gift tax purposes determined. The value was not affected by the transfer of the stock to the trusts. Estate of Curry v. United States, 706 F.2d 1424 (7th Cir. 1983); Ahmanson Foundation v. United States, 674 F.2d 761 (9th Cir. 1981), applied.

In 1977, petitioner donated to a charitable donee a conservation easement in land adjacent to the Housatonic River in northwestern Connecticut. Petitioner deducted a charitable contribution with respect to the donation based on a value for the easement of $ 12 million. Held, the highest and best use of the land before the donation of the easement was for the construction of a hydroelectric power plant. Held, further, the value of the easement was $ 4,970,000. Held, further, petitioner is liable for the increased interest rate on substantial underpayments attributable to tax motivated transactions under sec. 6621(d), I.R.C. 1954.

Petitioner is a national college fraternity and is classified by respondent as a tax-exempt social club under sec. 501(c)(7), I.R.C. 1954. Held: Petitioner does not also qualify as a domestic fraternal organization under sec. 501(c)(10), I.R.C. 1954. Therefore, petitioner's unrelated business taxable income includes income from investments under sec. 512(a)(3)(A), I.R.C. 1954. Held, further, sec. 1.501(c)(10)-1, Income Tax Regs., is valid.

P, a nonexempt cooperative, derived certain income from interest on short-term loans and from barge rents, which R determined was income from nonpatronage sources within the meaning of subch. Held: that the income was from patronage sources. St. Louis Bank for Cooperatives v. United States, 224 Ct. Cl. 289, 624 F.2d 1041 (1980), and Cotter & Co. v. United States, 765 F.2d 1102 (Fed. Cir. 1985), construed and followed.

During its taxable year ended Dec. 30, 1976, petitioner placed in service an addition to a refrigerated facility for the storage of frozen food… Held: the truck loading platform and the rail loading platform are buildings and as such, costs relating thereto are not eligible for the credit under sec. 48(a)(1)(A) and secs. 1.48-1(c) and 1.48-1(e), Income Tax Regs.Held, further, the refrigerated area of the addition is not a building for purposes of the investment tax credit.

On June 18, 1977, petitioner HBC, then a subchapter S corporation, acquired all the stock of an existing corporation (M) that was actively engaged in the business of developing and selling residential real estate lots from a subdivision it owned. Because M was indebted to HBC and was experiencing financial difficulties, HBC decided to acquire M's stock and to complete the real estate development itself. HBC proceeded to clear up M's outstanding debts and, in many respects, operated M as if it were a division of itself. HBC, formally dissolved M on May 10, 1979. Held: HBC's subchapter S corporation status was terminated in 1977 because it had become a member of an affiliated group contrary to sec. 1371(a), I.R.C. 1954. Thus, HBC could no longer pass through its undistributed income, deductions, and investment credit to its shareholders, the petitioner-husbands.

In 1973, petitioners purchased an old factory building, placed it in service, and sometime thereafter leased it to a manufacturing company. Held: Petitioners did not make the election to use straight line depreciation upon which entitlement to a rehabilitation credit depends and thereby are ineligible for the rehabilitation credit claimed. Under sec. 46(a)(2)(A)(iv) and sec. 46(a)(2)(F), a credit against tax is allowed for qualified rehabilitation expenditures.

After our decision in Scott v. Commissioner, 84 T.C. 683 (1985), in which the portion of the proposed regulation relied on by respondent here was determined to be inconsistent with the statute,… Held: respondent was not unreasonable in continuing to advocate the position embodied in a proposed regulation until, and for a reasonable time after, the port on of the regulation embodying the position was determined to be inconsistent with the statute.

Ps, husband and wife, were employed abroad under a joint employment contract, which provided a stock option for petitioner-husband alone. Held: Ps, who were free to structure the provisions of their joint employment contract as they wished, and who abided by the contract as they made it, must accept the tax consequences of their structural choice. Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149 (1974). Therefore, Ps may not allocate any of the gain from petitioner-husband's 1978 disposition of the stock to petitioner-wife for the purpose of computing her foreign earned income exclusion under sec. 911, I.R.C. 1954. Held, further, Ps may attribute petitioner-husband's stock option proceeds to their 1977 gross income under the attribution rule of sec. 911(c)(2) for the limited purpose of computing the foreign earned income exclusion for 1977 under sec. 911(a)(1) and (c)(1)(B).

