INDEX

ABANDONMENT.

ABATEMENTS.

See DEPRECIATION, 5; LOSSES, 11.

See Losses, 1.

Bond Given With Claim; Nature of Liability. Bond constitutes a waiver after the execution of which there is no statutory period; payment on judgment on bond is not a payment after the expiration of any statutory period and sec. 3770 (a) (2), I. R. C. may not be invoked. Edwin J. Schoettle Co---

ABNORMAL DEDUCTIONS. See EXCESS PROFITS TAX, 6, 7.
ACCOUNTING:

Income earned over five-year period; accounting for. See COMPEN-
SATION, 1-6.

1. Constructive Receipt. Purchaser for value of mortgaged property, income from which was payable to mortgagee until indebtedness was satisfied, did not assume the mortgage. Held, income paid directly to mortgagee was not taxable to purchaser as income constructively received. J. Gregory Driscoll__

2. Id. Notes Given by Vendee to Vendor's Creditor to procure latter's discharge from indebtedness, although accepted by creditor as collateral and not as payment, constitute income constructively received by vendor to extent of their then market value. D. D. Oil Co__

3. Id. Accrued salaries credited to employees are constructively received and required to be reported, whether or not claimed. Michael Flynn Mfg. Co. -

4. Accrual Basis; Items in Litigation. Taxpayer is taxable on, or entitled to a deduction for, the disputed item in year decree is entered, regardless of year of receipt or payment. Koppers Co__ Burton-Sutton Oil Co.-.

5. Id. Where state taxes were underpaid, additional assessments made after close of tax period relate to years for which due, and in absence of litigation constitute deductions for those periods, not for period in which paid. Burton-Sutton Oil Co...

6. Id. Proceeds received from sales of books, entitling holders to future services from vendor for an indefinite period, are to be accounted for as income of year of sale. South Tacoma Motor Co..

7. Id. Accounting method must reflect income, not net earnings after contingent future charges are recorded. Id.

8. Id. Until services are rendered there can not be accruals for their cost. Id. 9. Id. The prohibition against deduction of accruals not paid within two and one-half months after close of period is based upon the existence of three conditions, the absence of any one of which eliminates the bar. Michael Flynn Mfg. Co---

10. Cash Basis. Receipts of tax year by one on cash basis are to be reported in full, although they may include amounts due in prior years but not then received. Pacific Northwest Finance Corp--

11. Forgiveness of Indebtedness. Basis for Inclusion in Income is that forgiveness be not gratuitously made. Held, where mortgagor pays part due on note; procures an extension as to part, and mortgagee cancels balance, the forgiveness is gratuitous and is not income to mortgagor. Liberty Mirror Works--.

12. Inventories of Donee. Where donor's basis for assets given to donee was zero, the opening inventory for donated property on donee's books is zero. Catharine G. Shatzer__

Page

712

494

5

932

62

1187

1187

411

932

498

1018

914

13. Period of Accounting. Fractional Period for which a return is filed constitutes a taxable year, and it is not required that such fractional period result from a change in accounting period. General Aniline & Film Corp. 1070

1295

ADEMPTION OF LEGACIES. See ESTATE TAX, I, 8, 9.
ADMINISTRATIVE DECISIONS:

1. Transactions in Treasury Stock. Art. 22 (a)-16, Reg. 94 requires
that to be a taxable transaction the "dealing" in its own shares must be
analagous to a "dealing" in the shares of another corporation. Cluett,
Peabody & Co....

Page

169

2. Id. "Real nature of transaction" must be determined from facts
before applying the regulation. Id.

3. Reg. 86, Art. 101 (11)–1, limiting the term "casualty" to property
losses and excluding losses resulting in bodily injury, held reasonable.
Postal Mutual Indemnity Co...

1212

4. Reg. 94, Sec. 24 (a) (2), Art. 24–2, held not applicable to expenses in-
curred in resisting condemnation proceedings. Burton-Sutton Oil Co..... 1187
5. Reg. 101, Art. 23 (m)-16, which grants an election as to treatment of
drilling and development costs, is not applicable where driller takes no title
to property until after drilling operation has been completed. F. H. E.
Oil Co..

6. Reg. 109, Sec. 30.711 (a)-2, disapproved as an attempt to amend sec.
711 (a) (1) (E), I. R. C. J. F. Johnson Lumber Co.----
ALIMONY. See ESTATES AND TRUSTS, II, 15-17.
ANNUALIZATION OF INCOME. See TAXABLE YEAR.

ANNUITIES. See ESTATES AND TRUSTS, I, 9; II, 26; COMPENSATION, 10;
EXPENSES, I, 8.

APPORTIONMENT OF TAX. See TAXABLE YEAR, 3.
ASSIGNMENTS AND GIFTS. See INSURANCE, 1.

1. Future Income. Liability arises when income becomes payable and
direction to payor to pay it to another does not relieve original earner
thereof from tax liability. Adolphus Busch, III.

George James Nicholson_.

Richard S. Doyle...

