CORPORATIONS-Continued.

Incorporation of partnership.

See DEPRECIATION, II, 9-11.

Special assessment. See INVESTED CAPITAL, IV.

1. Consolidation of Accounts. Upon the evidence, held, taxpayers are
not entitled to a redetermination of tax liability under the provisions of
sec. 240 (d), Revenue Act 1921. Flambeau Public Service Co_-.

2. Principal or Agent; Corporation or Stockholders. Corporation under
contracts with its stockholders, to act as their agent, grazed and mar-
keted their livestock without taking title thereto, and divided net pro-
ceeds among them in accordance with livestock contributed by each and
not in accordance with number of shares owned. Held, all income re-
ceived by taxpayer was received as agent for the stockholders and there
is no income upon which Commissioner may assess deficiency.
Bull Corp--‒‒‒

COST. See GAIN OR Loss, II, 20–32.

CREDITS:

I. Corporations, p. 1440.

II. Individuals, p. 1440.

See AFFILIATIONS, IV, 2; CREDIT OR REFUND; ESTATE TAX, III.

I. CORPORATIONS.

Grey

1. Foreign Taxes. A taxpayer on accrual basis is not entitled to post-
pone the taking of credit for tax paid to a foreign country beyond year
in which tax accrued, in order to claim it in tax years, when all events
necessary to fix liability for the tax had occurred in year of accrual.
Russell-Miller Milling Co‒‒‒

2. Id. Held, further, that taxpayer's liability was not contingent upon
its own recognition and refusal to admit liability in year of accrual is
not a reason for postponing accrual to tax year. Id.

II. INDIVIDUALS.

1. Foreign Taxes. Secs. 222 (a) (3), Acts 1924 and 1926 provide for a
credit for income taxes paid or accrued by a resident alien to any foreign
country, whether or not the taxpayer is a citizen or subject thereof, pro-
vided the other conditions of the subsection are met. Charles W.
Bowring --

2. Id. Resident Aliens; “Similar Credits." Where taxpayer, a sub-
ject of Newfoundland and a resident alien of the United States has
failed to establish that Newfoundland allows to citizens of the United
States resident there a credit for income taxes paid to, or an exemp-
tion from income tax on income arising from, Great Britain, held he is
not entitled to credit British income taxes against such taxes due the
United States. Id.

3. Earned Income; What Constitutes. Royalties received under con-
tracts with licensees embodying the use of a patented process, com-
puted upon the per ton basis rather than upon the value of personal
services rendered in connection with the installation of the process and
its upkeep, are not analogous to wages, salaries and professional fees
and taxpayer is not entitled to include them in determining maximum
earned income credit allowable. John E. Greenawalt_____.

4. Gift Tax. Proportionate part of decedent's estate subject to gift
tax determined and credit allowed against estate tax payable. Wendell
W. Fish-‒‒

CREDIT OR REFUND. See CREDITS.

1. Denial of Affiliation; Payments by Subsidiary. Affiliates which paid
their proportionate share of tax reported on consolidated return filed
by parent company are entitled, in the event Commissioner denies
affiliation and computes separate taxes, to a credit against such sepa-
rate liability equal to amount previously paid under the original assess-
ment against parent. J. A. Folger & Co---
Trahern Pump Co--.

Page

299

853

405

449

936

1002

1

363

CREDIT OR REFUND-Continued.

Page

2. Id. Dissolution of Affiliation. A subsidiary corporation of an affil-
iated group is entitled to have its total tax liability reduced by amounts
shown to have been assessed against and paid by it on the consolidated
returns filed by the parent corporation. North Side Lumber & Timber Co. 1187
DAMAGES. See EXPENSES, I, 2; INTEREST, 1.

DEMOLITION OF BUILDINGS.

See DEPRECIATION, III, 5.

DEPLETION. See ESTATES AND TRUSTS, II, 4; PARTNERS, III, 1.

1. Depletion or Depreciation. Intangible Development Expenses such
as wages, fuel, repairs, etc. incurred in connection with exploration of oil
property, drilling of wells and development of the property, which tax-
payer has charged to capital accounts, held, to represent additional cost
of leases, recoverable through depletion allowances rather than by way
of depreciation. Graham-Loftus Oil Co‒‒‒‒‒

2. Id. Commissioner's allocation of 40% of the cost of oil wells to
physical equipment and 60% to intangible costs approved in absence of
evidence that such allocation was unreasonable and unfair. Id.