Afran, a wholly owned foreign subsidiary of P, in the normal course of business, chartered several tanker vessels to Gulftankers, another wholly owned foreign subsidiary of P. Charter hire rates… Held: P received a constructive dividend as a result of the adjustment of the charter hire rates between its two foreign subsidiaries, Afran and Gulftankers.

Under local law, the City of Colorado Springs was obligated to provide for the safe discharge of waters within Shook's Run, a natural drainage system which ran through petitioner's property. Held: the drainage facilities and easements included both deductible and nondeductible elements and, to the extent they constituted a contribution, were to be used for exclusively public purposes within the meaning of sec. 170(c)(1), I.R.C. 1954.

P, an Illinois corporation, was dissolved for failure to pay franchise tax and to file an annual report. Held: the existence of assets in a dissolved corporation which may be the subject of collection or the reduced remedies or forums available to a dissolved corporation do not affect or modify the incapacity to initiate or maintain a civil action in the State of Illinois and hence in this Court within the meaning of Rule 60(c) of our Rules…

In 1977, D entered into a contract to sell a farm to her son, S. The purchase price was to be paid in installments, and the title to the property was held in escrow pending completion of such payments. D died in 1980 before all of the payments were made. Held: 1. The value of D's rights under the contract of sale is includable in the estate; consequently, the estate is not entitled to value such rights as qualified real property under sec. 2032A, I.R.C. 1954. 2. Sec. 2036, I.R.C. 1954, is not applicable to the transfer of the farm since it constituted a bona fide sale for full consideration.

Decedent possessed at the time of his death a power to invade, for his benefit, income and corpus of a trust. Held: The power is not excepted from the definition of general power of appointment under sec. 2041(b)(1)(A), I.R.C. 1954, because the standard which limits the power does not relate solely to the health, education, support, or maintenance of decedent. Respondent's determination is sustained.

Petitioner, a U.S. citizen, resided and worked in West Berlin, Germany. He received incentive payments pursuant to art. 28 of the Berlin Promotion Law. Held: petitioner properly computed his foreign tax credit, for U.S. income tax purposes, without taking such payments into account. Held, further, such incentive payments are includable in income under sec. 61, I.R.C. 1954.

Held, petitioner is liable as transferee of $ 300,000 given to him in December 1977 by an individual who was later killed; the transfer was a gift causa mortis which rendered the donor insolvent. Held: petitioner is liable as transferee of $ 300,000 given to him in December 1977 by an individual who was later killed; the transfer was a gift causa mortis which rendered the donor insolvent.

P manufactured, leased, and sold computers and reported depreciation under the Class Life Asset Depreciation Range system described in sec. 1.167(a)-11(d)(3), Income Tax Regs. Held: P correctly reported income from sales of computers. P's subsidiary issued debentures convertible into stock of P. Held: 1. P cannot amortize as original issue discount a portion of the issue price attributable to the conversion privilege. 2.

Under authority of sec. 6851 respondent made a termination assessment against petitioner, a Colombian citizen. Held: Sec. 6851(b) does not constitute a separate period of limitation for the mailing of a notice of deficiency. Therefore, the notices of deficiency mailed to petitioner are valid provided one was mailed to petitioner's last known address. Secs. 6501(a), (c)(3), 6851(b), I.R.C. 1954.

Decedent's spouse was paid a survivors income benefit pursuant to a plan that was established and maintained by decedent's employer. Held: decedent did not make a taxable gift of the survivors income benefit to his spouse within the meaning of sec. 2503, I.R.C. 1954, and the present value of the survivors income benefit is not, therefore, an adjusted taxable gift within the meaning of sec. 2001, I.R.C. 1954.

In 1978 and 1979, petitioner, a stockholder of the Federal Home Loan Bank of Chicago (the Chicago Bank), received common stock dividends from the… Held: No stockholder had an election within the meaning of sec. 305(b)(1), I.R.C. 1954, to receive cash dividends in lieu of common stock dividends because the Chicago Bank retained discretion over the redemption of its common stock. Petitioner is not taxable on the value of the common stock dividends received in 1978 and 1979.

