ACCOUNTING-ACCRUAL BASIS
See INTEREST, Deductions, Payment Doubtful, Accrual Basis Tax- payer.
Advance Payments-Future Services-Claim of Right.-Deposits made with photographer, accrual basis taxpayer, for portraits not completed or accepted until following tax year, were includible in his gross income for tax year in question, since right to such deposits became claim of right when received even though refunds might be required. Wallace A. Moritz___ Advertising Expense-Contract for Future Services-No Fixed Lia- bility.-Partners on accrual basis may accrue only that portion of contract price of advertising covering services rendered in tax year in which contract was signed, they having incurred no further liability but merely having agreed to become liable in event future services called for were performed. Harry M. Levin__
Change in Method-Prepaid Subscriptions.-Full amount of prepaid subscriptions to newspaper, under no legal obligation to make refund, is taxable in year of receipt, change from accrual to deferred method of accounting having been made without applying for or receiving consent of Commissioner and in absence of showing refund requirement. Beacon Publishing Co..
Inventory Method-Unit-Livestock-Price.-In presence of substantial evidence contradicting petitioner's contention that accrual method was not used, particularly its use of unit-livestock-price method of inventorying most of its livestock and an absence from the books of substantial recurring entries inconsistent with accrual method of accounting, Commissioner did not err in treating certain deductible items and income receipts on accrual basis. Diamond A Cattle Co..
Subsidy Payments-Potential Ineligibility-Claim of Right.-Petitioner, livestock slaughterer on accrual basis, which applied for and received Government subsidy payments under claim of right, treating them as its own and expending them as it saw fit, must report same as income in year received, even though Government examiner during same year indicated petitioner possibly ineligible to have received them, but did not and could not make final decision on repayment to Government. S. Loewenstein & Son....
ACCOUNTING-INSTALLMENT BASIS
Failure to Elect.-Having failed to elect installment method of reporting income in year of sale, petitioners were not at liberty later to adopt that method upon finding that gain was to be treated as ordinary income, there being no indication that method adopted failed to reflect income clearly. S. Nicholas Jacobs___
Installment Obligations-Effect of Transfer.-Notes securing install- ment payments which petitioner transferred, together with contracts for purchase, for cash equivalent to C were "distributed, transmitted, sold, or otherwise disposed of" within meaning of sec. 44 (d), absent evidence that petitioner was pledging notes, considering that C treated notes as his own, and notwithstanding that it guaranteed notes, issued bills of sale, and inserted provision for purchaser to insure equipment for its benefit. East Coast Equipment Co..
Sec. 102 Surtax-Beyond Business Needs-Avoidance of Tax.— Showing by petitioner corporation of unfavorable business conditions, including large amount of uncancelable obligations, difficulties to be encoun- tered in establishing new brand, and prospective change of importers, was insufficient to show reasonable need for accumulating all earnings and profits for taxable year, either because of lack of substantiation or because conditions had resolved themselves by end of taxable year, and corporation was determined to be subject to tax under sec. 102. Belaire Management Corporation..
Agreement After Divorce-Incident to Divorce.-Agreement made by husband which, while made after divorce and not incorporated into divorce decree, merely revised early agreements made in contemplation of divorce, was "incident to" a divorce under sec. 22 (k), and periodic payments made thereunder are deductible by husband. Raoul Walsh..
Attorney Fees and Medical Expenses-Incident to Divorce-Nonrecur- ring Purpose.-Amounts included in settlement agreement incident to divorce, representing lump-sum payments for wife's attorneys' fees and medical expenses incurred or anticipated, were for nonrecurring purposes and were not periodic payments within sec. 22 (k) nor deductible under sec. 23 (u). F. Ewing Glasgow___
Child Support Payments-Nunc Pro Tunc Order.-Money paid under divorce decree called "permanent alimony for the support of [petitioner] and child" was not includible in her income because original decree and amendments were reformed by nunc pro tunc order providing that amounts ordered to be paid thereunder were for support of child only. Margaret Rice Sklar___
Deductions-Community State.-Petitioner, who filed his income tax return on community property basis, is entitled to deduct only his com- munity one-half of alimony payments made in tax year to his former wife. Robert A. Sharon, 10 T. C 1177, followed. Raoul Walsh__
Insurance Premiums-Contingent Interest in Wife.-Premiums paid by former husband on his life insurance policy naming his wife as beneficiary, in accordance with separation agreement incorporated in later divorce decree, gave wife only contingent interest in policy subject to termination upon her death or remarriage and are not includible in her gross income as alimony. Lilian Bond Smith...
Insurance Premiums-Contingent Interest in Wife.-Premiums paid by husband on life insurance policies on his own life, naming wife as beneficiary, pursuant to separation agreement, are not deductible under sec. 23 (u), she having only contingent interest and receiving nothing representing income under sec. 22 (k). Rationale of Lilian Bond Smith, 21 T. C. 353, followed. Raoul Walsh..
