collateral for their purchase price, 48 shares to corporation and 42 to
stockholder, stockholder deposited 42 shares with credit company as
collateral for loan to him, and corporation executed note for $60,000
payable to stockholder and made substantial payments of principal
and interest, lacked substance as purported loan to corporation and
repayment to stockholder and was essentially device to reimburse
stockholder for payment of his personal debt and at same time avoid
income tax, so that payments by corporation to stockholder constituted
constructive dividend distribution taxable to him as income and inter-
est on "loan" was not deductible by corporation. Court found corpo-
ration acted as agent in paying debt for stockholder and no corporate
purpose was served by deposit to its account or its reacquisition of
shares. Edgar S. Idol__.
Stock Redemption-Dividend Equivalence.-Court held agreement,
which provided for sale of corporation shares for $40,000 by stock-
holder to transport company and exchange by company with corpora-
tion of shares for corporate equipment and operating rights, which
prohibited company exercising control over corporation, being repre-
sented on its board, or taking part in its management, and which ab-
solved company from corporate liabilities, did not result in complete
redemption of corporate stock under sec. 302(b) (3) (1954 Code) but
was primarily to enable stockholder to acquire funds to pay personal
obligation and at same time avoid income tax and was otherwise lack-
ing in substance, and after finding company intended only to acquire
corporate assets, not stock, stockholder did not intend to part with
stock, and there was no evidence corporation had any reason to re-
acquire stock, Court held 2-part transaction amounted to sale of assets
by corporation to company taxable to corporation as long-term capital
gain followed by dividend distribution of $40,000 to stockholder tax-
able to him as income. Edgar S. Idol----
Stock Redemption-Related Corporations-Dividend Equivalence.—
Amount received by sole stockholder from Y corporation for his 100%
stock of X Corporation concededly constituted redemption by Y under
sec. 304 (a) (1) (1954 Code) relating to redemption of stock through re-
lated corporations, and was taxable as dividend under secs. 301 and
302, in application of established judicial criteria to determne net
effect of distribution, since no contraction of business was planned or
resulted, distribution was not initiated by corporation but by sole
stockholder, proportionate stock ownership remained unchanged, no
dividends were previously paid, earned surplus accumulations were
available for dividends, and alleged bona fide business purposes of
strengthening credit, facilitating flow of cash between X and Y, and
tax savings under consolidated return were either not sufficiently dem-
onstrated or a real motivating force, or were minimal in light of other
factors. Thomas Kerr____.
See also DISTRIBUTIONS, EMPLOYEES' TRUSTS, and INSURANCE
COMPANIES.
Stock Redemption-Majority Stockholder-Constructive Receipt by
Minority Stockholder.-Series of transactions, including agreement
which he could not meet financially by minority stockholder to pur-
chase shares of widow of former majority stockholder, purchase of
widow's shares by investor upon corporation's and minority stock-
holder's assurance of redemption by corporation at profit within year,
corporate borrowing of funds to finance stock redemption, and corpo-
rate payment for stock and of legal, accounting, and interest expenses
in connection with redemption of stock, culminating in redemption
and cancellation of stock of majority stockholder, did not benefit
minority stockholder economically and so did not constitute con-
structive distribution of taxable dividend to him. Milton F. Priester__
Employer's Contributions-Accrual Basis Taxpayer-Year Deducti-
ble. Corporation on accrual basis of accounting which failed to pay
contributions to profit-sharing trust fund within time prescribed by
law for filing return for taxable year was not entitled to deduction even
though contributions were made within period of time for which cor-
poration could have requested extension for filing return and payments
were not timely made solely due to inadvertence and lack of knowledge
of its officers, because to hold otherwise would be to invoke equity or
legislate which is not province of Tax Court. Hydro Molding Co------
Employer's Contribution-Deductibility-Limitations.-Notification to
employees by accrual basis corporation as to termination Dec. 31, 1957,
of profit-sharing employees' trust, which met requirements of sec.
