Volume 9 — Tax Court Reports

Held, the corpus of an irrevocable trust executed pursuant to an antenuptial arrangement is not, on the present record, includible in decedent's… Held: the corpus of an irrevocable trust executed pursuant to an antenuptial arrangement is not, on the present record, includible in decedent's estate as made in contemplation of death under section 811 (c); nor is it includible as a substitute for dower interests within the meaning of section 811 (b) of the Internal Revenue Code.

The taxpayer, life beneficiary of a Pennsylvania trust which owned unproductive realty, in 1942 procured a court decree holding that the trustee had… Held: The increased amount of income currently distributed to the life beneficiary of a Pennsylvania trust by virtue of the rule that carrying charges on unproductive trust-held realty are payable from principal was properly included in the life beneficiary's taxable income under section 162 (c), Internal Revenue Code.

1. Profit not previously reported as income pertaining to payments due on installment sales contracts as of close of year preceding year in which taxpayer's method of reporting income was changed by Commissioner from installment sales to accrual method, held includible in income of year in which method was changed. 2. Earnings of fiscal year ended January 31, 1941, held not to have been accumulated with intent to prevent imposition of surtax on shareholders where dividends were paid on April 20, 1941, and stockholders were on calendar year basis and paid tax on dividends during 1941. 3. Reasonable allowance for compensation for services of president and other officers of corporation operating department store determined. 4. Claim for relief under section 722 denied for want of supporting evidence. 5. Payments to trustee under agreement placing fund in trust for future distribution of bonuses to employees, held deductible by taxpayer on accrual basis where liability of employer became fixed within taxable year. 6. In computing excess profits net income the deduction for charitable contributions is the same as that allowed in computing the corporation's income tax liability and is not limited to 5 per cent of excess profits net income computed under section 711 (a) (1) before deduction of charitable contributions.

Taxpayer and his wife voluntarily separated and entered into an agreement dated January 1, 1940, under which he agreed to pay his wife $ 900 a month for a year. Held: payments made by taxpayer to his wife in 1942 and 1943 are not deductible from his gross income under section 23 (u), the decree nunc pro tunc being ineffective to bring him or his wife within the descriptions contained in section 22 (k) as required by section 23 (u).

Pursuant to a separation agreement, petitioner released her rights in her husband's estate. The husband agreed in consideration therefor to pay petitioner $ 750,000. Held: petitioner's cost basis in X stock is $ 60 a share and not its fair market value at the time of petitioner's acquisition.

The decedent was sole shareholder of a Mexican commercial corporation which owned only real estate situated in Mexico. Held: the value of the corporate shares was properly included in gross estate; and, as decedent did not own the real properties, they can not be deemed real property of the estate situated outside the United States and excepted from the estate tax by section 811, Internal Revenue Code.

In 1943 petitioner's decedent and her husband separated and entered into a written separation agreement settling all their property rights and all matters concerning the care, custody, and control of their two minor children. Under this agreement the wife paid her husband $ 50,000 and the husband released any and all claims to or upon the property of the wife. On the same day that the written separation agreement was entered into the parties entered into an oral agreement to the effect that "when and if Mrs. Barnard obtained a divorce" she would make a payment of $ 50,000 to a preexisting trust which she had executed in 1941 for the benefit of her husband, prior to any discussion of divorce. The court in its divorce decree ratified, adopted, and approved the written separation agreement in all respects and declared it to be fair, just, and equitable to all parties concerned. The divorce court did not refer to the oral agreement in any way. After the divorce was granted and during 1943 the wife transferred $ 50,000 to the said trust. Held (1) that the transfer of $ 50,000 made under the written separation agreement was made without donative intent in an arm's length transaction for an adequate and full consideration in money or money's worth and is not subject to the gift tax under section 1002, I. R. C., Herbert Jones, 1 T. C. 1207, and similar cases followed; (2) that the subsequent transfer of $ 50,000 to the preexisting trust is subject to the gift tax, the petitioner having failed to show that there was an adequate and full consideration in money or money's worth for such transfer.

A banking corporation sold railroad bonds at a loss and on the same day purchased the same type and amount of bonds. Held: loss was sustained in connection with a wash sale and is not allowable as a deduction under the provisions of section 118 (a), L. R. C.; held, further, deductibility of loss is not affected by the provisions of section 117 (i), I. R. C., allowing the deduction as an ordinary loss of the amount by which losses sustained by a bank…

A trust created for the purpose of operating a screw products manufacturing business, of which the grantor's five sons were the trustees and the beneficiaries, held an association taxable as a corporation.

Petitioner, a domestic corporation engaged in the business of marketing petroleum products in Brazil, keeps its books on the accrual basis. Held: in each of the taxable years petitioner incurred liability for tax on nonresident income imposed by laws of Brazil and is entitled to foreign tax credits provided for in section 131 (a) of Revenue Act of 1938 and the Internal Revenue Code.

In 1941 petitioner sustained a long term capital loss upon sale of certain real property to A, who owned, with his wife, as community… Held: that under the laws of Arizona the interest of a wife in community property is present and in all respects equal to that of the husband, and A was the actual owner of 13 1/2 per cent, his wife 13 1/2 per cent, and his sister 27 per cent of petitioner's stock, and, under section 24 (b) (2), I. R. C., A constructively owned the stock…

Under the will of decedent, who died in August 1941, after certain specific bequests, the residue was bequeathed and devised three-sixths to his widow and one-sixth to each of his three children. Held: only the amounts actually distributed out of 1942 and 1943 income to the beneficiaries were allowable as a deduction in the respective years under section 162 (b), (c), or (d), Internal Revenue Code.

Receipt of share of insurance commissions by petitioner estate pursuant to contract with general brokerage firm providing for such payments on business written for decedent's former clients, held,… Held: for tax purposes, to represent proceeds of decedent's personal services during his lifetime or agreements not to compete and, as such, taxable as ordinary income.

Held, no claim for refund having been filed, petitioner is not entitled to a refund of taxes paid in excess of liability. Held: no claim for refund having been filed, petitioner is not entitled to a refund of taxes paid in excess of liability.

During 1947 a corporation of which taxpayer was a stockholder paid dividends in cash and stock of another corporation, which stock had a value on the dates of distribution in excess of its cost to… Held: the increase in value over cost of the distributed stock did not constitute earnings and profits to the distributing corporation and hence to the extent of such increase was not taxable to taxpayer as dividends.

Petitioner is an unincorporated association whose regular membership consists of jobbers and wholesalers of shoe repair supplies, known as finders. Held: petitioner is an exempt business league within the meaning of section 101 (7), Internal Revenue Code.

California franchise tax imposed for the privilege of doing business during 1944, which tax is measured by income realized in 1943, held to accrue and be deductible for Federal tax purposes in 1944.

1. Petitioner, a corporation engaged in the purchase and sale of new and used automobiles and in the sale of parts and the rebuilding of motors, in January… Held: that the full amount of the salaries thus paid or incurred by petitioner is deductible in 1941 as ordinary and necessary business expense except to the extent that such compensation may be excessive. 2. The evidence examined and the amount of reasonable compensation of each officer determined for the year 1941.

