INDEX GAIN OR LOSS-Continued. 2. Id. Property Acquired Prior to March 1, 1913. No allocation of cost 3. Id. Stock Received as a Dividend. Cost of old stock must be allocated 4. Id. Fact that entire proceeds from a previous sale of some shares received as a dividend had been included in prior year is not a basis for an erroneous computation for tax year. Id. 5. Id. Consideration paid included agreement to pay annuity to vendor. Held, amount paid to annuitant, not the actuarially computed cost of the contract, is taxpayer's cost. D. Bruce Forrester_. 6. Id. Full amount of vendor's liability assumed by purchaser, not its discounted value based upon extension procured from creditor, is taxpayer's cost. Id. 7. Determination of Value. Life Estates in coal lands subject to 96-year lease are to be valued in accordance with art. 15, Regs. 63. Sayers F. Harman 8. Building and Leasehold. Value when exchanged for bonds determined on opinion testimony, documentary evidence and other factors. Main Properties, Inc.- (2) Other Bases Available. 9. Grantor's or Transferor's Basis. Where trust beneficiary sold trust assets received as a distribution, grantor's basis is to be used. J. Kiefer Newman, Jr. 10. Id. Fact that trust was revocable does not convert distribution into a gift with gain computable under gift tax section. Id. 11. Id. Securities sold were acquired in a nontaxable exchange for preferred stock, bonds, and note. Held, basis of securities surrendered is to be used. Pacific Public Service Co... Page 600 854 907 335 364 226 742 Id. 12. Id. Basis of old common stock canceled is not to be included. 13. Id. Demand note is not a security and its value may not be included. Id. 14. Donor's Basis. Rulings and administrative decisions on basis applicable to stock received as a dividend on same class of stock analyzed for purpose of determining donor's basis to be used by donee when stock was sold. Hall Park McCullough.. (3) Determination of Selling Price. 15. Sale of Bonds With Unmatured Coupons. Value of coupons is part of selling price, not tax-exempt interest. H. Gates Lloyd__. 16. Sale of Mortgaged Property. After expiration of option to reacquire property sold vendor won a court decision that sale with option had been a mortgage, and resold property to another vendee. Held, selling price must include, in addition to cash received from second vendee, amount latter paid to redeem the mortgage. Anna I. Hilpert.... (4) Liquidations. 17. Corporation Owning Oil and Gas Lands. Value of oil and gas in place, in addition to value of land, must be included among assets received for computation of gain or loss. Albert Fleming-- 109 829 473 168 18. Id. Claim by stockholders that such value is unrealized appreciation to be excluded because based on estimates, rejected. Id. 19. Capital Previously Recovered in a taxable exchange is to be eliminated from earnings received. D. Bruce Forrester.. 20. Chose in Action received was sold for cash to other stockholders. Held, receipts from sale were not a distribution by the corporation and are to be eliminated from liquidation proceeds. Id. 21. Future Expenses and Taxes. Stockholders contributed cash to trustee in year of liquidation to provide for expenses and taxes. Held, distribution received may not be reduced by such contribution in tax year, but when fund is expended, losses may be claimed. Id. 907 GIFT TAX: 1. What Constitute Gifts; Absence of Donative Intent. Trust created for a limited period to protect property from possible confiscation by Germany, and which grantor reserved power to revoke, held not a gift to beneficiaries named and no tax is due. Marguerite F. Schwarzenbach.. 2. Id. Trust With Reserved Power to Revoke during the lifetime of another, although not a completed gift when created, becomes such upon the death of person specified, without donor's relinquishment of the power, and gift tax then attaches. Adele F. Goodman__. 3. Id. Fact that incomplete gift was made before enactment of gift tax statute is immaterial, where contingency which completes the gift occurs after date of legislation. Id. 4. Valuation of Gifts; Life Insurance. Value is amount of proceeds paid donees, not the cost of premiums to donor. Id. 5. Id. Gift to Children by Life Income Beneficiary of Trust of Shares of Such Income. Value computed in accordance with sec. 86.19, Regs. 108, held correct. Jane Byrnes O'Malley-Keyes_. 