13. Id. Bond Interest accrued at time of gift is to be included in valu-
ation. Id.
14. Id. Power to Revoke With Concurrence of Persons Having Adverse
Interests. Income beneficiary and wife of grantor, named as remainder-
man if she survive beneficiary, held to have substantial adverse interests
to grantor and reserved power did not render gift incomplete when trust
was created. Estate of Leon N. Gillette_.
16. Exclusions; Gift by Trust.
15. Id. Held, therefore, distributions to beneficiary in tax years were
not subject to gift tax. Id.
Sec. 454, Act 1942, specifically provides
that no exclusions are available for gifts by trust created prior to 1943.
Estelle May Affelder..
GOOD WILL. See AMORTIZATION, 4; STATUTES AND REGULATIONS, 9.
GUARANTORS. See Losses, 7-10.
HUSBAND AND WIFE. See ALIMONY; COMMUNITY PRoperty; Part-
Under statute of Michigan, rental
1. Title by Entirety; Michigan Law.
received by tenants by entirety is divisible equally between the spouses.
Paul G. Greene _ _
2. Source of Income.
Profits of a business are taxable to one upon
whose efforts and ability they depend. Held, husband may not avoid
tax on profits earned by business purchased and operated by him through
the device of having title to physical assets or state certificate of opera-
tion issued in name of wife. Robert E. Werner__
Estate of Ira L. Berk....
3. Id. Allocation of Income. Allocation of profits between profits at-
tributable to husband's services and those attributable to capital con-
tributed by wife made to determine amount taxable to her. Claire L.
Canfield-
Right to Use Installment Basis. Excess of mortgage loan assumed by
vendee over adjusted cost plus cash meets the statutory percentage and
gain may be reported on installment basis. Therese C. Johnson_.
INSTALLMENT SALES BUSINESS. See EXCESS PROFITS TAX, I, 3,
4; II, 25.
1. Reserve for Unearned Premiums. Test to determine whether reserve
constitutes unearned premiums is not the type of policies issued but the na-
ture of the reserve. Held, reserve to provide for liability under noncancella-
ble health and accident policies represents unearned premiums. C. P. A.
Co
2. Id. Computation; Other Than Life or Mutual. Companies of this
category are not entitled to adjust premiums earned by 4% of the mean
of reserves, but must use computation provided in sec. 204 (b) (5) of the
code. Id.
1. Deduction. Dividends on stock held by creditor and collected by
him are payment of interest by debtor and may be deducted. Millar
Brainard__
2. Id. Accruals on debtor's books which will probably never be paid
are not deductible, although accrual basis was used. Id.
INVENTORIES. See AccOUNTING, I, 3, 4.
1. Status Denied. An operating corporation performing under a con-
struction contract and a partnership, four of whose members were corpora-
tion's majority stockholders, held not joint venturers under the contract,
and share of profit paid to partnership was taxable to corporation, and a
preferential dividend to its stockholders. Forcum-James Co----
2. Corporation Which Operated property owned by joint venturers for a
monthly fee is not taxable on income earned, except to extent of fee for
services. Worth Steamship Corp-----
JUDGMENT AND COMPROMISE. See EXCESS PROFITS TAX, II, 6.
JURISDICTION:
1. Renegotiation of War Contracts. Tax Court has no jurisdiction over
petition filed more than 90 days after determination by the R. F. C.
Price Adjustment Board. U. S. Electrical Motors, Inc.
2. Id. Date of the meeting, not of mailing notice, starts the limitation
period. Id.
LEASES. See ASSIGNMENTS AND GIFTS, 2.
Oil Payment Contracts; Reservation of Capital Investment by Assignors.
Two coowners assigned interests to other owners for cash and percentage
of profits. In addition assignors reserved an interest in production from
entire tract after deduction of expenses and capital expenditures. Held,
profits from the additional interest reserved are not taxable to assignees.
J. S. Abercrombie Co------
1. Assessment Period; Fraud. Commissioner having proved return was
false and fraudulent, assessment is not barred. Louis Halle_ .
