ABNORMALITIES.
ACCOUNTING:

I. Generally, p. 1489.

INDEX

See EXCESS PROFITS TAX, I, 5–13; II, 5–16.

II. Methods of Accounting, p. 1489.

III. Periods of Accounting, p. 1490.

Accrual of capital stock tax. See CAPITAL STOCK TAX.

I. GENERALLY.

1. General Rule. The Supreme Court, in Security Flour Mills Co. v.
Commissioner, 321 U. S. 281, held that neither the Commissioner nor the
Tax Court is authorized to make exceptions to the general rule that
income be accounted for on basis of annual periods. Held, compensation
accepted subject to be paid to another under the happening of a contin-
gency may not be omitted. Sohio Corp.

2. Id. Held, further, no reduction of amount includible is allowable
for estimated contingent refund. Id.

3. Cost of Goods Sold; Inventories. Overstatement of opening in-
ventory was correctly adjusted by Commissioner, except for assets distri-
buted in liquidation upon which no gain was realized. Acampo Winery
& Distilleries, Inc..

4. Id. Taxpayer purchased merchandise inventory of a corporation,
of which he owned all the stock, at cost less purchase discounts. In com-
puting profit from sales taxpayer used predecessor's gross inventory
figures. Held, Commissioner properly adjusted cost of goods sold to
price paid by taxpayer. Maurice A. Mittelman___.

5. Id. Merchandise Sales Account should be reduced to eliminate
sales paid for by purchase certificates issued to certain customers in satis-
faction of an assumed obligation, and for which no cash was received.
Scruggs-Vandervoort-Barney, Inc.

6. Selling Expense. Fees for title searching, quit claim deeds, legal
services and cost of stamps are part of selling expense. Therese C. Johnson__
7. Balance in Bad Debt Reserve; Dissolution. The tax benefit rule
applies and unused balance which did not offset income of years claimed
is not taxable income for year of dissolution. M&E Corp. - --
II. METHODS OF ACCOUNTING.

1. Accrual Basis. Processing tax refunds under decision rendered on
January 6, 1936, held, not a proper accrual for 1935. Brighton Mills, Inc..
2. Id. Taxpayer's financial status was such that accruals of interest
would probably never be paid. Held, not entitled to the deduction.
Millar Brainard__

on

Page

435

629

1162

779

465

1276

819

1180

3. Id. Purchase Discounts. Contract provided for discounts
deliveries of entire tonnage when accepted by purchaser. As partial
deliveries were made discount was credited to a reserve. Held, deduction
is limited to amount in reserve which represents discount on deliveries
completed and accepted in tax period. American Potash & Chemical Corp. 1113
4. Id. Calendar Year Basis. Taxpayer which has not consistently
accrued capital stock tax may not initiate that method. Held, allowable
deduction is limited to amount which accrues on July 1 of the tax period.
Louisiana Delta Hardwood Lumber Co..

5. Cash Basis. Taxpayer paid compensation for services after close of
period in which they had been rendered. Held, deduction must be
claimed for period in which payment was made. Claude Patterson Noble_
6. Completed Contract Basis. Income entered on books as "deferred",
held properly included for tax period in absence of proof that contract was
not then completed. Forcum-James Co...

994

960

1195

ACCOUNTING-Continued

7. Id. Claim that taxpayer was the mere agent of other organizations
which performed under the contract, rejected. Id.

8. Id. Payment of a share of such profit to a partnership composed of
taxpayer's majority stockholders under a claim that partnership was a
coadventurer, held properly taxed to taxpayer under sec. 45, I. R. C., on
a record showing that partnership did not perform any service under the
contract. Id.

9. Id. Transfer as of midnight of Dec. 31 of last tax period by two
partners of shares of their interests to members of their families did not
effect a real change in control of partnership or render the section
inapplicable. Id.

III. PERIODS OF ACCOUNTING.

1. Fractional Year. Partnership was dissolved and terminated before
end of its fiscal year. Held, the fractional period of operation constitutes
a taxable year, and distributive share is includible in partner's return for
year business was terminated. Anne Jacobs - -

2. Id. Contention that amount was not includible until following year,
when fiscal year of partnership would have ended, rejected. Id.
3. Partnership Accounting; Dissolution by Death of Partner. The death
dissolves, but does not terminate, the partnership. Held, during its
liquidation profits and tax liabilities of surviving partners are to be com-
puted on the basis of its regular accounting period. Mary D. Walsh_-----
4. Id. There is no legal basis for allocating profits between two periods,
one before and one after date of partner's death. Id.
AFFILIATIONS. See CAPITAL EXPENDITURES, 3; EXCESS Profits Tax,
II, 2-4, 10, 11.

1. Separate Identities; Lessor and Lessee. Lessor-parent was entitled to
depletion deductions; lessee-subsidiary, operating the milling of a dump
for waste ore on surface of mine, was not. Held, contention that, by virtue
of their unity, income and loss should be combined, and a percentage
depletion allowed to parent, rejected. Chicago Mines Co--

2. Operating Losses of Subsidiaries, availed of on consolidated returns,
serve to reduce deduction later claimed for a bad debt, whether the
debtor-creditor relationship is between parent and subsidiary, or between
two subsidiaries of the group. Bush Terminal Buildings Co---

3. Id. Reduction to be made is based upon the ratio of taxpayer's
share of consolidated income to total consolidated income. Id.

ALIENS:

1. Resident Aliens. Loss sustained on property located in France con-
fiscated by the Vichy Government is deductible for year confiscated.
Eugene Houdry _ -

2. Id. No decision rendered on the applicability of sec. 127 of the code
to present facts.

Id.

3. Id. Bonus earned from a United States corporation computable at
end of latter's fiscal year is not realized income until the date corporate
accounting period closes. Held, taxpayer's status having changed from
nonresident to resident before that date, he is taxable on bonus received.
J. A. C. Steur__

ALIMONY:

1. Effect of Secs. 22 (k) and 23 (u), I. R. C. The purpose of their enact-
ment was to cure an existing inequity under which payments pursuant to
decrees of divorce or legal separation were not deductible by husband and
not taxable to wife, but they do not amend sec. 24 (a) (1), which bars
deductions for personal, living, or family expenses. Frank J. Kalchthaler
2. Id. Right of husband to exclude such payments depends upon their
being taxable to wife. Id.

3. Id. In absence of a decree of divorce or of legal separation marital
status persists; wife's support is husband's personal expense, and payments
for separate maintenance, or under voluntary separations, or under order
granting alimony pendente lite are not within the statutory definition of
income taxable to wife. Frank J. Kalchthaler__

Charles L. Brown..

George D. Wick__

Page

1481

205

1103

793

666

1075

625

625

715

723