Volume 9 — Tax Court Memorandum

The petitioner and his wife operated a wholesale beer distributing business known as Central Products. They contributed capital from their joint savings. Held: parties in good faith and acting with a business purpose intended to join together as partners in the present conduct of the enterprise and that petitioner's wife should be recognized as a partner in Central Products during the taxable years.

In 1931 and prior thereto petitioner and an associate were engaged in trading in stocks, which transactions were conducted through a broker. Held: petitioner has not proved that the note had any value, either intrinsic or potential, at the beginning of the year 1945. Dunbar v. Commissioner, 119 Fed. (2d) 367. Held, further, even assuming that the note had value at the beginning of 1945, petitioner has not proved that it became worthless in the year 1945.

The petitioner completed building a residence in 1929. In 1933 she decided never again to use the property as a residence. Held: under the provisions of section 23 (a) (2) and section 23 (1) (2), the property was held for the production of income when it was offered for sale in 1933. The fair market value of the depreciable portion of the property is determined as of that date.

Petitioner from 1943 to 1947 was employed by the Conway Home Improvement Company, Inc. of Syracuse, New York, as one of its representatives, on a commission basis. Under the terms of his employment petitioner was to pay his own traveling expenses and meals and lodging. From January 1944 to April 1947, petitioner was stationed in Ithaca, New York, as his post of duty. He still maintained his home in New York City. The Commissioner has allowed petitioner a deduction for his automobile expenses incurred and paid in his work as trade representative of the Conway Company in Ithaca for the year 1944, but has disallowed petitioner's claimed deductions for meals and lodging expended by petitioner during 1944 while at his regular post of duty in Ithaca. Held, respondent is sustained in this disallowance of the meals and lodging deductions claimed by petitioner. Commissioner v. Flowers, 326 U.S. 465.

Commissions earned by petitioner, who was on a cash basis, under his contract with Peloian for the purchase of raisins during the 1944-1945 season were not payable or available to him in 1944 and hence were not taxable to him in that year. 2. Petitioner acted as distributing agent of Peloian in making over-ceiling payments to growers who sold raisins to Peloian. He derived no income from so doing. 3.

Amount of purchases for 1942 determined. The evidence failing to show that total receipts were not understated in the returns or that the amount of total receipts determined by the Commissioner was arbitrary and excessive, the amount of total receipts of restaurant business for 1943 and 1944, respectively, determined by the Commissioner, is approved.

Petitioner filed delinquent income tax returns for the years 1942 to 1946, inclusive, in which he reconstructed and reported his taxable income upon the basis of an analysis of his bank account, no… Held: respondent correctly determined petitioner's tax liability upon the annual increase in net worth method; held further, that respondent correctly determined that there was fraud with intent to evade tax with respect to each of the taxable years 1933 to 1946, inclusive.

1. Respondent's determination of income approved for failure of proof of error. 2. Fraud penalties approved.

Respondent correctly disallowed deduction for net operating loss. Joseph Sic, 10 T.C. 1096, followed.

Held, that certain payments made to petitioner by virtue of his retirement from active duty with The Travelers Insurance Company are not exempt from tax under section 22(b)(5), I.R.C., as accident or health insurance or as compensation for personal injuries or sickness.

Fair market value on March 1, 1913 of certain Texas lands, determined.

On his 1944 income tax return petitioner claimed certain business expense deductions and a capital loss deduction because stock he owned became worthless in that year. On the facts, (1) Held, that the major portion of such expenditures was made for business purposes. (2) Held, that the exact amount paid for those expenditures which were for business purposes is not determinable from the evidence, but an estimate of such expenditures can properly be made. Cohan v. Commissioner, 39 Fed. (2d) 540. (3) Held, further, that petitioner is not entitled to a capital loss deduction due to failure to prove the basis of his stock.

Where petitioner's wife, with former business experience, conceived the idea for the product which was to be produced by the business involved, which business was in her name; supplied the entire… Held: that it was the intention of the wife to, and she did, establish and thereafter was the owner of a small glove business and that petitioner, her husband, is not taxable on the net income of the business because of certain managerial participation by him in the business.

