Volume 9 — Board of Tax Appeals

1. Loss on sale of real estate determined. 2. Adjustment determined for accounts partially written off in prior years, but not ascertained to be worthless until 1921 and 1924. 3. Duplicate reduction of petitioner's invested capital restored. 4. Adjustment to surplus for depreciation sustained in prior years but not set up on petitioner's books determined.

Withdrawals by stockholders held in the nature of dividends or distributions of profits and do not constitute invested capital.

The petitioner was engaged during the year 1917 in constructing aeroplane hangars and other buildings for the United States Government. Held: that the petitioner is entitled to have his excess-profits tax computed under section 209, of the Revenue Act of 1917.

A trust estate under the control of a resident fiduciary and subject to the jurisdiction of the State of Wyoming is not a nonresident alien and taxable as such under the Revenue Act of 1918.

Commissioner's determination refusing a deduction for a bad debt approved where the evidence does not indicate an ascertainment of worthlessness in the year in which the deduction was taken.

Circumstances surrounding a gift of stock held to show an intention to make a valid and enforceable gift.

Deductions for losses alleged to have been sustained during the taxable year allowed in part and denied in part.

1. The petitioners held to be affiliated with J. H. Doxsee & Sons, Inc., for the years 1919, 1920, and 1921. 2. Held: that the amount charged off is not a legal deduction from gross income in the income-tax return of Fred Fear & Co., Inc., for the year 1920.

1. Loss in a shortage of inventory is a legal deduction from gross income. 2. The deductible loss on the sale of real estate determined. 3. Deduction for exhaustion of cost of patent disallowed.

1. On the evidence, held that a corporation organized in January, 1916, and thereafter engaged in a business, part of the income of which was derived from personal service and part from the employment of capital, was not in 1918 carrying on the same trade or business as a preceding partnership, and is not within the provisions of section 330, Revenue Act of 1918. 2. The Commissioner's determination of war-profits credit approved.

1. An informal discussion by the officers of a corporation of increased salaries for the current year 1918, which salaries are not authorized or fixed in amount by formal corporate action until the following year, are not entered in the accounts or communicated to the employees and are never paid, is not sufficient to establish such salaries as deductible in 1918. 2. There are no well known and uniformly accepted rules either for the determination of the existence of good will or for its valuation, and it is only by looking at the circumstances of the business as a whole in the light of its history up to the time of the date under consideration that the question can be decided. 3. While the problem of valuation is not to be confined to the application of mathematical formulae or governed by a slavish adherence to a rule, nevertheless it may not as a matter of law be disposed of by the categorical opinions of witnesses unless their training and experience and their intelligent appreciation of the nature of the valuation problem give substance to their opinions. 4. The value of intangible property paid in for stock determined and invested capital held determinable by the formula of St. Louis Screw Co.,2 B.T.A. 649. 5. The value of intangible property on March 1, 1913, as a factor in the computation of gain or loss on subsequent disposition determined.

1. Insurance premiums paid by petitioner upon insurance policies issued to himself and in his name represent the cost of such insurance purchased for resale, and upon such resale, the profit derived, or the loss sustained, is the difference between the premiums paid by petitioner to the insurance company and the amounts received from clients, plus the certificates of profit received by petitioner from the insurance company. 2.

Action of Commissioner in denying a deduction of a loss on certain debenture notes sustained.

Petitioner not entitled to classification as a peronal service corporation during 1920.

1. March 1, 1913, value of a leasehold determined. 2. The determination of the Commissioner that inadequate depreciation had been deducted in prior years in approved in the absence of sufficient evidence to show that it is erroneous.

Respondent's action in disallowing a loss alleged to have been sustained upon sale of personal property, approved.

The salaries of the petitioner's officers were increased by informal action of the board of directors with the agreement that the officers should draw only such amounts as were agreed to by the board of directors and that the undrawn portion of the salary of each should draw interest at the rate of 8 per cent. The salaries and interest on the undrawn portion were credited to the account of the officers within thetaxable years.

Petitioner held affiliated with the Nehalem Logging & Timber Co.

Petitioner, formerly executor of estate of decedent, is liable for estate tax regardless of his discharge as such executor, and in determining the amount of the tax, property situate in a jurisdiction foreign to that granting letters testamentary may properly be included in the gross estate.

1. PENALTY FOR FAILURE TO FILE RETURN. - The petitioner keeping its accounts and making income-tax returns for fiscal years ending January 31 of each year made and filed within the time required by… Held: that the 25 per cent delinquency penalty may be computed only upon the excess of taxes shown to be due under the Revenue Act of 1918 over the amount returned and paid under the Revenue Acts of 1916 and 1917. 2.

INCOME. - Prior to the taxable years petitioner leased its railroad and property for a term of years, the lessee agreeing to pay all Federal income taxes imposed upon the lessor with reference to the… Held: the amount of tax so paid constitutes additional income to the petitioner for the year in which such tax became due and was paid.

1. An irrevocable trust to accumulate the income from property until grantor's death or for 21 years and then to distribute to grantor's descendants, held not intended to take effect in possession or enjoyment at or after death within section 402(c) Revenue Act of 1921. Shukert v. Allen,273 U.S. 545. 2.

1. BAD DEBT. - Debt ascertained to be worthless and charged off during taxable year held deductible. 2. Held: such amount should be eliminated from gross income. 4. Loss. - Upon the evidence, held, petitioner sustained a loss on sale of truck in 1920. 5. DEPRECIATION. - Respondent allowed no depreciation on petitioner's motor truck for 1920. Depreciation determined and allowed.

1. Fair market value of patents and patterns for purpose of the deduction for exhaustion, wear and tear determined. 2. Cost of assets to be used for depreciation and invested capital determined.

1. Cost of assets subject to amortization deduction determined. Amount of deduction as a reasonable allowance for amortization of such assets determined. 2. Cost of assets determined as a basis for the deduction of an allowance for exhaustion, wear and tear thereof. 3.

1. The petitioner leased its railroad, the lessee agreeing to pay a stipulated net rental and any taxes imposed on such rental. Held: that income taxes paid on such rental by the lessee are income to the lessor for the year when such taxes become payable. 2. The amount of such tax borne by the Director General of Railroads pursuant to the Federal Control Act is not income to the petitioner.

In the circumstances, held that a purported sale of petitioner's assets to its president was not a bona fide sale thereof upon which a deductible loss may be claimed.

1. Exchange of stock in a Louisiana corporation, a contract to receive royalties, and an interest in an oil lease for cash and bonds of a New York corporation held to have been separate exhanges and not a lump-sum transaction. 2. As the aggregate par value of bonds received was less than that of the stock exchanged therefor, the transaction resulted in neither gain nor loss. Section 202(b), Revenue Act of 1918. 3.

The petitioner and his wife, residents of the State of Oklahoma, filed separate returns for 1923, in which each reported one-half of the income received from property acquired while residents of the… Held: that such a method of reporting income was correct.

- No part of an existing surplus of one member of an affiliated group of corporations may be eliminated from the consolidated invested capital where such surplus or any part thereof is not shown to be duplicated in the accounts of one or more of the affiliated group.

GAIN OR LOSS. - Under the Revenue Act of 1924, the basis for determining gain or loss under section 204 should not be reduced by the amount of any tax-free distribution referred to in section 201(b) made prior to the effective date of the 1924 Act.

The evidence fails to establish that certain expenditures were deductible from gross income as ordinary and necessary business expenses within the year.

A commission note given for securing a loan held deductible as an expense in the year given where petitioner is on the accrual basis.

March 1, 1913, value of certain paintings determined.

