Volume 88 — Tax Court Reports

P is a sec. 501(c)(4), I.R.C. 1954, organization exempt from tax under sec. 501(a), I.R.C. 1954. Held: P is not an organization which was organized or operated as charitable within the meaning of sec. 501(c)(3), I.R.C. 1954.

In 1981, 1982, and 1983, petitioners received payments from the United States under the Water Bank Program, 16 U.S.C. sec. 1301 et seq., pursuant to an agreement entered into… Held: payments may be excludable from income as grants made after September 30, 1979, even if made under a contract entered into prior to that date. Sec. 126(a)(3), I.R.C. 1954. Held, however, that petitioners failed to prove that payments in question were excludable under sec. 126(a)(3), I.R.C. 1954.

Decedent was the largest single shareholder of G company on the date of his death, owning 381,150 shares, or about 23 percent. Held: the fair market value of the shares for Federal estate tax purposes determined. Held, further: In the absence of actual selling prices, the mean of the bona fide bid and asked prices of over-the-counter stock on the date of death is generally the fair market value of the stock. Sec. 2031; sec. 20.2031-2(c), Estate Tax Regs.

Medici, a partnership in which petitioner Marcus W. Melvin was a general partner, invested in a limited partnership. Held: Marcus was not at risk within the meaning of sec. 465, I.R.C. 1954, with respect to the portion of the $ 3,500,000 bank loan that exceeded his pro rata share thereof. Other issues decided.

Ps purchased solar water heating systems, on a leveraged basis, from Bliss; thereafter, pursuant to a prearranged agreement, Ps leased the systems to Coordinated for a term of 7 years. Held: Ps entered into the transactions with a bona fide objective to make a profit. The sales from Bliss to Ps were bona fide, as were Ps' debts to Bliss, and Ps' leases with Coordinated.

Held, under the facts of record, Lewis E. Gaines, individually, and not Gaines Properties, was the general partner in the seven Tennessee and Kentucky limited partnerships. Held: under the facts of record, Lewis E. Gaines, individually, and not Gaines Properties, was the general partner in the seven Tennessee and Kentucky limited partnerships.

Petitioner is the common parent of an affiliated group of corporations which filed consolidated Federal income tax returns for 1977, 1978, 1979, and 1980. Held: this Court has jurisdiction over the consolidated Federal income tax liability of an affiliated group of corporations even though all or a portion of the adjustments in question pertain to members of the affiliated group that were not identified in respondent's notice of deficiency.

On their 1980 amended Federal income tax return, petitioners claimed a loss with respect to a purported investment in a motion picture. Held: petitioners did not invest in the motion picture with an actual and honest objective of making a profit and petitioners are not entitled to deductions for depreciation with respect to the motion picture.

P, a beneficiary of estate, filed a petition seeking a redetermination of transferee liability. Held: no notice of deficiency or notice of transferee liability was issued. R's motion to dismiss for lack of jurisdiction granted. Rule 13, Tax Court Rules of Practice and Procedure; secs. 6212, 6213, 6901, I.R.C. 1954, as amended.

Held: For purposes of sec. 1504(d), I.R.C. 1954, the term laws of such country includes any existing practice or policy of such… Held: For purposes of sec. 1504(d), I.R.C. 1954, the term laws of such country includes any existing practice or policy of such contiguous foreign country which results in a U.S. parent finding it necessary to incorporate its foreign operations under the laws of the foreign country in order to insure that governmental approval to operate…

Petitioners, members of the Colville Confederated Tribes, operate a cattle farm on land held in Indian trust status by the United States pursuant to special Colville Reservation allotment acts and subject to the General Allotment Act of 1887. Held, as petitioners' farm income is exempt from tax by virtue of Squire v. Capoeman, 351 U.S. 1 (1956), petitioners are denied their farming expense deductions. Sec. 265(1), I.R.C. 1954; sec. 1.265-1(b)(1), Income Tax Regs.; Manocchio v. Commissioner, 78 T.C. 989, 997 (1982), affd. 710 F.2d 1400 (9th Cir. 1983), followed. Held, further, because depreciation is not allowable with respect to petitioners' farm assets by virtue of sec. 265(1), petitioners' assets do not meet the definition of sec. 38 property under sec. 48(a) and, thus, cannot qualify for the investment tax credit. Sec. 48(a); sec. 1.48-1(b)(1), Income Tax Regs.

Humana Inc. and its wholly owned foreign subsidiary own all of the capital stock of a captive insurance subsidiary incorporated by the parent corporation. Held: the risks of loss were not shifted from petitioner and its subsidiaries and the amounts paid to the captive insurance subsidiary are not deductible as ordinary and necessary business expenses for insurance.