J. H. and Mary A. Marsman are husband and wife and citizens of the Commonwealth of the Philippines. Held: That J. H. Marsman was not a resident alien during any part of the taxable years. 2. That Mary A. Marsman was a resident alien during the period September 22, 1940 through December 31, 1941.

Held: 1. That a certain transaction in the year 1943 constituted a closed sale. 2. The loss incurred on such sale in 1943 was an ordinary loss and not a capital loss.

Held: That in the year 1946 petitioners held certain houses, sold in that year, primarily for sale to customers in the ordinary course of business. Held: That in the year 1946 petitioners held certain houses, sold in that year, primarily for sale to customers in the ordinary course of business.

On the facts, held, petitioner is entitled to deduct the sum of $25,000 in each of the taxable years 1942 and 1943, as the reasonable compensation paid to its president, Elias Fellabaum, for services… Held: petitioner is entitled to deduct the sum of $25,000 in each of the taxable years 1942 and 1943, as the reasonable compensation paid to its president, Elias Fellabaum, for services rendered by him in each of those years.

Upon the evidence, held: 1. Respondent did not err in determining that petitioner's closing inventories were understated for the years 1944 and 1945. 2. Held: Respondent did not err in determining that petitioner's closing inventories were understated for the years 1944 and 1945. 2. Petitioner's loss on the sale of property was properly reduced by the additional amount of depreciation allowed or allowable. 3.

Petitioner requests that the amount assigned by respondent to intangible property paid in for shares of its capital stock at par value in 1907, for the purpose of computing its excess-profits tax… Held: petitioner has failed to sustain its burden of establishing that it is entitled to a greater invested capital than that allowed by respondent.

Upon the facts, held: (1) Respondent's determination that the income tax return filed for the year 1942 in the name of "G. W. Bonnette," and signed only by Agnes B. Bonnette, as executrix, was the individual return of Gordon W. Bonnette sustained for lack of proof; (2) Respondent's disallowance of the claimed deduction on the 1942 return as taxes paid on the New Haven real estate sustained.

Under the facts, held: (1) Upon failure of proof, respondent's determination of the net taxable income of petitioner for the taxable year 1945 is sustained. Held: Upon failure of proof, respondent's determination of the net taxable income of petitioner for the taxable year 1945 is sustained. (2) Respondent did not err in determining fraud penalties in each of the taxable years 1944 and 1945.

Salaries paid directors of a bank determined.

Petitioner sustained a loss upon the sale of his interest in a partnership. Under the facts held: The loss so sustained was a capital loss and the amount thereof determined. Held: The loss so sustained was a capital loss and the amount thereof determined.

On the facts, held, petitioner has sustained the burden of establishing that it had no taxable net income for the taxable year 1943 and the taxable period January 1, 1944 to December 30, 1944. Held: petitioner has sustained the burden of establishing that it had no taxable net income for the taxable year 1943 and the taxable period January 1, 1944 to December 30, 1944.

Petitioner's wife supplied a substantial part of the consideration paid by petitioner for the transfer to him of all the stock of a corporation; the petitioner, several months thereafter, transferred… Held: that a bona fide partnership, for federal tax purposes, existed between petitioner and his wife during the taxable years.

Respondent erred in including in the corporate assets received by petitioners upon distribution any amount for good will or going concern value with respect to the five corporations which were dissolved in the taxable years 1943 and 1944.

Upon the evidence, held: 1. Respondent did not err in determining that during the taxable years 1944 and 1945, there did not exist for income tax purposes a valid partnership between petitioner and… Held: Respondent did not err in determining that during the taxable years 1944 and 1945, there did not exist for income tax purposes a valid partnership between petitioner and his minor son in the operation of a farming and ranching business. 2.

The real estate sold by petitioners in the taxable year 1945 was not sold in the ordinary course of their trade or business, and the resultant gains are not taxable as ordinary income, but constitute capital gains.

