ACCOUNTING METHODS
See DEPRECIATION and INVENTORIES.
See also CONTRIBUTIONS and DEDUCTIONS.
Valuation Overstatement on Return Filed After Sec. 6659
Effective Date-Applicability of Sec. 6659 to Underpayments in
Earlier Years-Disallowed Carrybacks of Investment Tax Cred-
its.-Where petitioners filed 1978-79 returns before Jan. 1, 1982;
after that date petitioners filed 1978-79 amended returns to claim
refunds because of carrybacks of investment tax credits claimed in
1981-82; and Commissioner sought additions to tax for 1978-79
under sec. 6659, which applies to returns filed after Dec. 31, 1981,
based on underpayments of tax for 1978-79 attributable to
valuation overstatements associated with investment tax credits,
Court determined that petitioners were liable for sec. 6659
additions for 1978-79, since underpayments of tax for those years
were attributable to valuation overstatements on 1981-82 returns.
Nielsen v. Commissioner
Lump-Sum Payment Discharging Past and Future Support
Payments for W and Children-Payment Exceeding Amount of
Arrearages-Income and Deductions Determined. Where in 1977
H made lump-sum payment to W pursuant to stipulation and
waiver agreement to discharge past and future child and spousal
support, and amount of lump-sum payment exceeded amount of
support arrearages, Court determined (1) entire payment was
attributable to spousal support since agreement failed to fix
portion attributable to child support, and (2) portion of lump-sum
payment allocable to past spousal support arrearages retained the
tax character of the spousal support payments as income to W
under sec. 71(a) and deductible by H under sec. 215, but remaining
portion attributable to future spousal support was not periodic
payment includable in W's income or deductible by H, since it was
specified amount payable in less than 10 years and was not
contingent. Bernard v. Commissioner
AMORTIZATION
See also PARTNERSHIPS.
Debentures Issued by Subsidiary Convertible Into Stock of
Parent-Original Issue Discount Attributable to Conversion Privi-
lege-Bond Premiums.-Where petitioner filed consolidated income
tax returns for 1976-77 with its subsidiaries including international
finance subsidiary X; on Feb. 15, 1968, X issued 15-year deben-
tures convertible into petitioner's stock, and petitioner claimed
amortization deductions over life of debentures for discount from
purchase price attributable to conversion feature; and petitioner
also deducted, as bond premium expense under sec. 171, difference
between market value of its stock at time of conversion and face
value of debentures converted, Court determined petitioner could
not amortize either original issue discount, or bond premium.
National Can Corp. v. United States, 687 F.2d 1107 (7th Cir.),
followed. Honeywell Inc. v. Commissioner
License To Market Computer-Assisted Translation System for 20
Years-Acquired by Limited Partnership-Nonrecourse Notes as
"Payment" Under Sec. 1253.-Where limited partnership acquired
20-year license to market computer-assisted translation system in
exchange for 1979 and 1980 cash payments, each in amount of
$2.6 million, and $1 million annually for 8 years, payable through
nonrecourse notes beginning in 1985, and petitioner limited part-
ners deducted their respective shares of cash payments under sec.
1253(d) based upon "principal sum" of $13.2 million, Court
determined the eight $1-million nonrecourse notes were not sup-
ported by underlying value of license (value of which was no more
than $5.2 million) and were too contingent and speculative to be
considered as part of "principal sum" for purposes of computing
amount and timing of deduction under sec. 1253. Driggs v.
Commissioner....
See DEDUCTIONS, DEPRECIATION, and INSTALLMENT
SALES.
CAPITAL EXPENDITURES
See PARTNERSHIPS.
CAPITAL GAINS AND LOSSES
See also INCOME and UNITED STATES TAX COURT.
Payments on Disposal of Coal-No Retained Economic Inter-
est-Imputed Interest.-Where in 1980 petitioner received pay-
CAPITAL GAINS AND LOSSES-continued
ments under "Coal Lease" contract which provided petitioner was to receive tonnage royalties and/or annual minimum royalties over 10 years amounting to $4.3 million, regardless of whether any coal was mined; no portion of payments was designated as interest; and petitioner had no reversionary interest in coal so long as required payments were made, Court determined (1) petitioner retained no economic interest in coal, since return of her capital was not dependent on extraction of coal, so that payments under contract did not qualify for capital gain treatment under secs. 631(c) and 1231(b)(2); (2) because sec. 631(c) did not apply, payments were subject to imputed interest rules of sec. 483, and portion of each payment constituted ordinary interest income under secs. 483 and 61(a)(4), and only balance of payment was capital gain from sale of capital asset. Deskins v. Commissioner...