3. Depletable Property; Bonus. Under provisions of the law an exist-
ing well is a prerequisite to an allowance for depletion and where this is
not the case bonus payments received in consideration for oil leases are
not subject to a depletion allowance. Lizzie H. Glide__.

4. Basis; Discovery Value. A corporation, successor to a trust tax-
able as a corporation which made the discovery of oil in commercial
quantities, is a separate entity and not entitled to use discovery value
as a basis for computing depletion of leases acquired from the trust.
Hoffer Oil Corp--.

5. Valuation. Commissioner's determination of amount and value of
taxpayer's ore reserves as of March 1, 1913, approved where evidence was
insufficient to establish error. New York Zinc Co----

DEPOSITORS' GUARANTY FUND. See INCOME, 16.

DEPRECIATION:

I. Depreciable Property and Persons Entitled to Deduction, p. 1441.
II. Valuation of Depreciable Property, p. 1442.

III. Rate of Amount of Depreciation:

(1) Generally, p. 1443.

(2) Application to Particular Years or Property, p. 1443.
(3) Useful Life, p. 1443.

IV. Obsolescence, p. 1443.

See DEPLETION, 1; ESTATES AND TRUSTS, I, 8, 9.

Adjustment in determining gain or loss. See GAIN OR Loss, II (6).
I. DEPRECIABLE PROPERTY AND PERSONS ENTITLED TO DEDUCTION.

1. Depreciable Property; Contracts. The renewal clause in contracts
for services of professional baseball players does not give the contracts
a life of more than one year; their entire cost is therefore deductible
as expense for the year acquired and is not subject to depreciation
deductions. Pittsburgh Athletic Co----

2. Id. Royalties. Corporation assigned to its stockholders a contrac-
tual right to receive royalties from patents, but did not assign the contract
itself. Held, payments were received by stockholders, not as royalties,
but as dividends, and no deduction for depreciation with respect to such
income is allowable. Walter E. Kramer_--

3. Id. Organization Expenses of a corporation, including amounts paid
by it for the sale of its capital stock, may not be capitalized and exhausted
over the life of the corporation as fixed by its charter. Surety Finance
Co. of Tacoma-.

1301

1264

98

9

1074

1043

616

DEPRECIATION-Continued.

II. VALUATION OF DEPRECIABLE PROPERTY.

1. Basis for Valuation; Affiliations; Liquidation of Subsidiary. The
liquidation of a subsidiary is not such an intercompany transaction" as
is required by regulation and/or statute to be eliminated from consoli-
dated return filed, and therefore cost to taxpayer of assets acquired from
subsidiary through liquidation of its stock is the fair market value of
the assets on date acquired, and such cost is basis to be used for compu-
tation of depreciation. American Printing Co-----

2. Id. Sale or Reorganization. Individuals, stockholders of a dis-
solved corporation, bought in its assets at auction and organized a
new corporation to which assets were transferred in exchange for stock
and the assumption of an indebtedness. Held, assets were not acquired
by new corporation through reorganization within meaning of sec. 204
(a) (7), Act 1926, and basis upon which depreciation is to be computed
by new corporation is cost of the assets to it. Farmers Cotton Oil Co__
3. Id.
Where indebtedness assumed was greater than value of assets
acquired, held stock had no value at date of transfer and cost of assets
for purposes of depreciation is limited to amount of indebtedness
assumed. Id.

4. Id. Where a corporation purchased the stock of another, cost basis
of assets of second company remains unchanged for purpose of determin-
ing depreciation thereon, even though second company was reorganized
and purchasing corporation transferred its assets to it and dissolved.
N. W. Pugh Co---

5. Id. Cost at Receiver's Sale. A group of individuals and corpora-
tions agreed to organize taxpayer and transfer to it assets of another
corporation which was in receivership. The assets were bought by
group's agent and transferred by receiver directly to taxpayer which
was organized on day of sale; taxpayer ratified the transfer. Held,
Commissioner's determination that sale was made directly to taxpayer
and that basis for depreciation deduction is price paid at receiver's sale
is approved. Perfex Corp‒‒‒‒‒

6. Id. Contention by taxpayer that it received the assets from the
individuals, not from the receiver, and is therefore entitled to use value as
of date transferred, rather than as of date of receiver's sale, denied. Id.
7. Id. Cost to Predecessor Owner. Assets were acquired subsequent
to passage of 1926 Act for stock; partnership had owned the property
since before March 1, 1913 but it was not established that the transfer
was a nontaxable transaction under provisions of sec. 203 (b) (4), Act
1926. Held, taxpayer is not entitled to compute depreciation on the basis
of March 1, 1913, value. Elmore Milling Co....

