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COMMUNITY PROPERTY-Continued.

5. Allocation of Annual Profits Where Separate and Community Capital are Invested. Earnings equivalent to legal rate of interest on a long term investment are separate income of husband on his original investment. Lawrence Oliver

6. Id. Earnings from the business or profits from sales of assets or stock are otherwise apportionable to the spouses on the ratio of separate to community capital. Lawrence Oliver-.

Guy C. Earl, Ĵr..

7. Id. Withdrawals for living expenses, not apportionable on facts in evidence, are community earnings. Lawrence Oliver

8. Community Estates; Administration Period; California. Entire estate is subject to administration and all income is taxable to administrator or executor (Commissioner v. Larson, 131 Fed. (2d) 85). Held, loss sustained upon sale of estate's assets is deductible by him, and surviving spouse is not entitled to claim one-half thereof. Stella Wheeler Bishop

9. Id. Expenses and taxes paid by administrator or executor are in same category.

Id.

10. Id. Fee received by surviving spouse for services rendered as administrator or executor is personal and not divisible with estate for taxreporting purposes. Id.

COMPENSATION:

Deduction for. See EXPENSES, II.

Exclusion of. See EXCLUSIONS AND IMMUNITIES.

1. Additional Compensation. Proceeds from surrender of certificates of beneficial interest in employee trusts held to constitute additional compensation to extent of excess received over portion of distribution previously taxed to trust. Joseph W. Frazer....

2. Id. Surrender of certificates to trustee was not a sale or exchange and receipts were not capital gain. Id.

3. Annuity or Compensation. Employer promised to pay taxpayer a stated annual income for life in consideration for past, present, and future services. Employer's executor discontinued payments, and settled claim by purchasing annuity contracts from insurance companies. Held, cost of annuities represents compensation for services and is taxable income for year of purchase. William E. Freeman_..

4. Back Pay. Salaries of officers deferred in prior years during existence of R. F. C. loan constitute back pay when received, and tax due is the aggregate of tax increases which would have been paid had salary been previously reported. Norbert J. Kenny_

5. Id. Percentage of profits similarly credited is not back pay and is taxable at rates prevailing for year received. Id.

6. Id. Amended returns attempting to include such back pay in gross income of prior years rejected. Id.

7. Id. Credits on corporate books annually made do not render the amounts constructively received in the earlier years. Id.

8. Disputed Compensation. Amount offered when due was rejected and final settlement was made in following year. Held, not constructively received in prior year. Walter I. Bones....

9. Id. Refusal to accept for a valid reason is distinguishable from refusal to accept income unconditionally available. Id.

10. Id. Sec. 19.42-2, Regs. 103 provides that income subject to a condition is not constructively received. Id.

11. Federal Judges; Public Salary Act. Salary of judge taking office after passage of statute taxing such compensation is subject to income tax and the levy does not violate Art. III, sec. 1, of the Constitution. William E. Baker...

12. Services Over Five-Year Period. Trusteeships, although including services for collection of income and reinvestment of capital, are a single employment and fees received may not be segregated. Held, if amount received in tax year for services with respect to capital, when added to commissions of prior years for collecting and distributing income, does not equal the statutory percentage of aggregate fees, the relief under sec. 107, I. R. C. is not available. Paul H. Smart__.

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CONSTITUTIONALITY. See COMPENSATION, 11.

CONSTRUCTIVE RECEIPT OR PAYMENT. See ACCOUNTING, I,
4, 5; II, 2; COMPENSATION, 7–10.

CONTEMPLATION OF DEATH TRANSFERS.
I, 4, 5.

See ESTATE TAX,

CONTINGENT REMAINDERS. See ESTATE TAX, I, 12.
CONTINGENT RESERVES. See ACCOUNTING, II, 7, 8.

CONTRIBUTIONS;

Employees' Benefit Foundation. Where exempt status is denied to the association individual gifts by corporate officers are not deductible as contributions. C. R. Lindback Foundation___

COOPERATIVES. See ASSOCIATIONS.