6. Net Gifts; Exclusions. Donor is entitled to five exclusions of $4,000 each. Id. 7. Id. Gift was complete when made and income paid assignees in future years is not received as a gift; is taxable to them; and additional exclusions based on donor's life expectancy with respect to future payments to them are not allowable. Id. HUSBAND AND WIFE. See COMMUNITY PROPERTY; ESTATES AND 1. Entireties. Under statutes of Michigan and Pennsylvania income from property owned as tenants by entirety is divisible between the spouses. H. D. Webster____ George K. Brennen....... 2. Id. property. It is immaterial that one spouse paid entire consideration for the 3. Id. The products from the land are deemed to be held by the same tenancy. Id. IMPROVEMENTS BY LESSEES. See EXPENSES, I, 2. 1. Mutual Insurance Companies to be exempt under sec. 101 (11), I. R. C., must write insurance substantially at cost to members. Held, the payment of excessive commissions to an underwriting agent is indicative that policyholders paid more than cost and exemption is denied. Safeguard Mutual Fire Ins. Co. . . . . 2. Id. Special Deduction Provided by Sec. 207 (c) (3), I. R. C. is not permissible where Commissioner has allowed taxpayer all losses and expenses sustained and incurred. Id. 3. Deductions; Mean of Reserves. The deduction for mean of reserves at beginning and end of tax period granted to life insurance companies is available from the date upon which it becomes a life insurance company. Held, where corporate existence began in 1939, but negotiations to obtain the life insurance business of an existing company were not completed until March 1940, its taxable year as a life insurance company began on the latter date, and reserves of such date and of end of tax year are to be used to compute the deduction. Reserve Loan Life Insurance Co. of Texas. 4. Id. Commissioner's contention that taxable year started Jan. 1, 1940, on which date it had no reserves, thus reducing the deduction, rejected. Id. 5. Id. Corporate existence is distinguishable from existence as a life insurance company, upon which latter fact the claim for the particular deduction depends. Id. 6. Interest on Supplementary Contracts not involving life contingencies, issued pursuant to exercise of options is deductible, regardless of whether optionor is beneficiary or insured. Manufacturers Life Ins. Co.---. Page 179 191 976 1169 1260 1260 75 732 811 INSURANCE; PREPAID. See AMORTIZATION, 2. INTEREST. See Insurance Companies, 6; PERSONAL HOLDING COM PANIES. On tax deficiencies. See DEFICIENCY. 1. Income; Foreclosed Mortgages. Where mortgagee acquired property by court order, not by bidding at foreclosure sale, and value when acquired was equivalent to principal only, Commissioner erred in including defaulted interest, not received, in taxpayer's income. Manufacturers Life Ins. Co. 2. Id. Tax Exempt Interest. Coupons attached to municipal obligations were sold at a discount before maturity. Held, sale price was not tax exempt interest. H. Gates Lloyd... 3. Id. Contention that transfers of property do not change the character of income and that all realizations are tax free, rejected. Id. 4. Id. Bonds Owned as Tenants by Entirety. Interest is taxable onehalf to each spouse. George K. Brennen___ 5. Id. Where title was not established as an entirety interest is taxable to spouse named in bond. Id. 6. Id. Notes With Accrued Interest. Accruals prior to purchase are capital investment, and not interest income. Adrian & James, Inc____. 7. Deduction. Preferred stock does not evidence an indebtedness and payments to holders are not deductible as interest paid. Okonite Co.