Withdrawals-Dividends or Loans.-Withdrawals by petitioner (sole
stockholder) and wife were determined to be loans, not disguised dividends,
from evidence that petitioners maintained running loan accounts carried
as assets (loans receivable) on corporate books, executed note for net
balance due at close of taxable years involved, and credited husband's salary
to loan account, and in absence of justification for treating some with-
drawals as loans and some as dividends, the failure to charge interest not
being determinative. Victor Shaken__
Gross Estate Automobile-Title in Surviving Spouse.-Absent con-
tention respecting transfer in contemplation of death, value of automobile,
record title to which was shown to be in decedent's wife, is not includible in
decedent's estate, evidence not supporting respondent's contention to
contrary that automobile was a family car with decedent having an interest
therein. Estate of Robert R. Gannon_.
Gross Estate-Deductions-Appointive Property-Funeral and Admin-
istration Expenses.-Under State law, trust property held under general
testamentary power of appointment was not property subject to claims, so
that excess of funeral and administration expenses over assets other than
appointive property was not, under sec. 812 (b), deductible. Estate of
William M. Lande..
Gross Estate-Deductions-Charitable Bequest-Payable From Ap-
pointive Property.-Specific charitable bequests which decedent's estate
(exclusive of corpus of inter vivos trust over which decedent had general
testamentary power of appointment) could not satisfy were properly paid
out of appointive property and therefore deductible, notwithstanding dis-
posal of appointive property to individuals in residuary clause, in light of
will-drafting attorney's testimony of decedent's intent that charitable
bequests were to be satisfied from appointive property and New York cases
favoring specific bequests in similar circumstances. Estate of William M.
Lande_
Gross Estate-Deductions-Charitable Bequest-Purpose.-Bequest
to school to provide for annual dinner for staff of school paper in memory of
decedent and his father was not within purposes laid out in sec. 812 (d),
and so was properly disallowed as deduction by Commissioner. Estate of
William M. Lande....
Gross Estate-Deductions-Charitable Bequest-Remainder.-Bequest
of remainder, after life estate of measurable value, to trustees for "Retire-
ment and/or Welfare Fund" for employees of corporation was deductible
from gross estate under sec. 812 (d) as being for charitable purposes, even
though trustees could employ funds for retirement purposes without regard
to need of employees. Estate of Leonard O. Carlson.......
Gross Estate-Deductions-Charitable Bequest-Statutory Restric-
tions. Bequest made to charity in 1946 will, expressly revoking a 1945
will and executed within 30 days of testator's death, was void under
Pennsylvania law, although an attempt was made by testator to republish
1945 will, making provision for same charity, in codicil to 1946 will should
she die within 30 days of execution of 1946 will, since at time codicil was
executed, 1945 will was null and void, depending for its existence and
validity on doctrine of republication, and charitable bequest effected by
codicil to 1946 will was null and void as result of Pennsylvania statute.
Bequest therefore not deductible from gross estate under sec. 812 (d).
Estate of Lena L. Riddle....
Gross Estate-Deductions-Claims Against Estate-Appointive Prop-
erty. Property subject to power of appointment exercised by decedent's
will is not, under South Carolina law, property subject to claims of
decedent's creditors, and therefore only that portion of claimed deductions
not in excess of amount of estate remaining after withdrawing the property
subject to the power is allowable under sec. 812 (b). Estate of Herbert
Jermain Slocum.
Gross Estate-Deductions-Debts.-Total of amounts paid out of
partnership funds and charged to decedent's personal withdrawal account,
subsequently repaid to partnership out of estate assets, were held deductible
as a debt in determining net estate. Estate of Robert R. Gannon...
ESTATES AND TRUSTS-Continued
Gross Estate-Deductions-Payments to Beneficiaries.-Earnings
of decedent's business, continued in operation under court order during
period of administration of estate, which were credited and made available
to beneficiaries by executors' instructions with court approval during tax-
able year, there being ample funds available for this purpose, were properly
credited to beneficiaries and deductible under sec. 162 (c), following
Estate af Andrew J. Igoe, 6 T. C. 639. Estate of John Fossett...
Gross Estate-Deductions-Property Previously Taxed.-Sec. 812 (c)
deduction for property previously taxed is not available to the estate of
a grantor of a trust retaining right to income where the estate of the
grantee of a general testamentary power of appointment under the trust
paid an estate tax on substantially the same assets within 5 years prior to
death of the grantor, since grantor did not receive the property from the
grantee. Estate of Anna C. Yantes__
Gross Estate-Dividends.-Dividends declared on September 17, pay-
able on October 25 to stockholders of record on September 21, were not
includible in gross estate of decedent who died on September 20. Estate
of George McNaught Lockie___
Gross Estate-Foreign Bank Stock-"Book Stock" Certificates.-
Stock in Bank of Nova Scotia was not includible in estate of decedent
because it was evidenced only by a certificate (unlike usual stock certificate
of domestic corporation) having no value, merely identifying registered
owner of stock on date stated thereon and no other; such certificate not
"treated as being the property itself"; thus stock had no situs in United
States. Estate of George McNaught Lockie..