CREDIT OR REFUND OF TAX:

1. Refunds; Limitation on Claims. No formal claim was filed and amended petition claiming refund was filed more than three years after last payment. Held, a determination of overpayment is barred. Estate of Sallie Houston Henry---

2. Id. Excess Profits Tax; Relief Under Sec. 722, I. R. C. Evidentiary facts not submitted to Commissioner during his consideration of the claim will not be accepted by Tax Court to support an application for relief under the section. Blum Folding Paper Box Co

3. Id. The scheme of the statute requires that claim be presented in full first to Commissioner, and that this Court, upon proper application, may review his final determination. Id.

CREDITS:

I. Individuals, p. 1300.
II. Corporations, p. 1300.

Dividend carry-over credit.
10, 11.

Excess profits tax credit.

I. INDIVIDUALS.

See PERSONAL HOLDING COMPANIES,

See EXCESS PROFITS TAX, 7-9.

1. Head of Family. Grandparent maintaining home for grandsons after their father's second marriage, unmarried person maintaining home for parents, both shown by facts to exercise control over family units, held, entitled to the credit. Albert Fleming -

B. Nathaniel Richter _ _.

Virgean Estes _ _

2. Id. Fact that parents owned properties yielding small rentals will not defeat the claim. Virgean Estes..

3. Id. Fact that taxpayer's divorced husband also claimed the credit based on support of his mother will not defeat wife's similar claim based on a separate home. Id.

4. Dependents. Mother-in-law was not shown to be a dependent and claim for dependency credit was properly denied. Albert Fleming--

II. CORPORATIONS.

Where earnings available

1. Contractual Restriction on Distributions. for distribution are in excess of adjusted net income, credit under sec. 26 (c) (1), Act 1936 is not allowable. Okonite Co..

2. Reduction of Indebtedness. Sec. 26 (c) (2) of same act is not available because contract did not require that current earnings be the sole source for complying with its contract to reduce bonded indebtedness. Id.

3. Id. Retirement of preferred stock representing a capital interest, not a loan, held not payment of indebtedness. Id.

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CREDITS-Continued.

4. Dividends Paid. The test for allowance of the credit is that distribution be taxable to recipient. Held, where stockholders were given an election in dividend declaration to take cash or stock, payment in stock to those so electing is a taxable dividend and full credit is allowable. Southeastern Finance Co....

5. Distributions Connected With Reorganizations. Consideration exchanged is not divisible among various purposes accomplished and additional stock given as bonus for making exchange or to pay dividends in arrears is exchanged property, not a dividend paid. Okonite Co‒‒‒‒‒ Southeastern Finance Co-

6. Personal Holding Companies; Dividend Carry-Over from 1938 and 1939. Adjusted net income for 1938, a necessary factor, is to be reduced by interest on United States obligations. (Sec. 13 (a), Act 1938.) Adrian & James, Inc..

7. Id. Income tax of predecessor merged with taxpayer who assumed its liabilities is deductible in dividend carry-over computation: liability is that of taxpayer, and payment is not a payment on behalf of another. Id. 8. Foreign Tax Credit. Domestic corporation receiving dividends from foreign subsidiary is required to compute foreign tax paid by subsidiary on each year separately, where source of dividend was the accumulated earnings of more than one year. General Foods Corp---

9. Id. The term "accumulated profits" used in sec. 131 (f), Act 1934, is given a particular meaning and is not synonymous with "surplus" or "earned surplus." Id.

10. Id. The limitation on the credit is determined by a single computation based on ratio of dividends received to domestic corporation's entire net income for year of receipt. Id.

11. Id. British income tax is imposed upon profits of licensee's business with no deduction for royalties paid to or due licensor, but entitles licensee to retain from royalties paid an amount equivalent to the tax thereon. Held, payment by licensee was not made on behalf of licensor; latter paid no British tax, and is not entitled to a credit under sec. 131 (a) (1), Î. R. C. 0. K. Tool Co..

