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1918, 1919, and 1920 upon contracts where the total profit was returned as income in years prior to change to the installment basis.

The unit, upon the recommendation made, eliminated the overassessment for 1920 and found the overassessments for 1918 and 1919 to be 510 dollars and 30x dollars, respectively. The consideration of this case resulted in a saving of 61x dollars to the Government by reduction of the overassessments.

Case IV - Issues:
(1) Amortizat.on.
(2) Reserve for depreciation.

AMOUNTS INVOLVED

1919_._.

14100 dollars.

The taxpayer claimed amortization in the total amount of 460 dollars. A total amortization was allowed by the amortization engineers in the amount of 26x dollars upon amortizable costs in the total amount of 51x dollars. Of the total amortization allowed 20x dollars was allocated to and allowed for the year 1918, and 6x dollars was allowed for the year 1919. The amortization was allowed upon two classes of amortizable property, (1) amortization allowed upon facilities employed in production contributing to the prosecution of the war, and (2) amortization allowed upon cost of facilities not completed in time for use in production of articles contributing to the prosecution of the war. 'A study of the method by which the 'amortization engineers determined the percentage of residual value in use to be 60 per cent was necessary in this case. The amortization engineers in this case had determined the residual value in use percentage by an unusual method. The percentage of residual value in use was determined by application of a trend line established by the growth of the postwar commercial use of the plant over the period January 1, 1921, to December, 1922. The trend line resulted in the use of a postwar production of an amount which was considerably in excess of the production which had actually been demonstrated by the actual use of the steel plant involved after March 31, 1919. The residual value percentage as determined was, it appeared, somewhat larger than the percentage which would have been computed if the percentage had been determined by use of the actual facts rather than by facts determined by the application of a trend line. The method of computation of residual value involved the consideration of rulings relating to the determination of value in use and involved consideration of the facts in the taxpayer's case so as to ascertain whether or not the method which had been adopted by the amortization engineers in this case had resulted in undue advantage to the taxpayer or not. The case involved particularly a study of a decision of the Board of Tax Appeals In re Manville Jenckes Co., 4 B. T. A., 765.

The case involved also a study of the taxpayer's reserve for depreciation with regard to the determination of statutory invested capital. The taxpayer had, in making its return for the year 1919, increased its depreciation reserve by the amount of 14w dollars over the depreciation taken on the books. This increase as made by the taxpayer in the depreciation reserve resulted in a decrease in statu

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tory invested capital for the purpose of the profits-tax return which was made by the taxpayer for the reason that the Income Tax Unit had in adjustments of prior years ordered this increase in the depreciation reserve and the resulting decrease in statutory invested capital. The Income Tax Unit, after reconsideration for the purpose of this 1919 year, had revised the depreciation reserve with the result that there was added to the book depreciation reserve as additional depreciation prior to January 1, 1919, the amount of 5x dollars. The depreciation reserve has thereby been decreased 8x dollars and statutory capital similarly increased over the adjustments as had been made in the audit of the prior years. In the consideration of this adjustment of the unit it was necessary to examine the balance sheets of the corporation and the briefs of the taxpayer relating to the depreciable plant of the taxpayer and such rulings as relate to depreciation reserve and adjustment of a taxpayer's plant accounts, particularly A. R. M. 106. (C. B. 4, 390.)

Case V. -Issues:
(1) Affiliation.
(2) Inventory.

The taxpayer is affiliated with a number of corporations for the taxable year. The principal question of affiliation related to the M Corporation. This corporation had been excluded for all of the years. The taxpayer prior to 1920 acquired about 50 per cent of the capital stock and the taxpayers, together with the minority stockholders, placed all of the capital stock of the M Corporation in trust with five trustees under a voting trust agreement for a period of five years. The trustees were five in number, two to be appointed by the taxpayer and two to be appointed by the minority stockholders of the M Corporation and the remaining one to be mutually agreed upon. The taxpayer did not under the trust agreement secure control of all the capital stock of the M Corporation, since two of the trustees at all times represented the minority stockholders. In the consideration of this affiliation issue it was necessary to consider the facts presented in the taxpayer's briefs relating to the ownership of stock and to consider the decisions of the office relating to the affiliation question, and particularly decisions of the Board of Tax Appeals in Isse Koch & Co. (Inc.), 1 B. T. A. 267 and In re Appeal of R. A. Tuttle Co., 1 B. T. A. 1219.

