FOREIGN CORPORATIONS -continued
Commissioner's contention, corporation did not become "guarantor"
within meaning of sec. 956(c), absent essential elements of (1)
undertaking or promise on part of guarantor, and (2) liability of
guarantor to make payment if obligor failed to do so. Ludwig v.
Commissioner......
GAIN OR LOSS
See also RULES.
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Involuntary Conversion-Investment or Sale Property-Real
Estate Developer.-Where petitioner bought parcels of undeveloped
land in 1952 and 1958 intending to subdivide land, improve, and then
sell as home sites but never developed portion of land because State
officials refused to approve petitioner's proposed subdivision plans
after they indicated in 1958 that part of land was within site of
proposed State park, and land was eventually condemned, Court
determined on facts, contrary to Commissioner's contention that
property was stock in trade or other property held primarily for sale
and that petitioner could not defer recognition of gain, that
petitioner held acreage as capital asset from time officials refused to
approve his development, and under sec. 1033(g) improved replace-
ment property purchased by petitioner was like kind, so that under
sec. 1033(a) petitioner was entitled to defer recognition of part of gain
and treat remainder as long-term capital gain. Biedermann v.
Commissioner..
Recognition-Liabilities Exceeding Basis in Tax-Free Ex-
change-Definition of “Liability."-Where cash basis petitioner
transferred all assets and liabilities of his sole proprietorship to
corporation in exchange for all stock of such corporation, and sum of
liabilities assumed by corporation exceeded total adjusted basis of
proprietorship's assets transferred, Court reconsidered its prior
position and determined in light of legislative history that an
obligation should not be treated as a liability, under secs. 357 and
358, to extent that its payment would have been deductible if made
by transferor, so that transfer was tax-free exchange. Focht v.
Commissioner .....
Distributions From Estate-Family Allowance-Taxability to
Beneficiaries.-Where estate had distributable net income in excess
of amounts paid as family allowances to guardians on behlaf of
petitioner minor children, all family allowance distributions were
properly includable in petitioner's gross income under sec. 662(a),
since (1) although petitioners received payments as statutory right in
preference to most other estate charges, they were beneficiaries
nevertheless within meaning of sec. 643(c); (2) statutory scheme
dictated such result whether payments were from estate's income or
corpus; and (3) Commissioner did not abuse his discretion under sec.
7805(b) by limiting retroactive application of regs. Cameron v.
Commissioner.....................
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Exclusions-Payments for Utilities, Carpeting, and Heater-
House Furnished for Convenience of Employer.-Where petition-
er was furnished house by and for convenience of his employer,
payments made by petitioner, for which he was not reimbursed, for
utilities, carpeting, and heater were not excludable from gross
income under sec. 119, since items were not furnished by his
employer. Turner v. Commissioner .....
Exclusions-Pension Fund Withholdings-Current Economic
Benefit.-Petitioner fireman was not entitled to exclude or deduct
from gross income amounts withheld from salary as contributions to
firemen's pension fund, since under case law petitioner received
current economic benefit in such year from increased vested annuity
rights at least equal in value to amounts withheld from salary, and
even though enjoyment of benefits was postponed, right to benefits
constituted gross income. Sibla v. Commissioner......
Exclusions-Pension Payment-Interest Earned on Employ-
ee's Contributions.-Court sustained Commissioner's contention
that amount received by petitioner from annuity under New York
State Employees' Retirement System equal to interest earned on
petitioner's accumulated contributions to system was not excludable
from gross income and rejected petitioner's contention that such
amount was part of his "consideration for the contract," since
interest credited to amounts withheld from petitioner's salary was
not interest on obligations of a State within meaning of sec. 103(a)(1),
and amounts of interest credited to account of petitioner were not
constructively received when credited in years prior to retirement
because during those years he could have received amounts only by
resigning from his position and withdrawing all amounts he had
contributed under retirement law provisions. Newman v. Commis-
sioner....
