9. All the above mentioned salaries shall be deducted from the net profits of the partnership as an expense thereof in determining the partners' distributive shares of the net profit of the partnership. If during any year the salary paid shall exceed the net income of the partnership, computed without the deduction of such salaries, the excess shall be treated as a loss of the partnership to be borne by the partners in the proportions stated in paragraph 6 of this agreement.

* * * *

19. By mutual consent of all partners the partnership may be dissolved at any time. All funds and assets of the partnership after the debts are paid shall be divided among the partners in the proportions provided for by paragraph1959 U.S. Tax Ct. LEXIS 194">*223 6 of this agreement.

At the time of the organization of Fayetteville Building Company the several partners contributed capital to the partnership in amounts as follows:

On November 24, 1951, the partnership acquired a tract of land consisting of 22.65 acres, located between Fayetteville and Fort Bragg, North Carolina, from Florence L. Rogers for $ 5,600 and built thereon a group of rental housing units known as "Eutaw Apartments." To finance this construction the partnership borrowed the amount of $ 1,075,700 from a bank. The housing units were 53 per cent complete on the last day of February 1952. They were completed on June 30, 32 T.C. 104">*118 1952. The first occupancy was in April 1952. By July 1, 1952, the entire project was rented. Upon completion of construction of the two projects, the cost of the land and improvements thereto was capitalized on the books of the partnership. The amounts capitalized did not include the partners' salaries or the taxes paid and hereinafter referred to.

The partnership used an accrual method in keeping its books of account1959 U.S. Tax Ct. LEXIS 194">*224 and filing its tax returns, and it employed a fiscal year ending on August 31.

Pursuant to paragraph 8 of the partnership agreement, the partnership during its fiscal year November 1, 1951, to August 31, 1952, paid salaries to Stout, McNairy, and Bryan in amounts as follows:

On its books of account for the fiscal year ended August 31, 1952, the partnership treated as an expense the aforementioned salaries in the total amount of $ 99,349.96, and the resulting net loss of $ 114,692.53 per books was allocated among the partners on the partnership books of account as follows:

In its income tax return for the fiscal year ended August 31, 1952, the partnership reported a net loss of $ 15,342.57. In computing such net loss the salary payments to Stout, McNairy, and Bryan in the respective amounts of $ 49,674.98, $ 24,837.49, and $ 24,837.49 were not deducted as1959 U.S. Tax Ct. LEXIS 194">*225 expenses, but were treated as withdrawals by them, and the return contains the following "Reconciliation of Partners' Capital Accounts":

32 T.C. 104">*119 In his return for the year 1952 Bryan and McNairy each reported income from the partnership in the amount of $ 1,898.98.

In connection with the determination of deficiencies against the McNairys and the Bryans for the year 1952, the respondent, as a result of certain adjustments, including the disallowance of certain deductions for taxes paid, later discussed herein, determined that the partnership for its fiscal year ended August 31, 1952, had ordinary net income of $ 561.01. In the case of Bryan and McNairy he determined that the correct distributive share of partnership net income of each was $ 112.20, instead 1959 U.S. Tax Ct. LEXIS 194">*226 of $ 1,898.98 which they reported, and accordingly decreased taxable income by the difference of $ 1,786.78. He determined, however, that the amount of $ 24,837.49 was ordinary income to each of them under section 22(a) of the Internal Revenue Code of 1939, as compensation for personal services rendered.

In such notices of deficiency the respondent determined that the salaries of $ 99,349.96 constituted a part of the cost of construction of the rental housing units. He accordingly capitalized such amount and allowed additional depreciation in computing the net income of the partnership.

The partnership reported a net loss of $ 24,634.28 for the fiscal year ended August 31, 1953. The respondent determined that the partnership had a net loss for that year in the amount of $ 10,450.92.

Facts as to Deductibility of Taxes by Fayetteville Building Co.

In the fiscal years ended August 31, 1952 and 1953, the partnership claimed various deductions, including taxes in amounts as follows:

1959 U.S. Tax Ct. LEXIS 194">*227 In the notice of deficiency the respondent allowed the partnership a deduction for the taxes in amounts as follows:

The respondent disallowed the balance of the deductions claimed by the partnership for taxes upon the ground that the amounts disallowed 32 T.C. 104">*120 were capital expenditures; he allowed additional depreciation on account thereof. The taxes disallowed by the respondent were paid by the partnership in connection with the construction of two housing projects as follows:

1959 U.S. Tax Ct. LEXIS 194">*228 Facts as to Deductibility of Taxes by Onslow Building Company.

A partnership known as Onslow Building Company in which the petitioners, R. A. Bryan and C. B. McNairy, had a 31 per cent interest and a 20 per cent interest, respectively, in the profits or losses, kept its books and accounts and filed its tax returns on an accrual method for the fiscal years ended October 31, 1952 and 1953.

