INDEX-DIGEST.

ACCOUNTING METHODS

See also INCOME and TAXES.

Accrual Method-Prepaid Tuition-Claim of Right.-Dancing school
partnership must, as determined by Commissioner, report in year of receipt
prepaid tuitions for instructions to be given in that and succeeding years,
partners having unrestricted use and disposition of such payments under
claim of right, although accrual method and consequent deferral of portion
of payments may have been consonant with general commercial accounting
practice which must bow to established rule of law in determination of
taxable income. Curtis R. Andrews..

Cash Method-Deductions-Declared Value Excess-Profits Tax-Due
but Unpaid.-Petitioner corporation, cash basis taxpayer, is not entitled to
deduction for declared value excess-profits tax, determined in deficiency
notice to be due but unpaid, in computing its income and excess profits
tax liability. Eugene Vassallo

Change of Method-Farmers. No authority exists under the law for
petitioners' (farmers) proposal that Tax Court should compute their in-
come on more beneficial cash basis in treatment of sale of breeding animals,
petitioners having regularly kept their books and records and reported
income on accrual basis. Estate of C. A. Smith.......

Change of Method-Accrual to Installment-Deferred Payment Trans-
action. Sales arrangement made in 1948, whereby accrual basis corpora-
tion, not regularly selling on installment plan, agreed to accept notes
payable over 2-year period in lieu of cash payment provided in contract,
was a completed present sale with payment deferred, not an installment
sale, and proceeds received in 1949 were not includible under sec. 44 (c)
(1939 Code) in corporate income for 1949, the year of changeover from
accrual to installment basis. Louis Greenspon

Change of Method-Estoppel.-Commissioner cannot be estopped from
making recomputation pursuant to accrual accounting method because of
failure to object to taxpayer's prior hybrid method of reporting income.
Caldwell v. Commissioner, 202 F. 2d 112. Harry Hartley.......

Hybrid Method.-Petitioners (engaged in buying, rebuilding, and selling
old motor blocks) used accrual method for all purchases, sales, and ex-
penses; maintained inventories for all new parts and materials; but did not
inventory old and rebuilt blocks in computing income. Commissioner's
determination that accrual method, taking account of blocks, must be used,
sustained, because hybrid method more closely resembled accrual and,
under Regs. 111, sec. 29.22 (c) (1), inventories are required in every case
where production, purchase, or sale of merchandise is an income-producing
factor. Harry Hartley.

Installment Method-Personal Property-Installment Sales.-Corpora-
tion, selling industrial pipe, met requirements of sec. 44 (a) (1939 Code)
of regularly selling personal property on installment basis, although bulk
and frequency of sales was not considerable, inasmuch as substantial
portion of gross proceeds from sales during the year was from installment
sales, which is as significant a factor as number of sales in this type of
business, and corporation had continually held itself out as selling on this
basis. Louis Greenspon__

ACCUMULATION OF SURPLUS

Sec. 102 Surtax-Beyond Business Needs-Avoidance of Tax.-Imposi-
tion for 1949 of sec. 102 (1939 Code) surtax sustained as to continually
prosperous corporation, which, having paid no dividends, had accumulated
surplus beyond reasonable business needs; purpose of avoiding surtax on
shareholders was not negatived by showing alleged need of funds for ex-
pansion, insuring adequate source of supply, reserve for certain con-
tingencies, and purchase of business location. Contra as to 1950 when

dividend, taxes, and large loan to major stockholder left only small re-
siduum to be added to surplus. Al Goodman, Inc..

Page.

1026

656

690

138

353

353

138

288

ALIMONY

Page

Arrearages. Receipt of alimony due but unpaid in prior year must be
included in wife's income in year of receipt (sec. 22 (k) (1939 Code)) and is
deductible by husband (sec. 23 (u)). Beulah Weil...

Child Support Payments-After Majority.-Payments made by former
husband to wife for children, pursuant to separation agreement incident
to divorce and not taxable to her when children were minors, did not
become taxable to her under sec. 22 (k) (1939 Code) and deductible by
husband under sec. 23 (u) when made to her for children after they reached
majority and were living apart from her. Leon Mandel.....

Child Support Payments-Amount Allocable.-Unsegregated alimony
and child-support payments by petitioner husband in amount less than
decreed by court and less than portion decreed for child support, which
payments were not shown to have been paid in monthly installments as
provided for in decrees, were determined to be entirely for child support,
hence not income to wife under sec. 22 (k) (1939 Code) nor deductible by
husband under sec. 23 (u). George R. Joslyn_

Child Support Payments-Amount Allocable.-March 1944 amendatory
decree increasing amounts payable for alimony and child support under
original decree, but not specifying in what proportions increased payments
were for child support and alimony, is to be regarded as maintaining
original proportions, absent showing of intention to alter original pro-
portions, a different application of funds paid under amendatory decree,
or an intention of decreeing court to contrary; increase, insofar as allocable
to alimony, deductible by husband under sec. 23 (u) (1939 Code). George
R. Joslyn --

Child Support Payments-Amount Fixed by Agreement.-Under decree
awarding alimony and child support payments on basis of prior year's
earnings, Tax Court earlier determined that half was for children's support.
In year that husband paid less than total amount due, only the difference
between sum agreed upon for children's support and actual amount paid
is includible in wife's income under sec. 22 (k) (1939 Code) and deductible
by husband under sec. 23 (u). Beulah Weil__

Child Support Payments-Percentage Division-Contingency.-Under
terms of divorce decree that upon happening of certain specified events,
petitioner was to pay only 60 per cent of support payments for child,
Commissioner correctly determined that 60 per cent of amounts paid by
petitioner during taxable years was for child's support, even though
amended decree provided that no percentage division was intended in
absence of those events. Saxe Perry Gantz.......