2. Omitted Income. Where income omitted exceeded 25% of gross
amount reported the 5-year limitation period for assessment provided by
sec. 275 (c), I. R. C., applies. Leslie H. Green.......
3. Id. Commissioner's contention for subsequent tax year that "gross
income" means total income reported decreased by capital losses, rejected.
Held, gross income means sum of all items of income.
LIQUIDATIONS:
1. Proceeds. A corporation which operated its business under the name,
and in leased space, of a well known department store had no good will of
its own and Commissioner erred in increasing liquidation profit by an
estimated value for the intangible. Maurice A. Mittelman____
2. Id. Balance in Bad Debt Reserve. The tax benefit rule applies and
unused balance which did not offset income in years claimed is not income
for year of dissolution. M&E Corp - -.
3. Id. Subsidiaries; Nonrecognition of Gain or Loss. Retirement of part
of subsidiary's stock when capital was found to be excessive does not be-
come a step in its liquidation, and nonrecognizable for gain or loss purposes
where there was no intention to liquidate. Rhode Island Hospital Trust
Co.___.
4. Complete or Partial. Complete liquidation within three years was
decided upon, but due to change in business conditions, period extended
beyond three years. Held, plan was bona fide and distributions in tax
year were in complete liquidation. William C. Chick_--
5. Complete Liquidation in tax year, pursuant to a plan formulated upon
the completion of a guaranty agreement, is not converted into one of a
series of partial liquidations because distributions, not pursuant to any
plan, had been made in prior years. E. Roland Harriman___
LOSSES. See CAPITAL GAINS AND LOSSES; GAIN OR Loss.
1. Proof of Worthlessness. To establish worthlessness occurring in tax
year it is essential to prove value as of beginning of tax period.
P. Miller, Inc. -
Absence of liquidating value is not conclusive.
Local assessment against property for taxation in future years
is not an event establishing worthlessness in tax year.
Forfeiture of lease granting oil rights is not proof of worthless-
ness of the land. Louisiana Land & Exploration Co-
5. Id. Retirement of Subsidiary's Stock. Evidence that subsidiary was
a bona fide corporation is sufficient to sustain the deduction. Rhode Island
Hospital Trust Co...
6. Id. Mere shrinkage in value will not support the deduction.
isiana Land & Exploration Co---
7. Guarantors. Partial payment under a guaranty is a deductible loss.
Carl Hess.
8. Id. Where guaranty was oral and guarantor derived business benefit
from making payment loss is deductible. Frank B. Ingersoll___.
9. Id. Where primary obligor was solvent loss is not deductible.
Standard Oil Co. of New Jersey-.
10. Id. Claim that guarantor was primarily liable, rejected. Id.
11. Year Sustained. Commissioner's disallowance of loss on conten-
tion that property had become worthless in prior year, rejected. Mather
& Co....
12. Id. Contention that property was not used in taxpayer's business
and loss was capital, also rejected. Id.
13. Id. Embezzlement.
Bros. & Co____
Loss is deductible in year of discovery. Gwinn
14. Farmers. Losses sustained on sales of cattle determined.
Moore...
1. Carry-Backs. A corporation in process of dissolution is not barred
from claiming the deduction allowed by secs. 23 (s) and 122, I. R. C.
Acampo Winery & Distilleries, Inc___
2. Carry-Overs; Computation. Accrued interest properly deducted in
prior year's return may not be eliminated. Bush Terminal Buildings Co..
3. Id. Percentage Depletion. Sec. 122 (d) (1) does not grant a deduc-
tion where none is otherwise allowed. It limits any allowable deduction to
depletion computed on cost. Held, where, due to operating loss, percentage
depletion could not be claimed, the section does not grant taxpayers the
right to compute a deduction on cost and so increase carry-over losses.
Virgilia Mining Corp__
Louisiana Delta Hardwood Lumber Co.
Monroe Coal Mining Co..
4. Id. Net income for Year Absorbing Net Loss Carry-Over is to be re-
duced by the excess of percentage depletion over depletion computed on
cost unit basis. Louisiana Delta Hardwood Lumber Co..
