(4) Determination of March 1, 1913 Value.
37. Contract; Compromise Settlement. On March 1, 1913, a railway
company, which had contracted with taxpayer to construct tracks and
switches necessary for development of its property, was in default of
of its contractual obligations, and there was no evidence that the con-
tract had any market value at that time. Held, Commissioner's disal-
lowance of any value for the contract as of that date in determining tax-
able income, received by taxpayer in a compromise settlement in tax year
is approved. South Memphis Land Co----.
38. Franchise. March 1, 1913 value of franchise sold by taxpayer in
tax year determined upon evidence including testimony of qualified wit-
Id.
39. Hydroelectric Plant. March 1, 1913 value of taxpayer's hydro-
electric plant, including tangibles and intangibles, determined. Newaygo
Portland Cement Co-‒‒‒‒
40. Real Estate. March 1, 1913 value of property determined, upon all
the evidence, including testimony of qualified witness familiar with real
estate values in locality in question. North Side Lumber & Timber Co.. 1187
41. Id. Commissioner's acceptance of the figures of an appraisal made
in 1928 as the March 1, 1913 value of land sold in tax year approved,
taxpayer's contention that the appraisal figure so nearly approximated
his value as to prove it, being rejected, due to lack of evidence to sus-
tain the allegation. James Klein Bowen_--
42. Id. March 1, 1913 value of real estate determined upon the testi-
mony of qualified witnesses and other evidence. Harry C. Kayser
43. Stock. Fair market value as of March 1, 1913, of stock determined
upon the evidence. South Memphis Land Co‒‒‒‒
William F. Harrah___.
44. Computation of Gain or Loss. Where price at which stock was
sold anticipated the declaration of a dividend, Commissioner properly
allocated the proceeds between true sale price and dividend in order to
compute gain or loss. William F. Harrah_---
45. Property Not Used in Trade or Business. In computing gain or
loss from the sale of property not used in any trade or business but
acquired in connection with a transaction entered into for profit, cost of
the property should not be reduced by depreciation sustained during
period of ownership, which was not deductible by owner on returns filed
for such period. Marjorie G. Randall___.
III. INVOLUNTARY CONVERSION.
1. Property Condemned by Municipality. That portion of a con-
demnation award, received by taxpayer from a municipality which repre-
sents gain to him is part of his gross income for Federal tax purposes.
John J. Bliss___
2. Id. Sec. 112 (f), Act 1928. A taxpayer who fails to prove what
part of the award was invested in other property, the date of acquisition,
and the cost of that property has not shown that he is entitled to the
relief afforded by sec. 112 (f) of the 1928 Act. Id.
See COMPENSATION, I, 1, 2; EXPENSES, I, 1.
Gift or dividend. See DIVIDENDS, I, 1.
Property acquired by gift. See GAIN OR Loss, II, 10, 11.
Transfers in contemplation of death. See ESTATE TAX, I (3).
See CARRIERS, 4; EXPENSES, IV.
1. Expense or Gift. A payment in money to a relative made to settle
differences arising out of a business transaction and to avoid litigation
held, to be a gift and not business expense. William S. Paley‒‒‒‒‒‒___ 1153
2. Evidence of Gift. Transfer of stock by a father to his minor
daughters is none the less a gift because the father continues in the
possession and management of the property. Emil Frank__-_
3. Id. Tax Liability. Income arising from property so transferred is
taxable to the daughters and not to donor. Id.
1. Effective Date of Transfer. Year in which gift took effect deter-
mined on the evidence. Kate R. de Forest__
2. Gift of Community Property; California Law. A husband trans-
ferred community property to his wife and their children, wife joining
in the conveyance. Held, wife received a present vested interest in lieu
of an interest which otherwise would have vested only upon husband's
death and gift tax was properly imposed upon the value of entire prop-
erty transferred. Wendell W. Fish____
3. Id. Claim of wife that one half only of the property represented
a gift, her share having been received for a valuable consideration,
rejected upon failure to prove payment of any consideration. Id.
GOOD WILL. See INVESTED CAPITAL, I.
GRANTORS. See ESTATES AND TRUSTS, I, 12-19.