Imputed Interest-Deferred Stock Payments in Tax-Free
Reorganization-Sec. 483 Applicability.-Where petitioners ex-
changed common stock in X corporation for common stock of Y
corporation in sec. 368(a)(1)(B) tax-free reorganization under agree-
ment providing for one distribution immediately and one in 5 years
without interest, determined in part by future earnings, and three
separate distributions were actually made, one in 1964, one in 1969,
and one in 1971, Court sustained Commissioner's determination that
interest income should be imputed under sec. 483 on deferred stock
distributions. Catterall v. Commissioner, 68 T.C. 413, and Solomon v.
Commissioner, 67 T.C. 379, followed. Cocker v. Commissioner
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Imputed Interest-Deferred Stock Payments in Tax-Free
Reorganization-Sec. 483 Applicability.-Where petitioners in
1968 exchanged their stock in corporation X for voting stock of
corporation Y in tax-free reorganization under secs. 354(a)(1) and
368(a)(1)(B), and reorganization agreement provided for additional
shares based upon future profits of X and future fair market value of
Y stock but made no provision for payment of interest on additional
shares, Court sustained Commissioner's contention that shares
received in 1971 constituted "payments" subject to imputed interest
provisions of sec. 483. Solomon v. Commissioner, 67 T.C. 379, and
Jeffers v. United States, 556 F.2d 986, followed. Catterall v.
Commissioner.
Litigation Award-Compensation for Payments Under
License of Assets-Capital or Income.-Where petitioner corpora-
tion X licensed Brazilian corporation Y to use X's trade name,
trademark, and technical knowhow in exchange for 5%-royalty
payments, under 15-year agreement terminable by X if quality of
products sold was not maintained and nonassignable without X's
consent, Court determined that amounts recovered in tort from
American corporation Z which induced Y to breach agreement were
not capital gains under sec. 1221 or 1231, since whether judgment
award is ordinary income or capital gain depends on nature of
underlying asset and here judgment was for loss of contract rights
and not for destruction of business and goodwill, only license and not
sale was intended, X retained substantial rights in assets which had
useful life beyond term of agreement, and right to payments for
licensed assets is not property for secs. 1221 and 1231 purposes.
Republic Automotive Parts, Inc. v. Commissioner .....
Osage Indian Headright Income-Interest on Estate Tax
Refund Paid to Beneficiary-Taxability.-Where petitioner,
estate of deceased, unrestricted Osage Indian, received income from
Osage headright interests, and in addition was notified by Osage
Indian Agency that as sole residual beneficiary of mother's estate,
petitioner would be paid refund of estate taxes credited to mother's
estate's account at Agency upon receipt of additional coexecutor's
bond, Court determined that headright income was properly includa-
ble in petitioner's gross income, since Osage Allotment Act does not
exempt such income, and that interest element of net tax refund was
properly includable in petitioner's gross income, since (1) any income
arising from refund was taxable to petitioner rather than mother's
estate, (2) income was not excludable from petitioner's gross income
as bequest under sec. 102, and (3) refund was constructively received
by petitioner during 1970 under sec. 451. Estate of Shelton v.
Commissioner.....
Patent Royalties-Transfer of All Substantial Rights-
Capital or Income.-Where petitioners, joint owners of patents
covering certain rock crushing machines, who transferred all patent
rights to such machines within specified geographical area to X
corporation, presented no evidence concerning value of patent rights
retained in all other geographical areas, Court determined that (1)
transfer of all patent rights within specified geographical area does
not automatically qualify as transfer of "all substantial rights" to
patent within meaning of sec. 1235 (Rodgers v. Commissioner, 51 T.C.
927, and Estate of Klein v. Commissioner, 61 T.C. 332, not followed),
and (2) petitioners failed to establish as matter of fact that
geographical transfer disposed of "all substantial rights" to patents,
so that royalty income was taxable as ordinary income. Kueneman
v. Commissioner
Sale of Right to Receive Exchange Water-Nature of Under-
lying Asset-Capital or Income.-Gain realized from assignment
and sale of portion of contract interest or right to receive certain
exchange water from State was taxable as ordinary income under
exclusionary provisions of sec. 1221(1), since under case law whether
"contract right" was capital investment or income right must be
determined from examination of underlying sale of water to State
which gave rise to petitioner's right under contract, and record
showed petitioner held its water primarily for sale to customers in
ordinary course of its business, there was no reason to distinguish
water sales to State, and contractual right to receive water from
State represented in substance right to receive income from sale of
noncapital asset. Buena Vista Farms, Inc. v. Commissioner .