Petitioner Dudley A. Chapin held not to have been a bona fide resident of the British Isles in 1943, during which period he was in the employ of the Lockheed Overseas Corporation as a workman at an air base in North Ireland, and his salary not to be exempt from tax under section 116 of the Internal Revenue Code.

1. In 1918 decedent executed an irrevocable trust under which his daughter was to receive $ 1,000 of the income per annum during her lifetime, with the balance of the income to be paid to his wife during life. In the event the wife predeceased the daughter, leaving decedent surviving, the balance of the income was to be paid to the decedent, his executors, administrators and assigns, during the life of the daughter. Upon the death of the daughter without issue, the remainder was to be paid to the residuary legatees named in the wife's will. The wife died in 1929, leaving a last will and testament. In the will the residuary legatees living at the death of the survivor of the decedent and the daughter were to receive the principal of the trust. A possible reverter by operation of law existed. Held, decedent retained the right to the balance of the trust income for a period not ending with his life, thereby suspending the possession and enjoyment of the estate until his death or thereafter. Thus the value of the transfer, less the value of the annuity to the daughter, is includible in decedent's gross estate for estate tax purposes under section 302 (c) of the Revenue Act of 1926, as amended. 2. In 1917 decedent executed an irrevocable trust, the income of which was to be paid to his daughter without limitation as to time. In the event the decedent's wife survived the daughter, the income was to be paid to the wife during her life. No disposition of the remainder interest was made under the contingencies which in fact arose. The daughter survived both the decedent and his wife. In an action to construe the trust indenture, the Supreme Court of New York held that, under that instrument, the daughter, having survived both her mother and the decedent, was entitled to the corpus of the trust. Held, since the death of decedent was the event which brought into being the remainder estate of his daughter, the transfer was one taking effect at death and includible in decedent's gross estate under section 302 (c) of the Revenue Act of 1926, as amended.

1. The two owners of all of the stock of the petitioner formed a partnership with a capital of $ 150 and, as such partners, executed a contract with petitioner under which it was agreed that… Held: that respondent did not err in disregarding the partnership in including in petitioner's income the total amount paid over by it to the partnership. 2.

Prior to the fiscal year ended June 30, 1944, petitioner kept its books and reported its income for income tax purposes on a basis which reflected receipts from ticket sales whether or not the… Held: respondent's refusal did not constitute an abuse of his discretion.

Valuation of unlisted stock of family investment company by reference to value of underlying assets, held to call for use of market value of assets, without diminution for potential commissions, or taxes which would become due if converted into cash.

Bonus paid during base period by petitioner to its vice-president, held to be a consequence of increase in petitioner's gross income in base period, and hence not an abnormal deduction under Internal Revenue Code, section 711 (b) (1) (J) and (K).

Income -- Corporation Dealing in its Own Shares. -- A corporation was not dealing in its own shares as it would in the shares of another where it acted pursuant to an agreement of its stockholders that its shares should always be held solely by those responsible for its operation and in proportion to their contributions of service towards its success.

Capital Assets. -- Notes of customers taken on two slow accounts and sold after a number of years were not held primarily for sale to customers in the ordinary course of the taxpayer's business, but were capital assets as defined in section 117 (a) (1).

Capital Asset -- Real Property Used in Trade or Business. -- Land left after rented house was destroyed by hurricane does not lose its character as property used in business (renting) where promptly sold in minimizing loss.

Petitioner, a manufacturer of silk cloth, in 1939 had a large inventory of raw silk on hand. Held: the transactions in futures on the exchange were hedges entered into for the purpose of protection against a business risk rather than for speculation, and the resulting loss is deductible in full.

Petitioner in 1941 obtained a loan, secured by mortgage on its hotel property. For services in securing the loan it paid fees to brokers. Held: petitioner is entitled to deduct the remaining unamortized portion of the brokerage fees in the year of its dissolution.

Petitioner, in the years 1925 and 1927 to 1941, inclusive, made certain payments pursuant to contracts to three nonresident aliens. Held: the payments under some of these contracts were not royalties but were, in part, payments of the purchase price for certain patents and, in part, compensation for services performed without the United States and, therefore, were not subject to withholding of income tax at the source under section 143 (b) of the Internal Revenue Code…

The taxpayer, beneficiary of a trust to which her husband had transferred insurance policies on his life, paid the premiums on the policies and interest on loans against the policies. Such payments, held, not subject to tax as gifts under section 1000, Internal Revenue Code, being made to protect the taxpayer's own interest.

Amount of taxable income received by petitioner under assignment of trust income, pursuant to terms of separation agreement, held to include certain premiums paid for petitioner's account pursuant to separation agreement on life insurance policies irrevocably assigned to her, but held further not to include petitioner's aliquot part of trust's tax-exempt income.

1. On August 5, 1940, the taxpayer purchased a building in New York City and on October 1, 1940, received a real estate tax bill for the year July 1, 1940, to June 30, 1941, which it paid in full. Held: deductible in full because under New York law there was neither a lien on the property nor personal liability on the seller for payment of the taxes at the time of the taxpayer's acquisition. 2.

Income -- Accrual. -- A taxpayer using an accrual method of accounting does not have to accrue an item where it appears at the end of the taxable year that there is real doubt as to the collectibility of the item.

Petitioner, incident to its business of constructing and selling houses, borrowed money and secured the loans by executing mortgages upon the various properties upon which houses were built. The purchasers of these houses assumed as part of the purchase price the unpaid balances due thereon. Held, petitioner is not entitled to include the amounts due on these loans and assumed by others in computing its borrowed invested capital under section 719 (a) (1) of the Internal Revenue Code.

Petitioner purchased unimproved real estate with intention of erecting thereon a business building to be occupied by it. Held: the property was used in the trade or business of petitioner, and loss sustained on its sale was ordinary loss.

1. Petitioner left France in May 1940, at which time he owned certain real property, consisting of lands and buildings, and personal… Held: that petitioner is entitled to take a loss under section 127 (a) (2), I. R. C., for the cost of his land and improvements after proper adjustment is made for depreciation on the improvements to the date of declaration of war with Germany and for the one small building which was gone; held, further, that petitioner has not proved that…

1. Decedent died intestate in 1944 at the age of 98. Held: the transfer made on June 4, 1932, constituted a transfer made in contemplation of death and should be included in decedent's gross estate under the provisions of section 811 (c) of the Internal Revenue Code; held, further, that decedent should be considered as the settlor of the trust of June 4, 1932, and in this trust she retained…

A transfer in trust where the grantor reserved the income for life and the right to distributions of principal for her care and comfort or for any unforseen emergency, held a transfer to take effect in possession or enjoyment at or after death within the meaning of section 811 (c), Internal Revenue Code.

Petitioner, in the taxable year 1940, was the owner of about one-fifth, or 10,000 shares, of the common capital stock of Pacific-Atlantic Steamship Co. Held: the appreciated value of the Pacific-Atlantic shares was not taxable to petitioner on the theory that it had in substance made the sale.