HUSBAND AND WIFE. See ESTATES AND TRUSTS, I, 15, 16; GIFT TAX,
2, 3; GAIN OR Loss, I, 19; RETURNS, 10; TAXES, 5.
1. Domicile. Taxpayer denied the right to file returns on the basis
of the community property laws of the State of Washington, his former
domicile, where evidence indicates that California had been his domicile
for several years prior to tax year. L. B. Peeples___--
2. Id. Community laws of state where taxpayer entered into his mar-
riage held, not to attach to property acquired after abandonment of
domicile in that state, and Commissioner's determination that such prop-
erty was separate property is approved. Oscar T. Crosby‒‒‒
3. Community and Separate Property; California Law. Commissioner
erred in taxing salary earned by wife, and reported on her separate
return, to husband where evidence disclosed the existence for a period
of years of a valid agreement between them that compensation received
by each should be his separate property. Howard C. Hickman___
4. Id. Decedent prior to the amendment of July 29, 1927, to the Civil
Code of California made application for patents which were granted
after the amendment was adopted. Held, patent applications were prop-
erty owned prior to the adoption of the amendment and entire profit
from their sale in tax year is taxable to decedent. Helen N. Winchester-
5. Id. Another patent was received by decedent by gift from his father
after the adoption of the amendment referred to. Held, this patent was
decedent's separate property, and profit from its sale is taxable entirely
to him. Id.
6. Id. Washington. An inchoate contract right is "property" under
the laws of the State of Washington and taxpayer's right, acquired
prior to marriage, to receive shares of stock upon the fulfillment of
certain conditions, constitutes separate property, nothwithstanding fact
that conditions were fulfilled and legal title passed to him after mar-
riage. William Semar___.
7. Tenants by the Entirety; Maryland Law. Under Maryland law,
in the absence of a specific agreement a husband and wife owning prop-
erty as tenants by the entirety are each entitled to one-half of the
income from the property and Commissioner was correct in transferring
from wife's return enough of such income as was necessary to make an
equal distribution between them. George E. Saulsbury----
8. Id. In Massachusetts the common law rule as to an estate by the
entirety owned by a husband and wife is in force, and the control of
the property is in the husband and all income derived therefrom is tax-
able to him. Robert C. Cooley-----
HUSBAND AND WIFE-Continued.
9. Joint Tenants; Michigan. Taxpayer and his wife disposed of real
property in Michigan owned by them as tenants by the entirety; con-
tract of sale did not designate the character of interest taken by them
in the proceeds of the sale which was due in installment payments over
a period of years. Held, by statutory enactment in the State of Michigan
evidences of indebtedness owned by husband and wife are held under
the title of joint tenants and only one-half of the interest on the obliga-
tion received in tax year is taxable to the husband. John H. Hart_____ 528
10. Id. Bank Accounts; Illinois Law. Where courts of the state hav-
ing jurisdiction have held that deposits to a joint bank account by one
of the payees constitutes a gift to the other; that the rights of the
parties in the account are equal; and that title of payees is a vested
interest, held, only one-half of profits realized from sale of property pur-
chased with funds taken from such account is taxable to husband.
Walter E. Dunham____
ILLINOIS. See GAIN OR Loss, II, 12; HUSBAND AND WIFE, 10.
IMPAIRMENT OF INVESTED CAPITAL. See INVESTED CAPITAL, II.
IMPROVEMENTS. See CAPITAL EXPENDITURES, III; GAIN OR Loss,
II, 24.
INCOME. See ALIENS, 3, 4; BAD DEBTS, IV; ESTATES AND TRUSTS, I;
INSURANCE COMPANIES, 1-3; INTEREST, 1, 2; JOINT VENTURES; PART-
NERS, II.
Earned income; what constitutes. See CREDITS, II, 3.
For items of income and deductions in computing net income, see particu-
lar titles.
1. Capital or Income. In a year prior to tax year taxpayer exchanged
a note of one corporation for the cancellation of his indebtedness to
another corporation and an account receivable payable monthly, with
interest on unpaid balance. A portion of each monthly payment was
deemed interest on balance of the account then payable, and remainder
was deemed a payment of principal. Held, payments received in tax
year represented taxable income in part, and a return of capital in part,
and should be taxed accordingly. Ward Ames, Jr..