Upon all of the evidence, a reasonable allowance for the compensation of two officer-employees of the petitioner for the year 1943 is determined.

Equity invested capital. - Held, that petitioner has not established that the good will of its predecessor proprietorship had any fair… Held: that petitioner has not established that the good will of its predecessor proprietorship had any fair market value at the time petitioner acquired the predecessor's business for its stock in December 1904, and respondent properly excluded such claimed good will in computing petitioner's equity invested capital under section 718,…

The petitioner during the taxable year operated a cafe-bar and was also employed full time in another position. Held: that the respondent did not err in adding this amount to petitioner's income for the taxable year.

In the taxable year 1945, petitioner contributed $1,000 to the FourStates Fair, Inc. of Texarkana, Texas-Arkansas. Held: petitioner's contribution of $1,000 to the Fair is deductible under section 23(q)(2) of the Internal Revenue Code.

Petitioner, a professional economist, received a prize of $1,250 for an essay on the subject "Farm Price Policies" in a contest conducted by the American Farm Economic Association, a tax-exempt organization, out of funds supplied to the Association for such a contest by a private individual. Held, the award was not a gift to petitioner under section 22(b)(3), Internal Revenue Code, but constituted gross income to him under section 22(a) of the code.

Income tax liability was assessed, and notice of tax lien filed against petitioner's husband. Held: That there is here involved no question of priority of liens and that the petitioner is liable, at law and in equity as transferee of her husband, for the amount of taxes assessed against her deceased husband.

The books and records of petitioner are found to have been sufficient from which to determine with reasonable accuracy his gross income and deductions, and it is held that his returns filed for the taxable years were correct.

Held, the petitioner and his wife did not really and truly in good faith and acting with a business purpose intend to join together as partners in the conduct of a moving picture theatre.

Amount of reasonable salary determined under section 23(a)(1)(A) of the Internal Revenue Code.

Loss of investment in a mining venture sustained in 1944.

Petitioners were beneficiaries of certain life insurance policies upon the life of their father and upon his death they received the net proceeds thereof. Held: petitioners are transferees within the meaning of section 900 (e), Internal Revenue Code.

1. Petitioners filed income tax returns for the years 1942, 1944 and 1945, correctly reporting all their taxable income for such years. 2. Petitioners in 1943 had taxable community income in the amount of $3,500, no part of which was reported in their respective separate returns filed for such year. 3.

During the taxable years 1942, 1943 and 1944, petitioners operated a taproom. They filed returns for these years purporting to show the net income from this business. Held: respondent's determination of petitioners' net income by the net worth method for the taxable years 1942 and 1943 is not sustained.

Certain properties sold by petitioners in the taxable year held to be capital assets and the gain realized thereon taxable as long-term capital gain.

Petitioner, prior to July 1, 1944, operated a heating and fuel oil business as a sole proprietorship. Held: that when the sole proprietorship was converted into a partnership on July 1, 1944, petitioner's wife did not become a bona fide partner in the business. Her only capital contribution was the interest in the business given to her by her husband and she rendered no vital and important services to the partnership.

Petitioner, his wife, and another in 1937 entered into a partnership agreement by which petitioner transferred to his wife a half interest in a partnership manufacturing cotton baling cloth. Held: the partnership was formed for a valid business purpose and petitioner's wife had a bona fide interest therein in 1944.

Reasonable compensation for two principal stockholder-officers of petitioner determined for years 1941 to 1944, inclusive.