1. Decedent guaranteed a loan from a bank to a corporation of which he was majority shareholder and assigned insurance policies on his life as collateral. Held: P's claim of increased basis in the notes contradicts the position P agreed to in entering into the closing agreement and, having entered into that agreement, P is bound by it. P, therefore, correctly reported capital gains on its 1980 and 1981 income tax returns. 2.

P, a nonexempt cooperative, derived certain income from interest on short-term loans which R determined was income from nonpatronage sources within the meaning of subchapter T, I.R.C. 1954. Held: That a portion of the interest was patronage-sourced as it was derived from funds held to provide the liquidity necessary to finance P's operations. The remainder of the interest was nonpatronage-sourced.

CONTENTSPageHeadnote255Introduction and Statement of Issues256Findings of Fact257I.History and Background of G.D. Searle & Co.257A.… Held: SCO's ownership of the income-producing intangibles cannot be disregarded and, therefore, respondent abused his discretion in allocating more than 92 percent of SCO's gross income to petitioner. Held, further: The transfer of the intangibles to SCO caused a distortion in petitioner's income during the taxable years in issue.

A partnership, of which petitioners were members, was the lessee of equipment. Held: Upon a motion by petitioners for summary judgment that, even assuming that elements of business purpose, economic substance, and profit motive independent of tax benefits should not be taken into account in determining the applicability of the safe-harbor leasing provisions of sec. 168(f)(8), I.R.C. 1954, they may be considered in…

Ps purchased Reproduction Masters of Picasso originals from Jackie Fine Arts, in transactions that can be characterized as generic tax shelters. Held: 1. Held: Applying an objective analysis, the transactions lacked economic substance apart from anticipated tax benefits, and Ps are not entitled to depreciation or miscellaneous deductions or investment tax credits on the property acquired. 2.

Ps, which file a consolidated return, are the only partners of MIC, a French partnership. Held: the transformation of MIC into MICSA was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax within the meaning of sec. 367, I.R.C. 1954. Hershey Foods Corp. v. Commissioner, 76 T.C. 312 (1981), followed.

In 1975, H, a limited partnership formed to produce motion picture films, entered into an agreement with M to produce a film for M in return for annual payments in 1976 through 1981. Held: The Commissioner's determination that H abandoned its rights to the film in 1980, and realized income as a result of the discharge of indebtedness was not arbitrary, and the burden of going forward with evidence is not shifted to the Commissioner. 2.

AG acquired computer equipment in a sale-leaseback transaction. The equipment was in place and in operation in Zurich, Switzerland. Held: Sutton's role in the transaction was intended solely to facilitate the appearance of a multiple-party transaction under Frank Lyon Co. v. United States, 435 U.S. 561 (1978), and to appear to satisfy the at risk provisions of sec. 465, I.R.C. 1954; therefore, Sutton's participation in the transaction is disregarded.

Petitioner husbands were limited partners in A, which in 1979 acquired "all right, title and interest" in two nursing training films from AF, in exchange for cash and a recourse promissory note due in 1987. Each limited partner executed an assumption agreement by which he became personally liable to AF on that part of the principal balance of the recourse note, proportionate to his share in the partnership, still due and owing in 1987. Held, A purchased an ownership interest in the films. Held, further, the transaction was entered into with a bona fide objective to make a profit. Held, further, the recourse promissory note constituted a genuine indebtedness fully includable in determining the films' basis for depreciation. Held, further, A was entitled to deduct interest accrued, but not paid, in 1979. Held, further, production expenses for purposes of computing A's investment tax credit basis properly included amounts incurred, but not paid, in 1979.

Petitioners executed similar stock purchase agreements with separate trusts, each established for the primary benefit of an offspring of a petitioner. Held: Petitioners are entitled to an award of reasonable litigation costs. 2. Paragraphs (b)(1)(i)(B) and (f)(2)(i) of sec. 301.7430-1, Proced. & Admin.

In Minahan v. Commissioner, 88 T.C. 492 (1987), we held that petitioners are entitled to an award of litigation costs. Held: one petitioner is a member of the law firm to which petitioners paid substantially all of their litigation costs; that petitioner is not entitled to an award for the law firm's services.

Ps, who were partners in a certified public accounting firm, rendered accounting services and billed clients for such services. Held: under sec. 61, I.R.C. 1954, an objective measure of fair market value must be employed to measure compensation received in goods or services; thus, Ps must include in income their share of the normal retail price of the goods and services received by the partnership.