12. Id. Alternative claim under a different section of the British act, discussed and rejected. Id.

DEBENTURE BONDS; REORGANIZATIONS. See DIVIDENDS, 5, 6.
DEFICIENCY:

Interest on Deficiency is not a part of the tax and in absence of specific provisions in written instruments is payable from income. Forrest G. Pearson --

DEPENDENTS. See CREDITS, I, 4.

DEPRECIATION:

1. Railroads; Retirement Method. In lieu of depreciating assets, railroad deducted maintenance expense and renewals annually. Held, in final charge-off of assets original investment may not be reduced for depreciation sustained prior to March 1, 1913. Los Angeles & Salt Lake R. R. Co.. 2. Basis; Reorganization Under 77B, Bankruptcy Act. The substitution of one type of outstanding indebtedness for another does not result in a reduction of indebtedness and no adjustment to balance sheet figures of depreciable assets is required. Motor Mart Trust...

3. Id. It is unimportant that after the reorganization balance sheet may have reflected a reduction in indebtedness. Id.

4. Id. Sec. 270, Bankruptcy Act, authorizes a decrease in basis for depreciable assets to conform to recovery of capital realized by indebtedness reduced under bankruptcy proceeding, but it does not authorize any increase in book basis. Warren Balderston Co...

5. Id. Sec. 268 limits such decrease to a figure not less than fair market value at date of court order, but does not authorize increasing book basis to such fair market value. Id.

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DEPRECIATION-Continued.

6. Id. Where correct basis was determined upon for same assets owned by same taxpayer for a prior year, under mandate of circuit court, Commissioner may not reduce basis for tax year. Arundel-Brooks Concrete Corp-

7. Patents. Royalty paid assignors of patents is a capital expenditure, but to enable assignee to recover cost of the right, where such cost depends upon income patents earn, not determinable until life of each is exhausted, amount paid is deductible as depreciation. Associated Patentees, Inc.... DIVIDENDS:

Patronage dividends. See ASSOCIATIONS.

Dividend carry-over. See PERSONAL HOLDING COMPANIES, 10, 11.
Interest or dividend. See INTEREST, 9-11.

1. Available Earnings; Unrealized Appreciation at March 1, 1913. Losses sustained after March 1, 1913, on sales of assets requiring use of March 1, 1913, value for computation should not be charged against later earnings in determining amount available for distribution. (Loren D. Sale, 35 B. T. A. 938, followed.) R. D. Merrill Co....

2. Id. Where deficit resulted from operating losses not incurred through sales of property computed on a March 1, 1913, basis, losses should be charged against subsequent earnings. Id.

3. Id. Effect on Earnings Account of Previous Distributions in Property. Where nonwasting property is distributed after it has declined to a value of less than cost, its cost, not market value when distributed, should be charged against earnings account, although by statute distributee is taxable upon market value. Id.

4. Taxable Distributions; Agreement to Pay Corporate Indebtedness. Dividend checks were deposited one day and stockholder's check for same amount was given corporation next day, under agreement with corporation's creditor. Held, distribution was a taxable dividend. Edgar M. Soreng

5. Id. Distributions Pursuant to Recapitalizations. If transaction served a corporate business purpose, distribution is tax-free. Adam A. Adams.

6. Id. If no such purpose was served distribution is taxable as a dividend. Alice H. Bazley--

7. Id. Redemption of Stock designed for benefit of stockholders, rather than the corporation, is a taxable dividend. Samuel A. Upham....... 8. Id. Other distributions pursuant to a corporate business purpose are not taxable dividends.

Id.

9. Id. Reduction in Par Value of Stock, followed by a distribution, both pursuant to liquidation purposes is not a taxable dividend. R. D. Merrill Co--

10. Id. Payment of Transferee Liability in a subsequent year does not reduce amount subject to tax for year of receipt. Estate of Henry E. Mills...

11. 1ax-Free Distributions; Act 1934. Only distributions from earnings accumulated after February 28, 1913, are taxable. Where there is an accumulated deficit, distribution is tax-free. Estate of Harold M. Lehman__ 12. Id. Act 1936, however, provides that distributions of current earnings be treated as taxable dividends, regardless of preexisting deficit.

Id.