1. During the taxable years 1942 and 1943 and during the short period January 1 to March 17, 1944 (date of death), Earl W. Hamlin, deceased, received certain sums of money from one W. F. McManus as "kickbacks" on commissions paid to him by the Hamlin Metal Products Company. Pursuant to the agreement between Hamlin and McManus to split the commissions, McManus reported and paid the tax on all commissions and Hamlin was to reimburse him for one-half of the taxes paid resulting from the reporting of all commissions as McManus' income. Of the amounts which Hamlin received in 1943, he returned to McManus $4,622 in December 1943 upon McManus' representation that he needed that much money to finish paying his estimated taxes for 1943. Hamlin did not return anything to McManus in the other years. Held, that petitioner is taxable on the "kickbacks" which Hamlin received in 1942 and in 1944 up to the time of his death and is taxable upon the amounts of the "kickbacks" which Hamlin received in 1943, less the $4,622 which he returned to McManus in that same year. 2. Upon the evidence, held, the amounts of $560 and $943.13 received in 1942 and 1943, respectively, by Hamlin from his employer represent additional compensation rather than a reimbursement for traveling expenses incurred on business of his employer. 3. Upon the evidence, held, respondent properly disallowed the amounts $686of and $980 claimed as deductions for charitable contributions for the years 1942 and 1943, respectively.

Upon incorporation in 1942 petitioner adopted the reserve method of accounting for its bad debts. Held: petitioner has failed to establish that, in disallowing any addition to the reserve, respondent abused the discretion vested in him by the statute.

The Commissioner determined that petitioners understated their income for the years 1945 and 1946. Held: the Commissioner's determination of petitioners' income for those years sustained on petitioners' failure to explain certain unidentified bank deposits.

Petitioner and his wife held to be bona fide partners in the wholesale produce business.

Petitioner processed and sold pickles. His sales were for cash but he took an inventory at the end of the year and on his returns used inventories in… Held: respondent did not err in computing income on the accrual basis and in accruing as 1944 income the unpaid part of the purchase price. In 1943 and 1944 petitioner sold pickles invoicing them at OPA ceiling prices and collecting an additional amount in cash which he concealed and did not report for entry on his books.

The decedent, Idamay Minotto, and her two children were named as beneficiaries of insurance policies by decedent's father, Louis Swift, the insured person under the policies. Held: that the value at the date of death of the remaining 23 installment payments of insurance proceeds is not includible in the gross estate of the decedent under sections 811 (a) or 811 (c) of the I.R.C.

Held: (1) The salary of $25,000 paid by petitioner to its president in the years 1942 and 1943, and at that rate for the period January 1 to April 30, 1944, constituted reasonable compensation for… Held: The salary of $25,000 paid by petitioner to its president in the years 1942 and 1943, and at that rate for the period January 1 to April 30, 1944, constituted reasonable compensation for services rendered by him to petitioner during such periods.

Valuation determined for gift tax purposes of bonds of a closely held real estate corporation where no sales of bonds had occurred at date of gift.

On the facts, held, that $75,000 paid by the petitioner to secure the cancellation of an onerous contract is properly deductible during the… Held: that $75,000 paid by the petitioner to secure the cancellation of an onerous contract is properly deductible during the fiscal year 1943 as an ordinary and necessary business expense, and that $122,700 which the petitioner was obligated to pay for the purchase of a trade mark is a capital expenditure which is not deductible as an…

Petitioner, a corporation engaged in the business of processing and selling wool yarn, has grown continually since its incorporation in 1923. Held: the amount which petitioner added to its earned surplus in the taxable year 1944 was not unreasonable in amount in view of the needs of the business, and petitioner was not availed of in the taxable year for the purpose of preventing the imposition of surtax upon its stockholders.

During the years 1945 and 1946 petitioner contributed less than 50 per cent of the amounts expended for the support of his two minor children living with his divorced wife. Held: Petitioner is not entitled to a credit of $500 for each such minor child.

During the taxable years 1944, 1945 and 1946, petitioner owned and operated a bar and restaurant. He filed returns for these years purporting to show the net income from this business. Held: respondent's determination that petitioner had overstated his purchases and understated his sales is not sustained. Held, further, that respondent correctly eliminated petitioner's opening inventory in his return for the year 1946. John G. Barbas, 1 B.T.A. 589, followed.