In the taxable year 1939, Nemours, a personal holding corporation on a cash basis, distributed certain assets in kind to its two stockholders. In determining the earnings and surplus of Nemours available for dividends in the taxable year, respondent increased its earnings and profits per books by certain amounts. The inclusion of certain items and the exclusion of other items is contested.

1. Petitioner's purchase of its own mortgage bonds and immediate deposit as collateral under a junior note issue, subject to retention by trustee as continuing obligations and possible resale on… Held: not to result in taxable income in year of purchase, nowithstanding that purchases were made at a discount below issue price. United States v. Kirby Lumber Co., 284 U.S. 1, distinguished. 2.

1. Valuation -- Closely Held Stock. -- The fair market value of closely held stock determined. 2. Estate Tax -- State Law -- Corporate Distributions Accumulated in Trust -- Section 811 (a). -- Liquidating distributions of a wasting asset corporation accumulated in trust of which decedent was life beneficiary held not includible in the gross estate of the decedent under the provisions of section 811 (a) because the decedent was not entitled thereto under Pennsylvania law. 3.

Petitioner, a general partner in a New York limited partnership, with a fixed term ended December 31, 1939, was permitted to retire as of March 31, 1939. Held: on petitioner's retirement his interest in the partnership was transferred to the remaining partners, constituting a capital transaction, from which petitioner sustained a capital loss.

1. Under the provisions of section 19.22 (c)-6, Regulations 103, petitioner elected to change the basis of his return for the year 1941 from that of receipts and disbursements to that of an inventory… Held: that petitioner was not required to obtain the Commissioner's permission before making such change. 2. In computing the proportion of petitioner's income attributable to community property sources, Clara B. Parker, 31 B. T. A. 644, followed.

For purposes of determining existence of accumulated corporate earnings and profits, carrying charges on corporation's unproductive property held properly charged to capital account, pursuant to respondent's then effective regulations and accepted accounting practice, notwithstanding subsequent nonretroactive change in such regulations.

In 1941 petitioner sustained a loss resulting from the worthlessness of a subsidiary's stock. Held: section 23 (g) as constituted in 1941, the year giving rise to the stock loss, controls and establishes the character of the loss as capital. Such loss must consequently be excluded from the net operating loss computation under section 122 (d) (4). Moore, Inc., 4 T. C. 404; affd., 151 Fed. (2d) 527, distinguished.

Foreclosure of mortgage resulting in elimination of mortgage debt and transfer of New Jersey property previously acquired by petitioner, subject to transferor's basis, in tax-free exchange, held to result in taxable gain to extent that proceeds of mortgage received by transferor-mortgagor exceeded adjusted basis for the property, notwithstanding that petitioner was not itself liable on the mortgage.

1. Gift Tax. -- The petitioner, a nonresident alien, owned certain domestic stocks and bonds which she converted into United States Treasury notes under a prearranged program or understanding and… Held: that such conversion was ineffectual to avoid gift tax, on authority of Pearson v. McGraw, 308 U.S. 313. 2. Specific exemption under section 1004 (a) (1), I. R. C., not allowed a nonresident alien.

Decedent was a nonresident alien, not engaged in business in the United States. Held: that the bonds are not exempt from Federal estate tax by virtue of any provisions of the Victory Liberty Loan Act of 1919, and that the value of the bonds is includible in the gross estate; held, further, that deductions for counsel fees and administration expenses are not deductible, following Rodiek v. Helvering, 87 Fed. (2d) 328.

The respondent mailed combined notices of deficiency in excess profits tax and of disallowance of a claim for refund under section 722 of the Internal Revenue Code. Held: that respondent's motion is well taken and by proper order will be granted.

Held, that certain debenture preferred stock represents proprietary right of the holders thereof and not the right of creditors and that the payment of so-called interest on such debenture stock was… Held: that certain debenture preferred stock represents proprietary right of the holders thereof and not the right of creditors and that the payment of so-called interest on such debenture stock was the distribution of a dividend on preferred stock.

Decedent was the life beneficiary of a testamentary trust under the will of her mother and had a testamentary power of apopintment over the corpus of the trust. Held: the value of the entire corpus is includible in decedent's gross estate under section 811 (f), I. R. C.

1. A corporation which was engaged in the business of brokerage of oil and was on the cash basis of accounting dissolved in 1942 and… Held: that the collections, except $ 8,648.04, were capital gain. 2. Of the amounts collected by the distributee, $ 8,648.04 was upon contracts fully performed in 1942 by payment by purchasers for oil brokered, and late in 1942 bills had been sent by the corporation for its fees. In ordinary course, the bills would not be paid until 1943.

In about 1902 the father of Robert, James, and Howard Ransohoff established the business of Ransohoffs. Later Robert and James and their father formed a partnership to conduct the business. Held: that under section 740, Internal Revenue Code, petitioner is entitled to compute its excess profits tax credit by the income method as provided in section 713.

Deduction -- Medical Expense. -- Where within the taxable year petitioner received payments under accident insurance contracts, designated in part as indemnity for disability and in part as indemnity… Held: that petitioner's medical expense was compensated for by insurance in the taxable year within the meaning of section 23 (x) I. R. C., only to the extent that he received insurance payments specifically designated as indemnity for hospitalization, etc.

The petitioner on Friday, February 21, 1947, filed a motion to dismiss its petition herein, and the respondent on Monday, February 24, 1947, the next workday of the Court, filed a motion for leave to file an amended answer, attached thereto, claiming an increased amount as excessive profits realized by the petitioner under war contracts for the fiscal year ended August 31, 1943.

1. In 1936 petitioner, a personal holding company, credited to its stockholders' accounts as dividends the total amount of $ 10,000, which was made unconditionally subject to their… Held: petitioner is not entitled to a dividends paid credit in 1937 on account of the $ 10,000 dividends credited to and constructively received by the stockholders in 1936. 2. Dividends were declared by petitioner in 1938 and the amount thereof was credited to the accounts of the stockholders.

1. Decedent created trusts to which he assigned policies of insurance on his own life. At that time, and at decedent's death, his family consisted of a wife and two children. Held: the transfers of the policies to the trusts were not made in contemplation of death; held, further, proceeds of policies in excess of $ 40,000 are includible in decedent's gross estate, pursuant to section 811 (g) of the Internal Revenue Code, to the extent taken out by decedent. 2.

As an executive of Chrysler Corporation, the petitioner was permitted to acquire certificates of beneficial interest in a trust fund created by the corporation for the purpose of enabling the… Held: that this sum, less the actual unrecovered cost of the shares, constituted ordinary income of the petitioner for 1937 as compensation for services rendered.

Payments made to the Administrator of the Office of Price Administration in compromise of a claim for treble damages for alleged violation of price ceilings held not deductible as an ordinary and necessary business expense.

Income -- Deduction -- Ordinary and Necessary Expense -- Section 23 (a) (1) (A). -- One and one-half times overcharges paid to the United States in settlement of a suit for violation of a ceiling price regulation on bananas was not deductible as an ordinary and necessary expense where it does not appear that the petitioner could not have avoided the overcharges by the exercise of reasonable intelligence and diligence.

