ACCOUNTING METHODS
See also INSURANCE COMPANIES.
Change of-Sec. 481 Adjustment-Incorporation of Sole Proprietor- ship as Cessation of Business.-Where as result of change of accounting in 1968 from cash to accrual method utilizing procedure in Rev. Proc. 67-10 as amplified by Rev. Proc. 70-16, sec. 481 required net adjustment to be taken into income over 10-year period, and in 1970 petitioners incorporated their proprietorship but continued to report adjustment on their personal returns, Court determined that petition- ers by incorporating their sole proprietorship, ceased their trade or business within meaning of revenue procedures and as result were required to bring remaining amount of adjustment into income in year of incorporation and not over remainder of 10-year period. Shore v. Commissioner
Completed Contract Method-Legal Fees in Negotiating Long-Term Contracts-Year Deductible.-Legal fees, incurred in negotiating and drafting specific long-term contracts which were later entered into by petitioners' subch. S corporation which used completed contract method of accounting, under sec. 451(a), regs., and case law were not currently deductible but were deductible in taxable year of corporation in which contracts were completed. McMaster v. Commissioner
Imputed Interest Deduction-Corporate Transaction as Sale with Deferred Payment-Contingent Upon Exercise of Put or Call.-Where X and Y corporations agreed to form new Z corporation, with X contributing assets and liabilities of one of its divisions for stock and debentures of Z, and Y contributing cash for Z stock; X had right to put its Z stock to Y on set terms during 8/1/70-7/31/71, and Y had right to call X's stock in Z on same terms during 8/1/71-7/31/72; and X exercised its put 7/31/71, Court determined 1968 agreement did not constitute sale with deferred payment of X's entire interest in its division with result that Y was not entitled to deduction for imputed interest for fiscal year ended 1/1/72, under sec. 483. Penn-Dixie Steel Corp. v. Commissioner
Failure to File Returns and Withhold Tax-Reasonable Cause.— Court having determined herein that payments from 1963-69 by petitioner corporation to its Icelandic parent were interest within meaning of secs. 1441 and 1442 on which petitioner was liable for 30% tax it failed to withhold on such payments, petitioner carried burden of showing sec. 6651(a) addition to tax for failure to file for 1963-68 United States Annual Returns for Income Tax to Be Paid at Source required by sec. 1461 did not apply, since certified public accountant's advice on necessity of filing returns, while erroneous, was not so clearly wrong as to permit inference petitioner was negligent or willfully disregarded law. Coldwater Seafood Corp. v. Commissioner
Late Filing-Corporate Income Tax Returns-Reasonable Cause.- Sec. 6651(a)(1) penalties were properly imposed where petitioner corporations' president signed requests for extensions of time on 5 of 6 returns required to be filed for taxable years and hired attorney and accounting firm to file returns, since record did not support finding that late filing was due to reasonable cause, considering that general rule is that filing of return when due is personal, nondelegable duty of taxpayer, and reliance upon accountant or attorney to file is no excuse for late filing, and that narrow exception to rule is limited to situation where taxpayer relies upon professional advice as to question of law. Latham Park Manor, Inc. v. Commissioner
Negligence or Intentional Disregard of Rules and Regulations- Family Trust as Tax Avoidance Scheme-Burden of Proof.-On facts and absent any evidence by petitioner on this issue, Court determined Commissioner did not err in determination that any part of underpay- ment was due to negligence or intentional disregard of rules and regulations within meaning of sec. 6653(a), since considering petition- er's education and intellectual ability, Court found it difficult to believe that he envisioned family trust as anything other than flagrant tax avoidance scheme. Wesenberg v. Commissioner
Monthly Payments-Decree of Separate Maintenance-Support or Discharge of Principal Sum Obligation.-(1) $400 monthly payments to W under decree of separate maintenance based on extreme cruelty, including those awarded retroactively, were periodic payments under sec. 71(a)(3) on account of family or marital relationship in recognition of general obligation to support and were not in discharge of obligation specified as principal sum in decree, (2) $1,125 paid by H in restitution of amount by which W overpaid her fair share of taxes was not includable in W's gross income under sec. 71(a), since payment resulted from W's rights under contract with H rather than from his general obligation of support, and (3) amount paid by H for interest was includable in W's gross income and deductible by H under sec. 163(a). Capodanno v. Commissioner
Pollution Control Facilities-Certification Requirement-Validity of Election.-Where petitioner corporation acquired pollution control facilities and stated on its tax return for fiscal 1972 that it elected to amortize expenditure therefor under sec. 169, but at time of filing return had not applied for certification of such facilities, Court determined election was invalid, since regs. were promulgated under specific legislative authority and were not "unreasonable and plainly inconsistent with the revenue statutes," and implicit requirement that such application must have been made goes to essence of statute and cannot be dismissed as mere procedural detail. Penn-Dixie Steel Corp. v. Commissioner
See also SMALL BUSINESS CORPORATIONS.
Stockholders' Advances-Wholly Owned Corporation-Capital Con- tribution or Loan.-Where petitioners advanced funds to their wholly owned corporation represented by unsecured demand notes, Court determined advances were contributions to capital and not loans which became uncollectible in fiscal 1970, since inter alia advances were for operating expenses and expansion of business, petitioner testified that due to poor financial condition of corporation he foresaw possibility advances would not be repaid, due to character of notes only source from which advances might be repaid was from future profits of business, and petitioner's primary concern was future success of corporation. Davis v. Commissioner .
Corporate Assets-Acquired in Liquidation of Subsidiary-Sec. 334(b)(2) Computation.-Where after filing of opinion herein (T.C. Memo. 1977-23), parties submitted conflicting computations of tax under Rule 155 which involved interpretation of regs. under sec. 334(b)(2), and basic disagreement involved manner in which to compute basis in former corporation's assets which necessitated making refinements to petitioner corporation's adjusted basis in stock and allocating resulting basis among acquired assets, Court, using residual method, determined petitioner's refined adjusted basis in stock, calculated fair market value of intangibles received in liquidation, and provided and applied formula for allocating refined adjusted basis to certain assets. R. M. Smith, Inc. v. Commissioner
Securities-Computation of Gain or Loss-Adequate Identification of Lots.-Where petitioners, who sold securities acquired in different lots and at different prices, identified securities on their ledger sheets but did not deliver to transferees specific certificates representing such securities, Court determined (1) petitioners failed to adequately identify securities in compliance with reg. 1.1012-1(c)(2), with result that bases in securities sold were to be determined using FIFO method,
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