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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