In Phillips v. Commissioner, 86 T.C. 433 (1986), this Court determined that P owed no deficiencies or additions to tax. Held: P is the prevailing party, having prevailed as to the entire amount of tax at issue and as to the most significant issue presented. 2.

Petitioners sold certain real property which was subdivided and improved by the purchaser. Held: petitioners do not have to recognize gain under sec. 1038(a), I.R.C. 1954, on the reacquisition. Held, further, petitioners must recognize gain under sec. 1038(b) with respect to payments received from the purchaser prior to the reacquisition.

Deductions of contributions made by petitioners to individual retirement accounts were disallowed by respondent because respondent determined that the male petitioners, all judges of the United… Held: The judge petitioners are not employees as that term is used in sec. 219(b)(2)(A)(iv) and therefore they are not qualified participants in a plan established for its employees by the United States. The claimed deductions are allowed.

Petitioner, a tax-exempt religious organization, engages in forestry, cleaning and maintenance, painting, and a business referred to as donated labor. Held: petitioner's businesses are not substantially related to its exempt purposes. Held, further, because substantially all of the work in carrying on petitioner's businesses is not performed without compensation, petitioner's businesses are not within the exception set forth in section 513(a)(1), I.R.C. 1954, as amended.

In DeMartino v. Commissioner, T.C. Memo. 1986-263, the Court held that sec. 6621(d), I.R.C. 1954, as enacted, did not apply to the underpayments determined against petitioners. Sec. 6621(d) was subsequently amended by sec. 1535 of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2750. Held, as a final court decision has not been entered in DeMartino, sec. 6621(d), as amended, may be applied to petitioners.

On Apr. 4, 1978, Woodrow and Vella Tilton, petitioners' parents, transferred real property to petitioners personally and to Circle Bar Ranch, Inc., a corporation owned by petitioners. Held: petitioners are liable as donee-transferees for the unpaid gift tax resulting from the Apr. 4, 1978, transfers from their parents to petitioners personally to the extent of the value of those transfers.

P, a physician, assigned his interest in a medical partnership and other businesses to P.C., a one-man professional service corporation. Held: P.C., not P, controlled the earning of income from the medical partnership, and sec. 61 and the assignment of income doctrine therefore do not apply. Held, further, sec. 482 applies in the one-man personal service corporation context.

X, a corporate automobile lessor, elected, under sec. 48(d), I.R.C. 1954, to pass Investment Tax Credits (ITC) through to S, a subch. Held: a qualified corporate lessor may, under a sec. 48(d), I.R.C. 1954, election pass ITC through to a corporate or noncorporate lessee or sublessor, who does not independently qualify.

G, the president of a company maintaining a deferred compensation profit-sharing plan for its employees, resigned as president on Dec. 15, 1978, and in March 1979, the company was sold. In March 1980, the plan trustee was requested by G to make a lump-sum distribution of his interest in the plan, citing total disability as the grounds therefor. G for some time had suffered from arteriosclerotic heart disease, angina, and hypertension. Held, (1) without clear indicia to the contrary, a deferred compensation profit-sharing plan is not ordinarily a dual purpose plan intended to provide both retirement and health or accident benefits; and (2) benefits paid under a deferred compensation profit-sharing plan, including benefits paid where retirement is on account of disability, are taxable when distributed as deferred compensation and are not excludable from gross income under sec. 105, I.R.C. 1954. Held, further, even if the lump-sum payment in question had been made pursuant to a health or accident plan, it fails to meet the requirement of sec. 105(c)(2), I.R.C. 1954, that the amount of any such payment must be computed with reference to the nature of the injury. The payment in question was simply the total amount credited to G's profit-sharing account at the time of payment. Hines v. Commissioner, 72 T.C. 715 (1979).

Ps are employers who each established pension or profit-sharing plans. Held: the standards of ERISA sec. 403(c)(2) are applicable to a determination of the qualification of a plan for Federal tax purposes pursuant to sec. 401(a), I.R.C. of 1954; therefore, a plan provision essentially equivalent to ERISA sec. 403(c)(2) does not disqualify that plan for Federal tax purposes pursuant to sec. 401(a), I.R.C. of…

P, a wholesaler of industrial chemicals, established a promotional program under which customers or their employees were given premiums such as televisions, citizen band radios, and prime meats. Held: The transfers of the premiums constituted sales by P to its salesmen; as to P, the cost of such items represented cost of goods sold. 2. P is not liable for the addition to tax for negligence for the treatment on its returns of the cost of the premiums. 3.

In both 1980 and 1981, T's taxable income was reduced by items of tax preference. Held: T is not liable for the minimum tax on tax preferences in 1980 or 1981 since no tax benefit was received from the preferences in 1980 and 1981 or in any carryback year.

