Imagens das páginas
PDF
ePub
[blocks in formation]

1973-281 Sturgill, Charlie and Chris- 1973-240 Washington, James R. and

[blocks in formation]

INDEX-DIGEST

ACCUMULATED EARNINGS TAX

Working Capital Needs-Current Assets-Includability of Municipal
Warrants.-Interest-bearing special-assessment warrants having fair
market value of 92-96% of face value, which municipalities gave
paving contractor in payment for services and were listed on contrac-
tor's books as current assets at yearend, were properly considered as
current assets available for working capital, other business purposes, or
dividend payments, in resolving determinative issue and finding con-
tractor accumulated earnings and profits beyond reasonable business
needs, for imposition of sec. 531 accumulated earnings tax, consider-
ing that warrants were marketable and marketed in tax years, treated
as current assets by contractor's bonding company, and otherwise
usable continuously to increase accumulations as ready made method
to avoid dividend payments and imposition of tax. Ready Paving &
Construction Co----

ADDITIONS TO TAX

Fraud-Burden of Proof-Intent to Evade Tax.—Commissioner failed
to carry burden of proving by clear and convincing evidence that
petitioner knowingly understated his income with specific purpose of
evading tax believed to be owing, since circumstances on which Com-
missioner relied were not sufficient to show intent to conceal taxable
income believed to be due and owing in 1966, and as to 1967, peti-
tioner's statement referring to embezzled funds and indictment, at-
tached to return filed while he was incarcerated for misappropriating
funds, was not so misleading as to support finding that petitioner
attempted to evade tax which he believed to be due and owing. Blaine
S. Fox-

Fraud-Omission of Income From Kickbacks-Pre-James Years.—
Where petitioner did not report kickbacks admittedly received in
1957-63 from marine contractor, whom he instigated to hike bills for
work on employer's ships, but contended that kickbacks were embezzled
funds not taxable under case law for years before James decision in
1961 even if intent was fraudulent, that 1957-62. years were barred,
and that fraud was not proved, Court determined amounts were tax-
able income before and after James, having reviewed leading cases, and
concluded inter alia (1) purpose of James case was to preclude criminal
penalties for nonreporting of embezzled funds in pre-James years, not
to allow pre-James embezzlers to escape paying taxes owed, and did
not prohibit finding of fraudulent intent, (2) it was sufficient under
definition of civil fraud that taxpayer intended to evade taxes he
believed he owed, (3) petitioner obtained funds through swindle, rather
than embezzlement, under State law, and (4) his denial to revenue
agent that he received kickbacks, while reporting kickbacks from
another source, and continued omission of subject kickbacks after
James decision was sufficient to establish fraudulent intent to remove
bar of limitations and support fraud additions. George C. McGee_____
Late Filing-Income Tax Return-Reasonable Cause.-Petitioner, who
at time of transfer to Germany in March 1969 had not accumulated
information necessary to file his 1968 return and, although his re-
quest for extension of time within which to file was denied, made
no attempt to file such return until after his return from Germany
in August 1970 when his return for another year was being audited,
under case law failed to prove his delinquency was due to reasonable
cause rather than willful neglect under sec. 6651 (a), having argued only
that had he prevailed on first issue herein and been entitled to use
head-of-household rates, his withheld taxes would have covered his tax
liability and no addition to tax would have been owed. John A.
Bayless

Page

826

704

249

394

869

ALIMONY

Monthly Payments-Incident to Divorce-Alimony or Property Settle-
ment.-H's payments to W of $400 per month to maximum of $29,000,
which totaled almost exact amount of advance W received on family
inheritance for use in purchasing their home and were in addition to
regular alimony payments provided in divorce agreement, were not
alimony payments includable in W's income and deductible by H, but
were for property settlement even though agreement denominated
them as support payments, since parties' intention in making payments
governs and here it was clear that they intended payments to compen-
sate W for her property rights in home which was awarded to H
under agreement. Walter H. Weiner_

Payments to W-Incident to Divorce-Periodic or Installment.-H's
payments to W of $600 per month, payable under divorce decree for
54 months but without specifying total sum or expressly or implicitly
subjecting payments to contingencies of death, remarriage, or change
in economic status, were nondeductible installment payments under
sec. 71(c) (1), since mere mathematics could ascertain exact principal
sum specified in decree, and alternatively under operation of State
law, which imposed no contingencies on such payments that would
make total sum payable indefinite and so periodic; moreover, on facts,
Golsen rule was not applicable to require following Myers decision in
Ninth Circuit, in view of 19 years' development in law thereafter and
regs. adopted, which have been upheld by many court decisions as
reasonable and consistent with statute. George B. Kent, Jr----.