In its income tax returns filed for those fiscal years, the partnership claimed deductions for certain taxes as follows:

In the statutory notice of deficiency the respondent disallowed all the aforesaid amounts claimed for the fiscal year ended October 31, 1952, except $ 7.81, consisting of FICA taxes of $ 2.60, North Carolina unemployment tax of $ 4.69, and Federal unemployment tax of 52 cents. Respondent also disallowed the following amounts claimed with respect1959 U.S. Tax Ct. LEXIS 194">*229 to the fiscal year ended October 31, 1953: 32 T.C. 104">*121

The aforesaid taxes for both years were disallowed upon the ground that they were capital expenditures. All of said taxes disallowed by the respondent were paid by Onslow Building Company in connection with the construction by the partnership of two housing projects being constructed for rental purposes. The sales tax was paid on materials and supplies used in the construction of the projects and the payroll taxes were paid upon wages of employees directly engaged in the construction of the projects. The partnership did not capitalize any of the taxes above referred to. The respondent allowed additional depreciation on account of the taxes which he held were properly to be capitalized.

Bryan Loan.

G. B. Bagley, who was in the beer distributing business, was indebted to a bank on a note or notes on which the petitioner R. A. Bryan was endorser. Bryan was also a director of this bank. Bagley was a friend of Bryan but had no business connection with him. The bank insisted that the loan or loans be repaid upon maturity. R. A. Bryan, 1959 U.S. Tax Ct. LEXIS 194">*230 not having sufficient funds, requested his wife, the petitioner Ruby M. Bryan, to pay off the obligations. This she did by making loans to Bagley in the amounts of $ 3,500 in April 1951 and $ 12,500 in September 1951, these loans being evidenced by promissory notes signed by Bagley and endorsed by the petitioner R. A. Bryan. At some later time there was substituted by Bagley a single note to Ruby M. Bryan in the amount of $ 16,000.

Bagley remained in the beer distributing business throughout the year 1951. During that year he did not make any payments on the note nor did he pay interest. During 1951 no action was taken by the Bryans toward collecting the note. No amount had been collected by the Bryans on the note up to the time of the hearing of this case.

Commissions to McNairy From Loving-Weaver.

On December 29, 1950, McNairy, as secretary-treasurer of the joint venture, Loving-Weaver, issued a check to himself in the amount of $ 22,940.35, which he deposited in his personal bank account on December 30, 1950. McNairy included this amount in income reported in his joint income tax return for 1950. In 1951 he received no commission from this source and included in his 1959 U.S. Tax Ct. LEXIS 194">*231 return for 1951 no amount as commissions from Loving-Weaver. In the notice of deficiency for the year 1951, the respondent included an amount of $ 12,234.18 as commission from Loving-Weaver, with the following explanation:

32 T.C. 104">*122 It has been determined that in accordance with the provisions of Sections 22(a) and 41 of the 1939 Internal Revenue Code commissions taxable to you during the year 1951 from the partnership Loving-Weaver, Fort Bragg, North Carolina, are $ 12,234.18. Since you did not report any income from this source, your income is increased by the amount of $ 12,234.18.

Additions to Tax Under Section 294 (d).

The petitioner R. A. Bryan filed a declaration of estimated tax for the taxable year 1951. Such declaration is dated January 15, 1952. It shows estimated tax of $ 40,115.56. The petitioners R. A. Bryan and Ruby M. Bryan filed a declaration of estimated tax for the taxable year 1952, dated January 14, 1953, which was received in the district director's office on January 16, 1953. It shows estimated tax of $ 10,164.80. They filed a declaration of estimated tax for the taxable year 1953, dated December 4, 1953, which was received in the district director's1959 U.S. Tax Ct. LEXIS 194">*232 office on December 7, 1953. It shows estimated tax of $ 57,657.30.

The joint income tax returns of R. A. Bryan and Ruby M. Bryan for the years 1950 to 1953, inclusive, showed adjusted gross income and tax liability as follows:

The petitioners C. B. McNairy and Rowena A. McNairy filed, after the close of the taxable year 1951, a declaration of estimated tax for that year. The amount of tax estimated, $ 25,906.96, was deposited with the district director on January 25, 1952. They did not file a declaration of estimated tax for the year 1952. On December 8, 1953, there was filed a declaration of estimated tax, dated December 7, 1953, for the taxable year 1953. This purported to be a joint declaration of both the McNairys but was signed by only C. B. McNairy. The estimated tax, in the amount of $ 23,252.18, was deposited on December 9, 1953, with the district director.