Petitioner, the owner and operator of a bottling plant, found the plant too small for its needs and decided to construct a new plant on land which it acquired. It employed an architect to prepare plans, and a contractor to erect the new building at an agreed cost of $72,500. Contractor agreed to accept petitioner's old bottling plant at a value of $8,000 on the construction cost of the new building. Under this agreement the old plant was conveyed to the contractor in 1939. Held: Petitioner's disposition of its old plant constituted a sale thereof, giving rise to gain or loss, and not an exchange of property for like property within section 112 (b) (1), Internal Revenue Code, and not an abandonment. Respondent's treatment of the transaction as a sale in computing petitioner's excess-profits net income for 1939 as one of its base years in the computation of its excess-profits taxes for 1943 and 1944 is sustained.

1. Petitioner in the taxable years 1942 to 1945, inclusive, was a manufacturer of tools and dies, aircraft armament, antiaircraft machine gun mounts and did other general machine work. Held: the Commissioner erred in part in the deductions which he disallowed, and reasonable compensation for each of these three officers to be allowed as deductions is determined from the evidence. 2.

Held, the losses involved were the result of non-business debts and are deductible under the provisions of section 23 (k) (4) of the Internal Revenue Code. Held: the losses involved were the result of non-business debts and are deductible under the provisions of section 23 (k) (4) of the Internal Revenue Code.

Held, there did not exist for income tax purposes during the years involved a valid partnership between petitioners and their minor son. Held: there did not exist for income tax purposes during the years involved a valid partnership between petitioners and their minor son.

Since petitioner received no unreported income in the taxable years, respondent erred in his determination of deficiencies.

Held: deductions for capital loss carry-over in 1945, 1946, and 1947 disallowed for failure of proof that a loss was sustained in the sale of property in 1943. Held: deductions for capital loss carry-over in 1945, 1946, and 1947 disallowed for failure of proof that a loss was sustained in the sale of property in 1943.

Fair market value of a residential property determined as of September 1, 1943, when property was converted to rental purposes.

1. Respondent's determination that petitioner had an allowable deduction for traveling and entertaining expenses during the calendar year 1945 in the amount of $444.42 is sustained. 2. The amount of charitable and other contributions deductible under section 23 (o), Internal Revenue Code, during the year 1945 determined.

Held: All the facts show that petitioner and her husband intended to form a partnership for the present conduct of their business during the taxable years in question.

In 1937 petitioner issued 50 shares of its stock to A in exchange for $5,000 in cash, 90 shares of its stock to B and B's associates in exchange for $9,000 in cash, and 250 shares of its stock to C in exchange for a license expiring in 1973. In 1942 petitioner canceled the license pursuant to an option therein.

Petitioners are brothers and during the taxable years 1938 through 1945, were the sole and equal partners in a farm implement business. Held: Respondent erred in determining that a part or all of the deficiencies were due to fraud and fraud penalties are not sustained. Petitioners are, therefore, entitled to the benefit of section 6 of the Current Tax Payment Act of 1943. (2) Respondent is not barred from asserting a deficiency for the year 1941.

Deductible expenses or purchase price - Section 23 (a) (1) (A). - Payments made during the taxable year were purchase price of a business to which the taxpayer was taking title and in which he had an equity and were not deductible as rent. Following Judson Mills, 11 T.C. 25. Depreciation. - Reasonable useful life of cabs used in a taxicab business determined.

During the taxable years here involved Anita Foutch, the daughter of petitioner Charles E. Wheeler, Sr., was a bona fide member of the partnership of Wheeler-Foutch Company and the partnership interest in her name, evidenced by the partnership agreement and the books of the company, was her own individual property.

A partnership of husband and wife held formed for a valid business purpose and with a bona fide intent to act as partners where wife contributed capital but no services. The partnership earnings held taxable to the partners in accordance with their partnership agreement.

Petitioner's income determined on the so-called bank deposit basis. Fraud penalties not sustained. Negligence penalties imposed.