Excess Over Amount Due.-Husband's gratuitous payment of amount
in excess of alimony due under divorce decree is not deductible by him
under sec. 23 (u) (1939 Code). Beulah Weil_

Increase in Amount-No Legal Obligation.—December 1942 amendatory
decree increasing amount payable under original decree but permitting
petitioner husband at his election to revert to terms of original decree
imposed no legal obligation to pay amount of increase, and payments of
increased amounts are not deductible by him under sec. 23 (u) (1939 Code),
construing two decrees as a whole and in regard to each other. George
R. Joslyn

Installment Payments-Contingency.-State law provisions discon-
tinuing alimony payments where wife remarries do not change otherwise
fixed-sum character of payments by imposing a condition on obligation to
pay. Clark J. Baker....

Installment Payments-Wife's Agreement to Pay Tax.-Respondent's
motion to dismiss for failure to state a cause of action granted where
petition recited only that petitioner paid, under terms of separation agree-
ment incident to divorce, $50 per week for 5 years and that under terms
of agreement parties did not intend payments to be in discharge of fixed
sum as evidenced by wife's agreement therein to pay income tax on pay-
ments made to her. Clark J. Baker..

Insurance Premiums-Contingent Interest in Wife.-Premiums paid
pursuant to separation agreement incident to divorce by petitioner husband
on insurance policies deposited with trustee beneficiary, under which
agreement trustee was to pay income from policies to divorced wife only
if she survived petitioner, are not deductible by petitioner under sec. 23 (u)
(1939 Code), following reasoning of Beulah Weil, 22 T. C. 612, Raoul Walsh,
21 T. C. 1063, and Lillian Bond Smith, 21 T. C. 353. Leon Mandel__

630

81

126

126

630

576

630

126

161

161

81

ALIMONY-Continued

No Legal Obligation.-Payments made prior to year in which ordered
to be made by decree do not qualify for petitioner's deduction thereof as
alimony under sec. 23 (u) (1939 Code). George R. Joslyn_...

Payments to Third Parties.-Petitioner husband's payments directly to
creditors of certain debts incurred by divorced wife for benefit of self and
children, pursuant to amendatory decree increasing alimony and child
support but not specifying extent to which increase represented alimony as
distinguished from child support, are deductible by husband under sec.
23 (u) (1939 Code) in proportion that alimony bore to total payments in
original decree. George R. Joslyn_

Periodic Payments-Separation Agreement-Incident to Divorce.
Support agreement, entered into at time when divorce was not contem-
plated by parties and when wife, in fact, had rejected such proposal, and
not incorporated into later-obtained divorce decree containing no support
provisions, was not "incident" to subsequent divorce, so that periodic pay-
ments made thereunder were not deductible by divorced husband nor
taxable to wife. Harold Holt..

AMORTIZATION

tion.

Depletion-Accelerated Amortization-War Facilities-Double Deduc-
Mine development costs normally recoverable through deductions
for depletion under sec. 23 (a) (1939 Code) may not be recovered under
sec. 124 as accelerated amortization of certified war facilities by a taxpayer
claiming and being allowed percentage depletion on the mine. National
Lead Co..

Depreciation-Accelerated Amortization-War Facilities-Extent of
Cost Amortizable.—Authority issuing certificates of necessity was not
authorized to limit to less than 100 per cent the cost of facilities which
could be recovered by accelerated amortization under sec. 124 (1939 Code),
and petitioner corporation was entitled to amortize full cost of facilities
certified over accelerated period. National Lead Co.......

Lessee's Improvements-Bona Fides. Where petitioner lessee entered
into lease of realty for fixed term with no renewal, buildings and improve-
ments erected during lease and transferable to lessor upon termination of
lease were amortizable over period of lease. Commissioner's challenge of
bona fides of companies and shareholders in the premises, because of inter-
locking directorates, was unsubstantiated. Fort Wharf Ice Co..

BAD DEBTS

See also LOSSES.

Advances-Loans or Capital Contributions.-Series of advances made by
petitioner corporation to another corporation of which it subsequently
became a majority stockholder by reason of stock issued petitioner to
induce further loans, were loans, not capital contributions and gave rise to
deduction for partially worthless debt, on the evidence inter alia that they
were loans in form and intent and accounted for as such, that petitioner
was not originally a stockholder, and that petitioner finally surrendered
such stock when the final indebtedness was settled. National Lead Co...
Advances-Protection of Business.-Money advanced to insolvent cor-
poration by partnership, whose members owned some stock therein, to
protect partnership's goodwill, under arrangement giving partnership
standing of general creditor and 75 of 100 shares of stock issued to place
creditors in control, was loan, rather than capital contribution, since
partnership could expect reimbursement only as general creditor and not
as stockholder. Debt created did not become worthless in taxable year so
that petitioners were not entitled to business bad-debt deduction for that
year. Richard M. Drachman___

Losses of Debtor-Consolidated Returns.-Losses of debtor offsetting
income of creditor-parent on consolidated returns cannot be deducted again
as bad debt or loss by third corporation which later bought stock of creditor,
dissolved it, became owner of creditor's assets, including debts and stock of
debtor, and finally received all assets of debtor in settlement of debt.
National Lead Co..

Nonbusiness-Advances to Corporation.-Petitioner was entitled to
nonbusiness bad-debt deduction for amount advanced to corporation, in
which he had no stock interest, in year loan was not repaid and became
worthless, as determined by the Court. Phil Kalech....

Page.

126

126

469

988

988

202

988

558

988

672