8. Id. Held, further, taxpayer is not entitled to have depreciation
disallowed by Commissioner restored through computing the deduction on
basis of cost of the assets to it, where it has failed to produce evidence
of cost. Id.

9. Property Acquired for Stock; Incorporation of Partnership. Where
immediately after transfer of partnership assets to corporation in ex-
change for its stock, former partners were in control of corporation, basis
for computation of depreciation by corporation is same as would have been
allowed predecessor partnership. Schmieg, Hungate & Kotzian, Inc____
10. Id. Fact that one-third of the common stock had been promised to
a third person, not a member of partnership, in exchange for his agree-
ment to contribute services to corporation, held not to affect the situation,
where stock was not transferred to the third party until several years
later. Id.

11. Id. Statute does not contemplate that original owners shall remain
in control after the exchange; it is only necessary that they be immedi-
ately in control of the corporation following the exchange to bring case
within provisions of secs. 113 (a) and 114 (a) (8), Act 1928. Id.

12. Id. Where an individual who owns all the voting stock of a corpo-
ration at the time it transfers its assets to a newly organized corpo-
ration, after the transfer, is the owner of only 22% of the voting stock
of new corporation, sec. 204 (a) (7), Acts 1924 and 1926 and sec. 113
(a) (7), Act 1928, are not applicable and taxpayer is entitled to have
depreciation computed for tax years 1924 to 1928, inclusive, on basis of
fair market value of the assets when transferred. Watab Paper Co----

Page

1270

105

12

120

84

337

488

DEPRECIATION-Continued.

III. RATE OB AMOUNT OF DEPRECIATION.

(1) Generally.

Page

1. Fully Depreciated Assets. Commissioner's elimination of part of
taxpayer's deduction for depreciation on account of assets fully depreci-
ated through deductions claimed on prior returns, approved, for failure
of taxpayer to prove error. Caxton Printers, Ltd...

2. Id. Where taxpayer has fully recovered the cost of assets through
depreciation deductions claimed on prior returns, it may not contend for
tax year that such allowances were excessive, where assessment for
earlier years is now barred by statute of limitations, and thereby receive
the benefit of a double deduction with respect to same assets. Graves,
Cox & Co.‒‒‒‒

3. Evidence. Commissioner's determination approved where taxpayer
offered no evidence to show that the base, rate or amount of depreciation
determined was incorrect, nor what the correct base, rate and amount
should be. Elmore Milling Co‒‒‒‒‒‒‒‒

(2) Application to Particular Years or Property.

4. Automobile. Useful life of second-hand automobile determined to
be three years. Farmers Life Insurance Co‒‒‒‒‒‒

5. Demolition of Buildings. Commissioner's allowance of depreciation
on unextinguished value of building demolished by lessee in order to
erect new one, computed on basis of the residual value at date lessee
took possession of premises and term of lease, approved. Evange-
line C. Harper__.

6. Leases. Cost of lease, original term of which was for a fixed period
with option to renew for three like additional periods at adjusted rentals,
is recoverable over original term of lease. 353 Lexington Ave. Corp‒‒‒‒
7. Id. Computation of depreciation on building erected on leased land
on basis of life of building, rather than on life of lease, approved, for
failure to prove error. Id.

(3) Useful Life.