The joint income tax returns of the McNairys for 1950 to 1953, inclusive, disclosed adjusted gross income and tax liability as follows:

1959 U.S. Tax Ct. LEXIS 194">*233 The petitioner R. A. Bryan and the petitioner C. B. McNairy were, respectively, president and secretary-treasurer of T. A. Loving & Co., which engaged in construction work involving many millions of dollars. Each of them also had other varied business interests.

During the years in question and for many years prior thereto, T. A. 32 T.C. 104">*123 Loving & Co. had employed the same certified public accountant or his firm to do all of its accounting and to handle all of its tax returns. The policy of this firm was to also prepare the personal tax returns of the officers, for which no separate charge was made. Pursuant to this policy, this accountant prepared all of Bryan's and McNairy's personal income tax returns and declarations. It was the understanding of both Bryan and McNairy that this accountant would prepare all returns and forms for them as well as for the corporation, although there was never any written agreement to this effect. They considered him to be qualified in tax matters and relied upon him. In one or more of the years prior to 1951 Bryan and McNairy had received revenue agents' reports proposing adjustments to taxes, which this accountant handled. Some adjustments1959 U.S. Tax Ct. LEXIS 194">*234 resulted in deficiencies, but no additions to tax were determined. No question was ever raised as to the requirement for early filing of declarations of estimated tax.

It was the understanding of this accountant and his firm that the filing of declarations of estimated tax on or before January 15 following the taxable year satisfied the law and that no penalty would be enforced. Accordingly, it was routine practice for this firm to prepare declarations at such time. This accountant subscribed to two well-known tax services, both of which clearly stated that timely declarations of estimated tax were required and that penalties were provided for failure to file. This accountant had not made any special study of the law relating to filing declarations of estimated tax until late in 1954.

Pursuant to his practice, the accountant in conjunction with the preparation of the tax returns of T. A. Loving & Co. would gather information regarding estimates to be filed by the corporation's officers in the early part of the year following the taxable year.

In the notices of deficiency the respondent determined additions to the tax as to both the McNairys and the Bryans for the years 1951 to1959 U.S. Tax Ct. LEXIS 194">*235 1953, inclusive, under section 294(d)(1)(A) of the Internal Revenue Code of 1939, for failure to timely file declarations of estimated tax and to pay installments when due. The respondent also determined an addition to tax against the Bryans for the year 1952 under section 294(d)(2) of the Internal Revenue Code of 1939 for substantial underestimate of estimated tax.

The failures of each of the petitioners to timely file declarations of estimated tax for each of the years 1951 to 1953, inclusive, were due to willful neglect and not due to reasonable cause.

OPINION.

The principal issue involved in these consolidated cases is whether the gain derived by the petitioners upon the redemptions of their class 32 T.C. 104">*124 B common stock of the two corporations, Investment and Development, is to be considered as gain from the sale or exchange of property which is not a capital asset, pursuant to section 117(m) of the Internal Revenue Code of 1939. ³

1959 U.S. Tax Ct. LEXIS 194">*236 The petitioners take the position that since the respondent in the notices of deficiency held that the full amount received upon the redemption of their stock constituted ordinary income and relied upon both section 22(a) and section 117(m), his determination was inconsistent; that his main determination was that section 22(a) was applicable; and that the section 117(m) issue is not properly before the Court. We think there is no substance to this contention since the respondent specifically mentioned section 117(m) in the notices of deficiency and this was recognized in the petitions filed. Furthermore, at the hearing counsel for both parties recognized that the primary issue is the applicability of section 117(m). The burden of proof upon this issue is upon the petitioners. Leland D. Payne, 30 T.C. 1044">30 T.C. 1044, on appeal (C.A. 5), and Rose Sidney, 30 T.C. 1155">30 T.C. 1155, on appeal (C.A. 2).

A careful consideration of the facts, which we have set out at some length, leaves us in no doubt that these two corporations constituted collapsible corporations within the meaning of section 117(m)(2). They were certainly formed or availed of1959 U.S. Tax Ct. LEXIS 194">*237 principally for the construction 32 T.C. 104">*125 of property. Furthermore, all the facts inevitably point to the conclusion that there was the requisite view to the sale or exchange of stock by the stockholders (whether in liquidation or otherwise) or distributions to the shareholders prior to the realization by the corporations of substantial parts of the net income to be derived from the properties constructed.