Monroe Coal Mining Co...
OBSOLESCENCE. See DEPRECIATION, 6.
Separate Taxpayers. Taxes paid as trustee of a trust may not be ap-
plied against trustee's personal liability. Leslie H. Green_-
PARTNERS. See ACCOUNTING, II, 8, 9; Joint Ventures, 1.
Effect of community property statute. See COMMUNITY PROP-
ERTY, 6.
1. Death of Partner; Effect on Partnership Accounting Period. Death of a
partner dissolves but does not terminate partnership. Held, subsequent
accounting should be on basis of its regular accounting period. Mary D.
Walsh...
2. Id. Surviving partners determined to continue as a partnership and
sold fractional interests to admit new member. Held, death and sale did
not terminate old partnership or result in a new one. Allan S. Lehman___ 1088
3. Id. Title to decedent's interest vests under Michigan statute in
executor or administrator, and surviving partners, also his heirs, are not
authorized to declare the widow a partner. Esther Rosenberg- - -
4. Id. Estate of deceased partner is not a member and is entitled to
share in earnings collected after death only to extent provided by partner-
ship agreement. Held, excess is taxable to surviving members. Raymond
S. Wilkins.
5. Id. Payments to estate pursuant to partnership agreement are not
paid in purchase of interest of deceased partner and are not taxable to
surviving partners. Charles F. Coates---
6. Dissolution and Termination before end of regular fiscal year results in
a fractional period of operations. Held, profits are to be included on
returns of partners filed for year business was terminated. Anne Jacobs.. 1481
7. Recognition of Status; Admission of Members of Family. Where new
members contributed no capital originating with them and performed no
services, they are not recognized as partners. John Lang..
Esther Rosenberg-
8. Id. Capital Contributed by Wife. Success of business was due pri-
marily to services of husband. Held, although not recognized as a partner
wife is entitled to percentage of profits derived from her capital investment.
(Superseded: See 7 T. C. 944). Claire L. Canfield__
9. Id. Legality under state law is not determinative. Estate of Ira L.
Berk -
10. Id. Sons who had served the business over a period of years to its
substantial advantage were admitted as partners.
including them is recognized. Esther Rosenberg - -
PATRONAGE DIVIDENDS. See ASSOCIATIONS, 4.
PENALTIES:
1. Delinquent Filing. Ignorance of the law is not a reasonable cause
and penalty was properly assessed. Estate of Arthur D. Cronin_ - - -
2. Failure to File Return. Taxpayer offered no evidence of reasonable
cause and penalty was proper. Michael Downs_ -
3. Negligence. Omission through clerical error of a small item of income
does not justify the imposition of the penalty. Claire L. Canfield_----- 135, 944
4. Fraud. Assessment was uncontested in pleadings and at hearing,
and Commissioner is sustained. Louis Halle___
5. Id. Basis for Computation is total tax due in excess of amount
reported, inclusive of any deficiency assessed and paid prior to Com-
missioner's discovery of fraud. Maitland A. Wilson__-
1. Rehearing on Mandate. Where additional depletion was allowed at
original hearing due to increase in income from oil property, which point
was reversed by Supreme Court, an alternative pleading by Commissioner
to disallow the additional depletion in recomputation is not necessary.
Burton-Sutton Oil Co.--
2. Issues Raised. An oral motion, not reduced to writing, made during
hearing and not objected to, does not raise that issue. (Rule 17.) Louis
Halle
3. Id. In absence of assignments of error in pleadings issues in respect
of which statute places burden of proof on Commissioner are not deemed
to be raised. (Rule 6 (d).) Id.
1. State Court Decisions settling property rights are binding on this Court
if prior proceeding presented a real controversy and was not collusive.
Leslie H. Green___
2. Amendment to Commissioner's Regulations in conflict with line of
decisions by this Court, approved by higher courts, does not have the
effect and force of law binding the Court to follow the revised interpreta-
tion. Estate of Louis Stockstrom----
3. Motions. An oral motion to enter a plea of limitations granted
at hearing, but not followed by proof of facts showing date of filing
return and of deficiency notice, imposes no burden of proof on Com-
missioner. Louis Halle-
4. Id. Commissioner may not be prejudiced by late or inadequate
pleadings. Id.