In computing the closing inventory for the year 1920 the taxpayer reduced the closing inventory by an amount of 100x dollars as an arbitrary discount. The report for the year 1920 was made upon the basis of closing inventory after deduction of this arbitrary reduction of 100x dollars. Upon audit of the 1920 return the bureau eliminated the 100x dollars deduction of closing inventory and thereby decreased the cost of goods sold for 1920 and increased net income for 1920 by a similar amount. In the determination of net income for the year 1921 the opening inventory for 1921 was increased by the amount of 100x dollars, since the opening inventory for the computation of cost of goods sold, as was the basis of the income reported for 1921; reflected also the 100x dollars arbitrary reduction. The opening inventory for 1921 was thereby made consistent with the closing inventory for 1920. This readjustment for the years 1920 and 1921 resulted in a restatement of the cost of goods sold and the income for each of those years upon the correct basis under article 1582 of regulations 62.

Case VI.-Issues:

(1) Distribution of income of trust estates taxable under section 219.

(2) Dividends received from M Company, dividend distribution, and earnings available for distribution.

(3) Loss sustained.

Fourteen certificates of overassessment in favor of five individuals were involved. Additional taxes for three years against an estate were involved.

The certificates of overassessment to the individuals and the additional taxes to the estate resulted from a readjustment as between the individual beneficiaries and the trust estate. The individual beneficiaries had returned all the income on their returns, both that which had been in fact distributed to them and that which was undistributed by the trust estate.

B died in the year 1915, and left a will whereby after certain specific bequests he bequeathed all the rest of his property to certain trustees upon certain trusts mentioned in article 9 of his will. The manner in which the residual trust estate was to be divided or distributed depended upon the situation existing at the time of his death. At his death B left surviving him his wife, C, and more than one child, and the distribution of the residual trust estate was accordingly governed by certain articles of the will. According to this distribution, 2x per cent of the whole trust estate was devised absolutely to the testator's wife, C, and x was devised to the D Bank for the use of C, his wife. The remaining 60 per cent of the trust estate was directed to be held by the trustee for the benefit of each and all of the children and grandchildren per stirpes.

The 60 per cent of the estate which was directed to be held for the benefit of the children was distributable in part to each child or the child's children as the child became certain ages. The portion of the 60 per cent of the trust estate distributable to each male beneficiary was distributable in certain parts to him when he became certain ages and were so distributable absolutely to him. The portion of the 60 per cent which was distributable to each female beneficiary was distributable to her absolutely in certain parts as she became certain ages and was distributable to her in certain parts as she became certain ages indirectly as a trust to the D Bank for her benefit. The D Bank therefore became a trustee of separate trust estates for each female child beneficiary, and in accordance with another provision of the will the D Bank also became a trustee for a separate trust for C.

The net income of all the separate trusts held by the D Bank for the female beneficiaries was distributable in quarter-year payments to the respective beneficiaries. Since this net income from these separate trusts held by the D Bank was distributable without any question or condition the income from the separate trusts was taxable to the separate beneficiaries and were so taxed in the adjustment.

The trust estate held, however, in each year certain portions of the shares distributable to the male beneficiaries and certain portions of the shares distributable to the female beneficiaries, the corpus of which had not been distributed and the income of which was not

payable to the beneficiaries. The income of any part of each share from the time it was by will distributable to the beneficiaries was distributable to such beneficiaries, and this portion of the net income was accordingly taxable in each case to the beneficiary. As to the income upon the portion of the corpus of the trust estate which had not become distributable there was another question. The Income Tax Unit had considered that the entire income of all the parts of each child's share which had not become distributable as to the corpus was taxable as one entity. It was no doubt right that the net income of these portions of the corpus which had not become distributable was taxable either as one single trust entity apart from the individual beneficiary or that the net income of these undistributable portions of the corpus was taxable as income of separate trusts as to these undistributable portions of the corpus as to each beneficiary. The case was adjusted so that all of those undistributable portions were taxable as one trust estate. This holding was most favorable to the Government, and since it was doubtful that any other holding would be correct the case was finally approved upon that basis.