On April 17, 1950, which was shortly after organization, each corporation issued class B common stock to an architect, ostensibly as a fee for services, the aggregate par value thereof being $ 421,324. This issuance was pursuant to written contracts between the corporations and the architect, submitted in accordance with the requirements of the Federal Housing Administration. However, the architect immediately endorsed these certificates and the shares were reissued to the petitioners and W. H. Weaver in the amounts set forth in our Findings of Fact. He was paid a total amount of $ 24,010 by the individuals, including the petitioners, for this stock. This together with $ 2,000 paid him by each corporation constituted his fee of $ 28,010.

Upon the first two projects the corporations1959 U.S. Tax Ct. LEXIS 194">*238 were able to obtain total FHA-insured loans aggregating $ 8,423,000, whereas the cost of construction of the projects was $ 7,988,541, or an excess of $ 434,459. One of the projects was completed on or about March 26, 1951, and the second on or about May 25, 1951. Final approval by endorsement of the FHA loan guarantee was made on the first project on May 2, 1951, and on the second on August 10, 1951. On August 31, 1951, the petitioners and Weaver surrendered all their class B common stock for redemption and received from both corporations an aggregate amount of $ 421,324. While the minutes of the meetings authorizing this redemption stated that the corporations had no need for this money, the fact is, of course, that the corporations were indebted in very large amounts on the FHA-insured loans and, furthermore, prior to the time of these distributions, applications had been made for other large loans to finance two additional projects. We note also that on October 8, 1951, additional class B common stock was issued by the two corporations to W. H. Weaver Construction Co. and T. A. Loving & Co., in which the petitioners were stockholders, in an aggregate amount of $ 227,775, 1959 U.S. Tax Ct. LEXIS 194">*239 the testimony being that this was needed for construction of the two new projects.

In connection with the two additional projects a similar procedure was followed. On October 25, 1951, these corporations issued to the architect under similar circumstances additional class B common stock totaling $ 413,032 par value which was immediately surrendered and reissued to the petitioners and Edith H. Weaver, they paying therefor $ 20,595.62, which together with $ 2,000 paid by each corporation, made up the architect's total fee of $ 24,595.62. The corporations obtained 32 T.C. 104">*126 FHA-insured loans aggregating $ 8,264,000, which exceeded the construction cost of the two additional projects by $ 467,672. One of the additional projects was completed on or about November 4, 1952, final approval of the FHA loan guarantee being made on November 19, 1952. The other was completed on or about January 23, 1953, with similar loan guarantee approval on January 28, 1953. Pursuant to resolutions adopted on August 31, 1953, a portion of the class B common stock of each corporation was redeemed at par, the petitioners and Edith H. Weaver receiving an aggregate amount of $ 197,044.

We think it is quite1959 U.S. Tax Ct. LEXIS 194">*240 significant that although both Bryan and McNairy testified, neither of them testified as to their intentions with respect to these projects. Neither of them denied that the purpose was to redeem the class B common stock shortly after completion of the projects. On brief the petitioners make a point of the fact that they continued to have an investment in the corporations through ownership of the class A common stock. This, however, does not affect the result. A view to the redemption of the class B stock is sufficient to require classification of the corporations as collapsible. Glickman v. Commissioner, 256 F.2d 108 (C.A. 2), affirming a Memorandum Opinion of this Court. And this need not be the sole or even the principal "view." It is well established that the word "principally" as used in section 117(m) does not modify the words "with a view to." Burge v. Commissioner, 253 F.2d 765 (C.A. 4), affirming 28 T.C. 246">28 T.C. 246, and Weil v. Commissioner, 252 F.2d 805 (C.A. 2), affirming 28 T.C. 809">28 T.C. 809.

The petitioners, in support 1959 U.S. Tax Ct. LEXIS 194">*241 of their argument that the instant corporations were not collapsible corporations, point out that here the military authorities owned the land, that the mortgages were insured under Title VIII of the National Housing Act, known as the Wherry Act, and that under the leasing arrangement the housing units could not be disposed of but had to be held for rental in accordance with the terms of the lease. They state that in the Burge case, supra, and certain other decided cases it was the taxpayer who owned the land, that the mortgages were insured under section 608 of the National Housing Act and that the taxpayers could later sell the properties constructed. But whether or not the corporation sells, or is permitted to sell, the property, is not determinative of the question of whether a corporation should be classified as "collapsible." The statute does not limit itself to cases in which the corporate property is sold or the corporation is collapsed. As pointed out by the Court of Appeals in Burge v. Commissioner, supra, the statute was drawn in broad, general terms to reach the abuse which had arisen, whatever form it might take, and was not1959 U.S. Tax Ct. LEXIS 194">*242 limited to cases involving the use of temporary corporations. The statute itself contemplates that a corporation may be "collapsible" even though it continues in existence 32 T.C. 104">*127 and retains the property. It speaks of both distributions to the shareholders and to sales or exchanges of stock by the shareholders whether in liquidation or otherwise.