Periodic Payments-Annulment Decree-Alimony Equivalent.-Peri-
odic support payments made to former W under New York annulment
decree were alimony to W under sec. 71(a)(1) and hence deductible
by H under sec. 215, following George F. Reisman, and considering that
under New York law, void or voidable marital relationships are not
distinguished for purposes of support in annulment action, putative
marriage between H and W was recognized for purpose of creating
legal obligation to support W, which annulment decree fixed in mone-
tary terms, and fact that support issue is discretionary does not make
it any less a legal obligation. Andrew M. Newburger___.
AMORTIZATION

See DEPRECIATION.

BAD DEBTS

Demand Note-Personal Loan-Worthlessness.-Petitioner failed to
prove he was entitled to deduction in 1966 for worthlessness of A's
$2,500 demand note 32 months after he made loan, which he did not
ask A to repay in 1966, having failed to prove debt was not worthless
when made or became worthless before yearend, in that, in 1966 A
(1) owned home and corporate stock, sale of which in 1967 yielded
$520-per-month payments to A over 20-year period, and (2) intended
to repay note and had reasonable prospect of doing so as of 1966
yearend. C. James Mathews___.

Guarantor's Payment-Loan Proceeds Used for Stock Purchases-
Qualification as Business Use.-Petitioner's $30,000 payment in settle-
ment of liability as guarantor of $100,000 loan to A, which was used
to purchase stock in insurance company A hoped would develop type
of insurance policy he had originated, was not deductible as (1) sec.
166(f) business bad debt since A did not use loan proceeds in his trade
or business but to acquire stock as investment in business in which he
previously held no interest or position and his activities did not con-
stitute business of promoting life insurance companies, or (2) sec.
165 (c) (2) loss incurred in transaction for profit, since guaranty pay-
ment was governed exclusively by sec. 166 as attributable to worthless-
ness of debt, there being implied promise on A's part to reimburse
petitioner, under applicable Arkansas law. Robert E. Imel---------
Loans to Foreign Subsidiary-Worthlessness-Manipulation of Ac-
counts or Assets.-P, parent of affiliated corporations, was not entitled
to sec. 166(a) bad debt deduction on consolidated return for inter-

Page

155

133

457

12

318

[blocks in formation]

company debts owed by foreign subsidiary to 2 domestic subsidiaries,
since P failed to show debts became worthless in 1966 or that P did
not strip foreign subsidiary, without full consideration, of assets which
could have been applied on debts, on facts showing (1) foreign sub-
sidiary's balance sheet did not reflect value of intercompany receiv-
ables and lots which would have been available for application on
debts, (2) when foreign subsidiary transferred investment to P in
settlement of its account payable, it received credit only for book
value of land, and (3) P's or foreign subsidiary's allegedly worthless
securities were not worthless in 1966 but to the contrary had substantial
value. Canaveral International Corp‒‒‒‒

Personal Loan-Bank Executive-Business or Nonbusiness.-Peti-
tioner's $5,000 loss sustained in 1968 when debt owed him became
worthless was deductible as sec. 166(d) nonbusiness bad debt, rather
than sec. 166(a)(1) business bad debt absent showing that debt was
created in connection with his trade or business either as (1) lender,
since making of 8 or 9 loans during 4-year period did not elevate
activity to level of business, or (2) bank executive, since debt was not
proximately related to petitioner's employee status considering that
dominant motive for making loan was to secure new business for bank,
not to retain employment. Robert E. Imel_.

BASIS

See CORPORATIONS, GAIN OR LOSS, and VALUATION.
CAPITAL EXPENDITURES

Payment to Seller-Acquisition of Customer Lists and Exclusive Sales
Agency or Consultant's Fee-Capital Expenditure or Expense.-$8,500
paid by petitioner subch. S corporation to X corporation under agree-
ment whereby petitioner replaced X as exclusive sales agents in Okla-
homa for manufacturer of electronics equipment which petitioner
represented in Texas and parts of Louisiana, contrary to petitioner's
contentions, was not in nature of consultant's fee for introducing
petitioner to customers and acquainting it with products deductible
as ordinary and necessary business expense under sec. 162, but on
evidence and under case law was for purchase of customer lists and
right to represent manufacturer in Oklahoma, both of which were
intangible capital assets acquisition of which was nondeductible capital
expenditure under sec. 263. Elgin B. Robertson, Jr‒‒‒‒‒‒‒
CAPITAL GAINS AND LOSSES

See also COMPENSATION, CORPORATIONS, and INCOME.
Patent Transfer-Limited Geographical Area-Capital Gains Treat-
ment.-Payments received by taxpayer in 1966-68 under exclusive li-
cense agreement, for use of his patented process in specified geograph-
ical area, qualified for capital gains treatment under sec. 1235, since
agreement granted all substantial rights to patent, contrary to Com-
missioner's contention in reliance on reg. that grant limited to geo-
graphical area within country of issuance was not grant of all substan-
tial rights. Vincent B. Rodgers, 51 T. C. 927, followed. Estate of
George T. Klein___.