The foregoing will indicate to some extent the complicated nature of the will by which B bequeathed his estate to his heirs. There were many provisions in the will, some of which would become effective in case of the happening of certain contingencies and other of which would become effective in case of the happening of other contingencies. It was extremely difficult to analyze the will so as to comprehend what portions were effective under the circumstances which actually transpired. It was extremely difficult to analyze the will so as to correctly interpret it so as to give effect to all of its provisions. The will was one of the very long wills of one of the very wealthy men of the United States. After consideration of all the circumstances which actually transpired and all the provisions of the will relating to the creation of the various trusts, it was necessary to correctly apply the provisions of section 219 of the act of 1918 and the similar provisions of the act of 1921, and to study and interpret the many decisions of the Bureau of Internal Revenue relating to said section 219 so as to arrive at the proper result with regard to the taxability of the income from the various portions of the estate as between beneficiaries and trust estate. There were an unusual number of provisions regarding the trusts created.

There was also considered in this case a loss_'incurred by C. C became a stockholder in the F Company. The F Company published the — and this publication did not prove to be a paying venture. The corporation was dissolved and discontinued business and C'took over the publication as an individual. The loss she incurred was large and it was necessary to consider the time or the year within which she should be allowed a deduction for the loss.

It was in this case necessary to consider an analysis of surplus of the M Company relating to distributions made to stockholders of the M Company. It was material to correctly analyze or understand the surplus of M Company as the surplus was at March 1, 1913, and as it had been accumulated as of March 1, 1918, up to the taxable years. The taxpayer claimed that large distributions which were made by M Company in the taxable years were distributions from earnings which had been accumulated prior to March 1, 1913 and that the accumulations prior to March 1, 1913, were accordingly

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not taxable. The analysis of surplus was involved and lengthy and contained a number of adjustments to the surplus which had to be carefully analyzed so as to understand their etfect upon the statement of earnings accumulated after March 1, 1913. The taxparer and the revenue agent had presented considerable data regarding the accumulation of earnings prior to and after March 1, 1913, which data required considerable time for examination.

Case VII.-Issues:

(1) Interpretation of the will of P.
(2) Deductibility of State transfer taxes.

AMOUNT INVOLVED

Overassessment-

dollars The will of P was the will of a wealthy man and devised a large amount of property to his heirs and was rather complicated, although not of the same character as the will of B above discussed in Case VI. In consideration of this will it was also necessary to analyze the will so as to comprehend the effect of the various provisions and the creation of rights in beneficiaries so as to properly apply to the income in the case of this estate and beneficiaries the provisions relating to estates and trustees of the act of 1916 as amended by the act of 1917.

The principal issue involved in the case, however, was the allowance of a deduction of transfer tax in the amount of w dollars. This case had been under consideration at various times before the United States Supreme Court had rendered a decision which was final regarding the right to deduction by estates of New York transfer taxes. In such considerations prior to that decision of the United States Supreme Court it had been necessary to consider the large number of decisions of the bureau relating to the deduction of transfer taxes and also a number of decisions of the State of New York relating to the character of the New York transfer tax, and also various Federal court decisions which had considered the New York transfer tax. The right to a deduction of this transfer tax paid to the State of New York did not become free from doubt until the decision of the United States Supreme Court in Keith v. John

In accordance with the decision of the United States Supreme Court therein the transfer tax paid to the State of New York was allowed.

IN GENERAL

son.

In the above discussion of the various cases considered during a month in the claims review the principal issues which were involved in the cases were outlined. It should be noted, however, that in the consideration of these claims cases it is generally uncertain what are the issues which should be especially considered until the case has been carefully studied and until all evidence in the file of the case, including all revenue agent's reports and taxpayer's briefs have been carefully studied. The taxpayer's briefs may and may not present

, the real issue. In the claims review cases it is necessary to discover

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