The net income which would normally be anticipated in the instant situation would consist of rental income over the life of the property or of the lease. The lease in the instant case was for a term of 75 years and even though it might not be anticipated that income would be derived from the properties over that length of time, nevertheless it seems apparent that at the times of the redemptions herein (which in no instance was later than a year and a half from the times of first receipts of rents) the corporations would not have realized substantial parts of the total net income to be derived from the properties over their useful lives. See 30 T.C. 1044">Leland D. Payne, supra.In any event the petitioners have not shown that the corporations at such times had realized substantial parts of the total net income to be1959 U.S. Tax Ct. LEXIS 194">*243 derived from the properties.

The petitioners contend that even though the corporations are collapsible corporations within the meaning of section 117(m), that section does not apply here because of the limitation contained in section 117(m)(3)(B) which provides that "this subsection shall not apply to the gain recognized during the taxable year unless more than 70 per centum of such gain is attributable to the property so * * * constructed." It is apparently their contention that if the redemptions were made out of rental income the gain derived by the stockholders is not attributable to the properties constructed. With this we disagree. Since the properties constructed were for rental purposes, obviously the income to be derived from the properties would consist of rentals. In any event, although it appears that large amounts of rental had been received prior to the redemptions, the petitioners have not shown the precise amount of funds from rental available at the times of distributions. Nor have they shown that the redemptions were not made out of the excess of the loans obtained over the construction costs. Such excess was adequate to cover all the distributions. It is now1959 U.S. Tax Ct. LEXIS 194">*244 well settled that distributions made out of the proceeds of construction loans are attributable to the property constructed. Burge v. Commissioner, supra;Glickman v. Commissioner, supra;Elizabeth M. August, 30 T.C. 969">30 T.C. 969, on appeal (C.A. 3); 30 T.C. 1044">Leland D. Payne, supra; and 30 T.C. 1155">Rose Sidney, supra.But we consider it immaterial whether the distributions in redemption of the stock were paid out of the mortgage loans or whether they were made out of rentals received by the corporations. In either event the gain derived by the shareholders was attributable entirely to the property constructed. It should be added that none of the distributions could be considered 32 T.C. 104">*128 as having been paid out of the capital paid in by Weaver Construction Co., or T. A. Loving & Co., for class B common stock, since that stock was both issued and redeemed at par between the dates of the distributions to the individuals in 1951 and 1953.

In view of the foregoing we hold that the gain derived by each of the petitioners upon the redemption of his stock in Investment1959 U.S. Tax Ct. LEXIS 194">*245 and Development is to be treated as gain from the sale or exchange of property which is not a capital asset, pursuant to section 117(m). At the hearing the respondent conceded that the amounts taxable should be reduced by the cost basis of the stock to the petitioners, and he has apparently abandoned any reliance upon section 22(a). Upon the recomputation under Rule 50, the gain upon the redemptions will be computed by taking into consideration the bases used by the petitioners.

"Salaries" Paid by Fayetteville Building Company.

Each of the petitioners, Bryan and McNairy, received from the partnership, Fayetteville Building Company, in 1952 an amount of $ 24,837.49 as "salary." Each included in his return only $ 1,898.98. Each had contributed only $ 500 to the capital of the partnership.

The respondent included in taxable income of each of these petitioners the full amount paid to him by the partnership. But each of them, relying on Augustine M. Lloyd, 15 B.T.A. 82">15 B.T.A. 82, contends that since his partnership capital account was charged $ 22,438.51, he is taxable upon only $ 1,898.98.

This identical problem was presented in Joe W. Stout, 31 T.C. 1199">31 T.C. 1199.1959 U.S. Tax Ct. LEXIS 194">*246 We there took the position that a similar payment made to the taxpayer constituted income under the broad provisions of section 22(a) of the Internal Revenue Code of 1939, except to the extent any portion thereof was paid out of the taxpayer's own capital contribution to the partnership. We also held that the taxpayer was entitled to a deduction of the amount of his capital contribution which was used to pay "salaries" to other partners and that the deduction could in no event be greater than the amount of the capital actually contributed. We discussed the matter in considerable detail in that case and there is no necessity for a repetition. Suffice it to say that the holding is the same in the instant case.