Gross Estate-Government Bonds-Valuation.- Value for estate tax
purposes of Series G bonds owned by decedent at time of death was par
value, not redemption value at time of death which was less than par.
Estate of Mary Gowdy..
Gross Estate Loans to British Treasury-Treasury Certificates.-
Loans made in World War II by decedent to British Treasury evidenced by
Treasury Certificate (acknowledging only that money had been advanced
and would be returned upon demand), and not by bond or other usual
evidence of loan, were not includible in estate of decedent because loans had
no situs in United States. Estate of George McNaught Lockie......--
Gross Estate-Partnership Interest-Valuation.-Valuation placed
by petitioner upon decedent's interest in partnership under provision in
partnership agreement fixing annually value of partner's interests at begin-
ning of year, at which amount surviving partners had option to, and did,
purchase interest of one deceased during succeeding months, is not binding
upon Commissioner for purpose of Federal estate tax. Estate of Robert
R. Gannon_.
Gross Estate-Partnership Interest-Valuation-No Goodwill.-Dece-
dent's interest in partnership was determined to have no goodwill value,
partnership's high earnings being attributable to return on investment
and activities of partners and testimony of respondent's only witness on
the point having been shown to be based upon gross underestimation of
vital factor, thereby rendering useless Commissioner's reliance on A. R. M.
34, 2 C. B. 31. Estate of Henry A. Maddock, 16 T. C. 324, followed.
Estate of Robert R. Gannon..
Gross Estate-Partnership Profits.-Where decedent was member of
partnership which customarily distributed profits at end of year and
gave surviving partners option to purchase interest of any deceased partner
at value fixed annually at beginning of year, decedent's interest in profits
for period between valuation date and date of his death plus accrued but
unpaid salary must be added to agreed valuation in determining value of
gross estate, notwithstanding that no part of said profits was paid to
decedent or his estate, for under partnership agreement decedent might
have either received a distribution or sold his interest during year, thereby
collecting his profits. Estate of Robert R. Gannon_
Gross Estate-Securities-Contract for Purchase.-Where decedent on
day preceding his death contracted in regular way on New York Stock
Exchange for purchase 2 days later of certain securities, value thereof
not includible in gross estate, since obligation to pay for securities offsets
any value contract to buy might have had. Estate of George McNaught
Lockie...
ESTATES AND TRUSTS-Continued
Gross Estate-Trust Property-Contemplation of Death.-Transfer
in trust of bonds and life insurance policies by settlor, with provision for
income to be applied first to pay premiums and excess to maintain certain
relatives during minority, accumulated excess to be paid to beneficiaries at
certain age, and trust to be terminated and distributed to them at later
age or upon settlor's death, was motivated by contemplation of death, since
settlor knew children needed no support from trust and premium payments
would prevent receipt of benefits by beneficiaries during settlor's lifetime.
Estate of Charles I. Aaron..
Loss-Mortgage Pool-Trust, Partnership, or Corporation.-Record
which failed to show nature of bank's mortgage pool, in which petitioners'
trust, under bank's management, was participant, did not justify finding
it to be a trust, rather than a partnership as determined by Commissioner,
or a corporation, for income tax purposes, or that loss sustained on invest-
ment in pool was deductible in amount greater than that allowed by
Commissioner. Estate of Philip Landau....
Net Income Distributable-Computation-Inclusion of Capital Gain.-
In computing net income available for distribution to beneficiaries for
taxable year, executors properly credited capital gains realized from sale
of property along with business income, and distributions were deductible
under sec. 102 (c) as "properly paid," since income was sufficient to cover
distributions and there was nothing in decedent's will, State law, or
Probate Court's decision requiring executors to add capital gains to
principal. Estate of John Fossett...
Trust-Interest on Overassessment-Trust's
or Settlor's.--Trust
which received interest on overassessments, and paid same over to settlor
subject to corresponding deficiency assessment, received income to extent
of interest, absent legal obligation to pay over to settlor. Wayne Hugh
Easley Trust__
Burden of Proof, see LIMITATIONS, Extension of Period.
Burden of Proof-Transferee Liability.-Unreasonableness of salary
paid corporate officer-transferee is question of fact, and, under sec. 1119
(a), burden of proof is upon Commissioner to prove that unreasonable
salary was in reality a distribution of assets, rendering transferee liable
for transferor-corporation's taxes. J. Warren Leach....