Petitioner is a New York corporation, engaged in the business of advertising agency. It has no stockholders except employees. Its staff consists largely of creative writers, artists, and radio directors, upon whose work the success of the business depends. Petitioner's stockholders, upon its organization in 1928, donated to its treasury 20 per cent of the shares initially issued to them for the purpose of having shares of stock available for issuance to employees who demonstrated talent and ability and who contributed to the success of the business. Petitioner, after its organization, also purchased stock from some of its stockholders, which it carried as treasury stock. All purchases and sales were made at book value. There was no negotiation as to price. In 1939 and 1941, under its plan of operation, petitioner sold some of this treasury stock to its employees at a price which showed a gain. Held, that the corporation was not dealing in its own shares as it might have dealt in the shares of another corporation within the meaning of section 19.22 (a)-16 of Regulations 103 and petitioner is not taxable on the gain which the Commissioner has determined.

In 1942 and 1943 petitioner obtained from Defense Plant Corporation six purchase orders for an equipment pool of machine tools. Held: the advance payments did not constitute a part of petitioner's borrowed capital under section 719, Internal Revenue Code, and the repayment thereof did not constitute a reduction of petitioner's indebtedness for purposes of credit for debt retirement under section 783.

In 1937 petitioner's son, who was at that time unemployed and without resources, went into the retail business. Petitioner furnished to him both credit and capital. Shortly thereafter the son borrowed additional capital from a bank and obtained petitioner's endorsement on notes given for such loans. Petitioner knew nothing of the condition of his son's business except that it was not good. He endorsed the notes only because he wanted to see his son stay in business. In January 1939 the notes became due and the son was unable to pay them. Thereupon petitioner gave his own note to the bank in payment of the son's notes. Later in 1939 the son went into bankruptcy and was discharged. The son did not list any debt owing to petitioner arising by reason of petitioner's payment of the son's notes as part of his liaiblities, nor did the petitioner file any claim on account thereof. In 1941 petitioner paid the note given by him to the bank in 1939, and claimed a bad debt deduction in the amount of such payment in 1941. Held, petitioner is not entitled to the bad debt deduction claimed.

Recognition of Gain or Loss -- Section 112 (b) (5). -- The surrender of judgment claims to a debtor corporation in consideration of the issuance to the creditors of stock of the debtor which gave the old creditors control is a transfer in exchange within section 112 (b) (5).

Walter Thiele, the decedent herein, died December 25, 1940. His wife, Helen Agnes Thiele, died testate on February 26, 1940. Held: the estate of Walter Thiele is entitled, under section 812 (b) (3) of the Internal Revenue Code, to deduct from the value of its gross estate the amount of the said debt, plus interest, as a claim against the estate.

1. The petitioner executed a relinquishment of reserved trust powers and filed consent, under section 1000 (e), Internal Revenue Code, that the transfer in trust be treated as a completed… Held: that such relinquishment and consent did not determine that gifts made in the trust instrument were of present interests. 2. The trust indenture provided gifts of corpus, to take effect only after death of settlor's wife, with other contingencies as to survivorship among the donees.

1. The Renegotiation Act of 1942 is not proven to be unconstitutional. 2. The amount of excessive profits determined.

1. Estate Tax -- Transfer -- Contemplation of Death -- Section 811 (c). -- A transfer to a key executive to hold him in the business was not, but a later transfer to his children was, in contemplation of death. 2. Estate Tax -- Transfer -- Retention of Income -- Section 811 (c). -- Stock given to daughter, "subject to your giving me the first dividends up to $ 15,000," was properly included in gross estate under section 811 (c), since the income was retained for a period which in fact did not end before the decedent's death. 3. Estate Tax -- Value -- Blocked Foreign Securities. -- Value of shares and of foreign blocked securities determined. 4. Estate Tax -- Claim Against the Estate -- Section 812 (b). -- A claim, founded upon an agreement not contracted bona fide for an adequate and full consideration, is not deductible under section 812 (b).

Corporation X on September 11, 1930, declared a dividend payable December 15, 1930, which was charged to surplus and credited to a dividends payable account, in which appeared the amount due each shareholder. There was no crediting to the shareholders' individual accounts until 1933, when on their instructions most of the dividend was applied to their debts to the corporation. In the fiscal year ended June 30, 1931, the corporation had accumulated earnings and profits sufficient to pay the dividend; in 1933 it did not. In 1942 it made a distribution in redemption of shares, and computed earnings to reflect a reduction of surplus in 1931 by the amount of the dividend. Held: (1) The corporation's surplus was reduced in the fiscal year 1931 by virtue of the declaration of the dividend. (2) The crediting and control exercised by the shareholders over the dividend effected a distribution in the fiscal year 1931, which, a fortiori, reduced surplus.

The amount of excessive profits of petitioner, a manufacturer of steel castings, derived from contracts subject to the Renegotiation Act, held, on record, to be $ 97,500. Held: on record, to be $ 97,500.

The petitioner, a foundation organized under the founder's will for the purpose of aiding and promoting the science of ceramic engineering, held, exempt from income tax under section 101… Held: exempt from income tax under section 101 (6) of the Internal Revenue Code, notwithstanding that it acquired, under the will, and operated a going business consisting of the manufacture and sale of pyrometric cones, and, out of its income, paid a life annuity to the founder's widow.

In 1929 petitioner made a loan of $ 30,000 to an estate of which petitioner's president was a coexecutor. Held: petitioner is entitled to deduct $ 30,000 as a loss under section 23 (f), I. R. C.

During the taxable year 1943 petitioner's employer directed petitioner to move his residence nearer to his place of employment so as to be… Held: the amount received by petitioner as a reimbursement should for tax purposes be treated as a part of the amount realized from the sale of petitioner's home as that term is used in section 111 (a) and (b) of the Internal Revenue Code, resulting in neither gain nor loss, rather than as additional compensation as contended for by the…

Upon the record, no plan of complete liquidation was adopted by the corporation of which petitioners were stockholders, as contemplated by section 115 (c) of the Internal Revenue Code. Held: two distributions of assets in exchange for stock, made in 1941, were in partial liquidation and gains thereon taxable in full.

1. Transfers of securities in trust by the decedent for the benefit of her three children more than two years prior to her death and the transfer to one of such children of a one-half… Held: not to have been made in contemplation of death within the meaning of section 811 (c) of the Internal Revenue Code. 2. The value of certain shares of stock of Pittsburgh Press Co. determined as of December 10, 1940, for gift tax purposes and as of May 29, 1942, for estate tax purposes.

1. Corporation A, having acquired bonds of its subsidiaries at a discount, liquidated the subsidiaries, acquiring all their assets and assuming all their liabilities. The assets received exceeded in value the obligations assumed, including the bonds, which were not immediately retired. Held: (a) Transfer of the subsidiaries' assets to the extent of the face value of the bonds was not a distribution in liquidation within the meaning of section 112 (b) (6), Internal Revenue Code. (b) The difference between A's cost of acquisition and the face value of the bonds was taxable gain. 2. That part of the capital stock tax for the year ended June 30, 1940, attributable to the 10-cent increase in rate imposed by the Revenue Act of 1940, held, accrued and deductible in 1940. First National Bank in St. Louis, 1 T. C. 370.