Deduction for a loss alleged to have been sustained in 1917, denied for want of proof.

A payment made by a guarantor for relief from liability, past and future, under a guarantee contract held a deductible loss.

Actual cash value of limestone and shale deposits paid in to a corporation in exchange for stock determined upon the basis of tonnage in place, the fair royalty price per ton upon the tonnage extracted during the year which the corporation would have been required to pay if it had acquired the deposits on a royalty basis, and the period of years for which the deposits would last.

During the years 1918, 1919, and 1920 the petitioner was engaged in building wooden ships for the United States Shipping Board Emergency Fleet Corporation on a cost-plus, fixed-fee basis, the… Held: that the amounts received in 1923 were income of that year. Decision in Appeal of Peninsula Shipbuilding Co.,5 B.T.A. 739, revised.

Expenditures for capital assets disallowed as deductions.

Deductions on account of additional compensation to officers disallowed upon the ground that there was no obligation on the part of the corporation during the year to pay the same.

Where a decedent kept his books and records on the basis of cash receipts and disbursements only the amounts actually expended during the taxable period involved in the payment of taxes are allowable as deductions in determining his net income.

Deduction claimed on account of bad debts disallowed upon the ground that the debts were not ascertained to be wholly worthless during the taxable year.

1. The Commissioner was in error in computing a tentative tax in determining the amount of current earnings available for payment of dividends. 2. Invested capital should be reduced as of the date of the declaration of cash dividends.

Where a corporation in 1917 expressly made a loan to a third person who in turn loaned the amount to its stockholders in approximate proportion to their stock and took their notes, and in 1921 the corporation declared a dividend payable in bills receivable and all the notes were canceled, and other circumstances indicated that the transaction was intended to be a loan, held that the stockholder received a dividend in 1921, even if she understood in 1917 that she was then…

The principal stockholder having purchased the corporate assets with four promissory notes, the corporation declared and paid a liquidating dividend, reserving however, to itself, an amount equal to… Held: that the gain realized by the several stockholders is the difference between the March 1, 1913, fair market value of their stock and the amount of their liquidating dividend.

The income derived from certain contracts to erect and install cotton compresses held to be taxable in the year 1921.

1. Value of a certain pulp stone deposit determined for invested capital and depletion purposes. 2. From evidence presented certain notes given in payment of capital stock should be included in invested capital.

Petitioner sold in 1920 and 1921 certain real estate which he had acquired by inheritance in 1892. Held: that the Commissioner did not err by reason of such action. Even Realty Co.,1 B.T.A. 355, followed.

Upon the evidence, held that the petitioner is not entitled to exemption as a business league under the provisions of paragraph 7 of section 231, Revenue Act of 1918.

1. The Board will not inquire into the basis for the Commissioner's belief that jeopardy exists as provided by section 250(d) of the Revenue Act of 1921. Appeal of California Associated Raisin Co.,1 B.T.A. 1251 followed. 2. The Commissioner has the authority to reconsider and reverse a decision of a predecessor in office, unless precluded by the statute of limitations, where such decision and reversal involve only a question of law. 3. The bequests to the Lakeside Hospital and the College for Women of the Western Reserve University, involved herein, held not to be proper deductions in computing the petitioner's net income.

1. The value of good will acquired by petitioner determined, and it is held that the petitioner is entitled, under the facts herein, to include the value of such good will in its invested capital. 2. A deduction from gross income for obsolescence of good will due to prohibition legislation, denied.

1. The evidence is insufficient to overcome the presumption in favor of the Commissioner's determination that a loss sustained by the petitioner in 1919 was not a net loss resulting from the operation of any business regularly carried on by the petitioner in 1919. 2. Income from a transaction involving the purchase and sale of a building held to have been income of 1920, when the purchase money was paid, rather than of 1919, when the contract of sale was signed.

Interest paid on a note, executed as a gift, held not to be deductible.

- A composite depletion and depreciation unit per ton of coal mined each year determined as a basis for deduction for exhaustion, wear and tear. Held: that the difference between the amount accrued and the amount of settlement should be restored to income for the year in which the accrual was claimed.

The cancellation of indebtedness of the petitioner to a principal stockholder held not to constitute income of the petitioner under the provisions of the Revenue Act of 1921.

The petitioner and the Rishel Phonograph Co. were not affiliated during the year 1921.

Companies held affiliated in 1919.

1. Respondent's adjustments of raw cotton inventories to cost reversed. 2. Two similar and undistinguished lots of the same merchandise can not be inventoried on different bases. 3. Where raw cotton was acquired and in possession of the petitioner, expenditures for public warehousing and subsequent drayage to the petitioner's mill, do not constitute additional costs of the cotton for inventory purposes, but are business expenses and proper deductions from income.

A lessee of chattels that has no capital investment therein, is not entitled to deduct from gross income the amount of an annual depreciation reserve established for the purpose of replacing or renewing such chattels.

1. The liability for the additional taxes for the year 1917 involved herein is extinguished by section 1106(a) of the Revenue Act of 1926, and there is no deficiency for that year. 2. Held: that the amount so expended is a proper deduction from gross income. 3.

When goods are manufactured abroad by a foreign corporation and sold in this country, the entire profit constitutes gross income from sources within the United States, within the meaning of section 233(b) of the Revenue Act of 1918.

Amounts of losses deductible from gross income of 1919 and 1920 determined.

On April 1, 1918, decedent filed his income-tax return for the year 1917. On March 20, 1923, the Commissioner assessed an additional tax on such return. Held: that the collection of any additional tax for 1917 is barred by the statute of limitations.

At the beginning of the petitioner's fiscal years ended January 31, 1920, and January 31, 1921, there stood on the books of account of petitioner installment accounts receivable representing sales… Held: that petitioner may not include in invested capital of the fiscal years in question as earned surplus the profits included in installment accounts receivable at the beginning of each fiscal year which had not been collected at the beginning of such fiscal year.

1. Income was overstated by the amount of certain expense items erroneously charged on the petitioners' books to capital asset accounts. 2. Deduction on account of the discontinuance of the use of certain patents disallowed for lack of evidence. 3. Reduction of invested capital on account of alleged insufficient depreciation charged off in prior years sustained for lack of evidence. 4.

1. Deduction claimed on account of compensation disallowed for lack of evidence. 2. Held: that no loss was sustained when the road was thus turned over. 3. Amounts deductible as expenses of road repairs determined.

LOSSES. - Petitioner in September, 1920, acquired a warehouse which it intended to use as a bed and spring manufacturing plant. Held: the petitioner, in junking such material, did not sustain a deductible loss within the meaning of section 234(a)(4) of the Revenue Act of 1918.

Respondent's determination approved because of failure of proof as to March 1, 1913, value of assets sold.

Where both parties contend that petitioner's original return was incorrect and agree that petitioner's records are erroneous, the petitioner has the burden of satisfying the Board of the correct amount of net income.

1. The petitioner and his wife were divorced prior to December 21, 1920, and thereafter they lived apart and he contributed nothing to the support of the wife and minor children. Held that he was entitled to a personal exemption of $1,000 only. 2. The petitioner filed his return for the year 1920 on March 15, 1921. The deficiency notice was mailed October 21, 1925. Held that the statute of limitations had not run.

1. Amounts donated to petitioners by private individuals and corporations for construction of spur tracks and facilities do not constitute taxable income. 2. Held: such interest is a part of the just compensation sought to be paid and should be included in the computation of gross income in the years 1918 and 1919 when it accrued.

Traveling expenses paid by a salesman on a straight commission basis are deductible as ordinary and necessary business expenses.