In implementation of its prior opinion, see 86 T.C. 468 (1986), the Court determined that petitioner should be precluded from introducing into evidence the books and records of a deemed related Swiss… Held: no change should be made in the two orders of the Court, dated Mar. 12, 1986, and Apr. 9, 1986, and accordingly petitioner's motion for summary judgment is denied. Held, further, respondent's motion for summary judgment is granted.

Porter Australia, petitioner's wholly owned subsidiary, capitalized loans from petitioner and issued petitioner preferred stock. Held: the liquidating distribution was not in complete cancellation or redemption of all Porter Australia's stock. Held, further, sec. 332 does not bar the recognition of petitioner's loss on the liquidation of Porter Australia. Commissioner v. Spaulding Bakeries, 252 F.2d 693 (2d Cir. 1958), affg. 27 T.C. 684 (1957), followed.

Ps were limited partners in Israeli partnerships formed in December 1979 to develop, manufacture, and market certain food-packaging machinery systems. Held: The partnerships' liabilities to D for research and development were not paid or incurred in connection with trades or businesses within the meaning of sec. 174(a) and therefore are not deductible under such section. 2.

Petitioner made a bulk sale of assets which included personal property and real property. The real property was encumbered by a mortgage that exceeded the basis of petitioner in the real property. The mortgage was assumed by the purchaser as part of the consideration. Held, for installment reporting purposes, the mortgage in excess of the aggregate basis of all the assets sold is a payment in the year of sale and the sale qualifies for the installment method of reporting.

Petitioner, an exempt organization under sec. 501(c)(8), I.R.C. 1954, published The Trooper magazine. Held: the business listings constitute advertising. Held, further, the publication of advertising constitutes a trade or business within the meaning of sec. 513 and, therefore, the receipts from the business listings are unrelated business taxable income. United States v. American College of Physicians, 475 U.S. (1986).

Partnership acquired a license to market a computer-assisted translation system in exchange for $ 5.2 million in cash and 10 percent of sales which, during 8 of the years under the license agreement,… Held: the eight $ 1 million nonrecourse notes in this case are not supported by the underlying value of the license and are too contingent and speculative and may not be considered as part of the principal sum under sec. 1253, I.R.C. 1954, as amended.

Petitioners filed 1978 and 1979 Forms 1040, U.S. Individual Income Tax Returns, prior to Jan. 1, 1982. Held: petitioners are liable for the additions to tax under sec. 6659 for their 1978 and 1979 taxable years because the underpayments of tax for those years are attributable to valuation overstatements on the 1981 and 1982 returns.

Ps, Larry and Vickey, are partners in VIMAS, LTD., a limited partnership of more than 10 partners formed after Sept. 3, 1982. Held: the partnership audit and litigation provisions of the Code, viz secs. 6221-6233, apply to VIMAS' 1982 partnership taxable year. Held, further, Ps' distributive shares of VIMAS claimed loss and investment tax credit for 1982 are partnership items. Held, further, Ps' carryback of the ITC to 1979 and 1980 is an affected item.

The instant cases were set for trial on numerous occasions and continued. Petitioners never stipulated any facts with respondent and, despite warnings from the Court, never prepared for trial. Held: the cases are dismissed for failure properly to prosecute under Rule 123(b) of the Court's Rules of Practice and Procedure.

At an earlier stage in the instant case, the Court granted respondent's motion for summary judgment in entirety as to petitioner-husband, and in part as to petitioner-wife. Held: Rule 75 applies only to nonparty witnesses. Petitioner-husband still is a party in the instant case. Rule 75 does not permit respondent to depose petitioner-husband. Respondent's motion is denied.

Petitioners were citizens and domiciliaries of West Germany in the taxable years at issue. During those years, I.B.M. in New York employed petitioner-husbands and paid their wages. Held: Under the applicable laws of West Germany, petitioner-husbands' U.S. earnings were not community property, and petitioner-wives did not have present vested interests in the earnings.

Petitioners are transferees. As shareholders of transferor, they sold all of the stock of transferor, a subchapter S corporation, to a third party in March of 1980 and the transferor was liquidated. Held: the value of the inventory of plants which were transferred to the purchaser must be included in the income of the transferor, and hence the petitioners, in 1980 under the tax benefit rule.