Petitioner and his wife acquired all of the capital stock of a corporation which owned and operated a mercantile business. Held: that petitioner and his wife each owned one-half of the capital stock of the corporation and that each owned one-half of the distributed assets of the dissolved corporation; held, further, that the capital gain realized on dissolution of the corporation and the income of the partnership are taxable one-half each to petitioner and his…

During the pendency of divorce proceedings an agreement was entered into for the payment of certain alimony by the taxpayer to his wife. Absolute divorce was thereafter granted to the wife. The decree made no provision for alimony and the court did not retain jurisdiction for that purpose. Under Illinois law, under such circumstances, the obligation to support ceased and the court was thereafter without jurisdiction to make any provision for alimony. In 1939 the former wife, by letter, requested additional payments. The taxpayer, by letter, acceded to such request and, pursuant thereto, made additional payments of $ 575 and $ 810 in 1942 and 1943, the deduction of which the Commissioner disallowed. Held, that such additional payments were not made in discharge of a legal obligation imposed on or incurred by the taxpayer because of marital relationship under a written instrument incident to divorce under section 22 (k), Internal Revenue Code and, hence, were not deductible by taxpayer under section 23 (u).

Petitioner is an institution specializing in the care of the mentally ill for profit, and keeps its books on an accrual basis. Held: petitioner received income in that amount in 1944.

Estate Tax -- Section 811 (c) -- Right to Income -- Support Trust for Wife. -- Where trust gave decedent no right to require that trust income be used to support wife, argument that 811 (c) applies is unwarranted.

Petitioner, since 1939, has been engaged in business as manufacturers' agent. Held: since the sum of $ 17,467.07 was not contingent upon the procurement by petitioner of the contracts or subcontracts upon the amount of which the compensation was based, such amount, although determined with reference to the amount of contracts or subcontracts, was not received by petitioner under a subcontract as defined in section…

Where husband and wife filed separate individual income and victory tax returns for 1943, held, that the husband is not entitled to the credit of $ 1,000 or 40 per cent of the… Held: that the husband is not entitled to the credit of $ 1,000 or 40 per cent of the victory tax, whichever is the lesser, allowable under section 453 (a) (3) (B), as amended by Public Law 178 (57 Stat. 584), where husband and wife filed joint returns or where one of the spouses filed no return.

Excess Profits Tax -- Credit Based upon Invested Capital -- Borrowed Capital -- Section 719 (a). -- A taxpayer has borrowed invested capital within the meaning of section 719 (a) where a bank advances money to it on its note for the purpose of financing work under a Government war contract, even though the taxpayer assigns to the bank its right to receive moneys from the Government under the contract.

Income -- Nondeductible Item -- Premiums on Life Insurance -- Section 24 (a) (4). -- Premiums on life insurance upon the life of a debtor-partner paid by the creditor-partner are nondeductible under section 24 (a) (4), I. R. C.

1. Income -- Exclusions or Exemptions -- Sections 22 (a), 22 (b) (8), 116 (h). -- The compensation of an official of the League of Nations temporarily residing in this country for several war years and conducting his official duties here is subject to income tax under section 22 (a) and is not relieved therefrom by 22 (b) (8) and 116 (h), I. R. C. 2.

1. Decedent died January 2, 1943. During 1942 he was employed by X Co. on a salary plus a bonus consisting of a percentage of profits as ascertained by its certified public… Held: bonus income is taxable to such petitioner in 1943 under section 126 of the Internal Revenue Code. 2. Decedent for some time prior to his death had been a cotrustee of an estate. On July 20, 1943, an appropriate court approved and awarded commissions on account of decedent's service as cotrustee.

1. Expenses incurred during base period in the correction of basic defects in design of new model unit heater manufactured and sold by… Held: abnormal in character, and not the consequence of an increase in gross income, nor of a decrease in any other deduction, nor of a change at any time in the type, manner of operation, size or condition of petitioner's business, and, therefore, not properly deducted in computation of base period net income for excess profits tax…

In the forepart of 1942 the War Shipping Administration requisitioned three freight vessels owned by taxpayer. Held: the gain realized by taxpayer was not accruable in 1942 and hence not includible in its income for 1942.

Commuted value of claim against decedent's daughter for money advanced to her during his lifetime and acknowledged by her in writing, held, includible in decedent's gross estate for lack of evidence that advances were intended as a gift.

1. Statute of Limitations -- Jurisdiction -- Mailing -- Address. -- A notice of a deficiency in estate tax mailed by registered mail to the address given by the executrix on the estate tax return was properly mailed in the absence of notice to the Commissioner that that was no longer the address which she would have the Commissioner use. 2.

Petitioners did not file estate tax return until the expiration of two years and ten months after the date of decedent's death. Upon the facts it is held that the failure to file the return within the prescribed time was not due to reasonable cause.

Petitioner, which kept its accounts and filed its returns on an accrual basis, accrued as liabilities for its fiscal year ended January 31, 1943, income taxes and excess profits taxes for that year which were paid in the following year, and accrued as an asset in 1943 the post-war refund credit provided by section 780, I. R. C. These accruals were reflected in its accumulated earnings and profits as of January 31, 1943. Petitioner used the invested capital method in computing its excess profits tax credit for the fiscal year 1944. Respondent eliminated from petitioner's "accumulated earnings and profits" used in such computations the amount of the post-war refund credit accrued as an asset. Held, such post-war refund credit was properly accrued by petitioner as an asset in its fiscal year 1943 and should be included in petitioner's accumulated earnings and profits as of the end of that year.

1. Petitioner was engaged during the taxable year in rendering naval architectural and marine engineering services to the United States Navy under cost plus a fixed fee contracts. Held: petitioner is a personal service corporation, whose income is to be ascribed primarily to the activities of its principal stockholder. 2. The Navy paid vacation wages to petitioner as a part of its contracts.

The petitioner received in the taxable year, and as an employee of a corporation, installments of stock bonuses declared in previous… Held: that the bonus was earned by services over the period of service rendered up to four years, and not merely in the year of declaration of bonus; therefore petitioner earned one-fourth of each year's bonus in 1939, the taxable year, so is entitled to exemption of 198/365 thereof, because of nonresidence for 198 days during the taxable…

A retiring partner of a law firm in 1941 entered into a contract with the other partners whereby he was to receive his aliquot proportion of the fees collected in cases in which he was deemed to have an interest. Held, that this was not a sale of a capital asset and that the income received by the petitioner under the contract in 1944 is taxable as ordinary income, rather than capital gain.

1. The payment of the sum of $ 50,000 to petitioner in 1939 by the city of Los Angeles in consideration of the conveyance by it to the city of a right of way and certain easements to divert foreign waters into the Owens River as it flowed through petitioner's land, and releasing the city from all claims and demands, etc., did not constitute taxable income to petitioner under section 22 (a), I. R. C. 2.