1. Capital expenditures distinguished from ordinary and necessary repairs. 2. Deduction of $6,710.11 claimed either as a bad debt or additional compensation disallowed.

Invested capital and depreciation for certain assets acquired by the petitioner for stock determined.

Commissioner's determination approved for lack of evidence.

The petitioning corporations were not affiliated during the year 1921, within the meaning of section 240(c) of the Revenue Act of 1921.

A corporation at the end of 1919 had an open account for merchandise furnished to a customer. Held: that the amount charged off in 1919, was deductible in that year neither as a bad debt nor as a loss.

The Commissioner's determination that in 1918, the petitioner did not incur a legal obligation to pay its employees a bonus for that year will not be disturbed where it appears that the directors for the first time formally authorized the payment of the bonus in 1919 and the evidence fails to show that this action of the board of directors was merely a ratification of the acts of three of the six directors creating a legal obligation in 1918 to pay the bonus.

The Commissioner determined the petitioner's income from a partnership in accordance with the partnership agreement purporting to control the distribution of profits for the year. Held: the evidence was insufficient to overcome the presumption of correctness in favor of the Commissioner's determination.

1. Petitioner held to have been the purchaser of certain stock as principal and not an agent for the Multnomah Lumber & Box Co. 2. Evidence held insufficient to show error on the part of respondent in determining gain realized on the surrender of stock for the cancellation of an indebtedness.

DEPLETION. - The March 1, 1913, per ton value of ochre and barytes deposit on petitioner's lands determined as a basis for deductions on account of depletion of ores during the years 1920 and 1921.

OBSOLESCENCE. - The petitioner had been engaged in carrying on the business of a manufacturer of malt and also as a producer of malt liquors. Held: that he is entitled to claim obsolescence upon the tangible properties used in his former businesses.

A document entitled income and profits-tax return for the fiscal year ended November 30, 1918, purporting to be a return of the petitioner but which was neither signed nor sworn to by any person, was… Held: the return filed November 13, 1922, was the return required by statute and that the Commissioner had 5 years from the date of the filing of such return within which to determine a deficiency in income and profits tax.

1. MOTION FOR SUBSTITUTION OF PARTIES. - Denied under section 3467 of the Revised Statutes, which provides for the personal liability of executors for debts due the United States from the estate. 2. ESTATE TAX. - Real estate transferred to trustees in 1911 with life estate reserved to grantor, held not transferred in contemplation of nor intended to take effect at or after death, and may not be included in the gross estate of the decedent.

ESTATE TAX. - The property described in the transfers involved in this proceeding were not made in contemplation of, nor intended to take effect at or after grantor's death, and may not be included in a computation of either gross or net estate of decedent.

1. Profit from sale of interest in oil and gas leases held not taxable in 1919. 2. Determination of respondent as to depletion approved.

1. Evidence held insufficient to justify change of respondent's valuation of stock as of March 1, 1913. 2. Evidence held to show that stock received as part consideration for sale had no readily realizable value in 1922. 3. Deduction for had debt allowed.

A loss for the six-month period ended December 31, 1921, is not a net loss for any taxable year beginning after December 31, 1920, within the purview of section 204 of the Revenue Act of 1921, and such loss is not a legal deduction from gross income in a return for the calendar year 1922.

Losses sustained during the years 1918, 1920, 1921 and 1922 in operating a farm as a business are deductible from gross income.

Value at March 1, 1913, of a lease of coal lands, determined.

The amount of $8,900 paid to petitioner's president, vice president, and treasurer, respectively, during the year 1917 constituted reasonable salaries for services actually rendered in that year.

The petitioner maintaining a residence for himself, his brother, and five sisters, all of whom are more than eighteen years old and not dependent on him for support, is not entitled to the exemption granted the head of a family by section 216(c) of the Revenue Acts of 1921 and 1924, though he in fact contributes to the support of his brother and sisters.

- Taxes paid by the executors to the States of New York, Connecticut, West Virginia, New Jersey, Michigan, Colorado, Illinois, Kansas, and Wisconsin under their respective transfer, inheritance or legacy-tax statutes are legal deduction for the year 1922 from gross income of the estate of Harriet M. Don, which was in the process of administration.

PATENT VALUES. - The March 1, 1913, value of certain patents acquired for stock determined for the purpose of deductions for exhaustion.

BAD DEBT. - Where decedent a few days prior to his death in 1920, in going over his business affairs with his son, stated that all money matters with one Stanford were a total loss to him (decedent)… Held: the debt was ascertained to be worthless and in effect charged off during 1920.

1. INCOME. - During 1918 a probate court approved final settlement of an estate and approved executrix's fees in the amount of $21,590.50 and turned the residue of estate and the amount of the fees… Held: the executrix's fees were not income during 1921. 2. Loss. - Upon the evidence held that certain stock did not become worthless during 1921 and no deductible loss was sustained during that year.

Salaries voted by board of directors at informal meetings to a director for services, held to be reasonable and deductible as accrued expenses.

1. AFFILIATION. - Company A operated the principal properties of companies B and C. It owned 61.23 per cent of the stock of Company B and 85.18 per cent of the stock of Company C. Held, all three… Held: all three companies were affiliated. Company A also owned 19.98 per cent of the stock of Company D and controlled the balance of the stock by means of a 99-year lease from the owner of the remaining 80.02 per cent. Held, that companies A and D were also affiliated. 2.

Trust created by decedent four years prior to his death held not to have been made in contemplation of death.

Where an assessment was made in 1921, within the five-year period of limitation provided by section 250(d) of the Act of 1921, and the Revenue Act of 1924 was enacted prior to the expiration of that five-year period, respondent has six years from the date of the assessment within which to begin a suit or other proceeding for the collection of such tax, under section 278(d) of the Revenue Act of 1924. Collection held not barred.

The evidence shows that petitioner neither realized a taxable gain nor sustained a deductible loss upon the sale of its assets in 1919.

1. Held, that in the circumstances of this proceeding certain salaries were ordinary and necessary business expenses. 2. Penalty for delinquency should not be imposed. Held: that in the circumstances of this proceeding certain salaries were ordinary and necessary business expenses. 2. Penalty for delinquency should not be imposed.

Certain professional and business losses and expenses allowed and personal expenses disallowed.

1. Petitioner is entitled to a reasonable deduction from gross income for each of the years 1918 and 1919 for exhaustion of his leasehold of elevator properties acquired prior to March 1, 1913, equal to an aliquot portion of the value thereof as of said date. 2. Value of leasehold determined for exhaustion purposes.

A decedent entered into a five-year contract of employment wherein it was provided that so long as he might act as president of a company he should receive 22 per cent of the profits of the company, but that upon his death, or upon his ceasing to be president, the contract should be null and void, and that no one through him should have any right to anything from the company by way of any share of the profits which he had not drawn in his lifetime or otherwise.

The entire income from property held in trust was distributed by the trustee in 1920 to the beneficiaries of the trust pursuant to the direction of the testator creating the trust. Held, that the trustee is not liable to income tax in respect of the amounts of income of 1920 distributed but that the beneficiaries receiving such income are liable to income tax on the amounts received by them.

A decedent at the time of his death had an asset in the form of unpaid salary and the estate later received payment of the same. Held that the estate did not have income where the amount re-received did not exceed the value of the asset at the time of the decedent's death.

1. Petitioner's deductions for officers' salaries approved. 2. Deficiencies held not barred.

Respondent's denial of personal service classification approved.

The normal income tax imposed by the State of Wisconsin upon taxpayer's income for the year 1919 accrued and became a fixed liability on December 31, 1919. It, therefore, was a proper deduction from gross income for that year for the purpose of the Federal income tax upon the accrual method of accounting, notwithstanding such tax did not become due and payable until the subsequent year.