P set fire to his wife's clothes, and that fire spread to and destroyed his residence. P deducted the amount of the loss as a casualty loss within the meaning of sec. 165(c)(3), I.R.C. 1954. Held: 1. P is not entitled to a deduction for a casualty loss. 2. P failed to prove that his failure to file a timely return was due to reasonable cause within the meaning of sec. 6651(a), I.R.C. 1954. 3. P is not liable for the addition to tax under sec. 6653(a), I.R.C 1954, since he had reason for claiming the deduction for the casualty loss.

In 1979, Matrix Computer Funding Corp. (Matrix) obtained a $ 1,305,341.70 loan from a bank to purchase three IBM check sorters. Matrix leased the three check sorters back to the seller. Held: petitioner was at risk within the meaning of sec. 465, I.R.C. 1954, with respect to his pro rata share of the joint venture's $ 443,009 obligation on the bank loan. Petitioner was personally and ultimately liable for repayment thereof.

On Nov. 13, 1974, Regency Associates (Regency) entered into a sale leaseback transaction involving certain computer equipment. Held: the transaction here in issue is not so lacking in economic substance that it can be disregarded for Federal tax purposes. Held, further, Regency held sufficient attributes of ownership with respect to the equipment to be treated as the owner of the equipment for Federal tax purposes.

R determined that P had received unreported income and that P failed to substantiate certain expenses deducted within P's 1981 joint Federal income tax return. R issued an examination report. P filed a protest. The Appeals Office requested that P consent to extend the period for assessment. P refused to execute the consent to extend the period for assessment. P filed the petition herein. The parties appeared at the calendar and filed a stipulation of settled issues pursuant to Rule 231(c). Subsequently, P filed a motion for an award of litigation costs pursuant to sec. 7430, I.R.C. 1954. Held, P has exhausted all administrative remedies made available within the Internal Revenue Service. Minahan v. Commissioner, 88 T.C. 492 (1987), followed. Held, further, P is not a prevailing party within the meaning of sec. 7430(c)(2)(A)(i).

Petitioners' partnerships placed in service refrigerated structures, truck turn-arounds, and railroad trackage during the years in issue. Meat packers and other independent parties rented or leased space in the refrigerated structures primarily for the cold storage of various meats and certain other food products. Petitioners sought investment tax credits under sec. 38, I.R.C. of 1954, as amended, with respect to costs relating to the structures. Respondent allowed credits only with respect to certain refrigeration system components of the refrigerated structures. Held, the refrigerated structures are not buildings for purposes of the investment tax credit. Held, further, the cold storage of meats and other food products, the primary function of the refrigerated structures, is not a "processing of meat" within the meaning of sec. 1.48-1(d)(2), Income Tax Regs., and therefore not an "integral part of * * * production." Sec. 48(a)(1)(B)(i). Held, further, the refrigerated structures are not used for the bulk storage of fungible commodities within the meaning of sec. 48(a)(1)(B)(iii). Held, further, the costs relating to the refrigerated structures, truck turn-arounds, and railroad trackage are thus eligible for investment tax credit only to the extent allowed by respondent. Held, further, the refrigerated structures and truck turn-arounds may be depreciated under the 150-percent-declining-balance method but not the 200-percent-declining-balance method. Held, further, the useful lives of the refrigerated structures and railroad trackage determined.

Decedent made substantial net gifts in 1978. Held: Gift tax paid by the donees is includable in decedent's gross estate under sec. 2035(c); (2) petitioners are entitled to a deduction under sec. 2053(a) for an income tax liability arising from the net gift when the liability was retroactively waived by the Tax Reform Act of 1984; and (3) certain Treasury bonds must be included in the…

Ps filed a motion for summary judgment on the ground that the doctrines of res judicata and collateral estoppel bar R from using certain checks in this proceeding based on a District Court… Held: The doctrines of res judicata and collateral estoppel do not bar R from using the checks for purposes of this proceeding inasmuch as the District Court did not rule on their admissibility. Ps' motion for summary judgment denied.