In 1926 the decedent created a trust under which she was life beneficiary, and cotrustee with a corporate fiduciary. Held: the value of the trust corpus is includible in the decedent's gross estate under section 811(c), I. R. C.

1. Decedent's father in 1916 created a trust for her and two of her sisters, providing general powers of appointment over both income… Held: that decedent exercised the power as to only the part of the property appointed to Clara; the amendments by section 403, Revenue Act of 1942, do not apply to the remainder; and only the value of the property appointed to Clara should be included in her gross estate, under section 811 (f), Internal Revenue Code, as amended by section…

The petitioners' partnership (formed June 1, 1939) inventoried securities in which it was dealing. One petitioner entered military service on June 30, 1942. They formed another partnership with an employee. Thereafter, the securities of the old partnership were held by the Stock Exchange house which represented both partnerships, in an account labeled "old accounts"; and there was thereafter only a limited amount of buying and selling from the "old accounts." The new partnership, including the former employee, inventoried its securities, in which the partners were specialists. A partnership return was filed for 1942, showing the three partners, but also showing the partnership as formed May 31, 1939, the business as "dealers in securities," and reporting for all of 1942. For 1943 a return was filed for the old partnership, showing only the petitioners as partners. Another partnership return was filed for 1943 by the partnership consisting of the three partners. Both returns showed formation of partnership as May 31, 1939. No permission was secured for changing from the inventory method. No evidence showed the old partnership closed, and the securities inventoried were not distributed to the partners. Held, profit from securities sold from "old accounts" was ordinary income and not capital gain.

1. Petitioner's 1941 return was filed on March 16, 1942. From February 1944 to February 1945 petitioner, then in the armed forces of the United States, was continuously outside the Americas and in the European theater of operations. The notice of deficiency for 1941 was mailed to petitioner in August 1945. Held, in view of section 3804, I. R. C., the deficiency notice was timely mailed. 2. Petitioner's mother died in 1933, when petitioner and his sister were minors. She left all her property in a testamentary trust which was to continue until the younger of the two children (petitioner) attained majority. The net income of the trust was payable to the children equally. Included in the trust property was a residence property which the decedent had occupied until her death. The trustees had the power to sell any of the property in the trust, real or personal, and reinvest the proceeds. After her death petitioner and his sister were permitted to live in the house, and the trustees collected rent from their guardian. Petitioner's sister died without issue in 1937, while petitioner was still a minor. Petitioner thereupon moved out and lived with his guardian, and the trustees listed the property for rent or sale. Petitioner reached his majority in 1939, at which time the trust terminated and petitioner became entitled to possession of the residence property. He actively undertook to rent or sell it. He sold the property in 1941 for an amount considerably less than its value at the date of the decedent's death. Held, petitioner is entitled to deduct the loss on the residence as an ordinary loss and the loss on the land as a capital loss.

Held, an employee who reported his 1944 income on the "short form," electing to pay the tax imposed by Supplement T (section 400, I. R. C., et seq.), may not deduct union dues, work clothes expense, and streetcar fare to and from work, in computing his "adjusted gross income under section 22 (n), I. R. C.

1. The taxpayers in 1943 accrued a bonus to their son and son-in-law as additional compensation for services in their business, but did not pay it until approved by the Salary Stabilization Unit in April 1944. The Commissioner disallowed its deduction as a business expense by virtue of section 24 (c), Internal Revenue Code. Held: (a) The amount paid to the son-in-law is deductible because a son-in-law does not qualify as a member of the taxpayer's family within the meaning of section 24 (b) (2) (D) and hence, condition (3) of section 24 (c) not being met, section 24 (c) does not operate to bar the deduction. (b) The amount paid to the son is nondeductible because he does so qualify, and all other conditions prescribed for the operation of section 24 (c) are present. 2. The provisions of the Price Control Act, Public Law 729, vol. 56, part 2, Stat. at Large 765, held, not to repeal, modify, or implicitly amend section 24 (c), Internal Revenue Code.

Petitioner, engaged in the road paving business, filed returns reporting substantial losses sustained for the years 1930 to 1932,… Held: the filing of amended returns with payment and assessment of additional taxes after the expiration of the statutory period did not meet the requirements of section 276 (b), I. R. C., and Commissioner correctly determined that petitioner's bases for depreciation in 1940 and 1941 should be reduced by amounts allowed in original returns…

Inter vivos bank deposits by Pennsylvania decedent constituting tentative trusts, held to be subject to general claims of creditors within meaning of section 812 (c), Internal Revenue Code, for the purpose of ascertaining the allowance for previously taxed property, notwithstanding actual resort to such funds was not required because of sufficiency of decedent's estate.

Value of 99-year leasehold interests (exchangeable for 999-year interests) in land situated in Kenya Colony, British East Africa, held excludible from decedent's gross estate for Federal estate tax purposes, as real property situated outside of the United States, under Internal Revenue Code, sec. 811.

Where petitioner seeks to exclude a number of deductions in the computation of its base period net income and the Commissioner denies the propriety of such exclusion, the petitioner, after amending its petition, may establish by evidence its right to such exclusion in the last two years of said base period and accede to the Commissioner's rejection thereof in the first two years, where the exclusions of the last two years of the base period fall in a class differing from that of the exclusions originally claimed for the first two years thereof, even though the petitioner procures a tax advantage thereby under the growth formula set forth in section 713 (f), I. R. C.

1. Petitioners Anthony Cornero Stralla and John T. Basom, and others, in 1938 and 1939, were engaged in operating a ship or barge anchored off Santa Monica, California, for gambling purposes. Held: that the expenditures so made are not deductible, as being contrary to public policy and not within the meaning of the statute. Commissioner v. Heininger, 320 U.S. 467. 3.

Held, that the mailing of a letter to petitioner by a Price Adjustment District Office to which the War Department had assigned petitioner… Held: that the mailing of a letter to petitioner by a Price Adjustment District Office to which the War Department had assigned petitioner for the purpose of renegotiating its excessive profits, which letter requested petitioner to furnish information upon which its excessive profits, if any, on its subcontracts subject to renegotiation…

Upon the issue presented, whether certain property standing in the name of decedent's wife at his death was community property of the decedent and includible in his gross estate for estate tax purposes, the respondent pleaded affirmatively an equitable estoppel. Held, since the proof establishes all the essential elements necessary to warrant the application of the doctrine of equitable estoppel, the plea is sustained.

1. Excess Profits Tax -- Equity Invested Capital -- Property Paid in -- Basis -- Section 718 (a) (2). -- Where a debtor-creditor relationship between affiliates is the result of operating losses of one being paid by the other, which losses have been deducted from group income on consolidated returns, the basis of the creditor for loss on the indebtedness must be reduced by the amount of the losses of the debtor which have offset income on consolidated returns. 2.