8. Machinery and Equipment. Commissioner's allowance of 10% de-
preciation annually on taxpayer's machinery and equipment held reason-
able upon the evidence. Caxton Printers, Ltd---

9. Id. Commisssioner's disallowance of depreciation deductions on
machines approved where taxpayer has failed to prove either the useful
life or the salvage value of the machines in question. Vogue Silk
Hosiery Co‒‒‒‒

10. Office Furniture. Taxpayer's claim for a 10% deduction for de-
preciation on office furniture denied for failure of adequate proof.
Farmers Life Insurance Co‒‒‒‒‒‒

IV. OBSOLESCENCE.

Theatre Building. Five per cent deduction to cover both depreciation
and obsolescence of a theatre, allowed where evidence established that
the character of patronage had deteriorated due to competition and
change in character of its location. W. A. Graeper...-

DEVELOPMENT EXPENSE. See DEPLETION, 1, 2.

DISCOUNT:

Bonds. See CAPITAL TRANSACTIONS, 4-7.

DIVIDENDS:

I. What Constitute Dividends, p. 1444.
II. Declaration and Distribution, p. 1444.

III. Liquidation, p. 1445.

IV. Stock Dividends, p. 1445.

---

1110

546

84

423

293

762

1110

131

423

632

DIVIDENDS-Continued.

Adjustment in determining gain or loss. See GAIN OR LOSS, I, 9-11;
II, 29.

Refunded dividends. See Losses, III, 5.

Rescinded dividends. See INVESTED CAPITAL, V.

See DEPRECIATION, I, 1.

I. WHAT CONSTITUTE DIVIDENDS.

1. Gift or Dividend. Cancellation by a corporation of a debt due from
its president and principal stockholder, at a time when debtor was
solvent, and corporation had substantial surplus, constitutes a taxable
dividend and not a tax-free gift. F. W. Fitch---

2. Return of Capital or Dividend. Two banks under a merger agree-
ment transferred their surplus assets to trustees; organized a securities
corporation, and authorized trustees to purchase latter's stock with
proceeds derived from sale of the surplus assets. Stock after purchase
was to be distributed to shareholders of the merged bank in proportion
to their stockholdings. Held, stock so distributed represented a dividend
paid in property acquired with earnings accumulated since February 28,
1913, and constitutes a taxable dividend. Walter Hopkins----

3. Id. Dividend received shortly after purchasing stock held, properly
included in taxable income notwithstanding fact that in anticipation of
the declaration of the dividend purchase price had been fixed at more
than the fair market value of the stock. Marcus Frieder_---

4. Id. Accumulations Since March 1, 1913. Corporation between
March 1, 1913 and December 31, 1917, sustained operating losses greater
than profits realized in three years following, in which years dividends
were distributed to stockholders. Held, distributions in question were
not made from earnings accumulated since March 1, 1913, but constitute
distributions of capital and are not taxable as income. Talbot C. Walker_
5. Id. Consolidation of Corporations. Where there has been a con-
solidation of banks and an exchange of stock for stock and cash, the
cash to extent that it represents a distribution to stockholders of merged
bank of surplus and profits accrued since March 1, 1913, is an ordinary
dividend within the provisions of sec. 112 (c) (2), Act 1928, and taxable
at surtax rates only. J. T. Owens__

1331

6. Sale or Dividend. Commissioner's contention that shares of stock
acquired as a result of a reorganization were received as an ordinary
dividend and that total proceeds received from their immediate sale
were subject to tax as a dividend denied, and profit only from sale held
taxable. Evelyn F. Gregory----

1239

7. Credits to Stockholders. Stockholders of a corporation received pay-
ments due corporation from sales of real estate, paid operating expenses,
and retained balance which was charged on corporate books as accounts
receivable to be offset by future dividends. Held, notwithstanding fact
that conduct of corporate business was informal, credits should not be
treated as income to stockholders until title is completed through corpo-
rate declaration of dividend. Fred T. Wood___.

8. Distribution by Trust or Corporation. Cemetery corporation ex-
changed its stock for land. Later stock was canceled and certificates of
participation in the cemetery assets were substituted, certificate holders
having all rights and privileges of stockholders. Held, distributions to
certificate holders in proportion to their interest in the business constitute
dividends. May Kimball Smith____

9. Id. Held, further, no part of such distribution was in payment for
land originally conveyed to the company. Id.

II. DECLARATION AND DISTRIBUTION.

829

Constructive Receipt. A dividend declared in one year, check for
which was mailed in same year but not received by stockholder on cash
basis until following year is income for tax period within which dividend
was declared. Farley Hopkins__.

27 B. T. A.

469

223

162

607

of real pr
aly for

843