P, a corporation, is engaged in the business of selling chickens and wholesaling meats and poultry. P also supplies a related corporation which owns and operates Kentucky Fried Chicken restaurants. P purchased an asset approximately 10,283 square feet in size. The asset has a concrete base with prefabricated modular foam panels. The asset consists of air-cooled condensers and a commercial engine which provide refrigeration, and five separate refrigerated compartments: (1) A loading area; (2) a zero-degree compartment; (3) a 28-degree compartment; (4) a 32-degree compartment; and (5) a 55-degree compartment. The 55-degree compartment is where employees cut, clean, inspect, and package chickens. In the refrigerated loading area, commodities are loaded and unloaded. In the remaining compartments, the only work activity is the stacking and unstacking of fungible commodities which are stored there. P claimed an investment credit under sec. 38, I.R.C. 1954, for the cost of the asset. Respondent determined that the asset constitutes a building or does not otherwise qualify for the investment credit and that the air-cooled condensers and commercial engine are structural components. Held, although the asset looks like a building, some of the compartments do not function as a building. Held, further, the 32-degree compartment qualifies for the investment credit within the meaning of sec. 48(a)(1)(B)(i). Held, further, the 55-degree compartment and loading area do not qualify because they function as a workplace for employees. Held, further, the zero-degree and the 28-degree compartments do not qualify because they are not used as an integral part of manufacturing, production, or extraction and do not constitute facilities for bulk storage of fungible commodities. Held, further, the air-cooled condensers and commercial engine do not qualify because they are structural components.

Petitioner, an associate professor at college M, was not recommended for a tenured position at M; thus, her teaching position at M terminated on expiration of her employment contract. Petitioner brought four proceedings against M and certain college officials in various State and Federal forums, alleging that M's decision to deny her tenure constituted a breach of contract and a violation of her constitutional and statutory rights to be free from discrimination on account of sex and national origin. She asked for awards of back pay, reinstatement, a grant of tenure, damages, and declaratory and injunctive relief. Petitioner and M settled the litigation without M admitting its liability. The settlement agreement designated half of the $ 75,000 settlement as wages. Petitioner paid $ 7,750 as a legal fee in this matter. Held: 1. Petitioner may exclude half the settlement from gross income because at least that much was received in satisfaction of her personal injury claims (i.e., violation of her rights to be free from discrimination on account of sex and national origin). Sec. 104(a)(2), I.R.C. 1954. 2. Petitioner may not deduct that portion of her legal fee expense that is allocable to the portion of the settlement that is excludable from income. Sec. 265(1), I.R.C. 1954.

Various partnerships (Newcomb Government Securities, Price & Co., and Magna & Co.) controlled by petitioners traded in Government securities. Held: The prearranged dealer transactions were fictitious, i.e., shams. The claimed deductions for alleged losses and interest expenses from the sham dealer transactions are not allowable, and the corresponding gains and interest income from Newcomb customer transactions are not includable in income. 2.

Ps incurred expenses in connection with their jojoba plantation. They deducted and did not capitalize the expenses pursuant to sec. 278(b), I.R.C. 1954. Held: A jojoba plantation is not a "grove, orchard, or vineyard in which fruit or nuts are grown." Such expenses may therefore be deducted.

Ps purchased two boats (one in 1979 and the other in 1980) for business purposes. Held: the California State sales tax is a tax imposed upon the consumer (United States v. California State Board of Equalization), 650 F.2d 1127 (9th Cir. 1981), affd. 456 U.S. 901 (1982), rehearing denied 456 U.S. 985 (1982); accordingly, pursuant to sec. 164(a)(4), I.R.C. 1954, such taxes are deductible.

X, a corporation controlled by A, was a holding company for a group of affiliated corporations. Held: As to A, this series of transactions, in substance, constitutes a redemption of stock from A by X. Secs. 302, 317(b), I.R.C. 1954. 2. The amounts received by A are essentially equivalent to dividends and are taxable as distributions. Secs. 302(d), 301, I.R.C. 1954.

1. P is engaged in the production of steel and steel products. For its 1976 and 1977 taxable years, P elected to apply the percentage repair allowance (PRA) for ferrous metals. Held: P is not foreclosed by its PRA election for 1976 and 1977 from challenging the validity of the PRA.

P, a regulated utility primarily engaged in the business of selling electricity to residential and commercial customers, required uncreditworthy customers to deposit funds which were refunded upon termination of service or upon P's determination that the customer met certain creditworthiness standards. A customer generally retained the right to determine whether his deposit would be returned to him or credited against his account. The deposits were in fact generally credited against an account, and the remainder was returned by check. Held, the deposits received by P were security deposits, not advance payments, in which customers retained substantial rights and therefore were not income within the meaning of sec. 61, I.R.C. 1954, upon receipt by P. City Gas Co. of Florida v. Commissioner, 74 T.C. 386 (1980), followed.

R mailed to P, a notice partner of Clovis I, a partnership subject to the partnership audit and litigation provisions, letters proposing adjustments to Clovis I's 1982 and 1983 partnership returns. Held: the letters are not notices of final partnership administrative adjustments. Held, further, P's petition was prematurely filed, and this Court lacks jurisdiction over this case.