Petitioner, an attorney acting pro se, prevailed in a Tax Court case involving the valuation of a donated Norman Rockwell print. Held: respondent's position in the Tax Court proceeding was unreasonable, and petitioner is entitled to litigation costs. Held, further, a pro se attorney-petitioner is not entitled to an award for the value of his own services.

The Commissioner determined that the DC Co. owed certain deficiencies and that it was liable for the addition to tax for fraud under sec. 6653(b), I.R.C. 1954. Held: in pursuing the litigation in this Court, the Commissioner was unreasonable within the meaning of sec. 7430, I.R.C. 1954, and consequently, the company is entitled to reimbursement of its litigation costs.

P sought a pretrial ruling on the admissibility of an affidavit of a former Treasury Department and Internal Revenue Service employee, now deceased, who assisted in drafting sec. 1.167(a)-11(d)(2),… Held: The affidavit is irrelevant and therefore inadmissible under rule 401, Federal Rules of Evidence, because the affidavit expresses only an individual opinion and is not a statement of institutional intent, and was not contemporaneous with the promulgation of the regulation.

Ps are police captains who receive a car allowance to operate specially equipped, personally owned vehicles in the performance as employees. Held: the portion of Ps' travel between headquarters and house is nondeductible commuting even though Ps may have to call in and respond to their radios during their travel.

Ps are notice partners of a partnership subject to the partnership audit and litigation provisions. R issued a notice of final partnership administrative adjustment on Apr. 14, 1986. Held: the 90-day period of sec. 6226(a), I.R.C. 1954, for filing a petition by the tax matters partner did not close until close of business July 14, 1986. Held, further, the petition in this case was not a duplicate petition but was the petition that commenced the partnership action.

R determined deficiencies of personal holding company tax against P, a transferee of T, based upon his determination that certain payments received by T from X under a contract involving the right to use a trademark constituted royalties from a license rather than proceeds from the sale of an asset. Under the facts, held, that the contract between T and X was a sale, not a license, and the moneys received by T, although ordinary income, were not royalties. Held, further, that T was not a personal holding company. Sec. 1253(a), (b), and (c), I.R.C. 1954, interpreted.

Petitioners made a gift of an open-space easement to the Virginia Outdoors Foundation. Held: the value of the gift for purposes of a charitable deduction is determined on the basis of before-gift and after-gift valuations of the property subjected to the easement. Held, further, the approach to valuation cases set forth in Buffalo Tool & Die Mfg. Co. v. Commissioner, 74 T.C. 441, 451 (1980), is reiterated.

Ps are members of a joint venture (JV). JV purported to purchase from one of a group of related companies (the Communications Group) certain computer equipment subject to existing leases. Held: the transactions between JV and the Communications Group were independent of and unaffected by the underlying lease transactions between the Communications Group and third-party lenders and lessees and were without economic substance; JV acquired no interest in the computer equipment.

Petitioners, individual investors, each purchased computer equipment from C, or C's wholly owned subsidiary. Petitioners then leased the equipment to C for a term of 7 years. Held: the transactions herein are not shams and have economic substance.

P's claimed Schedule F losses on their 1981 and 1982 Federal income tax returns from an investment in dairy cattle. Held: That no sale of the cattle occurred for tax purposes. Accordingly, P's are not entitled to the claimed losses. Held, further, that a valuation overstatement exists within the meaning of sec. 6659, I.R.C. 1954, since petitioners reported an adjusted basis in the cattle of $ 41,500 and the correct adjusted basis in the cattle is zero.

Petitioner was the general partner in four partnerships which purchased videotaped productions. Each of the partnerships paid approximately $ 2.3 million for a production. Held: the purchase transactions here in issue were in substance shams lacking economic significance beyond expected tax benefits. Falsetti v. Commissioner, 85 T.C. 332 (1985).

In 1970, Mark Rothko, a well-known American painter, died. Held: sec. 4941(d)(1)(E), I.R.C. 1954, is not so vague and imprecise as to be unconstitutional; (2) the expectancy interest of the Mark Rothko Foundation in the assets of the Rothko estate constituted assets of the Mark Rothko Foundation for purposes of sec. 4941, I.R.C. 1954; and (3) whether assets of the Mark Rothko Foundation were used…

Petitioner husband made a lump-sum payment to petitioner wife to discharge past and future child and spousal support. The amount of the lump-sum payment exceeded the amount of the support arrearages. Held, portions of lump-sum payment attributable to past child support, future child support, past spousal support, and future spousal support are determined. Held, further, portion attributable to past spousal support is income to petitioner wife and deductible by petitioner husband; portion attributable to future spousal support is not income to wife and not deductible by husband.