The respondent treated the salaries paid as capital expenditures of the partnership, resulting in the allowance of additional depreciation. The parties have stipulated that proper adjustment of the partnership's depreciation deduction may be made under Rule 50 in the light of our holding.

32 T.C. 104">*129 Deductibility of Taxes by Fayetteville Building Company.

In the computation of the net income of the partnership Fayetteville Building Company, the respondent disallowed for1959 U.S. Tax Ct. LEXIS 194">*247 each of the fiscal years ended October 31, 1952 and 1953, claimed deductions for taxes paid in connection with the construction of two housing projects, these being Federal social security taxes, Federal unemployment taxes, and North Carolina sales, use, and unemployment taxes. His stated reason was that the amounts paid constituted capital expenditures in connection with construction, and therefore were not deductible as taxes in computing net income. He did allow the deduction of the relatively small portion of Federal social security and unemployment taxes and State unemployment taxes which did not relate to the construction of buildings.

This issue was also presented in 31 T.C. 1199">Joe W. Stout, supra, and the problem was thoroughly discussed in our Opinion in that case. Following our holding there, we hold that the respondent erred in disallowing the claimed deductions on account of the Federal social security and the Federal unemployment taxes. Those taxes are deductible under section 23(a)(1)(A) of the Internal Revenue Code of 1939, section 29.24-5 of Regulations 111, and section 39.24(a)(6) of Regulations 118.

The North Carolina unemployment taxes and1959 U.S. Tax Ct. LEXIS 194">*248 the North Carolina use taxes are deductible under section 23(c)(1) of the 1939 Code.

Here, as in the Stout case, the record does not disclose the particular provision of the North Carolina statutes under which the sales taxes here involved were imposed, and we assume, as we did in the Stout case, that they are the ordinary retail sales taxes imposed by section 105-168 of the General Statutes of North Carolina. In any event, the petitioners, upon whom rests the burden of proof, have not shown that any part of these taxes was imposed directly upon the partnership by section 105-187 of the General Statutes of North Carolina, or any other provision of North Carolina law. Accordingly, we hold, as we did in the Stout case, that the petitioners have not shown that they are entitled to deduct, as such, the sales taxes in question under section 23(c) of the Internal Revenue Code of 1939. Nor are they deductible under section 23(a)(1)(A) of the Code as ordinary and necessary business expenses. Rather, they are to be capitalized as part of the cost of the articles purchased or of the buildings of which they became integral parts. Sec. 24(a)(2), I.R.C. 1939.

To the extent the1959 U.S. Tax Ct. LEXIS 194">*249 respondent erroneously treated taxes as capital expenditures and allowed a greater depreciation allowance than is proper adjustment will be made, pursuant to the stipulation of the parties, in the recomputations under Rule 50.

32 T.C. 104">*130 Deductibility of Taxes by Onslow Building Company.

The respondent in determining the net income of the partnership Onslow Building Company for the fiscal year ended October 31, 1952, disallowed claimed deductions on account of various taxes.

Here also we hold, following our decision in 31 T.C. 1199">Joe W. Stout, supra, that the Federal social security and the Federal unemployment taxes paid by the partnership are deductible under section 23(a)(1)(A) of the Internal Revenue Code of 1939, section 29.24-5 of Regulations 111, and section 39.24(a)(6) of Regulations 118.

The North Carolina unemployment tax paid by the partnership for its fiscal year ended October 31, 1952, is deductible under section 23(c)(1) of the Code. 31 T.C. 1199">Joe W. Stout, supra.

The partnership also paid an amount of $ 2,282.35 in its fiscal year ended October 31, 1953, which is denominated in the stipulation "Payroll Taxes." While there1959 U.S. Tax Ct. LEXIS 194">*250 is no detailed evidence as to what this item constitutes, it appears obvious that it is some combination of Federal social security and unemployment taxes and North Carolina unemployment taxes since none of these are listed by name for the fiscal year ended October 31, 1953. Since all of these taxes are deductible, as held in 31 T.C. 1199">Joe W. Stout, supra, we hold that the respondent erred in disallowing this claimed item.

With regard to the North Carolina sales taxes claimed by the partnership for each of its fiscal years ended October 31, 1952 and 1953, the petitioners have not shown the precise nature thereof, and we think it must be assumed that they are the ordinary retail sales taxes imposed by section 105-168 of the General Statutes of North Carolina. In any event, here again the petitioners have not shown that any part of these taxes was imposed directly upon the partnership. We hold, as we did in 31 T.C. 1199">Joe W. Stout, supra, that these are not deductible as taxes pursuant to any provision of section 23(c), since they were quite apparently paid in connection with the partnership's trade or business. Furthermore, they do not constitute1959 U.S. Tax Ct. LEXIS 194">*251 deductible business expenses, but are to be treated as part of the cost of the articles purchased or of the buildings of which they became integral parts. Sec. 24(a)(2).