Sale-Leaseback of Nuclear Fuel to Subsidiary Disavowed by Utility Company-Sale or Financing Arrangement-Deductibility of Lease Expenses and Taxability of Certain Amounts as Interest Income. Where petitioner utility sold nuclear fuel to subsidiary which simultaneously leased the fuel back to petitioner, Court determined (1) petitioner could disavow form of sale-leaseback, since petitioner consistently treated transaction as a financing for tax reporting and other purposes, which showed honest and consistent respect for what it considered to be substance of transaction (Comdisco, Inc. v. United States, 756 F.2d 569 (7th Cir.), followed); (2) sale-leaseback constituted a financing for tax purposes, with result that petitioner was not required to recognize gain on "sale," since petitioner met burden of producing "strong proof" that petitioner should be considered owner of fuel; (3) petitioner was entitled to deduct liability it accrued for lease charges, since all-events test was met, and accounting method clearly reflected income under sec. 446(b); and (4) petitioner did not receive interest income from transfer of fuel, since amounts represented additional principal loaned to petitioner. Illinois Power Co. v. Commissioner...
COMMISSIONER OF INTERNAL REVENUE
See INCOME and UNITED STATES TAX COURT.
COMMUNITY PROPERTY
See NONRESIDENT ALIENS.
CONSOLIDATED RETURNS
Qualification of Subsidiary-Utility's Gift of Half Subsidiary Stock to Charitable Organization-Utility's Attempt To Disavow Gift Transaction.-Where petitioner utility company argued that transfer of 50 percent of subsidiary stock to university should be disregarded because beneficial ownership of stock remained with petitioner so that subsidiary could be considered member of its affiliated group for purposes of its consolidated return, Court determined that form of transfer could not be disregarded and that
CONSOLIDATED RETURNS-continued
petitioner could not treat subsidiary as member of its affiliated
group for 1981, since at time stock was transferred, actions of
petitioner and subsidiary clearly showed that they perceived
transfer to be gift; and facts showed that for tax reporting and
other purposes, petitioner consistently treated transfer as gift.
Comdisco, Inc. v. United States, 756 F.2d 569 (7th Cir.), followed.
Illinois Power Co. v. Commissioner..........
See also CONSOLIDATED RETURNS and EXEMPT OR-
GANIZATIONS.
Charitable-Bargain Sale of Appreciated Property-Validity of
Regs. 1.170A-4(c) and 1.1011-2.-Where petitioners sold certain
"capital gain property" to charitable corporation for less than its
fair market value and elected to apply "appreciation reduction"
rules of sec. 170(e)(1) to bargain sale, Court determined (1) amount
of petitioners' charitable contribution was reduced by 50 percent of
unrealized appreciation of only the "contributed" portion, and
sec.1011(b) applied to "sold" portion; and (2) regs. 1.170A-4(c) and
1.1011-2 were invalid to extent they provided otherwise. Estate of
Bullard v. Commissioner
Charitable-Conveyance of Land and Easements to State for
Access to Shopping Center and Hospital-Deductibility.-Where
petitioner transferred land to be developed in part as regional
shopping center and also conveyed to State 2 parcels of land and
easements adjacent to proposed shopping center for which he
claimed charitable contributions; first parcel was site of proposed
interstate highway interchange and access road to shopping center,
without which shopping center would not have been built; and
second parcel and easements were site of proposed access road to
nearby hospital, Court determined (1) petitioner's conveyance of
first parcel did not constitute charitable conveyance within mean-
ing of sec. 170, since at time of transfer, petitioner expected to
derive a direct and substantial benefit from construction of the
improved interchange, which could not have been constructed
absent his conveyance to State, and (2) second parcel and
easements constituted charitable contribution, since their convey-
ance was made primarily for public-spirited and altruistic purposes.
Elrod v. Commissioner ...
Charitable-Drainage Facilities and Easements-Gift to City and
Benefit to Remaining Land.—Where city was obligated to provide
for safe discharge of waters running through petitioner's property;
petitioner installed concrete box culvert and related drainage
facilities which served a public purpose and enhanced the value of
his own land; and petitioner transferred the drainage facilities with
easements to the city, Court determined that transfer of facilities
and easements had dual character which included both deductible
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