--8. Id. Subsidiary's indebtedness is not that of parent corporation and interest thereon paid by latter is not deductible. Eskimo Pie Corp- 9. Id. Nature of Security. Debentures having fixed maturity date, no voting rights, and although subordinate to general creditors, were superior to stock, held to evidence an indebtedness and payments to holders are deductible as interest paid. Clyde Bacon, Inc____ 10. Id. Fact that all were issued at time of incorporation and solely to stockholders, held not to indicate they were intended to represent proprietary interests. Id. 11. Id. Debenture bonds, subordinate to creditors' claims, interest payable only at option of issuing corporation, held to represent an investment, not a loan, and payments thereon are not deductible as interest. Charles L. Huisking & Co.. 1432 Broadway Corp. 12. Id. Accrued interest not paid within two and one-half months of close of period is not deductible, where payce was on cash basis and not required to report it for tax. P. G. Lake, Inc__. Page 811 829 1260 708 618 669 1107 595 1158 1 13. Id. Where no books were kept and evidence indicates cash basis was used, entries of interest due will not support a deduction when no payments were made. Florence Pearlman_ - - 34 INVENTORIES. See AcCOUNTING, I, 1-3. INVESTED CAPITAL. See EXCESS PROFITS TAX, 1, 2. JOINT TENANTS. See ESTATE TAX, I (4). JURISDICTION: 1. Scope. Tax Court has no jurisdiction over determinations of overassessment mentioned in notice of a deficiency in a different tax. Pioneer Parachute Co... 2. Id. Tax Court has no jurisdiction over a claim for relief under sec. 722, I. R. C. until claim has been acted upon by the Commissioner and unless all facts have been first presented to him. Pioneer Parachute Co.. Blum Folding Paper Box Co.... 3. Id. Original jurisdiction over such claims was withdrawn by Congress by Public Law No. 201, approved Dec. 17, 1943, and the bar extends to claims filed with the Court prior thereto. Pioneer Parachute Co___ 4. Parties; Renegotiation of War Contracts. Naming the wrong party respondent is not fatal to the jurisdiction of the Court in renegotiation cases, and may be corrected by amendment where petition is otherwise adequate. R. M. Grant_. JURISDICTION-Continued. 5. Id. Limitation on Filing Appeals. Where determination is made by the War Contracts Adjustment Board limitation is 90 days from date of mailing of notice; where determination is made by Secretary of War after date of amendment respecting fiscal years ending prior to July 1, 1943, limitation is 90 days from date of determination. Held, appeal filed 92 days after a determination by Secretary of War is too late and Tax Court has no jurisdiction. Frank M. Hill Machine Co--- LEASES. See EXPENSES, I, 2. Page 922 Leaseholds Acquired With Realty. Grantee takes same title as grantor previously owned, a reversion. Held, no separate valuation for rentals due may be made for amortization deduction purposes. Martha R. Peters. 1236 LIFE INSURANCE. See ESTATE TAX, I, 5, 22; ESTATES AND TRUSTS, II, 7; GIFT TAX, 4; TRANSFEREES, 4, 5. LIMITATIONS: Foreign tax credit. See CREDITS, II, 8-10. See JURISDICTION, 5. 1. Assessment; No Return Filed. There is no period of limitation against assessment where no return was filed. Chilhowee Mills, Inc.----2. Refunds. Claim filed more than three years after last payment is barred. Estate of Sallie Houston Henry---. LIQUIDATIONS: Computation of gain or loss. See GAIN OR Loss, III (4). 1. Definition. The statute contemplates an intent to cancel or redeem stock and does not refer to liquidation of the corporation or business. Where stock is canceled transaction is a liquidation, whether or not stockholder is aware of cancellation and regardless of use of terms denoting a sale. Hamilton Allport George F. Jones.. Williams Cochran 2. Dividend or Liquidation Distribution. Mere reduction in par value followed by a distribution is inadequate, but when one class of stock is periodically so reduced over a number of years, intent to liquidate that class is established, and distributions are liquidations, not dividends. D. Merrill Co. 558 423 401 854 942 R. 955 3. Id. Where capital was in excess of requirements, redemption of 40% of outstanding stock was a partial liquidation, not a dividend. Samuel A. Upham___. 