be helpful to analyze and distinguish the various authorities relied upon by respective counsel. We are referred to no case which we regard as sufficiently parallel in its facts to serve as a controlling authority. It is our opinion that upon the death of Robert S. Frazer legal title to one-third of the trust remainders vested in the decedent, although enjoyment thereof was postponed until the termination of the respective life estates. The decedent could have passed such interests by will and the value thereof was taxable as a part of his gross estate under section 811 (a) of the Internal Revenue Code.1 Since other factors having a bearing upon the tax liability are stipulated.

Decision will be entered under Rule 50.

1 SEC. 811. GROSS ESTATE.

The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States

(a) DECEDENT'S INTEREST.-To the extent of the interest therein of the decedent at the time of his death.

INDEX

ABANDONMENT. See Losses, 10.

ABNORMALITIES. See EXCESS PROFITS TAX, II, 3-12.

ACCOUNTING:

I. Generally, p. 1261.

II. Methods of Accounting, p. 1261.

III. Periods of Accounting, p. 1262.

IV. Reserves, p. 1262.

Accounting for income; corporation or stockholders. See GAIN
OR LOSS, I, 1, 2.

I. GENERALLY.

1. Cost of Goods Sold. Additional compensation not determined upon
until profits from sales of the year had been computed may not then be
included as an item of "cost", and deducted. Lincoln Electric Co--.

2. Id. Adjustment to Book Entries Reducing Sales Reported was not
verified and Commissioner's disallowance is approved. Albert Nelson___
3. Id. Income may not be reduced to correct errors not shown to have
been made in same period. Id.

4. Id. Merchandise Purchases. Overstatement on books was prop-
erly corrected by Commissioner in arriving at deficiency. Maggio Bros. Co-
5. Capital Items Increasing Cost Basis. Addition to cost for interest
paid on mortgage prior to sale of land disallowed, partly for lack of proof,
and partly because amount had been included in gross interest deduction.
Howell Turpentine Co------

II. METHODS OF ACCOUNTING.

Held,

1. Accrual Basis. Additional compensation was voted to officers who
immediately gave corporation their notes in equivalent amounts.
liability was contingent, not incurred, and is not a proper accrual. Har-
rington Co-

2. Id. Expenses paid in tax year which had accrued in a prior year
are not deductible in tax year. Record Realty Co.-
3. Id. Claim for refund of social security taxes was
pursuant to court decision that taxpayer was not liable.
received in 1941, item was a proper accrual for 1940.
tine Co....

made in 1940,
Held, although
Howell Turpen-

4. Id. Similarly, compensation for services is a proper accrual for year
of performance, although not received until following year. Id.

5. Id. Disputed Items. Claim for unpaid rent was agreed to by
trustee in bankruptcy, but not accepted by court until a later year. Held,
not accruable in year of agreement. Fifth Street Store...

Page

37

764

999

364

720

823

364

664

6. Id. State tax liabilities in dispute at end of tax year are not proper
accruals. Koppers Coal Co- -

1209

7. Cash Basis. Interest paid by note given by taxpayer on cash basis
is not deductible until year note is paid. Samuel Eugene Bramer---
8. Id. Compensation earned in one tax period but not received until
following year is taxable to those using cash basis for year of receipt.
Charles G. Tufts..

1027

217

Pedro Sanchez...

1141

9. Id. Constructive Receipt. Doctrine is not applicable where payee
was not in control of payor and no credit in prior year on latter's books
was proved. Charles G. Tufts....

Pedro Sanchez___

217

1141

1261

ACCOUNTING-Continued.

10. Id. Premiums paid by employer for purchase of annuity contracts
for employees is additional compensation constructively received in year
of purchase. Paul A. Draper..

J. H. McEwen_ _

Page

209

1018

11. Id. Where employer imposed such conditions on employee's bene-
ficial interest that the latter might never receive either the annuity or the
additional compensation applied to its purchase, there is no constructive
receipt by employee. Julian Robertson_...

12. Id. Premiums paid in advance for future years are not income of tax
year constructively received. Paul A. Draper.

13. Id. Direction by a debtor that income due be paid to his creditor
does not relieve debtor from tax liability on such income. G. R. Fouche__
14. Id. Where income constructively received was due in part to serv-
ices rendered by creditor to whom it was assigned, amount may be reduced
for value of services.

Id.

III. PERIODS OF ACCOUNTING.

1. Change from Calendar to Fiscal Year. Where permission to change
was based upon complying with certain conditions which was not done,
Commissioner correctly used preexisting period and accounting method.
American Coast Line, Inc...

2. Id. Permission to use fiscal year basis is conditioned upon the keep-
ing of books of account. Held, informal records kept on slips do not satisfy
sec. 41, I. R. C., and Commissioner correctly computed tax on calendar
year basis. Louis M. Brooks_.

IV. RESERVES.

1. Bad Debts; Sale or Consignment. Where facts establish that transac-
tion was a sale and that taxpayer ascertained account to be uncollectible
in tax year, he is entitled to charge entire amount to reserve, in addition to
the usual percentage of other accounts. William Purvin__.

2. Restorations to Income. When need for reserve ceases balance is to
be restored to income for taxation in that period. Geyer, Cornell &
Newell, Inc.

ACCOUNTING ERRORS; CORRECTION. See EXCESS PROFITS TAX,
I, 4.

AFFILIATIONS:

1. Right to File on Consolidated Basis denied where parent owned less
than the required percentage of voting stock of includible corporation.
Pioneer Parachute Co..

2. Id. Change in stock issues whereby voting common stock of two
stockholders was surrendered for preferred nonvoting shares, leaving
parent with the requisite percentage, held a change in form only, where
preferred holders were entitled at any time to recover their voting common
by exchange and were guaranteed a share of dividends paid on shares
surrendered. Id.

AGENCY. See FOREIGN CORPORATIONS.

ALIENS:

Alien trusts and beneficiaries. See ESTATES AND TRUSTS, II, 4-6.
Corporations. See FOREIGN CORPORATIONS.

Estates of nonresident aliens. See ESTATE TAX, I, 14.

1. Resident. Taxpayer came to the United States; established a resi-
dence, and took out first naturalization papers. Several months later
he returned to his native country; has never returned to this country;
but has applied twice for extensions of right to reentry. Held, for entire
tax year he was a resident alien and Commissioner correctly included
income earned without the United States. Walter J. Baer.....

2. Nonresident. Source of income was sales consummated within the
United States, consideration for which was received in the United States.
Held, alien is taxable on his share of the proceeds. Pedro Sanchez.----

3. Id. It is immaterial that some customers operated in foreign countries
or that subject matter of the sales was shipped for use to foreign countries.
Id.