Petitioner is a trade association exempt from tax under sec. 501(c)(6), I.R.C. 1954. Held: income from the sale of advertisements in Florida Truck News is taxable as unrelated business income under sec. 511, I.R.C. 1954.

Petitioner transferred land pursuant to an optional sales contract, as amended, to be developed in part as a regional shopping center. Held: parol evidence is admissible to corroborate petitioner's position that the optional sales contract, as amended, is an option agreement. Held, further, however, that the contract constitutes a completed sale and petitioner must include in income payments received in their respective years of receipt.

During certain of the years in issue, petitioners engaged in commodity straddle transactions connected with trading on the London Metal Exchange. Petitioners intentionally sustained losses in year one of their commodity straddle transactions by entering into closing transactions on their sold commodity options. Held: Since the intentionally realized losses were not necessary or helpful in profiting from difference gains in petitioners' commodity straddle transactions, the transactions lacked a business or profit-making purpose. The losses were not "intended" by secs. 165(c) and 1234, I.R.C. 1954, and sec. 108 of the Tax Reform Act of 1984, Pub. L. 98-369, as amended by sec. 1808 of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2817. They were therefore shams in substance. Gregory v. Helvering, 293 U.S. 465 (1935); Falsetti v. Commissioner, 85 T.C. 332 (1985)

Petitioner husband bought property and immediately engaged in bona fide negotiations to resell the property to a prospective purchaser; the negotiations failed to culminate in an actual resale. Held, petitioner husband was engaged in the trade or business of selling the property in question with the result that interest paid by petitioners on the purchase price was not "investment interest" within the meaning of sec. 163(d)(3)(D), I.R.C. 1954. S & H, Inc. v. Commissioner, 78 T.C. 234 (1982), followed and extended.

Petitioner incurred loss on dispositions in 1980 of positions constituting part of a gold commodity futures straddle. During 1980, petitioner also realized a gain on the sale of gold bars. Held: respondent has not shown that there is a genuine issue of sham with respect to the loss.

P, a religious or apostolic organization operating as a nonstock corporation under the laws of the Commonwealth of Virginia, conducts… Held: the terms common treasury or community treasury, as used in sec. 501(d), I.R.C. 1954, refer to the communal operation of the religious or apostolic organization itself and do not impose a requirement that all members who join such religious or apostolic organization must take a vow of poverty and irrevocably contribute all of their…

P and R executed an open-ended consent (Form 872-A) to extend the period for assessment. R sent two notices of deficiency to addresses which were not P's last known address. Held: the consent was terminated when P subsequently became aware of the notices during the collection process. Held, further, the holding in Wallin v. Commissioner, supra, is not available to R to force P into court on the merits where R's lack of diligence is the foundation for such equitable relief.

Decedent executed an instrument on Sept. 11, 1980, purporting to convey to each of her 16 children and grandchildren a $ 3,000 interest in her residence. Decedent died on Dec. 15, 1980. Held, assuming the Sept. 11, 1980, instrument conveyed valid interests in real property under Texas law, decedent transferred future rather than present interests, which did not qualify for the "annual exclusion" from the gift tax under sec. 2503(b), I.R.C. 1954, and were includable in her gross estate under sec. 2035(a), I.R.C. 1954, as transfers made within 3 years of decedent's death. Held, further, the value of decedent's residence included in her gross estate determined.

Ps are partners in the Project Omega Limited Partnership (the partnership). Held: the subscriptions and the activities of the general partner prior to Sept. 4, 1982, were preoperating activities. Held, further, the partnership was formed when the partners acquired their capital interests in the partnership and not when they subscribed to the offering.

Petitioner-husband believes in a/the Sun God and that he must journey to the tropics for the purpose of religious worship and prayer. Held: Petitioners' expenses for their trip to Puerto Rico are not deductible under sec. 170, I.R.C. 1954. 2. Sec. 170, I.R.C. 1954, does not unconstitutionally prefer one religion over another by allowing deductions only for contributions to organized entities. 3.