During the taxable years petitioner's wife was a member of a partnership and her one-sixth share of the partnership profits was not taxable to him.

Where petitioner and three others, each owning an undivided one-fourth interest in real estate, contract to sell the property for more than cost, but the cash received is less than cost, and the contract has no readily realizable market value, petitioner held entitled to recover his share of the cost of the property before any taxable gain arises from his share of the selling price.

Depreciation allowable under section 234(a)(7) of the Revenue Act of 1918, is that accumulated in the taxable year alone and does not include depreciation accumulated in prior years and not deducted in prior income-tax returns.

1. OBSOLESCENCE. - Evidence respecting a building structure maintained for the purpose of producing fixed carrying charges of city land found to be insufficient to support a determination of when such structure may become obsolete. 2. LOSS. - A deductible loss arising from the sale of household furniture determined and allowed.

1. A corporation engaged in general accounting and auditing and employing accountants and auditors at salaries to perform such work, with two of its principal stockholders actively engaged in conducting a law partnership during the taxable years, is not entitled to classification as a personal service corporation. 2.

1. OBSOLESCENCE OF PATENT. - The amount of obsolescence of a patent resulting from the entry into the same field of a newly patented machine determined and allowed as a deduction from gross income. 2. EXTENSION. - A so-called unlimited waiver, consenting to the extension of time within which income and profits taxes may be assessed and collected, entered into on February 5, 1923, expired on April 1, 1924, by virtue of Commissioner's order dated April 11, 1923.

1. DEDUCTION . - Petitioner sustained a loss during 1919 through a reduction of its inventory caused by breakage and/or loss of physical assets. Held, that such loss is deductible in computing petitioner's net income. 2. DEPRECIATION. - No evidence adduced as to depreciation sustained and the amount allowed by respondent has not been disturbed.

Petitioner, in 1919, filed a consolidated return for the year 1918, on behalf of itself and two other corporations claimed to be affiliated, which return complied with the requirements of section… Held: that the return filed in 1919 was a compliance with section 239, Revenue Act of 1918, and that the collection of a deficiency for 1918, if any, was barred by limitation at the date of the deficiency notice on July 31, 1925.

Where petitioner, on accrual basis, with fiscal year ending September 30, tendered goods, during and immediately prior to September, 1920, under a contract for the sale thereof by sample, subject to… Held: that the petitioner should not include the sale price of the goods in gross income for the year ended September 30, 1920.

The evidence fails to establish that petitioner is entitled to classification as a personal service corporation.

On the facts, held that the petitioners herein were not affiliated during the years 1920 and 1921.

1. Cost of real estate allocated, for purpose of computing depletion allowance, between residual value of land and value of clay content. 2. Held: that where a depletable asset has been fully exhausted, invested capital should be reduced by the amount of the cost and not by the amount of the total of the depletion allowances. 3. Evidence insufficient to warrant an increase of invested capital by reason of the transfer to the corporation of certain assets.

In determining whether expenditures made upon property to fit it for use are capital expenditures or deductible as ordinary and necessary expenses, the fact that there is no increase in the assessed valuation for local taxes does not establish them as deductible expenses.

1. INVESTED CAPITAL. - Where individuals acquired an option to purchase property and after exercising such option, paid in to a corporation all of their rights thus acquired for stock of the corporation, the corporation is entitled to include in invested capital the value of the property acquired. 2. INVESTED CAPITAL. - Value and quantity of standing timber, land under standing timber, cut-over lands, mill site, and plant and equipment determined. 3.

Excess depreciation taken in prior years but later disallowed and added to income, should be restored to surplus and included in invested capital.

Claim for exemption from taxation of salary as director of Goodwyn Institute, an educational institution of which the State of Tennessee is trustee, denied, on the ground that the director is neither an officer nor employee of the State.

1. Royalty income from certain oil and gas leases held not to be capital gain as defined in section 206 of the Revenue Act of 1921. 2. Profits derived from the sale of undivided interests in oil and gas underlying land owned for more than two years prior to date of conveyance, held to be capital gain as defined in section 206 of said Act.

1. Written consents extending the statute of limitation for assessment and collection of income and profits tax executed by the petitioners, filed with the Commissioner of Internal Revenue and signed D. H. Blair, Commissioner, are not rendered void by a mere showing that the Commissioner did not personally sign his name thereto. 2.

1. Petitioner has not submitted sufficient evidence to show the amount of current profits of a corporation available on the date of payment of dividends during the year 1917, and, in the absence of such evidence, the method used by the Commissioner in determining the current profits available by prorating the net earnings for the entire year 1917 to the dates of payment of the several dividends is approved. 2.

The decedent by an antenuptial contract provided for payment to his wife upon his death of $75,000 out of his estate in lieu of dower and other martial rights, in case she survived him. After his death the widow accepted a bequest in trust for her benefit under the provisions of the decedent's will in lieu of and in full satisfaction of any claim she might have against the estate under the marriage contract.

Alleged bad debt deduction disallowed.

Determination and collection of tax held to be barred by the period of limitation prescribed by statute. Wirt Franklin v. Commissioner,7 B.T.A. 636.

Salaries held to be reasonable and deductible as a business expense.

A partnership agreement provided that 6 per cent interest should be charged as a business expense and paid to the partners on their capital used by the firm before distributing the rest of the earnings on a percentage basis. Held that the distributive share of a partner in the net income of the partnership included the amount received by him as interest on his capital.

In the absence of evidence establishing a loss upon the sale of capital assets - a coal mine and equipment - in the year 1919, it is held that the respondent did not err in excluding the alleged loss from the computation of the statutory net loss under section 204, Revenue Act of 1918.

Where all the material allegations of the petition are denied by the answer, and the petitioner offers no evidence in support of its allegations, the determination of the respondent is approved.

Depreciation rate determined.

The unextinguished cost of acquiring an original lease was part of the cost of acquiring a new lease on the same premises and should be prorated over the term of the new lease.

In the absence of evidence establishing that a loss contended for by the petitioner was sustained, the action of the respondent in disallowing the loss is approved.

1. Value of property paid in for stock determined. 2. Amount of amortization of war facilities determined. 3. A petitioner, having made claim for a reasonable deduction for amortization at the time of filing its tax return for 1918, may amend its claim at the time of filing a petition with the Board and may include items not listed in the original claim.

On the evidence held that the taxpayer was not a personal service corporation.

Petitioner's claim for additional deduction from gross income on account of automobile expenses disallowed.

1. Exempt Corporations. - The evidence does not show that the petitioner was exempt from taxation under section 231(11) of the Revenue Acts of 1918 and 1921. 2. Dividends. - Fixed dividends paid by a cooperative corporation are not deductible from its gross income. 3. Statute of Limitations. - On May 12, 1920, the petitioner filed its income and profits-tax return for the fiscal year ended February 29, 1920.

All the stock of five different corporations was purchased by petitioner in 1916 for a lump sum in excess of the par value of the stock so purchased, and in excess of the tangible assets of the corporations whose stock was purchased.

Amounts received as compensation for services rendered certain municipalities during 1919 held not to be exempt from the Federal income tax, on the ground that the petitioner was neither an officer, employee nor administrative agency of any State or political subdivision thereof.

Deduction of one-half of debt in 1921 held proper.

1. Title to property passes when the parties so intend. Legal rules as to when title passes on f.o.b. shipments are merely aids for ascertaining intention and must yield when the intention of the parties conflicts with the presumption created by the rule. 2. Circumstances surrounding contracts held sufficient to show intent of parties that title should pass to buyer, as to one contract, insufficient to show such intent as to other contract. 3.