401(a) (1954 Code), which was tax exempt under sec. 501(a), and to
which it made final contribution in April 1958, after its 1957 income
tax return due date, on same date it liquidated trust by distribution
in cash to employees, did not render inapplicable sec. 404(a), which
limits deductibility of employer's contributions in any year to those
made before income tax return due date, and Court denied deduction
claimed in 1957 for final contribution and, pointing out trust as orig-
inally set up was subject to sec. 404, had not been amended, and received
contribution prior to liquidation, held trust did not terminate Dec. 31,
1957, as contended by corporation, so that contribution was paid under
profit-sharing plan, subject to time limitation of sec. 404, and was not
deductible in 1957. John T. Carson Co---
Stock Purchase Plan-Company Loss in Sale of Equity in Shares to
Employees-Dividend Equivalence.-Employees' trust formed to hold
legal title to company shares and enable company employees to own
beneficial interest in shares was not benefited by and so did not receive
taxable dividend income as result of transactions wherein company
transferred shares purchased by it from third parties to trust, em-
ployees' trust transferred to company in exchange units of beneficial
interest in shares, including voting rights, and company sold beneficial
interest in shares to employees for less than costs of shares to it,
charging difference to its surplus. Harry J. Grant__.
ESTATES AND TRUSTS
See also GIFTS and VALUATION.
Distributable Trust Income-Allocation of
Gains. Capital gains allocated to trust corpus are not part of distrib-
utable net income, and general expenses of trust, which expenses Com-
missioner allocated among classes of distributable income of trust and
allowed income beneficiary benefit of portion allocated to taxable dis-
tributable income, were not allocable to capital gains. Income benefi-
ciary sought allocation to capital gains of portion of general expenses,
which allocation would have decreased portion allocated to tax-exempt
income and increased deduction for benefit of income beneficiary.
Marcia Brady Tucker_.
Gross Estate-Administration Expenses-Widow's Support Award
Expenses.-Amounts expended in procuring widow's support award
under State statute, pursuant to widow's petition to State court, were
not deductible administration expenses under applicable sec. 2053(a)
(1954 Code), since they were incurred for primary benefit of widow
and were not incident to administration of estate. Estate of William
A. Landers, Sr-----
Gross Estate-Insurance Policies-Transfer in Contemplation of
Death.-Transfers by decedent of 15 insurance policies on his life to his
daughters within 3 years of his death were made in contemplation of
death, so that policies' value was includible in gross estate, since estate
failed to overcome presumptive correctness of Commissioner's determi-
nation that such transfers would be deemed to have been made in con-
templation of death, or statutory presumption of sec. 2035 (b) (1954
Code), in that predominant purpose, as shown by his actions in pro-
viding other financial assistance to 1 daughter during his lifetime, his
control of policies, and his informing daughter of dollar value of poli-
cies after his death, inter alia, appeared to be not to benefit his
daughters until after his death. Estate of Arthur H. Hull___
ESTATES AND TRUSTS-Continued
Gross Estate-Marital Deduction-Partial Intestacy-State Court
Decree.-State court decree construing decedent's ambiguous will and
herein determined to be binding on Tax Court in determination of
rights of parties for Federal taxation, specifically as to widow's interest
in certain property, required Tax Court to be bound by State court's
determination, whether right or wrong, that certain bequest was
void for indefiniteness, resulting in partial intestacy entitling widow
to one-fifth of residuary estate passing under State intestacy laws,
an interest qualifying for marital deduction under sec. 2056 (a) (1954
Code). If Commissioner was challenging existence of residue, al-
though Tax Court found his position was not clear, he would be put in
awkward position of requesting Tax Court to treat as binding part of
decree and to disregard another part, plausibility of which approach
Tax Court did not pass on. Estate of William A. Landers, Sr----
Gross Estate-Marital Deduction-Released Power of Appointment.—
Widow's release of power of appointment over corpus of trust, in which
she had life interest under U.S. will of her deceased husband, in return
for consent of his daughters to probate of decedent's French will in
order to defeat their vested interest in realty in France and obtain
title to that realty under French will, effected surrender by widow of
power of appointment in will contest within meaning of sec. 20.2056
(e)-2(d) (1), Estate Tax Regs., so that bequest in trust did not qualify
for marital deduction, since widow gave up some part of estate subject
to Federal estate tax which but for controversy she would have been
entitled to retain. Estate of Ralph Slocum Davenport---
Gross Estate-Marital Deduction-Support Allowance.-Amount set
aside, pursuant to State court order, as year's allowance for widow,
was not terminable interest and qualified for marital deduction, even
though widow could not receive award if she died or remarried prior
to time it was granted under State statute, since widow's right to sup-
port award was indefeasibly vested when award became final. Estate
of William A. Landers, Sr----
Gross Estate-Marital Deduction-Terminable Interest.-Where State
court construed decedent's ambiguous will as giving his widow, in
effect, a life estate with power to consume with respect to certain prop-
erty, its decree was binding upon Tax Court in determination of prop-
erty rights of parties for Federal taxation, since question was fairly
presented to State court, whose interpretation militated against peti-
ioner's tax interest, showing absence of collusion to adversely affect
Government's right to additional tax; subsequent "dismissal" after
decree became final did not change this result. Will provision dispos-
ing of "whatever of the property remains" clearly evinced testator's
intent that widow could invade corpus, but was not equal to power
"to do with as she pleases" and so did not give power of appointment
exercisable "in all events" under sec. 2056(b) (5) (1954 Code), so that
interest was terminable and did not qualify for marital deduction.