Petitioners were limited partners in four limited partnerships which marketed computer programs for income tax preparation, estate planning, and financial planning. Held: the insolvency exception to the discharge of indebtedness doctrine applies at the partner, not the partnership, level. Stackhouse v. Commissioner, 441 F.2d 465 (5th Cir. 1971), not followed.

Held, petitioners' 1976 income tax return failed to make a disclosure sufficient to invoke the exception to the 6-year statute of limitations set forth in sec. 6501(e)(1)(A)(ii), I.R.C. 1954. Held: petitioners' 1976 income tax return failed to make a disclosure sufficient to invoke the exception to the 6-year statute of limitations set forth in sec. 6501(e)(1)(A)(ii), I.R.C. 1954.

During 1980 and 1981, petitioner Joseph N. Soboleski was employed as a civil engineer with the U.S. Army Corps of Engineers. Petitioner was assigned to work in the Kingdom of Saudi Arabia where he supervised the construction of a Saudi Arabian military installation. Held, petitioner's salary was paid by an agency of the United States, and therefore he is not entitled to exclude his salary from taxable income under sec. 911(a), I.R.C. 1954.

The Court determined that R's motion to dismiss for lack of jurisdiction should be granted. Held: after the issuance of a statutory notice of deficiency, the timely filing of a petition with this Court commences a civil proceeding. Held, further, sec. 7430 authorizes us to consider a motion for award of litigation costs. Held, further, we have jurisdiction to entertain Ps' motion for award of litigation costs.

On Feb. 19, 1982, respondent's Dallas District Director's Office mailed a notice of deficiency for 1978 and 1979 to petitioners at the Mossvine Drive, Dallas… Held: respondent failed to use due diligence in ascertaining petitioners' correct address when the notice of deficiency was returned as undeliverable; accordingly, the notice of deficiency was not properly sent to petitioners' last known address as required by sec. 6212(b)(1), I.R.C. 1954, and is therefore invalid.

Petitioner's predecessor, Maryland Savings-Share Insurance Corp. (MSSIC), insured savings account deposits made with savings and loan associations chartered in the State of Maryland. Held: MSSIC did not have any IBNR insurance losses during the years in issue. Petitioner therefore is not entitled to the deductions claimed. Sec. 832(b)(5), I.R.C. 1954.

The envelope in which the petition was mailed to the Court bears a clearly legible postmark date of the 91st day after the mailing of the… Held: Whether made by a private postage meter or by the U.S. Postal Service, a postmark after the prescribed date is conclusive as to the date of mailing for purposes of sec. 7502, I.R.C. 1954. Therefore, petitioner cannot present evidence as to the date of mailing, the petition was not timely filed, and the Court is without jurisdiction.

For its taxable year ending Oct. 31, 1977, a year not before the Court, Hall Paving filed a Form 970, application to use LIFO inventory method. Held: Hall Paving's soil aggregate was included within its election to adopt the LIFO inventory method. Held, further, Hall Paving's writedown of soil aggregate constitutes a change in accounting method pursuant to sec. 472(e), I.R.C. 1954.

Ps, individual investors, each purchased from O specified tonnages of ore in the form of one or more undesignated ore blocks for a price of $ 50 plus a 50-percent overriding royalty. Held: The transactions herein lack economic substance, and are to be disregarded for Federal income tax purposes; 2. Such transactions are tax motivated transactions within the meaning of sec. 6621(d); 3.

Petitioners' closely held corporation issued a pro rata dividend of preferred stock on common stock which petitioners contributed to a charitable trust. The stock was then redeemed by the corporation. Held: one of the principal purposes of the distribution and redemption was the avoidance of Federal income tax and the amount of petitioners' deduction is subject to the limitations contained in sec. 170(e)(1)(A), I.R.C. 1954.

Decendent (D) died intestate and was survived by his wife and three adult children. Held: the grant language of sec. 525.15(4) is not discretionary and contains no contingencies, therefore, the spouse allowance is a nonterminable interest under Minnesota law.

In 1970, A incurred costs for the preparation and filing of a registration statement and prospectus with the Securities and Exchange Commission (SEC) for a public offering of 525,000 units of… Held: A's costs in preparing and filing the post-effective amendments with the SEC are not deductible as ordinary and necessary business expenses under sec. 162(a), I.R.C. 1954, or amortizable as capital expenditures which were exhausted in the tax years under sec. 167(a), I.R.C. 1954.