Deductions-Burden of Proof.-Commissioner's disallowance of peti-
tioner's claimed deductions for lack of substantiation was sustained, since
evidence of most general nature submitted for taxpayer was insufficient
to overcome presumption of correctness attached to Commissioner's
determination. Estate of J. W. Gibbs, Sr..........
See TAX COURT OF THE UNITED STATES, Jurisdiction, Excess
Profits Tax; TAXES. Excess Profits Tax (Deduction), Paid or Accrued.
Abnormal Deduction―Interest-Proof.-By demonstrating that claimed
abnormal base period deduction for interest expense arising from payment
of interest on notes distributed as dividends was due to effort to conserve
cash while avoiding impact of undistributed profits tax, petitioner dis-
charged sec. 711 (b) (1) (K) (ii) burden of showing that abnormal deduction
was not result of increase in gross income or change in type, manner of
operation, size, or condition of its business. Rockford Screw Products
Co...
Borrowed Invested Capital-Evidenced by Bill of Exchange-Accounts
Receivable and Payable.-Sight drafts prepared by sellers when cattle
were shipped, drawn upon petitioner, and subsequently accepted by peti-
tioner constituted borrowed capital evidenced by bill of exchange, within
intendment of sec. 719 (a) (1), despite fact that prior to acceptance indebt-
edness was also evidenced by accounts receivable entries on sellers' books
and accounts payable entries on books of petitioner. S. Loewenstein
& Son
EXCESS PROFITS TAX-Continued
Equity Invested Capital-Stock Dividends-Pre-1913 Distribution.—
Distribution of common on common stock was dividend not includible in
equity invested capital under sec. 718 (a) (3) (A), following Owensboro
Wagon Co., 18 T. C. 1107; stock issued to some stockholders in lieu of
cash payment or crediting of cash on corporate books, pursuant to dividend
declarations, constituted purchase of stock and distributions are includible
in equity invested capital as distributions of earnings and profits, dis-
tinguishing Owensboro Wagon Co., supra. Geo. W. Ultch Lumber Co..
Equity Invested Capital-Stock Surrender.-Surrender of stock, gratis,
to petitioner corporation in same proportion as stockholding, leaving each
stockholder with same proportionate interest in petitioner as before, sur-
rendered stock not being canceled, did not bring about any increase in
equity invested capital within meaning of sec. 718 (a). Geo. W. Ultch
Lumber Co.............
Excess Profits Credit-Abnormal Deduction-Contract Payments.-In
determining excess profits credits, percentage of profits payments, made
by petitioner to another company pursuant to contract to operate and
manage other's business, and deducted as expense attributable to profits
earned during each base period year, is not abnormal and cannot be
disallowed, since petitioner did not sustain burden of proving payment
was abnormal to it or that its increased payment was not consequence of
increase in gross income in base period. Telfair Stockton & Co...
Excess Profits Credit-Adjustment-"Variable Credit Rule".-"Var-
iable credit rule," providing that earnings of first two excess profits tax
years should not be reduced by excess profits credit based on normal earning
capacity, was held applicable to a business in process of development which
had not reached normal level of production, sales, and earnings at end of
base period, even after application of 2-year push-back rule. Yeast
Products, Inc..
Excess Profits Credit-Computation-Prior Inconsistent Method-No
Estoppel. Where petitioner, through mistake of law, failed to report any
income during base period years, with full disclosure to Commissioner of
its reasons therefor, which failure was acceded to by Commissioner, and,
consequently, in subsequent computation of its excess profits tax credit
used invested capital method, it may nevertheless later avail itself of more
advantageous income method, there being no elements of estoppel present
and sec. 734 specifically authorizing adjustment in case of position incon-
sistent with prior income tax liability. City Machine & Tool Co.....
Excess Profits Credit-Net Operating Loss Adjustment-Subsequent
to Repeal. Under proper application of subsecs. (b) and (c) of sec. 122
of Act of 1945, repealing excess profits tax, Commissioner should not have
reduced net operating loss, sustained by petitioner in year subsequent to
repeal, by interest on borrowed capital expended in that year, pursuant to
sec. 711 (a) (2) (L) (i), in computing carry-back to year prior to repeal.
Flory Milling Co....