2. Id. Unrefunded and unrefundable portions of donations made to
carrier for construction of facilities for use of donor do not lose their
character as contributions and are not taxable as income. Southern
Ry. Co-----
3. Assignment; What Constitutes Reservation of Income. Assign-
ment of taxpayer's equity in stock held as collateral for payment of
part of the purchase price for which he gave notes to another on condi-
tion that latter should use any dividends paid on the stock to satisfy
taxpayer's notes, assignment contract further providing that should
issuing corporation pay dividends direct to taxpayer he would apply
them for the benefit of assignee toward payment of purchase price, held,
not a reservation of income by assignor but is an assignment of corpus.
Theodore R. Gerlach__
4. Id. By assuming liability to pay the remainder of the purchase
price the stock became assignee's property and dividends received there-
after are taxable to her. Id.
5. Id. Corpus. Owner of a fractional interest in oil properties trans-
ferred all his right, title and interest to a trust, property to revert to
grantor after trust had realized a stipulated amount. Held, assignment
was of corpus, not of future income, and Commissioner erred in includ-
ing royalties payable under the transfer to the trust in grantor's income.
R. E. Nail____
6. Id. Where taxpayer assigned an income-producing contract to his
wife, thereby divesting himself of his rights under the contract, as well
as the income from it, the income is not taxable to him. Oscar Mitchell_
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7. Id. The relinquishment of claim to dividends upon stock owned
by a trust by a beneficiary entitled to receive the net income of the trust
does not constitute such an assignment as will relieve assignor of liabil-
ity to pay income tax thereon. Edith R. Wood___
8. Id. Where owner of a property right assigns merely the income
arising therefrom retaining the other incidents of ownership which are
essential factors in the production of income, held, income is taxable
to assignor. Emily Gale Lowery‒‒‒‒‒
9. Id. Where the owner of real estate declares himself a trustee to
receive income therefrom and to pay such income to another for life,
and there is no transfer of corpus to the beneficiary either for life or
in perpetuity, held income remains taxable to owner. Oscar Mitchell____
10. Bank Deposits. Commissioner's determination that unexplained
bank deposits represented income approved, where evidence failed to
establish taxpayer's contention that deposits were loans which were
off set by repayments. Pincus Brecher____
11. Brokerage Accounts; Title. A father established brokerage ac-
counts for each of his three daughters with stocks which had thereto-
fore been given to them by him and their mother; the father managed
and controlled all stock transactions. Held, income belonged to the
daughters and is not taxable to the father. Emil Frank---.
12. Constructive Receipt. Taxpayer leased all its properties for a fixed
annual rental, lessee to make payment of the rental directly to lessor's
stockholders. Held, rental constituted income constructively received
by lessor to be reported on its return of income. Western Union Tele-
graph Co-‒‒‒‒‒
13. Forgiveness of Indebtedness. Where creditor agreed to accept
property having a lower depreciated value than amount of debt in full
satisfaction of the account, debtor is in receipt of income measured by
difference between the value of property which it transferred and the
amount of the debt. Dallas Transfer & Terminal Warehouse Co‒‒‒‒‒‒
14. Id. Claim that amount of income to be reported is limited to
difference between depreciated value of the property and its market
value at date transferred, considered and rejected. Id.
15. Income Impressed with Trust; Perpetual Care. A cemetery cor-
poration gave assurances with lots sold that purchase price included
perpetual care and that a proportion thereof would be set aside as a
reserve for that purpose. Evidence established that no amount was ever
placed in trust and no liability on this clause of the contract was recog-
nized in corporation's books of account. Held, proceeds are not impressed
with a trust so as to justify eliminating a proportionate part from tax-
able income. Acacia Park Cemetery Assn., Inc___
16. Recoupments; Depositors' Guaranty Fund. All contributions by
Texas State banks to a depositors' guaranty fund, whether regular con-
tributions or special assessments, are deductible as and when made,
and therefore recoupments of such contributions should be reported as
income. Wichita State Bank & Trust Co‒‒‒‒‒‒
17. Stock Rights. The receipt by stockholder of rights to subscribe
for convertible bonds of issuing corporation does not result in a realiza-
tion of taxable income measured by the fair market value of the bonds.