13. Id. The 1936 Act specifically excludes from this provision tax periods beginning before Dec. 31, 1935. Id.

14. Id. Stockholder Using a Fiscal Year Starting Oct. 1, 1935. The earlier act applies and existence of deficit when dividends were received renders them nontaxable distributions to him. Id.

15. Id. Distributions From Earnings or Appreciation in Value Realized Prior to March 1, 1913, are tax-free, even if in excess of distributee's cost or basis for stock. Requirement that distribution be applied against such basis applies only when stock is sold and does not limit distributions exempted from the tax. Ernest E. Blauvelt _ - - - .

16. Id. Above holding applies equally to purchasers who acquire stock after March 1, 1913. Id.

17. Id. Change respecting this section in regulations governing 1934 Act held invalid. Id.

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DIVIDENDS-Continued.

18. Stock Owned as Tenants by Entirety. Dividends are taxable one-half to each spouse. George K. Brennen...

19. Id. Where title was not established as an entirety, dividends are taxable to spouse named on certificate.

DRILLING AND DEVELOPMENT.

Id.

See CAPITAL EXPENDITURES, 1, 2.

EARNED INCOME. See EXCLUSIONS AND IMMUNITIES, 2, 3.

EARNINGS:

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Dividend purposes.

See DIVIDENDS, 1-3.

See EXCESS PROFITS TAX, 1, 2.
See GAIN OR Loss, III, 19.

Invested capital purposes.
Liquidation purposes.

EFFECTIVE AT DEATH TRANSFERS. See ESTATE TAX, I, 6-13.
ELECTIONS. See AMORTIZATION, 3-6; CAPITAL EXPENDITURES, 1, 2;
CAPITAL STOCK TAX, 1; EXCESS PROFITS Tax, 8, 11.

EMPLOYEES' TRUSTS. See COMPENSATION, 1, 2; CONTRIBUTIONS.
ENTIRETIES. See HUSBAND AND WIFE.

ESTATE TAX:

I. Gross Estate.

(1) Valuation of Assets, p. 1303.

(2) Transfers; Contemplation of, or Effective at Death, p. 1303. (3) Trusts; Reserved Income or Powers, p. 1304.

(4) Joint Tenants, p. 1304.

(5) Life Insurance, p. 1304.

(6) Community Property, p. 1304.

II. Deductions from Gross Estate, p. 1305.

III. Liability for Tax, p. 1305.

Income tax; estates during administration. See ESTATES
AND TRUSTS, I.

I. GROSS ESTATE.

(1) Valuation of Assets.

1. Stock. Value determined on basis of sales near date of death, nature of business, balance sheet, earnings record, and opinion testimony. Estate of Paul M. Vandenhoeck

2. Reversionary Interest in Trust Corpus. Value is not to be reduced by values of remainder interests or limited powers of appointment, which themselves are not computable actuarially. Estate of William Walker... 3. Undivided Interest. Market value giving consideration to difficulty of sale attendant upon undivided interests determined. Estate of Sallie Houston Henry - - -.

(2) Transfers; Contemplation of, or Effective at Death. 4. Contemplation of Death. Where motives were to obtain services of an individual and to fulfill a promise, transfer was not in contemplation of death. Estate of William F. Hofford___.

5. Id. Sale of insurance contracts to wife when insured was incurably ill and no longer insurable, for cash surrender value, held made for an inadequate consideration and in contemplation of death. Estate of James Stuart Pritchard....

6. Effective at Death. Purchase of single premium annuity for wife with no powers reserved by husband, assignment of insurance contracts to an irrevocable trust, cash deposited with insurance company many years before death for distribution to grandchildren upon attaining majorities, all held to vest interests immediately in transferees and do not represent transfers effective at death. Estate of William F. Hofford.. Estate of Louis J. Dorson

Estate of Mary B. Hunnewell_

7. Id. Transfer of controlling stock of corporation burdened by conditions prohibiting sale without decedent's consent and by a contract with corporation to pay decedent's salary regardless of services performed, held, a transfer effective at death. Estate of William F. Hofford....

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