Multiple Agreements-Incident to Divorce.-While alimony provisions of agreement pending divorce suit were substantially same as and referred to support provisions of earlier separation agreement made not in contem- plation of divorce, both the aforementioned agreement, provisions of which were incorporated into (and later modified by court in) divorce decree, and later agreement made to settle endless litigation were incident to divorce and payments and arrearages thereunder were periodic payments taxable to wife when received and deductible by husband. Antoinette L. Holahan..-
Payments by Corporation-Husband Officer Therein-Alimony Gift. Payments made to taxpayer by corporation of which her former husband had been officer, in discharge of his obligation for alimony pay- ments, are taxable to her as alimony under sec. 22 (k), not as gifts, she having accepted payments in satisfaction of esrtwhile spouse's obligation to her and it being immaterial that he did not repay corporation. Imposition of sec. 291 (a) penalty upheld absent showing of reasonable cause for failure to file return. Marcia P. Pierson..........
Reduced Payments-No Abatement for Child's Support.-Petitioner does not have to report as income amount of alimony payments earmarked in decree for child's support, albeit payments were reduced by payor due to child's being placed in school at expense of others than recipient of alimony. Martha J. Blyth__
Separation Agreement-Incident to Divorce.-Obligation to monthly support payments to petitioner, as provided for in separation agreement incorporated into later divorce decree, was imposed upon former husband by divorce decree and payments are includible in wife's income as alimony under sec. 22 (k). Lilian Bond Smith..
Separation Agreement-Not Incident to Divorce.-Separation agreement (providing for monthly payments to wife), which was entered into 3 years prior to divorce, at time when no divorce was contemplated, and was not incorporated into divorce decree, was not incident to divorce and payments cannot be included in wife's gross income under sec. 22 (k). Frances Hamer Johnson.......
Cost of Canceling Lease-Purchase of Realty.-Payment by petitioner corporation for purchase of land, on which it had erected building, in excess of fair market value of realty in unimproved condition at time of purchase, to procure cancellation of its own burdensome long-term lease, is not amortizable over remaining term of lease, petitioner not having acquired capital asset in cancellation of its lease. Millinery Center Building Corp.
Accommodation Note-Compromise Settlement.-Petitioner, who gave his personal note as additional security for debt of corporation of which he was manager and later when sued on note compromised suit (corporation having collapsed and having made assignment for benefit of creditors) sustained nonbusiness bad debt under sec. 23 (k) (4), and not ordinary loss. George Aftergood.......
Advances-Furtherance of Business.-Advancement of money by advertising agent to client, to retain client on profitable basis, to hold other clients who advertised in this client's publication, and to maintain agent's credit standing and reputation, was proximately related to advertising agency business and was deductible as business bad debt. Stuart Bart__. Corporate Loans-Business or Nonbusiness Deductions.-Loans, made to two corporations by petitioner, distributor of oil products and general promoter, which became worthless after petitioner had disassociated himself from a business of his own to which loans were proximately related, repre- sented only nonbusiness bad debts deductible under sec. 23 (k) (4). Hadwen C. Fuller.
Discount of Notes-No Bona Fides.-Where petitioner, under same control as S and T, took notes of S from T in partial satisfaction of debt of T and discounted same at lower market value, difference between face and market value was not deductible as bad debt, evidence failing to show transaction was not merely voluntary arrangement between parties to shift T's loss to petitioner who stood to derive greatest tax benefit or that debt was uncollectible. East Coast Equipment Co....
Partnership-Failure of Proof.-Deduction cannot be taken for bad debts, petitioner having failed by opinion hearsay evidence to satisfy Court of worthlessness of debts in taxable year involved and that debts were not personal loans made by one partner. W. B. Mayes, Jr.
Recoveries-Sec. 112 (g) (1) (A) Reorganization-Nontaxable.-Re- coveries of bad debts, involuntarily charged off prior to consolidation by predecessor consolidating banks and not deducted by them in returns, but charged on books as nonledger accounts, did not constitute taxable income in years of recovery by petitioner, consolidated bank, consolidation being reorganization under sec. 112 (g) (1) (A) subject to application of sec. 113 (a) (7) under which debts have same basis to petitioner as they had to predecessor banks. Erie County United Bank..
Patents-Lump-Sum Purchase of Assets-Allocable Portion Deter- mined. Having rejected petitioner's conclusion as to value of patents acquired by its transferor in lump-sum purchase of all assets of K (patents not having been carried as book assets by K), because testimony of expert as to value did not support his conclusion and having similarly rejected respondent's conclusion because directed to patents individually rather than as part of assets of going concern, Court was forced to determine value for itself by showing patents had only partially achieved results claimed and had been literally licensed to competitors, all the while recognizing that K had not intended to, nor did it, surrender patents, had profitably used them in business by selective licensing, and had in part been enabled to maintain dominant position in field by prior and continued ownership thereof. Value so determined is basis for depreciation or amortization of patents. Kraft Foods Co..
Sale of Realty-Transfer From Dissolved Corporation.-Appropriate basis for determining gain from sale of houses transferred to petitioners from dissolved corporation, petitioners having elected to treat dissolution under sec. 112 (b) (7), was adjusted cost basis as provided in sec. 113 (a) (18). Albert Winnick.
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