Estate of William A. Landers, Sr.......
Gross Estate-Share in Partnership Income After Death-Valuation.—
Value of right of deceased partner's estate to share in partnership net
income for 1957-1960, under partnership agreement, was includible in
estate for estate tax purposes, since decedent had right to this interest
at death within meaning of sec. 2033 (1954 Code), it being merely
substitute for his share of partnership fees earned but unpaid at his
death with no effect on nature of transaction. In valuing right, Com-
missioner erred (1) in not considering compromise agreement reducing
estate's share, concluded and partly performed between partnership
and heirs soon after decedent's death and before Feb. 2, 1958, elected
alternate valuation date, (2) in using, as base, indeterminable 1958
net income in valuing right to income for 1957-1960, rather than 1957
net income, known at election date and appropriate because valuation
must be based on facts known as of valuation date, (3) in determining
valuation by averaging net income for 5 years before decedent's death,
since there was no reason for estimating less earnings for 1958-1960
than for 1957, in view of partnership's history of steadily rising income
throughout, and (4) in not discounting value of right attributable to
delay in receiving income to date of death, instead of to alternate
valuation date which was unrelated. Estate of Arthur H. Hull____
ESTATES AND TRUSTS-Continued
Gross Estate Trust Corpus-Power of Appointment.-Court deter-
mined that value of principal of testamentary trust created by hus-
band, under which wife was to receive income for life and had power to
appoint principal to her estate, was general power of appointment pos-
sessed at her death and so includible in her estate under sec. 2041(a)
(2) (1954 Code), rejecting petitioner's argument that power did not
qualify because State law governed and will limited appointment to
her estate and by written nontestamentary instrument, since State
law was not applicable and power was "exercisable in favor of" her
estate by statutory definition, which was worded in disjunctive to be
applicable to any situation specified. Absent adjudication of incom-
petency, wife's mental derangement did not destroy her property right
in power. Question of constitutionality of sec. 2041(a) (2) raised for
first time on brief could not be considered, but was without merit.
Estate of Rebecca Edelman__
Trust-Depreciation-Allocation Between Trust and Beneficiaries.-
Under sec. 167(g) (1954 Code), which requires apportionment of de-
preciation deduction between income beneficiaries and trust on basis
of trust income allocable to each, term "income beneficiaries" refers
both to taxable income paid to income beneficiary and to tax-exempt
income permanently set aside in trust for charitable remainderman,
so that in absence of trust provision for apportionment of depreciation,
depreciation deduction was not to be taken completely by trust and
taxable income beneficiary was entitled to depreciation allocable to
his interest. Lambert Tree Trust Estate_-_-
Trust-Distributable Net Income-Reduction by Depreciation.-
Whether trust set aside too much net income for charity by failing
to deduct depreciation in determining amount to be set aside depended
upon meaning of "net income" under will, and noting that (1) settlor
primarily intended to benefit life beneficiary, (2) improvement fund,
half of which was permanently set aside for charity, was created to
provide means for financing improvements and could well have been
considered by settlor to be substitute for trustees' accumulations of
depreciation, (3) whether credit balance ultimately appeared in de-
preciation reserve or improvement fund account, one-half of resulting
increase in corpus in fact remained committed to charity, (4) trust
was holding depreciable property as investment and not part of going
business, and (5) State rule was that where neither State law nor
settlor required otherwise, trustee was to pay net income beneficiary
his share of net income before reducing such amount by depreciation,
Court concluded that “net income" as used in provision for payment to
net income beneficiary would have same meaning as "net income" in
provision for setting aside improvement fund and found that net in-
come to be set aside for charity did not mean net income reduced by
depreciation and amounts set aside were pursuant to trust. Lambert
Tree Trust Estate__
Trust-Exemption From Capital Gains Tax-Contingent Remainder-
men Resident in United Kingdom.-Income tax convention between
United States and United Kingdom exempting from Federal tax resi-
dents of United Kingdom not engaged in trade or business here coupled
with present residency in United Kingdom of currently indicated non-
charitable remaindermen not engaged in trade or business here at time
of suit, did not prevent imposition of tax upon capital gains retained