5. Burden of Proof. Merely stating under oath that returns filed
were correct, without other evidence, is not sustaining the burden of
proving that Commissioner erred in his determination. Id.
Refunds to Vendees, due to court decision of January 6, 1936, are not
deductible from income of 1935. Brighton Mills, Inc. -
PURCHASE DISCOUNTS. See ACCOUNTING, I, 4.
RAILROADS; RECEIVERSHIP. See GAIN Or Loss, II, 2.
RECOVERIES; BAD DEBTS. See EXCESS PROFITS TAX, I, 1, 2.
RENEGOTIATION OF WAR CONTRACTS:
1. Limitation on Proceedings. Sec. 403 (c) (6) of the act is a limitation
on commencement of proceeding more than one year after close of fiscal
year within which contract was completed. Held, limitation does not
apply where years of completion of contracts were not shown.
Calorizing Co...
2. Id. Proceeding involving renegotiable business of one period,
concluded within two years of close of that period, is not barred. Id.
3. Id. Sec. 403 (c) (5) of Renegotiation Act granting contractors an
opportunity to hasten renegotiation and start a limitation period by vol-
untarily filing financial statements, does not apply to a taxpayer who filed
data after request by a Government agency. Stein Brothers Mfg. Co.-----
4. Id. The section does not require the Secretary of War to send a
written notice for an initial conference where the latter has already been
held, and the 60-day limitation following such notice does not apply in
taxpayer's case. Id.
5. Id. Filing Petition. The filing period of 90 days for petitioning
this Court begins on date of the meeting at which the determination of
excessive profits was made. Sec. 403 (e) (2) of the act. U. S. Electrical
Motors, Inc__
6. Evidence held insufficient to overcome Secretary's original determina-
tion and also insufficient to sustain his affirmative plea that amount
claimed should be increased. Nathan Cohen _ _
7. Excessive Profits Determined on basis of comparison of profit percentage
to capital of renegotiable business and peace time business, reconversion
problems, and other factors. Stein Brothers Mfg. Co.---
8. Separate Contracts. Amendment by agreement of parties in the
form of a short instrument, held, not a separate contract.
Id.
9. Constitutionality. The Circuit Court has held, Spaulding v. Douglas
Aircraft Co., 154 Fed. (2d) 419, that the Government in time of war has the
right to recapture excessive profits on contracts entered into before the
Renegotiation Act was passed. Id.
10. Id. Claim that the act improperly delegates legislative powers to the
Secretaries and Tax Court, rejected as a basis for claim of unconstitutional-
ity. Id.
RENTAL PROPERTY. See CAPITAL GAINS AND LOSSES, 2, 3.
1. Act 1934, as Amended; Pursuant to Sec. 77-B, Bankruptcy Act.
Receiver's sale of one asset and resulting elimination of one constituent's
liabilities, made prior to adoption of reorganization plan, held not to
reduce transferred assets to less than "substantially all," as required by the
statute. Peabody Hotel Co.---
2. Id. Properties were acquired solely for 69% of taxpayer's stock,
assumed liabilities being disregarded under the 1934 Act, and from credi-
tors, who had become the equitable owners. Held, transaction was a
reorganization. Id.
3. Act 1936. Exchange of all of its stock for assets of another corpora-
tion is a reorganization under the 1936 Act. Westfir Lumber Co. ----
4. Id. By settlement agreement one nonassenting bondholder was
entitled to a cash payment which was made from transferor's cash. Held,
assets received by transferee were received "solely" for its stock. Id.
5. Id. Liabilities assumed by transferee are to be disregarded in
determining reorganization status under the 1936 Act. Id.
6. Continuity of Control. Mortgagee acquired insolvent corporation's
assets at trustee's sale; sold them to a new corporation organized by
minority stockholders of old corporation. Held, necessary continuity of
control was absent, and transactions did not effect a reorganization.
Adamston Flat Glass Co..-
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