Purchase of Unregistered Stock-Bankrupt Corporation-Theft Loss or
Capital Loss.-Petitioner surgeon A, who purchased stock in Las Vegas
casino for $52,000, which he paid to patient and casino's president,
was not entitled to deduct loss on investment in 1968, year he was
advised by his attorney that casino had filed petition in bankruptcy
and there was little likelihood of recovery, as sec. 165(c) theft loss,
since under Court's definition of "theft," deduction has been allowed
where taxpayer suffered loss as result of false representation of another
person but never where false representation was not in fact made but
was merely implied by law, and here mere showing that stock was sold
without permit in violation of California's securities laws was not
sufficient to prove B obtained A's money for his own use or through any
guile, absent evidence of guilty knowledge or intent on B's part, and
record failed to show B fraudulently misrepresented casino's financial
condition. Carroll J. Bellis.......

Page

520

318

727

332

354

CAPITAL GAINS AND LOSSES-Continued

Sale of Partnership Interest-Franchise Operation-Noncompete Cov-
enant. In 1966 installment sale by S to B`of partnership interest in
franchise under agreement containing noncompete covenant, both
parties being knowledgeable in the field of Federal taxation and each
having chosen to treat transaction for tax purposes in manner most
favorable to himself, Court was unable to assign value to covenant
absent "strong proof" as to what its value might be, in that no value
was allocated to covenant in sale agreement and no credible evidence
was adduced which would permit allocation, so that C correctly re-
ported installment payments as long-term capital gain and B was not
entitled to amortize deductions claimed for amortization of covenant.
Libero P. Baldarelli.

Sale of Realty-Holding Period-Tacking on Prior Leasehold Period.—
Where petitioners shareholders on Apr. 28, 1967, in sec. 333 liquidation
of their controlled corporation acquired 92-year leasehold of 6-acre
tract with option to purchase, which they exercised May 15, and 4
days later sold part of tract, under case law, exercise of option consti-
tuted purchase of legal title and, contrary to petitioners' contention,
did not result in sec. 1031 exchange of leasehold for fee, so that peti-
tioners were not entitled to tack holding period of their stock to holding
period of fee and therefore realized short-term capital gain on their
pro rata portion of gain on sale. Petitioners' alternative argument,
that they sustained loss on alleged worthlessness of lease and subordi-
nation agreement when option was exercised, which constituted new
issue raised first time on brief and hence could not be considered,
nevertheless failed on merits. Vernon Molbreak_.
COMMISSIONER OF INTERNAL REVENUE

Reopening of Closed Year-Procedural Requirements-Validity of De-
ficiency Notice.-Contrary to petitioner's contentions, Commissioner's
second investigation of petitioner's tax liability for 1968, based on
conclusion that petitioner erroneously employed higher percentage
limitation associated with public foundations in calculating his char-
itable deduction to his private foundation, was not "unnecessary"
under sec. 7605(b) considering legislative history and case law and
absent evidence of arbitrariness, transcendence of authority, or har-
assment, and Commissioner did not transgress Rev. Proc. 68-28, so
that deficiency notice was not deprived of validity. Robert F.
Collins

COMPENSATION

Deferred-Salary Payments-Deposited in Trust Fund-Economic-Bene-
fit Doctrine.-In arrangement established at petitioner's instigation
in 1960, whereby his corporate employer unconditionally paid his pre-
viously earned compensation for services into 15-year trust established
for him, after which funds were to be distributed to him or to suc-
cessor family beneficiaries, and petitioner had no restrictions placed
on assignment of his interest and could terminate trust earlier in his
capacity as president of his employer, petitioner realized taxable income
in 1960 when employer placed accumulated salary amounts in trust
for benefit of him and his family, since present, nonforfeitable economic
benefit was thereby conferred on him. Sproull and McEwen cases fol-
lowed. Drysdale distinguished. Candido Jacuzzi__

Employees' Stock Option-Sale of Warrants-Realization of Capital or
Income.-Petitioners realized ordinary income and not long-term cap-
ital gain from sale of stock warrants purchased from life insurance
company under employees' stock warrant restricted stock option plan,
since record showed that petitioners were employees of company, war-
rants were grants for reasons connected with petitioners' employment
and were sold by company to petitioners for nominal amounts to secure
better services from them rather than to assure petitioners' continued
control over company, and that under applicable reg. 1.421-6 warrants,
which were not actively traded on established market, were not exer-
cisable immediately in full by petitioners under State law, and fair

Page

44

382

693

262

« AnteriorContinuar »