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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