Petitioner settled a civil lawsuit for malicious prosecution and other claims for $ 300,000, of which the parties to the lawsuit allocated $ 75,000 to injury to petitioner's professional reputation. Held, there is no valid distinction between damages received for injury to personal reputation and those received for injury to professional or business reputation for purposes of sec. 104(a)(2), I.R.C. 1954. Roemer v. Commissioner, 79 T.C. 398 (1982), revd. 716 F.2d 693 (9th Cir. 1983), will be no longer followed. Held, further, damages received in settlement of a claim for malicious prosecution of a civil proceeding under Tennessee law are damages received on account of "personal injuries." Sec. 104(a)(2), I.R.C. 1954.

Held, the disallowance of a refundable energy credit under sec. 48(a)(10), I.R.C. 1954, is a deficiency under sec. 6211(a). Held: the disallowance of a refundable energy credit under sec. 48(a)(10), I.R.C. 1954, is a deficiency under sec. 6211(a).

P is a corporation which operates a cemetery. It was organized in 1875 to take over the operation, by the City of Dubuque, Iowa, of the city cemetery. Held: P does not qualify under sec. 501(c)(3). It not only is not operated exclusively for exempt purposes by reason of its substantial nonqualifying sales and cemetery maintenance activities, but also its charitable activities do not represent the principal purpose for carrying on its entire operation.

D was a limited partner in B, and G was an indirect limited partner in S. PPC, a producer and distributor of major movies, sold all of its rights, except sequel rights, in six movies to FWC. Held: B and S did not acquire a depreciable interest in the motion pictures. They purchased, in substance, only a contractual right to payments contingent on the success of the motion pictures. 2. B and S are entitled to depreciate their bases in each such contract right. 3.

R seeks a default judgment against Ps pursuant to Rule 123(a), Tax Court Rules of Practice and Procedure. Held: entry of a default pursuant to Rule 123(a) is appropriate in these cases. Held, further, entry of a default has the effect of Ps' admitting the well-pleaded facts in R's answer, which in the exercise of sound judicial discretion are determined to support a default judgment.

When petitioners sold their residence, they made the sale contingent upon receiving a discount from the mortgagor upon the prepayment of their recourse mortgage. Held: A discount received on the prepayment of a recourse mortgage made in connection with the sale of a residence is not included in the amount realized for purposes of computing gain on the sale. Consequently, it is reportable separately as discharge of indebtedness income.

P incorporated IPFC and in form: (1) Gave 50 percent of IPFC's stock to MU; and (2) sold nuclear fuel to IPFC who simultaneously leased… Held: P may not disavow the form of the transfer of stock to MU, but may disavow the form of the sale-leaseback. Comdisco, Inc. v. United States, 756 F.2d 569 (7th Cir. 1985), followed. 2. The sale-leaseback constituted a financing for Federal tax purposes, with the result that P is not required to recognize gain on the sale of the fuel. 3.

Certain language of the stipulation filed herein pertaining to findings of fact set forth in related State court opinions determined to be ambiguous and conditional and therefore such language must be disregarded. Respondent's motion for partial summary judgment based in part on such language is denied. Other issues decided.

Petitioners claimed charitable contribution deductions for payments made to various Universal Life Churches and to a fund established and maintained by the Universal Life Church, Inc., of Modesto, California. However, all such payments were repaid to petitioners or to their own Universal Life Church. Held, petitioners are not entitled to a charitable contribution deduction because no actual contributions were made. Sec. 170(a), I.R.C. 1954; Davis v. Commissioner, 81 T.C. 806 (1983), affd. without published opinion 767 F.2d 931 (9th Cir. 1985); Glynn v. Commissioner, 76 T.C. 116, 121-122 (1981), affd. without published opinion 676 F.2d 682 1st Cir. 1982); Sims v. Commissioner, 72 T.C. 996, 1008-1009 (1979). Held, further, petitioners are liable for additions to tax for fraud. Sec. 6653(b), I.R.C. 1954.

Petitioner-wife invested in a limited partnership that purchased and leased computer equipment. Held: the partnership's transactions were supported by economic substance. Held, further, the partnership's purchase and lease of the computer equipment were activities that were engaged in for profit.