2. Property Subject to Mortgage Not Assumed by Assignee. Income earned
by an interest in an oil lease was payable to a bank on indebtedness for
which it had been mortgaged. Held, assignee who acquires the interest for a
consideration, and does not assume the mortgage indebtedness, is not tax-
able on income applied to payment of the debt. J. Gregory Driscoll_ _ _ _ _
ASSOCIATIONS:

13

1160

547

596

1092

494

Corporation which continues to operate after charter has expired is an
association taxable as a corporation. J. L. Norie----
AWARDS:

676

Prize in Cash received as an award from a literary contest offered by a
testamentary trust, held taxable income to recipient, either as income
received as beneficiary of a trust, or as compensation for labor performed.
Malcolm McDermott..

BAD DEBTS:

1. Evidence establishes taxpayer entitled to certain deductions for bad
debts in tax years.
M. C. Parrish & Co...

2. Id. Rule 17. Taxpayer is limited to bad debt deduction in amount
assigned as error in petition unless amended assignments to conform to
proof have been filed. Id.

3. Advances to Insolvent Subsidiary, voluntarily made when there was no
expectation of repayment, may not be the basis for a bad debt deduction.
Houston Chronicle Publishing Co.--.

BAILMENTS. See LOSSES, 14.

BOND; ABATEMENT CLAIMS. See ABATEMENTS; LOSSES, 1.

BONUSES; OIL LEASES. See DEPLETION, 1.

BORROWED CAPITAL. See EXCESS PROFITS TAX, 10, 11.

BURDEN OF PROOF. See EVIDENCE, 2, 3.

929

119

1233

CAPITAL EXPENDITURES:

1. Circulation Structure. Cost of establishment is capital expenditure,
but cost of maintenance is deductible expense. Held, expenditures which
achieve both results should be allocated for determination of amount de-
ductible. Journal of Living Publishing Corp----

2. Defense of Title. The established rule that such expenditures are
capital items, held not abrogated by the broadening provisions of sec. 121,
Act 1942. James C. Coughlin_

3. ld Held, costs of defending against a condemnation proceeding are
expenditures to prevent property from being taken, not to defend title, and
are not capital expenditures. Burton-Sutton Oil Co-

4. Id. Reg. 94, sec. 24 (a) (2), art. 24-2, not applicable.

Id.

5. Return of Capital. Cost of litigation to recover property lost through
fraudulent representations is a capital expenditure. Margery K. Megargel.
6. Drilling and Development Costs incurred as a condition precedent to
passing of title are capital expenditures paid for such title, and there is no
right of election as to their treatment in computing net income. F. H. E.
Oil Co....

7. Payments to Grantors of Leases from operating profits, made under
terms of lease are cost of property and capital expenditures. Burton-Sut-
ton Oil Co..

CAPITAL GAINS AND LOSSES:

See ESTATES AND TRUSTS, II, 19; PARTNERS, 8.

1. Capital or Ordinary. Deed to surface acreage with improvements
and supplemental agreement granting mineral rights, held to be a sale of
surface land, resulting in capital gain or loss, and a lease of mineral rights,
payments for the latter being ordinary income. Wesley W. West_ _ _ _

2. ld. Rescission of Stock Transfer; Compromised Litigation. Under
raudulent representations taxpayer transferred stock for no consideration;
in tax year she sued for its return or money equal to its value; suit was
compromised in tax year and a cash payment given to taxpayer. Held,
entire transaction resulted in a sale and gain is capital, not ordinary.
Margery K. Megargel...

3. Id. Conditional rights certificates held on the facts not issued as
evidence of corporate indebtedness and gain realized upon surrender is
ordinary income. M. W. Ellis___

4. Id. Resolution of payment made by directors does not convert the
conditional certificates into an unconditional evidence of corporate in-
debtedness. Id.

5. Id. Involuntary Sales to Satisfy Liens or Assessments held to be simi-
lar to foreclosures of mortgages, and losses are capital, not ordinary.
George Hewitt Myers....

6. Id. Periodic Payments for property sold, although designated "royal-
ties" in sale contract were, in fact, consideration for sale and gain is capital.
George James Nicholson__
7. Capital Assets. Evidence insufficient to establish that asset sold
constituted a statutory capital asset. Estate of Dan A. Japhet__.

8. Id. Property subject to depreciation deductions is not a capital
asset. Sec. 117 (a) (1), Act 1938. Beulah B. Crane..

9. Id. Where a building and land were sold, latter is a capital asset
and gain or loss on its sale is capital. Id.

10. Liquidations; Partial or Complete. Banks organized under the
Federal Farm Loan Act voluntarily liquidated after complying with re-
quirements of the act which created them; distributions were made over a
three-year period starting after December 31, 1937. Held, procedure was
a complete liquidation, gains to stockholders being taxable as long-term
capital gain. Charles N. Manning____

11. Id. Commissioner's contention that the Emergency Farm Mortgage
Act of 1933 required such banks to liquidate without the voluntary act of
stockholders, and that distributions were not pursuant to a bona fide plan
within the meaning of sec. 115 (c), I. R. C., rejected. Id.

12. Complete Liquidation Within Three Years. Under sec. 115 (c), Acts
1936 and 1938, the test is bona fides of plan, and completion after three-
year period is not fatal to taxation of distributees under the section. Mary
Dupont Faulkner

Page

1058

420

1187

238

13

1187

431

238

106

1014

596

86

585

853

1082

George G. Mason....

1087