during 1951-1954 for noncharitable remaindermen under trust which
terminated upon death of life tenant and vested funds in issue per
stirpes of settlor's son, if surviving, and if not to settlor's heirs at law,
inasmuch as it was uncertain which possible remaindermen would
inherit and therefore whether tax burden would ultimately be borne
by residents of United Kingdom. Court rejected as inapplicable, be-
cause of uncertainty of remaindermen, thesis of American Trust case
in which trust was granted exemption from tax because of benefici-
aries' residency in United Kingdom on ground purpose of income tax
convention was to afford relief to them from economic burden of double
taxation. Lambert Tree Trust Estate___
Allocation of Basis to Distributed Partnership Property-Prior
Erroneous Determination.-Court declared doctrine of election and
estoppel is to be applied with great caution to Government and its
officials and held Commissioner's erroneous determination in 1936 that
basis of partnership land should be totals of fair market value of each
parcel as of dates of each original partner's death did not estop him
from determining correctly in 1955 that basis to partnership of land
was its respective historical costs to partnership, inasmuch as partner-
ship never acquiesced in Commissioner's 1936 write down of land,
never changed its books to reflect 1936 determination, and claimed in
1936 that basis of land was its historical costs, and transferee tenants
in common of partnership did not suffer any adverse effects from
prior determination or act in reliance upon it. M. Pauline Casey_--
Collateral-Change in Law-Different Taxable Years.-Holding by
Court of Claims in 1925 as to amounts of depreciation deductible under
testamentary trust providing for (1) setting aside funds for improve-
ments and to protect estate against impairment, (2) payment of net
income to certain of settlor's heirs, and (3) upon death of survivor,
equal distribution of trust corpus at its then size and including im-
provement fund between designated heirs and charity, after proceeding
in which Commissioner conceded propriety of amount of net income re-
tained for improvement fund and allowability of one-half of it as
charitable deduction, did not collaterally estop Commissioner from
claiming trustee set aside too much net income for charity during
1951-1954 by failing to deduct depreciation in determining amount to
be set aside, inasmuch as amount of charitable deduction was not in
issue in earlier case, and law regarding allocation of depreciation de-
ductions and years involved in 2 cases were different. Lambert Tree
EVIDENCE
Collateral-Identical Parties and Leases-New Equipment. Where
issue in prior case was whether petitioner was entitled to deduct as
ordinary expense cost of items of machinery and equipment for 1948
but in instant case was whether petitioner could deduct, as ordinary
expense, cost of new printing press and related equipment for 1957, it
could not be concluded that matter raised was identical in all respects
with that decided in prior case, although same parties and underlying
leases were involved, so that prior decision was not conclusive under
doctrine of collateral estoppel upon parties with respect to issue
raised, and Tax Court could make independent examination of legal
matters at issue, contentions of parties, and effect of prior opinion un-
der ordinary rules of stare decisis. Journal-Tribune Publishing Co----
EVIDENCE
Parol Evidence-Motion to Strike by Third Party.-Commissioner's
motion to strike from record testimony of trustee's agent concerning
circumstances surrounding creation and execution of trust, on ground
that written instrument contained entire agreement of parties and
parol evidence which varied, explained, or otherwise colored terms of
instrument was inadmissible under parol evidence rule, was denied and
Court pointed out that parol evidence rule could not be invoked by
third party who was not party to written instrument involved and that
parol evidence may be received not to contradict or vary terms of writ-
ten contract but to explain how it is to be carried out. Estate of
Leon Holtz___.
See also TAX COURT OF THE UNITED STATES.
Sec. 722 Relief-Unusual Experience, Etc-Die Block Manufacturer.-
Die block manufacturer was denied claimed sec. 722 (1939 Code)
relief based on (1) suspension of normal operations in part of 1936
for plant modernization constituting event unusual in its experience
under subsec. (b) (1) or resulting in increased capacity for production
under subsec. (b) (4), (2) base period depression of earnings of itself
and its industry, and (3) change in management within meaning of
subsec. (b) (4), since (b) (1) grants relief for physical events over which
taxpayer has no control and (b) (2) covering economic event did not
afford relief because event was caused by internal business policies;
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