Petitioner entered into partnership agreements with her husband and a third individual for the conduct of two different businesses during the taxable year 1943. She now contends that she was not a bona fide partner in those two businesses during the year in question. Since the record shows that the parties intended to be partners for the purpose of conducting the businesses involved, it is held that petitioner was a partner of both businesses during the year in question.

The fair market value of an oil and gas lease, at the time it was distributed by a corporation to its stockholders incident to dissolution, determined.

Respondent's determination approved for failure of proof of error.

1. Petitioner and another on July 20, 1939, formed a partnership to conduct an office machine business. Shortly after the business opened it was in need of additional working capital. Held: the petitioner's wife having invested capital in the partnership and having rendered substantial services to the business there was a real intention to form a business partnership and the partnership earnings are taxable to the partners in accordance with their agreement. 2.

1. Petitioner was in the taxable year the lessee of a hotel property completely furnished. Held: petitioner is entitled to deduct as business expenses the cost of certain replacements which were made in the taxable year. 2. Under another clause of the lease petitioner had the right from time to time to install furnishings, fixtures, and equipment which were not replacements and which should remain the property of petitioner.

Gift tax: Transfer in trust pursuant to prior years binding agreement. - Transfers of property to children's trusts in 1944 pursuant to a binding agreement entered into in 1930 incident to a divorce… Held: not taxable gifts in 1944. Estate of Ira C. Copley, 15 T.C. 17, (July 18, 1950), followed.

In the years 1945 and 1946 the petitioner had certain knitting machines whose useful life had expired and whose cost had been fully recovered by deductions for depreciation. Held: that the cost of such reconditioning constituted a capital expenditure recoverable over the added useful life of the machines.

At a prior hearing of this case a continuance was granted on representation of counsel for petitioners that in the absence of additional legislation beneficial to petitioners' cause by the Congress… Held: that petitioners are bound by the stipulation and such beneficial legislation not having been enacted, decision for the deficiencies determined by respondent will be entered.

Petitioner Hans Pauly and his father held to be bona fide partners, each possessing a one-half interest in a wholesale meat business and the profits realized therefrom during the taxable years in issue.

The cost to petitioner of moving his family from Memphis, Tennessee, to Vallejo, California, where he had secured employment for an indefinite period; the cost to him of work clothing and the laundering of the same; and the cost to him of meals and room in California prior to the arrival of his family, held not to be deductible as ordinary and necessary expenses under section 23 (a) of the Internal Revenue Code.

In 1943 petitioner made a contribution to the National Tax Equality Association. Held: such contribution is nondeductible in computing gross income under either section 23 (a) (1) (A) or 23 (q) (2), Internal Revenue Code.

Petitioner in 1942 sought as a deduction $26,818.53 for an addition to its reserve for bad debts. Held: on the facts, petitioner is not entitled to the deduction of $26,818.53, or any part thereof, as an addition to its bad debt reserve in 1942.

Petitioner, in the business of selling used cars, in making his return for 1945, took deduction of certain amounts representing his estimate of expenses incurred by him in carrying on his business. He maintained no record of his expenditures. Upon the record, the amount allowable as representing these business expenses is found by application of the rule announced in Cohan v. Commissioner, 39 Fed. (2d) 540

The petitioner in 1939 purchased for cash, at 75 per cent of their face value, accounts receivable of another firm which was discontinuing business. Held: that upon an accrual system of accounting no gain was realized or subject to accrual in 1939 upon the acquisition of the accounts, but such gain was realized upon their collection in the subsequent year.

Gross income: Section 22(a): Settlement of lawsuit. - Petitioner received a sum of $18,621.59 in settlement of an action for specific performance and/or damages for breach of contract. Held: that the amount so realized constitutes a gain taxable as ordinary income.

1. For failure to prove error, respondent's determination of income approved. 2. Fraud penalty approved. 3. Negligence penalty in addition to fraud penalty for year 1942, approved.

Held, that the organization known as Fibre Board Container Company was, during the taxable years, a legal and valid partnership formed by the three owners thereof for legitimate business reasons,… Held: that the organization known as Fibre Board Container Company was, during the taxable years, a legal and valid partnership formed by the three owners thereof for legitimate business reasons, each partner contributing to the business both services and capital.