Here again the respondent determined that the partnership was entitled to an additional depreciation deduction on account of taxes capitalized. The recomputation under Rule 50 will include a computation of the proper amount of depreciation in the light of our holdings herein.

Bryan Loan.

In their petition the Bryans for the first time make claim for a deduction from gross income of 1951 of an amount of $ 16,000 as a worthless debt owing to Ruby M. Bryan from G. B. Bagley. There is no 32 T.C. 104">*131 controversy between the parties as to the fact that there was such an amount owing. However, the respondent contends that the petitioners have not shown that the note became worthless in 1951 and that hence the petitioners are not entitled to the deduction.

We agree with the respondent. The note is not in evidence and we do not know the precise terms thereof. The petitioner Bryan testified that he did not know the terms thereof but thought it was a demand note. He also testified that at the time the note was received1959 U.S. Tax Ct. LEXIS 194">*252 there was expectation of repayment. This was in September 1951, yet there is no evidence to show that there was any change in the debtor's financial condition between that time and the end of the taxable year. Bryan testified that he asked the debtor several times to repay it, but that he said he could not repay. Bryan also testified that he knew there were some other debts which Bagley owed and that it was his opinion that he could not have collected anything if he had gotten a judgment. It was Bryan's opinion that Bagley was not worth anything if he had paid his bills. He stated that he based this opinion upon information obtained by talking with the debtor and the bank and learning what the debtor owed. However, he further testified that he did not know how much equity Bagley had in the beer distributing business as of the end of 1951. The debtor was not called as a witness, and there was no detailed showing as to his financial conditions.

On the basis of the record here we think the petitioners have fallen far short of meeting their burden of showing that the debt became worthless during the year 1951. Accordingly there is no basis for allowing the claimed deduction.

1959 U.S. Tax Ct. LEXIS 194">*253 Commission to McNairy From Loving-Weaver.

The petitioner McNairy testified that he did not receive any commissions from the joint venture Loving-Weaver in the year 1951. We have no reason to doubt his truthfulness, and we have found that he did not actually receive any commissions from this source in 1951. However, this is not dispositive of the issue. The respondent in the notice of deficiency determined that in 1951 the petitioner was taxable on an amount of $ 12,234.18 under sections 22(a) and 41 of the Internal Revenue Code of 1939. ⁴ At the hearing counsel for the respondent in his opening statement made it clear that the respondent's position was that McNairy was on an accrual basis and that this amount accrued to 32 T.C. 104">*132 him in 1951, even though it may not have been actually received in that year. At that time counsel for respondent conceded that if the amount of $ 12,234.18 was a part of the amount of $ 22,940.35 which McNairy had received in 1950 and included in his return for that year, then the respondent's determination was erroneous. However, the petitioner has not so shown.

1959 U.S. Tax Ct. LEXIS 194">*254 The issue here is whether the petitioners have sustained their burden of showing either that McNairy was not on an accrual basis or if so that no such amount accrued in that year. There is no evidence as to the latter. However, McNairy did testify with respect to his manner of reporting income. He stated that for income tax purposes he reported salaries or commissions when he received them and that he claimed deductions for expenditures for the years in which he paid them, except for the North Carolina State income tax. It was his custom to deduct that tax from income of the year to which it related and not from income of the year in which it was paid. He stated that he thought he was on a cash basis. He did not profess to have a technical knowledge as to methods of accounting; rather the record indicates that he relied upon an accountant who prepared his returns.

The nature of McNairy's business was such that either an accrual method or the cash receipts and disbursements method would properly reflect his income. It may well be that he had elected to employ an accrual method, as contended by the respondent. While, as stated, we do not doubt McNairy's truthfulness, we do not1959 U.S. Tax Ct. LEXIS 194">*255 think his testimony is sufficient here to answer the question before us, namely, whether legally he had maintained an accrual system of bookkeeping and reporting. If he had indeed been upon a cash basis, it would have been a simple matter for his accountant to have so testified. Such accountant testified as to other matters, but was asked no questions whatever upon this subject. Under the circumstances, we feel constrained to hold that the petitioner has not met his burden and overcome the presumption in favor of the respondent's determination. In reaching this conclusion, we have ignored certain references by counsel for the respondent on brief to material which, as pointed out by petitioners' counsel, is not in this record.

Additions to Tax Under Section 294 (d).