1. The evidence is insufficient to establish the March 1, 1913, value of real estate. 2. Depreciation, on buildings and furniture, as charged on petitioner's books and deducted in prior income-tax returns, is not excessive. 3. The net selling price is the market value rather than the par value of securities received as consideration.

Value of water rights as of March 1, 1913, determined.

Reasonable addition to a reserve for bad debts determined and allowed as a deduction.

1. Deduction of the unextinguished cost or the March 1, 1913, value of permanent improvements made by the petitioner on leased premises allowed as a deduction upon the cancellation of the lease in the taxable year. 2. The Board is not convinced from the evidence that a lease had a fair market price or value on March 1, 1913, in excess of the rentals provided therein.

Petitioner made and filed an income and profits-tax return on June 15, 1921, for its fiscal year ended February 28, 1921, which was not false or fraudulent with intent to evade the tax. Held: further, that since the deficiency notice for the taxable year was mailed more than four years after the return was filed, assessment and collection of the deficiency is barred.

The deficiency claimed herein by the Commissioner is barred by the statute of limitation.

The petitioner was the guarantor of certain notes given by the Multitone Manufacturing Co. This company went into the hands of a receiver in 1921. The petitioner then gave to the payee of the notes his own notes and received the notes upon which he was guarantor.

1. The Commissioner's action in disallowing the application of the 25 per cent reduction provided by Title XII, Revenue Act of 1924, to that portion of petitioner's income returned for 1924 which came from the proportionate 1923 earnings of her partnership, which had a fiscal year, is approved. Charles Colip,5 B.T.A. 123, followed. 2.

1. The Commissioner's action in disallowing the application of the 25 per cent reduction provided by Title XII, Revenue Act of 1924, to that portion of petitioner's income returned for 1924 which came from proportionate 1923 earnings of her partnership, which had a fiscal year, is approved. Charles Colip,5 B.T.A. 123, followed. 2.

1. The Commissioner's action in disallowing the application of the 25 per cent reduction provided by Title XII, Revenue Act of 1924, to that portion of petitioner's income returned for 1924 which came from the proportionate 1923 earnings of his partnership, which had a fiscal year, is approved. Charles Colip,5 B.T.A. 123, followed. 2. Petitioner's earned income and resulting earned income tax credit, determined. 3.

1. Where two corporations were consolidated under the laws of New York, and where the resulting corporation acquired the assets of one of the old corporations in consideration of the exchange of its capital stock for the stock of the old corporation, held that the consolidation resulted in the creation of a new corporation and the dissolution of the old corporations, and that the assets of the old corporation were bona fide paid in for the stock of the new corporation. 2.

1. Deduction for obsolescence of tangible property determined as to amounts and years for which deduction is applicable. 2. An allowance for obsolescence based upon the decrease in value of tangible assets retained in use, denied.

1. Section 201(c) of the Revenue Act of 1918, providing that distributions in liquidation of a corporation shall be treated as payments in exchange for stock, has no application to a dividend declared from profits where at the time of the declaration the corporation is not in dissolution and there is no retirement of the capital stock in whole or in part. 2.

Rate of depreciation determined by respondent approved.

Evidence of abnormalities in income or invested capital for the years 1918 and 1919 held insufficient to entitle petitioners to relief under the provisions of section 328 of the Revenue Act of 1918.

Contributions to the "Home of Truth" held to be deductible from gross income.

The actual cash value of property paid in for shares of stock of a corporation determined; also value of depreciable property at the date paid in determined.

Certain payments made in accordance with the provisions of certain oil and gas leases held to constitute rentals and deductible in the year in which paid.

1. Petitioner is entitled to return its income from installment sales under the provisions of subdivision (d) of section 212 of the Revenue Act of 1926. Appeal of Blum's, Inc.,7 B.T.A. 737. 2.

1. Oil refining plants valued as of March 1, 1913. 2. Special assessment denied.

Contributions made to alleged charitable and educational corporations disallowed.

Petitioner held not to be a partner in Kelley Brothers Coal Co. and not entitled to share in the income of that partnership or of Lucas Coal Co.

Evidence held to establish that certain moneys invested in a coal business were the earnings of husband and wife, as partners. Such investment was their joint property and the income therefrom is not taxable in whole to the husband where separate returns are filed.

1. The Newlyn Coal Co. purchased an electric locomotive in 1917 at a cost of $2,959.25 and claimed as a deduction from gross income in its 1919 tax return the cost of the locomotive less scrap value, $100. The locomotive was unsatisfactory in operation and was discontinued in use about the middle of 1917. Two or three years later it was rebuilt and used for a number of years.

Where all of the stockholders of a corporation acquire all of the stock of a new corporation and immediately thereafter all of the assets and business of the old are transferred to the new and the… Held: that the transaction is a reorganization within the provisions of section 331 of the Revenue Act of 1918 and that the invested capital of the new corporation should be computed in accordance therewith.

1. Evidence fails to establish loss alleged to have been sustained in 1920. 2. Respondent's determination of depreciation approved.

1. Payment of $25,000 in the year 1918 to an officer of the petitioner held to constitute a donation and, therefore, not deductible. 2. In computing depreciation upon equipment account, held that the average of that account for the year is the proper basis therefor. 3. Commissioner's determination of depreciation on tracks approved, and correct amount on furniture determined. 4.

1. Respondent's action in increasing the depreciation reserve for the taxable year in question approved in the absence of evidence that the depreciation charged off by petitioner in the earlier years of its existence was substantially correct. 2. Invested capital as determined by the respondent, approved. 3. Values used by respondent for depreciation purposes, approved.

The Lenox Brotherhood held to be a charitable organization and contributions thereto held to be properly deductible in computing net income.

1. Respondent's determination of depreciation on hotel equipment approved. 2. Obsolescence of good will disallowed. 3. Claim for deduction of cost price of alcoholic liquors distributed among petitioner's friends disallowed.

1. Deficiencies held not barred. 2. Corporations held affiliated.

Petitioner contracted to sell real estate for an amount greater than cost to him, but received in cash an amount less than cost, the balance to be paid in subsequent years. The contract had no readily realizable market value. Petitioner held entitled to recover the cost of the property before any taxable gain arises.

The petitioner's loss from exchange of capital stock of one corporation for capital stock of another corporation, sustained in 1920 and not in 1916 as alleged by respondent.

Commissioner's disallowance of a loss deduction approved.

1. Where money was borrowed for construction purposes and was so used, interest thereon and discounts therefrom attributable to the period of construction were not for the purposes of invested capital a part of the cost of construction. 2. Section 201 of the Revenue Act of 1918 applied.

Petitioner B. J. Rucker's distributive share of partnership income held to be separate property under the laws of the State of Washington, and therefore taxable to him.

1. The respondent erred in adding to the income of the partnership, of which the petitioners were members, the gross proceeds from the sale of certain timber by the Tulalip Company to the Everett Logging Co. in 1915. 2. Petitioner B. J. Rucker's distributive share of partnership income held to be separate property under the laws of the State of Washington, and therefore taxable to him.

In 1918 the Alien Property Custodian illegally seized the property of petitioner, an American citizen, his records and bank accounts, which included his income for that year. Held: petitioner had no taxable income in 1918.

1. Stock issued to the petitioner, under the circumstances disclosed by the evidence, held to have been acquired by purchase and not in exchange for any previously owned interest. 2. Oral agreement between three individuals to purchase interests in a joint venture and later to equalize their holdings therein held not to create an express or implied trust or an agency. 3.