Excess Profits Credit-Tax Deficiencies—Accrual Basis Taxpayer.—In
determining accumulated earnings and profits of accrual basis taxpayer
for purpose of determining excess profits credit, any income and excess
profits tax deficiency for preceding tax year, to extent determined under
Rule 50 computation, shall be accrued against and subtracted from tax-
payer's accumulated earnings and profits as of beginning of succeeding
tax year. Stern Brother & Co., 16 T. C. 295, followed. Geo. W. Ultch
Excess Profits Credit-Tax Refund-Adjustment of Liability.-Com-
missioner's action, challenged as improper by petitioner corporation, in
adjusting income tax liability and determining deficiency therein, based
upon prior decision of Tax Court granting petitioner refund of excess
profits tax under sec. 721, was sustained, factual situation falling squarely
within scope and intendment of sec. 26 (e) and Commissioner's action
seeming clearly in pursuit of the mandate thereof. Morrisdale Mining
Co...
Practice and Procedure-Opinion on Reconsideration-Scope of
Administrative Claims.-Petitioner's motion for reconsideration was
granted to extent that petitioner's grounds for relief "would reasonably
appear to be within the scope of petitioner's administrative claims."
Hummel & Downing Co.---
EXCESS PROFITS TAX—Continued
Practice and Procedure-Other Grounds.-No consideration will be
given by Tax Court to grounds for relief under sec. 722 unless they have
been presented to Commissioner for consideration prior to his rejection of
applications and claims. Telfair Stockton & Co...
Sec. 722 Relief-Average Earnings.-Percentage of profits payments,
made by petitioner to another company for right to manage and operate its
business and allowed as ordinary and necessary business expense, must be
included in base period income in determining whether petitioner's base
period earnings were normal compared with tax years. Telfair Stockton
& Co...
Sec. 722 Relief-Base Period Depression-Aluminum Castings Manu-
facturer. Neither existence of price war nor, assuming its existence, the
depressing effect thereof having been established, but only normal (albeit
severe) competition, it was determined that neither petitioner's business
nor the industry of which it was a member was depressed in base period
because of temporary economic circumstances unusual in case of petitioner
or of such industry, so that no relief beyond that allowed by respondent
under sec. 722 (b) (2) was proper. Permold Co...
Sec. 722 Relief-Base Period Depression-Metal Products Manufac-
turer.-Petitioner, with pre-base period contract committing majority of
its output to one customer which allegedly restricted its opportunities to
obtain customers resulting in lack of customers and base period depression,
is not entitled to sec. 722 (b) (2) relief, alleged depression being self-imposed
and evidence revealing that restriction on sales was neither unusual nor
temporary, that petitioner had fewer customers after contract's expiration,
and that petitioner's business was not depressed within meaning of sec.
722 (b) (2). Pratt & Letchworth Co..
Sec. 722 Relief-Change in Character-Aluminum Castings Manufac-
turer.-Petitioner, showing only addition of a new product or a mere
change of shape and useful purpose of articles manufactured, failed to
qualify for relief beyond that granted by respondent under sec. 722 (b)
(4), it not appearing that changes were unusual and substantial and
affirmatively reflected in financial history of company. Permold Co.----
Sec. 722 Relief-Change in Character-Bus Company.- Acquisition by
passenger bus company of additional franchises, without more, and
elimination of competition were not sufficient to constitute change in
character of business. Moreover, mere establishment of qualifying factor,
without demonstrating that its average base period net income thereby
becomes inadequate standard of normal earnings, is insufficient to entitle
taxpayer to relief. Pittsburgh & Weirton Bus Co
Sec. 722 Relief-Change in Character-During Base Period-Grey-
hound Racing Track.-Remodeling of grandstand and betting shed, addi-
tion of betting windows, and arrangement of patio (alleged to represent
change in capacity); installation of grandstand heating plant, electrically
operated photo-finish camera, and odds board and adoption of new purse
payment system effecting savings (alleged to represent changes in opera-
tion) were improvements and phases reasonably expected in operation of
good track and were insufficient to constitute change in character within
sec. 722 (b) (4), or to directly cause requisite increased earnings or earning
capacity. West Flagler Amusement Co...
Sec. 722 Relief-Change in Character-Metal Products Manufac-
turer.-Elimination of malleable iron production beginning 9 years prior
to base period, 60 per cent complete 2 years later, and entirely accomplished
prior to base period was not a change within sec. 722 (b) (4) because not
substantial (resulting in higher level of normal earnings) and not taking
place during or immediately prior to base period. Pratt & Letchworth
Co..
Sec. 722 Relief-Change in Character-Pre-Base Period-Greyhound
Racing Track.-Installation of electrically illuminated glass starting boxes,
erection of "detail" board, inauguration of stake races and of practice of
posting immediately odds and amounts wagered thereon, and use of
"lock-out" kennels were not of such substance and importance as to consti-
tute changes in operation which brought about change of character within
sec. 722 (b) (4). West Flagler Amusement Co..
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