Petitioners owned certain machinery and equipment acquired prior to 1929, the useful life of which had been estimated prior to the tax years, and depreciation allowances based thereon had been… Held: section 734 is not applicable and rates of depreciation as determined by respondent are correct on the facts shown: held, further, this Court has no jurisdiction with respect to those taxes for which overassessments were found.

Petitioner purchased two partly abutting properties in the city of Chicago, one in 1920 and the other in 1926. Held: respondent's determination should be sustained.

Petitioner, a ferry company, and its sole stockholder contracted with another corporation for a lease of the management and control of its business, consisting mainly of a ferry franchise and… Held: the amounts received by the stockholder were properly included by the Commissioner in petitioner's income.

Since the petitioner has failed to carry its burden of establishing error in the determined amount of its excessive profits for 1942, and respondents have likewise failed to carry their burden of establishing the factual basis upon which they rely for an increase therein, the amount of such excessive profits is found as so determined. Nathan Cohen, 7 T.C. 1002; Aircraft Screw Products Co., 8 T.C. 1037.

Petitioner, a practicing lawyer, suffered a partial paralysis, as a result of which he required transportation between his residence and office. Held: the amounts paid for taxicab fares between petitioner's residence and office are not deductible as business expenses.

1. 99-year 8 per cent income debenture of $ 250,000, issued with petitioner's stock of $ 200 total par value in exchange for property of sole stockholder upon petitioner's incorporation, held to represent invested rather than borrowed capital, requiring disallowance of deductions for interest. 2.

Harold Hirsch, husband of petitioner, died testate in September 1939, leaving a large estate with considerable indebtedness and other claims… Held: that during the taxable years the residuary assets of the estate had not been turned over to the testamentary trust and section 162 (b), I.R.C., is not applicable; held, further, petitioner is taxable only on the income of the estate which was actually paid to her during the taxable years in question, under section 162(c), I.R.C.

1. The taxpayer corporation acquired leases on several properties in consideration of cash, the drilling of oil wells within a fixed time, and the payment of a royalty on oil or minerals extracted. Held: The two contiguous lots constitute a property different from the others, which, touching only at a corner point, were separate tracts. (b) Cost of the two lots, including intangible drilling cost of the dry hole, is deductible as loss on a property in the year of release. 4.

Since its incorporation in 1900 petitioner has been continuously engaged in the business of compiling and publishing legal citations. Held: under section 711 (b) (1) (J), I. R. C., that the deductions for both premiums and pensions constituted a single class of deductions separate and distinct from all other classes of deductions; that such deductions for 1938 were abnormal; that such deductions for 1939 were normal because a definite course of conduct had been entered…

Decedent, to procure working capital for a corporation in which he owned controlling stock, transferred half his common shares to a person… Held: on the facts, decedent's basis for stock sold in 1940 includes cost of common stock transferred to the other person plus the part of the cost of preferred shares surrendered which was not deductible as a loss at the time of surrender. Commissioner v. Burdick, 59 Fed. (2d) 395, and Julius C. Miller, 45 B. T. A. 292, followed.

Petitioner was engaged in the fabrication and erection of structural steel. Held: that the entire amount of $ 81,607.66 is a deduction of a class abnormal for petitioner under section 711 (b) (1) (J) (i) of the Internal Revenue Code.

In determining the exclusions allowable under section 1003 (b) (3), Internal Revenue Code, in the case of gifts of present interests, the value of beneficiaries' interests in trust income for a term of years must be computed by deducting from corpus each year the amounts thereof which the trustees are authorized, conditionally, to distribute to the beneficiaries.

Petitioner Aramo-Stiftung, a foreign foundation, through bankers in Switzerland, placed dividend-producing securities in the names of brokers in New York. Dividends were paid to the brokers. Held: on the facts that no error is shown in the determination that the petitioner was taxable on the dividends and liable to penalties for failure to file income and personal holding company tax returns; petitioner Oak Commercial Corporation held not taxable.

The petitioner was sole income beneficiary of a testamentary trust. The will provided that the trustees should have discretion as to whether to charge expenses to principal, or to income. They were charged to the principal account on the books, after some small items had been charged to income, but reversed and charged to principal. The remaindermen, petitioner's sons, authorized payment to petitioner without deduction for the expenses, and petitioner received the entire trust income. The will provided against assignment of the trust property, or income, before payment to the beneficiary. Original fiduciary income tax returns showed expenses charged to trust corpus and not deducted from income, but after the determination of deficiency, amended returns were filed, showing deduction of expenses from income. Held, no error in the determination of deficiency by taxing petitioner with all trust income received.

Respondent's determination that a public warehouse company keeping its books and filing its returns on the accrual basis could not, during the first two years of its existence, exclude from its income that portion thereof which the company set aside in a reserve account as its contractual liability to remove goods from its warehouse at the end of the storage period, held to be justified by section 41, I. R. C.

Petitioner was sued by the State of Texas for alleged violations of the antitrust laws of that state. Held: the payments made in compromise were not ordinary expenses paid or incurred in carrying on a trade or business.

Income Tax -- Deduction -- Partially Worthless Debt. -- A taxpayer need not deduct for partial worthlessness in each year when some partial worthlessness develops, but can wait until further worthlessness occurs and deduct the total partial worthlessness at the later date.

1. The decedent, at the age of 81 years, created an irrevocable trust to provide for an incompetent son who was made the sole beneficiary of the trust income for life. The trustee was directed to distribute the trust income for the use of the son in such amounts as the trustee should determine to be necessary, and to accumulate all undistributed income.

1. Respondent's determination for 1942, eliminating depreciation deduction relating to mill equipment by reflecting adjustment in figure for salvage value of the assets, held not shown to have been erroneous. 2. On issue submitted, held depreciation deduction on automobile can not be disallowed merely by reason of the appreciated price received for asset. 3.

The petitioner and corporation A, both principally owned by the same family, manufactured and sold women's coats and suits under an unwritten agreement whereby petitioner supplied the materials,… Held: the values of the free issue material should be excluded from prime costs in determining the prime cost ratio. 4. Petitioner's profit from renegotiable contracts, held, on the evidence, to be excessive to the extent of $ 107,800.

A plan of reorganization under section 77-B of the Bankruptcy Act, approved November 14, 1939, provided for merger and consolidation of 65 companies previously… Held: petitioner was entitled to accrue and deduct from gross income for 1940, as interest, the amount which under the provisions of its bonds issued in that year it was obligated to pay and did pay as interest for the period January 1 to December 31, 1939. Columbia River Paper Mills, 43 B. T. A. 104; affd., 126 Fed.

1. Petitioner owned securities and real estate and engaged in farming for profit during 1942. Held: petitioner is a personal holding company as defined in section 501 (a). Woodside Acres, Inc., 46 B. T. A. 1124; affd., 134 Fed. (2d) 793, followed. 2. Petitioner used part of its 1942 income to pay indebtedness incurred after January 1934. Held, the personal holding company surtax is constitutional as applied to petitioner. 3.