Petitioners filed their returns for the years 1976 and 1978 in 1980 and 1982, respectively. Held: pursuant to sec. 6512(b), I.R.C. 1954, this Court does have jurisdiction to determine overpayments of additions to tax under sec. 6651(a)(1), whether or not such additions are based on amounts shown in a return, under sec. 6651(a)(2), and under sec. 6654, whether or not a return has been filed, if we otherwise have jurisdiction to…

Petitioners purchased a large quantity of Government surplus bandage packages and donated them in 1979 to the American Red Cross. Held: By instituting a proceeding in this Court for 1979 (i.e., in connection with Tallal I), petitioners became subject to our Rules of Practice and Procedure which includes discovery.

In 1931, Stephen Spruill (Stephen), decedent's father, executed a deed conveying successive life estates in the Ashford-Dunwoody Farm to… Held: The Ashford-Dunwoody Farm (exclusive of the homesites) is includable in decedent's gross estate; when the 1956 deeds were executed, there was no mutual understanding between decedent, the grantee, and Weyman and Kathleen, the grantors, that, even though legal title was to vest in decedent, Weyman and Kathleen were to retain their…

Held, for the purposes of sec. 6867, I.R.C. 1954, the owner of seized cash is determined. Held: for the purposes of sec. 6867, I.R.C. 1954, the owner of seized cash is determined.

On decedent's Federal estate tax return, petitioner deducted a payment to decedent's former spouse as a claim against the estate under sec. 2053(a)(3), I.R.C., 1954. Held: Sec. 2053(c)(1)(A) limits the deduction for claims against the decedent's estate to that portion of the payment which represents a legally enforceable obligation of the estate, and no deduction is allowed under sec. 2053(a)(3) for the excess portion even though paid to an estate creditor. 2.

Petitioner Neil K. Baker owned and operated a barter exchange. Held: trade units received as commissions on transactions occurring within the barter exchange are taxable to petitioner at a value of $ 1 each.

P bought property in an area subject to an urban renewal project. As a participant in a program that was part of the project, P received a facade grant. According to the terms of the grant, the city's urban renewal agency (URA) agreed to restore the facade on P's building and P promised to rehabilitate the interior of the building and to maintain the facade. The URA contracted for the facade rehabilitation and was the party that chose the contractor, negotiated the terms of the contract, and paid the contractor directly for the work. P was not permitted to alter the facade in any way without written approval of the URA. P also was required to grant an easement permitting the URA to enter his property and repair the facade at P's expense, should P fail to maintain the facade according to the agreement. Held, the new facade on P's property was not income to P because P lacked complete dominion over the facade. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Held, further, P may not include the amount of the facade grant in the property's basis. Held, further, P is not entitled to an investment tax credit for the improvements to his property.

Petitioners invested in a tax shelter entitled Gold for Tax Dollars, pursuant to which they deducted at least 4 times the amount of their cash investment as mining development expenditures… Held: petitioners held no property interests as to which such mining development expenditures could be made. Held, further, the IME Gold for Tax Dollars promotion and its concomitant transactions, taken as a whole, was a fraudulent factual sham. Julien v. Commissioner, 82 T.C. 492 (1984).

Ps moved for an award of litigation costs after we decided for Ps in Rutana v. Commissioner, T.C. Memo. 1986-336, the sole issue of which was whether Ps fraudulently intended to evade tax. R's counsel should have known that the facts available to R at trial could not clearly and convincingly establish fraud. R's counsel disregarded Ps' explanations as self-serving but had no supportable basis for believing Ps to be untruthful. Held, R did not have a reasonable basis in law or fact for believing that he could prove that Ps acted with intent to evade tax, Wyandotte Savings Bank v. N.L.R.B., 682 F.2d 119 (6th Cir. 1982), and his position in this litigation was, therefore, unreasonable; Don Casey Co. v. Commissioner, 87 T.C. 847 (1986). Held, further, Ps' counsel's hours billed and rates charged were reasonable and a "fully compensatory fee" is awardable, Hensley v. Eckerhardt, 461 U.S. 424 (1983). Held, further, litigation costs in the amount of $ 22,720.56 are awarded.

Petitioner was formed to spread the religious teachings of its founder through a broadcasting and publishing ministry. Held: the Court has jurisdiction to issue a declaration of whether petitioner is a church. Sec. 7428, I.R.C. 1954, Friends of the Society of Servants of God v. Commissioner, 75 T.C. 209 (1980).

Petitioner pled guilty to one count of conspiracy to commit grand theft and was sentenced to prison. Held: restitution paid pursuant to a criminal conviction or plea of guilty is a fine or similar penalty paid to a government for the violation of any law within the meaning of sec. 162(f), I.R.C. 1954, and thus may not be deducted under sec. 162(a).