Collection of deficiencies for 1918 and 1919 held not barred.

Factory supplies, small tool stores, and power and maintenance stores on hand, which are not consumed in the production processes, may not be included in inventory in determining the cost of good sold.

1. INVESTED CAPITAL. - The value of good will acquired for stock at the time of the organization of the petitioner corporation determined for the purposes of invested capital. Good will purchased in 1914 for cash, representing a part of the petitioner's earned surplus, should be included in invested capital for the years 1919 and 1920. 2.

Under the evidence held that the payments involved herein made by the petitioners to their mother in the years 1921 and 1922, are not proper deductions in computing the petitioner's net income for those years.

Notes paid in for capital stock should be included in invested capital to the extent of the actual cash value thereof. In the absence of any evidence as to the value of the notes, the determination of the Commissioner is approved.

1. A partnership engaged in the business of buying and selling securities purchased the land and building partly occupied by it for office purposes and organized a corporation to hold the title to… Held: further, that the shares of stock of both corporations are not a part of the body of securities carried by the partnership as its stock in trade and may not be included in inventory of stocks for income-tax purposes. 2.

During the year 1920, there was, pursuant to law, levied and collected from the petitioner for the maintenance of the Depositors' Guaranty Fund, the amount of $2,474.04. Held that the amount so levied and collected is an ordinary and necessary business expense and as such is a proper deduction from gross income for 1920.

The petitioner is not entitled to the deduction claimed on account of net additions to reserve funds required by law.

1. DEPRECIATION. - A reasonable allowance for depreciation of construction and machinery equipment used by the petitioner in mining coal during the fiscal year ended April 30, 1921, found to be 8 per cent of the amount carried in the capital asset account. 2. DEPLETION. - The petitioner during the fiscal year ended April 30, 1921, mined 74,760 tons of coal owned under mining rights on March 1, 1913.

1. The claim of petitioner for the deduction of a loss for obsolescence of machinery, equipment and a portion of a building, in 1919, is not sustained. Amount of loss sustained in the year 1920 as a result of the discarding of certain machinery and equipment determined. 2.

1. Evidence insufficient to show error on the part of the Commissioner in the determination of deficiencies for the fiscal years 1918 and 1919. 2. Appeal dismissed in so far as it relates to the fiscal year 1920 for want of jurisdiction.

Petitioner's automobile was damaged in an accident while being used for pleasure. Held that the amount of the loss sustained by reason of the damage is deductible from gross income under section 214(a)(6) of the Revenue Act of 1924.

Market value of patent application at March 1, 1913, for the purpose of exhaustion of a patent subsequently granted thereon not determinable from the evidence.

1. In 1918, petitioner sold for a consideration of $11,000 real property which cost, less depreciation $9,800, and included in his income a profit of $1,200. Held: the sale in 1918 and purchase in 1920 were separate transactions. The profit on the sale in 1918 was properly included in income of that year. The price paid on the reacquisition is the basis for computing gain or loss on future disposition of the property. Appeal of Manomet Cranberry Co.,1 B.T.A. 706.

Salaries paid to officers of the petitioner held reasonable in amount and properly deductible from gross income.

In the year 1919 the petitioner's mill and equipment were destroyed by fire and insurance thereon was collected in an amount greater than their depreciated cost. The petitioner erected and installed in 1919 and 1920 a new mill and equipment, using the plans and blueprints of the destroyed mill and equipment, at a cost greater than the amount of insurance collected on the destroyed mill and equipment.

Under the evidence, held that the petitioners did not receive a liquidating dividend from the Bass Dry Goods Co. in the year 1920.

Where it appears that a corporation has no earnings accumulated since February 28, 1913, at the time it had shares of stock in a new corporation issued to its stockholders in consideration of the transfer of certain of its assets to the new corporation, the stockholders receiving the new stock have not received taxable income.

Where a taxpayer had certain work done to its banking rooms, including alterations and improvements, and neither the character nor the cost of the different items was shown, the determination of the Commissioner disallowing certain items as ordinary and necessary expenses will not be disturbed.

1. An amount paid for a stock brokerage blackboard was not an operating expense for 1921, but a capital expenditure. 2. Commissioner was not in error in reducing the amount of bad debt reserve.

1. Petitioner paid income taxes to Canada and the United States on income for 1921, 1922, and 1923, the payments of the Canadian taxes being made early in 1922, 1923, and 1924; petitioner credited the amount of his Canadian tax against the tax shown on his United States return for the respective years, although such Canadian taxes were paid in the following year. Held that such payments constitute credit against the tax of the taxable year in which such payments were made. 2.

The respondent's determination that income received by petitioner while a resident of Arizona from his interest in Georgia and Massachusetts partnerships acquired prior to his removal thereto, was separate income, approved.

No estate tax having been paid by or on behalf of the estate of the prior decedent on the property claimed as a deduction by the petitioner in computing the value of the net estate, the action of the respondent in disallowing that deduction is sustained.

The petitioner was not a corporation entitled to assessment of its income and profits taxes under section 303 of the Revenue Act of 1918.

The value of assets acquired for stock determined for invested capital and depreciation purposes.

The actual cash value of intangibles paid in to the taxpayer corporation in exchange for shares of common stock determined.

1. CAPITAL EXPENDITURES. - A body of land was subdivided by survey for purposes of sale over a period of three years. Only one tract, as shown by the subdivision, was sold. Held that the cost of survey was a capital expenditure, pertaining to the land as a whole, and in determining the profit from the sale of the one tract disposed of, only such portion of this expense as pertained to that tract should be included as cost. 2.

1. An amount voted in the taxable year as and for salary for prior years, without previous authorization therefor, is not allowable as a deduction from gross income for the taxable year. 2. Additional salary authorized and paid in a given year as and for salary for that year must be reasonable in amount for services actually rendered in that year in order that it may be deducted from gross income.

1. The amount of depreciated cost of assets formerly written off as expense and properly restored to invested capital through surplus determined. 2. The amount of the fair market value on March 1, 1913, of assets subject to depreciation determined.

(1) DEDUCTIONS. - Petitioner is entitled to deduct, in computing net income, the difference between the value of its own stock as stipulated between the parties, purchased in the open market for sale to employees, and the sale price thereof. (2) Petitioner is entitled to include in invested capital accounts receivable from employees on account of stock purchased, from date of acceptance of contract of purchase.

Where a depreciable asset was acquired prior to March 1, 1913, at a cost which, when depreciated to March 1, 1913, is less than the March 1, 1913, value, and the asset is sold or disposed of in 1919 at a price which is less than either the March 1, 1913, value or cost properly depreciated to date of sale, the deductible loss is the difference between the selling price and cost properly depreciated from date of acquisition to date of sale or disposition, which depreciation…

The petitioner and the Woodruff Hotel Co. were not affiliated during the taxable year.

Average unit value of petitioner's interest in standing timber at March 1, 1913, determined for depletion purposes.

1. Parties agree that an amount included by respondent in the income of F. M. Graff as salary for the taxable year was not received and was not taxable in such year. 2. Claim for loss sustained in sale of real estate in taxable year not allowed in the absence of basis for the computation of such loss.

Two banks were affiliated for the period January 1, 1922, to March 14, 1922, and on the latter date they merged under the National Bank Act and continued as one bank throughout the remainder of the year. Held that but one return was required.

A partnership of four members dissolved and one of the members received in exchange for his interest in the partnership and cash in a certain amount, assets of the partnership which cost the partnership more than the value of the partnership interest plus the cash. The three remaining members deducted their proportionate shares of the difference as losses. Amounts of losses determined.

Assessment and collection of a deficiency determined by the Commissioner for the year 1920 is not barred by the statute of limitation.