1. In 1929, in a consolidation or merger, petitioner acquired all the assets and assumed all the liabilities of another banking association and in consideration therefor paid $ 750,000 cash and… Held: section 113 (a) (7), I. R. C., is inapplicable because of the lack of the necessary continuity of interest or control and petitioner's basis for the property for equity invested capital purposes in 1940, 1941, and 1942 is its cost rather than the basis of the transferor. 2.

The decedent, domiciled in Pennsylvania, died within 30 days after executing his last will. Held: that, since there were no charitable bequests by the decedent in his will by operation of the Pennsylvania statute, the property in question passed to the charities under the agreement of the residuary legatees and, in that circumstance, deductions are not allowable under section 812 (d), as amended; (2) that the question of…

Petitioner and his wife decided to execute gifts in trust of an undivided community interest in an oil and gas lease for the benefit of their children. Held: petitioner's gifts in trust were completed in 1942 rather than 1943.

1. Petitioner, a private trust company, held not a bank, within the definition of Internal Revenue Code, section 104, and not relieved of status as a personal holding company. 2. Interest on municipal obligations held exempt from Federal income tax, notwithstanding collection through sale. 3. Penalty for failure to file personal holding company return held proper on failure of petitioner to carry burden of proving reasonable cause and lack of willful neglect.

Income Tax -- Deductions -- Estates -- Maintenance of Real Estate -- Section 23 (a) (1) and (2). -- Farm losses and expenses of maintaining and operating a homestead for executors as individuals are not deductible by estate.

A Wisconsin corporation organized in 1900 under a statute providing for cooperative corporations had paid no patrons' dividend up to 1943. Held: the amount set aside for said reserve is neither deductible nor excludible from income to determine net taxable income.

Valley, a corporation formed to promote industrial interests of community, agreed to give Belle (petitioner's predecessor), a manufacturing company, land and factory buildings if it would move to… Held: Advances from Belle to Valley created a debt. (2) Deduction allowed for balance due from Valley to Belle, as a debt which became worthless during year ended July 31, 1940.

Petitioner filed separate rather than joint returns for the taxable years 1944 and 1945 and claimed dependency credits for the support of his stepdaughter-in-law and stepgrandson in those years. Held: petitioner may not now substitute joint returns for the separate returns filed, and he is not entitled to the credits claimed because the individuals are not dependents within section 25 (b) (3) of the Internal Revenue Code.

1. Family Partnership. -- Petitioner owned all of the stock of a corporation which was operating a business. He dissolved the corporation and entered into a partnership agreement with his wife and daughter, and later his son, for continuation of the business formerly conducted by the corporation. Petitioner's wife contributed no services to the partnership, but petitioner claimed that in consideration of her cancellation of a bond issue of the corporation to facilitate its dissolution she acquired an equitable interest in the corporation's assets which became the partnership's capital. Thus, it is claimed she contributed to the partnership capital. A share of the partnership income was allocated to her in the taxable years involved, which she returned for Federal income tax purposes. Respondent determined that the income so allocated was taxable to petitioner and determined a deficiency in tax against him on the basis thereof. Held, (a) that petitioner's wife contributed neither capital nor services to the partnership and was not joined with petitioner and others in carrying on the business of the partnership, and (b) that the partnership income allocated to his wife was taxable to petitioner 2. Question involving statute of limitations determined.

1. Petitioner is a subcontractor within the meaning of the Renegotiation Act, and the act is not unconstitutional as applied to petitioner. 2. Held: petitioner's excessive profits for the fiscal year ended December 31, 1943, were in the amount determined by the respondent, petitioner not having sustained its burden of proving the original determination was in error and the respondent not having sustained its burden of proving that petitioner had additional excessive profits.

Commissions paid by petitioner corporation to its broker agent as compensation for its services in selling petitioner's stock are not to be deducted from the price received for the stock in computing equity invested capital under section 718 (a) (1), Internal Revenue Code.

1. Profits earned by a wife's operation of a boarding and rooming house in Texas, a community property state, held, derived from the wife's personal services within the meaning of section 811 (e),… Held: derived from the wife's personal services within the meaning of section 811 (e), Internal Revenue Code. 2.

From 1919 until in August 1941, petitioner was the manager of the Osaka, Japan, branch of an American industrial concern. Held: on the facts shown, petitioner was a bona fide nonresident of the United States for more than six months during 1941.

Petitioner was organized September 12, 1934, to manufacture and sell high frequency vacuum tubes. Held: because of failure to show that the improvements in tubes and production of new tube types from year to year constituted section 721 (a) (2) (C) developments and the amount of such class of income includible in gross income in the taxable years and the base period years, without which abnormal income under section 721 (a) (1) or net…

Petitioner sustained net losses in the operation of his farm in each of the years 1942 and 1943 and took deductions therefor in his income tax returns for those years. Held: the deductions were erroneously disallowed and, consequently, the determination of the deficiency in tax should not be sustained.

1. Where a taxpayer received money from the illegal operation of various enterprises, such as night clubs where liquor was sold and gambling carried on, the operation of slot machines, and the operation of a "handbook" for the placing of bets on horse racing, and kept no accounts or records of his transactions, the Government was justified in determining his income by adding thereto an item designated "excess cash expenditures," calculated by deducting all ascertainable cash receipts from the ascertainable cash expenditures. 2. A taxpayer's unexplained failure to testify gives rise to a presumption that, had he testified and told the truth, his testimony would have been unfavorable to his cause. 3. Although the Government has the burden of proving fraud, this obligation relates to the penalty only and does not relieve the taxpayer of the burden of disproving the correctness of the deficiency.

Petitioner not entitled to a deduction for a claimed loss.

1. Capitalization of Expenditures -- Properly Chargeable to Capital Account -- Sec. 113 (b) (1) (A). -- The propriety of capitalizing various expenditures determined. Held: inter alia, that expenses of unsuccessful efforts to sell are not properly chargeable to capital account. 2.

Abandonment by petitioner of profit-sharing plan after one year of operation, upon disapproval by the Salary Stabilization Unit, held, on all the evidence, not to demonstrate lack of bona fides of… Held: on all the evidence, not to demonstrate lack of bona fides of trust so that it would fail to qualify under section 165 (a), Internal Revenue Code.

In a national competition petitioner won the award of a contract to decorate the exterior of a new Federal building with a sculpture… Held: the term artistic composition used in section 107 (b), Internal Revenue Code, has reference to an entirety, a unitary composition as a whole, and not to a mere aggregation of parts; held, further, in determining whether petitioner's work on the artistic composition covered a period of 36 calendar months or more, work done on sketches…

1. Decedent died testate in 1941 at the age of 76. On November 29, 1935, he made a gift of certain shares of stock to his wife. Held: the above gifts were not made in contemplation of death and should not, therefore, be included in the decedent's gross estate under section 811 (c) of the Internal Revenue Code. 2. Decedent and his wife opened a joint bank account in a Georgia bank in 1930.

British income taxes of British corporation operating oil-producing properties in United States, held properly deducted in computing 50 per cent of net income from the oil properties for purposes of determining limitation on percentage depletion under Internal Revenue Code, section 114 (b) (3).

1. Held, method of determining income not reported approved. 2. Held: method of determining income not reported approved. 2.