Petitioner manufactures snow for use in its trade or business of providing recreational skiing facilities. Held: other tangible property used as an integral part of manufacturing may qualify for an investment tax credit regardless of whether the taxpayer is engaged in the trade or business of manufacturing.

Ps filed their petition with this Court out of time. R moved to dismiss for lack of jurisdiction on the ground that the petition was not timely filed. Held: ACTF was a partnership for Federal tax purposes in December 1982, and is, therefore, subject to the partnership audit and litigation procedures (sec. 6221 et seq.) for its 1982 taxable year.

Ps and J owned stock in corporations which operated fast-food restaurants pursuant to franchise agreements with M Corp. J owned the majority of stock of such corporations and generally acted as the… Held: J did not intend to sell his M Corp. stock at the time of its acquisition.

K corporation maintained a profit-sharing plan for employees during the years at issue. Held: A and O are disqualified persons. Held, further, the subject lease transactions are prohibited transactions.

Petitioner attempted to elect sec. 2032A, I.R.C. 1954, special use valuation. An agreement of the type referred to in sec. 2032A(d)(2) was not attached to petitioner's original estate tax return. Held: petitioner's failure to attach an agreement of the type referred to in sec. 2032A(d)(2) to its original estate tax return defeated petitioner's attempted election of sec. 2032A special use valuation.

In 1979, the ill-fated and tempestuous marriage of Priscilla and Cullen Davis was dissolved. The divorce decree specified the manner in which the community property was divided. Held: The money judgment effectuated a distribution to Priscilla of a right of reimbursement. Because the right of reimbursement was a community asset, its award to Priscilla is not a taxable event.

Petitioner, a dentist, conducted his private practice through a wholly owned professional corporation. The professional corporation established an employees pension trust, with petitioner as trustee. Held: sec. 4975, I.R.C. 1954, does not incorporate a prudent investment standard; therefore, because the sale of stock to the trust constituted a prohibited transaction, petitioner is liable for the tax imposed by sec. 4975(a), I.R.C. 1954, for the taxable year 1980.

Held: Where respondent failed to file an answer within 60 days from the service of the petition, as required by Rule 36(a), Tax Court Rules of… Held: Where respondent failed to file an answer within 60 days from the service of the petition, as required by Rule 36(a), Tax Court Rules of Practice and Procedure, and within an additional 60 days permitted by the Court pursuant to an uncontested motion, and where the failure was due to bureaucratic inertia and was not due to…

D, a closely held corporation engaged in the manufacturing business, was liquidated in 1975. Held: The Commissioner's disallowance of the inventory offset does not result in a clear reflection of income and is unreasonable; D's gross profits determined using the costs-incurred alternative of the percentage of completion method of accounting for long-term contracts. See sec. 1.451-3, Income Tax Regs. 2.

In T.C. Memo. 1987-196 the U.S. Tax Court held that petitioner's arguments were frivolous and awarded the United States damages of $ 1,000 pursuant to sec. 6673, I.R.C. 1954. Held: motion to vacate is granted in that the award of damages pursuant to sec. 6673 is increased $ 1,000 because petitioner maintained the proceedings, by filing a frivolous motion to vacate, primarily for delay.

1. International, a wholly owned subsidiary of Goldberger, Inc. (parent), elected Domestic International Sales Corporation (DISC) status. Held: we have jurisdiction to decide whether International qualified as a DISC for its taxable year ended Oct. 31, 1979. Held, further: International did not qualify as a DISC for its taxable year ended Oct. 31, 1979.

P leased exclusive hunting rights to about 6,000 acres for 10 years and entertained suppliers and customers by providing hunting and fishing opportunities on the leased land. Held: because P had exclusive use and unfettered access to the acreage for entertainment, the hunting area is a facility within the meaning of sec. 274(a)(1)(B).

The decedent delivered checks in the amount of $ 3,000 each to six different individual donees in 1980. In 1981, the donees presented the checks to the drawee bank for payment and the checks were paid. Held, the payment of the checks in 1981 did not relate back to the delivery of the checks in 1980 for purposes of determining when the gifts were complete under secs. 2501 and 2511, I.R.C. 1954, because petitioner failed to prove unconditional delivery of the checks to the donees. Held, further, the decedent did not part with "dominion and control" over the property which was the subject of the gifts for purposes of sec. 25.2511-2(b), Gift Tax Regs., until payment of the checks by the decedent's bank during 1981.

D died owning all the outstanding stock of company C. For Federal estate tax purposes, D's estate reported the entire stock interest in the gross estate at a value which R has accepted. Held: D's estate is entitled to show that the 51-percent majority block of stock passing to the surviving spouse is entitled to an additional value because of the control element. Motion for summary judgment denied.