INSTALLMENT SALES
Year-of-Sale Payments-30% Limitation-Mortage Assump-
tion or Property Taken Subject to Mortgage.-Where mortgages
on realty petitioners sold under installment contract exceeded
adjusted basis, and purchaser did not expressly assume mortgages
but guaranteed their payment to mortgagee and paid part of selling
price attributable to mortgages directly to mortgagee, Court, viewing
transaction as whole, determined on facts that purchaser assumed
mortgage within meaning of reg. 1.453-4(c) and that petitioners were
required to include in payments in year of sale excess of mortgage
balance over their adjusted basis in property, so that petitioners
could not use sec. 453 installment method of reporting their gain
because of 30% limitation. Stonecrest Corp. v. Commissioner, 24 T.C.
659, distinguished. Voight v. Commissioner...
Mutual-Qualification As-Policyholder or Stockholder Ori-
ented.-Court determined petitioner was mutual insurance company
entitled to report its income under secs. 821-826, since on facts
petitioner possessed all characteristics typical of mutual companies
except right of policyholders to be members and to choose manage-
ment to exclusion of others, and considering congressional intent to
define mutual insurance companies in extremely broad manner for
Federal tax purposes, i.e., in sense of policyholder-oriented organiza-
tions as opposed to stock companies, petitioner was policyholder
oriented, notwithstanding existence of small number of nonpol-
icyholder members. Oklahoma State Union of Farmers Educa-
tional & Cooperative Union of America v. Commissioner
Gratuitous Promises Under Seal to Make Gifts-State Law-
Deductibility.-Where petitioner gave his sister bonds embodying
his purported obligation to make gifts of specified amounts and paid
and deducted interest on promised amounts, Court determined that
under New Jersey law petitioner's gratuitous promises under seal to
make gifts were unenforceable in light of case law and modern trend
of cases, so that interest paid thereon was not deductible under sec.
163(a). Linder v. Commissioner .....
Loan Commitment Fees, Loan Transfer Fees, and Mortgage
Points-Realty Acquisition Date-Accounting Methods.-(1) On
facts, petitioner became equitable owner of property on which
convalescent home was being constructed on Aug. 29, 1970, date of
sale and leaseback agreement, when petitioner assumed benefits and
burdens of ownership, even though deed was not executed until Oct.
28, 1970, and (2) under sec. 163, in light of secs. 461 and 446(b) and
case law, "points" paid to permanent lender constituted prepaid
interest for use of money amortizable over life of permanent loan,
since allowance of deduction for entire amount in 1970 would distort
petitioner's income, but "commitment fee" and "transfer fee"
constituted interest paid for short periods beginning and ending in
1970, deduction of which in 1970 would not distort petitioner's
income. Baird v. Commissioner..
See also UNITED STATES TAX COURT.
LIMITATIONS
Deficiency Notice-Timeliness-Statute Tolled by Original or
Amended Returns.-Where petitioners filed false and fraudulent
joint income tax returns and subsequently filed amended returns,
and Commissioner mailed deficiency notice to petitioners more than
3 years after they filed amended returns, contrary to petitioners'
contention that filing of amended returns tolled statute of limita-
tions, Court determined that original returns, to which fraud penalty
attached, determined applicable statute of limitations, and amended
returns were of no import in determining timeliness of deficiency
notice. Dowell v. Commissioner.
Extension by Agreement-IRS Letter as Notice of Termina-
tion of Appellate Division Consideration-Timeliness of Defi-
ciency Notices.-Where each petitioner executed "unlimited waiv-
er" (Form 872-A) which extended period of limitation for not more
than 90 days after IRS mailing of notice of termination of Appellate
Division consideration, and Commissioner's agent sent letters an-
nouncing inability to reach settlement and that statutory deficiency
notices would be sent, Court determined that such letters constituted
notice which triggered running of 90-day period and in turn vitiated
deficiency notices mailed after that period. Johnson v. Commis-
sioner
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