Net income received by a lessee from the operation of an oil well upon the allotted lands of a citizen of the Creek Tribe of Indians held to be taxable.

Liquidating dividend received in 1921 on stock which had been owned for more than two years prior thereto and held as an investment held not to be taxable as capital gain under section 206 of the Revenue Act of 1921.

1. Depreciation upon building determined. 2. In 1918 the petitioner became liable to pay additional compensation to one of its employees. It disputed the amount of the liability. Held: such payment is not deductible in computing net income of 1919. 3. Petitioner erected a building upon leased premises. It ceased to use such building in its business three years prior to the expiration of the lease, and thereupon leased such building to another.

1. Value of contracts determined. 2. Certain depreciation deductions denied because of insufficient evidence.

1. The action of the respondent in reducing invested capital to an amount determined by him to represent the actual cash value of assets at the time paid in for stock approved because of insufficient evidence. 2. The reduction of invested capital on account of the use of a "tentative tax" in determining the amount of earnings evailable for distribution as dividends held to be erroneous. 3. Where invested capital had been impaired by the payment of dividends in excess of earnings, held that the respondent in computing the amount of the liquidating deficit committed no error by including as a part of such deficit the amount by which the depletion sustained exceeded the depletion provided for in the books of the petitioner.

1. Payments on stock subscriptions may be included in invested capital from the time paid in. 2. Petitioner is not entitled to include in invested capital subscriptions to capital stock until paid. 3. Amount allowable as a deduction on account of the exhaustion of a patent determined. 4. The patent can not be included in invested capital at a value in excess of the cost to the previous owner under section 331 of the Revenue Act of 1918. 5.

1. The evidence in this proceeding establishes that $39,147.25 of a write-down of petitioner's capital assets in 1912 should be restored for invested capital and depreciation purposes for the years 1919, 1920, and 1921. 2. The evidence also convinces the Board that the respondent erred in reducing invested capital for the taxable years on account of alleged insufficient depreciation deductions in prior years.

1. PAID-IN SURPLUS. - The actual cash values of both tangible and intangible properties contributed to a corporation in excess of the par value of stock issued become paid-in surplus but under the Revenue Acts of 1918 and 1921 the values of the intangibles so contributed may not be included in invested capital. 2.

Where income of the husband is exempt from taxation because derived from services performed for a State government, that income retains its exempt status in the hands of his wife who under the community property laws of that State is entitled to one-half of his income.

Worthlessness of debt not established.

Income held not taxable to the petitioner who received it for legatees.

The sale price of the property sold by the petitioners under the evidence submitted being greater than the proven cost thereof prior to March 1, 1913, and less than the stipulated March 1, 1913, value, the respondent was correct in disallowing the loss claimed as a result of that sale.

Petitioner adduced no evidence of the actual cash value of the publications alleged to have been paid in for stock; therefore, the action of the respondent in disallowing the amount of that stock as invested capital is sustained.

1. March 1, 1913, value of certain real estate determined. 2. Evidence held insufficient to warrant a change in respondent's determination of income from other sources.

Petitioner held not to be entitled to personal service classification.

1. Amounts set aside by the petitioner out of its annual income for self insurance are not ordinary and necessary business expenses and therefore are not deductible in computing net taxable income. 2. Where property of the nature here under consideration is dismantled and removed the cost of such dismantling and removal is an ordinary and necessary business expense and therefore a proper deduction in the computation of net taxable income.

Depreciation on equipment of oil wells allowed on a unit-of-production basis rather than a straight-line basis, since the useful life and value of such equipment depends on the rate of extraction of oil content.

A certain amount distributed as Christmas bonuses to employees allowed as a business expense.

Losses in oil transactions allowed in part and disallowed in part.

A transfer of stock by a decedent made less than two years before his death held, under the circumstances, not to have been made in contemplation of death. Held: under the circumstances, not to have been made in contemplation of death.

1. Value of patterns paid in for stock at date of organization determined. 2. Amounts credited to stockholders' accounts representing dividends received but returned to corporation for purpose of meeting payments on a new building can not be included in invested capital, as such amounts constitute borrowed capital. 3. Value of the opening inventory determined.

1. Value of improvements erected on leased premises by lessee determined as of the date of the expiration of the lease. 2. Insufficient evidence to determine value of buildings demolished and altered.

1. Profit on sale of land determined and apportioned. 2. Certain business expenses and losses determined and others rejected for lack of evidence.

The transfers involved herein were not made by the decedent in contemplation of death and were not intended to take effect in possession or enjoyment at or after his death.

The amortization allowance to which a taxpayer is entitled under the provisions of section 234(a)(8) of the Revenue Act of 1918 on facilities acquired for the production of articles contributing to the prosecution of the war, but which were used by the taxpayer in peace-time operations, is the difference between the cost of such facilities and their postwar value determined in the light of all the conditions and circumstances surrounding the business during the period…

1. Taxpayer who was on a cash receipts and disbursements basis held not to have been in receipt of income which was credited to him on the books of a corporation. 2. Held: the burden rests on him to prove the same, and, further, that respondent has failed to meet this burden.

1. Under a resolution of the board of directors adopted November 7, 1904, and ratified by the stockholders on May 17, 1915, petitioner agreed to pay its officers and certain employees additional… Held: further, that no part of the aggregate amount in controversy may be included in invested capital for the years 1917 and 1918, the amount of $19,752.20 restored to surplus, having been allowed by respondent. 2.

1. Certain distributions made by a corporation, held to have been distributions of both profits and salaries. 2. Reasonable compensation of the general manager of a corporation determined.

The evidence fails to show that the petitioner should be classified as a personal service corporation.

1. Certain amounts paid to tenants as their share of proceeds from sales of crops allowed as deductions from gross income. 2. For excess-profits-tax purposes, an individual, who, in the year 1917, owned and managed an enterprise that had invested capital, is entitled to deduct from gross income a reasonable amount as salary for services rendered to such enterprise. 3. Negligence penalty sustained; fraud penalty disallowed.

1. An unlimited waiver executed January 22, 1923, with regard to taxes for 1917, held to expire April 1, 1924. 2. Notice of acceptance of unlimited waiver by the Commissioner not necessary to constitute valid consent if waiver is actually signed on behalf of the Commissioner. 3. The fact that an unlimited waiver covers years 1917-1920 does not operate to invalidate the waiver as to the years 1918-1920 simply because waiver for 1917 has expired. 4. Held that assessment and collection on December 18, 1925, of taxes for 1918 and 1919 were not barred by the statute of limitations; where an unlimited waiver was executed on February 6, 1923, since the Commissioner and the taxpayer during the intervening time were in controversy over the taxes in question, and no notice was given by the taxpayer as to the termination of consent. 5. Held that Board has jurisdiction under section 284(e) of Revenue Act of 1926 to determine whether a collection on October 5, 1925, of taxes for 1917 and 1919, was barred by the statute of limitations. 6. Collection on October 5, 1925, of taxes for 1917 barred by statute of limitations, an unlimited waiver having expired April 1, 1924. 7. Collection on October 5, 1925, of taxes for fiscal year ended June 30, 1919, held not barred by statute of limitations where an unlimited waiver was executed on February 6, 1923, and had not expired.

Where taxpayer inventoried his stock of goods at cost and then deducted from the value of his whole inventory 10 per cent thereof, held, under the facts of this case, that the Commissioner did not… Held: under the facts of this case, that the Commissioner did not err in restoring the amount deducted to the inventory.

1. The Commissioner's determination denying additional depreciation reversed in part and, for lack of evidence, approved in part. 2. Special assessment denied.

