Accrual Basis Taxpayer-Condemnation Award-Year Taxable.— Court rejected Commissioner's contention that accrual basis petitioner's gain from condemnation award was taxable in fiscal 1968, by reason of right to appeal Court of Claims decision, which right State exercised, Court sustained Commissioner's alternative contention that gain was taxable in fiscal 1970, year in which all appeals were exhausted and award became final, since all events had occurred which fixed petitioner's right to income, and State had issued voucher for exact amount of balance owing plus interest, so that amount of income was ascertainable with reasonable certainty before close of year, even though actual payment was not made until fiscal 1971. Snyder Air Products, Inc. v. Commissioner
Change of-Timing of Bonus Compensation-Commissioner's Sec. 481 Adjustments.- Where cash basis petitioner corporation had consis- tently deducted bonuses paid to president/sole stockholder on accrual basis, and for 1974 Commissioner changed petitioner's method for such item and allowed deductions only for amount paid in such year and also added bonus accrued and deducted in 1973 which was not paid until 1974, Court determined (1) Commissioner did not err in requiring deduction of bonuses in year actually paid under sec. 446, and (2) Commissioner's requirement that petitioner report this material item in year paid was change in petitioner's method of accounting, and under sec. 481 Commissioner was authorized to include in petitioner's income for 1974 amount of bonus erroneously deducted by petitioner in 1973. Conners, Inc. v. Commissioner
Deduction of Cost of Cattlefeed Consumed in Following Year- Business Purpose and Distortion of Income-Commissioner's Discre- tion. Where cash basis partnership in which cash basis petitioners were limited partners, deducted as ordinary and necessary business expense purchase of prepaid cattlefeed consumed in following taxable year, Court determined that Commissioner abused his discretion in disallowing deduction, since (1) expenditure was payment and not deposit, (2) evidence established that substantial business purpose and not tax avoidance was reason for payment in December, and (3) there was no material distortion of income, considering, inter alia, that
ACCOUNTING METHODS -continued
although sec. 446(b) was available to Commissioner, it was to be applied at partnership level, and historically farmers have been accorded special treatment because of nature of business. Van Raden v. Commissioner
ACCUMULATED EARNINGS TAX
See also DISTRIBUTIONS.
Corporation as "Mere" Holding Company-Passive Collection of Rent-Tax-Avoidance Purpose.-Where in 1972 and 1973 corporate petitioner's activities consisted of leasing warehouse to company owned by petitioner's sole shareholder and collecting rent on two vacation properties leased by shareholder, Court determined petitioner was subject to sec. 531 accumulated earnings tax, since it was mere holding company, as described by sec. 533(b), availed of for purpose of avoiding income taxes on its shareholder by permitting earnings and profits to accumulate instead of being divided or distributed. H. C. Cockrell Warehouse Corp. v. Commissioner
Accumulated Earnings Tax-Planned Entry Into New Business as Reasonable Business Need-Dividend Guidelines.-Where petitioner corporation X in coal brokerage business paid no dividends in fiscal 1972 when "dividend guidelines" were in effect under Economic Stabiliza- tion Act of 1970, Court concluded that X failed to show that any portion of accumulated earnings in excess of amount determined by Commis- sioner was for its reasonable business needs, insofar as those needs involved planned entry into real estate business, and determined (1) amount of accumulations required or expected under guidelines constituted reasonable business need for which sec. 535(c) provides accumulated earnings credit, and (2) penalty tax under sec. 531 could be applied for fiscal years in which guidelines were in effect only to accumulations in excess of those required or expected. Estate of Lucas v. Commissioner
Failure to File-Negligence.-Additions to tax under sec. 6651(a) were properly imposed, since petitioner corporation's brief and unde- tailed statement that its president's illness prevented him from timely filing returns was inadequate to overcome Commissioner's determina- tion; but addition to tax under sec. 6653(a) for fiscal 1968 based primarily on petitioner's failure to report gain from condemnation award, which Court herein concluded was not taxable in that year, was denied. Snyder Air Products, Inc. v. Commissioner ...
Failure to File-Negligence-Noncompetent Indian.-Noncompe- tent Indian determined herein to be taxable on wages including compensation received as chairman of tribal council from funds which tribe as whole derived from tribal lands, was not liable for sec. 6651(a)
ADDITIONS TO TAX -continued
and 6653(a) additions in 1972, since considering Court's position in Walker v. Commissioner, 37 T.C. 962, petitioner's belief that salary as chairman was tax exempt was reasonable; nor was petitioner liable for sec. 6653(a) addition in 1971 because of special status of Red Lake Band and petitioner's sincere but erroneous belief that Constitution and Treaty of Greenville protected any member of band from taxation. Jourdain v. Commissioner
Late Filing-Estate Tax Return-Reasonable Cause.-Where exec- utrix of estate made inquiries of attorney for estate and was led to believe by him that ancillary litigation involving estate justified delay in filing estate tax return, Court determined on facts that executrix was not negligent and there was reasonable cause for untimely filing of return, so that addition to tax under sec. 6651(a) was not imposed. Amount in joint bank account includable in gross estate was deter- mined. Estate of DiPalma v. Commissioner
Periodic Payments-Alimony or Property Settlement-Written Se- paration Agreement Drafted by W's Attorney.-Payments made by H to W under written separation agreement were periodic payments includable in W's gross income under sec. 71(a)(2) and deductible by H under sec. 215, and apparent discrepancy between value of assets allocated to each in community property State did not require determination that monthly payments in fact represented part of division of property, particularly, since among other facts, W's attorney drafted agreement that included provision that payments were deducti- ble by H and includable by W. Warnack v. Commissioner AMORTIZATION
Loan Expenses-Single Loan or Entire Financial Arrangement— Useful Life.-Contrary to petitioner's contention that $12,960 record- ing and attorneys' fees were capital expenditures to borrow $9.5 million for 1968-69 tobacco season, Court sustained Commissioner's determina- tion that loan expenses covered petitioner's entire financial arrange- ment period with bank and that because life of financial arrangement was indeterminable no annual amortization was allowable, on evidence showing nonrecurring loan expenses were incurred upon filing of financing statements and benefited all presently outstanding loans and all future loans made while financing statement was in force, which under Tennessee law was 5 years, and petitioner having failed to prove facts upon which Court could form even reasonable approximation of useful life of financial arrangement. Austin Co. v. Commissioner
Noncompete Covenant-Not in Purchase Agreement-Strong Proof Rule.-Petitioner corporation was not entitled to deduct amortization of alleged covenant not to compete, absent any reference to a covenant in any document relating to purchase, and absent any evidence, much less "strong proof" required by case law, that it and seller intended to
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