The respondent determined additions to tax against both the Bryans and the McNairys for the years 1951 to 1953, inclusive, pursuant to section 294(d)(1)(A) of the Internal Revenue Code of 1939⁵ for 32 T.C. 104">*133 failure to timely file declarations of estimated tax. For the years 1951 and 1952 the Bryans filed their declarations after the close of those years. For the year 1953 the declaration was filed in December1959 U.S. Tax Ct. LEXIS 194">*256 of that year. The McNairys filed their declaration for 1951 after the close of the year, they failed to file a declaration for 1952, and for 1953 their declaration was filed in December of that year.

There seems to be no question between the parties that each of the petitioners was legally required by section1959 U.S. Tax Ct. LEXIS 194">*257 58 of the Internal Revenue Code of 1939 to file declarations of estimated tax on or before March 15 of each year. The income which they had in each prior year would seem to clearly indicate the necessity for filing. In any event, the petitioners have not shown that the facts known or reasonably to be anticipated were such as to bring them without the provisions of section 58.

Bryan and McNairy in their testimony assigned, as their reason for failure to timely file, their reliance upon an accountant who for several years had handled their tax matters and prepared their returns.

The requirement for filing declarations of estimated tax and paying the estimated tax currently had been in the law since 1943 and the requirement was common knowledge. These petitioners are intelligent men and businessmen of wide experience. Even if they were unaware of the requirements of the law their ignorance would not amount to reasonable cause under the statute. Andre Picard, 28 T.C. 955">28 T.C. 955. It is our opinion that with regard to their duty to timely file declarations of estimated tax, they may not shift the burden to an accountant and claim that their failure was due to1959 U.S. Tax Ct. LEXIS 194">*258 reasonable cause merely because the accountant did not timely prepare declarations and advise them to file them.

It is true that under some circumstances it has been held that reliance by a taxpayer upon professional advice may constitute reasonable cause for failure to comply with the law. Reliance Factoring Corp., 15 T.C. 604">15 T.C. 604. However, in such cases the matter involved was complicated and unusual, justifying such reliance. Even if it were considered that under some circumstances reliance upon an accountant as to the time for filing declarations would be justified, it seems obvious that the reliance would be justified only upon the receipt of definite advice after a reasonable consideration of the matter by the accountant. Here it appears that the petitioners neither asked for definite advice nor did the accountant specifically advise with regard to the required date of filing. It appears that there was no discussion at all between the petitioners and their accountant 32 T.C. 104">*134 in this respect. Rather, it appears that they were willing to leave this matter entirely to him. He in turn, admittedly without any analysis of the law, assumed that the1959 U.S. Tax Ct. LEXIS 194">*259 filing of a declaration on or before January 15 of the succeeding year would meet the requirements of the law. In addition he apparently believed that in any event the probability was that no additions to tax would be asserted for the years in question for the reason that the respondent had asserted none against the petitioners in certain prior years. On brief it is also argued that it was common knowledge that prior to 1950 the respondent had at least tacitly approved a relaxed policy in the enforcement of these provisions and that the taxpayers were lulled into a false sense of security. The record here does not establish such a relaxed policy. In any event, we think that the respondent's failure to determine additions to tax against these petitioners, or generally, would not provide reasonable cause for failure to file declarations for the years in question. The accountant testified that he subscribed to certain well-known tax services but was not aware of the admonitions contained therein with regard to the filing of declarations. The evidence here shows that such tax services did in 1950 publicize a press release by the Treasury Department calling attention to the requirements1959 U.S. Tax Ct. LEXIS 194">*260 of the law and to the additions to tax for failure to comply.

Under the circumstances, we think the failures to file were not due to reasonable cause within the meaning of section 294(d)(1)(A) of the Internal Revenue Code of 1939. Rather, we think they were due to willful neglect, and consequently we hold that the petitioners are liable for the additions to tax as provided in section 294 (d)(1)(A). See Coates v. Commissioner, 234 F.2d 459 (C.A. 8), affirming a Memorandum Opinion of this Court, and A. E. Hickman, 29 T.C. 864">29 T.C. 864.

The respondent also determined an addition to tax against the Bryans for the year 1952 under section 294(d)(2) of the Internal Revenue Code of 1939⁶1959 U.S. Tax Ct. LEXIS 194">*261 for substantial underestimate of estimated tax. Reasonable cause is not involved in this issue. No declaration of estimated tax having been filed for 1952, it is considered that the 32 T.C. 104">*135 estimate for that year was zero, and hence there has been an underestimate of estimated tax within the meaning of the statute. ⁷ The proper addition to tax under section 294(d)(2) will be computed in the recomputation under Rule 50.

Decisions will be entered under Rule 50.