T. I. Hare Powell‒‒‒‒‒
INITIAL PAYMENT. See INSTALLMENT SALES, 2-6.
1. Accrual or Installment Basis; Election. Sec. 212 (d), Act 1926,
as retroactively applied by sec. 1208 of the same act gives taxpayers
the privilege of reporting income from installment sales of property
on either the accrual or installment basis and taxpayer may therefore
revise his computation after original return for an earlier tax year has
been filed, reporting such profit on the accrual basis. James D. Boone 1064
INSTALLMENT SALES-Continued.
2. Initial Payment. The owners of undivided interests in realty sold
the property in tax year for a consideration consisting of cash and a
mortgage note, amount of cash being in excess of one-fourth of sale price.
Held, not entitled to compute profit on installment basis. Walter E.
Kramer
3. Id. Fact that vendors had agreed to apportion the proceeds from
the sale in different proportions so that one received less than one-
fourth of the purchase price in cash, held immaterial and does not en-
title him to a computation on the installment basis. Id.
4. Id. On evidence that both contract price and initial payment as
stated in deed of sale were at variance with the facts and that initial
payment was actually less than one-fourth of the contract price, held,
taxpayer is entitled to report profit on installment basis. James D.
Boone___
5. Id. A payment in an amount less than 25% of contract price was
made in year in which executory contract of sale was entered into and
additional cash was paid in following year when sale was consummated,
the sum of the two payments equalling more than 25% of contract price.
Held, not entitled to report profit on the installment basis.
Portland Cement Co-‒‒‒‒‒
INSURANCE. See EXPENSES, V; INSURANCE COMPANIES.
1. Statutory Income; Forfeit. Amount received by insurance company
as a forfeit for failure of a purchaser to exercise an option granted to it
by the company does not fall within the statutory classification of
income of insurance companies and was erroneously included by Com-
missioner in income subject to tax. Farmers Life Insurance Co‒‒‒‒
2. Id. Oil Lease Bonus. Cash consideration received by insurance
company for executing oil leases of Texas lands constitutes ordinary
income not capital gain following Burnet v. Harmel, 286 U. S. 536,
which held that although under Texas law an oil and gas lease vests
in the grantees a fee title to the minerals themselves, this rule cannot
vary the operation and intendment of sec. 208, Acts 1924 and 1926. Id.
3. Id. Rental value of space occupied by a life insurance company in
its own building is not required to be included in gross income not-
withstanding fact that taxes and other real estate expenses are allow-
able deductions. Volunteer State Life Insurance Co
4. Deductions; Reserves. Dividend Funds created by an insurance
company through setting aside a certain amount from each renewal
premium, to be distributed pro rata to surviving persistent policy
holders after twenty years, held not to constitute "reserve fund required
by law" within the meaning of the revenue acts. Id.
5. Id. Coupon Fund guaranteeing premium reductions of a definite
amount at a fixed future date held to constitute an insurance reserve,
obligation to meet which is a reserve required by law" and deductible
under sec. 245 (a) 2, Acts 1924 and 1926. Id.
6. Investment Expense. Additional deductions for investment expense
allowed on evidence that amount allowed is within the limitations con-
tained in sec. 245 (a) (5), Act 1926. Id.
7. Id. Commissions on Sales of Real Estate are a part of the expense
of making the sale, and not "investment expense ", and since taxing
statute does not require life insurance companies to include in gross
income profits from such sales commissions paid in connection therewith
are not allowable as deductions. Id.
8. Id. Sec. 203 (a) (5), Act 1928. Salaries paid officers by a life
insurance company were segregated between compensation for handling
its investments and compensation for general supervisory work, separate
checks for each class of service being issued. Held, amounts paid which
were assigned to investment expense were not a part of general expense
within the meaning of sec. 203 (a) (5), and limitations of that section
do not apply. Id.
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