4. Id. Failure to notify state officials promptly is immaterial. Id. 5. Id. It is immaterial that current earnings may have been included in distribution. R. D. Merrill Co.... 6. Id. Extending distributions over a number of years is not fatal to a finding that they were in liquidation. Id. 7. Complete or Partial Liquidations; Statutory Time Limit. After having made distributions in partial liquidation over an 11-month period, corporation resolved to liquidate immediately and completed the process within one month. Held, distributions thereafter made are complete liquidations. Williams Cochran 8. Id. After making distributions in partial liquidation over an 8-year period corporation resolved in 1938 to liquidate immediately. Held, decision in 1938 was part of original plan which was not completed within three years, and distributions were partial liquidations. Estate of Henry E. Mills 9. Id. Where no time limit for immediate liquidation was specified but it was completed within three years, distributions are complete liquidations. John R. Roach_ 10. Sale or Liquidation. Stockholder sold his shares before redemption date. Held, gain was realized from the sale, not the liquidation. Stanley D. Beard.. 1120 955 942 820 1255 756 INDEX LIQUIDATIONS-Continued. 11. Id. Election to use method yielding tax advantage does not vitiate 12. Id. Stockholders took assets of dissolved corporation, subject to 13. Liquidation or Reorganization. Commissioner erred in segregating LOSSES: 1. Investment Losses; Identifiable Event Establishing Year Loss Sustained. Where tax liens were in excess of market value in year property was abandoned, loss is allowable for that year. Intercounty Operating Corp-- 2. Id. Losses on other abandoned properties disallowed for failure to state amount of liens. Id. 3. Id. License for erection of power plant was allowed to lapse. In a subsequent year Federal Government inaugurated a similar program, taxpayer abandoned project. Held, termination of license merely susand pended activity, corporation having the right and intention to renew license, and loss is allowable for year of abandonment. Empire District Electric Co 4. Id. Facts establish worthlessness of stock and warrants prior to tax year and loss deductions are denied. Alvin J. Spring__. Atlantic Coast Line R. R. Co... Dudley R. Parsons. 5. Id. Sale by issuing corporation of its only asset in tax year is not the event creating the loss, where stock was worthless at beginning of tax year. Dudley R. Parsons__ 6. Guarantor Liability, paid in tax year is deductible as a loss, notwithstanding payment was in fact the final payment due on bonds given as collateral to the guaranteed note, which bonds had become worthless several years before. Main Properties, Inc.-. 7. Closed Transactions. Shortage in Acreage Purchased, discovered in tax year is not a basis for loss deduction, until land is sold or disposed of and transaction closed. Plow Realty Co. of Texas... 8. Right to Deduction; Trust or Beneficiaries. Claim by beneficiary that trust was in violation of rule against perpetuities and void and that loss from sale of its assets is deductible by them individually, rejected. Held, trust was valid and loss is deductible by it. 9. Id. Devisee or Decedent's Estate. A. M. Standish__ tenants of undivided interests in realty devised by will are vested with Under West Virginia code life legal title. Held, losses realized on sale are deductible by devisees. Sayers F. Harman_ 10. Id. Affiliated Companies. Parent guaranteed losses of affiliate organized to operate a business prohibited to parent. Held, reimbursements to subsidiary for its losses are not deductible from parent's income earned in its legal operations. Los Angeles & Salt Lake R. R. Co.-- 11. Id. Loss from sale of stock to subsidiary at a price below cost but above market for no bona fide business reason is not deductible. Crown Cork International Corp-- 12. Id. Sec. 24 (b) (1) (C), I. R. C. Applied. Although the section applies to personal holding companies, reference to committee reports on the provision indicates that intent of Congress was not to limit its application to one class of corporations, but to apply the prohibition to any transaction lacking "good faith and finality." Id. Held, 13. Sales Within Family Group. Farm was sold to vendor's daughter and her husband, who took as tenants in common under state law. one-half of loss attributable to daughter's tenure is not deductible. Simister, Jr... 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