Certain bank credits held exempt from estate taxes under the provisions of section 403(a)(2) of the Revenue Act of 1918.

Loss resulting from a sale of certain shares of stock held to be a loss sustained in the petitioner's trade or business.

1. The value of securities purchased by decedent with proceeds from sale of securities acquired from a prior decedent who died within five years and on whose estate the tax was paid, was acquired in exchange within the meaning of section 403(a)(2) of the Revenue Act of 1921 and should be deducted from the value of the decedent's gross estate. 2.

Evidence insufficient to sustain the petitioner's claim for larger deductions from income in each of the taxable years than were allowed by the respondent.

1. Stock sold by petitioners had been acquired for services at a time when its value was less than the price for which it was sold. Held: that the difference between the sales price and value at date of acquisition is taxable as gain. 2. Return made by petitioner J. Heninger held not to have been false or fraudulent with intent to evade tax.

During the taxable year petitioner paid salaries which were inadequate. No further liability was incurred. Held, it may deduct only the amount paid. Held: it may deduct only the amount paid.

1. Petitioner issued its stock for the tangible and intangible assets of a predecessor business which had been unprofitable. Held: that the evidence does not establish that the intangible assets had any value for invested capital purposes in excess of that which has already been ascribed to them by including tangibles in invested capital at their value to a successfully operating concern. 2.

1. Corporations held not to be affiliated. 2. In the absence of any evidence of March 1, 1913, value, the action of the Commissioner in using the cost less depreciation as the basis for computing gain is approved.

The petitioner, an electric light and power company, entered into a contract with the residents of a rural community which provided for the construction of transmission lines to serve such residents,… Held: that the amount paid to the petitioner by such rural residents for the construction of such lines was not taxable as income to the petitioner.

Debt due petitioner held to have been ascertained to be worthless and to have been charged off during the taxable year.

1. In determining the distributive net income of the life beneficiary of a trust estate, there must be deducted those payments which, under the laws of the State having jurisdiction of the trust, are to be paid from the income of the trust before any payment may be made to such beneficiary. 2. Under the laws of Massachusetts the cost of repairs to buildings operated for the production of income is to be paid from the income before any amount is distributable to the life beneficiary. The cost of alterations to a building made by the trustee, pursuant to a lease, to fit the leased premises to the use of the tenant, which alterations do not increase the life of the building, is to be amortized over the period of the lease and the amount of such amortization paid from the income before any amount is distributed to the life beneficiary.

Damages for breach of contract to marry held not taxable as income.

1. Expenditures for surveys, geological opinions, settlement of suits involving title to lands, abstracts of title and legal opinions upon titles are not deductible as ordinary and necessary expenses but are capital expenditures to be added to cost of the property and considered in computing gain or loss on the sale thereof. 2. Testimony that certain sums were paid for labor, and for drilling oil wells held insufficient to establish that such payments were deductible as ordinary and necessary expenses of a business. 3. An agreement was made to assign an interest in a certain contract for cash and notes. The cash and notes were paid over to the assignor who thereupon executed an assignment of the interest to be conveyed. Pursuant to the agreement of sale such assignment was delivered to an escrow agent to be held until the notes were all paid. Held that a taxable transaction occurred when such payments were made and the assignment delivered to the escrow agent.

There can be no allowance for exhaustion of property acquired prior to March 1, 1913, where there is no evidence of the cost or of the value of such property on that date.

1. A person may at the same time be regularly engaged in more than one kind of trade or business. 2. Held: that this was a business regularly carried on during 1923 and the net loss sustained in the operation thereof was deductible from net income for the year 1924. 3.

1. Rate of depreciation on building and machinery determined. 2. Evidence in this proceeding is not sufficient to warrant the Board in holding that contributions totaling $390 to three churches, a school, the Boy Scout organization and Red Cross, constituted an ordinary and necessary business expense.

1. One of the two partners with equal interests in a business died on January 4, 1921. Held: that one-half the amount of certain profits earned by the partnership prior to December 31, 1920, but not collected until after January 4, 1921, is not income to the decedent for the period from January 1 to January 4, 1921. 2. A partnership was terminated by the death of one of its members on January 4, 1921.

1. Where one contracts to transfer his factory and site for a money consideration, and does so, and in the same contract agrees to use the money received, so far as necessary, to purchase a new site… Held: the resulting transaction is a sale rather than an exchange of property. 2.

Petitioner was indebted to its principal stockholder on June 10, 1918, for money advanced. The indebtedness was canceled on that date, as of January 1, 1918, in connection with a transaction involving the sale of outside stockholdings of the petitioner. Held not to be invested capital prior to June 10, 1918.

Accumulations under a testamentary trust held to have been permanently set aside for municipal, charitable, and educational corporations pursuant to the terms of the will, and deductible from income of the trust.

BAD DEBTS. - Certain debts ascertained to be worthless and charged off in the year 1918, held to be proper deductions for that year.

1. GOOD WILL. - The cash value of the good will of the petitioner's predecessor company acquired for stock in the year 1901 determined for the purposes of invested capital. 2. INCOME TAXES OF PRIOR YEARS. - In determining the petitioner's invested capital for the year 1920 the amount of the income and profits taxes for the year 1918, when the same shall have been finally determined, should be deducted from invested capital for the year 1920 in the full amount of such taxes.

1. PRORATION OF PRIOR YEAR'S TAXES AND REDUCTION OF INVESTED CAPITAL THEREBY. - Approved, pursuant to section 1207 of the Revenue Act of 1926. 2. INADMISSIBLE ASSETS. - Deficiency letter shows that the Commissioner reduced petitioner's invested capital by a proportion thereof, which computation appears to have been made in accordance with the Revenue Act of 1918 and the regulations with respect thereto.

1. CONTRIBUTION. - Where petitioner contributed toward the purchase of land upon which the United States Government constructed and operated a coal storage and coal… Held: that the contribution was not an ordinary and necessary business expense. 2. REPAIRS. - Petitioner owned a coal barge which sank in Mobile Harbor in 1918. During 1920 he caused the barge to be raised and thereupon employed a shipbuilder and ship repair contractor to make necessary repairs and improvements.

Commissioner's determination approved for lack of evidence.

Certain deductions claimed by the petitioner in his individual return for repairs and for losses in the business of a partnership of which he was a member are disallowed.

1. Value of contract paid in for stock and cash, determined. 2. Where a contract secures to a corporation the services of an individual for 10 years and also gives a permanent exclusive right to the use of his name and the value has not been allocated between the two features, no yearly deduction for exhaustion of the contract is allowable. 3. Assessment and collection of 1919 tax held barred.

Held, that the respondent correctly computed petitioner's invested capital. Held: that the respondent correctly computed petitioner's invested capital.

Damages to petitioner's residence property caused by excavations on adjoining property not allowable deductions from gross income under section 214(a)(6) of the Revenue Act of 1924.

Salaries accrued to officers and employees of a corporation upon the books of the corporation, subject to payment when the funds were available without prejudice to banks and general creditors, held not to be taxable income to the officers and employees, who kept their accounts upon a cash receipts basis, where, in addition to the above limitation on payment, each had signed an agreement to allow such accrued salaries to be considered as loaned to the company for the purpose…

Construction placed upon section 205(c) of the Revenue Act of 1921 by Appeal of Theodore Schilling,3 B.T.A. 936, approved.

1. Sales of securities held bona fide and properly deductible as losses. 2. Nature of certain expenditures determined. 3. Respondent's disallowance of accounting fee as expense for 1920 and as invested capital at the beginning of 1920 approved. 4. Deficiencies held not barred.