Petitioner, his wife and daughter were shareholders in a corporation. Held: the parties intended to and did create a bona fide partnership, valid for taxation purposes.

Petitioner is a partner in a partnership which is engaged in the advertising business. In 1944, one of the partners died. Held: the payments were not made as a part of the purchase price of the deceased partner's interest but were of the same nature as advance payments which would have been made to the deceased partner if he had lived, and the Commissioner erred in his determination.

Since its organization in 1940, petitioner relied upon a well experienced and reputable accountant to prepare its tax returns and to advise it regarding tax matters generally. Held: Although petitioner is liable in each of the taxable years for a personal holding company surtax, a liability which it concedes, it is not liable for penalties for failure to file personal holding company returns. Its failure to do so was due to reasonable cause and not due to willful neglect.

1. Respondent did not err in holding that money received by petitioner during the taxable year for sale of timber was ordinary income and not a capital gain. 2. Where petitioner failed properly to allege error in respondent's treatment of an item for the taxable year, and there has been no motion to conform the pleadings to the proof, the respondent must be sustained.

Estate tax: Contemplation of death. - The decedent transferred property to his wife during his life. The transfers were made at the wife's request and upon the advice of a friend of the wife. The transfers were made nine years prior to the death of the decedent. The impelling reasons and dominant purposes for making the transfers were to satisfy the wife's desire for financial independence and her own income, to give recognition of her contributions to their family life, and to overcome family discord and tension caused by the wife's concern over her financial status. The transfers were not a substitute for testamentary disposition of property. The decedent was in good health at the time of making the transfers. The wife predeceased her husband, the decedent here, and made disposition under her own will of the property which he had conveyed to her. Held: That the inter vivos transfers of property to the wife were not made in contemplation of death within section 811 (c), Internal Revenue Code, and should not be included in decedent's gross estate.

Where petitioner was under no legal obligation, either by the statute authorizing incorporation, [by] its articles of incorporation, [by] its bylaws, or [by] any other contract, to distribute, as… Held: petitioner is not an association entitled to deduct or exclude from its gross income the amounts actually distributed during the taxable years

Respondent's determination approved for failure of proof that a corporate entity should be disregarded.

1. Held, amounts paid to taxpayer's chief stockholder as commissions were distributions of corporate profits in the nature of dividends and, therefore, not deductible as ordinary and necessary… Held: amounts paid to taxpayer's chief stockholder as commissions were distributions of corporate profits in the nature of dividends and, therefore, not deductible as ordinary and necessary expenses of the business. 2.

Dependency credits determined.

In determining petitioner's income and excess-profits taxes for the taxable years 1941, 1942, 1943 and 1944, 1. Respondent erred in including in taxable income for 1941 a surplus adjustment of $4,648.28 credited on petitioner's books in December of 1942. 2. In 1943 petitioner did not realize a taxable gain from the sale of gas air shovels. 3.

Moneys paid to petitioner in 1944 by a partnership of which he was a member held to be repayment of loans.

Petitioner Domenic DeFranco came to this country from Italy in 1905, and in 1917 married petitioner Carmela DeFranco. Petitioners have three sons and a daughter. Held: Respondent erred in not recognizing that petitioner Domenic DeFranco and his sons have continuously operated a bona fide partnership from December 13, 1939 throughout the taxable year 1946. Held, further, partnership interests and distributive shares of net income determined. 2.

Petitioner not entitled to claimed dependency credits during year 1945.

Held: (1) That during the period July 1, 1943 to December 31, 1944, petitioner and his son-in-law, Manus, in good faith, intended to and did actually join together as partners in the conduct of a partnership business, under the name of Rainbow Art Co. (2) That during the calendar year 1945, petitioner, Manus, and petitioner's daughter, Minnie, in good faith, intended to and did actually join together as partners in the conduct of a partnership business under the name of Rainbow Art Co.